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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended November 29, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File No. 1-33752

MERIX CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 93-1135197                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                       |  |           
|------------------------------------------------------ |  | ----------
|15725 SW Greystone Court, Suite 200, Beaverton, Oregon |  | 97006     
|(Address of principal executive offices)               |  | (Zip Code)

Registrants telephone number, including area code: 503-716-3700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No    ̈

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.



|                            |  |                       |  |                                               |  |                              
|--------------------------- |  | --------------------- |  | --------------------------------------------- |  | -----------------------------
|Large accelerated filer    ̈ |  | Accelerated filer    ̈ |  | Non-accelerated filer    ̈                     |  | Smaller reporting company   x
|                            |  |                       |  | (Do not check if a smaller reporting
company) |  |                              

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    ̈     No   x

The number of shares of common stock outstanding as of January 5, 2009 was 21,237,189 shares.









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MERIX CORPORATION

INDEX TO FORM 10-Q



|                               |  |                                                                                                                                   |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                                   |  | Page
|PART I - FINANCIAL INFORMATION |  |                                                                                                                                  
|                               |  |                                                                                                                                  
|Item 1.                        |  | Consolidated Financial Statements (Unaudited)                                                                                     |  |     
|                               |  |                                                                                                                                  
|                               |  | Consolidated Balance Sheets  November 29, 2008 and May 31, 2008                                                                  |  | 2   
|                               |  |                                                                                                                                  
|                               |  | Consolidated Statements of Operations  for the three- and six-month fiscal periods ended November 29, 2008 and December
 1, 2007 |  | 3   
|                               |  |                                                                                                                                  
|                               |  | Consolidated Statements of Cash Flows  for the six-month fiscal periods ended November 29, 2008 and December 1, 2007             |  | 4   
|                               |  |                                                                                                                                  
|                               |  | Notes to Consolidated Financial Statements                                                                                        |  | 5   
|                               |  |                                                                                                                                  
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 15  
|                               |  |                                                                                                                                  
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                        |  | 27  
|                               |  |                                                                                                                                  
|Item 4.                        |  | Controls and Procedures                                                                                                           |  | 27  
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                  
|                               |  |                                                                                                                                  
|Item 1.                        |  | Legal Proceedings                                                                                                                 |  | 29  
|                               |  |                                                                                                                                  
|Item 1A.                       |  | Risk Factors                                                                                                                      |  | 29  
|                               |  |                                                                                                                                  
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                       |  | 45  
|                               |  |                                                                                                                                  
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                               |  | 45  
|                               |  |                                                                                                                                  
|Item 6.                        |  | Exhibits                                                                                                                          |  | 45  
|                               | 
|Signatures                     |  | 46                                                                                                                               



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MERIX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in
thousands)

(unaudited)



|                                                                                               |  |                  |          |   |             |   |          |  
|---------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ----------- | - | -------- | -
|                                                                                               |  | November 29,2008 |          |   | May 31,2008 |  
|Assets                                                                                         |  |                  |          |   |             |   |          |  
|Current assets:                                                                                |  |                  |          |   |             |   |          |  
|Cash and cash equivalents                                                                      |  | $                | 11,483   |   |             | $ | 5,728    |  
|Accounts receivable, net of allowances for doubtful accounts of $1,781 and $2,252              |  |                  | 65,682   |   |             |   | 73,153   |  
|Inventories, net                                                                               |  |                  | 22,409   |   |             |   | 23,631   |  
|Assets held for sale                                                                           |  |                  | 309      |   |             |   | 1,477    |  
|Deferred income taxes                                                                          |  |                  | 75       |   |             |   | 75       |  
|Prepaid and other current assets                                                               |  |                  | 11,254   |   |             |   | 12,961   |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total current assets                                                                           |  |                  | 111,212  |   |             |   | 117,025  |  
|Property, plant and equipment, net of accumulated depreciation of $133,836 and $121,253        |  |                  | 104,725  |   |             |   | 103,012  |  
|Goodwill                                                                                       |  |                  | 31,892   |   |             |   | 31,794   |  
|Definite-lived intangible assets, net of accumulated amortization of $9,383 and $8,342         |  |                  | 7,825    |   |             |   | 8,866    |  
|Deferred income taxes, net                                                                     |  |                  | 773      |   |             |   | 885      |  
|Assets held for sale                                                                           |  |                  | 1,146    |   |             |   |         |  
|Other assets                                                                                   |  |                  | 5,139    |   |             |   | 5,859    |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total assets                                                                                   |  | $                | 262,712  |   |             | $ | 267,441  |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Liabilities and Shareholders Equity                                                           |  |                  |          |   |             |   |          |  
|Current liabilities:                                                                           |  |                  |          |   |             |   |          |  
|Accounts payable                                                                               |  | $                | 55,476   |   |             | $ | 59,789   |  
|Accrued liabilities                                                                            |  |                  | 16,289   |   |             |   | 15,783   |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total current liabilities                                                                      |  |                  | 71,765   |   |             |   | 75,572   |  
|Long-term debt                                                                                 |  |                  | 76,983   |   |             |   | 70,000   |  
|Other long-term liabilities                                                                    |  |                  | 3,531    |   |             |   | 3,522    |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total liabilities                                                                              |  |                  | 152,279  |   |             |   | 149,094  |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Minority interest                                                                              |  |                  | 3,694    |   |             |   | 4,573    |  
|Commitments and Contingencies (Note 15)                                                        |  |                  |          |   |             |   |          |  
|Shareholders equity:                                                                          |  |                  |          |   |             |   |          |  
|Preferred stock, no par value; 10,000 shares authorized; none issued                           |  |                  |         |   |             |   |         |  
|Common stock, no par value; 50,000 shares authorized; 21,237 and 21,073 issued and outstanding |  |                  | 216,301  |   |             |   | 215,085  |  
|Accumulated deficit                                                                            |  |                  | (109,593 | ) |             |   | (101,358 | )
|Accumulated other comprehensive income                                                         |  |                  | 31       |   |             |   | 47       |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total shareholders equity                                                                     |  |                  | 106,739  |   |             |   | 113,774  |  
|                                                                                               |  |                  |          |   |             |   |          |  
|Total liabilities and shareholders equity                                                     |  | $                | 262,712  |   |             | $ | 267,441  |  
|                                                                                               |  |                  |          |   |             |   |          |  

See accompanying Notes to Consolidated Financial Statements.



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MERIX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|--------------------------------------------------------------- |  | -------------------- | ------ | - | ---------------- | - | ------ | ---------------- |  | - | --------------- | - |  | - | ------- | -
|                                                                |  | Fiscal quarter ended |        |   | Six months ended |  
|                                                                |  | November 29,2008     |        |   | December 1,2007  |   |        | November 29,2008 |  |   | December 1,2007 |  
|Net sales                                                       |  | $                    | 76,900 |   |                  | $ | 97,378 |                  |  | $ | 167,527         |   |  | $ | 196,808 |  
|Cost of sales                                                   |  |                      | 70,865 |   |                  |   | 87,855 |                  |  |   | 151,218         |   |  |   | 176,242 |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Gross profit                                                    |  |                      | 6,035  |   |                  |   | 9,523  |                  |  |   | 16,309          |   |  |   | 20,566  |  
|Operating expenses:                                             |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Engineering                                                     |  |                      | 697    |   |                  |   | 486    |                  |  |   | 1,260           |   |  |   | 950     |  
|Selling, general and administration                             |  |                      | 7,989  |   |                  |   | 10,628 |                  |  |   | 17,691          |   |  |   | 22,231  |  
|Amortization of intangible assets                               |  |                      | 520    |   |                  |   | 645    |                  |  |   | 1,040           |   |  |   | 1,258   |  
|Severance, asset impairment and restructuring charges (Note 17) |  |                      | 1,089  |   |                  |   | 980    |                  |  |   | 562             |   |  |   | 1,221   |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Total operating expenses                                        |  |                      | 10,295 |   |                  |   | 12,739 |                  |  |   | 20,553          |   |  |   | 25,660  |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Operating income (loss)                                         |  |                      | (4,260 | ) |                  |   | (3,216 | )                |  |   | (4,244          | ) |  |   | (5,094  | )
|Other income (expense):                                         |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Interest income                                                 |  |                      | 45     |   |                  |   | 275    |                  |  |   | 96              |   |  |   | 569     |  
|Interest expense                                                |  |                      | (984   | ) |                  |   | (1,076 | )                |  |   | (1,860          | ) |  |   | (2,172  | )
|Other income (expense), net                                     |  |                      | (90    | ) |                  |   | (244   | )                |  |   | (454            | ) |  |   | (567    | )
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Total other expense, net                                        |  |                      | (1,029 | ) |                  |   | (1,045 | )                |  |   | (2,218          | ) |  |   | (2,170  | )
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Loss before income taxes and minority interests                 |  |                      | (5,289 | ) |                  |   | (4,261 | )                |  |   | (6,462          | ) |  |   | (7,264  | )
|Provision for income taxes                                      |  |                      | 693    |   |                  |   | 546    |                  |  |   | 1,421           |   |  |   | 956     |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Loss before minority interests                                  |  |                      | (5,982 | ) |                  |   | (4,807 | )                |  |   | (7,883          | ) |  |   | (8,220  | )
|Minority interest in net income of consolidated subsidiaries    |  |                      | 106    |   |                  |   | 202    |                  |  |   | 352             |   |  |   | 438     |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Net loss                                                        |  | $                    | (6,088 | ) |                  | $ | (5,009 | )                |  | $ | (8,235          | ) |  | $ | (8,658  | )
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Basic and diluted loss per share                                |  | $                    | (0.29  | ) |                  | $ | (0.24  | )                |  | $ | (0.39           | ) |  | $ | (0.41   | )
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  
|Weighted average number of shares - basic and diluted           |  |                      | 20,945 |   |                  |   | 21,024 |                  |  |   | 20,867          |   |  |   | 20,964  |  
|                                                                |  |                      |        |   |                  |   |        |                  |  |   |                 |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.



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MERIX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                            |  |                  |         |   |                 |   |         |  
|--------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------------- | - | ------- | -
|                                                                            |  | Six months ended |        
|                                                                            |  | November 29,2008 |         |   | December 1,2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                  |         |   |                 |   |         |  
|Net loss                                                                    |  | $                | (8,235  | ) |                 | $ | (8,658  | )
|Adjustments to reconcile net loss to cash provided by operating activities: |  |                  |         |   |                 |   |         |  
|Depreciation and amortization                                               |  |                  | 11,125  |   |                 |   | 10,996  |  
|Contribution of common stock to defined contribution plan                   |  |                  |        |   |                 |   | 762     |  
|Share-based compensation expense                                            |  |                  | 973     |   |                 |   | 1,298   |  
|Minority interest in net income of consolidated subsidiaries                |  |                  | 352     |   |                 |   | 438     |  
|(Gain) loss on disposition of assets                                        |  |                  | (628    | ) |                 |   | 59      |  
|Asset impairment charges                                                    |  |                  | 702     |   |                 |   | 112     |  
|Deferred income taxes                                                       |  |                  | 13      |   |                 |   |        |  
|Changes in operating accounts:                                              |  |                  |         |   |                 |   |         |  
|(Increase) decrease in accounts receivable, net                             |  |                  | 7,471   |   |                 |   | (342    | )
|(Increase) decrease in inventories, net                                     |  |                  | 1,222   |   |                 |   | (1,352  | )
|(Increase) decrease in other assets                                         |  |                  | 1,724   |   |                 |   | (4,184  | )
|Increase (decrease) in accounts payable                                     |  |                  | (1,498  | ) |                 |   | 7,342   |  
|Increase (decrease) in other accrued liabilities                            |  |                  | (1,652  | ) |                 |   | (365    | )
|Increase (decrease) in amounts due to affiliate, net                        |  |                  | 1,519   |   |                 |   | (1,873  | )
|                                                                            |  |                  |         |   |                 |   |         |  
|Net cash provided by operating activities                                   |  |                  | 13,088  |   |                 |   | 4,233   |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                  |         |   |                 |   |         |  
|Purchases of property, plant and equipment                                  |  |                  | (14,844 | ) |                 |   | (12,070 | )
|Proceeds from disposal of property, plant and equipment                     |  |                  | 599     |   |                 |   | 23      |  
|Purchases of investments                                                    |  |                  |        |   |                 |   | (12,775 | )
|Proceeds from sales and maturity of securities                              |  |                  |        |   |                 |   | 21,800  |  
|                                                                            |  |                  |         |   |                 |   |         |  
|Net cash used in investing activities                                       |  |                  | (14,245 | ) |                 |   | (3,022  | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                  |         |   |                 |   |         |  
|Borrowing on revolving line of credit                                       |  |                  | 28,983  |   |                 |   |        |  
|Principal payments on revolving line of credit                              |  |                  | (22,000 | ) |                 |   |        |  
|Payments on capital lease obligations                                       |  |                  |        |   |                 |   | (438    | )
|Proceeds from exercise of stock options and stock plan transactions         |  |                  | 263     |   |                 |   | 1       |  
|Reacquisition of common stock                                               |  |                  | (18     | ) |                 |   | (78     | )
|Distribution to minority shareholder                                        |  |                  | (296    | ) |                 |   | (1,142  | )
|Other financing activities                                                  |  |                  | (20     | ) |                 |   | (63     | )
|                                                                            |  |                  |         |   |                 |   |         |  
|Net cash provided by (used in) financing activities                         |  |                  | 6,912   |   |                 |   | (1,720  | )
|                                                                            |  |                  |         |   |                 |   |         |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                     |  |                  | 5,755   |   |                 |   | (509    | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            |  |                  | 5,728   |   |                 |   | 17,175  |  
|                                                                            |  |                  |         |   |                 |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  |  | $                | 11,483  |   |                 | $ | 16,666  |  
|                                                                            |  |                  |         |   |                 |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                          |  |                  |         |   |                 |   |         |  
|Cash paid for income taxes, net                                             |  | $                | 1,664   |   |                 | $ | 623     |  
|Cash paid for interest                                                      |  |                  | 976     |   |                 |   | 1,886   |  

See accompanying Notes to Consolidated Financial Statements.



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MERIX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF BUSINESS

Merix Corporation, an Oregon corporation, was formed in March 1994. Merix is a leading global manufacturing service provider for technologically advanced printed circuit boards (PCBs) for original equipment manufacturer (OEM) customers and
their electronic manufacturing service (EMS) providers. The Companys principal products are complex multi-layer rigid PCBs, which are the platforms used to interconnect microprocessors, integrated circuits and other components that are
essential to the operation of electronic products and systems. The market segments the Company serves are primarily in commercial equipment for the communications and networking, computing and peripherals, industrial and medical, defense and
aerospace, and automotive markets. The Companys markets are generally characterized by rapid technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually
being developed.

NOTE 2. BASIS OF PRESENTATION

The
accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the Annual Report on Form 10-K prepared
in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules or regulations. The interim consolidated financial statements are unaudited, however, they reflect all normal recurring adjustments
and non-recurring adjustments that are, in the opinion of management, necessary for a fair presentation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto
included in our 2008 Annual Report on Form 10-K. Results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The Companys fiscal year consists of a 52 or 53 week period that ends on the last Saturday in May. Fiscal 2009 is a 52 week fiscal year ending on May 30, 2009. The first quarter of fiscal 2008 ended
September 1, 2007 and included 14 weeks. Accordingly, the year-to-date period ended November 29, 2008 included 26 weeks and the year-to-date period ended December 1, 2007 included 27 weeks.

NOTE 3. BASIS OF CONSOLIDATION

The consolidated financial statements
include the accounts of Merix Corporation and its wholly-owned and majority-owned subsidiaries. Except for activity related to Merix Asia, for which certain intercompany amounts cannot be eliminated as discussed below, all intercompany accounts,
transactions and profits have been eliminated in consolidation.

The functional currency for all subsidiaries is the U.S. dollar. Foreign exchange losses
for the fiscal quarters ended November 29, 2008 and December 1, 2007 totaled $0.1 million and $0.3 million, respectively, and are included in net other expense in the consolidated statements of operations. Foreign exchange losses for the
fiscal year-to-date periods ended November 29, 2008 and December 1, 2007 totaled $0.4 million and $0.6 million, respectively.

Prior to
implementation of the Companys enterprise resource planning (ERP) system during August 2008, Merix Asias financial reporting systems were predominantly manual in nature. Accordingly, significant time has been required to process and
review the transactions in order to assure the financial information is properly stated. Additionally, Merix Asia performs a complex financial consolidation of its subsidiaries prior to the Companys final consolidation. The time required to
complete Merix Asias consolidation, record inter-company transactions and properly report any adjustments, intervening and/or subsequent events has required the use of a one-month lag in consolidating the financial statements for Merix Asia
with Merix Corporation. The new ERP system allows for the streamlining of business processes and may eventually eliminate the need for the one-month reporting lag for Merix Asia. Intercompany transactions which occurred



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during these periods have been eliminated in consolidation. Intercompany balances resulting from transactions with Merix Asia during the one-month lag period
have been netted and included on the consolidated balance sheets. The net intercompany payable totaled $1.3 million as of November 29, 2008 and was included as a component of accrued liabilities. The net intercompany receivable at May 31,
2008, which was included as a component of other current assets, totaled $0.2 million. Due to the one-month reporting lag, Merix Asia borrowings of $1.0 million on the revolving line of credit during November 2008 are not reflected on the
consolidated balance sheet as of November 29, 2008.

NOTE 4. RECLASSIFICATIONS

Certain immaterial reclassifications were made to the prior period financial statements to conform to the current period presentation, including a reclassification of certain engineering costs which are directly
related to the production of goods for sale which are included in cost of sales in the consolidated statements of operations. These costs were previously included as a component of operating expenses. The impact of the reclassification on inventory
balances is not material. The results of operations for the second quarter of fiscal 2008 and the six-month fiscal period ended December 1, 2007 has been revised as shown below:



|                                                 |  |                              |        |   |                             |   |        |                              |  |   |                             |   |  |   |         |  
|------------------------------------------------ |  | ---------------------------- | ------ | - | --------------------------- | - | ------ | ---------------------------- |  | - | --------------------------- | - |  | - | ------- | -
|                                                 |  | Fiscal Quarter Ended         |        |   | Six Months Ended            |  
|                                                 |  | December 1,2007(as reported) |        |   | December 1,2007(as revised) |   |        | December 1,2007(as reported) |  |   | December 1,2007(as revised) |  
|Net Sales                                        |  | $                            | 97,378 |   |                             | $ | 97,378 |                              |  | $ | 196,808                     |   |  | $ | 196,808 |  
|Cost of Sales                                    |  |                              | 86,128 |   |                             |   | 87,855 |                              |  |   | 172,606                     |   |  |   | 176,242 |  
|                                                 |  |                              |        |   |                             |   |        |                              |  |   |                             |   |  |   |         |  
|Gross Profit                                     |  |                              | 11,250 |   |                             |   | 9,523  |                              |  |   | 24,202                      |   |  |   | 20,566  |  
|Gross margin                                     |  |                              | 11.6   | % |                             |   | 9.8    | %                            |  |   | 12.3                        | % |  |   | 10.4    | %
|Engineering expense                              |  |                              | 2,213  |   |                             |   | 486    |                              |  |   | 4,586                       |   |  |   | 950     |  
|Other operating expenses                         |  |                              | 12,253 |   |                             |   | 12,253 |                              |  |   | 24,685                      |   |  |   | 24,710  |  
|                                                 |  |                              |        |   |                             |   |        |                              |  |   |                             |   |  |   |         |  
|Loss from operations                             |  |                              | (3,216 | ) |                             |   | (3,216 | )                            |  |   | (5,069                      | ) |  |   | (5,094  | )
|Other expense, net                               |  |                              | (1,045 | ) |                             |   | (1,045 | )                            |  |   | (2,195                      | ) |  |   | (2,170  | )
|Minority interest and provision for income taxes |  |                              | 748    |   |                             |   | 748    |                              |  |   | 1,394                       |   |  |   | 1,394   |  
|                                                 |  |                              |        |   |                             |   |        |                              |  |   |                             |   |  |   |         |  
|Net loss                                         |  | $                            | (5,009 | ) |                             | $ | (5,009 | )                            |  | $ | (8,658                      | ) |  | $ | (8,658  | )
|                                                 |  |                              |        |   |                             |   |        |                              |  |   |                             |   |  |   |         |  

In the second quarter of fiscal 2009, the Company evaluated the intercompany transactions with its Asia subsidiary
which, due to the one month reporting lag described in Note 3, result in an intercompany balance being presented on the consolidated balance sheets. Based on the nature of the intercompany transactions , it was determined that the activity should be
included in cash flows from operations on the Companys consolidated statement of cash flows. This amount has been reclassified from cash flows from financing activities in the presentation of cash flows for the six month period ended
December 1, 2007.

NOTE 5. INVENTORIES

Inventories are valued at the lower of cost or market and include materials, labor and manufacturing overhead. Inventories are valued at (i) the actual cost to purchase or manufacture the inventory including materials, labor and
manufacturing overhead (on a first-in, first-out basis) or (ii) the current estimated market value of the inventory. A standard cost system is used to estimate the actual costs of inventory. Standard costs are regularly compared to actual costs
and the estimated market value of inventory.

The Company includes a provision for inventories to adjust excess inventories to their estimated net
realizable values, as necessary. A change in customer demand for inventory is the primary indicator for reductions in inventory carrying values. The Company records provisions for excess inventories based on historical experiences with customers,
the ability to utilize inventory in other programs, the ability to redistribute inventory back to the suppliers and current and forecasted demand for the inventory. The increase (decrease) to inventory valuation reserves was $0.6 million and ($0.7
million), respectively, during the second quarters of fiscal 2009 and 2008, and ($0.1 million) and ($0.3 million), respectively, during the fiscal year-to-date periods ended November 29, 2008 and December 1, 2007. As of November 29,
2008 and May 31, 2008, our inventory reserves totaled $3.6 million and $3.7 million, respectively.



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The Company maintains inventories on a consignment basis in the United States and in Asia. Consignment inventory is
recorded as inventory until the product is pulled from the consignment inventories by the customer and all risks and rewards of ownership of the consignment inventory have been transferred to the customer.

Inventories, net of related reserves, consisted of the following (in thousands):



|                           |  |                  |        |             |   |       
|-------------------------- |  | ---------------- | ------ | ----------- | - | ------
|                           |  | November 29,2008 |        | May 31,2008
|Raw materials              |  | $                | 4,012  |             | $ | 4,876 
|Work-in-process            |  |                  | 6,098  |             |   | 7,542 
|Finished goods             |  |                  | 7,830  |             |   | 3,901 
|Consignment finished goods |  |                  | 4,469  |             |   | 7,312 
|                           |  |                  |        |             |   |       
|Total inventories          |  | $                | 22,409 |             | $ | 23,631
|                           |  |                  |        |             |   |       

NOTE 6. PREPAID AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following at November 29, 2008 and May 31, 2008 (in thousands):



|                                 |  |                  |        |             |   |       
|-------------------------------- |  | ---------------- | ------ | ----------- | - | ------
|                                 |  | November 29,2008 |        | May 31,2008
|Prepaid expenses                 |  | $                | 2,290  |             | $ | 1,778 
|Income taxes receivable          |  |                  | 450    |             |   | 318   
|Value-added tax receivable       |  |                  | 6,126  |             |   | 7,176 
|Intercompany receivable (Note 3) |  |                  |       |             |   | 227   
|Other assets                     |  |                  | 2,388  |             |   | 3,462 
|                                 |  |                  |        |             |   |       
|                                 |  | $                | 11,254 |             | $ | 12,961
|                                 |  |                  |        |             |   |       

NOTE 7. DEFINITE-LIVED INTANGIBLE ASSETS

At November 29, 2008 and May 31, 2008, the Companys definite-lived intangible assets included customer relationships and a manufacturing sales representative network. The gross amount of the
Companys definite-lived intangible assets and the related accumulated amortization were as follows (in thousands):



|                                            |  |                    |  |                  |        |   |             |   |        |  
|------------------------------------------- |  | ------------------ |  | ---------------- | ------ | - | ----------- | - | ------ | -
|                                            |  | AmortizationPeriod |  | November 29,2008 |        |   | May 31,2008 |  
|Customer relationships                      |  | 6.5-10 years       |  | $                | 17,168 |   |             | $ | 17,168 |  
|Manufacturing sales representatives network |  | 5.5 years          |  |                  | 40     |   |             |   | 40     |  
|                                            |  |                    |  |                  |        |   |             |   |        |  
|                                            |  |                    |  |                  | 17,208 |   |             |   | 17,208 |  
|Accumulated amortization                    |  |                    |  |                  | (9,383 | ) |             |   | (8,342 | )
|                                            |  |                    |  |                  |        |   |             |   |        |  
|                                            |  |                    |  | $                | 7,825  |   |             | $ | 8,866  |  
|                                            |  |                    |  |                  |        |   |             |   |        |  

Amortization expense was as follows (in thousands):



|                                            |  |                                 |       |                                |   |      
|------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | -----
|                                            |  | Six MonthsEndedNovember 29,2008 |       | Six MonthsEndedDecember 1,2007
|Customer relationships                      |  | $                               | 1,036 |                                | $ | 1,254
|Manufacturing sales representatives network |  |                                 | 4     |                                |   | 4    
|                                            |  |                                 |       |                                |   |      
|                                            |  | $                               | 1,041 |                                | $ | 1,258
|                                            |  |                                 |       |                                |   |      

Amortization is as follows over the next five fiscal years and thereafter (in thousands):



|                         |  |   |      
|------------------------ |  | - | -----
|Remainder of fiscal 2009 |  | $ | 941  
|2010                     |  |   | 1,765
|2011                     |  |   | 1,553
|2012                     |  |   | 1,120
|2013                     |  |   | 727  
|Thereafter               |  |   | 1,719
|                         |  |   |      
|                         |  | $ | 7,825
|                         |  |   |      



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NOTE 8. ASSETS HELD FOR SALE

Assets held for sale included the following (in thousands):



|                                                    |  |                  |       |   |             |   |        |  
|--------------------------------------------------- |  | ---------------- | ----- | - | ----------- | - | ------ | -
|                                                    |  | November 29,2008 |       |   | May 31,2008 |  
|Two parcels of land                                 |  | $                | 1,146 |   |             | $ | 1,146  |  
|Excess equipment                                    |  |                  | 309   |   |             |   | 331    |  
|                                                    |  |                  |       |   |             |   |        |  
|                                                    |  |                  | 1,455 |   |             |   | 1,477  |  
|Assets held for sale included in current assets     |  |                  | (309  | ) |             |   | (1,477 | )
|                                                    |  |                  |       |   |             |   |        |  
|Assets held for sale included in non-current assets |  | $                | 1,146 |   |             | $ |       |  
|                                                    |  |                  |       |   |             |   |        |  

In accordance with SFAS No. 144, these assets are recorded at the lower of their carrying amount or fair
value, less cost to sell and the excess equipment is no longer being depreciated.

During the second quarter of fiscal 2009, the Company determined that
land included in assets held for sale should be presented in non-current assets as a result of deteriorating general economic conditions. At May 31, 2008, these assets were classified as current assets.

In the second quarter of fiscal 2009, the Company implemented a plan to dispose of certain surplus plant assets to streamline the utilization of equipment in its Merix
Oregon factory and has recorded $0.7 million in impairment charges on the assets to be disposed. The estimated fair value of $0.3 million has been reclassified to assets held for sale at November 29, 2008.

In the six months ended November 29, 2008, the Company sold assets previously used in the Hong Kong facility valued at $0.3 million at May 31, 2008 and
recorded a gain on sale of $0.6 million.

During fiscal 2008, the Company ceased manufacturing operations at its Hong Kong facility. The net book values of
the building and related land use rights were reduced to $0 by an impairment charge recorded in fiscal 2007. These assets are classified as assets held for sale at November 29, 2008 and May 31, 2008.

NOTE 9. OTHER ASSETS

Other assets consisted of the following at
November 29, 2008 and May 31, 2008 (in thousands):



|                               |  |                  |       |             |   |      
|------------------------------ |  | ---------------- | ----- | ----------- | - | -----
|                               |  | November 29,2008 |       | May 31,2008
|Leasehold land use rights, net |  | $                | 1,213 |             | $ | 1,227
|Deferred financing costs, net  |  |                  | 3,414 |             |   | 3,842
|Other assets                   |  |                  | 512   |             |   | 790  
|                               |  |                  |       |             |   |      
|                               |  | $                | 5,139 |             | $ | 5,859
|                               |  |                  |       |             |   |      



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NOTE 10. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at November 29, 2008 and May 31, 2008 (in thousands):



|                                              |  |                  |        |             |   |       
|--------------------------------------------- |  | ---------------- | ------ | ----------- | - | ------
|                                              |  | November 29,2008 |        | May 31,2008
|Accrued compensation                          |  | $                | 6,620  |             | $ | 7,177 
|Accrued warranty (Note 11)                    |  |                  | 2,070  |             |   | 2,147 
|Income taxes payable                          |  |                  | 713    |             |   | 316   
|Intercompany payable (Note 3)                 |  |                  | 1,292  |             |   |      
|Asset retirement obligation  current portion |  |                  |       |             |   | 873   
|Other liabilities                             |  |                  | 5,594  |             |   | 5,270 
|                                              |  |                  |        |             |   |       
|                                              |  | $                | 16,289 |             | $ | 15,783
|                                              |  |                  |        |             |   |       

During the first quarter of fiscal 2009, the Company incurred $0.8 million in costs related to the restoration of
leased Wood Village facilities which were charged to the asset retirement obligation.

NOTE 11. ACCRUED WARRANTY

The Company generally warrants its products for a period of up to twelve months from the point of sale. However, in selected circumstances, Merix Asia grants longer
warranty periods to certain customers of up to three years. The Company records a liability for the estimated cost of the warranty upon transfer of ownership of the products to the customer. Using historical data, the Company estimates warranty
costs and records the provision for such charges as an element of cost of sales upon the recognition of the related revenue. The Company also accrues warranty liability for certain specifically-identified items that are not covered by its assessment
of historical experience.

Warranty activity was as follows (in thousands):



|                               |  |                                     |        |   |                                    |   |       |                                 |  |   |                                |   |  |   |        |  
|------------------------------ |  | ----------------------------------- | ------ | - | ---------------------------------- | - | ----- | ------------------------------- |  | - | ------------------------------ | - |  | - | ------ | -
|                               |  | Fiscal QuarterEndedNovember 29,2008 |        |   | Fiscal QuarterEndedDecember 1,2007 |   |       | Six MonthsEndedNovember 29,2008 |  |   | Six MonthsEndedDecember 1,2007 |  
|Balance, beginning of period   |  | $                                   | 2,320  |   |                                    | $ | 1,938 |                                 |  | $ | 2,147                          |   |  | $ | 2,129  |  
|Provision for warranty charges |  |                                     | 828    |   |                                    |   | 827   |                                 |  |   | 1,509                          |   |  |   | 1,972  |  
|Warranty charges incurred      |  |                                     | (1,079 | ) |                                    |   | (903  | )                               |  |   | (1,587                         | ) |  |   | (2,239 | )
|                               |  |                                     |        |   |                                    |   |       |                                 |  |   |                                |   |  |   |        |  
|Balance, end of period         |  | $                                   | 2,070  |   |                                    | $ | 1,862 |                                 |  | $ | 2,070                          |   |  | $ | 1,862  |  
|                               |  |                                     |        |   |                                    |   |       |                                 |  |   |                                |   |  |   |        |  

NOTE 12. COMPREHENSIVE INCOME (LOSS), EARNINGS PER SHARE AND SHARE ACTIVITY

Comprehensive income (loss) includes the change in our cumulative translation adjustment. The following table sets forth the calculation of comprehensive income (loss)
for the periods indicated (in thousands):



|                                            |  |                      |        |   |                  |   |        |               |  |   |              |   |  |   |        |  
|------------------------------------------- |  | -------------------- | ------ | - | ---------------- | - | ------ | ------------- |  | - | ------------ | - |  | - | ------ | -
|                                            |  | Fiscal Quarter Ended |        |   | Six Months Ended |  
|                                            |  | Nov. 29, 2008        |        |   | Dec. 1, 2007     |   |        | Nov. 29, 2008 |  |   | Dec. 1, 2007 |  
|Net income (loss)                           |  | $                    | (6,088 | ) |                  | $ | (5,009 | )             |  | $ | (8,235       | ) |  | $ | (8,658 | )
|Change in cumulative translation adjustment |  |                      | (14    | ) |                  |   | (79    | )             |  |   | (16          | ) |  |   | (63    | )
|                                            |  |                      |        |   |                  |   |        |               |  |   |              |   |  |   |        |  
|Total comprehensive income (loss)           |  | $                    | (6,102 | ) |                  | $ | (5,088 | )             |  | $ | (8,251       | ) |  | $ | (8,721 | )
|                                            |  |                      |        |   |                  |   |        |               |  |   |              |   |  |   |        |  



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Basic earnings per share (EPS) and diluted EPS are computed using the methods prescribed by SFAS No. 128,
Earnings per Share. The following potentially dilutive shares were excluded from the calculation of diluted EPS because their effect would have been antidilutive:



|                                                                                            |  |                                     |  |                                    |  |                                 |  |                               
|------------------------------------------------------------------------------------------- |  | ----------------------------------- |  | ---------------------------------- |  | ------------------------------- |  | ------------------------------
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  | Fiscal QuarterEndedNovember 29,2008 |  | Fiscal QuarterEndedDecember 1,2007 |  | Six MonthsEndedNovember 29,2008 |  | Six MonthsEndedDecember 1,2007
|Stock options                                                                               |  | 3,371                               |  | 2,755                              |  | 3,310                           |  | 2,478                         
|Restricted stock awards                                                                     |  | 293                                 |  |                                   |  | 293                             |  |                              
|Convertible notes                                                                           |  | 4,608                               |  | 4,608                              |  | 4,608                           |  | 4,608                         

During the first quarter of fiscal 2009, approximately 147,000 shares were issued related to share-based
compensation transactions, primarily due to the semi-annual share purchase under the employee stock purchase plan.

NOTE 13. SEGMENT INFORMATION

The Company has three reportable business segments defined by geographic location in accordance with SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information: (1) Merix Oregon, (2) Merix San Jose and (3) Merix Asia. Operating segments are defined as components of an enterprise for which separate financial information is available and regularly
reviewed by senior management. The Companys operating segments are evidence of the internal structure of its organization. Each segment operates in the same industry with production facilities that produce similar customized products for its
customers. The production facilities, sales management and chief decision-makers for all processes are managed by the same executive team. The Companys chief operating decision maker is its Chief Executive Officer. Segment disclosures are
presented to the gross profit level as this is the primary performance measure for which the segment managers are responsible. No other operating results information is provided to the chief operating decision-maker for review at the segment level.
The following tables reconcile certain financial information by segment.

Net sales by segment were as follows (in thousands):



|               |  |                      |        |                  |   |               |  |              |         |  |   |        
|-------------- |  | -------------------- | ------ | ---------------- | - | ------------- |  | ------------ | ------- |  | - | -------
|               |  | Fiscal Quarter Ended |        | Six Months Ended
|               |  | Nov. 29, 2008        |        | Dec. 1, 2007     |   | Nov. 29, 2008 |  | Dec. 1, 2007
|Merix Oregon   |  | $                    | 29,431 |                  | $ | 44,566        |  | $            | 66,674  |  | $ | 91,906 
|Merix San Jose |  |                      | 6,720  |                  |   | 8,329         |  |              | 14,394  |  |   | 17,165 
|Merix Asia     |  |                      | 40,749 |                  |   | 44,483        |  |              | 86,459  |  |   | 87,737 
|               |  |                      |        |                  |   |               |  |              |         |  |   |        
|               |  | $                    | 76,900 |                  | $ | 97,378        |  | $            | 167,527 |  | $ | 196,808
|               |  |                      |        |                  |   |               |  |              |         |  |   |        

Gross profit by segment was as follows (in thousands):



|               |  |                      |       |                  |   |               |  |              |        |  |   |       
|-------------- |  | -------------------- | ----- | ---------------- | - | ------------- |  | ------------ | ------ |  | - | ------
|               |  | Fiscal Quarter Ended |       | Six Months Ended
|               |  | Nov. 29, 2008        |       | Dec. 1, 2007     |   | Nov. 29, 2008 |  | Dec. 1, 2007
|Merix Oregon   |  | $                    | 768   |                  | $ | 4,010         |  | $            | 4,647  |  | $ | 10,334
|Merix San Jose |  |                      | 716   |                  |   | 1,583         |  |              | 2,031  |  |   | 2,850 
|Merix Asia     |  |                      | 4,551 |                  |   | 3,930         |  |              | 9,661  |  |   | 7,382 
|               |  |                      |       |                  |   |               |  |              |        |  |   |       
|               |  | $                    | 6,035 |                  | $ | 9,523         |  | $            | 16,309 |  | $ | 20,566
|               |  |                      |       |                  |   |               |  |              |        |  |   |       



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Beginning in fiscal 2009, the Company recorded an allocation of certain costs attributable to costs of sales in all
segments that were previously charged to the Merix Oregon segment and included certain engineering costs in costs of sales that were previously presented as a component of operating expenses. Gross profit by segment for the second quarter of fiscal
2008 and six months ended December 1, 2007 has been revised to present comparable results. The impact of these revisions on gross margin by segment is presented in the tables below for the fiscal quarter and six-month period ended
December 1, 2007:



|                      |  |                              |   |  |                                           |    |  |                                 |    |  |                             |  
|--------------------- |  | ---------------------------- | - |  | ----------------------------------------- | -- |  | ------------------------------- | -- |  | --------------------------- | -
|Fiscal Quarter Ended: |  | December 1,2007(as reported) |   |  | Effect ofEngineering CostReclassification |    |  | Effect of GlobalCost Allocation |    |  | December 1,2007(as revised) |  
|Merix Oregon          |  | 10.3                         | % |  | (2.4                                      | )% |  | 1.1                             | %  |  | 9.0                         | %
|Merix San Jose        |  | 22.7                         | % |  | (2.5                                      | )% |  | (1.2                            | )% |  | 19.0                        | %
|Merix Asia            |  | 10.7                         | % |  | (1.0                                      | )% |  | (0.9                            | )% |  | 8.8                         | %
|Overall               |  | 11.6                         | % |  | (1.8                                      | )% |  |                                |    |  | 9.8                         | %



|                  |  |                              |   |  |                                           |    |  |                                 |    |  |                             |  
|----------------- |  | ---------------------------- | - |  | ----------------------------------------- | -- |  | ------------------------------- | -- |  | --------------------------- | -
|Six Months Ended: |  | December 1,2007(as reported) |   |  | Effect ofEngineering CostReclassification |    |  | Effect of GlobalCost Allocation |    |  | December 1,2007(as revised) |  
|Merix Oregon      |  | 12.5                         | % |  | (2.4                                      | )% |  | 1.1                             | %  |  | 11.2                        | %
|Merix San Jose    |  | 20.8                         | % |  | (3.0                                      | )% |  | (1.2                            | )% |  | 16.6                        | %
|Merix Asia        |  | 10.4                         | % |  | (1.1                                      | )% |  | (0.9                            | )% |  | 8.4                         | %
|Overall           |  | 12.3                         | % |  | (1.9                                      | )% |  |                                |    |  | 10.4                        | %

Total assets by segment were as follows (in thousands):



|               |  |                  |         |             |   |        
|-------------- |  | ---------------- | ------- | ----------- | - | -------
|               |  | November 29,2008 |         | May 31,2008
|Merix Oregon   |  | $                | 138,898 |             | $ | 125,158
|Merix San Jose |  |                  | 26,163  |             |   | 27,917 
|Merix Asia     |  |                  | 97,651  |             |   | 114,366
|               |  |                  |         |             |   |        
|               |  | $                | 262,712 |             | $ | 267,441
|               |  |                  |         |             |   |        

NOTE 14. SIGNIFICANT CUSTOMERS

One customer accounted for 10% and 12%, respectively, of the Companys net sales in the second quarter of fiscal 2009 and the six months ended November 29, 2008. One customer accounted for 11% of the
Companys net sales in both the second quarter of fiscal 2008 and the six months ended December 1, 2007. No other customer comprised more than 10% of total net sales during those periods.

At November 29, 2008 five entities represented approximately 45% of the Companys net accounts receivable balance, individually ranging from approximately 5%
to approximately 17%. The Company has not experienced significant losses related to its accounts receivable in the past.



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NOTE 15. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is, from time to time, made subject to various legal claims, actions and complaints in
the ordinary course of its business. Except as disclosed below, management believes that the outcome of litigation should not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.

Securities Class Action

Four purported class action complaints were
filed against the Company and certain of its executive officers and directors in the first quarter of fiscal 2005. The complaints were consolidated in a single action entitled In re Merix Corporation Securities Litigation, Lead Case No. CV
04-826-MO, in the U.S. District Court for the District of Oregon. After the court granted the Companys motion to dismiss without prejudice, the plaintiffs filed a second amended complaint. That complaint alleged that the defendants violated
the federal securities laws by making certain inaccurate and misleading statements in the prospectus used in connection with the January 2004 public offering of approximately $103.4 million of the Companys common stock. In September 2006, the
Court dismissed that complaint with prejudice. The plaintiffs appealed to the Ninth Circuit Court of Appeals. In April 2008, the Ninth Circuit reversed the dismissal of the second amended complaint. The Company sought rehearing which was denied and
rehearing en banc was also denied. The Company obtained a stay of the mandate from the Ninth Circuit and filed a certiorari petition with the United States Supreme Court on September 22, 2008. On December 15, 2008, the Supreme Court denied
the certiorari petition. The plaintiffs seek unspecified damages. A potential loss or range of loss that could arise from these cases is not estimable or probable at this time.

Breach of Contract

In June 2008, a complaint was filed against Merix Caymans Trading Company Ltd. by Clark Sales,
LLC, Case No. 2:08-CV-12551-MOR-VMM, in the United States District Court, Eastern District of Michigan. The complaint alleges breach of contract in relation to payment of post-termination commissions. The plaintiffs seek damages in excess of $4
million. The parties reached a tentative settlement agreement on November 24, 2008. The amount of settlement has not yet been finalized and the Company has recorded an accrual of $0.4 million as of November 29, 2008.

Commitments

As of November 29, 2008, the Company had
capital commitments of approximately $2.8 million, primarily relating to the purchase of machinery and equipment.

NOTE 16. RELATED PARTY TRANSACTIONS

The Company paid the following amounts to Huizhou Desay Holdings Co. Ltd., a minority shareholder in two Merix Asia manufacturing facilities, during
the periods indicated (in thousands):



|                               |  |                      |     |                  |   |               |  |              |     |  |   |      
|------------------------------ |  | -------------------- | --- | ---------------- | - | ------------- |  | ------------ | --- |  | - | -----
|                               |  | Fiscal Quarter Ended |     | Six Months Ended
|                               |  | Nov. 29, 2008        |     | Dec. 1, 2007     |   | Nov. 29, 2008 |  | Dec. 1, 2007
|Consulting fees                |  | $                    | 53  |                  | $ | 49            |  | $            | 105 |  | $ | 97   
|Operating lease rental fees    |  |                      | 81  |                  |   | 76            |  |              | 163 |  |   | 150  
|Management fees                |  |                      | 39  |                  |   | 27            |  |              | 75  |  |   | 53   
|Capitalized construction costs |  |                      | 247 |                  |   | 755           |  |              | 326 |  |   | 755  
|Other fees                     |  |                      | 84  |                  |   | 97            |  |              | 167 |  |   | 214  
|                               |  |                      |     |                  |   |               |  |              |     |  |   |      
|                               |  | $                    | 504 |                  | $ | 1,004         |  | $            | 836 |  | $ | 1,269
|                               |  |                      |     |                  |   |               |  |              |     |  |   |      



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NOTE 17. SEVERANCE, ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

Total severance, asset impairment and restructuring charges were as follows (in thousands):



|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      
|----------------------------------------------------- |  | -------------------- | ----- | ---------------- | - | ---------------- |  | - | --------------- | - |  | - | -----
|                                                      |  | Fiscal Quarter Ended |       | Six Months Ended
|                                                      |  | November 29,2008     |       | December 1,2007  |   | November 29,2008 |  |   | December 1,2007
|Merix Asia: Hong Kong closure severance charges       |  | $                    | 13    |                  | $ | 868              |  | $ | 53              |   |  | $ | 1,109
|Merix Asia: other severance charges                   |  |                      | 68    |                  |   |                 |  |   | 68              |   |  |   |     
|Gain on sale of Merix Asia equipment                  |  |                      |      |                  |   |                 |  |   | (567            | ) |  |   |     
|Asset impairment and other restructuring  Merix Asia |  |                      | 14    |                  |   | 112              |  |   | 14              |   |  |   | 112  
|Severance charges  Merix Oregon                      |  |                      | 306   |                  |   |                 |  |   | 306             |   |  |   |     
|Asset impairment  Merix Oregon                       |  |                      | 688   |                  |   |                 |  |   | 688             |   |  |   |     
|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      
|                                                      |  | $                    | 1,089 |                  | $ | 980              |  | $ | 562             |   |  | $ | 1,221
|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      

To reduce expenditures in response to lower demand for the Companys products as a result of deteriorating
macroeconomic conditions, in the second quarter of fiscal 2008 the Company completed a modest reduction in headcount to reduce administrative overhead costs, primarily in the Merix Oregon segment with a small impact in Merix Asia. The headcount
reductions were completed in October 2008 and the Company incurred and paid approximately $0.4 million in severance and related charges during the second quarter of fiscal 2009.

In the second quarter of fiscal 2009, the Company implemented a plan to dispose of certain surplus plant assets to streamline the utilization of equipment in our Merix Oregon factory and has recorded $0.7 million in
impairment charges on the assets to be disposed.

In the first quarter of fiscal 2008, the Company committed to phasing out operations at its Hong Kong
facility, closing the facility and relocating production to other manufacturing facilities. Closure of the facility was substantially complete in the fourth quarter of fiscal 2008. This closure was a part of the Companys actions to consolidate
its Asian operations at its lower-cost facilities in China and expand the facilities at its Huiyang plant. The Company recorded approximately $13,000 and $0.9 million, respectively, in severance and related costs in the second quarters of fiscal
2009 and 2008 in connection with the closure of the Hong Kong facility. The Company recorded approximately $53,000 and $1.2 million, respectively, in Hong Kong facility severance and other restructuring costs in the first six months of fiscal 2009
and fiscal 2008. In the first quarter of fiscal 2009, the Company recorded a gain of $0.6 million related to the sale of equipment previously used at the Hong Kong facility.

A roll-forward of the Companys severance accrual for the Hong Kong plant closure for the first two quarters of fiscal 2009 was as follows (in thousands):



|               |  |                  |     |                  |   |              |  |   |               |   |  |   |   
|-------------- |  | ---------------- | --- | ---------------- | - | ------------ |  | - | ------------- | - |  | - | --
|               |  | BeginningBalance |     | ChargedtoExpense |   | Expenditures |  |   | EndingBalance
|First quarter  |  | $                | 134 |                  | $ | 40           |  | $ | (132          | ) |  | $ | 42
|Second quarter |  |                  | 42  |                  |   | 13           |  |   | (10           | ) |  |   | 45

Due to a number of factors including: 1) the substantial variance between the Companys market capitalization
based on the current trading price range for its common stock and the net asset value reflected in its consolidated balance sheet, 2) continuing operating losses sustained in the first and second quarters of fiscal 2009 and 3) the deterioration of
general economic environment, management has undertaken assessments of potential impairment of the companys long-lived assets in the first and second quarters of fiscal 2009. Managements analysis included an assessment of current fair
value based on an update of forecasted future cash flows used in a valuation obtained in the fourth quarter of fiscal 2008. It was determined that no impairment existed as of November 29, 2008.



13



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##### Table of Contents

NOTE 18. NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS Nos. 141(R) and 160
require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests (previously referred to as minority interests)
to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008 and earlier adoption is prohibited.
SFAS No. 141(R) will be applied to business combinations occurring after the effective date and SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The adoption of
SFAS Nos. 141(R) and 160 is not expected to have a significant impact on the Companys current financial position and results of operations.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, which requires certain disclosures related to derivative instruments. SFAS No. 161 is effective prospectively for interim
periods and fiscal years beginning after November 15, 2008. The Company is currently evaluating the effects, if any, that the adoption of SFAS No. 161 will have on its financial position and results of operations. The Company currently has
no derivative instruments and does not currently engage in hedging activity and as such, the adoption of SFA No. 161 is not expected to have a significant impact on its financial position and results of operations.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements made in this Quarterly Report, other than statements of historical fact, are forward-looking, including, but not limited to, statements regarding industry prospects and cyclicality and
future results of operations or financial position. We use words such as anticipates, believes, expects, future and intends and other similar expressions to identify forward-looking
statements. Forward-looking statements reflect managements current expectations, plans or projections and are inherently uncertain. Actual results could differ materially from managements expectations, plans or projections. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Certain risks and uncertainties that could cause our actual results to differ significantly from managements
expectations, plans and projections are described in Part II, Item 1A, Risk Factors under the subheading Risk Factors Affecting Business and Results of Operations. This section, along with other sections of this
Quarterly Report, describes some, but not all, of the factors that could cause actual results to differ significantly from managements expectations, plans and projections. We do not intend to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged, however, to review the factors set forth in reports that we file from time to time with the
Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended May 31, 2008.

Business

We are a leading global manufacturing service provider for technologically advanced printed circuit boards (PCBs) for original equipment manufacturer (OEM)
customers and their electronic manufacturing service (EMS) providers. Our principal products are complex multi-layer rigid PCBs, which are the platforms used to interconnect microprocessors, integrated circuits and other components that are
essential to the operation of electronic products and systems. The market segments we serve are primarily in commercial equipment in the communications and networking, computing and peripherals, industrial and medical, defense and aerospace, and
automotive markets. Our markets are generally characterized by rapid technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually being developed.

Operating Segments

Today, our business has three operating
segments: (1) Merix Oregon, (2) Merix San Jose and (3) Merix Asia. Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by senior management. Each
operating segment operates predominately in the same industry with production facilities that produce similar customized products for our global customers. The chief decision-maker for all of our operating segments is our Chief Executive Officer.



15



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##### Table of Contents

Markets and Customers

The following table presents the percentage of net sales, by segment, for significant customers comprising greater than 10% of total net sales:



|               |  |                                     |     |  |                                    |     |  |                                     |     |  |                                    |    
|-------------- |  | ----------------------------------- | --- |  | ---------------------------------- | --- |  | ----------------------------------- | --- |  | ---------------------------------- | ---
|               |  | Cisco                               |     |  | Motorola                           |    
|               |  | Fiscal QuarterEndedNovember 29,2008 |     |  | Fiscal QuarterEndedDecember 1,2007 |     |  | Fiscal QuarterEndedNovember 29,2008 |     |  | Fiscal QuarterEndedDecember 1,2007 |    
|Merix Oregon   |  | 19                                  | %   |  | 24                                 | %   |  | 14                                  | %   |  | 10                                 | %  
|Merix San Jose |  | *                                   | (1) |  | *                                  | (1) |  | *                                   | (1) |  | *                                  | (1)
|Merix Asia     |  | *                                   | (1) |  | *                                  | (1) |  | 9                                   | %   |  | 3                                  | %  
|               |  |                                     |     |  |                                    |     |  |                                     |     |  |                                    |    
|Consolidated   |  | 8                                   | %   |  | 11                                 | %   |  | 10                                  | %   |  | 6                                  | %  
|               |  |                                     |     |  |                                    |     |  |                                     |     |  |                                    |    



|(1) | Less than 1%
|--- | ------------



|               |  |                                 |     |  |                                |     |  |                                 |     |  |                                |    
|-------------- |  | ------------------------------- | --- |  | ------------------------------ | --- |  | ------------------------------- | --- |  | ------------------------------ | ---
|               |  | Cisco                           |     |  | Motorola                       |    
|               |  | Six MonthsEndedNovember 29,2008 |     |  | Six MonthsEndedDecember 1,2007 |     |  | Six MonthsEndedNovember 29,2008 |     |  | Six MonthsEndedDecember 1,2007 |    
|Merix Oregon   |  | 21                              | %   |  | 24                             | %   |  | 16                              | %   |  | 12                             | %  
|Merix San Jose |  | 4                               | %   |  | *                              | (1) |  | *                               | (1) |  | *                              | (1)
|Merix Asia     |  | *                               | (1) |  | *                              | (1) |  | 12                              | %   |  | *                              | (1)
|               |  |                                 |     |  |                                |     |  |                                 |     |  |                                |    
|Consolidated   |  | 9                               | %   |  | 11                             | %   |  | 13                              | %   |  | 7                              | %  
|               |  |                                 |     |  |                                |     |  |                                 |     |  |                                |    



|(1) | Less than 1%
|--- | ------------

Approximately 46% and 55%, respectively, of our OEM sales in the second quarter of fiscal 2009 and 2008 were made to EMS providers and in the first six months of fiscal 2009 and 2008 approximately 51% and 55%, respectively, of our OEM sales
were made to EMS providers. Although our contractual relationship is with the EMS provider, most of our shipments to EMS providers are directed by OEMs that negotiate product pricing and volumes directly with us. In addition, we are on the approved
vendor list of several EMS providers and are awarded incremental discretionary orders directly from some of them.

Backlog

Backlog comprises purchase orders received and, in some instances, forecast requirements released for production under customer contracts. Backlog shippable within the
next 90 days totaled $38.1 million and $66.3 million at November 29, 2008 and May 31, 2008, respectively. The decrease in backlog is due to a decrease in demand experienced in the second quarter as a result of the decline in general
economic conditions, and also due to the reduction in lead times achieved over the first six months of fiscal 2009. Compared to the average booking rate, backlog was abnormally high at the end of fiscal 2008 due to extended customer lead times
resulting from the fourth quarter closure of our Wood Village facility requiring customers to place orders over a longer-than-normal period of time. As the production lead times were shortened during the first six months of fiscal 2009, customers
did not need to place orders as far in advance, leading to a reduction in orders placed in the current quarter that is shippable in future quarters.

Customers may cancel or postpone all scheduled orders, in most cases without penalty. Therefore, backlog may not be a meaningful indicator of future financial results.



16



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##### Table of Contents

Summary of Sequential Quarterly Results and Outlook for Third Quarter of Fiscal 2009

Net sales of $76.9 million in the current quarter decreased $13.7 million or 15% compared to net sales in the first quarter of fiscal 2009, resulting from a 21% decrease
in net sales in our Oregon segment, a 12% decrease in net sales in our San Jose segment and a 11% decrease in net sales in our Asia segment. These decreases reflect softening demand for our products due to the deterioration of general macroeconomic
conditions. With the exception a of 1% sequential increase in our defense & aerospace end market, all other end markets contributed to sequential reduction in net sales, led by a 23% decrease in communications & networking market.
Net sales on quick turn and premium services was 17% of total net sales in the second quarter of fiscal 2009 compared to 20% in the first quarter of fiscal 2009, which primarily reflects a reduction in premium orders on which our customers pay a
premium for compressed full-lead-time services.

Gross margin decreased to 7.8% in the current quarter compared to 11.3% in the first quarter of fiscal
2009, reflecting a decrease of approximately 7 percentage points in our North American segments, with the Asia segment maintaining its gross margin at approximately 11%. The decreases were due primarily to reduced fixed cost absorption on lower
production volumes in each of our segments. Operating expenses of $10.3 million remained stable compared to the prior quarter. Selling, general and administrative expenses decreased by $1.7 million primarily due to lower compensation expenses as a
result of headcount reductions, the reversal of incentive compensation accruals recorded in the first quarter as well as reductions in bad debt expense as a result of improved collection efforts, and the timing of our year end audit expenses which
resulted in the majority of our annual fees being incurred during our first quarter. These decreases were substantially offset by $1.1 million in severance and asset impairment charges recorded in the second quarter, as well as the first quarter
benefit of a $0.6 million gain on sale of assets from our closed Hong Kong facility. Net non-operating expense of $1.0 million decreased by $0.2 million due primarily to a $0.3 million reduction in foreign exchange losses, offset by a $0.1 million
increase in interest expense due to increase borrowings on our revolving line of credit compared to the prior quarter. Net loss for the quarter totaled $6.1 million or $0.29 per diluted share, compared to $2.1 million or $0.10 per diluted share in
the first quarter of fiscal 2009.

In the third quarter, we expect continued softness in demand, particularly in our communications & networking
market, as well as continued reduction in demand in our automotive market. We expect that operating expenses will remain relatively unchanged compared to the second quarter of fiscal 2009. No significant changes are expected for other non-operating
expenses and the income tax provision compared to second quarter levels.



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##### Table of Contents

Results of Operations

The following table sets forth our statement of operations data, both in absolute dollars and as a percentage of net sales (dollars in thousands).



|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|-------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------------------------------- | ----- | -- |  | - | ------- | - |  | ----- | --
|                                                                           |  | Fiscal Quarter Ended(1)November 29, 2008 |         |   | Fiscal Quarter Ended(1)December 1, 2007 |      
|Net sales                                                                  |  | $                                        | 76,900  |   |                                         | 100.0 | %  |  | $ | 97,378  |   |  | 100.0 | % 
|Cost of sales                                                              |  |                                          | 70,865  |   |                                         | 92.2  |    |  |   | 87,855  |   |  | 90.2  |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Gross profit                                                               |  |                                          | 6,035   |   |                                         | 7.8   |    |  |   | 9,523   |   |  | 9.8   |   
|Engineering                                                                |  |                                          | 697     |   |                                         | 0.9   |    |  |   | 486     |   |  | 0.5   |   
|Selling, general and administrative                                        |  |                                          | 7,989   |   |                                         | 10.2  |    |  |   | 10,628  |   |  | 10.9  |   
|Amortization of identifiable intangible assets                             |  |                                          | 520     |   |                                         | 0.7   |    |  |   | 645     |   |  | 0.7   |   
|Severance and impairment charges                                           |  |                                          | 1,089   |   |                                         | 1.4   |    |  |   | 980     |   |  | 1.0   |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Operating loss                                                             |  |                                          | (4,260  | ) |                                         | (5.5  | )  |  |   | (3,216  | ) |  | (3.3  | ) 
|Other expense, net                                                         |  |                                          | (1,029  | ) |                                         | (1.3  | )  |  |   | (1,045  | ) |  | (1.1  | ) 
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Loss from continuing operations before income taxes and minority interests |  |                                          | (5,289  | ) |                                         | (6.9  | )  |  |   | (4,261  | ) |  | (4.4  | ) 
|Income tax expense                                                         |  |                                          | 693     |   |                                         | 0.9   |    |  |   | 546     |   |  | 0.6   |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Loss from continuing operations before minority interests                  |  | $                                        | (5,982  | ) |                                         | (7.8  | )% |  | $ | (4,807  | ) |  | (4.9  | )%
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|                                                                           |  |                                         
|                                                                           |  | Six Months Ended(1)November 29, 2008     |         |   | Six Months Ended(1)December 1, 2007     |      
|Net sales                                                                  |  | $                                        | 167,527 |   |                                         | 100.0 | %  |  | $ | 196,808 |   |  | 100.0 | % 
|Cost of sales                                                              |  |                                          | 151,218 |   |                                         | 90.3  |    |  |   | 176,242 |   |  | 89.6  |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Gross profit                                                               |  |                                          | 16,309  |   |                                         | 9.7   |    |  |   | 20,566  |   |  | 10.4  |   
|Engineering                                                                |  |                                          | 1,260   |   |                                         | 0.8   |    |  |   | 950     |   |  | 0.5   |   
|Selling, general and administrative                                        |  |                                          | 17,691  |   |                                         | 10.6  |    |  |   | 22,231  |   |  | 11.3  |   
|Amortization of identifiable intangible assets                             |  |                                          | 1,040   |   |                                         | 0.6   |    |  |   | 1,258   |   |  | 0.6   |   
|Severance and impairment charges                                           |  |                                          | 562     |   |                                         | 0.3   |    |  |   | 1,221   |   |  | 0.6   |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Operating income (loss)                                                    |  |                                          | (4,244  | ) |                                         | (2.5  | )  |  |   | (5,094  | ) |  | (2.6  | ) 
|Other expense, net                                                         |  |                                          | (2,218  | ) |                                         | (1.3  | )  |  |   | (2,170  | ) |  | (1.1  | ) 
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Loss from continuing operations before income taxes and minority interests |  |                                          | (6,462  | ) |                                         | (3.9  | )  |  |   | (7,264  | ) |  | (3.7  | ) 
|Income tax expense                                                         |  |                                          | 1,421   |   |                                         | 0.8   |    |  |   | 956     |   |  | 0.5   |   
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   
|Loss from continuing operations before minority interests                  |  | $                                        | (7,883  | ) |                                         | (4.7  | )% |  | $ | (8,220  | ) |  | (4.2  | )%
|                                                                           |  |                                          |         |   |                                         |       |    |  |   |         |   |  |       |   



|(1) | Percentages may not add due to rounding.
|--- | ----------------------------------------

Net Sales

Net sales decreased by $20.5 million, or 21%, to $76.9 million, in the second quarter of fiscal 2009 compared to $97.4 million in the second quarter of fiscal 2008. Net
sales of $167.5 million in the six months ended November 29, 2008 decreased by $29.3 million, or 15%, compared to net sales of $196.8 million in the comparable period of the prior fiscal year.

These decreases in net sales are primarily due to reductions in net sales for our North American segments of 32% and 26%, respectively, for the three- and six-month
periods ended November 29, 2008 compared to the same periods in the prior fiscal year. Net sales in our Asia segment decreased by 8% in the current quarter compared to the second quarter of fiscal 2008, and decreased only 1% in the six months
ended November 29, 2008 compared to the six months ended December 1, 2007.



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##### Table of Contents

Net sales by segment were as follows (in thousands):



|               |  |                                     |        |                                    |   |                                 |  |                                |         |  |   |        
|-------------- |  | ----------------------------------- | ------ | ---------------------------------- | - | ------------------------------- |  | ------------------------------ | ------- |  | - | -------
|               |  | Fiscal QuarterEndedNovember 29,2008 |        | Fiscal QuarterEndedDecember 1,2007 |   | Six MonthsEndedNovember 29,2008 |  | Six MonthsEndedDecember 1,2007
|Merix Oregon   |  | $                                   | 29,431 |                                    | $ | 44,566                          |  | $                              | 66,674  |  | $ | 91,906 
|Merix San Jose |  |                                     | 6,720  |                                    |   | 8,329                           |  |                                | 14,394  |  |   | 17,165 
|Merix Asia     |  |                                     | 40,749 |                                    |   | 44,483                          |  |                                | 86,459  |  |   | 87,737 
|               |  |                                     |        |                                    |   |                                 |  |                                |         |  |   |        
|               |  | $                                   | 76,900 |                                    | $ | 97,378                          |  | $                              | 167,527 |  | $ | 196,808
|               |  |                                     |        |                                    |   |                                 |  |                                |         |  |   |        

Selected statistical information is summarized below. We define unit as the number of panels.
Percentage increases (decreases) in unit volume and pricing were as follows:



|                     |  |                                                                                      |    |  |                                                                              |   
|-------------------- |  | ------------------------------------------------------------------------------------ | -- |  | ---------------------------------------------------------------------------- | --
|                     |  | Fiscal Quarter EndedNovember 29, 2008Compared to FiscalQuarter EndedDecember 1,
2007 |    |  | Six Months EndedNovember 29, 2008Compared to SixMonths EndedDecember 1, 2007 |   
|Merix Oregon:        |  |                                                                                      |    |  |                                                                              |   
|Unit volume          |  | (38                                                                                  | )% |  | (31                                                                          | )%
|Average unit pricing |  | 6                                                                                    | %  |  | 5                                                                            | % 
|Merix San Jose:      |  |                                                                                      |    |  |                                                                              |   
|Unit volume          |  | (24                                                                                  | )% |  | (26                                                                          | )%
|Average unit pricing |  | 6                                                                                    | %  |  | 13                                                                           | % 
|Merix Asia:          |  |                                                                                      |    |  |                                                                              |   
|Unit volume          |  | (16                                                                                  | )% |  | (10                                                                          | )%
|Average unit pricing |  | 9                                                                                    | %  |  | 9                                                                            | % 
|Overall:             |  |                                                                                      |    |  |                                                                              |   
|Unit volume          |  | (18                                                                                  | )% |  | (12                                                                          | )%
|Average unit pricing |  | (4                                                                                   | )% |  | (4                                                                           | )%

Consolidated

Consolidated unit sales volume decreased 18% in the current quarter compared to the second quarter of fiscal 2008 and 12% in the first six months of fiscal 2008 versus the comparable period in the prior year, driven primarily by decreases
in our North American segments as further discussed below. Consolidated average unit pricing decreased by 4% in both the three- and six-month periods ended November 29, 2008, compared to the same periods of the prior fiscal year, despite
increases in average unit pricing reflected for each of our segments as discussed below. An overall shift in product mix from higher-technology, higher-priced PCBs produced by our North American facilities to generally lower-technology, lower-priced
PCBs produced by our facilities in Asia results in a lower consolidated average unit price. Our Asia segments average price per unit is significantly lower than both the Oregon and San Jose segments. Our Asia segment comprised 53% of net sales
in the second quarter of fiscal 2009 compared to 46% in the second quarter of fiscal 2008, and comprised 52% of net sales in the first six months of fiscal 2009 compared to 45% in the first six months of the prior fiscal year.

In addition, the prior fiscal year-to-date period ended December 1, 2007 benefited from one extra week of activity compared to the first six months of fiscal 2009.



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##### Table of Contents

Merix Oregon

Merix Oregon net sales of $29.4 million decreased by $15.1 million or 34% compared to the first quarter of fiscal 2008. Net sales of $66.7 million in the first six months of fiscal 2009 decreased $25.2 million or 27%. The decreases in net
sales at Merix Oregon were primarily due to decreases in unit volume of 38% and 31%, respectively, for the three- and six-month periods ended November 29, 2008 compared to the same periods in fiscal 2008 resulting from:



| |  |  | demand decreases resulting from the deterioration of macroeconomic conditions;
| | - |  | ------------------------------------------------------------------------------



| |  |  | a strategic decision to rationalize our production with a focus on more profitable parts;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | strategic efforts to transition production to our Asia manufacturing facilities;
| | - |  | --------------------------------------------------------------------------------



| |  |  | capacity decrease as a result of the closure of our Wood Village facility in the fourth quarter of fiscal 2008; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | ongoing impact to customer relationships of the extended lead time issues experienced in the fourth quarter of fiscal 2009 which resulted in lower quick-turn
revenue in the first quarter of fiscal 2009.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The volume decreases were partially offset by increases in average unit pricing of 6% and
5%, respectively, for the three- and six-month periods ended November 29, 2008 compared to the same periods in the prior fiscal year. These average unit pricing increases resulted primarily from our efforts to be more selective on orders and
utilize plant capacity for more profitable parts and due to increases in higher technology production that generates higher average prices.

Merix
San Jose

Compared to the same periods in the prior fiscal year, net sales at Merix San Jose decreased by $1.6 million (19%) to $6.7 million in
the second quarter of fiscal 2009 and decreased by $2.8 million (16%) to $14.4 million in the six months ended November 29, 2008. These decreases were due to soft demand for quick-turn services resulting from the impact of the global
recession. Compared to fiscal 2008, unit volume declines of 24% on a quarterly basis, and 26% on a fiscal year-to-date basis were offset by unit pricing increases of 6% on a quarterly basis and 13% on a fiscal year-to-date basis as a result of sales
of higher-layer count, higher-technology products.

Merix Asia

Net sales at Merix Asia of $40.7 million in the second quarter in fiscal 2009 decreased by $3.7 million or 8% compared to the second quarter of fiscal 2008. Net sales of $86.5 million in the six months ended
November 29, 2008 decreased by $1.3 million or 1% compared to the first six months of fiscal 2008. The decreases in net sales at Merix Asia in the three- and six-month periods ended November 29, 2008 compared to the same periods of the
prior fiscal year were primarily due to a 16% and 10% increase, respectively, in sales unit volumes, due primarily to a drop in demand in the second quarter of fiscal 2009 due to deteriorating global economic conditions. The unit volume decreases
were offset by efforts to improve our product mix through enhanced technology offerings from our Asia manufacturing operations over the past year which resulted in a 9% increase in average unit pricing for both the second quarter and first six
months of fiscal 2009.



20



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##### Table of Contents

Net Sales by End Market

The following table shows, for the periods indicated, the amount of net sales to each of our principal end-user markets and the percentage of the end-user markets sales to our consolidated net sales (dollars in
thousands):



|                            |  |                      |        |  |                  |   |  |   |        |  |       |  
|--------------------------- |  | -------------------- | ------ |  | ---------------- | - |  | - | ------ |  | ----- | -
|                            |  | Fiscal Quarter Ended |       
|                            |  | November 29, 2008    |        |  | December 1, 2007 |  
|Communications & Networking |  | $                    | 29,664 |  | 38.6             | % |  | $ | 39,859 |  | 40.9  | %
|Automotive                  |  |                      | 17,449 |  | 22.7             | % |  |   | 20,855 |  | 21.4  | %
|Computing & Peripherals     |  |                      | 5,984  |  | 7.8              | % |  |   | 8,375  |  | 8.6   | %
|Test, Industrial & Medical  |  |                      | 9,366  |  | 12.2             | % |  |   | 10,783 |  | 11.1  | %
|Defense & Aerospace         |  |                      | 7,299  |  | 9.5              | % |  |   | 6,528  |  | 6.7   | %
|Other                       |  |                      | 7,138  |  | 9.3              | % |  |   | 10,978 |  | 11.3  | %
|                            |  |                      |        |  |                  |   |  |   |        |  |       |  
|                            |  | $                    | 76,900 |  | 100.0            | % |  | $ | 97,378 |  | 100.0 | %
|                            |  |                      |        |  |                  |   |  |   |        |  |       |  



|                            |  |                   |         |  |                  |   |  |   |         |  |       |  
|--------------------------- |  | ----------------- | ------- |  | ---------------- | - |  | - | ------- |  | ----- | -
|                            |  | Six Months Ended  |        
|                            |  | November 29, 2008 |         |  | December 1, 2007 |  
|Communications & Networking |  | $                 | 68,440  |  | 40.9             | % |  | $ | 82,507  |  | 41.9  | %
|Automotive                  |  |                   | 36,862  |  | 22.0             | % |  |   | 41,063  |  | 20.9  | %
|Computing & Peripherals     |  |                   | 12,569  |  | 7.5              | % |  |   | 16,384  |  | 8.3   | %
|Test, Industrial & Medical  |  |                   | 19,785  |  | 11.8             | % |  |   | 22,269  |  | 11.3  | %
|Defense & Aerospace         |  |                   | 14,522  |  | 8.7              | % |  |   | 12,293  |  | 6.2   | %
|Other                       |  |                   | 15,349  |  | 9.1              | % |  |   | 22,292  |  | 11.4  | %
|                            |  |                   |         |  |                  |   |  |   |         |  |       |  
|                            |  | $                 | 167,527 |  | 100.0            | % |  | $ | 196,808 |  | 100.0 | %
|                            |  |                   |         |  |                  |   |  |   |         |  |       |  

Compared to the second quarter of fiscal 2008, the decreases in net sales of $10.2 million (26%) in
communications & networking, $2.4 million (29%) in computing & peripherals, $1.4 million (13%) in test, industrial & medical and $3.8 million (35%) in other end markets were due primarily to a reduction in
end demand for our customers products as a result of the global economic slowdown, as well as a strategic rationalization of our production to focus on more profitable parts. Automotive net sales, historically a steady end market, decreased by
$3.4 million or 16% in the second quarter due primarily to efforts to advance ship certain orders at the end of the first quarter of fiscal 2009 in anticipation of a one-week shutdown related to the implementation of our ERP system at the beginning
of the second quarter. We also began to see the early signs of an automotive demand slowdown that will further impact our demand in future quarters. These end markets also reflect decreases on a fiscal year-to-date basis compared to the prior fiscal
year, driven by the same factors discussed above.

Defense & aerospace net sales increased by $0.8 million or 12% in the second quarter of fiscal
2009 compared to the second quarter of fiscal 2008 and increased by $2.2 million or 18% in the first six months of fiscal 2009 compared to fiscal year-to-date sales in fiscal 2008 due to strategic efforts to penetrate this market to diversify our
customer base and provide a steady and profitable North American revenue stream.

We believe that our key competitive advantages include our reputation for
product quality and our unique value proposition, which enables a seamless interface from quick-turn production at the beginning of product life cycles to lower-cost volume production in mature product life cycles. While the current global financial
crisis has adversely impacted end customer demand and delayed our return to profitability, operating our restructured North American facilities and upgraded Asian facilities to leverage those competitive advantages should enable us to restore and
grow our customer base in the future.



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Net Sales by Geographic Region

Net sales to customers outside the United States totaled 50% and 31% of net sales in the second quarters of fiscal 2009 and fiscal 2008, respectively. Net sales to customers outside the United States totaled 44% and
32% in the six months ended November 29, 2008 and December 1, 2007, respectively. In the second quarter of fiscal 2009, sales to customers in China comprised 13% of net sales. In the second quarter of the prior fiscal year, as well as in
the six-month periods ended November 29, 2008 and December 1, 2007, there were no countries outside of the United States to which sales totaled 10% or more of net sales.

Cost of Sales and Gross Margin

Cost of sales includes manufacturing costs, such as materials, labor (both
direct and indirect) and factory overhead.

A number of costs, including those for labor, utilities and manufacturing supplies, incurred by our plants in
the Peoples Republic of China (PRC) are denominated in Chinese Renminbi. Strengthening or weakening of the Chinese Renminbi relative to the U.S. Dollar affects our cost of sales and profitability. Increases in the value of the
Chinese Renminbi relative to the U.S. Dollar in current fiscal periods compared to prior year have caused the costs of our Chinese operations to increase as stated in U.S. Dollars.

Cost of sales decreased $17.0 million, or 19%, to $70.9 million in the second quarter of fiscal 2009 compared to $87.9 million in the second quarter of fiscal 2008 and decreased $25.0 million, or 14%, to $151.2
million in the six months ended November 29, 2008 compared to $176.2 million in first six months of fiscal 2008.

Beginning in fiscal 2009, we
recorded an allocation of certain costs attributable to costs of sales in all segments that were previously charged to the Merix Oregon segment. Gross margin by segment for the second quarter of fiscal 2008 and the six months ended December 1,
2007 has been revised to present comparable results using the same allocation methodology. Gross profit by segment was as follows (in thousands):



|                                                                         |  |                      |       |   |                  |   |       |               |  |   |              |   |  |   |        |  
|------------------------------------------------------------------------ |  | -------------------- | ----- | - | ---------------- | - | ----- | ------------- |  | - | ------------ | - |  | - | ------ | -
|                                                                         |  | Fiscal Quarter Ended |       |   | Six Months Ended |  
|                                                                         |  | Nov. 29, 2008        |       |   | Dec. 1, 2007     |   |       | Nov. 29, 2008 |  |   | Dec. 1, 2007 |  
|Merix Oregon                                                             |  | $                    | 768   |   |                  | $ | 4,010 |               |  | $ | 4,617        |   |  | $ | 10,334 |  
|Merix San Jose                                                           |  |                      | 716   |   |                  |   | 1,583 |               |  |   | 2,031        |   |  |   | 2,850  |  
|Merix Asia                                                               |  |                      | 4,551 |   |                  |   | 3,930 |               |  |   | 9,661        |   |  |   | 7,382  |  
|                                                                         |  |                      |       |   |                  |   |       |               |  |   |              |   |  |   |        |  
|                                                                         |  | $                    | 6,035 |   |                  | $ | 9,523 |               |  | $ | 16,309       |   |  | $ | 20,566 |  
|                                                                         |  |                      |       |   |                  |   |       |               |  |   |              |   |  |   |        |  
|                                                                        
|Our gross margin as a percentage of net sales by segment was as follows: | 
|                                                                         |  |                     
|                                                                         |  | Fiscal Quarter Ended |       |   | Six Months Ended |  
|                                                                         |  | Nov. 29, 2008        |       |   | Dec. 1, 2007     |   |       | Nov. 29, 2008 |  |   | Dec. 1, 2007 |  
|Merix Oregon                                                             |  |                      | 2.6   | % |                  |   | 9.0   | %             |  |   | 6.9          | % |  |   | 11.2   | %
|Merix San Jose                                                           |  |                      | 10.7  | % |                  |   | 19.0  | %             |  |   | 14.1         | % |  |   | 16.6   | %
|Merix Asia                                                               |  |                      | 11.2  | % |                  |   | 8.8   | %             |  |   | 11.2         | % |  |   | 8.4    | %
|Overall                                                                  |  |                      | 7.8   | % |                  |   | 9.8   | %             |  |   | 9.7          | % |  |   | 10.4   | %

Merix Oregon

Gross margin at Merix Oregon decreased to 2.6% of net sales in the current quarter from 9.0% of net sales in the second quarter of fiscal 2008, and decreased to 6.9% of net sales in the six months ended November 29, 2008 compared to
11.2% in the same period of fiscal 2008. These decreases in gross margin for both the current quarter and fiscal year-to-date periods are driven by the decrease in unit sales, particularly in the higher-margin premium service line, which decreased
by 59% in the current quarter compared to the second quarter of fiscal 2009. Factory margins are heavily influenced by factory utilization rates because the cost structure needed to produce PCBs is heavily weighted to fixed or step-variable costs.
Thus, lower demand resulted in lower utilization rates and decreases in gross margin as a percentage of net sales.



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##### Table of Contents

Merix San Jose

Gross margins at Merix San Jose decreased to 10.7% of net sales in the current quarter from 19.0% of net sales in the second quarter of fiscal 2008, and decreased to 14.1% of net sales in the six months ended November 29, 2008 compared
to 16.6% in the same period in fiscal 2008. The decrease on a quarterly basis is primarily due to reductions in quick-turn services as a result of the global economic slowdown which resulted in a 24% decrease in unit volume shipments for Merix San
Jose, resulting in lower fixed cost absorption. Volume decreases were partially offset by improved margins on higher-technology products which command a higher price and are more profitable. These impacts are less pronounced in a comparison of
fiscal year-to-date gross margins for fiscal 2009 and fiscal 2008 as Merix San Jose experienced efficiency issues in the first quarter of the prior fiscal year due to implementation of the ERP system in North America.

Merix Asia

Gross margins at Merix Asia increased to 11.2% of
net sales in the current quarter compared to 8.8% in the second quarter of the prior fiscal year and increased to 11.2% of net sales in the six months ended November 29, 2008 compared to 8.4% in the first six months of fiscal 2008. These
increases are primarily the result of improvements in the product mix due to higher-technology capabilities developed in our China-based facilities, which offset lower factory utilization rates resulting from a decrease in demand. We also achieved
cost efficiencies in the first two quarters of fiscal 2009 due to the closing of our Hong Kong facility completed in the fourth quarter of fiscal 2008.

Engineering Costs

Engineering costs include indirect labor, materials and overhead to support the development of new manufacturing
processes required to meet our customers technology requirements.

Engineering costs increased $0.2 million, or 43%, to $0.7 million in the second
quarter of fiscal 2009 compared to $0.5 million in the second quarter of fiscal 2008 and increased $0.3 million, or 33%, to $1.3 million in the six months ended November 29, 2008 compared to $1.0 million in the six months ended December 1,
2008. The increases were due primarily to costs to support the development of higher technology products in Asia.

Selling, General and
Administrative Costs

Selling, general and administrative (SG&A) costs include indirect labor, travel, outside services and overhead incurred in
our sales, marketing, management and administrative support functions.

SG&A costs decreased $2.6 million, or 25%, to $8.0 million in the second
quarter of fiscal 2009 compared to $10.6 million in the second quarter of fiscal 2008 and decreased $4.5 million, or 20%, to $17.7 million in the six months ended November 29, 2008 compared to $22.2 million in the six months ended
December 1, 2007. The decreases were primarily due to lower labor costs due to headcount reductions, a reversal of bonus expense accrued in the first quarter of fiscal 2009, and lower stock compensation expense. Additionally, we have incurred
lower commission costs as a result of lower net sales, reduced bad debt expense as a result of improved collection programs in the current fiscal year, and reduced overall expense levels due to aggressive cost management programs.

Amortization of Identifiable Intangible Assets

Amortization
of identifiable intangible assets was $0.5 million and $1.0 million, respectively, in the second quarter of fiscal 2009 and the six months ended November 29, 2008 compared to $0.6 million and $1.3 million, respectively, in the comparable
periods of the prior fiscal year. The reduction in amortization was primarily related to declining amortization amounts for customer relationships acquired in the Merix San Jose acquisition. Our identifiable intangible assets balance at
November 29, 2008 was $7.8 million and current amortization is approximately $0.5 million per quarter.



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Severance, Asset Impairment and Restructuring Charges

Total severance, asset impairment and restructuring charges were as follows (in thousands):



|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      
|----------------------------------------------------- |  | -------------------- | ----- | ---------------- | - | ---------------- |  | - | --------------- | - |  | - | -----
|                                                      |  | Fiscal Quarter Ended |       | Six Months Ended
|                                                      |  | November 29,2008     |       | December 1,2007  |   | November 29,2008 |  |   | December 1,2007
|Merix Asia: Hong Kong closure severance charges       |  | $                    | 13    |                  | $ | 868              |  | $ | 53              |   |  | $ | 1,109
|Merix Asia: other severance charges                   |  |                      | 68    |                  |   |                 |  |   | 68              |   |  |   |     
|Gain on sale of Merix Asia equipment                  |  |                      |      |                  |   |                 |  |   | (567            | ) |  |   |     
|Asset impairment and other restructuring  Merix Asia |  |                      | 14    |                  |   | 112              |  |   | 14              |   |  |   | 112  
|Severance charges  Merix Oregon                      |  |                      | 306   |                  |   |                 |  |   | 306             |   |  |   |     
|Asset impairment  Merix Oregon                       |  |                      | 688   |                  |   |                 |  |   | 688             |   |  |   |     
|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      
|                                                      |  | $                    | 1,089 |                  | $ | 980              |  | $ | 562             |   |  | $ | 1,221
|                                                      |  |                      |       |                  |   |                  |  |   |                 |   |  |   |      

To reduce expenditures in response to lower demand for the our products as a result of deteriorating macroeconomic
conditions, in the second quarter of fiscal 2008 we completed a modest reduction in headcount to reduce administrative overhead costs, primarily in our Merix Oregon segment with a small impact in Merix Asia. The headcount reductions were completed
in October 2008 and we incurred and paid approximately $0.4 million in severance and related charges during the second quarter of fiscal 2009.

In the
second quarter of fiscal 2009, we implemented a plan to dispose of certain plant assets to streamline the utilization of equipment in our Merix Oregon factory and have recorded $0.7 million in impairment charges on the assets to be disposed.

In the first quarter of fiscal 2008, we committed to phasing out operations at our Hong Kong facility, closing the facility and relocating production to
other manufacturing facilities. Closure of the facility was substantially complete in the fourth quarter of fiscal 2008. This closure was a part of our actions to consolidate our Asian operations at its lower-cost facilities in China and expand the
facilities at our Huiyang plant. We recorded approximately $13,000 and $0.9 million, respectively, in severance and related costs in the second quarters of fiscal 2009 and 2008 in connection with the closure of the Hong Kong facility. We recorded
approximately $53,000 and $1.2 million, respectively, in Hong Kong facility severance and other restructuring costs in the first six months of fiscal 2009 and fiscal 2008. In the first quarter of fiscal 2009, we recorded a gain of $0.6 million
related to the sale of equipment previously used at the Hong Kong facility.

Interest Income

Interest income was $45,000 and $0.1 million, respectively, for the three- and six-month periods ended November 29, 2008 compared to $0.3 million and $0.6 million in
the same periods in fiscal 2008 due to reduced average cash-on-hand balances in the current fiscal year.

Interest Expense

Interest expense decreased to $1.0 million and $1.9 million, respectively, in the three- and six-month periods ended November 29, 2008 compared to $1.1 million and
$2.2 million, respectively, in the comparable periods of the prior fiscal year. In the third quarter of fiscal 2008, we repaid $2.5 million on the subordinated promissory note in connection with the reduction in the purchase price of Merix Asia and
the remaining $5.1 million of outstanding debt was eliminated in exchange for us settling all past and any future claims against the note holder in relation to our Merix Asia acquisition. The resulting reduction in interest expense in fiscal 2009
was partially offset by increased interest expense related to average outstanding borrowings on our revolving line of credit during the first and second quarters of fiscal 2009.



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Income Tax Expense

On a quarterly basis, we estimate our provision for income taxes based on our projected results of operations for the full year. Income tax is provided for entities expected to generate profits that are not offset by losses generated
by entities in other tax jurisdictions. As a result, our effective income tax rate was negative 22.8% in the six months ended November 29, 2008 and negative 13.2% in the comparable period of the prior fiscal year.

Our effective income tax rate differs from tax computed at the federal statutory rate primarily as a result of our mix of earnings in various tax jurisdictions,
the diversity in income tax rates, and our continuous assessment of the realization of our uncertain tax positions and deferred tax assets. The effective tax rate reflects current taxes expected to be paid in profitable jurisdictions,
interest accrued on uncertain tax positions and maintenance of valuation allowances in jurisdictions with cumulative losses or profitability risks.

Liquidity and Capital Resources

Our sources of liquidity and capital resources as of November 29, 2008 consisted of $11.5 million of
cash and cash equivalents and $42.9 million unused availability under our revolving bank credit agreement, described below. Based on managements forecast for results of operations and cash flow subject to various scenarios, we expect our
capital resources, together with the borrowing capacity under our credit agreement, to be sufficient to fund our operations and known capital requirements for at least one year from November 29, 2008, although we may seek additional sources of
funds.

We have a Loan and Security Agreement with Bank of America, N.A. (the Credit Agreement) which provides a revolving line of credit of up to $55.0
million on a borrowing based calculated with respect to the value of accounts receivable, equipment and real property. The Credit Agreement expires in February 2013. The obligations under the Credit Agreement are secured by substantially all of our
U.S. assets. The borrowings bear interest based, at the Companys election, on either the prime rate announced by Bank of America or LIBOR plus an applicable margin. As of November 29, 2008, the unused borrowing base was $42.9 million,
with an outstanding balance of $8.0 million, of which $1.0 million was borrowed during November 2008 by our Asia subsidiary which is not reflected in the consolidated balance sheet due to the one-month reporting lag. The Credit Agreement contains
usual and customary covenants for credit facilities of this type, all of which we were in compliance with as of November 29, 2008. In addition, the Credit Agreement also includes a financial covenant requiring a minimum fixed charge coverage
ratio of 1.1:1 if Excess Availability, defined in the Credit Facility agreement as a function of the unused borrowing base and cash held in certain U.S. bank accounts, falls below $20.0 million. Excess Availability at November 29, 2008 was
$50.0 million and as such, this covenant is not currently in effect. We would not be in compliance if this covenant was currently applicable. Based on management forecasts, we do not expect that Excess Availability will fall below $20.0 million for
at least one year from November 29, 2008.

In the first six months of fiscal 2009, cash and cash equivalents increased $5.8 million to $11.5 million
as of November 29, 2008 from $5.7 million as of May 31, 2008 primarily as a result of $11.6 million provided by operations (as described in more detail below), net borrowings on our revolving line of credit totaling $7.0 million and $0.6
million in cash proceeds on sales of assets, offset by the use of $14.8 million for the purchase of property, plant and equipment.

Cash flows from
operating activities totaled $13.1 million. Cash totaling $4.3 million was provided by net loss of $8.2 million, adjusted for $12.5 million in non-cash charges, primarily $11.1 million for depreciation and amortization and $1.0 million in
share-based compensation expense. As discussed in more detail below, other significant changes in working capital generating $8.8 million in cash from operations in the first six months of fiscal 2009 include $7.5 million from reductions in accounts
receivable, $1.2 million from reductions in inventory, a $1.5 million increase in amounts due to affiliate, and $1.7 million from decreases in other assets, primarily related to a VAT refund received from the Chinese tax authorities. These cash
inflows were offset by the use of $3.1 million in cash for settlement of accounts payable and other accrued liabilities. Note that changes in working capital balances vary from cash flows from operations due to the impact of non-cash transactions on
amounts reported in the consolidated balance sheets.



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Accounts receivable, net of allowances for bad debts, decreased $7.5 million to $65.7 million at November 29,
2008 from $73.2 million as of May 31, 2008. The decrease is primarily due to the reduced revenue base in the second quarter of fiscal 2009. Due to the global economic slowdown, our customers have been seeking to extend payment terms. Days
sales outstanding, calculated on a quarterly basis, was 78 days at November 29, 2008 and 76 days at May 31, 2008.

Inventories, net of reserves,
decreased by $1.2 million to $22.4 million at November 29, 2008 compared to $23.6 million at May 31, 2008. The variance is comprised of a net increase of $1.1 million in finished goods and consignment inventories due to lower-than-forecast
net sales achieved in the second quarter of fiscal 2009, offset by a $2.3 million reduction in raw materials and work-in-process inventories as a result of reductions to support currently expected net sales volumes and the timing of purchases and
production.

Prepaid and other current assets decreased $1.7 million to $11.3 million as of November 29, 2008 compared to $13.0 million as
of May 30, 2008, primarily due to a VAT refund received during the first quarter of fiscal 2009. Other non-current assets decreased by $0.7 million to $5.1 million as of November 29, 2008 due to amortization of deferred financing costs and
minor reductions in various other assets.

Accounts payable and other current liabilities, exclusive of the $1.3 million net intercompany payable recorded
due to the one-month reporting lag for Asia, totaled $70.5 million at November 29, 2008, a decrease of $5.1 million compared to $75.6 million at May 31, 2008. The decrease is due primarily to a $4.3 million reduction in accounts payable
resulting from decreased purchases to support the lower revenue base. Additionally, accrued compensation decreased by $0.6 million based on the timing of pay-dates compared to the fiscal period end, and other accrued liabilities decreased by $0.2
million primarily due to accruals for professional services related to fiscal year end and the refinancing of our revolving line of credit included in current liabilities at May 31, 2008.

Amounts due to affiliate increased to a $1.3 million payable balance at November 29, 2008 from a $0.2 million receivable balance at May 31, 2008. The increase
is due to the timing of payments for intercompany purchases, which impact our balance sheet as a result of the one-month reporting lag for our Asia subsidiary.

Expenditures for property, plant and equipment of $14.8 million in the first six months of fiscal 2009 primarily consisted of expenditures for the expansion and improvement of the process technology at our China-based Huiyang facility,
improvement of the process technology and increasing the process speed of our North American facility and the implementation of a company-wide ERP system. Most of the capital expenditure associated with the recent expansion of our Huiyang, China
facility and ERP implementation was completed in the first quarter of fiscal 2009. Remaining capital expenditures in fiscal 2009 are currently estimated at approximately $4 million. In response to the economic downturn and the resulting reduction in
demand for our products, discretionary capital expenditures have been substantially curtailed for the remainder of fiscal 2009.

We are currently marketing
for sale the facility formerly housing our Hong Kong manufacturing operation. Although a transaction is not imminent, we estimate proceeds on sale in the range of $10 million to $15 million.

Recently Issued Accounting Pronouncements

In December 2007, the FASB
issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS Nos. 141(R) and 160 require most identifiable assets, liabilities, noncontrolling
interests and goodwill acquired in a business combination to be recorded at full fair value and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the
accounting for transactions with noncontrolling interest holders. Both statements are effective for periods beginning on or after December 15, 2008 and earlier adoption is prohibited. SFAS No. 141(R) will be applied to business
combinations occurring after the effective date and SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The adoption of SFAS Nos. 141(R) and 160 is not expected to have
a significant impact on our current financial position and results of operations.



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In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, which requires certain disclosures related to derivative instruments. SFAS No. 161 is effective prospectively for interim periods and fiscal years beginning after November 15, 2008. The Company is currently evaluating the
effects, if any, that the adoption of SFAS No. 161 will have on its financial position and results of operations. We currently have no derivative instruments and do not currently engage in hedging activity and as such, the adoption of SFA
No. 161 is not expected to have a significant impact on our financial position and results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical
Accounting Policies and Use of Estimates

We reaffirm the information included under the heading Critical Accounting Policies and Use of
Estimates appearing at page 45 of our Annual Report on Form 10-K for the year ended May 31, 2008, which was filed with the Securities and Exchange Commission on August 7, 2008.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There
have been no material changes in our reported market risks and risk management policies since the filing of our Annual Report on Form 10-K for the year ended May 31, 2008, which was filed with the Securities and Exchange Commission on
August 7, 2008.



|Item 4. | Controls and Procedures
|------- | -----------------------

Attached to this quarterly report as
exhibits 31.1 and 31.2 are the certifications of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) required by section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This portion of our quarterly
report on Form 10-Q is our disclosure of the conclusions of our principal executive officer and principal financial officer regarding the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report
based on managements evaluation of those disclosure controls and procedures. This disclosure should be read in conjunction with the Section 302 Certifications for a complete understanding of the topics presented.

Material Weakness

In connection with managements assessment of
our internal control over financial reporting as of November 29, 2008, we determined that the material weakness in our internal control continued to exist as a result of the control deficiency previously identified with respect to our Merix
Asia operations.

Background

Merix Asia was acquired
in September 2005. Upon acquisition, Merix Asia had weak internal controls over financial reporting and needed to develop processes to strengthen its accounting systems and control environment management. We have devoted significant time and
resources to improving the internal controls over financial reporting since the acquisition. However, Merix management did not maintain sufficient controls to adequately monitor the accounting and financial reporting of our Merix Asia operations.
This control deficiency could result in a material misstatement to the interim or annual consolidated financial statements that would not be prevented or detected in a timely manner. Accordingly, management has determined that this control
deficiency constitutes a material weakness.



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Remediation Steps to Address Material Weakness

Because of the material weakness identified in our evaluation of internal control over financial reporting, we performed and plan to perform additional steps to enhance internal control over financial reporting. Our
procedures include, but were not limited to, the following:



| |  |  | In August 2008, we implemented our global ERP system for our Asia operations. The new ERP system allows for greater consistency of accounting processes and internal
controls between our U.S. and Asia operations and provides greater visibility into the accounting records and accounting practices in Merix Asia.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We continued to perform quarterly physical inventory counts at our Asia facilities.
| | - |  | -----------------------------------------------------------------------------------



| |  |  | We have devoted time and resources to implement and improve the cost accounting systems for Merix Asia and to strengthen our analytical procedures focused on trends
and variance analysis to budgets and forecasts. In fiscal 2008, we implemented detailed periodic reviews of the results of Merix Asia with follow-up actions to improve the control currently in place. These reviews provide for more formal
communication processes related to the financial statements adjustments and changes in the internal control environment.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have invested significant amounts of time and expense on training for financial personnel in the U.S. and Asia. U.S. management has also commenced more frequent
oversight trips to Asia.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We continue to reaffirm a message that compliance with our controls over financial reporting is extremely important and will continue to impress that throughout our
Company.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have realigned our organizational structure across the company along functional lines. We believe this has resulted in more accountability across the
organization and allows for sharing of best practices across all functions, improving the internal control environment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Despite the
significant improvement of internal controls over financial reporting related to our Merix Asia operations, management believes that it cannot be determined that the material weakness is sufficiently remediated until the successful implementation of
the global ERP system for our Asia operations can be evaluated later in fiscal 2009. The ERP system in Asia was implemented at the beginning of our Asia subsidiarys second fiscal quarter in August 2008 and we are currently assessing the impact
of the new ERP system on our internal controls at our Asia subsidiary.

Based on managements evaluation of the effectiveness of our disclosure
controls and procedures, our CEO and CFO concluded that as of the end of the period covered by the Form 10-Q, due to the need to evaluate the implementation of the global ERP system for our Asia operations, our disclosure controls and procedures
were not effective in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and
our CFO, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Financial controls developed at North American locations related to the use of our ERP system in financial reporting have been established along with the implementation of our ERP system in Asia at the beginning of August 2008.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are, from time to time, made subject to
various legal claims, actions and complaints in the ordinary course of its business. Except as disclosed below, management believes that the outcome of litigation should not have a material adverse effect on our consolidated results of operations,
financial condition or liquidity.

Securities Class Action

Four purported class action complaints were filed against Merix and certain of its executive officers and directors in the first quarter of fiscal 2005. The complaints were consolidated in a single action entitled In re Merix Corporation
Securities Litigation, Lead Case No. CV 04-826-MO, in the U.S. District Court for the District of Oregon. After the court granted the our motion to dismiss without prejudice, the plaintiffs filed a second amended complaint. That complaint
alleged that the defendants violated the federal securities laws by making certain inaccurate and misleading statements in the prospectus used in connection with the January 2004 public offering of approximately $103.4 million of our common stock.
In September 2006, the Court dismissed that complaint with prejudice. The plaintiffs appealed to the Ninth Circuit Court of Appeals. In April 2008, the Ninth Circuit reversed the dismissal of the second amended complaint. We sought rehearing which
was denied and rehearing en banc was also denied. We obtained a stay of the mandate from the Ninth Circuit and filed a certiorari petition with the United States Supreme Court on September 22, 2008. On December 15, 2008, the Supreme Court
denied our certiorari petition. The plaintiffs seek unspecified damages. A potential loss or range of loss that could arise from these cases is not estimable or probable at this time.

Breach of Contract

In June 2008, a complaint was filed against Merix Caymans Trading Company Ltd. by Clark Sales,
LLC, Case No. 2:08-CV-12551-MOR-VMM, in the United States District Court, Eastern District of Michigan. The complaint alleges breach of contract in relation to payment of post-termination commissions. The plaintiffs seek damages in excess of $4
million. The parties reached a tentative settlement agreement on November 24, 2008. The amount of settlement has not yet been finalized and the Company has recorded an accrual of $0.4 million as of November 29, 2008.



|Item 1A. | Risk Factors
|-------- | ------------

RISK FACTORS AFFECTING BUSINESS AND RESULTS OF
OPERATIONS

Investing in our securities involves a high degree of risk. If any of the following risks impact our business, the market price of our
shares of common stock and other securities could decline and investors could lose all or part of their investment. In addition, the following risk factors and uncertainties could cause our actual results to differ materially from those projected in
our forward-looking statements, whether made in this Quarterly Report on Form 10-Q or the other documents we file with the SEC, or in our annual or quarterly reports to shareholders, future press releases, or orally, whether in presentations,
responses to questions or otherwise.

We are dependent upon the electronics industry, which is highly cyclical and suffers significant downturns
in demand resulting in excess manufacturing capacity and increased price competition.

The electronics industry, on which a substantial portion of
our business depends, is cyclical and subject to significant downturns characterized by diminished product demand, rapid declines in average selling prices and over-capacity. This industry has experienced periods characterized by relatively low
demand and price depression and is likely to experience recessionary periods in the future. Economic conditions affecting the electronics industry in general, or specific customers in particular, have adversely affected our operating results in the
past and may do so in the future. Currently, the global economy has been greatly impacted by the global recessionary conditions linked to a collapse of values in the home mortgage sector, volatile fuel prices, and a changing political and economic
landscape. These factors have contributed to historically low consumer confidence levels which has resulted in a significantly intensified downturn in the demand for products incorporating PCBs, which has in turn adversely affected our results of
operations for the first two quarters of fiscal 2009.



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The electronics industry is characterized by intense competition, rapid technological change, relatively short product
life cycles and pricing and profitability pressures. These factors adversely affect our customers and we suffer similar effects. Our customers are primarily high-technology equipment manufacturers in the communications and networking, computing and
peripherals, test, industrial and medical, defense and aerospace and automotive markets of the electronics industry. Due to the uncertainty in the markets served by most of our customers, we cannot accurately predict our future financial results or
accurately anticipate future orders. At any time, our customers can discontinue or modify products containing components manufactured by us, adjust the timing of orders and shipments or affect our mix of consolidated net sales generated from
quick-turn and premium services revenues versus standard lead time production, any of which could have a material adverse effect on our results of operations.

Competition in the printed circuit board market is intense and we could lose sales if we are unable to compete effectively.

The
market for PCBs is intensely competitive, highly fragmented and rapidly changing. We expect competition to persist, which could result in continued reductions in pricing and profitability and loss of market share. We believe our major competitors
are U.S., Asian and other international independent manufacturers of multi-layer printed circuit boards, backplanes and other electronic assemblies. Those competitors include Daeduck Electronics Co., DDi Corp., Elec and Eltek., Meadville Holdings,
Ltd., LG Electronics, Multek Corporation (a division of Flextronics International Ltd.), Sanmina-SCI Corporation, TTM Technologies, Inc., WUS Printed Circuits Company Ltd., ViaSystems, Inc and Ibiden Co., Ltd.

Some of our competitors and potential competitors may have a number of advantages over us, including:



| |  |  | significantly greater financial, technical, marketing and manufacturing resources;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | preferred vendor status with some of our existing and potential customers;
| | - |  | --------------------------------------------------------------------------



| |  |  | more focused production facilities that may allow them to produce and sell products at lower price points;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | more capital; and
| | - |  | -----------------



| |  |  | larger customer bases.
| | - |  | ----------------------

In addition, these
competitors may have the ability to respond more quickly to new or emerging technologies, be more successful in entering or adapting to existing or new end markets, adapt more quickly to changes in customer requirements and devote greater resources
to the development, promotion and sale of their products than we can. Consolidation in the PCB industry, which we expect to continue, could result in an increasing number of larger PCB companies with greater market power and resources. Such
consolidation could in turn increase price competition and result in other competitive pressures for us. We must continually develop improved manufacturing processes to meet our customers needs for complex, high-technology products, and our
basic interconnect technology is generally not subject to significant proprietary protection. We may not be able to maintain or expand our sales if competition increases and we are unable to respond effectively.

Other considerations that affect our ability to compete include providing manufacturing services that are competitively priced, providing continually evolving technical
capabilities, having competitive lead times and meeting specified delivery dates. Currently, most of our North American operations have lead times that extend beyond what is generally competitive in the market. Also, during the latter half of fiscal
2008 our on-time delivery was adversely affected by the Wood Village facility closure. During this period, our lead times at our Forest Grove facility increased to between 10 to 14 weeks and were believed to be uncompetitive in the North American
market. This is likely to have resulted in lost orders or lower customer demand in future quarters. Our lead times have improved and are more competitive today, which should improve our fulfillment of customer expectations. It is uncertain how
quickly we will be able to restore the full confidence of our customer base and what long-term affects these actions have had on future demand for our products.

During recessionary periods in the electronics industry, our competitive advantages in providing an integrated manufacturing solution and responsive customer service may be less important to our customers than they are in more favorable
economic climates.



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If competitive production capabilities increase in Asia, where production costs are lower, we may lose market share
in both North America and Asia and our profitability may be materially adversely affected by increased pricing pressure.

PCB manufacturers in Asia
and other geographies often have significantly lower production costs than our North American operations and may even have cost advantages over Merix Asia. Production capability improvements by foreign and domestic competitors may play an increasing
role in the PCB markets in which we compete, which may adversely affect our revenues and profitability. While PCB manufacturers in these locations have historically competed primarily in markets for less technologically advanced products, they are
expanding their manufacturing capabilities to produce higher layer count, higher technology PCBs and could compete more directly with our North American operations.

If we are unable to respond to rapid technological change and process development, we may not be able to compete effectively.

The market for our products is characterized by rapidly changing technology and continual implementation of new production processes. The success of our business depends in large part upon our ability to maintain and
enhance our technological capabilities, to manufacture products that meet changing customer needs, and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. In addition, the PCB industry could encounter
competition from new or revised manufacturing and production technologies that render existing manufacturing and production technology less competitive or obsolete. We may not be able to respond effectively to the technological requirements of the
changing market. If we need new technologies and equipment to remain competitive, the development, acquisition and implementation of those technologies and equipment may require us to make significant capital investments. We may not be able to raise
the necessary additional funds at all or as rapidly as necessary to respond to technological changes as quickly as our competitors.

During periods
of excess global PCB manufacturing capacity, our profitability may decrease and/or we may have to incur additional restructuring charges if we choose to reduce the capacity of or close any of our facilities.

A significant portion of our factory costs of sales and operating expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated
orders. When we experience excess capacity, our sales revenues may not fully cover our fixed overhead expenses, and our gross margins will fall. In addition, we generally schedule our quick-turn production facilities at less than full capacity to
retain our ability to respond to unexpected additional quick-turn orders. However, if these orders are not received, we may forego some production and could experience continued excess capacity.

If we conclude we have significant, long-term excess capacity, we may decide to permanently close one or more of our facilities, and lay off some of our employees.
Closures or lay-offs could result in recording of restructuring charges such as severance, other exit costs, and asset impairments.

Damage to our
manufacturing facilities or information systems due to fire, natural disaster, or other events could harm our financial results.

We have U.S.
manufacturing and assembly facilities in Oregon, California and China. The destruction or closure of any of our facilities for a significant period of time as a result of fire, explosion, act of war or terrorism, or blizzard, flood, tornado,
earthquake, lightning, or other natural disaster could harm us financially, increasing our costs of doing business and limiting our ability to deliver our manufacturing services on a timely basis. Additionally, we rely heavily upon information
technology systems and high-technology equipment in our manufacturing processes and the management of our business. We have developed disaster recovery plans; however, disruption of these technologies as a result of natural disaster or other events
could harm our business and have a material adverse effect on our results of operations.



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A small number of customers account for a substantial portion of our consolidated net sales and our consolidated
net sales could decline significantly if we lose a major customer or if a major customer orders fewer of our products or cancels or delays orders.

Historically, we have derived a significant portion of our consolidated net sales from a limited number of customers. Our five largest OEM customers, which vary from period to period, comprised 36% of our consolidated net sales during the
second quarter of fiscal 2009. Net sales to one customer represented 10% of consolidated net sales during the second quarter of fiscal 2009. We expect to continue to depend upon a small number of customers for a significant portion of our
consolidated net sales for the foreseeable future. The loss of, or decline in, orders or backlog from one or more major customers could reduce our consolidated net sales and have a material adverse effect on our results of operations and financial
condition. Further, as part of our plan to improve the profitability of our North American operations we aim to reduce our reliance on certain customers and certain products that have historically generated significant revenues for Merix. We
anticipate retaining a meaningful portion of this business, but there can be no assurance we will be successful. An unplanned loss of a large portion of this revenue could adversely affect our financial results.

Some of our customers are relatively small companies, and our future business with them may be significantly affected by their ability to continue to obtain financing.
If they are unable to obtain adequate financing, they will not be able to purchase products, which, in the aggregate, would adversely affect our consolidated net sales.

We are exposed to the credit risk of some of our customers and also as a result of a concentration of our customer base.

Most of our sales are on an open credit basis, with standard industry payment terms. We monitor individual customer payment capability in granting open credit arrangements, seek to limit open credit to
amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. During periods of economic downturn in the global economy and the electronics and automotive industries, our exposure to
credit risks from our customers increases. Although we have programs in place to monitor and mitigate the associated risk, those programs may not be effective in reducing our credit risks.

In total, five entities represented approximately 45% of the consolidated net trade accounts receivable balance at November 29, 2008, individually ranging from
approximately 5% to approximately 17%. Our OEM customers direct our sales to a relatively limited number of electronic manufacturing service providers. Our contractual relationship is typically with the electronic manufacturing service providers,
who are obligated to pay us for our products. Because we expect our OEM customers to continue to direct our sales to electronic manufacturing service providers, we expect to continue to be subject to the credit risk of a limited number of customers.
This concentration of customers exposes us to increased credit risks. If one or more of our significant customers were to become insolvent or were otherwise unable to pay us, our financial condition and results of operations would be adversely
affected.

Because we do not generally have long-term contracts with our customers, we are subject to uncertainties and variability in demand by our
customers, which could decrease consolidated net sales and negatively affect our operating results.

We generally do not have long-term purchase
commitments from our customers, and, consequently, our consolidated net sales are subject to short-term variability in demand by our customers. Customers generally have no obligation to order from us and may cancel, reduce or delay orders for a
variety of reasons. The level and timing of orders placed by our customers vary due to:



| |  |  | fluctuation in demand for our customers products;
| | - |  | --------------------------------------------------



| |  |  | changes in customers manufacturing strategies, such as a decision by a customer to either diversify or consolidate the number of PCB manufacturers used;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customers inventory management;
| | - |  | --------------------------------



| |  |  | our own operational performance, such as missed delivery dates and repeated rescheduling; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in new product introductions.
| | - |  | -------------------------------------



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We have experienced terminations, reductions and delays in our customers orders. Future terminations, reductions or
delays in our customers orders could lower our production asset utilization, which would lower our gross profits, decrease our consolidated net sales and negatively affect our business and results of operations.

The increasing prominence of EMS providers in the PCB industry could reduce our gross margins, potential sales, and customers.

Sales to EMS providers represented approximately 46% of our net sales in the second quarter of fiscal 2009. Sales to EMS providers include sales directed by OEMs as well
as orders placed with us at the EMS providers discretion. EMS providers source on a global basis to a greater extent than OEMs. The growth and concentration of EMS providers increases the purchasing power of such providers and could result in
increased price competition or the loss of existing OEM customers. In addition, some EMS providers, including some of our customers, have the ability to directly manufacture PCBs within their own businesses. If a significant number of our other EMS
customers were to acquire these abilities, our customer base might shrink, and our sales might decline substantially. Moreover, if any of our OEM customers outsource the production of PCBs to these EMS providers, our business, results of operations
and financial condition may be harmed.

Automotive customers have higher quality requirements and long qualification times and, if we do not meet
these requirements, our business could be materially adversely affected.

For safety reasons, our automotive customers have strict quality
standards that generally exceed the quality requirements of our other customers. Because a significant portion of Merix Asias products are sold to customers in the automotive industry, if our manufacturing facilities in Asia do not meet these
quality standards, our results of operations may be materially and adversely affected. These automotive customers may require long periods of time to evaluate whether our manufacturing processes and facilities meet their quality standards. If we
were to lose automotive customers due to quality control issues, we might not be able to regain those customers, or gain new automotive customers, for long periods of time, which could significantly decrease our consolidated net sales and
profitability.

The cyclical nature of automotive production and sales could adversely affect Merix business.

A significant portion of Merix Asias products are sold to customers in the automotive industry. In the second quarter of fiscal 2009, net sales to the
automotive market accounted for approximately 23% of our consolidated net sales. As a result, Merix Asias results of operations may be materially and adversely affected by market conditions in the automotive industry. Automotive production and
sales are cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. In addition, automotive production and sales can be affected by labor relations issues, regulatory requirements, trade
agreements and other factors. Any significant economic decline that results in a reduction in automotive production and sales by Merix Asias customers could have a material adverse effect on Merix business, results of operations and
financial condition.

Products we manufacture may contain manufacturing defects, which could result in reduced demand for our products and liability
claims against us.

We manufacture highly complex products to our customers specifications. These products may contain manufacturing errors
or failures despite our quality control and quality assurance efforts. Further, our technology expansion efforts including the major expansion in our Huiyang factory increase the risk related to unanticipated yield issues, as well as to
uncertainties related to future warranty claims. Defects in the products we manufacture, whether caused by a design, manufacturing or materials failure or error, may result in delayed shipments, increased warranty costs, customer dissatisfaction, or
a reduction in or cancellation of purchase orders. If these defects occur either in large quantities or too frequently, our business reputation may be impaired. Since our products are used in products that are integral to our customers
businesses, errors, defects or other performance problems could result in financial or other damages to our customers beyond the cost of the PCB, for which we may be liable in some cases. Although we generally attempt to sell our products on terms
designed to limit our exposure to warranty, product liability and related claims, in certain cases, the



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terms of our agreements allocate to Merix substantial exposure for product defects. In addition, even if we can contractually limit our exposure, existing or
future laws or unfavorable judicial decisions could negate these limitation of liability provisions. Product liability litigation against us, even if it were unsuccessful, would be time consuming and costly to defend. Although we maintain a warranty
reserve, this reserve may not be sufficient to cover our warranty or other expenses that could arise as a result of defects in our products.

We may
incur material losses and costs as a result of product liability and warranty claims that may be brought against us.

We face an inherent business
risk of exposure to warranty and product liability claims in the event that our products, particularly those supplied by Merix Asia to the automotive industry, fail to perform as expected or such failure results, or is alleged to result, in bodily
injury and/or property damage. In addition, if any of our products are or are alleged to be defective, we may be required to participate in a recall of such products. As suppliers become more integral to the vehicle design process and assume more of
the vehicle assembly functions, vehicle manufacturers are increasingly looking to their suppliers for contributions when faced with product liability claims or recalls. In addition, vehicle manufacturers, who have traditionally borne the cost
associated with warranty programs offered on their vehicles, are increasingly requiring suppliers to guarantee or warrant their products and may seek to hold us responsible for some or all of the costs related to the repair and replacement of parts
supplied by us to the vehicle manufacturer. A successful warranty or product liability claim against us in excess of our available insurance coverage or established warranty and legal reserves or a requirement that we participate in a product recall
may have a material adverse effect on our business, financial condition and results of operations.

We rely on suppliers for the timely delivery of
materials used in manufacturing our PCBs, and an increase in industry demand, a shortage of supply or an increase in the price of raw materials may increase the cost of the raw materials we use and may limit our ability to manufacture certain
products and adversely impact our profitability.

To manufacture our PCBs, we use materials such as laminated layers of fiberglass, copper foil and
chemical solutions which we order from our suppliers. Suppliers of laminates and other raw materials that we use may from time to time extend lead times, limit supplies or increase prices due to capacity constraints or other factors, which could
adversely affect our profitability and our ability to deliver our products on a timely basis. We have experienced in the past, and may experience in the future, significant increases in the cost of laminate materials, copper products and
petroleum-based raw materials. These cost increases have had an adverse impact on our profitability and the impact has been particularly significant on our Asian operations which have fixed price arrangements with a number of large automotive
customers. Some of our products use types of laminates that are only available from a single supplier that holds a patent on the material. Although other manufacturers of advanced PCBs also must use the single supplier and our OEM customers
generally determine the type of laminates used, a failure to obtain the material from the single supplier for any reason may cause a disruption, and possible cancellation, of orders for PCBs using that type of laminate, which in turn would cause a
decrease in our consolidated net sales.

If we lose key management, operations, engineering or sales and marketing personnel, we could experience
reduced sales, delayed product development and diversion of management resources.

Our success depends largely on the continued contributions of
our key management, administration, operations, engineering and sales and marketing personnel, many of whom would be difficult to replace. We generally do not have employment or non-compete agreements with our key personnel. If one or more members
of our senior management or key professionals were to resign, the loss of personnel could result in loss of sales, delays in new product development and diversion of management resources, which would have a negative effect on our business. We do not
maintain key man insurance policies on any of our personnel.



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Successful execution of our day-to-day business operations, including our manufacturing process, depends on the
collective experience of our employees and we have experienced periods of high employee turnover. If high employee turnover persists, our business may suffer and we may not be able to compete effectively.

We rely on the collective experience of our employees, particularly in the manufacturing process, to ensure we continuously evaluate and adopt new technologies and
remain competitive. Although we are not generally dependent on any one employee or a small number of employees involved in our manufacturing process, we have experienced periods of high employee turnover generally and continue to experience
significantly high employee turnover at our Asian facilities. If we are not able to replace these people with new employees with comparable capabilities, our operations could suffer as we may be unable to keep up with innovations in the industry or
the demands of our customers. As a result, we may not be able to continue to compete effectively.

We export products from the United States to other
countries. If we fail to comply with export laws, we could be subject to additional taxes, duties, fines and other punitive actions.

Exports from
the United States are regulated by the U.S. Department of Commerce. Failure to comply with these regulations can result in significant fines and penalties. Additionally, violations of these laws can result in punitive penalties, which would
restrict or prohibit us from exporting certain products, resulting in significant harm to our business.

Because we have significant foreign sales
and presence, we are subject to political, economic and other risks we do not face in the domestic market.

As a result of increased Asian
operations, we expect sales in, and product shipments to, non-U.S. markets to represent an increasingly significant portion of our total sales in future periods. Our exposure to the business risks presented by foreign economies includes:



| |  |  | logistical, communications and other operational difficulties in managing a global enterprise;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | restrictions on the transfer of funds into or out of a country;
| | - |  | ---------------------------------------------------------------



| |  |  | longer sales and collection cycles;
| | - |  | -----------------------------------



| |  |  | potential adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | protectionist and trade laws and business practices that favor local companies;
| | - |  | -------------------------------------------------------------------------------



| |  |  | restrictive governmental actions;
| | - |  | ---------------------------------



| |  |  | burdens and costs of compliance with a variety of foreign laws;
| | - |  | ---------------------------------------------------------------



| |  |  | political and economic instability, including terrorist activities;
| | - |  | -------------------------------------------------------------------



| |  |  | natural disaster or outbreaks of infectious diseases affecting the regions in which we operate or sell products; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in collecting accounts receivable.
| | - |  | -----------------------------------------------

Any
one, or a combination, of these risks may materially adversely affect our business operations, our results of operations and/or our financial position.

We must comply with the Foreign Corrupt Practices Act.

We are required to comply with the United States Foreign Corrupt Practices
Act, which prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to
these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in many jurisdictions, including mainland China. If our competitors engage in these practices they may receive preferential
treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our
personnel that such practices are illegal, we cannot assure that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we
could suffer severe penalties.



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We are subject to risks associated with currency fluctuations, which could have a material adverse effect on our
results of operations and financial condition.

A significant portion of our costs is denominated in foreign currencies, primarily the Chinese
renminbi. Substantially all of our consolidated net sales are denominated in U.S. dollars. As a result, changes in the exchange rates of these foreign currencies to the U.S. dollar will affect our cost of sales and operating margins and could
result in exchange losses. The exchange rate of the Chinese renminbi to the U.S. dollar is closely monitored by the Chinese government. Recent increases in the value of the renminbi relative to the U.S. dollar have caused the costs of our Chinese
operations to increase relative to related dollar-denominated sales. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. We may enter into exchange rate hedging programs from time to time in
an effort to mitigate the impact of exchange rate fluctuations. However, hedging transactions may not be effective and may result in foreign exchange hedging losses.

Our operations in the Peoples Republic of China subject us to risks and uncertainties relating to the laws and regulations of the PRC.

Under its current leadership, the Chinese government has been pursuing economic reform policies, including the encouragement of foreign trade and investment and greater economic decentralization. However, the
government of the PRC may not continue to pursue such policies. Despite progress in developing its legal system, the PRC does not have a comprehensive and highly developed system of laws, particularly with respect to foreign investment activities
and foreign trade. Enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation thereof may be inconsistent. As the Chinese legal system develops, the promulgation of new laws, changes to existing laws
and the preemption of local regulations by national laws may adversely affect foreign investors. For example, the PRC recently passed a unified enterprise income tax law, which changes and increases the income tax on foreign-owned facilities. The
PRC also recently enacted new labor laws that became effective January 1, 2008 that make it more difficult and expensive for companies to make changes in their workforce. In addition, some government policies and rules are not published or
communicated in local districts in a timely manner, if they are published at all. As a result, we may operate our business in violation of new rules and policies without having any knowledge of their existence. These uncertainties could limit the
legal protections available to us. Any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management attention.

Our Chinese manufacturing operations subject us to a number of risks we have not faced in the past.

A substantial portion of our
current manufacturing operations is located in the PRC. The geographical distances between these facilities and our U.S. headquarters create a number of logistical and communications challenges. We are also subject to a highly competitive market for
labor in the PRC, which may require us to increase employee wages and benefits to attract and retain employees and spend significant resources to train new employees due to high employee turnover, either of which could cause our labor costs to
exceed our expectations.

In addition, because of the location of these facilities, we could be affected by economic and political instability in the PRC,
including:



| |  |  | lack of developed infrastructure;
| | - |  | ---------------------------------



| |  |  | currency fluctuations;
| | - |  | ----------------------



| |  |  | overlapping taxes and multiple taxation issues;
| | - |  | -----------------------------------------------



| |  |  | employment and severance taxes;
| | - |  | -------------------------------



| |  |  | the burdens of cost, compliance and interpretation of a variety of foreign laws;
| | - |  | --------------------------------------------------------------------------------



| |  |  | difficulty in attracting and training workers in foreign markets and problems caused by labor unrest; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | less protection of our proprietary processes and know-how.
| | - |  | ----------------------------------------------------------



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Moreover, inadequate development or maintenance of infrastructure in the PRC, including inadequate power and water
supplies, transportation or raw materials availability, communications infrastructure or the deterioration in the general political, economic or social environment, could make it difficult and more expensive, and possibly prohibitive, to continue to
operate our manufacturing facilities in the PRC.

New labor laws in the PRC may adversely affect our results of operations.

Approximately two-thirds of our workforce is located in the PRC. Effective on January 1, 2008, the PRC government enacted a new labor law that significantly impacts
the cost of a companys decision to reduce its workforce. Further, the law requires certain terminations to be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce in the PRC, the new
labor law could adversely affect our ability to enact such changes in a manner that is most advantageous to our circumstances or that is timely and cost effective. Additionally, in response to inflationary concerns, wages in certain provinces in
China have recently increased and may continue to do so in the future. Significant increases in wages paid to employees in our Merix Asia facilities could reduce our profitability.

Success in Asia may adversely affect our U.S. operations.

To the extent Asian PCB manufacturers, including
Merix Asia, are able to compete effectively with products historically manufactured in the United States, our facilities in the United States may not be able to compete as effectively and parts of our North American operations may not remain viable.

If we do not effectively manage the expansion of our operations, our business may be harmed, and the increased costs associated with the expansion
may not be offset by increased consolidated net sales.

In fiscal 2009, we substantially completed efforts to significantly expand the Huiyang,
China-based facility and any other future capacity expansion with respect to our facilities will expose us to significant start-up risks including:



| |  |  | delays in receiving and installing required manufacturing equipment;
| | - |  | --------------------------------------------------------------------



| |  |  | inability to retain management personnel and skilled employees, or labor shortages in general;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | difficulties scaling up production, including producing products at competitive costs, yields and quality standards at our expanded facilities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | challenges in coordinating management of operations and order fulfillment between our U.S. and Asian facilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | a need to improve and expand our management information systems and financial controls to accommodate our expanded operations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | additional unanticipated costs; and
| | - |  | -----------------------------------



| |  |  | shortfalls in production volumes as a result of unanticipated start-up or expansion delays that could prevent us from meeting our customers delivery schedules
or production needs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our forward-looking statements depend upon a number of assumptions and include our ability to execute tactical
changes that may adversely impact both short-term and long-term financial performance. The success of our expansion efforts will depend upon our ability to expand, train, retain and manage our employee base in both Asia and North America. In
connection with our expansion efforts in Asia, we expect to require additional employees throughout the company. If we are unable to attract, train and retain new workers, or manage our employee base effectively, our ability to fully utilize our
Asian assets will likely be impaired. If we are unable to effectively expand, train and manage our employee base, our business and results of operations could be adversely affected.

In addition, if our consolidated net sales do not increase sufficiently to offset the additional fixed operating expenses associated with our Asian operations, our consolidated results of operations may be adversely
affected. If demand for our products does not meet anticipated levels, the value of the expanded operations could be significantly impaired, which would adversely affect our results of operations and financial condition.



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Electrical power shortages in certain areas of southern China have caused the government to impose a power
rationing program and additional or extended power rationings could adversely affect our China operations.

In the winter months of fiscal 2008,
certain areas of Southern China faced electrical power constraints which resulted from extreme winter weather in the area. In order to deal with the power constraints, the Southern China Province Government initiated a power rationing plan. This
rationing program affected our Huizhou and Huiyang facilities. In order to minimize the effect on our operations, we realigned our routine equipment maintenance program to coincide with the power rationing schedule. The power rationing program was
terminated in May 2008. In the future, we may experience issues obtaining power or other key services due to infrastructure weaknesses in China that may impair our ability to compete effectively as well as adversely affect revenues and production
costs.

Failure to maintain good relations with minority investors in our China manufacturing facilities could materially adversely affect our
ability to manage our Asian operations.

Currently, we have two PCB manufacturing plants in the PRC that are each partially owned by a separate
Chinese company. While we are the majority interest holder in both of these companies, there is a minority interest holder in each subsidiary, owning a 5% and 15% share, respectively. These minority holders are local investors with close ties to
local economic development and other government agencies. The investors are the leaseholders for the land on which the plants owned by our Chinese operating companies are located. In connection with the negotiation of their investments, the local
investors secured certain rights to be consulted and consent to certain operating and investment matters concerning the plants and to board representation. Failure to maintain good relations with the investors in either China joint venture could
materially adversely affect our ability to manage the operations of one or more of the plants and our ability to realize the anticipated benefits of the Asian acquisition.

We do not currently have options to renew our leased manufacturing facility in the PRC and failure to renew such lease could adversely affect our ability to realize the anticipated benefits of the Asian
acquisition.

Our Huizhou manufacturing facility is leased from a Chinese company under an operating lease that expires in 2010 and does not
contain a lease renewal option. Although the landlord also has a minority interest in our subsidiary that operates the facility, this minority interest holder may choose to not renew our lease. Failure to maintain good relations with this investor
could materially adversely affect our ability to negotiate the renewal of our operating lease or to continue to operate the plant. Although we have renewed this lease in the past, failure to successfully renew such lease in the future could
materially adversely affect our ability to realize the anticipated benefits of the Asian acquisition. In addition, the lease renewal allows early termination by either party, so failure to maintain good relations with this investor could materially
impact our continued leasehold of the facility. Further, zoning and changes in laws in China could impair the ability of the landlord to extend or renew the lease.

Our bank credit covenant that limits our incremental investment in Merix Asia may restrict our ability to adequately fund our Asian operations and our growth plans in Asia.

Merix has a bank credit agreement covenant that limits the incremental investment into Merix Asia to $40 million and provides that our investments cannot be made if a
default exists under the credit agreement or the Excess Availability (defined in the credit agreement as a function of outstanding borrowings and available cash) is less than $20 million. As of November 29, 2008, we had advanced Merix Asia
approximately $5.5 million against the incremental investment limit. The advance to Merix Asia was reduced significantly by an intercompany sale of accounts receivable from the Asia subsidiary to the U.S. parent company during the second quarter of
fiscal 2009. If our Asian operations at any time require an amount of cash greater than our available capital resources, or than is permitted to be advanced under applicable credit agreements, there is risk that we will not be able to fund our Asian
operations or achieve our growth plans in Asia.



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Acquisitions may be costly and difficult to integrate, may divert and dilute management resources and may dilute
shareholder value.

As part of our business strategy, we have made and may continue to make acquisitions of, or investments in, companies, products
or technologies that complement our current products, augment our market coverage, enhance our technical capabilities or production capacity or that may otherwise offer growth opportunities. In any future acquisitions or investments, we could
potentially experience:



| |  |  | problems integrating the purchased operations, technologies or products;
| | - |  | ------------------------------------------------------------------------



| |  |  | failure to achieve potential sales, materials costs and other synergies;
| | - |  | ------------------------------------------------------------------------



| |  |  | inability to retain existing customers of acquired entities when we desire to do so;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the need to restructure, modify or terminate customer relationships of the acquired company;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | increased concentration of business from existing or new customers;
| | - |  | -------------------------------------------------------------------



| |  |  | unanticipated expenses and working capital requirements;
| | - |  | --------------------------------------------------------



| |  |  | diversion of managements attention and loss of key employees;
| | - |  | --------------------------------------------------------------



| |  |  | asset impairments related to the acquisitions; or
| | - |  | -------------------------------------------------



| |  |  | fewer resources available for our legacy businesses as they are being redirected to the acquired entities to integrate their business processes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

In addition, in connection with any future acquisitions or investments, we could:



| |  |  | enter lines of business and/or markets in which we have limited or no prior experience;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | issue stock that would dilute our current shareholders percentage ownership;
| | - |  | -----------------------------------------------------------------------------



| |  |  | incur debt and assume liabilities that could impair our liquidity;
| | - |  | ------------------------------------------------------------------



| |  |  | record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | incur amortization expenses related to intangible assets;
| | - |  | ---------------------------------------------------------



| |  |  | uncover previously unknown liabilities;
| | - |  | ---------------------------------------



| |  |  | become subject to litigation and environmental remediation issues;
| | - |  | ------------------------------------------------------------------



| |  |  | incur large and immediate write-offs that would reduce net income; or
| | - |  | ---------------------------------------------------------------------



| |  |  | incur substantial transaction-related costs, whether or not a proposed acquisition is consummated.
| | - |  | --------------------------------------------------------------------------------------------------

Any of these factors could prevent us from realizing anticipated benefits of an acquisition or investment, including operational synergies, economies of scale and
increased profit margins and revenue. Acquisitions are inherently risky, and any acquisition may not be successful. Failure to manage and successfully integrate acquisitions could harm our business and operating results in a material way. Even when
an acquired company has already developed and marketed products, product enhancements may not be made in a timely fashion. In addition, unforeseen issues might arise with respect to such products after the acquisition.

We face a risk that capital needed for our business and to repay our debt obligations will not be available when we need it or may not be available to us on
favorable terms, if at all. Additionally, our leverage and our debt service obligations may adversely affect our cash flow, results of operations and financial position.

Recent turmoil in global financial markets has limited access to capital for many companies. We are not currently experiencing any limitation of access to our revolving line of credit and management is not aware of
any issues currently impacting our lenders ability to honor its commitment to extend credit. However, if we were unable to borrow on our revolving line of credit in the future due to the global credit crisis, our business and results of
operations could be adversely affected. Furthermore, additional capital may not be available to us on favorable terms or at all. To the extent that additional capital is raised through the sale of equity, or securities convertible into equity,
current shareholders may experience dilution of their proportionate ownership.

As of November 29, 2008, we had total indebtedness of approximately
$77 million, which represented approximately 42% of our total capitalization. We also have $42.9 million unused availability under a secured bank revolving line of credit that would increase our leverage if utilized.



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Our indebtedness could have significant negative consequences, including:



| |  |  | increasing our vulnerability to general adverse economic and industry conditions;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | limiting our ability to obtain additional financing;
| | - |  | ----------------------------------------------------



| |  |  | requiring the use of a substantial portion of any cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for
other purposes, including capital expenditures;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

Additionally, we are exposed to interest rate risk relating to our revolving credit facility which bears interest based, at our
election, on either the prime rate or LIBOR plus an additional margin based on our use of the credit facility. At November 29, 2008, there was $8.0 million outstanding under the revolving line of credit, of which $1.0 million was borrowed
during November by our Asia subsidiary and is not reflected in the consolidated balance sheet due to the one-month reporting lag. When we utilize our revolving credit facility to meet our capital requirements, we are subject to market interest rate
risk that could increase our interest expense beyond expected levels and decrease our profitability.

Our capacity build-out and technological
changes will require significant capital investment and could adversely affect our liquidity.

We have substantially completed a major expansion at
our Huiyang, China based facility and are improving our technological capabilities through the addition of new capital in both our North American and China based facilities. This expansion, and other capital requirements, requires approximately $18
million of capital expenditures in fiscal 2009, of which $14.8 million was spent in the first six months of fiscal 2009. We anticipate funding this expansion from operations, existing cash and cash equivalents and bank credit facilities. In response
to the economic downturn and the resulting reduction in demand for our products, discretionary capital expenditures have been substantially curtailed for the remainder of fiscal 2009. Significant reductions in on-going capital investments could
impair our ability to successfully restructure our business and compete effectively. Further, our bank credit facilities provide credit based upon a number of covenants, with which we are currently in compliance. However, business conditions or our
execution on a number of critical initiatives to support the capacity and technology expansion efforts could impair our ability to access these facilities.

Restructuring efforts have required both restructuring and impairment charges and we may be required to record asset impairment charges in the future, which would adversely affect our results of operations and financial condition.

We have recorded impairment charges against certain assets in fiscal 2009, fiscal 2008 and fiscal 2007. As our strategy evolves and due to the
cyclicality of our business, rapid technological change and the migration of business to Asia, we might conclude in the future that some of our manufacturing facilities are surplus to our needs or will not generate sufficient future cash flows to
cover the net book value and, thus, we may be required to record an impairment charge. Such an impairment charge would adversely affect our results of operations and financial condition.

Due to the substantial variance between our market capitalization based on the current trading price range for our common stock and the net asset value reflected in our consolidated balance sheet, as well as other
factors regarding our results of operations and the current economic environment, management has undertaken assessments of potential impairment of the companys long-lived assets in the first and second quarters of fiscal 2009. It was
determined that no impairment existed as of November 29, 2008. However, it is possible that further impairment charges may be recorded in the future, which would adversely affect our results of operations and financial condition.



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As of November 29, 2008, our consolidated balance sheet reflected $39.7 million of goodwill and intangible
assets. We periodically evaluate whether events and circumstances have occurred that indicate the remaining balance of goodwill and intangible assets may not be recoverable. If factors indicate that assets are impaired, we would be required to
reduce the carrying value of our goodwill and intangible assets, which could adversely affect our results during the periods in which such a reduction is recognized. Our goodwill and intangible assets may increase in future periods if we consummate
other acquisitions. Amortization or impairment of these additional intangibles would, in turn, adversely affect our earnings.

As we continue our
work to implement a global enterprise resource planning (ERP) system, unexpected problems and delays could occur and could cause disruption to the management of our business and significantly increase costs.

During fiscal 2008, we completed the implementation for our world-wide ERP system at our North American operations. The new ERP system is integral to our ability to
accurately and efficiently maintain our books and records, record our transactions, provide critical information to our management and prepare our financial statements. Our work to plan, develop and implement this new ERP system continues as an
active project, as we implemented the ERP system at our Asian operations in August 2008 and we are evaluating the success of that implementation as we use the system to report the results of operations for our Asia subsidiary in the second quarter
of fiscal 2009. These systems are new to us and we have not had extensive experience with them. Implementation of the new ERP system has required us to change certain internal business practices and training may be inadequate. We may encounter
unexpected difficulties, delays, internal control issues, costs, unanticipated adverse effects or other challenges, any of which may disrupt our business. Corrections and improvements may be required as we continue to refine the implementation of
our new system, procedures and controls, and could cause us to incur additional costs and require additional management attention, placing burdens on our internal resources. Any disruption in the transition to our new or enhanced systems, procedures
or controls, could harm our ability to accurately forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and records, compete effectively and report financial and management information on a timely and
accurate basis. Failure to properly or adequately address these issues could result in the diversion of managements attention and resources and impact our ability to manage our business and our results of operations.

We have reported material weaknesses in our internal control over financial reporting and if additional material weaknesses are discovered in the future, our stock
price and investor confidence in us may be adversely affected.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. In connection with managements assessments of our internal
control over financial reporting over the prior fiscal year, we identified material weaknesses in our internal control over financial reporting.

We have
previously identified a material weakness in controls over financial reporting for our Merix Asia operations and have determined that this material weakness still exists at November 29, 2008. At the time of the acquisition in September 2005,
Merix Asia had weak internal controls over financial reporting and needed to develop processes to strengthen its accounting systems and control environment management. We have devoted significant time and resources to improving the internal controls
over financial reporting since the acquisition; however, as of November 29, 2008, we have determined that we did not maintain sufficient controls to adequately monitor the accounting and financial reporting related to our Merix Asia operations.
See Item 4. Controls and procedures.

We may, in the future, identify additional internal control deficiencies that could rise to the
level of a material weakness or uncover errors in financial reporting. Material weaknesses in our internal control over financial reporting may cause investors to lose confidence in us, which could have an adverse effect on our business and stock
price.

Our failure to comply with environmental laws could adversely affect our business.

Our operations are regulated under a number of federal, state and municipal environmental and safety laws and regulations including laws in the U.S. and the PRC that
govern, among other things, the discharge of hazardous and other materials into the air and water, as well as the handling, storage, labeling, and disposal



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of such materials. When violations of environmental laws occur, we can be held liable for damages, penalties and costs of investigation and remedial actions.
Violations of environmental laws and regulations may occur as a result of our failure to have necessary permits, human error, equipment failure or other causes. Moreover, in connection with our acquisitions in San Jose, California and in Asia, we
may be liable for any violations of environmental and safety laws at those facilities by prior owners. If we violate environmental laws, we may be held liable for damages and the costs of investigations and remedial actions and may be subject to
fines and penalties, and revocation of permits necessary to conduct our business. Any permit revocations could require us to cease or limit production at one or more of our facilities, and harm our business, results of operations and financial
condition. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend. Our failure to comply with applicable environmental laws and regulations could limit our ability to expand facilities or could
require us to acquire costly equipment or to incur other significant expenses to comply with these laws and regulations. In the future, environmental laws may become more stringent, imposing greater compliance costs and increasing risks and
penalties associated with violations. We operate in environmentally sensitive locations and we are subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes or restrictions on
discharge limits, emissions levels, permitting requirements and material storage, handling or disposal might require a high level of unplanned capital investment, operating expenses or, depending on the severity of the impact of the foregoing
factors, costly plant relocation. It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, results of operations and financial condition.

We are potentially liable for contamination at our current and former facilities as well as at sites where we have arranged for the disposal of hazardous wastes, if such
sites become contaminated. These liabilities could include investigation and remediation activities. It is possible that remediation of these sites could adversely affect our business and operating results in the future.

Pending or future litigation could have a material adverse effect on our operating results and financial condition.

We are involved, from time to time, in litigation incidental to our business including complaints filed by investors. This litigation could result in substantial costs
and could divert managements attention and resources which could harm our business. Risks associated with legal liability are often difficult to assess or quantify, and their existence and magnitude can remain unknown for significant periods
of time. In cases where we record a liability, the amount of our estimates could be wrong. In addition to the direct costs of litigation, pending or future litigation could divert managements attention and resources from the operation of our
business. While we maintain director and officer insurance, the amount of insurance coverage may not be sufficient to cover a claim and the continued availability of this insurance cannot be assured. As a result, there can be no assurance that the
actual outcome of pending or future litigation will not have a material adverse effect on our results of operations or financial condition.

We may
be subject to claims of intellectual property infringement.

Several of our competitors hold patents covering a variety of technologies,
applications and methods of use similar to some of those used in our products. From time to time, we and our customers have received correspondence from our competitors claiming that some of our products, as used by our customers, may be infringing
one or more of these patents. Competitors or others have in the past and may in the future assert infringement claims against our customers or us with respect to current or future products or uses, and these assertions may result in costly
litigation or require us to obtain a license to use intellectual property rights of others. If claims of infringement are asserted against our customers, those customers may seek indemnification from us for damages or expenses they incur.

If we become subject to infringement claims, we will evaluate our position and consider the available alternatives, which may include seeking licenses to
use the technology in question or defending our position. These licenses, however, may not be available on satisfactory terms or at all. If we are not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend
our position, our financial condition and results of operations could be materially and adversely affected.



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We may have exposure to income tax rate fluctuations as well as to additional tax liabilities, which would impact
our financial position.

As a corporation with operations both in the United States and abroad, we are subject to taxes in the United States and
various foreign jurisdictions. Our effective tax rate is subject to fluctuation as the income tax rates for each year are a function of the following factors, among others:



| |  |  | the effects of a mix of profits or losses earned by us and our subsidiaries in numerous tax jurisdictions with a broad range of income tax rates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to utilize net operating losses;
| | - |  | --------------------------------------------



| |  |  | changes in contingencies related to taxes, interest or penalties resulting from tax audits; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | changes in tax laws or the interpretation of such laws.
| | - |  | -------------------------------------------------------

Changes in the mix of these items and other items may cause our effective tax rate to fluctuate between periods, which could have a material adverse effect on our financial position.

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and
various foreign jurisdictions.

Significant judgment is required in determining our provision for income taxes and other tax liabilities. Although we
believe that our tax estimates are reasonable, we cannot provide assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

RISKS RELATED TO OUR CORPORATE STRUCTURE AND STOCK

Our
stock price has fluctuated significantly, and we expect the trading price of our common stock to remain highly volatile.

The closing trading price
of our common stock has fluctuated from a low of less than $0.25 per share to a high of more than $70.00 per share over the past 14 years.

The market
price of our common stock may fluctuate as a result of a number of factors including:



| |  |  | actual and anticipated variations in our operating results;
| | - |  | -----------------------------------------------------------



| |  |  | general economic and market conditions, including changes in demand in the PCB industry and the end markets which we serve;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | interest rates;
| | - |  | ---------------



| |  |  | geopolitical conditions throughout the world;
| | - |  | ---------------------------------------------



| |  |  | perceptions of the strengths and weaknesses of the PCB industry and the end markets which it serves;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | our ability to pay principal and interest on our debt when due;
| | - |  | ---------------------------------------------------------------



| |  |  | developments in our relationships with our lenders, customers, and/or suppliers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | announcements of alliances, mergers or other relationships by or between our competitors and/or our suppliers and customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of plant closings, layoffs, restructurings or bankruptcies by our competitors; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | developments related to regulations, including environmental and wastewater regulations.
| | - |  | ----------------------------------------------------------------------------------------

We expect volatility to continue in the future. The stock market in general has recently experienced extreme price and volume fluctuations that have affected the PCB
industry and that may be unrelated to the operating performance of the companies within these industries. These broad market fluctuations may adversely affect the market price of our common stock and limit our ability to raise capital or finance
transactions using equity instruments.



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A large number of our outstanding shares and shares to be issued upon exercise of our outstanding options may be
sold into the market in the future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

We may, in the future, sell additional shares of our common stock, or securities convertible into or exercisable for shares of our common stock, to raise capital. We may also issue additional shares of our common stock, or securities
convertible into or exercisable for shares of our common stock, to finance future acquisitions. Further, a substantial number of shares of our common stock are reserved for issuance pursuant to stock options and our employee stock purchase plan. Due
to the significant reduction in the price of our common stock, the entire remaining pool of approximately 603,000 shares reserved for issuance under our employee stock option plan will be issued in January 2009 and the plan will be suspended, As of
November 29, 2008, we had approximately 3.3 million outstanding options, each to purchase one share of our common stock, issued to employees, officers and directors under our equity incentive plans. The options have exercise prices ranging
from $1.62 per share to $67.06 per share. These outstanding options could have a significant adverse effect on the trading price of our common stock, especially if a significant volume of the options was exercised and the stock issued was
immediately sold into the public market. Further, the exercise of these options could have a dilutive impact on other shareholders by decreasing their ownership percentage of our outstanding common stock. If we attempt to raise additional capital
through the issuance of equity or convertible debt securities, the terms upon which we will be able to obtain additional equity capital, if at all, may be negatively affected since the holders of outstanding options can be expected to exercise them,
to the extent they are able, at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable than those provided in such options.

Some provisions contained in our Articles of Incorporation, Bylaws and Shareholders Rights Agreement, as well as provisions of Oregon law, could inhibit an attempt by a third party to acquire or merge with Merix
Corporation.

Some of the provisions of our Articles of Incorporation, Bylaws, Shareholders Rights Agreement and Oregons anti-takeover laws
could delay or prevent a merger or acquisition between us and a third party, or make a merger or acquisition with us less desirable to a potential acquirer, even in circumstances in which our shareholders may consider the merger or acquisition
favorable. Our Articles of Incorporation authorize our Board of Directors to issue series of preferred stock and determine the rights and preferences of each series of preferred stock to be issued. Our Shareholder Rights Agreement is designed to
enhance the Boards ability to protect shareholders against unsolicited attempts to acquire control of us that do not offer an adequate price to all shareholders or are otherwise not in the Companys best interests and the best interests
of our shareholders. The rights issued under the rights agreement will cause substantial dilution to any person or group who attempts to acquire a significant amount of common stock without approval of our Board of Directors. Any of these provisions
that have the effect of delaying or deterring a merger or acquisition between us and a third party could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some
investors are willing to pay for our common stock.



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|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

We
repurchased the following shares of our common stock during the second quarter of fiscal 2009:



|                                      |  |                                |  |                            |      |                                                                |   |                                                              |  
|------------------------------------- |  | ------------------------------ |  | -------------------------- | ---- | -------------------------------------------------------------- | - | ------------------------------------------------------------ | -
|                                      |  | Total numberof sharespurchased |  | Averageprice paidper share |      | Total numberof sharespurchased aspart of publiclyannouncedplan |   | Maximumnumber ofshares thatmay yet bepurchasedunder the plan
|September 1, 2008 to October 4, 2008  |  | 78                             |  | $                          | 1.31 |                                                                |  |                                                              | 
|October 5, 2008 to November 1, 2008   |  |                               |  |                            |     |                                                                |  |                                                              | 
|November 2, 2008 to November 29, 2008 |  | 313                            |  |                            | 0.52 |                                                                |  |                                                              | 
|                                      |  |                                |  |                            |      |                                                                |   |                                                              |  
|Total                                 |  | 391                            |  | $                          | 0.69 |                                                                |  |                                                              | 
|                                      |  |                                |  |                            |      |                                                                |   |                                                              |  

Purchases during the first quarter of fiscal 2009 represented shares purchased by the Company from employees from
which the proceeds are remitted to pay the employees withholding taxes due at the time the employees restricted stock awards vest under our equity-based compensation plans.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

The following
action was taken at our annual meeting of shareholders, which was held on October 8, 2008:

The shareholders elected the eight nominees for director to
our Board of Directors. The eight directors elected, along with the voting results were as follows:



|                      |  |                         |  |                             
|--------------------- |  | ----------------------- |  | ----------------------------
|Name                  |  | No. of SharesVoting For |  | No. of SharesWithheld Voting
|Michael D. Burger     |  | 8,991,842               |  | 7,692,876                   
|Kirby A. Dyess        |  | 8,999,008               |  | 7,685,710                   
|Donald D. Jobe        |  | 8,966,945               |  | 7,717,773                   
|George H. Kerckhove   |  | 8,969,641               |  | 7,715,077                   
|Dr. William W. Lattin |  | 8,965,332               |  | 7,719,386                   
|William C. McCormick  |  | 8,995,177               |  | 7,689,541                   
|Robert C. Strandberg  |  | 8,995,256               |  | 7,689,462                   
|Francis Yuen          |  | 16,167,630              |  | 517,088                     



|Item 6. | Exhibits
|------- | --------

The following exhibits are filed herewith and this list
is intended to constitute the exhibit index:



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.                           
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.                           
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  |  |  |                                                     
|---------------------- |  |  |  |  |  | ----------------------------------------------------
|                       |  |  |  |  |  | MERIX CORPORATION                                   
|                       |  |  | 
|Dated: January 8, 2009 |  |  |  |  |  | /s/ MICHAEL D. BURGER                               
|                       |  |  |  |  |  | Michael D. Burger                                   
|                       |  |  |  |  |  | Director, President and                             
|                       |  |  |  |  |  | Chief Executive Officer                             
|                       |  |  |  |  |  | (Principal Executive Officer)                       
|                       |  |  | 
|                       |  |  |  |  |  | /s/ KELLY E. LANG                                   
|                       |  |  |  |  |  | Kelly E. Lang                                       
|                       |  |  |  |  |  | Executive Vice President and Chief Financial Officer
|                       |  |  |  |  |  | (Principal Financial Officer)                       
|                       |  |  | 
|                       |  |  |  |  |  | /s/ ALLEN L. MUHICH                                 
|                       |  |  |  |  |  | Allen L. Muhich                                     
|                       |  |  |  |  |  | Vice President  Finance and Corporate Controller   
|                       |  |  |  |  |  | (Principal Accounting Officer)                      



46