##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended February 24, 2007

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. 0-23818



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MERIX CORPORATION

(Exact name of registrant as specified in its charter)



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



|                                         |  |           
|---------------------------------------- |  | ----------
|1521 Poplar Lane, Forest Grove, Oregon   |  | 97116     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code: 503-359-9300



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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 or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

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 April 3, 2007 was 20,661,243 shares.



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##### Table of Contents

MERIX CORPORATION

INDEX TO FORM 10-Q



|                               |  |                                                                                                                             |  |   
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------- |  | --
|                               |  | Page                                                                                                                       
|PART I  FINANCIAL INFORMATION |  |                                                                                                                            
|                               |  |                                                                                                                            
|Item 1.                        |  | Consolidated Financial Statements (Unaudited)                                                                               |  |   
|                               |  |                                                                                                                            
|                               |  | Consolidated Balance Sheets  February 24, 2007 and May 27, 2006                                                            |  | 2 
|                               |  |                                                                                                                            
|                               |  | Consolidated Statements of Operations  Thirteen and Thirty-Nine Week Periods Ended February 24, 2007 and February 25, 2006 |  | 3 
|                               |  |                                                                                                                            
|                               |  | Consolidated Statements of Cash Flows  Thirty-Nine Week Periods Ended February 24, 2007 and February 25, 2006              |  | 4 
|                               |  |                                                                                                                            
|                               |  | Notes to Consolidated Financial Statements                                                                                  |  | 5 
|                               |  |                                                                                                                            
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 19
|                               |  |                                                                                                                            
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                  |  | 30
|                               |  |                                                                                                                            
|Item 4.                        |  | Controls and Procedures                                                                                                     |  | 31
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                                            
|                               |  |                                                                                                                            
|Item 1.                        |  | Legal Proceedings                                                                                                           |  | 32
|                               |  |                                                                                                                            
|Item 1A.                       |  | Risk Factors                                                                                                                |  | 32
|                               |  |                                                                                                                            
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |  | 43
|                               |  |                                                                                                                            
|Item 6.                        |  | Exhibits                                                                                                                    |  | 43
|                               | 
|Signatures                     |  | 44                                                                                                                         



1



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##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

MERIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)



|                                                                                                                                                  |  |                   |         |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------ | - | ------- | -
|                                                                                                                                                  |  | February 24, 2007 |         | May 27, 2006 |  
|                                                                                                                                                  | 
|ASSETS                                                                                                                                            |  |                   |         |              |   |         |  
|Current Assets:                                                                                                                                   |  |                   |         |              |   |         |  
|Cash and cash equivalents                                                                                                                         |  | $                 | 24,464  |              | $ | 12,280  |  
|Short-term investments                                                                                                                            |  |                   |        |              |   | 18,525  |  
|Accounts receivable, net of allowances for doubtful accounts of $2,705 and $2,683                                                                 |  |                   | 82,161  |              |   | 75,277  |  
|Inventories, net                                                                                                                                  |  |                   | 26,277  |              |   | 23,367  |  
|Income taxes receivable                                                                                                                           |  |                   | 299     |              |   |        |  
|Assets held for sale                                                                                                                              |  |                   | 1,323   |              |   | 1,987   |  
|Assets of discontinued operations                                                                                                                 |  |                   | 527     |              |   | 3,254   |  
|Other current assets                                                                                                                              |  |                   | 8,930   |              |   | 5,356   |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Current Assets                                                                                                                              |  |                   | 143,981 |              |   | 140,046 |  
|                                                                                                                                                  |  |                  
|Property, plant and equipment, net of accumulated depreciation of $115,762 and $102,977                                                           |  |                   | 122,736 |              |   | 122,184 |  
|Goodwill                                                                                                                                          |  |                   | 85,048  |              |   | 89,889  |  
|Definite-lived intangible assets, net of accumulated amortization of $6,639 and $4,492                                                            |  |                   | 11,769  |              |   | 13,916  |  
|Leasehold land use rights, net                                                                                                                    |  |                   | 6,243   |              |   | 6,330   |  
|Deferred financing costs, net                                                                                                                     |  |                   | 4,966   |              |   | 5,653   |  
|Assets of discontinued operations                                                                                                                 |  |                   |        |              |   | 781     |  
|Other assets, net                                                                                                                                 |  |                   | 94      |              |   | 131     |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Assets                                                                                                                                      |  | $                 | 374,837 |              | $ | 378,930 |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                              |  |                   |         |              |   |         |  
|Current Liabilities:                                                                                                                              |  |                   |         |              |   |         |  
|Current portion of long-term debt                                                                                                                 |  | $                 | 2,789   |              | $ | 7,655   |  
|Accounts payable                                                                                                                                  |  |                   | 52,503  |              |   | 46,956  |  
|Accrued compensation                                                                                                                              |  |                   | 7,429   |              |   | 11,979  |  
|Accrued warranty                                                                                                                                  |  |                   | 2,436   |              |   | 2,297   |  
|Other accrued liabilities                                                                                                                         |  |                   | 9,824   |              |   | 10,903  |  
|Income taxes payable                                                                                                                              |  |                   | 709     |              |   | 134     |  
|Liabilities of discontinued operations                                                                                                            |  |                   | 407     |              |   | 578     |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Current Liabilities                                                                                                                         |  |                   | 76,097  |              |   | 80,502  |  
|                                                                                                                                                  |  |                  
|Long-Term Debt                                                                                                                                    |  |                   | 75,503  |              |   | 91,077  |  
|Other Long-Term Liabilities                                                                                                                       |  |                   | 1,162   |              |   | 1,108   |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Liabilities                                                                                                                                 |  |                   | 152,762 |              |   | 172,687 |  
|                                                                                                                                                  |  |                  
|Minority Interest Obligations, net of tax                                                                                                         |  |                   | 4,428   |              |   | 4,118   |  
|Commitments and Contingencies                                                                                                                     |  |                   |         |              |   |         |  
|                                                                                                                                                  |  |                  
|Shareholders' Equity:                                                                                                                             |  |                   |         |              |   |         |  
|Preferred stock, no par value; authorized 10,000 shares; none issued                                                                              |  |                   |        |              |   |        |  
|Common stock, no par value; authorized 50,000 shares; issued and outstanding 20,632 shares at February 24, 2007 and 19,806 shares at
May 27, 2006 |  |                   | 211,767 |              |   | 204,831 |  
|Deferred stock-based compensation                                                                                                                 |  |                   |        |              |   | (1,096  | )
|Retained earnings (accumulated deficit)                                                                                                           |  |                   | 5,869   |              |   | (1,623  | )
|Accumulated other comprehensive income                                                                                                            |  |                   | 11      |              |   | 13      |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Shareholders' Equity                                                                                                                        |  |                   | 217,647 |              |   | 202,125 |  
|                                                                                                                                                  |  |                   |         |              |   |         |  
|Total Liabilities and Shareholders' Equity                                                                                                        |  | $                 | 374,837 |              | $ | 378,930 |  
|                                                                                                                                                  |  |                   |         |              |   |         |  

The accompanying notes are an integral part of the Consolidated Financial Statements.



2



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##### Table of Contents

MERIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ------------------------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                                                                          |  | For the Thirteen Weeks Ended |         |   | For the Thirty-Nine Weeks Ended |  
|                                                                                                          |  | February 24, 2007            |         |   | February 25, 2006               |   |        | February 24, 2007 |  |   | February 25, 2006 |  
|                                                                                                          |  |                              |        
|Net Sales                                                                                                 |  | $                            | 100,288 |   |                                 | $ | 92,834 |                   |  | $ | 306,924           |   |  | $ | 205,647 |  
|Cost of Sales                                                                                             |  |                              | 82,929  |   |                                 |   | 76,743 |                   |  |   | 251,384           |   |  |   | 174,650 |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Gross Margin                                                                                              |  |                              | 17,359  |   |                                 |   | 16,091 |                   |  |   | 55,540            |   |  |   | 30,997  |  
|                                                                                                          |  |                              |         |  
|Operating Expenses:                                                                                       |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Engineering                                                                                               |  |                              | 1,664   |   |                                 |   | 1,756  |                   |  |   | 4,820             |   |  |   | 4,647   |  
|Selling, general and administrative                                                                       |  |                              | 10,617  |   |                                 |   | 10,541 |                   |  |   | 33,575            |   |  |   | 22,062  |  
|Amortization of identifiable intangible assets                                                            |  |                              | 624     |   |                                 |   | 854    |                   |  |   | 2,147             |   |  |   | 2,431   |  
|Severance and impairment charges                                                                          |  |                              | 1,023   |   |                                 |   |       |                   |  |   | 1,023             |   |  |   | 1,135   |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Total operating expenses                                                                                  |  |                              | 13,928  |   |                                 |   | 13,151 |                   |  |   | 41,565            |   |  |   | 30,275  |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|                                                                                                          |  |                              |         |  
|Operating Income                                                                                          |  |                              | 3,431   |   |                                 |   | 2,940  |                   |  |   | 13,975            |   |  |   | 722     |  
|                                                                                                          |  |                              |         |  
|Other Income (Expense):                                                                                   |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Interest income                                                                                           |  |                              | 377     |   |                                 |   | 359    |                   |  |   | 1,121             |   |  |   | 1,444   |  
|Interest expense                                                                                          |  |                              | (1,309  | ) |                                 |   | (2,232 | )                 |  |   | (4,298            | ) |  |   | (3,776  | )
|Other income (expense), net                                                                               |  |                              | (141    | ) |                                 |   | 54     |                   |  |   | (884              | ) |  |   | (132    | )
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Total other expense, net                                                                                  |  |                              | (1,073  | ) |                                 |   | (1,819 | )                 |  |   | (4,061            | ) |  |   | (2,464  | )
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Income (loss) from continuing operations before income taxes and minority interests                       |  |                              | 2,358   |   |                                 |   | 1,121  |                   |  |   | 9,914             |   |  |   | (1,742  | )
|Income tax expense                                                                                        |  |                              | 367     |   |                                 |   | 391    |                   |  |   | 1,315             |   |  |   | 442     |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Income (loss) from continuing operations before minority interests                                        |  |                              | 1,991   |   |                                 |   | 730    |                   |  |   | 8,599             |   |  |   | (2,184  | )
|Minority interests                                                                                        |  |                              | 220     |   |                                 |   | 18     |                   |  |   | 252               |   |  |   | 31      |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Income (loss) before discontinued operations                                                              |  |                              | 1,771   |   |                                 |   | 712    |                   |  |   | 8,347             |   |  |   | (2,215  | )
|Income (loss) from discontinued operations, net of income tax expense of $0, $0, $98 and $7, respectively |  |                              | 314     |   |                                 |   | 97     |                   |  |   | (858              | ) |  |   | 133     |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Net income (loss)                                                                                         |  | $                            | 2,085   |   |                                 | $ | 809    |                   |  | $ | 7,489             |   |  | $ | (2,082  | )
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|                                                                                                          |  |                              |         |  
|Basic income (loss) per share from continuing operations                                                  |  | $                            | 0.09    |   |                                 | $ | 0.04   |                   |  | $ | 0.41              |   |  | $ | (0.11   | )
|Basic income (loss) per share from discontinued operations                                                |  |                              | 0.01    |   |                                 |   |       |                   |  |   | (0.04             | ) |  |   |        |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Basic net income (loss) per share                                                                         |  | $                            | 0.10    |   |                                 | $ | 0.04   |                   |  | $ | 0.37              |   |  | $ | (0.11   | )
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|                                                                                                          |  |                              |         |  
|Diluted income (loss) per share from continuing operations                                                |  | $                            | 0.09    |   |                                 | $ | 0.04   |                   |  | $ | 0.40              |   |  | $ | (0.11   | )
|Diluted income (loss) per share from discontinued operations                                              |  |                              | 0.01    |   |                                 |   |       |                   |  |   | (0.04             | ) |  |   |        |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Diluted net income (loss) per share                                                                       |  | $                            | 0.10    |   |                                 | $ | 0.04   |                   |  | $ | 0.36              |   |  | $ | (0.11   | )
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Shares used in per share calculations:                                                                    |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Basic                                                                                                     |  |                              | 20,575  |   |                                 |   | 19,526 |                   |  |   | 20,302            |   |  |   | 19,459  |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  
|Diluted                                                                                                   |  |                              | 20,811  |   |                                 |   | 19,766 |                   |  |   | 20,665            |   |  |   | 19,459  |  
|                                                                                                          |  |                              |         |   |                                 |   |        |                   |  |   |                   |   |  |   |         |  

The accompanying notes are an integral part of the Consolidated Financial Statements.



3



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##### Table of Contents

MERIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                         |  |                                 |         |   |                   |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ----------------- | - | -------- | -
|                                                                                         |  | For the Thirty-Nine Weeks Ended |        
|                                                                                         |  | February 24, 2007               |         |   | February 25, 2006 |  
|                                                                                         | 
|Cash flows from operating activities:                                                    |  |                                 |         |   |                   |   |          |  
|Net income (loss)                                                                        |  | $                               | 7,489   |   |                   | $ | (2,082   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |         |   |                   |   |          |  
|Depreciation and amortization                                                            |  |                                 | 17,633  |   |                   |   | 15,841   |  
|Contribution of common stock to defined contribution plan                                |  |                                 | 1,044   |   |                   |   | 787      |  
|Share-based compensation expense, net                                                    |  |                                 | 1,680   |   |                   |   | 208      |  
|Minority interest in net income of consolidated subsidiaries                             |  |                                 | 252     |   |                   |   | 31       |  
|(Gain) loss on impairment and disposal of fixed assets                                   |  |                                 | (41     | ) |                   |   | 560      |  
|Impairment of discontinued operations                                                    |  |                                 | 1,099   |   |                   |   |         |  
|Inventory purchase adjustment                                                            |  |                                 |        |   |                   |   | 3,885    |  
|Other non-cash (income) expense                                                          |  |                                 | (209    | ) |                   |   | 1,076    |  
|Changes in assets and liabilities:                                                       |  |                                 |         |   |                   |   |          |  
|Accounts receivable, net                                                                 |  |                                 | (7,301  | ) |                   |   | (6,603   | )
|Inventories, net                                                                         |  |                                 | (2,910  | ) |                   |   | (1,337   | )
|Income taxes receivable                                                                  |  |                                 | (299    | ) |                   |   |         |  
|Other assets                                                                             |  |                                 | 1,031   |   |                   |   | (283     | )
|Accounts payable                                                                         |  |                                 | 6,761   |   |                   |   | (1,415   | )
|Accrued compensation                                                                     |  |                                 | (3,101  | ) |                   |   | 3,321    |  
|Accrued warranty                                                                         |  |                                 | 139     |   |                   |   | (1,328   | )
|Income taxes payable                                                                     |  |                                 | 594     |   |                   |   |         |  
|Other accrued liabilities                                                                |  |                                 | (892    | ) |                   |   | (4,583   | )
|                                                                                         |  |                                 |         |   |                   |   |          |  
|Net cash provided by operating activities                                                |  |                                 | 22,969  |   |                   |   | 8,078    |  
|                                                                                         |  |                                
|Cash flows from investing activities:                                                    |  |                                 |         |   |                   |   |          |  
|Purchases of property, plant and equipment                                               |  |                                 | (14,918 | ) |                   |   | (5,708   | )
|Proceeds from disposal of property, plant and equipment                                  |  |                                 | 999     |   |                   |   |         |  
|Acquisition of businesses, net of cash acquired and debt assumed                         |  |                                 |        |   |                   |   | (103,059 | )
|Purchases of investments                                                                 |  |                                 | (12,550 | ) |                   |   | (26,200  | )
|Sales and maturities of investments                                                      |  |                                 | 31,075  |   |                   |   | 72,030   |  
|                                                                                         |  |                                 |         |   |                   |   |          |  
|Net cash provided by (used in) investing activities                                      |  |                                 | 4,606   |   |                   |   | (62,937  | )
|                                                                                         |  |                                
|Cash flows from financing activities:                                                    |  |                                 |         |   |                   |   |          |  
|Proceeds from long-term borrowings                                                       |  |                                 |        |   |                   |   | 67,533   |  
|Principal payments on long-term borrowings                                               |  |                                 | (16,125 | ) |                   |   | (10,080  | )
|Deferred financing costs                                                                 |  |                                 |        |   |                   |   | (1,907   | )
|Payments on capital lease obligations                                                    |  |                                 | (911    | ) |                   |   | (287     | )
|Proceeds from exercise of stock options                                                  |  |                                 | 5,335   |   |                   |   | 24       |  
|Reacquisition of common stock                                                            |  |                                 | (48     | ) |                   |   |         |  
|Due from affiliate, net                                                                  |  |                                 | (3,640  | ) |                   |   | 1,659    |  
|Distribution to minority shareholder                                                     |  |                                 |        |   |                   |   | (1,607   | )
|                                                                                         |  |                                 |         |   |                   |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                                 | (15,389 | ) |                   |   | 55,335   |  
|Effect of exchange rate changes                                                          |  |                                 | (2      | ) |                   |   | 6        |  
|                                                                                         |  |                                 |         |   |                   |   |          |  
|Increase in cash and cash equivalents                                                    |  |                                 | 12,184  |   |                   |   | 482      |  
|                                                                                         |  |                                
|Cash and cash equivalents:                                                               |  |                                 |         |   |                   |   |          |  
|Beginning of period                                                                      |  |                                 | 12,280  |   |                   |   | 9,130    |  
|                                                                                         |  |                                 |         |   |                   |   |          |  
|End of period                                                                            |  | $                               | 24,464  |   |                   | $ | 9,612    |  
|                                                                                         |  |                                 |         |   |                   |   |          |  
|Supplemental Cash Flow Information:                                                      |  |                                 |         |   |                   |   |          |  
|Cash paid for income taxes                                                               |  | $                               | 1,090   |   |                   | $ | 137      |  
|Cash paid for interest                                                                   |  |                                 | 3,786   |   |                   |   | 1,652    |  
|                                                                                         |  |                                
|Supplemental Disclosure of Non-Cash Activity:                                            |  |                                 |         |   |                   |   |          |  
|Issuance of stock to employees                                                           |  | $                               |        |   |                   | $ | 780      |  
|Issuance (reduction) of promissory note in Merix Asia acquisition                        |  |                                 | (3,406  | ) |                   |   | 11,000   |  
|Other purchase price adjustments                                                         |  |                                 | (1,435  | ) |                   |   |         |  
|Assumption of debt in acquisition                                                        |  |                                 |        |   |                   |   | 3,667    |  

The accompanying notes are an integral part of the Consolidated Financial Statements.



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##### Table of Contents

MERIX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | NATURE OF BUSINESS
|-- | ------------------

Merix Corporation, an Oregon corporation, was
formed in March 1994. The Company is a leading global manufacturer of technologically advanced electronic interconnect solutions for use in electronic equipment. The Companys principal products consist of complex multilayer printed circuit
boards, 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 Company provides products to original equipment manufacturers
(OEMs) and their electronic manufacturing service (EMS) providers that use our products primarily in high-end commercial equipment in the communications, automotive, high-end computing and storage, test and measurement, and
aerospace and defense markets. The Company sells its customers a broad range of products and services, including design and engineering assistance, quick-turn services, volume production, RF/Microwave application products, thermal management
solutions and backplanes.



|2. | BASIS OF PRESENTATION
|-- | ---------------------

The accompanying consolidated financial
statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). 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 2006
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.



|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 inter-company accounts,
transactions and profits have been eliminated in consolidation.

The Companys financial reporting systems at Merix Asia, which was acquired in
September 2005, are predominantly manual in nature. Due to the manual nature of the systems, it requires significant time 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 requires the use of a one-month lag reporting format. As such, the consolidated financial statements and related notes thereto for the thirteen and thirty-nine week periods ended February 24,
2007 include results from Merix Asia for the period from October 22, 2006 through January 20, 2007 and April 22, 2006 through January 20, 2007, respectively. Inter-company transactions which occurred during these periods have
been eliminated in consolidation. Inter-company balances resulting from transactions with Merix Asia during the one-month lag period have been netted and presented as a current asset on the consolidated balance sheet and all other material
transactions occurring between January 20, 2007 and February 24, 2007 have been eliminated. The net inter-company receivable, which was included as a component of Other Current Assets, totaled $2.5 million as of February 24, 2007 and
the net inter-company payable, which was included as a component of Other Accrued Liabilities, totaled $1.2 million as of May 27, 2006.

Subsequent to
the acquisition of Merix Asia, the Company began a process to evaluate and select a new enterprise resource planning (ERP) system to support its transition to a global business. The evaluation was completed and a selection was made in
May 2006. The Company is currently in the process of implementing



5



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the new ERP system, which, when complete, will allow for the streamlining of business processes as well as eliminate the need for the one-month reporting lag
for Merix Asia.



|4. | STOCK BASED COMPENSATION
|-- | ------------------------

Adoption of SFAS No. 123R

Effective May 28, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based
Payment. The Company elected to use the modified prospective transition method as provided by SFAS No. 123R and, accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have not been restated to reflect
the fair value method of expensing stock-based compensation. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested
at the date of adoption is recognized in net income in the periods after the date of adoption over the remainder of the requisite service period. The Companys deferred stock-based compensation balance of $1.1 million as of May 27, 2006,
which was accounted for under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, was reclassified to common stock upon the adoption of SFAS No. 123R.

Pro Forma Information Under SFAS No. 123 and APB Opinion No. 25

Prior to May 28, 2006, the Company accounted for stock-based compensation using the intrinsic value method as prescribed by APB Opinion No. 25 and related interpretations. No stock-based compensation related
to option grants or the employee stock purchase plan was reflected in net loss in the thirteen and twenty-six week periods ended November 26, 2005, as all stock options granted under those plans had an exercise price equal to or greater than
the market value of the underlying common stock on the date of grant. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the
Companys net loss and basic and diluted net loss per share for the thirteen and thirty-nine week periods ended February 25, 2006 would have been changed to the pro forma amounts indicated below (in thousands, except per share amounts):



|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ---- | - | -------------------------------------- | - | ------ | -
|                                                                                                                                                 |  | ThirteenWeeks EndedFebruary 25,2006 |      |   | Thirty-NineWeeks EndedFebruary 25,2006 |  
|Net income (loss), as reported                                                                                                                   |  | $                                   | 809  |   |                                        | $ | (2,082 | )
|Add  stock-based compensation included in results of operations, net of related tax effects                                                     |  |                                     | 52   |   |                                        |   | 203    |  
|Deduct - total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax
effects |  |                                     | (402 | ) |                                        |   | (1,001 | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|Net income (loss), pro forma                                                                                                                     |  | $                                   | 459  |   |                                        | $ | (2,880 | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|Basic net loss per share:                                                                                                                        |  |                                     |      |   |                                        |   |        |  
|As reported                                                                                                                                      |  | $                                   | 0.04 |   |                                        | $ | (0.11  | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|Pro forma                                                                                                                                        |  | $                                   | 0.02 |   |                                        | $ | (0.15  | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|Diluted net loss per share:                                                                                                                      |  |                                     |      |   |                                        |   |        |  
|As reported                                                                                                                                      |  | $                                   | 0.04 |   |                                        | $ | (0.11  | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  
|Pro forma                                                                                                                                        |  | $                                   | 0.02 |   |                                        | $ | (0.15  | )
|                                                                                                                                                 |  |                                     |      |   |                                        |   |        |  

The above pro forma compensation expense related to options granted pursuant to our stock incentive plans was
determined based on the estimated fair values using the Black-Scholes Option Pricing Model and the following weighted average assumptions:



|                                       |  |                                   |  |                                     
|-------------------------------------- |  | --------------------------------- |  | ------------------------------------
|                                       |  | ThirteenWeeks Ended Feb. 25, 2006 |  | Thirty-NineWeeks Ended Feb. 25, 2006
|                                       | 
|Risk-free interest rate                |  | 4.3-4.7%                          |  | 3.8% - 5.1%                         
|Dividend yield                         |  | 0%                                |  | 0%                                  
|Expected term                          |  | 1.9-5.7 years                     |  | 1.2  5.7 years                     
|Volatility                             |  | 53%-98%                           |  | 47% - 98%                           
|Discount for post vesting restrictions |  | 0%                                |  | 0%                                  



6



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Pro forma stock-based compensation expense under SFAS No. 123, among other computational differences, does not
consider potential pre-vesting forfeitures. Because of these differences, the pro forma stock-based compensation expense presented above for the thirteen and twenty-six week periods ended November 26, 2005 under SFAS No. 123 and the
stock-based compensation expense recognized during the thirteen and twenty-six week periods ended November 25, 2006 under SFAS No. 123R are not directly comparable.

On May 25, 2005, the Companys Board of Directors accelerated vesting of outstanding underwater employee stock options with exercise prices greater than $8.00 per share. Approximately
1.3 million options, or approximately 39% of the total outstanding options as of May 25, 2005, with varying remaining vesting schedules, were subject to this acceleration and became immediately exercisable. As a result of this
acceleration, the Company estimated that it would reduce the amount of compensation expense recorded due to the effects of SFAS No. 123R by approximately $329,000 for fiscal 2007 and an additional $300,000 in total for subsequent fiscal years.
This acceleration only related to specific underwater options, and, accordingly, is not representative of the overall impact that SFAS No. 123R will have on the Companys results of operations, cash flows or liquidity.

Stock-Based Compensation Under SFAS No. 123R

Certain
information regarding our stock-based compensation was as follows (in thousands, except per share amounts):



|                                                                                             |  |                                      |      
|-------------------------------------------------------------------------------------------- |  | ------------------------------------ | -----
|                                                                                             |  | Thirty-NineWeeks Ended Feb. 24, 2007
|                                                                                            
|Weighted average grant-date per share fair value of share options granted                    |  | $                                    | 10.68
|Per share intrinsic value of non-vested stock granted                                        |  |                                      | 10.53
|Total intrinsic value of share options exercised                                             |  |                                      | 2,522
|Fair value of non-vested shares that vested during the period                                |  |                                      | 582  
|Stock-based compensation recognized in results of operations                                 |  |                                      | 1,682
|Tax benefit recognized in statement of operations                                            |  |                                      |     
|Cash received from options exercised and shares purchased under all share-based arrangements |  |                                      | 5,335
|Tax deduction realized related to stock options exercised                                    |  |                                      |     

No material amount of stock-based compensation was capitalized as a part of an asset during the thirteen or
thirty-nine week periods ended February 24, 2007 or February 25, 2006.

The Company did not recognize a tax benefit from the stock-based
compensation expense because it is believed that it was more likely than not that the related deferred tax assets, which have been reduced by a valuation allowance, will not be realized.

Prior to the adoption of SFAS No. 123R, the Company presented any tax benefits of deductions resulting from the exercise of stock options within operating cash flows in its consolidated statement of cash flows.
SFAS No. 123R requires tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified and reported as both an operating cash outflow and a financing
cash inflow. The excess tax benefits that would otherwise be available to reduce income taxes payable have the effect of increasing the net operating loss carryforwards. Accordingly, because the Company is not able to realize these excess tax
benefits, such benefits have not been recognized in its consolidated statement of cash flows for the thirty-nine week period ended February 24, 2007.



7



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The Companys stock-based compensation expense was included in its statements of operations as follows (in
thousands):



|                                    |  |                                   |     |                                      |   |      
|----------------------------------- |  | --------------------------------- | --- | ------------------------------------ | - | -----
|                                    |  | ThirteenWeeks Ended Feb. 24, 2007 |     | Thirty-NineWeeks Ended Feb. 24, 2007
|                                    | 
|Cost of sales                       |  | $                                 | 70  |                                      | $ | 234  
|Engineering                         |  |                                   | 23  |                                      |   | 46   
|Selling, general and administrative |  |                                   | 580 |                                      |   | 1,402
|                                    |  |                                   |     |                                      |   |      
|                                    |  | $                                 | 673 |                                      | $ | 1,682
|                                    |  |                                   |     |                                      |   |      

Compensation expense related to restricted stock awards and stock grants is based on the fair value of the
underlying shares on the date of grant as if the shares were vested. Compensation expense related to options granted pursuant to our stock incentive plans was determined based on the estimated fair values using the Black-Scholes Option Pricing Model
and the following weighted average assumptions:



|                                       |  |                                   |  |                                      
|-------------------------------------- |  | --------------------------------- |  | -------------------------------------
|                                       |  | ThirteenWeeks Ended Feb. 24, 2007 |  | Thirty-Nine Weeks Ended Feb. 24,
2007
|                                       | 
|Risk-free interest rate                |  | 4.5 -4.8%                         |  | 4.5% -5.1%                           
|Dividend yield                         |  | 0%                                |  | 0%                                   
|Expected term                          |  | 2.6 -5.6 years                    |  | 2.4 -5.7 years                       
|Volatility                             |  | 54% - 86%                         |  | 47% - 91%                            
|Discount for post vesting restrictions |  | 0%                                |  | 0%                                   

The risk-free interest rate used is based on the implied yield on Treasury Constant Maturities with a remaining
term equal to the expected term of the stock option. The expected dividend yield is zero as the Company has not paid cash dividends in the past and has no expectation of paying dividends in the foreseeable future. The expected term is calculated
using the simplified method permitted by Staff Accounting Bulletin No. 107, and is based on historical stock option exercise patterns. Expected volatility is calculated based on applying historical volatility over the expected life
of the stock options granted.

The Company recognizes stock-based compensation expense using the graded vesting attribution method for stock options and
the straight-line attribution method for restricted stock awards over the vesting period of the individual award with estimated forfeitures considered. Stock-based compensation for performance-based stock option awards is recognized over the
requisite service period if it is probable that the performance condition will be achieved. The Company does not accrue compensation expense if it is not probable that the performance condition will be achieved. In accordance with SFAS
No. 123R, the Company does not reverse previously recognized compensation expense if vested awards expire unexercised.

The Company issues new shares
upon the exercise of stock options.

Stock Incentive Plans

2006 Equity Incentive Plan

At the Companys annual shareholder meeting, which was held on October 5, 2006,
its shareholders approved the Merix Corporation 2006 Equity Incentive Plan (the 2006 Plan), which replaced its 1994 Stock Incentive Plan (the 1994 Plan). The 2006 Plan permits the granting of any or all of the following types
of awards: (1) incentive and nonqualified stock options, (2) stock appreciation rights, (3) stock awards, restricted stock and stock units, (4) performance shares and performance units conditioned upon meeting performance
criteria and (5) other stock- or cash-based awards. Awards may be granted under the 2006 Plan to employees, officers, directors, consultants, agents, advisors and independent contractors. Under the 2006 Plan, 750,000 new shares of common stock
were reserved for issuance. In addition, an additional 396,363 shares of common stock previously reserved for issuance, but not subject to outstanding awards, under the 1994 Plan as of October 5, 2006 ceased to be available for issuance under
the 1994 Plan and instead became available for grant under the 2006 Plan. Additionally, shares of common stock subject to outstanding options or unvested restricted stock awards under the 1994 Plan will also become available for grant under the
2006 Plan in the future to the extent that such awards expire or otherwise terminate without shares of common



8



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stock being issued pursuant to options, or to the extent that shares issued pursuant to restricted stock awards are forfeited. As of February 24, 2007,
767,820 shares of common stock remain subject to outstanding options or unvested stock awards under the 1994 Plan and 595,833 shares had been forfeited or otherwise terminated and became available for grant under the 2006 Plan.

2000 Nonqualified Stock Option Plan

The Company also has the Merix
Corporation 2000 Nonqualified Stock Option Plan (the 2000 Plan) that did not require approval by its shareholders. The 2000 Plan, as amended, permits the grant of up to 4,000,000 shares of authorized common stock in the form of
nonqualified stock options and stock awards to employees, directors and non-employee consultants, agents, independent contractors and advisors who provide services to the Company. The number of shares subject to stock options and stock awards
granted under the 2000 Plan to officers and directors in any given year cannot exceed 25% of the total number of shares subject to awards granted in that year.

In both plans, a committee of the Board of Directors has the authority to determine option prices. To date, all options have been granted at or above the fair market value of the stock at the date of grant. The options vest as determined by
the Human Resources Compensation Committee (HRCC) of the Board of Directors and generally become exercisable ratably over a four-year period, beginning one year after the date of grant.The options may in no event have a term
exceeding ten years from the date of grant.

At February 24, 2007, there were 2,110,462 shares available for grant under these plans.

Activity under these plans was as follows:



|                            |  |                          |   |  |                                 |      
|--------------------------- |  | ------------------------ | - |  | ------------------------------- | -----
|                            |  | Shares Subjectto Options |   |  | Weighted Average Exercise Price
|Balances, May 27, 2006      |  | 3,502,839                |   |  | $                               | 10.37
|Granted                     |  | 459,500                  |   |  |                                 | 10.68
|Forfeited                   |  | (232,568                 | ) |  |                                 | 9.08 
|Expired                     |  | (167,334                 | ) |  |                                 | 16.21
|Exercised                   |  | (683,677                 | ) |  |                                 | 7.30 
|                            |  |                          |   |  |                                 |      
|Balances, February 24, 2007 |  | 2,878,760                |   |  |                                 | 10.90
|                            |  |                          |   |  |                                 |      



|                            |  |                        |   |  |                                                  |      
|--------------------------- |  | ---------------------- | - |  | ------------------------------------------------ | -----
|                            |  | RestrictedStock Awards |   |  | Weighted Average Grant Date Per Share Fair Value
|Balances, May 27, 2006      |  | 134,621                |   |  | $                                                | 8.07 
|Granted                     |  | 107,606                |   |  |                                                  | 10.53
|Vested                      |  | (57,627                | ) |  |                                                  | 8.61 
|Forfeited                   |  | (53,800                | ) |  |                                                  | 9.85 
|                            |  |                        |   |  |                                                  |      
|Balances, February 24, 2007 |  | 130,800                |   |  |                                                  | 9.13 
|                            |  |                        |   |  |                                                  |      

Certain information regarding options outstanding as of February 24, 2007 was as follows:



|                                            |  |                    |             |                     |   |            
|------------------------------------------- |  | ------------------ | ----------- | ------------------- | - | -----------
|                                            |  | OptionsOutstanding |             | Options Exercisable
|Number                                      |  |                    | 2,878,760   |                     |   | 2,041,781  
|Weighted average exercise price             |  | $                  | 10.90       |                     | $ | 11.76      
|Aggregate intrinsic value                   |  | $                  | 2.0 million |                     | $ | 1.1 million
|Weighted average remaining contractual term |  |                    | 3.8 years   |                     |   | 2.9 years  

As of February 24, 2007, unrecognized stock-based compensation related to outstanding, but unvested stock
options and restricted stock awards was $2.5 million and $1.0 million, respectively, which will be recognized over the weighted-average remaining vesting period of 1.8 and 2.9 years, respectively.



|5. | RECLASSIFICATIONS
|-- | -----------------

Certain immaterial reclassifications were made
to the prior period financial statements to conform to the current period presentation.



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|6. | EARNINGS PER SHARE
|-- | ------------------

Basic earnings per share (EPS) and
diluted EPS are computed using the methods prescribed by SFAS No. 128, Earnings per Share. Following is a reconciliation of the income (loss) from continuing operations and shares used for basic EPS and diluted EPS (in thousands,
except per share amounts):



|                                                                                            |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     
|------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----- | -------------------------------------- | ------ | ------------------ | - | ------------------------------- |  | ------ | --- | ------------------ | ------ |  | - | ----
|                                                                                            |  | Thirteen Weeks Ended February 24, 2007 |       | Thirteen Weeks Ended February 25, 2006
|                                                                                            |  | Income fromContinuingOperations        |       | Shares                                 |        | Per ShareAmount(1) |   | Income fromContinuingOperations |  | Shares |     | Per ShareAmount(1)
|Basic EPS                                                                                   |  | $                                      | 1,771 |                                        | 20,575 |                    | $ | 0.09                            |  | $      | 712 |                    | 19,526 |  | $ | 0.04
|Effect of dilutive stock options                                                            |  |                                        |      |                                        | 236    |                    |   |                                |  |        |    |                    | 240    |  |   |    
|                                                                                            |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     
|Diluted EPS                                                                                 |  | $                                      | 1,771 |                                        | 20,811 |                    | $ | 0.09                            |  | $      | 712 |                    | 19,766 |  | $ | 0.04
|                                                                                            |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     
|Stock options                                                                               |  |                                        |       |                                        | 1,851  |                    |   |                                 |  |        |     |                    | 2,659  |  |   |     
|                                                                                            |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     
|Convertible notes                                                                           |  |                                        |       |                                        | 4,608  |                    |   |                                 |  |        |     |                    | 1,288  |  |   |     
|                                                                                            |  |                                        |       |                                        |        |                    |   |                                 |  |        |     |                    |        |  |   |     



|                                                                                            |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ----- | ------ | ----------------------------------------- | ------------------ | - | ----- | ----------------------------- |  | - | ------ | - | ------------------ | ------ |  | - | ----- | -
|                                                                                            |  | Thirty-Nine Weeks EndedFebruary 24, 2007 |       |        | Thirty-Nine Weeks Ended February 25, 2006 |                   
|                                                                                            |  | Income fromContinuingOperations          |       | Shares |                                           | Per ShareAmount(1) |   |       | Loss fromContinuingOperations |  |   | Shares |   | Per ShareAmount(1) |       
|Basic EPS                                                                                   |  | $                                        | 8,347 |        | 20,302                                    |                    | $ | 0.41  |                               |  | $ | (2,215 | ) |                    | 19,459 |  | $ | (0.11 | )
|Effect of dilutive stock options                                                            |  |                                          |      |        | 363                                       |                    |   | (0.01 | )                             |  |   |       |   |                    |       |  |   |      |  
|                                                                                            |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  
|Diluted EPS                                                                                 |  | $                                        | 8,347 |        | 20,665                                    |                    | $ | 0.40  |                               |  | $ | (2,215 | ) |                    | 19,459 |  | $ | (0.11 | )
|                                                                                            |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  
|Potential common shares excluded from diluted EPS since their effect would be antidilutive: |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  
|Stock options                                                                               |  |                                          |       |        | 1,316                                     |                    |   |       |                               |  |   |        |   |                    | 2,974  |  |   |       |  
|                                                                                            |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  
|Convertible notes                                                                           |  |                                          |       |        | 4,608                                     |                    |   |       |                               |  |   |        |   |                    | 1,288  |  |   |       |  
|                                                                                            |  |                                          |       |        |                                           |                    |   |       |                               |  |   |        |   |                    |        |  |   |       |  

---

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



|7. | INVENTORIES
|-- | -----------

Inventories are valued at the lower of cost or market
and include materials, labor and manufacturing overhead. Cost is determined by standard cost, which approximates the first-in, first-out (FIFO) basis.

Provisions for inventories are made to reduce 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 inventory provisions 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 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.



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



|                                       |  |                   |        |              |   |       
|-------------------------------------- |  | ----------------- | ------ | ------------ | - | ------
|                                       |  | February 24, 2007 |        | May 27, 2006
|                                       | 
|Raw materials                          |  | $                 | 5,182  |              | $ | 4,370 
|Work-in-process                        |  |                   | 9,601  |              |   | 10,174
|Finished goods                         |  |                   | 3,439  |              |   | 4,500 
|Consignment finished goods inventories |  |                   | 8,055  |              |   | 4,323 
|                                       |  |                   |        |              |   |       
|Total inventories                      |  | $                 | 26,277 |              | $ | 23,367
|                                       |  |                   |        |              |   |       

Inventory valuation adjustments were $38,000 and $0.7 million, respectively, during the thirteen and thirty-nine
week periods ended February 24, 2007 and $1.1 million and $1.3 million, respectively, in the comparable periods of 2006. As of February 24, 2007 and May 27, 2006, our inventory reserves totaled $3.3 million and $2.6 million,
respectively.



|8. | ASSETS HELD FOR SALE
|-- | --------------------

In May 2006, the Company decided to sell one
of its buildings and two adjacent parcels of land. This building was sold during the second quarter of fiscal 2007, resulting in a gain of approximately $150,000. A portion of the building was leased back from the seller for a term of 36 months. The
gain therefore, was deferred and is being accreted into income over the life of the lease pursuant to SFAS No. 28, Accounting for Sales and Leasebacks.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company recorded such long-lived assets as current assets held for sale. Assets held for sale
included the following (in thousands):



|                                                               |  |                   |       |              |   |      
|-------------------------------------------------------------- |  | ----------------- | ----- | ------------ | - | -----
|                                                               |  | February 24, 2007 |       | May 27, 2006
|                                                               | 
|Land and building located near our Forest Grove, Oregon campus |  | $                 |      |              | $ | 841  
|Two parcels of land adjacent to the building held for sale     |  |                   | 1,146 |              |   | 1,146
|Excess equipment                                               |  |                   | 177   |              |   |     
|                                                               |  |                   |       |              |   |      
|                                                               |  | $                 | 1,323 |              | $ | 1,987
|                                                               |  |                   |       |              |   |      

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 are no longer depreciated.



|9. | DISCONTINUED OPERATIONS
|-- | -----------------------

On September 29, 2006, Merix Holding
(Hong Kong) Limited (Merix Hong Kong) entered into an agreement with Citi-Power Investment Limited (Citi-Power) to sell Merix Hong Kongs 90% shareholding interest in the Lomber single-sided manufacturing facility
located in Huizhou City in the Peoples Republic of China (Lomber Facility) for a nominal amount.

Also on September 29, 2006, Merix
Hong Kong entered into an agreement with Excel Hero (China) Limited (EXCEL) to sell its 85.29% shareholding interest in its single-sided manufacturing facility located in Dongguan City in the Peoples Republic of China
(Dongguan Facility) for a nominal amount.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the Company recorded the related assets and liabilities as current assets and liabilities on its balance sheet at the lower of their carrying amount or fair value, less cost to sell, upon being classified as discontinued operations.
The combined net book value of the Dongguan and Lomber facilities was approximately $1.07 million upon their classification as discontinued operations and their fair value, less selling costs was determined to be approximately $120,000. Accordingly,
during the quarter ended November 25, 2006, we recorded an impairment charge of approximately $1.26 million as a component of loss from discontinued operations and a reversal of a portion of this impairment charge of $158,000 was recorded in
the third quarter of fiscal 2007.



11



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##### Table of Contents

The results of operations for the Dongguan and Lomber facilities have been reclassified as discontinued operations for
all periods presented. Certain financial information related to discontinued operations was as follows (in thousands):



|                                                                                 |  |                      |       |                         |   |              |  |   |              |   |  |   |      
|-------------------------------------------------------------------------------- |  | -------------------- | ----- | ----------------------- | - | ------------ |  | - | ------------ | - |  | - | -----
|                                                                                 |  | Thirteen Weeks Ended |       | Thirty-Nine Weeks Ended
|                                                                                 |  | Feb. 24,2007         |       | Feb. 25,2006            |   | Feb. 24,2007 |  |   | Feb. 25,2006
|Revenue                                                                          |  | $                    | 1,976 |                         | $ | 2,296        |  | $ | 7,443        |   |  | $ | 2,942
|(Impairment) reversal of impairment related to assets of discontinued operations |  |                      | 158   |                         |   |             |  |   | (1,099       | ) |  |   |     
|Pre-tax income (loss)                                                            |  |                      | 314   |                         |   | 97           |  |   | (760         | ) |  |   | 140  

Assets of discontinued operations included accounts receivable, inventory, property, plant and equipment and land
rights. Liabilities of discontinued operations included accounts payable and accrued expenses.



|10. | ACQUISITION PURCHASE PRICE ALLOCATION ADJUSTMENT
|--- | ------------------------------------------------

On
September 29, 2005, the Company acquired the business operations of Eastern Pacific Circuits Limited and certain of its subsidiaries (collectively referred to as Merix Asia), a Hong Kong based supplier of printed circuit boards from
Eastern Pacific Circuits Holdings Limited (EPCH).

The acquisition of Merix Asia was completed for a purchase price of $120.3 million. The
initial purchase price allocation did not reflect potential changes in the total consideration based on changes in working capital, cash and an additional earn-out payment of up to $13 million if the business met certain adjusted EBITDA targets
during the calendar year 2005.

During the second quarter of fiscal 2007, the Company and EPCH resolved several uncertainties that existed regarding the
application of the post-closing working capital adjustment and EBITDA earnout provisions of the purchase agreement. The resolution of these values resulted in a $3.4 million reduction of the $11.0 million subordinated promissory note to $7.6
million. A corresponding reduction of goodwill related to this acquisition was also recorded. In addition, no payout will be made pursuant to the earn-out provisions.

The $3.4 million decrease to the promissory note eliminates principal payments due in 2007 and reduces the scheduled principal payment in 2008. The adjustment to the promissory note, combined with final purchase
allocation adjustments totaling $1.4 million, reduced goodwill resulting from the acquisition by $4.8 million. Interest expense was recalculated on the note from the date of inception as if the principal balance was always $7.6 million. This
resulted in an offset to interest expense in the second quarter of fiscal 2007 in the amount of $257,000 to reverse previously recognized interest expense.



|11. | GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS
|--- | ---------------------------------------------

Goodwill

The roll-forward of our goodwill was as follows (in thousands):



|                             |  |                         |        |   |              |   |       
|---------------------------- |  | ----------------------- | ------ | - | ------------ | - | ------
|                             |  | Thirty-Nine Weeks Ended
|                             |  | Feb. 24,2007            |        |   | Feb. 25,2006
|Balance, beginning of period |  | $                       | 89,889 |   |              | $ | 25,551
|Acquisitions                 |  |                         |       |   |              |   | 57,174
|Adjustments to goodwill      |  |                         | (4,841 | ) |              |   |      
|                             |  |                         |        |   |              |   |       
|Balance, end of period       |  | $                       | 85,048 |   |              | $ | 82,725
|                             |  |                         |        |   |              |   |       

Adjustments to goodwill are discussed in Note 10.



12



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##### Table of Contents

Definite-Lived Intangible Assets

At February 24, 2007 and May 27, 2006, our definite-lived intangible assets included customer relationships, a non-compete agreement and a manufacturing sales representative network. The gross amount of our
definite-lived intangible assets and the related accumulated amortization were as follows (in thousands):



|                                            |  |                     |  |                   |        |   |              |   |        |  
|------------------------------------------- |  | ------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | -
|                                            |  | Amortization Period |  | February 24, 2007 |        |   | May 27, 2006 |  
|                                            |  |                    
|Customer relationships                      |  | 6.5-10 years        |  | $                 | 17,168 |   |              | $ | 17,168 |  
|Accumulated amortization                    |  |                     |  |                   | (5,423 | ) |              |   | (3,604 | )
|                                            |  |                     |  |                   |        |   |              |   |        |  
|                                            |  |                     |  |                   | 11,745 |   |              |   | 13,564 |  
|                                            |  |                     | 
|Non-compete agreement                       |  | 2 years             |  |                   | 1,200  |   |              |   | 1,200  |  
|Accumulated amortization                    |  |                     |  |                   | (1,200 | ) |              |   | (877   | )
|                                            |  |                     |  |                   |        |   |              |   |        |  
|                                            |  |                     |  |                   |       |   |              |   | 323    |  
|                                            |  |                     | 
|Manufacturing sales representatives network |  | 5.5 years           |  |                   | 40     |   |              |   | 40     |  
|Accumulated amortization                    |  |                     |  |                   | (16    | ) |              |   | (11    | )
|                                            |  |                     |  |                   |        |   |              |   |        |  
|                                            |  |                     |  |                   | 24     |   |              |   | 29     |  
|                                            |  |                     |  |                   |        |   |              |   |        |  
|Total definite-lived intangible assets      |  |                     |  | $                 | 11,769 |   |              | $ | 13,916 |  
|                                            |  |                     |  |                   |        |   |              |   |        |  

Amortization expense was as follows (in thousands):



|                                            |  |                         |       |              |   |      
|------------------------------------------- |  | ----------------------- | ----- | ------------ | - | -----
|                                            |  | Thirty-Nine Weeks Ended
|                                            |  | Feb. 24,2007            |       | Feb. 25,2006
|Customer relationships                      |  | $                       | 1,819 |              | $ | 1,977
|Non-compete agreement                       |  |                         | 323   |              |   | 450  
|Manufacturing sales representatives network |  |                         | 5     |              |   | 5    
|                                            |  |                         |       |              |   |      
|                                            |  | $                       | 2,147 |              | $ | 2,432
|                                            |  |                         |       |              |   |      

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



|                         |  |                       |        |                                          |   |   
|------------------------ |  | --------------------- | ------ | ---------------------------------------- | - | --
|                         |  | CustomerRelationships |        | ManufacturingSalesRepresentativesNetwork
|Remainder of fiscal 2007 |  | $                     | 597    |                                          | $ | 24
|2008                     |  |                       | 2,269  |                                          |   |  
|2009                     |  |                       | 1,975  |                                          |   |  
|2010                     |  |                       | 1,758  |                                          |   |  
|2011                     |  |                       | 1,552  |                                          |   |  
|Thereafter               |  |                       | 3,594  |                                          |   |  
|                         |  |                       |        |                                          |   |   
|                         |  | $                     | 11,745 |                                          | $ | 24
|                         |  |                       |        |                                          |   |   



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##### Table of Contents

|12. | ACCRUED WARRANTY
|--- | ----------------

We generally warrant our products for a period of
up to twelve months from the point of sale. However, in certain circumstances, Merix Asia grants longer warranty periods to certain customers. We record a liability for the estimated cost of the warranty upon transfer of ownership of the products to
the customer. The warranty liability is calculated based on historical experience of expenses resulting from the warranty program for the twelve preceding months for Merix Oregon and Merix San Jose and for the preceding three year period for Merix
Asia.

The following is a summary of accrued warranty activity (in thousands):



|                                                        |  |                         |        |   |              |   |        |  
|------------------------------------------------------- |  | ----------------------- | ------ | - | ------------ | - | ------ | -
|                                                        |  | Thirty-Nine Weeks Ended |       
|                                                        |  | Feb. 24,2007            |        |   | Feb. 25,2006 |  
|Balance, beginning of period                            |  | $                       | 2,297  |   |              | $ | 1,519  |  
|Warranty accrual acquired                               |  |                         |       |   |              |   | 2,985  |  
|Warranties issued during the period                     |  |                         | 1,849  |   |              |   | 2,897  |  
|Changes in estimates related to pre-existing warranties |  |                         | 610    |   |              |   | (1,614 | )
|Settlements made during the period                      |  |                         | (2,320 | ) |              |   | (2,711 | )
|                                                        |  |                         |        |   |              |   |        |  
|Balance, end of period                                  |  | $                       | 2,436  |   |              | $ | 3,076  |  
|                                                        |  |                         |        |   |              |   |        |  



|13. | DEBT AND FINANCING ARRANGEMENTS
|--- | -------------------------------

General

The Companys outstanding debt consisted of the following (in thousands):



|                                  |  |                   |        |              |   |       
|--------------------------------- |  | ----------------- | ------ | ------------ | - | ------
|                                  |  | February 24, 2007 |        | May 27, 2006
|                                  | 
|4% Convertible debenture          |  | $                 | 70,000 |              | $ | 70,000
|5% Note payable                   |  |                   |       |              |   | 1,000 
|Subordinated note payable         |  |                   | 7,594  |              |   | 11,000
|Domestic term loan                |  |                   |       |              |   | 15,125
|Domestic revolving line of credit |  |                   |       |              |   |      
|Capital lease obligations         |  |                   | 698    |              |   | 1,607 
|                                  |  |                   |        |              |   |       
|                                  |  | $                 | 78,292 |              | $ | 98,732
|                                  |  |                   |        |              |   |       

Domestic Credit Facility Amendment

During the third quarter of fiscal 2007, the Company amended its domestic credit facility agreement (the Loan Agreement) to increase the amount available under the revolving line of credit to $55.0 million
from $38.5 million. Amounts outstanding on the term loan portion of the agreement were converted to the revolving line of credit. In addition, during the third quarter of fiscal 2007, the Company repaid all principal and interest outstanding on the
Loan Agreement and, as of February 24, 2007, no amounts were outstanding. The obligations under the Loan Agreement are secured by substantially all of the U.S. assets of the Company. The borrowings bear interest at (a) either the prime
rate or LIBOR, plus (b) an additional margin based on certain performance criteria. The Loan Agreement contains a number of restrictive covenants, all of which the Company was in compliance with as of February 24, 2007. Specifically, the
Companys ability to invest or loan additional funds in Merix Asia is limited, subject to certain conditions, to $25 million in the aggregate at any time.

For detail of the Companys other debt and financing arrangements, refer to our Annual Report on Form 10-K for the fiscal year ended May 27, 2006, which was filed with the Securities and Exchange Commission on August 24,
2006.



14



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##### Table of Contents

Embedded Derivatives

The Companys 4% Convertible Debentures (the Notes) contain a provision pursuant to which it may be required to issue additional shares based on a variable conversion feature in the event certain events occur. The Company
concluded that the debentures are not conventional convertible debt instruments. In addition, the Company has concluded that the embedded conversion option qualifies as a derivative under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Furthermore, in accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, the Company determined that the
embedded derivative would be properly classified in equity if it were a freestanding security due to the following:



| |  |  | it has no net cash settlement feature;
| | - |  | --------------------------------------



| |  |  | delivery of the shares is within the control of the Company since the settlement shares were registered contemporaneously with the registration of the Notes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company has sufficient authorized shares to meet the settlement requirements;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the contract has an explicit limit on the number of shares in settlement;
| | - |  | -------------------------------------------------------------------------



| |  |  | there are no cash payments to the counterparty in the event the Company fails to make timely filings with the SEC;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | there are no required cash payments to the counterparty if the shares initially delivered upon settlement are subsequently sold by the counterparty and the sales
proceeds are insufficient to provide the counterparty with full return of the amount due;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | there are no provisions in the contract that indicate that the counterparty has rights that rank higher than those of a shareholder of the stock underlying the
contract; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | there is no requirement in the contract to post collateral at any point or for any reason.
| | - |  | ------------------------------------------------------------------------------------------

Because the Company concluded that the embedded derivative would be properly classified in equity if it were a freestanding security, it was able to further conclude
that the embedded derivative qualifies for the scope exception set forth in SFAS No. 133, paragraph 11(a). Accordingly, the Company is not required to bifurcate and separately account for the embedded derivative.



|14. | COMPREHENSIVE INCOME (LOSS)
|--- | ---------------------------

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):



|                                            |  |                      |       |                         |               |   |               |  |   |               |   |  |   |        |  
|------------------------------------------- |  | -------------------- | ----- | ----------------------- | ------------- | - | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                            |  | Thirteen Weeks Ended |       | Thirty-Nine Weeks Ended |              
|                                            |  | Feb. 24, 2007        |       |                         | Feb. 25, 2006 |   | Feb. 24, 2007 |  |   | Feb. 25, 2006 |  
|Net income (loss)                           |  | $                    | 2,085 |                         |               | $ | 809           |  | $ | 7,489         |   |  | $ | (2,082 | )
|Change in cumulative translation adjustment |  |                      | (11   | )                       |               |   | 6             |  |   | (2            | ) |  |   | 6      |  
|                                            |  |                      |       |                         |               |   |               |  |   |               |   |  |   |        |  
|Total comprehensive income (loss)           |  | $                    | 2,074 |                         |               | $ | 815           |  | $ | 7,487         |   |  | $ | (2,076 | )
|                                            |  |                      |       |                         |               |   |               |  |   |               |   |  |   |        |  



|15. | 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 our organization. Each
segment operates in the same industry with production facilities that produce similar customized products for our 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 our 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. The
following tables reconcile certain financial information by segment.



15



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##### Table of Contents

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



|               |  |                      |         |                         |   |               |  |               |         |  |   |        
|-------------- |  | -------------------- | ------- | ----------------------- | - | ------------- |  | ------------- | ------- |  | - | -------
|               |  | Thirteen Weeks Ended |         | Thirty-Nine Weeks Ended
|               |  | Feb. 24, 2007        |         | Feb. 25, 2006           |   | Feb. 24, 2007 |  | Feb. 25, 2006
|Merix Oregon   |  | $                    | 53,680  |                         | $ | 49,473        |  | $             | 163,805 |  | $ | 139,752
|Merix San Jose |  |                      | 9,715   |                         |   | 8,274         |  |               | 27,383  |  |   | 23,345 
|Merix Asia     |  |                      | 36,893  |                         |   | 35,087        |  |               | 115,736 |  |   | 42,550 
|               |  |                      |         |                         |   |               |  |               |         |  |   |        
|               |  | $                    | 100,288 |                         | $ | 92,834        |  | $             | 306,924 |  | $ | 205,647
|               |  |                      |         |                         |   |               |  |               |         |  |   |        

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



|               |  |                      |        |                         |   |               |  |               |        |  |   |       
|-------------- |  | -------------------- | ------ | ----------------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|               |  | Thirteen Weeks Ended |        | Thirty-Nine Weeks Ended
|               |  | Feb. 24, 2007        |        | Feb. 25, 2006           |   | Feb. 24, 2007 |  | Feb. 25, 2006
|Merix Oregon   |  | $                    | 11,334 |                         | $ | 9,847         |  | $             | 39,286 |  | $ | 21,374
|Merix San Jose |  |                      | 2,967  |                         |   | 2,359         |  |               | 8,066  |  |   | 6,393 
|Merix Asia     |  |                      | 3,058  |                         |   | 3,885         |  |               | 8,188  |  |   | 3,230 
|               |  |                      |        |                         |   |               |  |               |        |  |   |       
|               |  | $                    | 17,359 |                         | $ | 16,091        |  | $             | 55,540 |  | $ | 30,997
|               |  |                      |        |                         |   |               |  |               |        |  |   |       

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



|               |  |               |         |              |   |        
|-------------- |  | ------------- | ------- | ------------ | - | -------
|               |  | Feb. 24, 2007 |         | May 27, 2006
|Merix Oregon   |  | $             | 169,089 |              | $ | 168,300
|Merix San Jose |  |               | 44,402  |              |   | 45,303 
|Merix Asia     |  |               | 161,179 |              |   | 165,327
|               |  |               |         |              |   |        
|               |  | $             | 374,670 |              | $ | 378,930
|               |  |               |         |              |   |        



|16. | SIGNIFICANT CUSTOMERS
|--- | ---------------------

Information regarding customers that
accounted for 10% or more of our total revenue in the thirteen or thirty-nine week periods ended February 24, 2007 or February 25, 2006 was as follows:



|                                                                         |  |                      |   |  |                         |     |  |               |   |  |               |  
|------------------------------------------------------------------------ |  | -------------------- | - |  | ----------------------- | --- |  | ------------- | - |  | ------------- | -
|                                                                         |  | Thirteen Weeks Ended |   |  | Thirty-Nine Weeks Ended |    
|                                                                         |  | Feb. 24, 2007        |   |  | Feb. 25, 2006           |     |  | Feb. 24, 2007 |   |  | Feb. 25, 2006 |  
|Percentage of consolidated revenue represented by significant customer 1 |  | 15                   | % |  | 26                      | %   |  | 15            | % |  | 26            | %
|Percentage of consolidated revenue represented by significant customer 2 |  | 13                   | % |  | *                       | (1) |  | 11            | % |  | 10            | %

---

|(1) | Less than 10%.
|--- | --------------

The companies comprising the Companys largest OEM customers vary from period to period. Net sales to these significant customers in the periods presented primarily related to the Merix Oregon operating segment.

At February 24, 2007, five entities represented approximately 44.7% of the Companys net accounts receivable balance, individually ranging from
6.0% to 15.3%. The Company has not experienced significant losses related to its accounts receivable in the past.



|17. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Litigation

As previously reported in the Companys periodic reports filed with the Securities and Exchange Commission, 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. In September 2005, the court granted the Companys motion to dismiss without prejudice and gave plaintiffs leave to amend their complaint. In November 2005, a second amended
complaint was filed alleging 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 $103,361,000 of
the Companys common stock. In September 2006, the Court dismissed the second amended complaint with prejudice. In October 2006, the plaintiffs filed a notice of appeal with the Ninth Circuit Court of Appeals. Plaintiffs have filed their
opening brief in support of the Appeal and the Company plans to



16



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##### Table of Contents

file an opposition brief in April 2007.

In the first quarter
of fiscal 2005, two derivative lawsuits were field against certain of the Companys directors and officers based on claims of breach of fiduciary duty and insider trading. Merix is named as a nominal defendant in these derivative lawsuits,
which have been consolidated under the common caption In re Merix Corporation Derivative Litigation, Lead Case No. 0407-06807, in the Circuit Court for the State of Oregon, Multnomah County. The derivative action had been stayed pending
action on defendants motion to dismiss in the federal litigation. That stay has been lifted and a motion to dismiss, which was pending at the time the stay was entered, will now be argued.

The plaintiffs seek unspecified damages from the defendants. A potential loss or range of loss that could arise from these cases is not estimable or probable at this
time. The Company has recorded charges for estimated probable costs associated with defending these claims, as it is its policy to accrue legal fees when it is probable that it will have to defend itself against known claims or allegations and it
can reasonably estimate the amount of anticipated expense.

The Company is from time to time made subject to various legal claims, actions and complaints
in the ordinary course of its business. The Company has recorded charges for the estimated probable costs associated with defending these claims. The Company believes that its legal accruals are adequate and that the outcome of the litigation should
not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.

Environmental Matters

The process to manufacture printed circuit boards requires adherence to environmental regulations regarding the storage, use, handling and disposal
of chemicals, solid wastes and other hazardous materials as well as air quality standards applicable in each of the jurisdictions in which we operate. The Companys Huiyang and Huizhou facilities in the Peoples Republic of China currently
are not compliant with all applicable environmental permits and requirements. The Company has worked cooperatively with regulators in the Peoples Republic of China and has agreed upon a remediation plan. We anticipate that this plan, if
executed, would not result in any unplanned fines, penalties or costs. We incurred $86,000 and $35,000 of costs to upgrade pollution controls relating to the Huizhou facility and Huiyang facility, respectively, during the thirteen week period ended
February 24, 2007 and $298,000 and $342,000, respectively, during the thirty-nine week period ended February 24, 2007. We believe that our other facilities comply in all material respects with applicable environmental laws and regulations.
The Company has in the past, however, received certain notices of violations and has been required to engage in certain minor corrective activities. There can be no assurance that violations will not occur in the future.

Commitments

As of February 24, 2007, we had capital
commitments of approximately $6.0 million, primarily relating to the purchase of manufacturing equipment. We also had consignment agreements with certain suppliers for raw material inventory, some of which obligate us to purchase inventory on hand
upon termination of the agreement. As of February 24, 2007, we had $950,000 worth of material in consignment under these agreements.



|18. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

We 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):



|                |  |                      |     |                         |   |               |  |               |     |  |   |    
|--------------- |  | -------------------- | --- | ----------------------- | - | ------------- |  | ------------- | --- |  | - | ---
|                |  | Thirteen Weeks Ended |     | Thirty-Nine Weeks Ended
|                |  | Feb. 24, 2007        |     | Feb. 25, 2006           |   | Feb. 24, 2007 |  | Feb. 25, 2006
|Consulting fees |  | $                    | 43  |                         | $ | 47            |  | $             | 129 |  | $ | 59 
|Rental fees     |  |                      | 66  |                         |   | 56            |  |               | 200 |  |   | 70 
|Management fees |  |                      | 9   |                         |   | 8             |  |               | 23  |  |   | 9  
|Other fees      |  |                      | 72  |                         |   | 106           |  |               | 300 |  |   | 126
|                |  |                      |     |                         |   |               |  |               |     |  |   |    
|                |  | $                    | 190 |                         | $ | 217           |  | $             | 652 |  | $ | 264
|                |  |                      |     |                         |   |               |  |               |     |  |   |    



17



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##### Table of Contents

|19. | NEW ACCOUNTING PRONOUNCEMENTS
|--- | -----------------------------

FASB Interpretation
No. 48

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprises consolidated financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48
is effective for annual periods beginning after December 15, 2006. The Company will adopt FIN 48 during the first quarter of the fiscal year 2008, which begins May 27, 2007. The Company is currently evaluating the impact of adopting FIN 48
on its financial statements.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. Where
applicable, this statement simplifies and codifies related guidance within generally accepted accounting principles. SFAS No. 157 does not apply under SFAS No. 123(R), does not eliminate the practicability exceptions to fair value
measurements in accounting pronouncements within the scope of the statement, and does not apply under accounting pronouncements that require or permit measurements that are similar to fair value but that are not intended to measure fair value. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We will adopt SFAS No. 157 during the first quarter of fiscal 2009. The Company
does not believe that the adoption of SFAS No. 157 will have a material effect on its consolidated financial position, results of operations or cash flows.

SFAS No. 158

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and
Other Post Retirement Plans  an amendment of FASB Statements No. 87, 88, 106 and 132(R), which requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires an employer to
measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. SFAS No. 158 requires employers to initially recognize the funded status of a defined benefit postretirement plan and
to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The Company is currently analyzing the effects of adopting SFAS No. 158.

Staff Accounting Bulletin No. 108

In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which addresses how the effects of prior-year uncorrected
misstatements should be considered when quantifying misstatements in current-year financial statements. SAB No. 108 requires companies to quantify misstatements using both the balance sheet and income statement approaches and to evaluate
whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after
November 15, 2006. The Company is still assessing the impact of SAB No. 108 on its financial position and results of operations.

FASB
Staff Position No. AUG AIR-1

In September 2006, the FASB issued Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance
Activities, which prohibits accruing for the future cost of periodic major overhauls and planned maintenance of plant and equipment in annual and interim periods. This Staff Position is effective for fiscal years beginning after
December 15, 2006 and must be retrospectively applied. The Company is currently evaluating the impact of adopting AUG AIR-1 on its financial statements.



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SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair
value. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is currently analyzing the effects of adopting SFAS No. 159.



|20. | RESIGNATION OF CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
|--- | --------------------------------------------------------------

On
January 9, 2007, Mark Hollinger notified The Company of his resignation as the Companys Chairman, President and Chief Executive Officer. Upon his resignation, Mr. Hollinger received cash severance of $0.6 million and non-cash
stock-based severance related to the issuance of stock awards of $0.1 million. These amounts were recorded as a component of Severance and Impairment Charges on our Consolidated Statement of Operations during the third quarter of fiscal 2007.

Following Mr. Hollingers resignation, the Board of Directors elected William C. McCormick as Chairman of the Board of Directors.
Mr. McCormick was also appointed Interim Chief Executive Officer and President of the Company until a permanent Chief Executive Officer is appointed. Mr. McCormick, 73, has been a director of the Company since 1997 and Lead Director since
2005.



|21. | SUBSEQUENT EVENTS
|--- | -----------------

Sale of Discontinued Operations

On April 1, 2007, the Company sold its shareholding interests in Merix Holding (Hong Kong) Limited (Merix Hong Kong), the parent company of
its two single-sided facilities as discussed in Note 9, Discontinued Operations, to East Ridge Group Limited (China).

Appointment of
President and Chief Executive Officer

On April 4, 2007, The Company announced that Michael D. Burger, 48, has been appointed President and Chief
Executive Officer. Mr. Burger also will serve as a member of the Board of Directors. Prior to joining the Company, Mr. Burger was the President of the Components Business Unit of Flextronics Corporation and, earlier, as the President and a member of
the Board of directors of ZiLOG Corporation and Vice President and Managing Director of National Semiconductors Asia Pacific Division.



|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, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Quarterly Report are
forward-looking. 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 From 10-K for the fiscal year ended May 27, 2006.

Business

We are a leading global manufacturer of technologically advanced printed circuit boards for use in electronic equipment. Our principal products are complex multi-layer rigid printed circuit boards, which are the
platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems. We sell our products to original equipment manufacturer (OEM) customers, and
their electronic manufacturing service (EMS) providers, that use them 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



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technological change, high levels of complexity and short product life-cycles, as new and technologically superior electronic equipment is continually being
developed. We have focused our efforts on shortened lead time delivery, technology and volume production. We believe we are well positioned to serve our customer base as a result of our quick-turn service capabilities, our technology leadership,
high-technology production capacity and our lower-cost, volume production capabilities in Asia.

Operating Segments

We define our business by three operating segments that are evidence of the internal structure of our organization and include: (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.

Markets and Customers

We have a broad customer base and our
customers include leading OEMs in the electronics and automotive industries. Information regarding customers that accounted for 10% or more of our total revenue in the thirteen or thirty-nine week periods ended February 24, 2007 or
February 25, 2006 was as follows:



|                                                                         |  |                      |   |  |                         |     |  |               |   |  |               |  
|------------------------------------------------------------------------ |  | -------------------- | - |  | ----------------------- | --- |  | ------------- | - |  | ------------- | -
|                                                                         |  | Thirteen Weeks Ended |   |  | Thirty-Nine Weeks Ended |    
|                                                                         |  | Feb. 24, 2007        |   |  | Feb. 25, 2006           |     |  | Feb. 24, 2007 |   |  | Feb. 25, 2006 |  
|Percentage of consolidated revenue represented by significant customer 1 |  | 15                   | % |  | 26                      | %   |  | 15            | % |  | 26            | %
|Percentage of consolidated revenue represented by significant customer 2 |  | 13                   | % |  | *                       | (1) |  | 11            | % |  | 10            | %

---

|(1) | Less than 10%.
|--- | --------------

The companies comprising our largest OEM customers vary from period to period. Net sales to these significant customers in the periods presented primarily related to our Merix Oregon operating segment. The
reduced concentration of, and shift in, our significant customers is largely the result of a more diverse customer base resulting from the acquisition of Merix Asia on September 29, 2005. However, 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 following are our significant end customers,
in alphabetical order, by operating segment for the thirty-nine week period ended February 24, 2007:

Merix Oregon 
Brocade Corporation, Cisco Systems Inc., Cray Inc., Harris RF Communication and Motorola. During the thirteen and thirty-nine week periods ended February 24, 2007, Merix Oregons net sales to Cisco Systems represented 28% and 28%,
respectively, of Merix Oregons net sales and sales to Motorola represented 21% and 18%, respectively.

Merix Asia 
BOSCH, IBM Corporation, Lear Corporation, TRW Automotive, Inc. and Visteon Corporation. During the thirteen and thirty-nine week periods ended February 24, 2007, Merix Asias net sales to TRW Automotive represented 18% and 16%,
respectively, of Merix Asias net sales.

Merix San Jose  Aeroflex Corporation, Benchmark Electronics, JABIL,
Paramit Corporation and PLEXUS. During the thirteen and thirty-nine week periods ended February 24, 2007, none of Merix SanJoses customers represented 10% or more of Merix San Joses net sales.

Approximately 52% and 55%, respectively, of our OEM sales in the thirty-nine week periods ended February 24, 2007 and February 25, 2006 were made through
electronic manufacturing service (EMS) providers. Although our contractual relationship is with the electronic manufacturing service provider, most of our shipments to electronic manufacturing service 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 electronic manufacturing service providers and are awarded incremental discretionary orders directly from some of



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them. We expect these discretionary orders to increase in the future as we strengthen our direct relationships with these electronic manufacturing service
providers.

Backlog

Backlog comprises purchase orders
received and, in some instances, forecast requirements released for production under customer contracts and totaled $64.9 million and $72.0 million at February 24, 2007 and May 27, 2006, respectively.

We intentionally lowered our average lead times by approximately one week during the third quarter of fiscal 2007 as compared to the end of the second quarter of fiscal
2007, which contributed to the lower backlog at February 24, 2007 compared to May 27, 2006. A substantial portion of our backlog is typically scheduled for delivery within 90 days and 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.

Critical Accounting Policies and Use
of Estimates

Except for the addition of the Inventories and Stock-Based Compensation information below, we reaffirm the information included under the
heading Critical Accounting Policies and Use of Estimates appearing at page 28 of our Annual Report on Form 10-K for the year ended May 27, 2006, which was filed with the Securities and Exchange Commission on August 24, 2006.

Inventories

On May 28, 2006, we adopted
SFAS No. 151, Inventory Costs  An Amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory
Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) and requires that those items be recognized as current-period charges. Additionally, SFAS No. 151
requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. We are required to estimate the amount of idle capacity and allocate and expense amounts in the
current period. Our estimates of idle capacity were not significant for the thirteen and thirty-nine week periods ended February 24, 2007 and, accordingly, we did not incur any charges related to idle facilities. If our estimates change in the
future, we may incur such charges in future periods.

Stock-Based Compensation

On May 28, 2006, we adopted SFAS No. 123R, Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards granted to our employees
and directors based on the estimated fair value of the award on the grant date. We elected to use the modified prospective transition method as provided by SFAS No. 123R and, accordingly, financial statement amounts for the prior periods
presented in this Form 10-Q have not been restated to reflect the fair value method of expensing stock-based compensation. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. In
addition, the unrecognized expense of awards not yet vested at the date of adoption is recognized in net income in the periods after the date of adoption over the remainder of the requisite service period. Our deferred stock-based compensation
balance of $1.1 million as of May 27, 2006, which was accounted for under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, was reclassified to common stock upon the
adoption of SFAS No. 123R. As of February 24, 2007, unrecognized stock-based compensation related to outstanding, but unvested stock options and restricted stock awards was $2.5 million and $1.0 million, respectively, which will be
recognized over the weighted-average remaining vesting periods of 1.8 years and 2.9 years, respectively.

Prior to May 28, 2006, we accounted for
stock-based compensation using the intrinsic value method as prescribed by APB Opinion No. 25 and related interpretations. Upon the adoption of SFAS No. 123R, we maintained our method of valuation for stock option awards using the
Black-Scholes Option Pricing Model which has historically been used for the purpose of providing pro-forma financial disclosures in accordance with SFAS No. 123.



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The use of the Black-Scholes Option Pricing Model to estimate the fair value of stock option awards requires us to make
judgments on assumptions regarding the risk-free interest rate, expected dividend yield, expected term and expected volatility over the expected term of the award. The assumptions used in calculating the fair value of share-based payment awards
represent managements best estimates, but these estimates involve inherent uncertainties and the application of expense could be materially different in the future.

Compensation expense is only recognized on awards that ultimately vest. Therefore, we have reduced the compensation expense to be recognized over the vesting period for anticipated future
forfeitures. Forfeiture estimates are based on historical forfeiture patterns. We update our forfeiture estimates quarterly and recognize any changes to accumulated compensation expense in the period of change. If actual forfeitures
differ significantly from our estimates, our results of operations could be materially impacted.

On May 25, 2005, our Board of Directors accelerated
vesting of outstanding underwater employee stock options with exercise prices greater than $8.00 per share. Approximately 1.3 million options, or approximately 39% of our total outstanding options as of May 25, 2005, with
varying remaining vesting schedules, were subject to this acceleration and became immediately exercisable. As a result of this acceleration, we estimated that we would reduce the amount of compensation expense recorded due to the effects of SFAS
No. 123R by approximately $329,000 for fiscal 2007 and an additional $300,000 in total for subsequent years. This acceleration only related to specific underwater options, and, accordingly, is not representative of the overall impact that SFAS
No. 123R will have on the results of our operations, our cash flows or our liquidity.

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).



|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  
|----------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | ----------------------------------------- | ----- | - |  | - | ------ | - |  | ----- | -
|                                                                                    |  | Thirteen Weeks Ended(1)
February 24, 2007 |         |   | Thirteen Weeks Ended(1)
February 25, 2006 |      
|Net sales                                                                           |  | $                                         | 100,288 |   |                                           | 100.0 | % |  | $ | 92,834 |   |  | 100.0 | %
|Cost of sales                                                                       |  |                                           | 82,929  |   |                                           | 82.7  |   |  |   | 76,743 |   |  | 82.7  |  
|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  
|Gross margin                                                                        |  |                                           | 17,359  |   |                                           | 17.3  |   |  |   | 16,091 |   |  | 17.3  |  
|Engineering                                                                         |  |                                           | 1,664   |   |                                           | 1.7   |   |  |   | 1,756  |   |  | 1.9   |  
|Selling, general and administrative                                                 |  |                                           | 10,617  |   |                                           | 10.6  |   |  |   | 10,541 |   |  | 11.4  |  
|Amortization of identifiable intangible assets                                      |  |                                           | 624     |   |                                           | 0.6   |   |  |   | 854    |   |  | 0.9   |  
|Severance and impairment charges                                                    |  |                                           | 1,023   |   |                                           | 1.0   |   |  |   |       |   |  |      |  
|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  
|Operating income (loss)                                                             |  |                                           | 3,431   |   |                                           | 3.4   |   |  |   | 2,940  |   |  | 3.2   |  
|Other expense, net                                                                  |  |                                           | (1,073  | ) |                                           | (1.1  | ) |  |   | (1,819 | ) |  | (2.0  | )
|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  
|Income (loss) from continuing operations before income taxes and minority interests |  |                                           | 2,358   |   |                                           | 2.4   |   |  |   | 1,121  |   |  | 1.2   |  
|Income tax expense                                                                  |  |                                           | 367     |   |                                           | 0.4   |   |  |   | 391    |   |  | 0.4   |  
|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  
|Income (loss) from continuing operations before minority interests                  |  | $                                         | 1,991   |   |                                           | 2.0   | % |  | $ | 730    |   |  | 0.8   | %
|                                                                                    |  |                                           |         |   |                                           |       |   |  |   |        |   |  |       |  



|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   
|----------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | -------------------------------------------- | ----- | - |  | - | ------- | - |  | ----- | --
|                                                                                    |  | Thirty-Nine Weeks Ended(1) February 24, 2007 |         |   | Thirty-Nine Weeks Ended(1) February 25, 2006 |      
|Net sales                                                                           |  | $                                            | 306,924 |   |                                              | 100.0 | % |  | $ | 205,647 |   |  | 100.0 | % 
|Cost of sales                                                                       |  |                                              | 251,384 |   |                                              | 81.9  |   |  |   | 174,650 |   |  | 84.9  |   
|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   
|Gross margin                                                                        |  |                                              | 55,540  |   |                                              | 18.1  |   |  |   | 30,997  |   |  | 15.1  |   
|Engineering                                                                         |  |                                              | 4,820   |   |                                              | 1.6   |   |  |   | 4,647   |   |  | 2.3   |   
|Selling, general and administrative                                                 |  |                                              | 33,575  |   |                                              | 10.9  |   |  |   | 22,062  |   |  | 10.7  |   
|Amortization of identifiable intangible assets                                      |  |                                              | 2,147   |   |                                              | 0.7   |   |  |   | 2,431   |   |  | 1.2   |   
|Severance and impairment charges                                                    |  |                                              | 1,023   |   |                                              | 0.3   |   |  |   | 1,135   |   |  | 0.6   |   
|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   
|Operating income (loss)                                                             |  |                                              | 13,975  |   |                                              | 4.6   |   |  |   | 722     |   |  | 0.4   |   
|Other expense, net                                                                  |  |                                              | (4,061  | ) |                                              | (1.3  | ) |  |   | (2,464  | ) |  | (1.2  | ) 
|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   
|Income (loss) from continuing operations before income taxes and minority interests |  |                                              | 9,914   |   |                                              | 3.2   |   |  |   | (1,742  | ) |  | (0.8  | ) 
|Income tax expense                                                                  |  |                                              | 1,315   |   |                                              | 0.4   |   |  |   | 442     |   |  | 0.2   |   
|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   
|Income (loss) from continuing operations before minority interests                  |  | $                                            | 8,599   |   |                                              | 2.8   | % |  | $ | (2,184  | ) |  | (1.1  | )%
|                                                                                    |  |                                              |         |   |                                              |       |   |  |   |         |   |  |       |   

---

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



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Net sales increased $7.5 million, or 8.0%, to $100.3 million, in the thirteen weeks ended February 24, 2007 (the
third quarter of fiscal 2007) compared to $92.8 million in the thirteen weeks ended February 25, 2006 (the third quarter of fiscal 2006). Net sales increased $101.3 million, or 49.2%, to $306.9 million in the thirty-nine week period ended
February 24, 2007 compared to $205.6 million in the thirty-nine week period ended February 25, 2006.

We acquired Merix Asia on
September 29, 2005 and, since there is a one-month lag in accounting for this segment (see Note 3 of Notes to Consolidated Financial Statements), the thirty-nine week period ended February 25, 2006 only includes sixteen weeks of
operations, which is the primary reason for the variations in revenue, cost of sales and gross margin for that period. Our thirteen and thirty-nine week periods ended February 24, 2007 revenues reflected improvements in unit sales and pricing
at certain segments as detailed below, as well as increases in quick-turn and premium revenues. Quick-turn and premium revenues include revenues from products that sell at a premium over our standard base price as a result of rapid prototype
manufacturing or compressed lead-time for higher volume orders. These factors are discussed in more detail below.

Segment Information

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



|               |  |                      |         |                         |   |               |  |               |         |  |   |        
|-------------- |  | -------------------- | ------- | ----------------------- | - | ------------- |  | ------------- | ------- |  | - | -------
|               |  | Thirteen Weeks Ended |         | Thirty-Nine Weeks Ended
|               |  | Feb. 24, 2007        |         | Feb. 25, 2006           |   | Feb. 24, 2007 |  | Feb. 25, 2006
|Merix Oregon   |  | $                    | 53,680  |                         | $ | 49,473        |  | $             | 163,805 |  | $ | 139,752
|Merix San Jose |  |                      | 9,715   |                         |   | 8,274         |  |               | 27,383  |  |   | 23,345 
|Merix Asia     |  |                      | 36,893  |                         |   | 35,087        |  |               | 115,736 |  |   | 42,550 
|               |  |                      |         |                         |   |               |  |               |         |  |   |        
|               |  | $                    | 100,288 |                         | $ | 92,834        |  | $             | 306,924 |  | $ | 205,647
|               |  |                      |         |                         |   |               |  |               |         |  |   |        

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



|               |  |                      |        |                         |   |               |  |               |        |  |   |       
|-------------- |  | -------------------- | ------ | ----------------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|               |  | Thirteen Weeks Ended |        | Thirty-Nine Weeks Ended
|               |  | Feb. 24, 2007        |        | Feb. 25, 2006           |   | Feb. 24, 2007 |  | Feb. 25, 2006
|Merix Oregon   |  | $                    | 11,334 |                         | $ | 9,847         |  | $             | 39,286 |  | $ | 21,374
|Merix San Jose |  |                      | 2,967  |                         |   | 2,359         |  |               | 8,066  |  |   | 6,393 
|Merix Asia     |  |                      | 3,058  |                         |   | 3,885         |  |               | 8,188  |  |   | 3,230 
|               |  |                      |        |                         |   |               |  |               |        |  |   |       
|               |  | $                    | 17,359 |                         | $ | 16,091        |  | $             | 55,540 |  | $ | 30,997
|               |  |                      |        |                         |   |               |  |               |        |  |   |       

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



|               |  |               |         |              |   |        
|-------------- |  | ------------- | ------- | ------------ | - | -------
|               |  | Feb. 24, 2007 |         | May 27, 2006
|Merix Oregon   |  | $             | 169,089 |              | $ | 168,300
|Merix San Jose |  |               | 44,402  |              |   | 45,303 
|Merix Asia     |  |               | 161,179 |              |   | 165,327
|               |  |               |         |              |   |        
|               |  | $             | 374,670 |              | $ | 378,930
|               |  |               |         |              |   |        



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Per Unit Information

We define unit as the number of panel layers, which is the number of panels multiplied by the number of average layer counts. Percentage increases (decreases) in unit volume and pricing were as follows:



|                     |  |                                                                                       |   |  |                                                                                             |  
|-------------------- |  | ------------------------------------------------------------------------------------- | - |  | ------------------------------------------------------------------------------------------- | -
|                     |  | Thirteen Weeks EndedFebruary 24, 2007Compared to ThirteenWeeks EndedFebruary 25,
2006 |   |  | Thirty-Nine Weeks EndedFebruary 24, 2007Compared to Thirty-NineWeeks EndedFebruary 25,
2006 |  
|Merix Oregon:        |  |                                                                                       |   |  |                                                                                             |  
|Unit volume          |  | 1                                                                                     | % |  | 5                                                                                           | %
|Average unit pricing |  | 7                                                                                     | % |  | 12                                                                                          | %
|                     |  |                                                                                      
|Merix San Jose:      |  |                                                                                       |   |  |                                                                                             |  
|Unit volume          |  | (1)                                                                                   | % |  | (9)                                                                                         | %
|Average unit pricing |  | 19                                                                                    | % |  | 29                                                                                          | %
|                     |  |                                                                                      
|Merix Asia:          |  |                                                                                       |   |  |                                                                                             |  
|Unit volume          |  | (7)                                                                                   | % |  | 152                                                                                         | %
|Average unit pricing |  | 21                                                                                    | % |  | 8                                                                                           | %
|                     |  |                                                                                      
|Overall:             |  |                                                                                       |   |  |                                                                                             |  
|Unit volume          |  | (5)                                                                                   | % |  | 80                                                                                          | %
|Average unit pricing |  | 16                                                                                    | % |  | (17)                                                                                        | %

The increase in the overall average unit pricing in the thirteen weeks ended February 24, 2007 compared to
the same period of the prior fiscal year was due to increased sales of higher-priced, quick-turn products and a shift in our product mix to more technologically advanced boards. Also, during the first quarter of fiscal 2007, the Company experienced
an unprecedented rise in the cost of copper laminate, which resulted in the Company raising prices on a significant portion of its products.

The decline
in the overall average unit pricing in the thirty-nine week period ended February 24, 2007 compared to the same period of the prior fiscal year was due to the addition of Merix Asia sales for the full thirty-nine week period of fiscal 2007 as
compared to only sixteen weeks in the comparable fiscal 2006 period, as the unit prices of the Merix Asia products are lower than those of Merix Oregon and Merix San Jose.

Merix Oregon and Merix San Jose

The increase in unit volume at Merix Oregon in the thirty-nine week period
ended February 24, 2007 compared to the same period of the prior fiscal year resulted primarily from increased demand across all of our major end-user market segments. Unit volume in San Jose declined and increased in Oregon due to the
strategic decision to focus San Jose on quick turn and certain premium services business. The increases in the average unit pricing resulted primarily from a shift in our product mix to a higher percentage of the technologically advanced,
higher-priced boards. In general, average pricing is higher for boards that utilize high-speed laminate materials, thermal management solutions and smaller and more compact holes.

Merix Asia

The improvement in unit volume in the thirty-nine week period is primarily due to the fact that we
only had sixteen weeks of activity reported in the thirty-nine week period ended February 25, 2006 and we had a full thirty-nine weeks in the corresponding 2007 period. See also the discussion regarding discontinued operations below. Merix Asia
has contributed to our overall increase in sales as we are now able to offer higher-volume, lower cost production capabilities to historic North American Merix customers. The orders existing at the time of purchasing Merix Asia were heavily weighted
to the automotive industry, which is generally a lower technology and lower margin business. We have begun shifting the Merix Asia order mix to higher technology, higher gross margin customers, which contributed to the increases in average unit
pricing in Asia in both the thirteen and thirty-nine week periods of fiscal 2007 compared to the same periods of fiscal 2006. In addition, in the thirteen week period of fiscal 2007, we were able to increase our pricing to help absorb a portion of
the increased copper laminate costs, which occurred in the first two quarters of fiscal 2007. The decrease in unit



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##### Table of Contents

volume in the thirteen week period ended February 24, 2007 compared to the thirteen week period ended February 25, 2006 was primarily due to
managements decision to disengage from unprofitable products, primarily related to higher laminate costs, or products that it believed would not reach acceptable profitability in a reasonable period of time.

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 their percentage of our consolidated net sales (dollars in thousands):



|                            |  |                         |         |  |                   |   |  |   |         |  |     |  
|--------------------------- |  | ----------------------- | ------- |  | ----------------- | - |  | - | ------- |  | --- | -
|                            |  | Thirteen Weeks Ended    |        
|                            |  | February 24, 2007       |         |  | February 25, 2006 |  
|Communications & Networking |  | $                       | 45,752  |  | 46                | % |  | $ | 41,347  |  | 44  | %
|Computing & Peripherals     |  |                         | 14,326  |  | 14                | % |  |   | 10,738  |  | 12  | %
|Industrial & Medical        |  |                         | 8,550   |  | 9                 | % |  |   | 8,102   |  | 9   | %
|Defense and Aerospace       |  |                         | 5,014   |  | 5                 | % |  |   | 2,737   |  | 3   | %
|Automotive                  |  |                         | 16,490  |  | 16                | % |  |   | 20,671  |  | 22  | %
|Other                       |  |                         | 10,156  |  | 10                | % |  |   | 9,239   |  | 10  | %
|                            |  |                         |         |  |                   |   |  |   |         |  |     |  
|                            |  | $                       | 100,288 |  | 100               | % |  | $ | 92,834  |  | 100 | %
|                            |  |                         |         |  |                   |   |  |   |         |  |     |  
|                            | 
|                            |  | Thirty-Nine Weeks Ended |        
|                            |  | February 24, 2007       |         |  | February 25, 2006 |  
|Communications & Networking |  | $                       | 135,675 |  | 44                | % |  | $ | 116,875 |  | 57  | %
|Computing & Peripherals     |  |                         | 44,467  |  | 15                | % |  |   | 20,457  |  | 10  | %
|Industrial & Medical        |  |                         | 25,224  |  | 8                 | % |  |   | 18,415  |  | 9   | %
|Defense and Aerospace       |  |                         | 14,979  |  | 5                 | % |  |   | 6,631   |  | 3   | %
|Automotive                  |  |                         | 54,662  |  | 18                | % |  |   | 24,920  |  | 12  | %
|Other                       |  |                         | 31,917  |  | 10                | % |  |   | 18,349  |  | 9   | %
|                            |  |                         |         |  |                   |   |  |   |         |  |     |  
|                            |  | $                       | 306,924 |  | 100               | % |  | $ | 205,647 |  | 100 | %
|                            |  |                         |         |  |                   |   |  |   |         |  |     |  

The increases in the markets were primarily due to the increases in unit volume and pricing as indicated above.

The growth in the Automotive, Computing & Peripherals and Other markets in the thirty-nine week period ended February 24, 2007 compared to
the same period of the prior fiscal year resulted from the addition of Merix Asia on September 29, 2005. We have also targeted the higher-technology Aerospace and Defense markets as a platform for Merix North America growth, which has caused
sales on this category to increase.

The decrease in the Automotive market in the thirteen week period ended February 24, 2007 compared to the same
period of the prior fiscal year is due to our de-emphasis and disengagement from certain customers and part numbers in that market as we shift our product mix to higher-margin products.

Net Sales by Geographic Region

Net sales by geographic region are defined as net sales consummated within the
region where the sale originated. We define the sales origination to be the region where the product is manufactured. Accordingly, net sales by geographic region are the same as net sales by segment.



25



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##### Table of Contents

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 (labor, utilities, manufacturing supplies, etc.) incurred by Merix Asia are denominated in either Hong Kong Dollars or the Chinese Yuan. Changes in these currencies relative to the U.S. dollar impact our profitability.

Cost of sales increased $6.2 million, or 8.1%, to $82.9 million in the thirteen week period ended February 24, 2007 compared to $76.7 million in the thirteen week
period ended February 25, 2006 and increased $76.7 million, or 43.9%, to $251.4 million in the thirty-nine week period ended February 24, 2007 compared to $174.7 million in the thirty-nine week period ended February 25, 2006. The
increases were primarily due to the increases in revenue as discussed above, as well as to increases in copper laminate costs that occurred primarily in the first half of fiscal 2007 and a shift in mix to higher-technology products that require
higher-cost materials and labor to produce.

Our gross margin as a percentage of net sales by segment was as follows:



|               |  |                      |   |  |                         |   |  |              |   |  |              |  
|-------------- |  | -------------------- | - |  | ----------------------- | - |  | ------------ | - |  | ------------ | -
|               |  | Thirteen Weeks Ended |   |  | Thirty-Nine Weeks Ended |  
|               |  | Feb. 24,2007         |   |  | Feb. 25,2006            |   |  | Feb. 24,2007 |   |  | Feb. 25,2006 |  
|Merix Oregon   |  | 21.1                 | % |  | 19.9                    | % |  | 24.0         | % |  | 15.3         | %
|Merix San Jose |  | 30.5                 | % |  | 28.5                    | % |  | 29.5         | % |  | 27.4         | %
|Merix Asia     |  | 8.3                  | % |  | 11.1                    | % |  | 7.1          | % |  | 7.6          | %
|Overall        |  | 17.3                 | % |  | 17.3                    | % |  | 18.1         | % |  | 15.1         | %

Merix Oregon and Merix San Jose

The increases in gross margin as a percentage of net sales for Merix Oregon and Merix San Jose primarily related to improved market demand and increasing unit prices, as well as a shift in mix to sales of more
profitable products as discussed above. These increases were partially offset by increases in raw material prices, primarily copper laminate. The effect on Merix Oregon and Merix San Jose due to the increases in copper laminate prices was not as
significant as it was for Merix Asia as the copper laminate is a smaller percentage of the overall product cost at Merix Oregon and Merix San Jose than at Merix Asia. In addition, these segments have been more successful in the passing along of the
increases in copper costs through higher unit pricing.

Merix Asia

The decreases in gross margin as a percentage of net sales for Merix Asia for the thirteen and thirty-nine week periods ended February 24, 2007 compared to the same periods in the prior fiscal year were primarily
related to higher raw material costs, principally copper laminate, which was affected by a sharp rise in copper prices. Merix Asia also incurred increased outsourcing costs in the current fiscal year in order to meet demand from its growing revenue
base. Merix Asias gross margin as a percentage of net sales is lower than Merix Oregon and Merix San Jose partially due to the fact that it does not manufacture any higher-priced, quick-turn services or any significant volumes of
technologically advanced products, which generate higher margins. Currently, Merix Asia only produces full lead time products. To the extent we are successful in transitioning away from Merix Asias current lower-technology products, which are
heavily weighted to the automotive industry as discussed above, to the relatively higher technology products, we anticipate that gross margins as a percentage of net sales will improve.



26



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##### Table of Contents

Engineering Costs

Engineering costs include indirect labor, materials and overhead to support customer design and manufacturing of products and for research and development of new products and or enhancements to existing products.

Engineering costs decreased $92,000, or 5.2%, to $1.7 million in the thirteen week period ended February 24, 2007 compared to $1.8 million in the thirteen weeks
ended February 25, 2006 and increased $173,000, or 3.7%, to $4.8 million in the thirty-nine week period ended February 24, 2007 compared to $4.2 million in the thirty-nine week period ended February 25, 2006. The decrease in the third
quarter of fiscal 2007 compared to the third quarter of fiscal 2006 was due primarily to the timing of test material purchases. The increase in the thirty-nine week period ended February 24, 2007 compared to the same period of the prior fiscal
year was primarily due to the inclusion of a full period of engineering costs for Asia in the current fiscal year, while the prior fiscal year only included costs from a partial period due to the acquisition date of the Asian operations.

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 were relatively flat at $10.6 million in the thirteen week period ended February 24, 2007 compared to $10.5 million in the thirteen week period ended
February 25, 2006 and increased $11.5 million, or 52.2%, to $33.6 million in the thirty-nine week period ended February 24, 2007 compared to $22.1 million in the thirty-nine week period ended February 25, 2006. The third quarter of
fiscal 2007 was affected by increased salaries and related costs due to an increase in corporate headcount to support global operations as compared to the third quarter of fiscal 2006 and increased stock-based compensation due to the adoption of
SFAS No. 123R in the first quarter of fiscal 2007, as well as increased audit and other professional fees. These increases were offset by decreases in bad debt expense in Asia and sales representative commissions in North America. The increase
in the thirty-nine week period ended February 24, 2007 compared to the same period of the prior fiscal year was primarily due to the addition of Merix Asia, the increased corporate headcount and the adoption of SFAS No. 123R as mentioned
above. In addition, the thirty-nine week period of fiscal 2007 included increased audit and Sarbanes Oxley (SOX) compliance fees due to the initial implementation of SOX in Merix Asia and increased legal fees related to securities litigation as
compared to the same period of fiscal 2006.

Amortization of Identifiable Intangible Assets

Amortization of identifiable intangible assets was $0.6 million and $2.1 million, respectively, in the thirteen and thirty-nine week periods ended February 24, 2007
compared to $0.9 million and $2.4 million, respectively, in the comparable periods of the prior fiscal year. Our identifiable intangible assets balance at February 24, 2007 was $11.8 million and current amortization is approximately $0.6
million per quarter.

Severance and Impairment Charges

Severance and impairment charges of $1.0 million in the third quarter of fiscal 2007 primarily related to the termination of our former Chief Executive Officer and included the following:



| |  |  | a lump-sum cash payment of $0.6 million and non-cash stock-based compensation of $0.1 million related to the issuance of stock-based awards upon the termination of
our former Chief Executive Officer;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the accrual of $75,000 for anticipated fees related to recruiting a new Chief Executive Officer; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | $0.2 million of cash severance related to the termination of another employee.
| | - |  | ------------------------------------------------------------------------------

Severance and impairment charges of $1.1 million were recorded during the first quarter of fiscal 2006 to accrue for cost reduction actions that included a reduction in headcount across our manufacturing and support
organizations, predominantly in Oregon, of approximately 130 positions.



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##### Table of Contents

Other Income (Expense), Net

Other income (expense), net primarily includes interest income earned on cash and investments and interest expense related to indebtedness.

The decreases in interest income in the thirteen and thirty-nine week periods ended February 24, 2007 compared to the same periods of the prior fiscal year were due primarily to lower average cash and investment
balances due to cash used for the acquisition of Merix Asia in September 2005, as well as cash used for the repayment of $16.1 million of principal on our outstanding debt in the thirty-nine week period ended February 24, 2007.

Interest expense decreased in the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006 due to the repayment of $16.1 million of debt in the first
three quarters of fiscal 2007, as well as the reduction to our $11.0 million subordinated promissory note as discussed below. In addition, our average borrowing rate decreased in the fiscal 2007 periods compared to the fiscal 2006 periods due to the
repayment of our term loan.

Interest expense increased in the thirty-nine week period ended February 24, 2007 compared to the same period of the
prior fiscal year due to an increase in outstanding debt for a majority of the period, which was related to additional debt incurred or refinanced to purchase the Merix Asia assets. Interest expense in the thirty-nine week period ended
February 24, 2007 included the reversal of $257,000 of previously accrued interest related to the principal amount of our $11.0 million subordinated promissory note payable being reduced to $7.6 million upon the reduction in the purchase price
of Merix Asia, which occurred in the second quarter of fiscal 2007. In addition, future interest expense related to the note will be approximately $135,000 per quarter compared to approximately $195,000 per quarter prior to the reduction in
principal.

Income Tax Expense

Our effective
income tax rate was 13.3% and 25.4%, respectively, in the thirty-nine week periods ended February 24, 2007 and February 25, 2006, respectively.

The provision for income taxes for the first thirty-nine weeks of fiscal 2007 of 13.3% differs from tax computed at the federal statutory rate primarily due to (i) U.S. taxable income for which the valuation allowance has been released
due to the utilization of net operating loss carryforwards; and (ii) lower tax rates on foreign earnings, partially offset by (iii) tax losses incurred by some foreign entities for which no benefit has been realized due to increasing the
valuation allowance against the related deferred tax asset.

Our provision for income taxes is the result of the mix of profits and losses earned in
various tax jurisdictions with a broad range of income tax rates. On a quarterly basis, we evaluate our provision for income taxes based on our projected consolidated results of operations for the full year and we record an adjustment during the
current quarter accordingly.

Taxation authorities in China passed a unified enterprise income tax law in March 2007. The new law takes effect on
January 1, 2008. Management is currently evaluating the impact this law will have on our operations in China and the related deferred tax assets and liabilities. Certain transition provisions and other provisions of the law remain to
be clarified and, as a result, management is still completing its estimate of the impact of this tax law change. In accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, the
impact, if any, of the tax law change will be reflected as a discrete event in our tax provision in the quarter that includes the date of enactment.

Discontinued Operations

On September 29, 2006, Merix Holding (Hong Kong) Limited (Merix Hong Kong) entered into an
agreement with Citi-Power Investment Limited (Citi-Power) to sell Merix Hong Kongs 90% shareholding interest in the Lomber single-sided manufacturing facility located in Huizhou City in the Peoples Republic of China
(Lomber Facility) for a nominal amount.



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##### Table of Contents

Also on September 29, 2006, Merix Hong Kong entered into an agreement with Excel Hero (China) Limited
(EXCEL) to sell its 85.29% shareholding interest in its single-sided manufacturing facility located in Dongguan City in the Peoples Republic of China (Dongguan Facility) for a nominal amount.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we recorded the related assets and liabilities as
current assets and liabilities on our balance sheet at the lower of their carrying amount or fair value, less cost to sell, upon being classified as discontinued operations. The combined net book value of the Dongguan and Lomber facilities was
approximately $1.07 million upon their classification as discontinued operations and their fair value, less selling costs was determined to be approximately $120,000. Accordingly, during the quarter ended November 25, 2006, we recorded an
impairment charge of approximately $1.26 million as a component of loss from discontinued operations and a reversal of a portion of this impairment charge of $158,000 was recorded in the third quarter of fiscal 2007.

The results of operations for the Dongguan and Lomber facilities have been reclassified as discontinued operations for all periods presented. Certain financial
information related to discontinued operations was as follows (in thousands):



|                                                                                 |  |                      |       |                         |   |              |  |   |              |   |  |   |      
|-------------------------------------------------------------------------------- |  | -------------------- | ----- | ----------------------- | - | ------------ |  | - | ------------ | - |  | - | -----
|                                                                                 |  | Thirteen Weeks Ended |       | Thirty-Nine Weeks Ended
|                                                                                 |  | Feb. 24,2007         |       | Feb. 25,2006            |   | Feb. 24,2007 |  |   | Feb. 25,2006
|Revenue                                                                          |  | $                    | 1,976 |                         | $ | 2,296        |  | $ | 7,443        |   |  | $ | 2,942
|(Impairment) reversal of impairment related to assets of discontinued operations |  |                      | 158   |                         |   |             |  |   | (1,099       | ) |  |   |     
|Pre-tax income (loss)                                                            |  |                      | 314   |                         |   | 97           |  |   | (760         | ) |  |   | 140  

Assets of discontinued operations included accounts receivable, inventory, property, plant and equipment and land
rights. Liabilities of discontinued operations included accounts payable and accrued expenses.

On April 1, 2007, we transferred our interests in the
two single-sided facilities on terms substantially similar to those described above.

Liquidity and Capital Resources

Our sources of liquidity and capital resources as of February 24, 2007 consisted of $24.5 million of cash and cash equivalents and $55.0 million available under our
revolving credit agreement. We expect our capital resources to be sufficient to fund our operations and known capital requirements for at least one year from February 24, 2007.

We have a Loan and Security Agreement with a bank group (the Loan Agreement) under which the lenders currently provide a revolving line of credit of up to $55.0 million based on a borrowing base consisting
primarily of our accounts receivable. The obligations under the Loan Agreement are secured by substantially all of our U.S. assets. The borrowings bear interest at (a) either the prime rate or LIBOR, plus (b) an additional margin based on
certain performance criteria. The Loan Agreement contains a number of restrictive covenants, all of which we were in compliance with as of February 24, 2007. Specifically, our ability to invest or loan additional funds to Merix Asia is limited,
subject to certain conditions, to $25 million in the aggregate at any time. As of February 24, 2007, no amounts were outstanding under the Loan Agreement. At February 24, 2007, $55.0 million was available for future borrowings on the
revolving line of credit.

In the first three quarters of fiscal 2007, cash and cash equivalents and short-term investments decreased $6.3 million to $24.5
million as of February 24, 2007 from $30.8 million as of May 27, 2006 primarily as a result of the use of $14.9 million for the purchase of property, plant and equipment, $16.1 million used for the repayment of debt and a $3.6 million
increase in due from affiliate, partially offset by $23.0 million of cash generated by operations, $5.3 million received from the exercise of stock options and net maturities of investments of $18.5 million.

Accounts receivable, net of allowances for bad debts, increased $6.9 million to $82.2 million as of February 24, 2007 from $75.3 million as of
May 27, 2006, primarily due to an increase in our days sales outstanding.



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##### Table of Contents

Our days sales outstanding, calculated on a quarterly basis, was 75 days at February 24, 2007 compared to 69 days at
May 27, 2006.

Inventories, net of obsolescence and other reserves, increased $2.9 million to $26.3 million as of February 24, 2007 compared
to $23.4 million as of May 27, 2006. The increase primarily was due to increased consignment inventory offered to our growing customer base as well as increased raw material costs, principally relating to copper laminates, which have risen
due to changes in commodity copper prices. Our annualized inventory turnover rate, calculated on a quarterly basis, was 12.4 times for the quarter ended February 24, 2007 and 13.1 times for the quarter ended February 25, 2006.

Other current assets increased $3.5 million to $8.9 million as of February 24, 2007 from $5.4 million as of May 27, 2006, primarily due to a $2.5
million in intercompany receivable balance at February 24, 2007 compared to a net intercompany payable balance at May 27, 2006, which was included as a component of Other Accrued Liabilities.

Accrued compensation decreased $4.6 million to $7.4 million as of February 24, 2007 compared to $12.0 million as of May 27, 2006. The decrease
primarily was due to a decrease in the accrual for employee bonuses. The bonus that was accrued at May 27, 2006 related to fiscal 2006 was greater than what was accrued at February 24, 2007 related to fiscal 2007 due to the fact that the
fiscal 2006 performance relative to bonus targets was greater than the performance relative to targets to date in fiscal 2007.

Expenditures for property,
plant and equipment of $14.9 million in the first three quarters of fiscal 2007 primarily consisted of expenditures for upgrading equipment and facilities in Merix Asia to improve the efficiency of the facilities and to comply with regulations, the
upgrading of equipment in North America to improve efficiency of the manufacturing facilities and process higher technology products, as well investing in a new global enterprise resource planning (ERP) system. We estimate our total
capital expenditures in fiscal 2007 to be approximately $20 to $23 million.

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.



|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 fiscal year ended May 27, 2006, which was filed with the Securities and Exchange Commission on
August 24, 2006.



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##### Table of Contents

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

Evaluation of Disclosure Controls
and Procedures

Our management evaluated, with the participation and under the supervision of our Interim Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Interim Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are effective to ensure 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 Interim Chief Executive Officer and our Chief Financial Officer, 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, except as follows:

In our assessment of the effectiveness of our internal
control over financial reporting as of May 27, 2006, two material weaknesses were identified as summarized below:

1. We did not
maintain a sufficient complement of personnel to maintain an appropriate accounting and financial reporting organizational structure to support our activities. Specifically, we did not maintain personnel with an appropriate level of accounting
knowledge, experience and training in the selection, application and implementation of U.S. generally accepted accounting principles with respect to: (i) stock-based compensation, (ii) external financial reporting, including income tax
disclosures (iii) accrued liabilities and (iv) classification of assets held-for-sale. This material weakness resulted in audit adjustments to our fiscal 2006 annual consolidated financial statements and contributed to the material
weakness discussed in 2 below.

Additionally, this control deficiency could result in a misstatement of the above mentioned accounts and
disclosures that would result in a material misstatement to the interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constituted a material
weakness. Over the past 18 months, we have strengthened our personnel within our Finance and Accounting organization. Further, we implemented new controls and procedures to substantially mitigate the risks that were highlighted in the material
weakness. Management has not completed all of the testing of controls in these areas for fiscal 2007.

2. We did not maintain effective
controls over the completeness, accuracy and disclosure of segment information. Specifically, controls over segment reporting were not effective to ensure that disclosures were determined in accordance with U.S. generally accepted accounting
principles. This control deficiency resulted in an audit adjustment to the required disclosure included in the notes to our fiscal 2006 annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of
segment information that would result in a material misstatement to the interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constituted a
material weakness. At this time, management believes it is compliant with segment reporting requirements, as defined in SFAS No. 131.

We are currently in the process of documenting and remediating our financial reporting and information technology general controls in Merix Asia.

Our CEO and CFO do not expect that our internal controls and procedures will prevent all error and all fraud. Although our internal controls were designed to provide reasonable assurance of achieving their objectives, a control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute



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assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the
control. The design of any system of controls is also based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions.

PART II  OTHER INFORMATION



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

As previously reported in our periodic reports
filed with the Securities and Exchange Commission, four purported class action complaints were filed against us and certain of our 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. In September 2005, the court granted our motion to dismiss without prejudice and gave plaintiffs
leave to amend their complaint. In November 2005, a second amended complaint was filed alleging 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 $103,361,000 of our common stock. In September 2006, the Court dismissed the second amended complaint with prejudice. In October 2006, the plaintiffs filed a notice of appeal with the Ninth Circuit
Court of Appeals. Plaintiffs have filed their opening brief in support of the Appeal and we plan to file an opposition brief in April 2007.

In the first
quarter of fiscal 2005, two derivative lawsuits were filed against certain of our directors and officers based on claims of breach of fiduciary duty and insider trading. Merix is named as a nominal defendant in these derivative lawsuits, which have
been consolidated under the common caption In re Merix Corporation Derivative Litigation, Lead Case No. 0407-06807, in the Circuit Court for the State of Oregon, Multnomah County. The derivative action had been stayed pending action on
defendant's motion to dismiss in the federal litigation. That stay has been lifted and a motion to dismiss, which was pending at the time the stay was entered, will now be argued.

The plaintiffs seek unspecified damages from the defendants. A potential loss or range of loss that could arise from these cases is not estimable or probable at this time. We have recorded charges for estimated
probable costs associated with defending these claims, as it is our policy to accrue legal fees when it is probable that we will have to defend the company against known claims or allegations and we can reasonably estimate the amount of anticipated
expense.

We are from time to time made subject to various legal claims, actions and complaints in the ordinary course of our business. We have recorded
charges for the estimated probable costs associated with defending these claims. We believe that our legal accruals are adequate and that the outcome of the litigation should not have a material adverse effect on our consolidated results of
operations, financial condition or liquidity.



|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 occur, 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



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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.

The electronics industry is characterized by intense competition, rapid technological change, relatively short product life-cycles and pricing and margin pressures.
These factors adversely affect our customers and we suffer similar effects. Our customers are primarily high-technology equipment manufacturers in the communications, automotive, high-end computing and storage, test and measurement, and aerospace
and defense end 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 services and premium revenues versus standard lead time
production, any of which could have a material adverse effect on our results of operations.

Lower sales may cause gross margins and operating
results to decrease because many of our operating costs are fixed.

A significant portion of our operating expenses are relatively fixed in nature,
and planned expenditures are based in part on anticipated orders. If we do not receive orders as anticipated or if revenue is reduced by reductions in the proportion of our quick-turn services and premium business, our operating results will be
adversely affected. Revenue shortfalls have historically resulted in an underutilization of our installed capacity and, together with adverse pricing, have decreased our gross margins. Future decreases in demand or pricing will likely decrease our
gross margins and have a material adverse impact 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 printed circuit boards is intensely competitive, highly fragmented and
rapidly changing. We expect competition to persist, which could result in continued reductions in pricing and gross margins and loss of market share. We believe our major competitors are United States, Asian and other international independent
manufacturers of multi-layer printed circuit boards, backplanes and other electronic assemblies, and companies that offer quick-turn services. Those competitors include Daeduck Electronics Co., DDi Corp., Kingboard Chemical Holdings Ltd., LG
Electronics, Multek Corporation (a division of Flextronics International Ltd.), Sanmina-SCI Corporation, Topsearch International, TTM Technologies, Inc., WUS Printed Circuits Company Ltd., Meadville Corp. and ViaSystems, Inc.

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



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



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



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

In addition, these
competitors may have the ability to respond more quickly to new or emerging technologies, more successfully enter or adapt to existing or new end markets, may adapt more quickly to changes in customer requirements and may devote greater resources to
the development, promotion and sale of their products than we can. Consolidation in the printed circuit board industry, which we expect to continue, could result in an increasing number of larger printed circuit board 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. 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 when 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 gross margins may be materially adversely affected by increased pricing pressure.

Printed circuit board
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 printed circuit board markets in which we compete, which may adversely affect our revenues and profitability. While printed circuit board 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 printed circuit boards.

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

To the extent Asian printed circuit board
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 U.S. operations may not
remain viable.

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. As a result, Merix Asias results of operations may be
materially and adversely impacted 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.

We rely on
suppliers for the timely delivery of materials used in manufacturing our printed circuit boards, 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 gross margins.

To manufacture our printed circuit boards, 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 gross margins and our ability to deliver our products on a timely basis. We have recently experienced, and expect that we will continue to experience, significant
increases in the cost of laminate materials, copper products and oil-based or oil-derivative raw materials. These cost increases have had an adverse impact on our gross margins and the impact has been particularly significant on our Asian operations
which maintain fixed prices 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 printed circuit boards 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 printed circuit boards using that type of laminate, which in turn would cause a decrease in our consolidated net sales.

Our recent 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 connection with our San Jose and Asian acquisitions, we have experienced, and in any future acquisitions or investments, we could
experience:



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



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



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



| |  |  | difficulty achieving sufficient revenues to offset increased expenses associated with acquisitions;
| | - |  | ---------------------------------------------------------------------------------------------------



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| |  |  | diversion of managements attention;
| | - |  | ------------------------------------



| |  |  | adverse effects on business relationships with our or the acquired companys suppliers and customers;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | difficulty in entering markets in which we have limited or no prior experience;
| | - |  | -------------------------------------------------------------------------------



| |  |  | losses of key employees, particularly those of the acquired organization; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | problems completing anticipated technology transfers to our Asian operations.
| | - |  | -----------------------------------------------------------------------------

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



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



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



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



| |  |  | uncover previous unknown liabilities; or
| | - |  | ----------------------------------------



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

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.

If we are unable to successfully integrate Merix Asia, our business may be materially adversely affected.

During the second quarter
of fiscal 2006, we acquired Eastern Pacific Circuits Limited and certain of its subsidiaries, now Merix Asia, and are now in the process of integrating Merix Asias operations with our domestic operations. We have never acquired or owned a
foreign operations before and have never had facilities in Asia. Our operations in Asia have increased our exposure to certain risks, including the risks that we may not be able to successfully attract and retain qualified personnel in Asia, realign
our resources for cost savings, realize any anticipated cost savings, adapt to business practices which may be different from our other business locations, integrate our accounting software systems and implement adequate internal controls and
procedures. Under prior ownership, Merix Asia experienced difficulty in reaching and maintaining profitability. To date, we have not realized expected growth in sales opportunities in Asia from our domestic operations, nor have we realized expected
materials cost savings by operating as a multinational business. If we are unable to successfully integrate Merix Asia or if Merix Asia is unable to reach and maintain profitability, our business and results of operations will likely be materially
adversely affected.

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.

We acquired Merix Asia in September 2005 and believe that significant
additional capital investment will continue to be required to fully realize the value of the assets we acquired. Any 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 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The success of our integration and anticipated expansion efforts will depend upon our ability to expand, train,
retain and manage our employee base. In connection with our expansion efforts in Asia, we expect to require



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additional employees throughout the company. If we are unable to attract and 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.

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 printed circuit board 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.

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 are denominated in foreign currencies, including the Hong Kong Dollar and the Chinese Renminbi (RMB).
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 set 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.

We have a bank credit covenant that limits the incremental investment in Merix Asia

Merix has a bank credit agreement covenant that
limits the incremental investment into Merix Asia to $25 million. As of March 30, 2007, we had advanced Merix Asia approximately $9 million against the incremental investment limit. 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, or otherwise, there is risk that we will not be able to fund all the growth plans in Asia.

We have minority investors in our China manufacturing facilities.

Currently, we have two printed circuit board manufacturing plants in the Peoples Republic of China that are each owned by a separate Chinese company. While we are the majority interest holder in all of these companies, there are
minority interest holders in each of them. The aggregate minority interest in these companies ranges from 5% to 15%. These minority holders are local investors with close ties to local economic development and other government agencies. In some
cases, the investors lease to the Chinese operating companies the land on which the plants 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 these investors 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.



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We do not currently have options to renew our leased manufacturing facility in the Peoples Republic of China.

We have one printed multi-layer circuit board manufacturing plant in the Peoples Republic of China that is leased from a Chinese company
under an operating lease that does not contain a lease renewal option. While we lease this facility from a company that has a minority interest in our majority-owned subsidiary in the Peoples Republic of China, this minority interest holder
may 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. Further, failure to successfully renew
such lease could materially adversely affect our ability to realize the anticipated benefits of the Asian acquisition.

We may not be able to
remediate material weaknesses in our internal control over financial reporting.

As reported in Item 9A. of our Annual Report on Form 10-K for
the fiscal year ended May 27, 2006, we identified material weaknesses in our internal control over financial reporting, as follows:

1.
We did not maintain a sufficient complement of personnel to maintain an appropriate accounting and financial reporting organizational structure to support the activities of the Company. Specifically, the Company did not maintain personnel with an
appropriate level of accounting knowledge, experience and training in the selection, application and implementation of generally accepted accounting principles with respect to: (i) stock-based compensation, (ii) external financial
reporting, including income tax disclosures, (iii) accrued liabilities, and (iv) classification of assets held-for-sale. This material weakness resulted in audit adjustments to the Companys 2006 annual consolidated financial
statements and contributed to the material weakness discussed in 2 below. Additionally, this control deficiency could result in a misstatement of the above mentioned accounts and disclosures that would result in a material misstatement to the
interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

2. We did not maintain effective controls over the completeness, accuracy and disclosure of segment information. Specifically, controls over segment
reporting were not effective to ensure that disclosures were determined in accordance with generally accepted accounting principles. This control deficiency resulted in an audit adjustment to the required disclosure included in the notes to the
Companys 2006 annual consolidated financial statements. Additionally, this control deficiency could result in a misstatement of segment information that would result in a material misstatement to the interim or annual consolidated financial
statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

As a result of the aforementioned material weaknesses, the PricewaterhouseCoopers LLP opinion set forth in the Internal Control over Financial Reporting section of the Report of Independent Registered Public Accounting Firm as
of May 27, 2006 states that we have not maintained effective internal control over financial reporting as of May 27, 2006. Although the Company is implementing remedial controls to address this matter, if we fail to remedy the material
weaknesses in a timely manner, it could cause us to improperly record our financial position and results of operations and could result in us failing to meet our financial reporting responsibilities in future reporting periods.

We were unable to implement adequate internal controls and procedures at Merix Asia.

We are required to complete an evaluation and review of Merix Asias internal control over financial reporting for the year ending May 26, 2007. We are in the process of upgrading the accounting systems,
processes and internal controls and strengthening our internal staffing and technical expertise in financial and SEC accounting and reporting at our Asia operations. Currently management intends to include Merix Asia in its 2007 assessment of
internal control over financial reporting. However, if we are not able to attract and retain qualified accounting personnel or successfully upgrade our accounting systems, processes and internal controls, our management may have to exclude Merix
Asia in its 2007 assessment of internal control over financial reporting, which may subject us to adverse regulatory consequences and could result in a negative reaction in the financial markets due to a loss of confidence in the reliability of our
consolidated financial statements. If we fail to develop and maintain effective controls and procedures at Merix Asia, we may be unable to provide required financial information in a timely and reliable manner or otherwise comply with the



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standards applicable to us as a public company. Any failure by us to timely provide required financial information could materially and adversely impact our
financial condition and the market value of our securities.

Automotive customers have higher quality requirements and long qualification times.

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
impacted. 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.

A small number of customers accounts 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 38% and 39% of our consolidated net sales during the thirty-nine week period ended February 24, 2007 and the fiscal year ended May 27, 2006,
respectively. Net sales to two customers individually represented 15% and 11% of consolidated net sales during the thirty-nine week period ended February 24, 2007. Net sales to one customer represented 15% of consolidated net sales during the
fiscal year ended May 27, 2006. 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 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.

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 44.7% of the consolidated net trade accounts
receivable balance at February 24, 2007, individually ranging from 6.0% to 15.3%. 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
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



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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 printed circuit board
manufacturers used;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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 margins, decrease our
consolidated net sales and negatively affect our business and results of operations.

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

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 Peoples Republic of China (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 the income tax on foreign-owned facilities. In addition, some government policies and
rules are not timely published or communicated in the local districts, 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 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 Hong Kong and the Peoples Republic of China 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 of such materials. We have evaluated our environmental and safety practices to determine where deficiencies exist and are working to improve our compliance
with these laws. 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 in the future 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.



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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.

Our Chinese and Hong Kong 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 and Hong Kong. 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 and Hong Kong, 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 or Hong Kong, 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.
| | - |  | ----------------------------------------------------------

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.

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.

With the acquisition of our 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.
| | - |  | -----------------------------------------------

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. 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



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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 printed circuit board, 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 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 limitations 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.

Merix 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.

As we commence our work to implement a new 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.

Due to
the acquisitions of Merix Asia and Merix San Jose, we are currently using multiple ERP and other information systems. In the fourth quarter of the fiscal 2006, as part of a multi-phase process, we decided to implement ERP system for our world-wide
operations. As of the end of the fiscal year 2006, we selected an ERP vendor and we began the initial design and implementation during the first three quarters of fiscal 2007. We expect the new ERP system will become 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 will continue into
fiscal 2008 as an active project. These systems are new to us and we have not had extensive experience with them. The new ERP system could eventually become more costly, difficult and time-consuming to purchase and implement than we currently
anticipate. Implementation of the new ERP system may require us to change certain internal business practices. We may encounter unexpected difficulties, delays, costs or other challenges, any of which may disrupt our business. Corrections and
improvements may be required as we continue 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 delay
in the implementation of, or 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 and to 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.

If we lose key management, operations, engineering and 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



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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.

Our long-term Chief Executive Officer left the Company in early January 2007.
William C. McCormick, who had been our lead director, is currently serving as Interim Chief Executive Officer. We have recruited a new Chief Executive Officer who is expected to join us May 1, 2007. He may not be able to successfully integrate
with the rest of our management team. Until he and the rest of our management team have demonstrated their ability to work together effectively, there may be an adverse effect on our relations with our customers, suppliers and employees.

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. Although, recent experience indicates a lessening of this trend, 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.

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

We are currently subject to legal proceedings and claims,
including a securities class action lawsuit and a shareholder derivative lawsuit. In each complaint, the plaintiffs seek unspecified damages. These lawsuits are described in Part II, Item 1. Legal Proceedings above. More lawsuits could be
filed against us.

Where we can make a reasonable estimate of any probable liability relating to pending litigation, we record a liability. Although we
have created a reserve for some of the potential legal fees associated with litigation currently pending against us, we have not created any reserve for potential liability for settlements or judgments because the potential liability is neither
probable nor estimable. Even when we record a liability, the amount of our estimates of costs or liabilities 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. Accordingly, our operating results and financial condition could be adversely affected.

We may be
required to record asset impairment charges in the future.

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.

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 $2.00 per share to a high of
more than $70.00 per share over the past 13 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 printed circuit board industry and the end markets which we serve;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | perceptions of the strengths and weaknesses of the printed circuit board 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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. In recent years, the stock market in general has experienced extreme price and volume fluctuations that have affected the
printed circuit board 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.

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. As of
February 24, 2007, we had 2,878,760 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 $2.04 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.

Our shareholder rights plan and some provisions contained in our articles of incorporation and bylaws, as well as provisions of Oregon law, could inhibit a takeover attempt.

Some of the provisions of our articles of incorporation and bylaws, such as the authorization of blank check preferred stock, our shareholder rights plan 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 shareholders rights plan was adopted to discourage a potential acquisition of us that our board of directors believes is undesirable to us and our shareholders. 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.



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

We
repurchased the following shares of our common stock during the third quarter of fiscal 2007:



|                                       |  |                                |  |                            |      |                                                               |   |                                                              |  
|-------------------------------------- |  | ------------------------------ |  | -------------------------- | ---- | ------------------------------------------------------------- | - | ------------------------------------------------------------ | -
|                                       |  | Total numberof sharespurchased |  | Averageprice paidper share |      | Total numberof sharespurchased aspart
ofpubliclyannouncedplan |   | Maximumnumber ofshares thatmay yet bepurchasedunder the plan
|November 26, 2006 to December 20, 2006 |  |                               |  |                            |     |                                                               |  |                                                              | 
|December 21, 2006 to January 24, 2007  |  | 208                            |  | $                          | 9.36 |                                                               |  |                                                              | 
|January 25, 2007 to February 24, 2007  |  | 2,169                          |  |                            | 9.09 |                                                               |  |                                                              | 
|                                       |  |                                |  |                            |      |                                                               |   |                                                              |  
|Total                                  |  | 2,377                          |  |                            | 9.11 |                                                               |  |                                                              | 
|                                       |  |                                |  |                            |      |                                                               |   |                                                              |  

Purchases during the third quarter of fiscal 2007 represented shares purchased by us in satisfaction of
withholding taxes due upon the vesting of restricted shares granted to our employees under our equity-based compensation plans. The shares are purchased from employees and the proceeds are remitted to pay the employees withholding taxes due at
the time the employees restricted stock awards vest.



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

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



|     |  |                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Amendment No. 3, dated January 12, 2007, to Loan and Security Agreement, dated as of September 28, 2005.                                                
|     | 
|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: April 5, 2007 |  | /s/ WILLIAM C. MCCORMICK                    
|                     |  | William C. McCormick                        
|                     |  | Chairman and Interim Chief Executive Officer
|                     |  | (Principal Executive Officer)               
|                     | 
|                     |  | /s/ KELLY E. LANG                           
|                     |  | Kelly E. Lang                               
|                     |  | Vice President and Chief Financial Officer  
|                     |  | (Principal Financial Officer)               



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