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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 November 27, 2004



OR



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



Commission file number 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 Number)
|                                                               | 
|1521 Poplar Lane, Forest Grove, Oregon                         |  | 97116                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             



(503)
359-9300

(Registrants telephone number)



---



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 the filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes  x    No ̈



The number of shares of the Registrants Common Stock outstanding as of January 4, 2005
was 19,255,240 shares.



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##### Table of Contents

MERIX CORPORATION

FORM 10-Q

TABLE OF CONTENTS



|        |  |                                                                                                     |  |     
|------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                     |  | Page
|Part I  |  | Financial Information                                                                               |  |     
|        |  |                                                                                                    
|Item 1. |  | Financial Statements:                                                                               |  |     
|        |  |                                                                                                    
|        |  | Balance Sheets as of November 27, 2004 and May 29, 2004                                             |  | 2   
|        |  |                                                                                                    
|        |  | Statements of Operations for the three and six months ended November 27, 2004 and November 29, 2003 |  | 3   
|        |  |                                                                                                    
|        |  | Statement of Shareholders Equity from May 29, 2004 through November 27, 2004                       |  | 4   
|        |  |                                                                                                    
|        |  | Statements of Cash Flows for the six months ended November 27, 2004 and November 29, 2003           |  | 5   
|        |  |                                                                                                    
|        |  | Notes to Financial Statements                                                                       |  | 6   
|        |  |                                                                                                    
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 11  
|        |  |                                                                                                    
|Item 3. |  | Quantitative and Qualitative Disclosure About Market Risk                                           |  | 15  
|        |  |                                                                                                    
|Item 4  |  | Controls and Procedures                                                                             |  | 15  
|        |  |                                                                                                    
|Part II |  | Other Information                                                                                   |  |     
|        |  |                                                                                                    
|Item 1. |  | Legal Proceedings                                                                                   |  | 16  
|        |  |                                                                                                    
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                 |  | 16  
|        |  |                                                                                                    
|Item 6. |  | Exhibits                                                                                            |  | 16  
|        |  |                                                                                                    
|        |  | Signature                                                                                           |  | 17  



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION



MERIX CORPORATION

BALANCE SHEETS

(in thousands, unaudited)



|                                                                                                                                          |  |                   |         |   |              |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                          |  | November 27, 2004 |         |   | May 29, 2004 |  
|Assets                                                                                                                                    |  |                   |         |   |              |   |         |  
|                                                                                                                                          |  |                  
|Cash and cash equivalents                                                                                                                 |  | $                 | 116,202 |   |              | $ | 124,530 |  
|Accounts receivable, net of allowance of $933 and $926                                                                                    |  |                   | 28,892  |   |              |   | 30,051  |  
|Inventories                                                                                                                               |  |                   | 10,553  |   |              |   | 9,622   |  
|Other current assets                                                                                                                      |  |                   | 2,280   |   |              |   | 1,312   |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total current assets                                                                                                                      |  |                   | 157,927 |   |              |   | 165,515 |  
|                                                                                                                                          |  |                  
|Property, plant and equipment, net                                                                                                        |  |                   | 88,735  |   |              |   | 84,021  |  
|Other assets                                                                                                                              |  |                   | 520     |   |              |   | 645     |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total assets                                                                                                                              |  | $                 | 247,182 |   |              | $ | 250,181 |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Liabilities and Shareholders Equity                                                                                                      |  |                   |         |   |              |   |         |  
|                                                                                                                                          |  |                  
|Accounts payable                                                                                                                          |  | $                 | 16,265  |   |              | $ | 19,255  |  
|Accrued compensation                                                                                                                      |  |                   | 3,519   |   |              |   | 3,997   |  
|Accrued warranty                                                                                                                          |  |                   | 1,184   |   |              |   | 1,061   |  
|Other accrued liabilities                                                                                                                 |  |                   | 2,239   |   |              |   | 2,085   |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total current liabilities                                                                                                                 |  |                   | 23,207  |   |              |   | 26,398  |  
|                                                                                                                                          |  |                  
|Long-term debt                                                                                                                            |  |                   | 25,000  |   |              |   | 25,000  |  
|Other long-term liability                                                                                                                 |  |                   | 669     |   |              |   | 368     |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total liabilities                                                                                                                         |  |                   | 48,876  |   |              |   | 51,766  |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Commitments and contingencies (Note 9)                                                                                                    |  |                   |        |   |              |   |        |  
|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 November 27, 2004: 19,230 shares May 29, 2004: 19,068
shares |  |                   | 200,436 |   |              |   | 198,979 |  
|Unearned compensation                                                                                                                     |  |                   | (392    | ) |              |   | (119    | )
|Accumulated deficit                                                                                                                       |  |                   | (1,738  | ) |              |   | (445    | )
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total shareholders equity                                                                                                                |  |                   | 198,306 |   |              |   | 198,415 |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  
|Total liabilities and shareholders equity                                                                                                |  | $                 | 247,182 |   |              | $ | 250,181 |  
|                                                                                                                                          |  |                   |         |   |              |   |         |  



The accompanying notes
are an integral part of the financial statements.



2



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MERIX CORPORATION

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts, unaudited)



|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|---------------------------------------- |  | ------------------ | ------ | ----------------- | ---------------- | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|                                         |  | Three Months Ended |        |                   | Six Months Ended |       
|                                         |  | November 27, 2004  |        | November 29, 2003 |                  |        | November 27, 2004 |  |   | November 29, 2003 |  
|Net sales                                |  | $                  | 43,244 |                   | $                | 37,003 |                   |  | $ | 85,374            |   |  | $ | 67,731 |  
|Cost of sales                            |  |                    | 37,559 |                   |                  | 31,491 |                   |  |   | 75,296            |   |  |   | 60,151 |  
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Gross profit                             |  |                    | 5,685  |                   |                  | 5,512  |                   |  |   | 10,078            |   |  |   | 7,580  |  
|                                         |  |                    |        |                  
|Operating expenses:                      |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Engineering                              |  |                    | 1,536  |                   |                  | 1,475  |                   |  |   | 3,337             |   |  |   | 2,782  |  
|Selling, general and administrative      |  |                    | 3,500  |                   |                  | 3,018  |                   |  |   | 8,027             |   |  |   | 5,680  |  
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Total operating expenses                 |  |                    | 5,036  |                   |                  | 4,493  |                   |  |   | 11,364            |   |  |   | 8,462  |  
|                                         |  |                    |        |                  
|Operating income (loss)                  |  |                    | 649    |                   |                  | 1,019  |                   |  |   | (1,286            | ) |  |   | (882   | )
|Interest and other income (expense), net |  |                    | 32     |                   |                  | (312   | )                 |  |   | (6                | ) |  |   | (658   | )
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Income (loss) before taxes               |  |                    | 681    |                   |                  | 707    |                   |  |   | (1,292            | ) |  |   | (1,540 | )
|                                         |  |                    |        |                  
|Income tax expense                       |  |                    |       |                   |                  |       |                   |  |   | 1                 |   |  |   |       |  
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Net income (loss)                        |  | $                  | 681    |                   | $                | 707    |                   |  | $ | (1,293            | ) |  | $ | (1,540 | )
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Net income (loss) per share:             |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Basic                                    |  | $                  | 0.04   |                   | $                | 0.05   |                   |  | $ | (0.07             | ) |  | $ | (0.10  | )
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Diluted                                  |  | $                  | 0.04   |                   | $                | 0.05   |                   |  | $ | (0.07             | ) |  | $ | (0.10  | )
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Shares used in per share calculations:   |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Basic                                    |  |                    | 19,203 |                   |                  | 14,866 |                   |  |   | 19,158            |   |  |   | 14,783 |  
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  
|Diluted                                  |  |                    | 19,430 |                   |                  | 15,596 |                   |  |   | 19,158            |   |  |   | 14,783 |  
|                                         |  |                    |        |                   |                  |        |                   |  |   |                   |   |  |   |        |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

STATEMENT OF SHAREHOLDERS EQUITY

(in thousands, unaudited)



|                                                  |  |              |  |                       |         |  |                  |      |   |       |   |        |   |  |   |         |  
|------------------------------------------------- |  | ------------ |  | --------------------- | ------- |  | ---------------- | ---- | - | ----- | - | ------ | - |  | - | ------- | -
|                                                  |  | Common Stock |  | Unearned Compensation |         |  | Retained Deficit |      |   | Total |  
|                                                  |  | Shares       |  | Amount                |         |  |                 
|Balance at May 29, 2004                           |  | 19,068       |  | $                     | 198,979 |  | $                | (119 | ) |       | $ | (445   | ) |  | $ | 198,415 |  
|Net loss                                          |  |             |  |                       |        |  |                  |     |   |       |   | (1,293 | ) |  |   | (1,293  | )
|Exercise of stock options                         |  | 49           |  |                       | 341     |  |                  |     |   |       |   |       |   |  |   | 341     |  
|Issuance of stock under defined contribution plan |  | 78           |  |                       | 789     |  |                  |     |   |       |   |       |   |  |   | 789     |  
|Issuance of restricted stock to employees         |  | 35           |  |                       | 327     |  |                  | (327 | ) |       |   |       |   |  |   |        |  
|Amortization of unearned compensation             |  |             |  |                       |        |  |                  | 54   |   |       |   |       |   |  |   | 54      |  
|                                                  |  |              |  |                       |         |  |                  |      |   |       |   |        |   |  |   |         |  
|Balance at November 27, 2004                      |  | 19,230       |  | $                     | 200,436 |  | $                | (392 | ) |       | $ | (1,738 | ) |  | $ | 198,306 |  
|                                                  |  |              |  |                       |         |  |                  |      |   |       |   |        |   |  |   |         |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

STATEMENTS OF CASH FLOWS

(in thousands, unaudited)



|                                                                                          |  |                   |         |   |                   |   |        |  
|----------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------ | -
|                                                                                          |  | Six Months Ended  |        
|                                                                                          |  | November 27, 2004 |         |   | November 29, 2003 |  
|Cash flows from operating activities:                                                     |  |                   |         |   |                   |   |        |  
|Net loss                                                                                  |  | $                 | (1,293  | ) |                   | $ | (1,540 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                   |         |   |                   |   |        |  
|Depreciation and amortization                                                             |  |                   | 6,610   |   |                   |   | 4,899  |  
|Contribution of common stock to defined contribution plan                                 |  |                   | 789     |   |                   |   | 637    |  
|Loss on impairment and disposal of assets                                                 |  |                   | 81      |   |                   |   | 45     |  
|Expense for stock based compensation                                                      |  |                   | 54      |   |                   |   | 176    |  
|Other                                                                                     |  |                   | 18      |   |                   |   | (32    | )
|Changes in assets and liabilities:                                                        |  |                   |         |   |                   |   |        |  
|Accounts receivable                                                                       |  |                   | 1,159   |   |                   |   | (7,916 | )
|Inventories                                                                               |  |                   | (931    | ) |                   |   | (2,915 | )
|Other assets                                                                              |  |                   | (992    | ) |                   |   | (1,081 | )
|Accounts payable                                                                          |  |                   | (1,454  | ) |                   |   | 5,838  |  
|Accrued compensation                                                                      |  |                   | (478    | ) |                   |   | 799    |  
|Other accrued liabilities                                                                 |  |                   | 277     |   |                   |   | 614    |  
|                                                                                          |  |                   |         |   |                   |   |        |  
|Net cash provided by (used in) operating activities                                       |  |                   | 3,840   |   |                   |   | (476   | )
|                                                                                          |  |                   |         |   |                   |   |        |  
|Cash flows from investing activities:                                                     |  |                   |         |   |                   |   |        |  
|Investment maturities                                                                     |  |                   |        |   |                   |   | 1,514  |  
|Capital expenditures                                                                      |  |                   | (12,509 | ) |                   |   | (3,987 | )
|                                                                                          |  |                   |         |   |                   |   |        |  
|Net cash used in investing activities                                                     |  |                   | (12,509 | ) |                   |   | (2,473 | )
|                                                                                          |  |                   |         |   |                   |   |        |  
|Cash flows from financing activities:                                                     |  |                   |         |   |                   |   |        |  
|Exercise of stock options                                                                 |  |                   | 341     |   |                   |   | 1,897  |  
|                                                                                          |  |                   |         |   |                   |   |        |  
|Net cash provided by financing activities                                                 |  |                   | 341     |   |                   |   | 1,897  |  
|                                                                                          |  |                   |         |   |                   |   |        |  
|Decrease in cash and cash equivalents                                                     |  |                   | (8,328  | ) |                   |   | (1,052 | )
|Cash and cash equivalents at beginning of period                                          |  |                   | 124,530 |   |                   |   | 42,451 |  
|                                                                                          |  |                   |         |   |                   |   |        |  
|Cash and cash equivalents at end of period                                                |  | $                 | 116,202 |   |                   | $ | 41,399 |  
|                                                                                          |  |                   |         |   |                   |   |        |  
|Supplemental non-cash activity:                                                           |  |                   |         |   |                   |   |        |  
|Issuance of restricted stock to employees                                                 |  | $                 | 327     |   |                   | $ | 305    |  
|Increase to the asset retirement obligation                                               |  | $                 | 283     |   |                   | $ |       |  
|                                                                                          |  |                  
|Supplemental disclosures:                                                                 |  |                   |         |   |                   |   |        |  
|Cash paid for interest, net of amounts capitalized                                        |  | $                 | 815     |   |                   | $ | 815    |  



The accompanying notes
are an integral part of the financial statements.



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MERIX CORPORATION

NOTES TO FINANCIAL STATEMENTS

(dollars in thousands)



Note 1. BASIS OF PRESENTATION



The
accompanying unaudited financial statements of Merix Corporation (the Company) have been prepared pursuant to Securities and Exchange Commission rules and regulations. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended May 29, 2004.



The Companys fiscal year is the 52 or 53-week period ending the last Saturday in May. Fiscal years 2004 and 2005 are 52-week years ending May 29,
2004 and May 28, 2005, respectively. The financial information included herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods. The results of
operations for the three months and six months ended November 27, 2004 are not necessarily indicative of the results to be expected for the full fiscal year.



Recent Accounting Pronouncements



On October 22, 2004, the American Jobs Creation Act of 2004 was enacted in the United States. The Company is currently evaluating the impact of this new
law on its operations and effective tax rate. In particular, the Company is evaluating the laws provisions relating to allowable deductions, beginning in 2005, for income attributable to United States production activities. At this time, the
Company is unable to determine the effects of this new law and will continue to analyze its potential impact.



In December 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in
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. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 are effective for fiscal years
beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of operations or financial position.



In December 2004, the FASB issued SFAS No. 123(R) (revised 2004), Share-Based Payment, which amends FASB
Statement Nos. 123 and 95 and will be effective for public companies for interim or annual periods beginning after June 15, 2005. The new standard will require the Company to expense employee stock options and other share-based payments. The FASB
believes the use of a binomial lattice model for option valuation is capable of more fully reflecting certain characteristics of employee share options compared to the Black-Scholes options pricing model. The new standard may be adopted in one of
three ways - the modified prospective transition method, a variation of the modified prospective transition method or the modified retrospective transition method. The Company is currently evaluating the effect that the adoption of SFAS 123(R) will
have on its financial position and results of operations.



Note 2.
INVENTORIES



|                |  |                   |        |              |   |      
|--------------- |  | ----------------- | ------ | ------------ | - | -----
|                |  | November 27, 2004 |        | May 29, 2004
|Raw materials   |  | $                 | 1,779  |              | $ | 1,248
|Work in process |  |                   | 5,932  |              |   | 6,826
|Finished goods  |  |                   | 2,842  |              |   | 1,548
|                |  |                   |        |              |   |      
|Total           |  | $                 | 10,553 |              | $ | 9,622
|                |  |                   |        |              |   |      



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Note 3. PROPERTY, PLANT AND EQUIPMENT



|                                   |  |                   |         |   |              |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ------------ | - | ------- | -
|                                   |  | November 27, 2004 |         |   | May 29, 2004 |  
|Land                               |  | $                 | 2,190   |   |              | $ | 2,190   |  
|Buildings and grounds              |  |                   | 34,300  |   |              |   | 33,071  |  
|Leasehold improvements             |  |                   | 17,011  |   |              |   | 16,117  |  
|Machinery and equipment            |  |                   | 109,826 |   |              |   | 102,857 |  
|Construction in progress           |  |                   | 8,100   |   |              |   | 7,309   |  
|                                   |  |                   |         |   |              |   |         |  
|Total                              |  |                   | 171,427 |   |              |   | 161,544 |  
|Accumulated depreciation           |  |                   | (82,692 | ) |              |   | (77,523 | )
|                                   |  |                   |         |   |              |   |         |  
|Property, plant and equipment, net |  | $                 | 88,735  |   |              | $ | 84,021  |  
|                                   |  |                   |         |   |              |   |         |  



Note 4. NET INCOME (LOSS) PER SHARE



Basic net income (loss) per share is computed using the
weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares related to stock options
and the convertible debenture outstanding during the period. Dilutive potential common shares related to outstanding stock options of 227,165 and 730,199 were included in the calculation of diluted net income per share for the quarters ended
November 27, 2004 and November 29, 2003, respectively.



The
following incremental shares were excluded from the calculation of diluted net income (loss) because including these shares would have been antidilutive:



|                               |  |                    |  |                   |  |                   |  |                  
|------------------------------ |  | ------------------ |  | ----------------- |  | ----------------- |  | -----------------
|                               |  | Three months ended |  | Six months ended 
|                               |  | November 27, 2004  |  | November 29, 2003 |  | November 27, 2004 |  | November 29, 2003
|Incremental shares related to: |  |                    |  |                   |  |                   |  |                  
|Outstanding stock options      |  | 1,351,750          |  | 642,590           |  | 1,597,700         |  | 1,506,166        
|Convertible debenture          |  | 1,287,996          |  | 1,287,996         |  | 1,287,996         |  | 1,287,996        
|                               |  |                    |  |                   |  |                   |  |                  
|Total                          |  | 2,639,746          |  | 1,930,586         |  | 2,885,696         |  | 2,794,162        
|                               |  |                    |  |                   |  |                   |  |                  



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Note 5. STOCK BASED COMPENSATION PLAN



The Company accounts for its stock-based compensation in accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. If the Company had used
the fair value based method of accounting for its plans, the Companys net loss and net loss per share would approximate the pro forma disclosures below:



|                                                                                                                 |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                                                                                 |  | Three months ended |        |   | Six months ended |  
|                                                                                                                 |  | Nov. 27, 2004      |        |   | Nov. 29, 2003    |   |        | Nov. 27, 2004 |  |   | Nov. 29, 2003 |  
|Net income (loss), as reported                                                                                   |  | $                  | 681    |   |                  | $ | 707    |               |  | $ | (1,293        | ) |  | $ | (1,540 | )
|                                                                                                                 |  |                    |        |  
|Add: Stock-based employee compensation expense included in reported net income (loss), net of tax                |  |                    | 30     |   |                  |   | 156    |               |  |   | 54            |   |  |   | 176    |  
|Deduct: Total stock based compensation expense determined under the fair value method for all awards, net of tax |  |                    | (1,217 | ) |                  |   | (1,702 | )             |  |   | (2,560        | ) |  |   | (3,247 | )
|                                                                                                                 |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|Net loss pro forma                                                                                               |  | $                  | (506   | ) |                  | $ | (839   | )             |  | $ | (3,799        | ) |  | $ | (4,611 | )
|Net income (loss) per share, as reported                                                                         |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|Basic                                                                                                            |  | $                  | 0.04   |   |                  | $ | 0.05   |               |  | $ | (0.07         | ) |  | $ | (0.10  | )
|Diluted                                                                                                          |  | $                  | 0.04   |   |                  | $ | 0.05   |               |  | $ | (0.07         | ) |  | $ | (0.10  | )
|Net loss per share, pro forma                                                                                    |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|Basic                                                                                                            |  | $                  | (0.03  | ) |                  | $ | (0.06  | )             |  | $ | (0.20         | ) |  | $ | (0.31  | )
|Diluted                                                                                                          |  | $                  | (0.03  | ) |                  | $ | (0.06  | )             |  | $ | (0.20         | ) |  | $ | (0.31  | )
|                                                                                                                 |  |                    |        |  
|Weighted average assumptions:                                                                                    |  |                    |        |   |                  |   |        |               |  |   |               |   |  |   |        |  
|Risk-free interest rate                                                                                          |  |                    | 3.09   | % |                  |   | 2.35   | %             |  |   | 2.83          | % |  |   | 2.05   | %
|Expected dividend yield                                                                                          |  |                    | 0      | % |                  |   | 0      | %             |  |   | 0             | % |  |   | 0      | %
|Expected lives                                                                                                   |  |                    | 4.11   |   |                  |   | 3.96   |               |  |   | 2.86          |   |  |   | 3.56   |  
|Expected volatility                                                                                              |  |                    | 93     | % |                  |   | 99     | %             |  |   | 74            | % |  |   | 98     | %



Note 6. ACCRUED WARRANTY



Warranty activity for the three and six months ended
November 27, 2004 and November 29, 2003 consisted of the following:



|                                                                    |  |                    |       |   |                  |   |       |               |  |   |               |   |  |   |       |  
|------------------------------------------------------------------- |  | ------------------ | ----- | - | ---------------- | - | ----- | ------------- |  | - | ------------- | - |  | - | ----- | -
|                                                                    |  | Three months ended |       |   | Six months ended |  
|                                                                    |  | Nov. 27, 2004      |       |   | Nov. 29, 2003    |   |       | Nov. 27, 2004 |  |   | Nov. 29, 2003 |  
|Balance at the beginning of the period                              |  | $                  | 1,086 |   |                  | $ | 1,078 |               |  | $ | 1,061         |   |  | $ | 892   |  
|Accruals for warranties issued during the period                    |  |                    | 702   |   |                  |   | 344   |               |  |   | 1,276         |   |  |   | 885   |  
|Accruals or changes in estimates related to pre-existing warranties |  |                    | (1    | ) |                  |   | (107  | )             |  |   | (84           | ) |  |   | (107  | )
|Settlements made during the period                                  |  |                    | (603  | ) |                  |   | (281  | )             |  |   | (1,069        | ) |  |   | (636  | )
|                                                                    |  |                    |       |   |                  |   |       |               |  |   |               |   |  |   |       |  
|Balance at the end of the period                                    |  | $                  | 1,184 |   |                  | $ | 1,034 |               |  | $ | 1,184         |   |  | $ | 1,034 |  
|                                                                    |  |                    |       |   |                  |   |       |               |  |   |               |   |  |   |       |  



Note 7. CONCENTRATIONS OF CREDIT
RISK



The Company does not believe that at November 27,
2004, it had any significant credit risks. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of investments and trade accounts receivable. The risk in investments is limited due to the
creditworthiness of investees comprising the portfolio and the diversity of the portfolio. For the purposes of evaluating risk in receivables, the Company considers the entity from which the receivable is due, which can



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be either an original equipment manufacturer (OEM) customer or its electronic manufacturing service provider, depending upon the billing
arrangement. In total, five entities represented approximately 70% of the trade accounts receivable balance at November 27, 2004, individually ranging from 5% to 45%. Forty one percent of trade accounts receivable, all of which are denominated in
U.S. dollars, are with entities located outside of the United States. The Company believes the risk in trade accounts receivable is limited due to the creditworthiness of entities that the Company sells to and the relatively stable geopolitical
environment of the countries in which these entities reside. The Company has not had significant losses related to its accounts receivable in the past.



Note 8. NET SALES BY GEOGRAPHIC AREA



Net sales by geographic area are attributed to the country in which the OEM customer is domiciled, as opposed to the domicile of its electronic
manufacturing service provider, if any. Because most sales to electronic manufacturing service providers are directed by the OEM customer, which negotiates product pricing and volumes directly with the Company, the geographic locale of the
electronic manufacturing service provider does not materially affect the Companys sales. Based on the domicile of the OEM customer, there were no material revenues from any individual foreign country for the periods ended November 27, 2004 and
November 29, 2003.



Net sales by geographic area are as
follows:



|         |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|-------- |  | ------------------ | ------ | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ------
|         |  | Three months ended |        | Six months ended 
|         |  | November 27, 2004  |        | November 29, 2003 |   | November 27, 2004 |  | November 29, 2003
|Domestic |  | $                  | 38,256 |                   | $ | 32,341            |  | $                 | 74,850 |  | $ | 60,148
|Europe   |  |                    | 3,498  |                   |   | 3,797             |  |                   | 8,193  |  |   | 6,192 
|Other    |  |                    | 1,490  |                   |   | 865               |  |                   | 2,331  |  |   | 1,391 
|         |  |                    |        |                   |   |                   |  |                   |        |  |   |       
|Total    |  | $                  | 43,244 |                   | $ | 37,003            |  | $                 | 85,374 |  | $ | 67,731
|         |  |                    |        |                   |   |                   |  |                   |        |  |   |       



The Companys
five largest OEM customers, which vary from quarter to quarter, comprised 64% and 67% of our net sales during the second quarters of fiscal 2005 and fiscal 2004, respectively. One OEM customer accounted for 29% and another for 17% of net sales in
the second quarter of fiscal 2005, all of which were domestic sales. One OEM customer accounted for 29% and another for 19% of net sales in the first half of fiscal 2005, all of which were domestic sales. One OEM customer accounted for 39% and
another for 14% of net sales in the second quarter of fiscal 2004, all of which were domestic sales. One OEM customer accounted for 40% and another for 13% of net sales in the first half of fiscal 2004, all of which were domestic sales.



Note 9. COMMITMENTS AND CONTINGENCIES



Litigation



In the normal course of business, the Company is party to various legal claims, actions and complaints. In the first quarter
of fiscal 2005, four proposed class action complaints were filed against the Company and certain of its executive officers and directors under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 alleging that the defendants made
false and misleading statements. In the second quarter of fiscal 2005, following an order consolidating these four actions, the plaintiffs filed a consolidated and amended complaint, which added allegations of violations by certain of the
Companys executive officers and directors of Section 11 of the Securities Act of 1933 in connection with the Companys stock offering in January 2004 and named the Companys underwriters as defendants. Pursuant to an underwriting
agreement between the Company and its underwriters dated January 2004, the Company has indemnification obligations with respect to the litigation. Also in the first quarter of fiscal 2005, two shareholder derivative complaints were filed,
purportedly on behalf of the Company against the Companys executive officers and directors and against the Company as a defendant. In each complaint, the plaintiffs seek unspecified damages from the defendants. A potential loss or range of
loss that could arise from these complaints is not estimable or probable at this time. The Company has recorded charges totaling $650 for estimated probable costs associated with defending these claims.



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Commitments



As of November 27, 2004, the Company had capital commitments of approximately $5,729, primarily relating to the purchase of manufacturing equipment, of
which $2,833 has been included in current liabilities.



In
August 2000, the Company entered into a lease agreement for a manufacturing facility located in Wood Village, Oregon. Lease payments began in July 2001 and will escalate at specific points over the minimum ten year term of the lease, and rent
expense is recognized on the straight line basis. The Company has the option to extend the initial term of the lease for three consecutive periods of five years each. The lease is classified as an operating lease.



In February 2004, the Company renewed a letter of credit for $94 to satisfy
requirements of the lease agreement for the Wood Village facility. This letter of credit expires on February 26, 2005, and is collateralized with cash. In February 2004, the Company issued a letter of credit for $692 in relation to the purchase of
manufacturing equipment. This letter of credit has been canceled.



The Company has consignment agreements with certain suppliers for raw material inventory, some of which obligate the Company to purchase inventory on hand upon termination of the agreement. As of the end of the second quarter of fiscal
2005, potential commitments under these agreements were insignificant.



NOTE
10. SUBSEQUENT EVENTS



On December 9, 2004, the Company
purchased all of the outstanding capital stock of Data Circuit Holdings, Inc. (Holdings) from its stockholders for total consideration of approximately $43,000 pursuant to a Stock Purchase Agreement (SPA) between Merix,
Holdings, Data Circuit Systems, Inc., a quick-turn circuit board manufacturer and wholly-owned subsidiary of Holdings, and the stockholders of Holdings. The Company paid $41,000 of the total consideration in cash and $2,000 with a promissory note.
Interest of 5.0% on the promissory note is payable quarterly and principal payments of $1,000 are due annually. The purchase price will be adjusted to reflect the actual working capital, as defined in the SPA, and cash and cash equivalent balance of
Holdings as of the close of business on December 9, 2004.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



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 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 are described in the section entitled 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. We do not intend to revise these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged to review the factors in reports that we file from time to time with the Securities and
Exchange Commission.



Overview



We are a leading manufacturer of technologically advanced electronic
interconnect solutions for use in sophisticated electronic equipment. Our principal products are 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.



Results
of Operations



Net Sales



Net sales were $43.2 million in the second quarter of fiscal 2005, an
increase of 17% over net sales of $37.0 million in the second quarter of fiscal 2004. This increase was primarily due to an increase in unit shipments partially offset by a decrease in average pricing. Net sales were $85.4 million in the first half
of fiscal 2005, an increase of 26% over net sales of $67.7 million in the first half of fiscal 2004. This increase was primarily due to an increase in unit shipments and partially due to an increase in average pricing.



Unit shipments were approximately 26% higher in the second quarter and
approximately 17% higher in the first half of fiscal 2005 compared to the same periods in the prior year. The increase in unit shipments is due to the addition of new customers and increased business from existing customers.



Average pricing decreased by approximately 8% in the second quarter of fiscal
2005 compared to the second quarter of fiscal 2004. However, average pricing increased by approximately 8% for the first half of fiscal 2005 compared to the same period in the prior year. Fluctuations in average pricing are primarily a result of
product mix changes due to shifts in customer demand. Product mix changes affect average pricing as pricing on circuit boards varies significantly based on board complexity, materials used, assembly requirements and speed of delivery. In general,
average pricing is higher for boards that utilize high-speed laminate materials or thermal management solutions because these boards require higher cost materials. Although sales of these higher priced boards as a percent of total sales have
decreased in the second quarter of fiscal 2005 compared to the second quarter of fiscal 2004, sales of these boards as a percent of total sales were higher for the first half of fiscal 2005 as compared to the same period in the prior year. The
decrease in average pricing in the second quarter of fiscal 2005 compared to the second quarter of fiscal 2004 was also partially due to a reduction in quick-turn and premium services revenue as a percent of net sales. Similarly, the increase in
average pricing in the first half of fiscal 2005 compared to the same period in the prior year was partially offset by a reduction in premium services revenue as a percent of net sales.



Net sales of quick-turn and premium services (products that we sell at a premium over our standard base price as a result of
rapid prototype manufacturing or compressed lead-time volume orders), comprised approximately 33% of net sales in the second quarter of fiscal 2005 compared to approximately 45% in the



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second quarter of fiscal 2004. Net sales of quick-turn and premium services represented approximately 30% of net sales for the first half of fiscal 2005
compared to approximately 40% in the first half of fiscal 2004. While net sales of quick-turn and premium services consisted principally of compressed lead-time volume orders in the first half of fiscal 2004, net sales of quick-turn and premium
services in the first half of fiscal 2005 consisted of a relatively higher mix of quick-turn prototype orders. We believe the increase in the level of quick-turn prototype orders is primarily the result of our focus to grow this business.



Sales attributed to our five largest original equipment
manufacturer (OEM) customers comprised 64% and 67% of our net sales in the second quarter of fiscal 2005 and 2004, respectively, and 64% and 68% of our net sales in the first half of fiscal 2005 and 2004, respectively. Two OEM customers
each accounted for more than 10% of our net sales in the second quarter of both fiscal 2005 and 2004. Two OEM customers each accounted for more than 10% of our net sales in the first half of both 2005 and 2004. We expect to continue to depend upon a
small number of customers for a significant portion of our net sales for the foreseeable future. The loss of or decrease in orders from one or more major customers could materially reduce our sales.



Sales attributed to OEMs include sales made through the OEMs electronic
manufacturing service providers. We expect sales to OEMs through their electronic manufacturing service providers to continue to represent a significant portion of our net sales. The percentage of our net sales made through electronic manufacturing
service providers was approximately 70% and 68% in the second quarters of fiscal 2005 and 2004, respectively, and 69% and 72% of our net sales in the first halves of fiscal 2005 and 2004, respectively. Although our contractual relationship is with
the electronic manufacturing service provider, most of our shipments to electronic manufacturing service providers are directed by OEMs who 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 discretionary orders directly from some of them.



The following table shows, for the periods indicated, the percentage of our net sales to the principal end markets we serve ($ in thousands):



|                             |  |                    |   |                   |   |                   |  |                   |   |  |   |        |  |     |   |  |   |        |  |     |   |  |   |       
|---------------------------- |  | ------------------ | - | ----------------- | - | ----------------- |  | ----------------- | - |  | - | ------ |  | --- | - |  | - | ------ |  | --- | - |  | - | ------
|                             |  | Three Months Ended |   | Six Months Ended 
|                             |  | November 27, 2004  |   | November 29, 2003 |   | November 27, 2004 |  | November 29, 2003
|End Markets                  |  |                    |   |                   |   |                   |  |                   |   |  |   |        |  |     |   |  |   |        |  |     |   |  |   |       
|Communications               |  | 82                 | % |                   | $ | 35,336            |  | 82                | % |  | $ | 30,240 |  | 82  | % |  | $ | 69,858 |  | 80  | % |  | $ | 54,151
|High-end Computing & Storage |  | 8                  | % |                   |   | 3,474             |  | 9                 | % |  |   | 3,317  |  | 7   | % |  |   | 6,043  |  | 10  | % |  |   | 6,532 
|Test and Measurement         |  | 4                  | % |                   |   | 1,542             |  | 5                 | % |  |   | 1,928  |  | 5   | % |  |   | 4,292  |  | 6   | % |  |   | 3,877 
|Other                        |  | 7                  | % |                   |   | 2,892             |  | 4                 | % |  |   | 1,518  |  | 6   | % |  |   | 5,181  |  | 4   | % |  |   | 3,171 
|                             |  |                    |   |                   |   |                   |  |                   |   |  |   |        |  |     |   |  |   |        |  |     |   |  |   |       
|Total                        |  | 100                | % |                   | $ | 43,244            |  | 100               | % |  | $ | 37,003 |  | 100 | % |  | $ | 85,374 |  | 100 | % |  | $ | 67,731
|                             |  |                    |   |                   |   |                   |  |                   |   |  |   |        |  |     |   |  |   |        |  |     |   |  |   |       



Sales in the communications end market
reflect our focus on this end market and a further increase in the number of our communications customers. Although we have targeted the communications end market as a primary area for growth and we continue to add new customers in this end market,
we expect that the acquisition of Data Circuit Systems, Inc. will result in some diversification of our end markets and a lower concentration in the communications end market.



Our 90-day backlog was approximately $20.2 million at the end of the second quarter of fiscal 2005 and $19.5 million at the
end of the second quarter of fiscal 2004. A substantial portion of our backlog is typically scheduled for delivery within 60 days.



Future demand and product pricing depend on many factors including capacity utilization in the industry, product mix, competitive pressure in the printed
circuit board industry, levels of advanced technology, and economic conditions affecting the markets we serve and the electronics industry in general.



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Gross Margin



Gross margin as a percentage of net sales was 13.1% and 14.9% in the second quarter of fiscal 2005 and fiscal 2004, respectively. The decrease in gross
margin in the second quarter of fiscal 2005 compared to the same quarter in the prior year was primarily attributable to a less profitable sales mix, including a lower level of premium service sales, increased costs associated with expansion
activities, and higher costs for certain raw materials. Gross margin as a percentage of net sales was 11.8% and 11.2% in the first halves of fiscal 2005 and fiscal 2004, respectively. The increase in gross margin primarily reflects a more profitable
sales mix, partially offset by the increased costs discussed above. Cost of goods sold during the second quarter and first half of fiscal 2005 reflect the direct and indirect cost of expanded capacity compared to the first half of fiscal 2004, due
largely to the commencement of production at our Wood Village facility that began in the fourth quarter of fiscal 2004. While capacity expansion is critical for future growth and has facilitated our increase in unit production, it has increased our
cost structure and caused a decline in the overall utilization of our installed capacity from fiscal 2004 to fiscal 2005. Lower capacity utilization reduces gross margin because it results in a higher cost per unit produced. In addition, we have
experienced increases in supplier pricing on certain materials. We believe we will have limited ability to pass on increased materials costs to our customers.



Engineering



Engineering expenses were $1.5 million in the second quarters of both fiscal 2005 and fiscal 2004, representing 3.6% and 3.9% of net sales for those
periods, respectively. Engineering expenses were $3.3 million, or 3.9% of net sales, in the first half of fiscal 2005 compared to $2.8 million, or 4.1% of net sales, in the first half of fiscal 2004. The increase in engineering expense in fiscal
2005 primarily resulted from an increase in average headcount from the prior year to support increased operations.



Selling, General and Administrative



Selling, general and administrative expenses were $3.5 million, or 8.1% of net sales, and $3.0 million, or 8.2% of net sales, in the second quarter of
fiscal 2005 and fiscal 2004, respectively. Selling, general and administrative expenses were $8.0 million, or 9.4% of net sales, and $5.7 million, or 8.4% of net sales, in the first halves of fiscal 2005 and fiscal 2004, respectively. The first half
of fiscal 2005 included expenses of $768 thousand related to the abandonment of a business opportunity in Asia and approximately $400 thousand for audit and consulting fees related to compliance with the internal control provisions of Section 404 of
the Sarbanes-Oxley Act. An increase in labor, due to higher average headcount from the prior year to support increased operations, also contributed to higher expenses in this category.



Interest and Other Income (Expense), net



Interest and other income (expense), net was a net income of $32 thousand in the second quarter of fiscal 2005 and a net expense of $312 thousand in the
second quarter of fiscal 2004. Interest and other income (expense), net was a net expense of $6 thousand in the first half of fiscal 2005 and $658 thousand in the first half of fiscal 2004. Interest income increased in the second quarter and first
half of fiscal 2005 compared to the same periods in the prior year due to increased yields on higher levels of cash and cash equivalents.



Income Taxes



The provision for income taxes for the first half of fiscal 2005 represents our minimum state income tax obligation. Our effective income tax rate was
approximately zero for the second quarter and first halves of fiscal 2005 and fiscal 2004 due to adjustments to a valuation allowance against deferred tax assets that was established as a result of an accumulation of net operating loss
carryforwards. We incurred additional net operating tax losses in the first half of fiscal 2005 and fiscal 2004 and, accordingly, we increased our gross deferred tax asset and the corresponding valuation allowance, which resulted in no income tax
benefit for these periods.



The internal revenue code limits
the amount of otherwise taxable income that may be offset by net operating loss carryforwards if certain changes in stock ownership occur, including certain changes in



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ownership of stock by passive institutional investors. If those changes in ownership of our stock have occurred or occur in the future, we may be limited in
the amount of net operating loss carryforwards that we can use in any given year to reduce our income subject to tax.



Liquidity and Capital Resources



At the end of the second quarter of fiscal 2005, we had $116.2 million in cash and cash equivalents. In the first half of fiscal 2005, we used cash
principally to finance capital expenditures, which was partially offset by cash generated from operating activities. We anticipate that these sources and uses of our cash will continue in the foreseeable future.



Cash provided by operating activities for the first half of fiscal 2005 was
$3.8 million, compared to cash used in operations of $476 thousand in the first half of fiscal 2004. Our operating cash inflow of $3.8 million for the first half of fiscal 2005 primarily reflects a net loss of $1.3 million, adjusted for $6.6 million
of depreciation and amortization, offset by an increase in net working capital accounts of $2.4 million, excluding cash and cash equivalents and short-term investments.



Cash used by investing activities in the first half of fiscal 2005 was $12.5 million due to capital expenditures for
manufacturing equipment. Cash used by investing activities of $2.5 million in the first half of fiscal 2004 primarily related to capital expenditures of $4.0 million offset by the maturity of short-term investments. The Company had capital
commitments to pay approximately $5.7 million as of November 27, 2004, primarily relating to the purchase of manufacturing equipment.



Cash provided by financing activities in the first half of fiscal 2005 and fiscal 2004 was $341 thousand and $1.9 million, respectively, and represents
proceeds from the exercise of employee stock options.



On
December 9, 2004, we purchased all of the outstanding capital stock of Data Circuit Holdings, Inc. (Holdings) from its stockholders for total consideration of approximately $43.0 million pursuant to a Stock Purchase Agreement between us,
Holdings, Data Circuit Systems, Inc., a quick-turn circuit board manufacturer and wholly-owned subsidiary of Holdings, and the stockholders of Holdings. We paid $41.0 million of the total consideration in cash and $2.0 million with a promissory
note. Interest of 5.0% on the promissory note is payable quarterly and principal payments of $1.0 million are due annually.



We believe that our existing capital resources and expected cash generated from operations will be sufficient to meet our working capital and capital
expenditure requirements through at least the next twelve months.



Risk
Factors Affecting Business and Results of Operations



Certain statements in this report contain forward-looking information (as defined in Section 27A of the Securities Act of 1933, as amended) that involves risks and uncertainties. Words such as anticipates, believes,
expects, future and intends and similar expressions identify forward-looking statements. These statements relate to future events or our future financial performance. These statements constitute forward-looking
statements and are only predictions. Actual events or results may differ materially. The differences could be caused by a number of factors or combination of factors, including the factors listed below and the risks detailed in our Securities and
Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended May 29, 2004.



Forward-looking statements contained in this report relate to our plans and expectations as to future financial results, end-market demand, our customer
base, the need for, use of and availability of capital resources and cash.



Many factors, including the following, could cause actual results to differ materially from the forward-looking statements: fluctuations in the demand for our products and services, including quick-turn and premium
services; the ability to successfully and timely integrate Data Circuit Systems, Inc.; our ability to achieve expected operating and financial results; changes in customer order levels, product mix and inventory build-up; lower than expected or
delayed sales; the outcome of pending or future litigation;



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pricing and other competitive pressures in the industry from domestic and global competitors; our ability to fully utilize our assets and control costs; our
ability to control or pass through to customers the cost of raw materials and supplies; and our ability to retain or attract employees with sufficient know-how to conduct our manufacturing processes and maintain or increase our production output and
quality. These factors or additional risks and uncertainties not known to us or that we currently deem immaterial may impair business operations and may cause our actual results to differ materially from any forward-looking statement.



Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results or to
make changes in our expectations.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our funds available for investment. We ensure the safety and
preservation of our invested principal by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in high-credit quality securities. We do not believe that changes in interest rates will have a material effect
on our liquidity, financial condition or results of operations.



We do not have interest rate risk in our long-term debt and do not enter into interest rate swap agreements. A change in interest rates would not affect interest expense on the $25.0 million, 6.5% convertible debenture because that
instrument bears a fixed rate of interest. The fair value of the convertible debenture is sensitive to interest rate changes. Interest rate changes would result in increases or decreases in the fair value of the convertible debenture, due to
differences between market interest rates and the contractual interest rate of the convertible debenture. Unless we are able to call the convertible debenture and elect to do so, changes in the fair value of the debenture have no impact on our cash
flows or consolidated financial statements.



We do not have
foreign exchange risk as all sales are currently denominated in US dollars and foreign expenditures are not material.



ITEM 4. CONTROLS AND PROCEDURES



An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures as of November 27, 2004. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that material information required to be included in Merixs
Exchange Act reports would be made known to management by others within Merix.



There has been no change in Merixs internal control over financial reporting during the fiscal quarter ended November 27, 2004 that has materially affected, or is reasonably likely to materially affect,
Merixs internal control over financial reporting.



Our
CEO and CFO do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. 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 assurance that all control issues and instances of fraud, if any, within Merix 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 also is 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.



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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



In the
first quarter of fiscal 2005, four proposed class action complaints were filed against the Company and certain of its executive officers and directors under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 alleging that the
defendants made certain false and misleading statements. In the second quarter of fiscal 2005, following an order consolidating these four actions, the plaintiffs filed a consolidated and amended complaint, which added allegations of violations by
certain of the Companys executive officers and directors of Section 11 of the Securities Act of 1933 in connection with the Companys stock offering in January 2004 and named the Companys underwriters as defendants. Pursuant to an
underwriting agreement between the Company and its underwriters dated January 2004, the Company has indemnification obligations with respect to the litigation.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



Our annual meeting of shareholders was held on September 30, 2004 in Forest Grove, Oregon.



Election of Directors



All of the nominees were elected and the shareholders voted as follows:



|                     |  |            |  |               
|-------------------- |  | ---------- |  | --------------
|Directors            |  | Votes For  |  | Votes Withheld
|Kirby A. Dyess       |  | 16,565,214 |  | 31,933        
|Carlene M. Ellis     |  | 16,035,191 |  | 561,956       
|Mark R. Hollinger    |  | 16,458,231 |  | 138,916       
|Donald D. Jobe       |  | 16,565,164 |  | 31,983        
|George H. Kerckhove  |  | 16,034,731 |  | 562,416       
|Dr. William Lattin   |  | 16,564,864 |  | 32,283        
|William C. McCormick |  | 16,033,731 |  | 563,416       
|Robert C. Strandberg |  | 16,566,364 |  | 30,783        



Ratification of the Companys
Independent Registered Public Accounting Firm



The
appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the fiscal year ending May 28, 2005 was ratified and the shareholders voted as follows:



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|16,418,248 |  | 137,047 |  | 41,852 



ITEM 6. EXHIBITS



See the Exhibit Index for the
exhibits filed as part of this report.



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SIGNATURE



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 this 6th day of January, 2005.



MERIX CORPORATIONBy:

/s/ Janie S. BrownJanie S. BrownSr. Vice President, Chief Financial Officer,Treasurer and Secretary(Principal Financial Officer)




17



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EXHIBIT INDEX



|               |  |                                                                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Document Description                                                                                                                                               
|3.1            |  | Articles of Incorporation of the Company, as amended, incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year ended May 26, 2001.
|               | 
|3.2            |  | Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Companys Form 10-K for the fiscal year ended May 31, 1997.                     
|               | 
|10.1           |  | Stock Purchase Agreement dated as of December 9, 2004.                                                                                                             
|               | 
|10.2           |  | Promissory Note dated as of December 9, 2004.                                                                                                                      
|               | 
|31.1           |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                           
|               | 
|31.2           |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                           
|               | 
|32.1           |  | Section 1350 Certification of Chief Executive Officer.                                                                                                             
|               | 
|32.2           |  | Section 1350 Certification of Chief Financial Officer.