921365--8/24/2006--MERIX

related topics

{customer, product, revenue}

{operation, international, foreign}

{product, market, service}

{acquisition, growth, future}

{condition, economic, financial}

{cost, operation, labor}

{capital, credit, financial}

{product, liability, claim}

{provision, law, control}

{stock, price, share}

{cost, regulation, environmental}

{stock, price, operating}

{financial, litigation, operation}

{control, financial, internal}

{interest, director, officer}

{system, service, information}

{personnel, key, retain}

RISK FACTORS AFFECTING BUSINESS AND RESULTS OF OPERATIONS 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. We may not be able to remediate material weaknesses in our internal control over financial reporting. Our recent acquisitions may be costly and difficult to integrate, may divert management resources and may dilute shareholder value. If we are unable to successfully integrate Merix Asia, our business may be materially adversely affected. We have minority investors in our China manufacturing facilities. We do not currently have options to renew our leased manufacturing facilities in the People s Republic of China and Hong Kong. Lower sales may cause gross margins and operating results to decrease because many of our operating costs are fixed. Competition in the printed circuit board market is intense and we could lose sales if we are unable to compete effectively. If production capabilities increase in Asia, where production costs are lower, we may lose market share and our gross margins may be materially adversely affected by increased pricing pressure. Success in Asia may adversely affect our U.S. operations. The cyclical nature of automotive production and sales could adversely affect Merix business. Automotive customers have higher quality requirements and long qualification times. 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. 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 rely on suppliers for the timely delivery of materials used in manufacturing our printed circuit boards, and an increase in industry demand or a shortage of or in the price of raw materials may increase the price of the raw materials we use and may limit our ability to manufacture certain products and adversely impact our gross margins. 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 were unable to implement adequate internal controls and procedures at Merix Asia. 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. Our Chinese and Hong Kong manufacturing operations subject us to a number of risks we have not faced in the past. Products we manufacture may contain manufacturing defects, which could result in reduced demand for our products and liability claims against us. Merix may incur material losses and costs as a result of product liability and warranty claims that may be brought against us. If we are unable to respond to rapid technological change and process development, we may not be able to compete effectively. As we commence our work to implement a new enterprise resource planning system, unexpected problems and delays could occur and could cause disruption to the management of our business and significantly increase costs. 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. 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 are exposed to the credit risk of some of our customers and also as a result of a concentration of our customer base. Our failure to comply with environmental laws could adversely affect our business. Because we have significant foreign sales and presence, we are subject to political, economic and other risks we do not face in the domestic market. We are subject to risks associated with currency fluctuations, which could have a material adverse effect on our results of operations and financial condition. Pending or future litigation could have a material adverse impact on our operating results and financial condition. We did not have a Chief Financial Officer from January 13, 2006 through the filing date of this report. 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. 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. 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.

Full 10-K form ▸

921365--8/24/2006--MERIX_CORP