10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

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 number 000-50812

MULTI-FINELINE ELECTRONIX, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-3947402
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3140 East Coronado Street

Anaheim, CA 92806

(Address of principal executive offices, Zip Code)

(714) 238-1488

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of April 30, 2010 was 25,521,708.

Multi-Fineline Electronix, Inc.

Index

PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	25
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	38

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

	March 31, 2010		September 30, 2009
	(unaudited)
ASSETS
Cash and cash equivalents	$	146,820	$	139,721
Short-term investments		11,566		11,812
Accounts receivable, net of allowances of $1,825 and $2,152 at March 31, 2010 and September 30, 2009, respectively		101,695		129,270
Inventories		40,148		50,285
Deferred taxes		3,528		3,528
Income taxes receivable		3,465		6,612
Assets held for sale		2,958		2,958
Other current assets		3,838		4,377
Total current assets		314,018		348,563
Property, plant and equipment, net		158,745		150,099
Land use rights		3,677		3,103
Deferred taxes		3,813		3,688
Goodwill		7,537		7,537
Intangible assets, net		5,025		5,705
Other assets		8,948		7,235
Total assets	$	501,763	$	525,930
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	84,243	$	122,524
Accrued liabilities		20,865		20,603
Income taxes payable		2,152		3,400
Total current liabilities		107,260		146,527
Notes payable		—		10,852
Other liabilities		10,896		9,563
Total liabilities		118,156		166,942
Commitments and contingencies (Note 2)
Stockholders’ equity
Preferred stock, $0.0001 par value, 5,000,000 and 5,000,000 shares authorized at March 31, 2010 and September 30, 2009, respectively; 0 and 0 shares issued and outstanding at March 31, 2010 and September 30, 2009, respectively		—		—
Common stock, $0.0001 par value; 100,000,000 and 100,000,000 shares authorized at March 31, 2010 and September 30, 2009, respectively; 25,495,110 and 25,175,976 shares issued and outstanding at March 31, 2010 and September 30, 2009, respectively		3		2
Additional paid-in capital		120,019		116,740
Retained earnings		242,311		221,054
Accumulated other comprehensive income		21,274		21,192
Total stockholders’ equity		383,607		358,988
Total liabilities and stockholders’ equity	$	501,763	$	525,930

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share and Per Share Data)

(unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2010			2009			2010			2009
Net sales	$	154,075		$	174,097		$	383,574		$	390,727
Cost of sales		131,772			149,429			324,797			332,987
Gross profit		22,303			24,668			58,777			57,740
Operating expenses:
Research and development		3,462			1,241			6,297			2,412
Sales and marketing		5,855			6,070			12,539			11,405
General and administrative		4,892			6,300			10,775			13,317
Impairment and restructuring		1,937			(185	)		1,937			127
Total operating expenses		16,146			13,426			31,548			27,261
Operating income		6,157			11,242			27,229			30,479
Other income (expense), net:
Interest income		116			252			202			637
Interest expense		(269	)		(198	)		(547	)		(217	)
Other income (expense), net		308			169			498			(1,312	)
Income before income taxes		6,312			11,465			27,382			29,587
Provision for income taxes		(1,370	)		(2,720	)		(6,125	)		(6,751	)
Net income	$	4,942		$	8,745		$	21,257		$	22,836
Net income per share:
Basic	$	0.19		$	0.35		$	0.84		$	0.91
Diluted	$	0.19		$	0.34		$	0.83		$	0.90
Shares used in computing net income per share:
Basic		25,432,946			24,997,153			25,350,468			25,032,444
Diluted		25,776,217			25,431,068			25,758,991			25,331,818

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(unaudited)

	Six Months Ended March 31,
	2010			2009
Cash flows from operating activities
Net income	$	21,257		$	22,836
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		23,740			19,930
Provision for doubtful accounts and returns		2,285			(166	)
Deferred taxes		(125	)		(191	)
Stock-based compensation expense		2,827			1,873
Impairment and restructuring		1,937			1,378
Gain on disposal of equipment		(315	)		(114	)
Changes in operating assets and liabilities
Accounts receivable		25,256			47,381
Inventories		10,579			30,491
Due from affiliates, net		(824	)		(1,788	)
Other current assets		(30	)		(131	)
Other assets		(2,300	)		(1,302	)
Accounts payable		(40,516	)		(46,654	)
Accrued liabilities		672			(5,485	)
Income taxes payable		1,851			(7,273	)
Other current liabilities		292			(7	)
Other liabilities		1,337			2,217
Net cash provided by operating activities		47,923			62,995
Cash flows from investing activities
Sales of short-term investments		300			—
Purchases of property and equipment		(30,925	)		(10,858	)
Proceeds from sale of equipment		442			535
Change in restricted cash, net		—			145
Acquisition of business, net of cash acquired		—			(872	)
Net cash used in investing activities		(30,183	)		(11,050	)
Cash flows from financing activities
Proceeds from exercise of stock options		1,604			882
Repayments of long-term debt		(11,144	)		—
Repurchase of common stock		—			(8,410	)
Tax withholdings for net share settlement of equity awards		(1,162	)		—
Net cash used in financing activities		(10,702	)		(7,528	)
Effect of exchange rate changes on cash		61			(29	)
Net increase in cash		7,099			44,388
Cash and cash equivalents at the beginning of the period		139,721			62,090
Cash and cash equivalents at the end of the period	$	146,820		$	106,478
Non-cash investing activities
Purchases of property and equipment	$	2,191		$	—
Non-cash financing activities
Issuance of notes payable in connection with acquisition	$	—		$	10,377

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

1. Description of Business

Multi-Fineline Electronix, Inc. (“MFLEX” or the “Company”) was incorporated in 1984 in the State of California and reincorporated in the State of Delaware in June 2004. The Company is primarily engaged in the engineering, design and manufacture of flexible printed circuit boards along with related component assemblies.

Affiliates and subsidiaries of WBL Corporation Limited (collectively “WBL”), a Singapore company, beneficially owned approximately 58% and 59% of the Company’s outstanding common stock as of March 31, 2010 and September 30, 2009, respectively, which provides WBL with control over the outcome of stockholder votes.

2. Basis of Presentation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has three wholly owned subsidiaries located in China: Multi-Fineline Electronix (Suzhou) Co., Ltd. (“MFC1”), Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. (“MFC2”), and MFLEX Chengdu Co., Ltd. (“MFLEX Chengdu”); one located in the Cayman Islands: M-Flex Cayman Islands, Inc. (“MFCI”); one located in Singapore: Multi-Fineline Electronix Singapore Pte. Ltd. (“MFLEX Singapore”); one located in Malaysia: Multi-Fineline Electronix Malaysia Sdn. Bhd. (“MFM”); one located in Arizona: Aurora Optical, Inc. (“Aurora Optical”); and one located in Cambridge, England: Pelikon Limited (“Pelikon”). All significant intercompany transactions and balances have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2009 Annual Report on Form 10-K. The financial information presented in the accompanying statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the periods indicated. All such adjustments are of a normal recurring nature. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents as of March 31, 2010 consisted of money market funds, and cash equivalents as of September 30, 2009 consisted of money market funds and United States treasury bills.

Investments

On September 24, 2009, the Company accepted an offer from UBS AG (“UBS”), the fund manager with whom the Company holds its auction rate securities, pursuant to which UBS issued the Company Series C-2 Auction Rate Securities Rights (the “Rights”), which allow MFLEX to sell its auction rate securities to UBS at par value during the period beginning June 30, 2010 and ending July 2, 2012. The Company plans to complete the sale of these securities in July 2010, and therefore reclassified these investments as short-term assets during the fourth quarter of fiscal 2009.

The Company’s agreement related to the auction rate securities represents a firm commitment in accordance with Financial Accounting Standards Board (“FASB”) authoritative guidance, which defines a firm commitment as an agreement with an unrelated party, binding on both parties and usually legally enforceable. The enforceability of the agreement results in a put option and is recognized as a freestanding asset separate from the auction rate securities on the condensed consolidated balance sheet. The Company has elected to measure the put option at fair value, which permits the Company to elect the fair value option for recognizing financial assets, in order to match the changes in the fair value of the auction rate securities. The Company expects that the future changes in the fair value of the put option will approximate fair value movements in the related auction rate securities. As of March 31, 2010 and September 30, 2009, the estimated value of the put option was $1,595 and $1,647, respectively.

4

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Prior to accepting the agreement from UBS, the Company recorded auction rate securities investments as available-for-sale and reported any unrealized gains or losses, net of taxes, as a component of accumulated other comprehensive income on the condensed consolidated balance sheet. In connection with the acceptance of the agreement from UBS, the Company transferred the auction rate securities from securities available-for-sale to trading during the fourth fiscal quarter of 2009 as allowed by FASB authoritative guidance.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments as of the most recent balance sheet date, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

Inventories

Inventories, net of related allowances, are comprised of the following:

	March 31, 2010		September 30, 2009
Raw materials and supplies	$	15,660	$	25,623
Work-in-progress		14,400		18,244
Finished goods		10,088		6,418
	$	40,148	$	50,285

Property, Plant and Equipment

Property, plant and equipment, net, are comprised of the following:

	March 31, 2010			September 30, 2009
Land	$	3,730		$	3,730
Building		34,530			32,452
Machinery and equipment		196,164			192,815
Computers		11,547			7,335
Leasehold improvements		16,045			19,020
Construction-in-progress		29,197			14,506
	$	291,213		$	269,858
Accumulated depreciation		(132,468	)		(119,759	)
	$	158,745		$	150,099

Depreciation expense for the three and six months ended March 31, 2010 was $11,086 and $22,435, and was $9,588 and $19,085 for the three and six months ended March 31, 2009, respectively.

Included in other current assets as of March 31, 2010 and September 30, 2009 are prepaid software licenses that are short-term in nature. Amortization of software licenses for the three and six months ended March 31, 2010 was $252 and $590, and was $256 and $430 for the three and six months ended March 31, 2009, respectively.

Land Use Rights

Land use rights include long-term leaseholds of land for the Company’s facilities located in China. Amortization of land use rights for the three and six months ended March 31, 2010 was $19 and $35, and was $4 and $7 for the three and six months ended March 31, 2009, respectively.

Goodwill

The Company records the assets acquired and liabilities assumed in business combinations at their respective fair values at the date of acquisition, with any excess purchase price recorded as goodwill. Valuation of intangible assets requires significant estimates and assumptions including, but not limited to, determining the timing and expected costs to complete development projects, estimating future cash flows from product sales, developing appropriate discount rates, estimating probability rates for the successful completion of development projects, continuation of customer relationships and renewal of customer contracts, and approximating the useful lives of the intangible assets acquired.

5

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

The Company reviews the recoverability of the carrying value of goodwill on an annual basis during its fourth fiscal quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. The determination of whether any potential impairment of goodwill exists is based upon a comparison of the fair value of the reporting unit to the carrying value of the underlying net assets of such reporting unit. If the fair value of the reporting unit is less than the carrying value of the underlying net assets, goodwill is deemed impaired and an impairment loss is recorded to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of all its underlying identifiable assets and liabilities. The Company has determined that it has one reporting unit for evaluating its goodwill for impairment.

Product Warranty Accrual

The Company warrants its products from two to 36 months. The standard warranty requires the Company to replace defective products returned to the Company at no cost to the customer. The Company records an estimate for warranty related costs at the time revenue is recognized based on historical costs incurred for warranty expense and historical return rates. The warranty accrual is included in accrued liabilities in the accompanying condensed consolidated balance sheets.

Changes in the product warranty accrual for the three months ended March 31, 2010 and 2009, respectively, were as follows:

	Balance at January 1		Warranty Expenditures			(Benefit from) Provision for Estimated Warranty Cost			Balance at March 31
Fiscal 2010	$	966	$	(297	)	$	(60	)	$	609
Fiscal 2009	$	3,181	$	(2,260	)	$	660		$	1,581

Changes in the product warranty accrual for the six months ended March 31, 2010 and 2009, respectively, were as follows:

	Balance at October 1		Warranty Expenditures			Provision for Estimated Warranty Cost		Balance at March 31
Fiscal 2010	$	541	$	(1,448	)	$	1,516	$	609
Fiscal 2009	$	2,601	$	(2,835	)	$	1,815	$	1,581

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during the period from transactions and other events and circumstances from non-owner sources. The difference between net income and comprehensive income (loss) for the three and six months ended March 31, 2010 and 2009, respectively, consists of the Company’s foreign currency translation adjustment and is summarized in the following table:

	Three months ended March 31,					Six months ended March 31,
	2010		2009			2010		2009
Net Income	$	4,942	$	8,745		$	21,257	$	22,836
Other comprehensive income (loss) – translation adjustment		60		(35	)		82		(448	)
Total comprehensive income	$	5,002	$	8,710		$	21,339	$	22,388

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is either the local currency or if the predominant transaction currency is “United States dollars,” then United States dollars will be the functional currency. Balances are translated into United States dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for income statement amounts. Currency translation adjustments are recorded in accumulated other comprehensive income, a component of stockholders’ equity.

6

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Foreign currency transactions occur when there is a receivable or payable denominated in other than the respective entity’s functional currency. The Company records the changes in the exchange rate for these transactions in the condensed consolidated statements of operations. Foreign exchange transaction gains and losses are included in other income (expense) and were net gains of $140 and $349 for the three and six months ended March 31, 2010, and net losses of $80 and $677 for the three and six months ended March 31, 2009, respectively.

Net Income Per Share—Basic and Diluted

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding. In computing diluted earnings per share, the weighted-average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities. The impact of potentially dilutive securities is determined using the treasury stock method.

The following table presents a reconciliation of basic and diluted shares:

	Three Months Ended March 31,		Six Months Ended March 31,
	2010	2009	2010	2009
Basic weighted-average number of common shares outstanding	25,432,946	24,997,153	25,350,468	25,032,444
Dilutive effect of potential common shares	343,271	433,915	408,523	299,374
Diluted weighted-average number of common and potential common shares outstanding	25,776,217	25,431,068	25,758,991	25,331,818
Potential common shares excluded from the per share computations as their inclusion would be anti-dilutive	307,952	246,269	349,639	272,331

Commitments and Contingencies

Litigation

The Company is involved in litigation from time to time in the ordinary course of business. Management does not believe the outcome of any currently pending matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Other Commitments

As of March 31, 2010 and September 30, 2009, the Company had outstanding purchase and other commitments, primarily related to capital projects at its various facilities, which totaled $52,107 and $49,495, respectively.

Pursuant to the laws applicable to the Peoples’ Republic of China’s Foreign Investment Enterprises, the Company’s three wholly owned subsidiaries in China, MFC1, MFC2 and MFLEX Chengdu, are restricted from paying cash dividends on 10% of after-tax profit, subject to certain cumulative limits. These restrictions on net income as of March 31, 2010 and September 30, 2009 were $11,653 and $11,056, respectively.

Recent Accounting Pronouncements

In February 2010, the FASB issued revised authoritative guidance that removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This revised guidance was effective upon issuance. As a result, there was no material impact on the Company’s consolidated financial position, results of operations or cash flows.

In January 2010, the FASB issued revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2 and 3. This guidance is effective for interim and annual

7

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

reporting periods beginning after December 15, 2009 (which is January 1, 2010 for the Company) except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years (which is January 1, 2011 for the Company). Early application is encouraged. The revised guidance was adopted during the Company’s second fiscal quarter of 2010. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In October 2009, the FASB issued revised authoritative guidance that modifies the fair value requirements of revenue recognition with multiple element arrangements, by allowing the use of the “best estimate of selling price” in addition to vendor specific objective evidence and third-party evidence for determining the selling price of a deliverable. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. In addition, the residual method of allocating arrangement consideration is no longer permitted. The revised guidance also requires expanded quantitative and qualitative disclosures about revenue from arrangements with multiple deliverables. The revised guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (which is October 1, 2010 for the Company), and must be adopted in the same period using the same transition method. If adoption is elected in a period other than the beginning of a fiscal year, the amendments in these standards must be applied retrospectively to the beginning of the fiscal year. Full retrospective application of these amendments to prior fiscal years is optional and companies may elect early adoption of these standards. The Company does not expect the adoption of this revised guidance to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Significant Concentrations

Net sales to original equipment manufacturer (“OEM”) customers that constitute greater than 10% of the Company’s net sales, inclusive of net sales made to their designated sub-contractors, as a percentage of total Company sales, are presented below:

	Three Months Ended March 31,				Six Months Ended March 31,
	2010		2009		2010		2009
OEM C	46	%	35	%	47	%	34	%
OEM D	39	%	48	%	40	%	40	%

8

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

During the three months ended March 31, 2010 and 2009, 65% and 71% of net sales, respectively, were derived from sales for products or services into the wireless industry and 31% and 25% of net sales, respectively, were derived from sales for products into the consumer electronics industry. During the six months ended March 31, 2010 and 2009, 66% and 70% of net sales, respectively, were derived from sales for products or services into the wireless industry and 31% and 26% of net sales, respectively, were derived from sales for products into the consumer electronics industry. Both of these industries are subject to economic cycles and have experienced periods of slowdown in the past.

3. Related Party Transactions

During the three and six months ended March 31, 2010 and 2009, the Company has recognized revenue and recorded purchases from the following affiliated companies: (a) MFS Technology Pte. Ltd. (“MFS”); and (b) MFS Technologies (Hunan) Co. Ltd., a subsidiary of MFS. As discussed in Note 1, WBL owns 58% and 59% of the Company’s common stock as of March 31, 2010 and September 30, 2009, respectively. MFS is an indirect subsidiary of WBL.

Sales to and purchases from affiliates comprise the following:

	Three Months Ended March 31,				Six Months Ended March 31,
	2010		2009		2010		2009
Sales to affiliates:
MFS Technologies (Hunan) Co. Ltd.	$	—	$	16	$	23	$	104
Purchases from affiliates:
MFS	$	—	$	1,190	$	257	$	3,693

Rent expense for the three and six months ended March 31, 2010 and 2009 included related-party payments to various WBL subsidiaries. These amounts were $128 and $256 for the three and six months ended March 31, 2010 and $125 and $254 for the three and six months ended March 31, 2009, respectively.

4. Goodwill and Intangible Assets

Goodwill

The Company records the excess of an acquisition’s purchase price over the fair value of the identified assets and liabilities as goodwill. As of March 31, 2010 and September 30, 2009, the carrying amount of goodwill was $7,537.

Intangible Assets

Amortization of intangible assets was $340 and $680 for the three and six months ended March 31, 2010 and was $340 and $415 for the three and six months ended March 31, 2009, respectively. Estimated future annual pre-tax amortization expense of intangible assets as of March 31, 2010, over the estimated useful life of five years is as follows:

Fiscal Years
2010	$	680
2011		1,360
2012		1,360
2013		1,360
2014		265
Total	$	5,025

5. Notes Payable

On December 10, 2008, and in connection with the acquisition of Pelikon, the Company issued unsecured promissory notes to the Sellers (the “Sellers Promissory Notes”) totaling $5,520 and to the Lenders (the “Lender Promissory Notes”) totaling $4,857. The Sellers Promissory Notes and Lender Promissory Notes accrued interest at the rate of six percent per year, and the aggregate principal amount and any accrued interest was to be due and payable on December 9, 2010. The Sellers Promissory Notes were subject to further reduction in the event that MFLEX Singapore or any of its affiliates is entitled to recover damages from the Sellers pursuant to the terms of the Share Purchase Agreement between the parties. In March 2010, the Company repaid the entire balance of the Sellers Promissory Notes and Lender Promissory Notes, plus the accrued interest thereon.

9

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Notes payable consists of the following:

Balance at September 30, 2009	$	10,852
Accrued interest		292
Repayments		(11,144	)
Balance at March 31, 2010	$	—

6. Lines of Credit

In February 2009, the Company and MFLEX Singapore (each, a “Borrower,” and collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “Agreement”) with Bank of America, N.A., as a lender and agent (“BOA”), for a senior revolving credit facility (the “Facility”) in an amount up to $30,000, which may be increased to $60,000 at the Company’s discretion upon satisfaction of certain additional requirements (the “Revolver Commitment”). The parties have entered into three amendments to the Agreement, including an amendment on August 27, 2009, to make certain adjustments to the amount available for borrowing under the Facility and the definition of Eligible Account (as defined in such amendment). The second amendment was effective on February 15, 2010 and amended the definition of “Permitted Debt” to allow the Borrowers additional aggregate debt during the Borrowers’ transitioning of their credit lines from certain financial institutions in China to different financial institutions in China. The third amendment was effective March 17, 2010 and made changes to the definition of “Restricted Investment” to amend the amount that may be invested in MFM and Pelikon to fund operating expenses. Covenants related to availability, collateral and other events are also imposed on the Company and its foreign subsidiaries in the Agreement.

Availability under the Facility for each Borrower will be an amount equal to the lesser of: (1) 85% of the eligible accounts receivable attributable to such Borrower minus the Availability Block (as defined in the Amendment), which amount could be as high as $10,000 and as low as $0 depending on the amount of cash and cash equivalents on deposit with BOA, or (2) the Revolver Commitment minus the Availability Reserve (as defined in the Agreement) to the extent attributable to such Borrower in BOA’s discretion.

Amounts outstanding under the Facility will bear interest at a rate equal to LIBOR or SIBOR/Singapore Swap Rate, as Borrower may elect from time to time, plus the Applicable Margin (as defined in the Agreement). The Facility has a three year term, subject to earlier termination by Borrowers at their discretion or by BOA upon occurrence of an event of default.

In January 2010, MFC1 and MFC2 entered into credit line agreements with Bank of China (“BC”) providing for two lines of credit for 100,000 Chinese Renminbi (“RMB”) each ($14,649 each at March 31, 2010). The lines of credit will mature in July 2010 and bear interest at a rate determined within the scope ruled by the People’s Bank of China (“PBOC”). The credit facilities contained covenants restricting the pledging of assets.

In July 2009, MFC1 and MFC2 entered into credit line agreements with Shanghai Pudong Development Bank (“SPDB”), which provide for two borrowing facilities, for 75,000 RMB each ($10,987 each at March 31, 2010). The lines of credit will mature in July 2010. Pursuant to such agreements, for so long as MFC1 or MFC2, as applicable, has at least U.S. $3,000 on deposit with SPDB, the interest rate will be LIBOR (0.29150% at March 31, 2010), minus 15 basis points. Interest on the credit line shall be determined within the scope ruled by the PBOC and if there is no such rule, as determined by SPDB. The credit facility documents contain covenants restricting the pledging of assets. SPDB also has the right to adjust the credit lines and the duration of such credit in the event of certain specified events.

In March, 2010, MFC1 and MFC2 entered into credit line agreements with China Construction Bank, Suzhou Industry Park Sub-Branch (“CCB”), which provide for two borrowing facilities, for 150,000 RMB each ($21,974 each at March 31, 2010). The lines of credit will mature in March 2013. Interest on the credit line agreements for U.S. dollar lending will be calculated as LIBOR plus a mutually determined number of basis points, and may be adjusted once per quarter for changes in LIBOR. The basis points will be determined according to the U.S. dollar lending cost in the China interbank borrowing market. For RMB lending, the interest rate is 90% of the basic rate issued by the PBOC on the loan start date, and the basic rate may be adjusted once per year if the PBOC adjusts the basic rate.

10

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

A summary of the lines of credit is as follows:

	Amounts Available at				Amounts Outstanding at
	March 31, 2010		September 30, 2009		March 31,     2010		September 30, 2009
Line of credit (BOA)	$	30,000	$	24,415	$	—	$	—
Lines of credit (BC)		29,298		29,283		—		—
Lines of credit (SPDB)		21,974		21,962		—		—
Lines of credit (CCB)		43,948		—		—		—
	$	125,220	$	75,660	$	—	$	—

As of March 31, 2010, the Company is in compliance with all covenants under the lines of credit.

7. Segment information

Based on the evaluation of the Company’s internal financial information, management believes that the Company operates in one reportable segment which is primarily engaged in the engineering, design and manufacture of flexible circuit boards and component assemblies. The Company operates in four geographical areas: United States, China, Singapore and Other (which includes Malaysia and the United Kingdom). Net sales for the three and six months ended March 31, 2010 and 2009 reflect the restructuring of certain business functions to better align these activities with the Company’s Asia operations. Net sales are presented based on the country in which the sales originate, which is where the legal entity is domiciled. The financial results of the Company’s geographic segments are presented on a basis consistent with the consolidated financial statements. Segment net sales and assets amounts include intra-company product sales transactions and subsidiary investment amounts, respectively, which are offset in the elimination line.

11

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Financial information by geographic segment is as follows:

	Three Months Ended March 31,						Six Months Ended March 31,
	2010			2009			2010			2009
Net sales
United States	$	18,749		$	71,969		$	45,864		$	210,465
China		137,669			115,774			292,372			266,331
Singapore		149,988			100,545			350,683			173,490
Other		288			145			453			148
Eliminations		(152,619	)		(114,336	)		(305,798	)		(259,707	)
Total	$	154,075		$	174,097		$	383,574		$	390,727
Operating income (loss)
United States	$	(3,191	)	$	10,601		$	(7,301	)	$	10,274
China		(1,760	)		43			10,385			13,063
Singapore		13,099			2,118			30,083			9,395
Other		(2,964	)		(1,666	)		(5,967	)		(2,474	)
Eliminations		973			146			29			221
Total	$	6,157		$	11,242		$	27,229		$	30,479
Depreciation and amortization
United States	$	1,066		$	893		$	2,511		$	1,606
China		9,948			8,836			19,877			17,705
Singapore		10			6			20			11
Other		673			463			1,332			608
Total	$	11,697		$	10,198		$	23,740		$	19,930
				March 31, 2010			September 30, 2009
Total assets
United States				$	273,764		$	281,834
China					299,544			174,114
Singapore					164,118			235,634
Other					13,509			14,283
Eliminations					(249,172	)		(179,935	)
Total				$	501,763		$	525,930

12

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

8. Equity Incentive Plans

Stock Options

Stock option activity for the six months ended March 31, 2010 under the Company’s 2004 Stock Incentive Plan (the “2004 Plan”) is summarized as follows:

	Number of Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Life
Options outstanding at September 30, 2009	546,213		$	10.97
Granted	—			—
Exercised	(157,547	)		10.00
Forfeited	—			—
Options outstanding and exercisable at March 31, 2010	388,666		$	11.37	$	5,594	3.9
Vested and expected to vest at March 31, 2010	388,666		$	11.37	$	5,594	3.9

The Company recognized no compensation costs during the three and six months ended March 31, 2010 and $224 and $263 during the three and six months ended March 31, 2009, respectively, related to stock options. The aggregate intrinsic value of stock options exercised was $800 and $2,324 during the three and six months ended March 31, 2010 and was $1,825 and $2,341 during the three and six months ended March 31, 2009, respectively. No unearned compensation existed as of March 31, 2010 related to nonvested stock options.

Service and Performance-Based Restricted Stock Units

During the three and six months ended March 31, 2010, the Company granted service-based restricted stock units (“RSU” or “RSUs”) equal to 17,178 and 150,391 shares, respectively, of the Company’s common stock. These grants were made under the 2004 Plan to certain employees (including executive officers) and directors at no cost to such individual. Each RSU represents one hypothetical share of the Company’s common stock, without voting or dividend rights. The RSUs granted to employees vest over a period of three years with one-third vesting on each of the anniversary dates of the grant date. Unearned compensation related to the RSUs is determined based on the fair value of the Company’s common stock on the date of grant and is amortized to expense over the vesting period using the straight-line method.

The Company also grants performance-based RSUs to certain employees (including executive officers) from time to time, under the 2004 Plan. For such performance-based RSUs, the Company records share-based compensation cost based on the grant-date fair value and the probability that the performance metrics will be achieved. At the end of each reporting period, the Company evaluates the probability that the performance-based RSUs will vest. If the Company determines that the vesting of any of the outstanding performance-based RSUs is not probable, the compensation expense related to those performance-based RSUs is reversed in the period in which this determination is made.

On November 16, 2009, the Company’s board of directors (the “Board”) or a committee thereof (in either event, the “Administrator”) approved the grant of 117,826 performance-based RSUs. These performance-based RSUs vest upon the achievement of defined performance objectives pertaining to each grant, with vesting to occur on or about November 30, 2012. As of March 31, 2010, the Company considers the vesting of these performance-based RSUs to be probable.

On June 11, 2008, the Board approved the grant of 22,000 performance-based RSUs. These performance-based RSUs vest upon the achievement of defined performance objectives pertaining to each grant, with vesting to occur between the date of grant and March 31, 2011. During the three months ended December 31, 2009, the Company determined that the vesting of 10,000 of the performance-based RSUs was not probable and reversed $148 of compensation expense. No changes in the probability of achievement of the performance metrics were noted during the three months ended March 31, 2010.

13

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

RSU activity for the six months ended March 31, 2010 under the 2004 Plan is summarized as follows:

	Number of Shares		Weighted- Average Grant- Date Fair Value
Nonvested shares outstanding at September 30, 2009	473,824		$	17.18
Granted	268,217			25.96
Vested	(206,281	)		17.58
Forfeited	(8,500	)		22.08
Nonvested shares outstanding at March 31, 2010	527,260		$	21.42

The Company recognized compensation costs of $1,233 and $2,447 during the three and six months ended March 31, 2010 and $941 and $1,587 during the three and six months ended March 31, 2009, respectively, related to RSUs. The weighted-average grant-date fair value of nonvested RSUs granted during the six months ended March 31, 2010 and 2009 was $25.96 and $11.63, respectively. The weighted-average fair value of RSUs vested during the six months ended March 31, 2010 and 2009 was $17.58 and $20.93, respectively. Unearned compensation of $8,843 existed as of March 31, 2010, related to nonvested RSUs which will be recognized into expense over a weighted-average period of 2.0 years, which is the weighted-average remaining contractual life of the nonvested RSUs.

Stock Appreciation Rights

On November 16, 2009, the Administrator granted 154,940 stock appreciation rights (“November Awards”) to be settled in the Company’s common stock (“SSAR” or “SSARs”), for certain employees (including executive officers) under the 2004 Plan. These SSARs will vest and be exercisable on November 16, 2012, and will expire on November 15, 2019. Each SSAR has a base appreciation amount that is equal to the closing price of a share of the Company’s common stock on each applicable grant date as reported on the NASDAQ Global Select Market. The Company’s SSARs are treated as equity awards and are measured using the initial compensation element of the award at the time of grant and the expense is recognized over the requisite service period (the vesting period). The grant date fair value of the November Awards was estimated at $12.44 using the Black-Scholes valuation pricing model assuming a risk-free interest rate of 2.18%, zero expected dividends, expected volatility of 71.05% and an expected term of 3.0 years.

SSARs activity for the six months ended March 31, 2010 under the 2004 Plan is summarized as follows:

	Number of Shares	Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Life
SSARs outstanding at September 30, 2009	140,342	$	15.85
Granted	154,940		25.96
Exercised	—		—
Forfeited	—		—
SSARs outstanding at March 31, 2010	295,282	$	21.16	$	1,445	9.2
Expected to vest at March 31, 2010	265,754	$	21.16	$	1,445	9.2

The Company recognized compensation costs of $230 and $392 during the three and six months ended March 31, 2010 and $8 and $33 during the three and six months ended March 31, 2009, respectively, related to SSARs. No SSARs were exercised or were exercisable during the six months ended March 31, 2010 and 2009. Unearned compensation as of March 31, 2010 was $2,167 related to nonvested SSARs, which will be recognized into expense over a weighted-average period of 2.2 years.

14

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

9. Share Repurchase Program

On December 5, 2008, the Board approved the establishment of a share repurchase program for up to 2,250,000 shares in the aggregate of the Company’s common stock on the open market. This amount represented approximately nine percent of the Company’s common stock outstanding as of March 31, 2010. Stock repurchases may be made from time to time, based on market conditions and other factors, including price, regulatory requirement and capital availability. As of March 31, 2010, the Company had repurchased a total of 562,500 shares, all in fiscal 2009, at a weighted-average purchase price of $14.95 per share, for a total value of $8,410 pursuant to a 10b5-1 plan. In September 2009, the Company retired all 562,500 common shares in treasury. The excess of the repurchase price over par value was booked as an adjustment to additional paid-in capital.

10. Income Taxes

As of March 31, 2010 and September 30, 2009, the liability for income taxes associated with uncertain tax positions was $10,404 and $9,106, respectively. As of March 31, 2010 and September 30, 2009, these liabilities can be reduced by $4,795 and $4,715, respectively, from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes and timing adjustments. The net amount of $5,609 at March 31, 2010 and $4,391 at September 30, 2009, if recognized, would favorably affect the Company’s effective tax rate. The Company anticipates that there will be changes to the unrecognized tax benefit associated with uncertain tax positions due to the expiration of statutes of limitation, payment of tax on amended returns, audit settlements and other changes in reserves. However, due to the uncertainty regarding the timing of these events, a current estimate of the range of changes that may occur within the next twelve months cannot be made.

The Company currently enjoys tax incentives for certain of its Asian operations. One of the tax holidays was eliminated by taxing authorities due to a change in law. Certain Asian operations are subject to taxes at a rate of 10% of their profits and for the six months ended March 31, 2010, the Company realized tax savings of $1,090 for these operations. However, the tax incentive may be challenged, modified or even eliminated by taxing authorities or changes in law.

11. Impairment and Restructuring

Anaheim

On February 22, 2010, the Company committed to close one of its satellite facilities in Anaheim as part of a strategic effort to move more functions, specifically low volume production and process research and development associated with the Company’s flex and flex assembly processes, to Asia. Based on the Company’s evaluation of the recoverability of impacted long-lived assets, a pre-tax asset impairment charge of $1,937 was recorded during the three months ended March 31, 2010, including $1,301 of machinery and equipment and $636 of leasehold improvements. See Note 13.

Aurora Optical

At the end of the fourth quarter of fiscal 2008, due to the closure of the Tucson, Arizona facility of Aurora Optical, the Company completed its long-lived asset impairment analysis and a restructuring cost analysis.

Based on the Company’s analysis of the net book value and fair market value of the Aurora Optical assets which were planned for sale, after deducting the net book value of assets being transferred to the Company’s Anaheim facility, the Company determined that the remaining assets of Aurora Optical were impaired, and recorded a pre-tax impairment charge of $2,000 in the fourth quarter of fiscal 2008, including $1,300 related to buildings, $600 for machinery and equipment and $100 for other assets. During the three months ended December 31, 2008, $3,527 of land and building and manufacturing equipment was classified as assets held for sale. During the three months ended March 31, 2009, the Company sold the Aurora Optical machinery and equipment previously classified as assets held for sale and recorded a gain of $197 on the sale, which was reported under impairment and restructuring costs.

Based on an arms-length offer for the former Aurora Optical land and building received and a further decline in market value, the Company recorded impairment charges of $311 during fiscal year 2009. The added charges resulted from an additional drop in commercial real estate values since the original impairment was recorded as of September 30, 2008. As of March 31, 2010, the Company recorded $2,958 related to assets held for sale.

15

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

12. Fair Value Measurements

Per FASB authoritative guidance, the Company classified and disclosed the fair value of assets and liabilities in one of the following three categories:

Level 1: quoted market prices in active markets for identical assets and liabilities

Level 2: observable market based inputs or unobservable inputs that are corroborated by market data

Level 3: unobservable inputs that are not corroborated by market data

Auction rate securities

For recognition purposes, on a recurring basis, the Company measures its auction rate securities (“ARS”) as short-term investments at fair value. The ARS had an aggregate fair value of $11,355 at March 31, 2010, and $11,603 at September 30, 2009. The ARS had a realized gain of $26 and $52 recorded during the three and six months ended March 31, 2010, respectively, that was entirely offset by the recording of a realized loss of $26 and $52 during the three and six months ended March 31, 2010, respectively, related to the put option right provided by the fund manager.

Pursuant to the authoritative guidance issued by the FASB, the fair value of the Company’s marketable securities is determined based on Level 3 inputs, which consist of unobservable inputs that are not corroborated by market data. The fair value of these investments was determined by applying an average impairment percentage to the ARS of 12.3%. The impairment percentage was calculated based on an annual cash flow rate of 1.3%, which utilizes assumptions that include the average ninety day Treasury Bill rate and a rate spread based on similar market instruments. In addition, an annual discount rate range of 4.0% to 4.2% was applied which utilizes assumptions that include the ninety day LIBOR rate plus a spread which was determined based on a factor of illiquidity of the instruments.

The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements as defined under the FASB authoritative guidance, were as follows:

	Fair Value Measurements as of March 31, 2010
	Level 1		Level 2		Level 3
Auction rate securities	$	—	$	—	$	11,355
Put option		—		—		1,595
	$	—	$	—	$	12,950

	Fair Value Measurements as of September 30, 2009
	Level 1		Level 2		Level 3
Auction rate securities	$	—	$	—	$	11,603
Put option		—		—		1,647
	$	—	$	—	$	13,250

16

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined under the FASB authoritative guidance.

	Fair Value Measurements of Assets Using Level 3 Inputs as of March 31, 2010
	Auction rate securities			Put option			Total
Beginning balance at October 1, 2009	$	11,603		$	1,647		$	13,250
Sales of auction rate securities		(300	)		—			(300	)
Total realized gains (losses) included in earnings		52			(52	)		—
Ending balance at March 31, 2010	$	11,355		$	1,595		$	12,950

13. Subsequent events

On February 22, 2010, the Company committed to close one of its satellite facilities in Anaheim as part of a strategic effort to move more functions, specifically low volume production and process research and development associated with the Company’s flex and flex assembly processes, to Asia. Based on the Company’s evaluation of the recoverability of impacted long-lived assets, a pre-tax asset impairment charge of $1,937 was recorded during the three months ended March 31, 2010. Further, in connection with this closure, on May 4, 2010 the Company notified 85 employees of their eventual termination, which the Company expects will result in additional charges for severance and outplacement services of $1,003 during the Company’s third fiscal quarter of 2010 and an additional $109 during the fourth fiscal quarter of 2010. In addition, the Company expects to incur an additional $328 related to lease related costs during the fourth fiscal quarter of 2010.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements and predictions as to our expectations regarding our revenues, net sales, sales, full year net sales growth, net income, operating expenses, research and development expenses, earnings, operations, gross margins, including without limitation, our targeted gross margin range, achievement of margins within or outside of such range and factors that could affect gross margins, yields, anticipated cash needs and uses of cash, capital requirements and capital expenditures, payment terms, expected tax rates, results of audits of us in China and the U.S., needs for additional financing, use of working capital, the benefits and risks of our China operations, anticipated growth strategies, ability to attract customers and diversify our customer base, including without limitation the relative size of each customer to us, sources of net sales, anticipated trends and challenges in our business and the markets in which we operate, trends regarding the use of flex in smartphones and other consumer electronic devices the adequacy and expansion of our facilities, capability, capacity and equipment, the impact of economic and industry conditions on our customers and our business, efficiencies and effectiveness of location strategy for our workforce and operations, current and upcoming programs and product mix and the learning curves associated with our programs, market opportunities and the utilizations of flex and flex assemblies, customer demand, our competitive position, critical accounting policies and the impact of recent accounting pronouncements. Additional forward-looking statements include, but are not limited to, statements pertaining to other financial items, plans, strategies or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical fact, including any statement which is preceded by the word “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “scheduled,” “expect,” “believe,” “estimate,” “predict,” “aim,” “potential,” “plan,” or similar words. For all of the foregoing forward-looking statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, the impact of changes in demand for our products, our success with new and current customers, our ability to develop and deliver new technologies, our ability to diversify our customer base, our effectiveness in managing manufacturing processes and costs and expansion of our operations, the efficiency and effectiveness of our workforce and other resource allocation in support of our operations, the degree to which we are able to utilize available manufacturing capacity, achieve expected yields and obtain expected gross margins, the impact of competition, the economy and technological advances, and the risks set forth below under “Item 1A. – Risk Factors.” These forward-looking statements represent our judgment as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements.

Overview

We are a global provider of high-quality, technologically advanced flexible printed circuits and value-added component assembly solutions to the electronics industry. We believe that we are one of a limited number of manufacturers that provide a seamless, integrated flexible printed circuit and assembly solution from design and application engineering and prototyping through high-volume fabrication, component assembly and testing. We target our solutions within the electronics market and, in particular, we focus on applications where flexible printed circuits facilitate human interaction with an electronic device and are the enabling technology in achieving a desired size, shape, weight or functionality of the device. Current applications for our products include mobile phones, smart mobile devices, consumer products, portable bar code scanners, personal digital assistants, computer/storage devices and medical devices. We provide our solutions to original equipment manufacturers (“OEMs”) such as Apple, Inc. and Research In Motion Limited and to electronic manufacturing services (“EMS”) providers such as Foxconn Electronics, Inc., Tech Full, and Flextronics International Ltd. Our business model, and the way we approach the markets which we serve, is based on value added engineering and providing technology solutions to our customers facilitating the miniaturization of portable electronics. Through early supplier involvement with customers, we look to assist in the development of new designs and processes for the manufacturing of their products and, through value added component assembly of components on flex, seek to provide a higher level of product within their supply chain structure. This approach is relatively unique and may or may not always fit with the operating practices of all OEMs. Our ability to add to our customer base may have a direct impact on the relative percentage of each customer’s revenue to total revenues during any reporting period.

18

We typically have numerous programs in production at any particular time. The programs’ prices are subject to intense negotiation and are determined on a program by program basis, dependent on a wide variety of factors, including without limitation, expected volumes, assumed yields, material costs, actual yields, and the amount of third party components within the program. Our profitability is dependent upon how we perform against our targets and the assumptions on which we base our prices for each particular program. Our volumes, margins and yields also vary from program to program and, given various factors and assumptions on which we base our prices, are not necessarily indicative of our profitability. In fact, some lower-priced programs have higher margins while other higher-priced programs have lower margins. Given that the programs in production vary from period to period and the pricing and margins between programs vary widely, volumes are not necessarily indicative of our performance. For example, we could experience an increase in volumes for a particular program during a particular period, but depending on that program’s margins and yields and the other programs in production during that period, those higher volumes may or may not result in an increase in overall profitability.

Critical Accounting Policies

Information with respect to our critical accounting policies which we believe have the most significant effect on our reported results and require subjective or complex judgments of management are contained on pages 32-34 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended September 30, 2009.

In accordance with relevant FASB authoritative guidance, goodwill is assigned to reporting units, which may be one level below the Company’s operating segments. Goodwill is assigned to the reporting units that benefit from the synergies arising from each particular business combination. We consider this to be one of the critical accounting estimates used in the preparation of our financial statements, and believe the current assumptions and other considerations used to value goodwill and long-lived intangible assets to be appropriate. However, if actual experience differs from the assumptions and considerations used in our analysis, the resulting change could have a material adverse impact on our consolidated results of operations and statement of position. Goodwill and long-lived intangible assets are reviewed annually, or more frequently, if changes in circumstances indicate the carrying value may not be recoverable. To test for recoverability, we typically utilize valuations, discounted estimated future cash flows or other acceptable methods to measure fair value for each asset value.

Comparison of the Three Months Ended March 31, 2010 and 2009

The following table sets forth our Statement of Operations data expressed as a percentage of net sales for the periods indicated:

	Three Months Ended March 31,
	2010		2009
Net sales	100.0	%	100.0	%
Cost of sales	85.5		85.8
Gross profit	14.5		14.2
Operating expenses:
Research and development	2.2		0.7
Sales and marketing	3.8		3.5
General and administrative	3.2		3.6
Impairment and restructuring	1.3		(0.1	)
Total operating expenses	10.5		7.7
Operating income	4.0		6.5
Interest income	0.1		0.1
Interest expense	(0.2	)	(0.1	)
Other income (expense), net	0.2		0.1
Income before income taxes	4.1		6.6
Provision for income taxes	(0.9	)	(1.6	)
Net income	3.2	%	5.0	%

Net Sales. Net sales decreased to $154.1 million for the three months ended March 31, 2010, from $174.1 million for the three months ended March 31, 2009. The decrease of $20.0 million, or 11.5%, was driven primarily by several programs reaching their end of life cycle, a shift in product mix to programs with lower flex content and, to a lesser degree, component shortages that delayed shipments of some flex assemblies.

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Net sales into the wireless sector decreased to $100.8 million for the three months ended March 31, 2010, from $124.3 million for the three months ended March 31, 2009. The decrease of $23.5 million, or 18.9%, was primarily due to certain programs approaching the end of their life cycle. For the three months ended March 31, 2010 and 2009, the wireless sector was comprised of both smart phones and feature phones, which accounted for approximately 96% and 4%, and 83% and 17% of total sales into the wireless sector, respectively. Sales into the wireless sector comprised approximately 65% and 71% of total net sales for the three months ended March 31, 2010 and 2009, respectively.

Net sales into the consumer electronics sector were $48.2 million for the three months ended March 31, 2010, versus $42.8 million for the three months ended March 31, 2009. The increase in sales into the consumer electronics sector was driven primarily by increases in unit volume shipments to key customers due to increased demand. Shipments into the consumer electronics sector accounted for approximately 31% and 25% of total net sales for the three months ended March 31, 2010 and 2009, respectively.

For the third quarter of fiscal 2010, we expect net sales to be in the range of $175 to $195 million, due to increased demand as a result of new programs in both the wireless and consumer electronics sectors and positive changes in the projected product mix.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales decreased to 85.5% for the three months ended March 31, 2010 compared to 85.8% for the three months ended March 31, 2009. The decrease in cost of sales as a percentage of net sales of 0.3% was primarily attributable to cost reductions from improved labor efficiencies, operational improvement initiatives and overhead reductions, partially offset by price changes and the increase of average material content from new programs in the current and prior fiscal years. Gross profit decreased to $22.3 million for the three months ended March 31, 2010 versus $24.7 million for the three months ended March 31, 2009, or 9.7%. As a percentage of net sales, gross profit increased to 14.5% for the three months ended March 31, 2010 from 14.2% for the three months ended March 31, 2009. We expect quarterly gross margins to be in the 14% to 16% range in the third fiscal quarter of 2010 due to a higher projected sales volume resulting in increased cost absorption.

Research and Development. Research and development expense increased to $3.5 million for the three months ended March 31, 2010, from $1.2 million in the comparable period of the prior year, an increase of 191.7%. The increase is primarily attributable to our increased emphasis on expanding our research and development activities related to the development of new technologies. As a percentage of net sales, research and development expense increased to 2.2% versus 0.7% in the comparable period of the prior year.

Sales and Marketing. Sales and marketing expense decreased by $0.2 million to $5.9 million for the three months ended March 31, 2010, from $6.1 million in the comparable period in the prior year, a decrease of 3.3%. The decrease is primarily attributable to a decrease for sales commissions expenses. As a percentage of net sales, sales and marketing expense increased to 3.8% versus 3.5% in the comparable period of the prior year.

General and Administrative. General and administrative expense decreased by $1.4 million to $4.9 million for the three months ended March 31, 2010, from $6.3 million for the three months ended March 31, 2009, a decrease of 22.2%. The decrease was primarily attributable to decreases in professional fees, reduced travel expenses, reduced training expenses and other reduced discretionary spending. As a percentage of net sales, general and administrative expense decreased to 3.2% of net sales for the three months ended March 31, 2010 from 3.6% in for the comparable period of the prior year, attributable to our cost reduction activities during the quarter, partially offset by the decrease in sales. We expect general and administrative expense to fluctuate modestly throughout the fiscal year.

Impairment and Restructuring. Impairment and restructuring costs increased by $2.1 million to $1.9 million for the three months ended March 31, 2010, from a gain of $0.2 million for the three months ended March 31, 2009. The increase was primarily attributable to asset impairments relating to our plan to close one of our satellite facilities in Anaheim as part of a strategic effort to move more functions, specifically low volume production and process research and development associated with our flex and flex assembly processes, to Asia. The total remaining restructuring costs, which we expect to be recognized over the remaining fiscal year, are estimated to be approximately $1.4 million pre-tax which we anticipate will result in an estimated $6.7 million in annual cost savings beginning in fiscal 2011 on a pre-tax basis.

Interest Income. Interest income decreased to $0.1 million for the three months ended March 31, 2010 from $0.3 million for the three months ended March 31, 2009. The decrease is primarily attributable to a decline in interest rates.

Interest Expense. Interest expense increased to $0.3 million for the three months ended March 31, 2010, from $0.2 for the three months ended March 31, 2009. Interest expense incurred is primarily related to interest accrued against the notes payable issued as part of our acquisition of Pelikon, amortization of deferred financing costs and unused line fees on our bank loan facilities.

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Other Income (Expense), Net. Other income (expense), net increased to income of $0.3 million for the three months ended March 31, 2010, from income of $0.2 million for the three months ended March 31, 2009. The increase is the result of net gains from foreign exchange due to the movement of the U.S. dollar versus the RMB and other foreign currencies.

Income Taxes. The effective tax rate for the three months ended March 31, 2010 and 2009 was 21.7% and 23.7%, respectively. We expect our tax rate to remain in the low 20% range, however, it could vary if current tax regulations, particularly those in the U.S., are changed.

Comparison of the Six Months Ended March 31, 2010 and 2009

The following table sets forth our Statement of Operations data expressed as a percentage of net sales for the periods indicated:

	Six Months  Ended March 31,
	2010		2009
Net sales	100.0	%	100.0	%
Cost of sales	84.7		85.2
Gross profit	15.3		14.8
Operating expenses:
Research and development	1.6		0.6
Sales and marketing	3.3		2.9
General and administrative	2.8		3.4
Impairment and restructuring	0.5		0.1
Total operating expenses	8.2		7.0
Operating income	7.1		7.8
Interest income	0.1		0.1
Interest expense	(0.2	)	(0.1	)
Other income (expense), net	0.1		(0.3	)
Income before income taxes	7.1		7.5
Provision for income taxes	(1.6	)	(1.7	)
Net income	5.5	%	5.8	%

Net Sales. Net sales decreased to $383.6 million for the six months ended March 31, 2010, from $390.7 million for the six months ended March 31, 2009. The decrease of $7.1 million, or 1.8%, was driven primarily by several programs reaching their end of life cycle, a shift in product mix to programs with lower flex content and, to a lesser degree, component shortages that delayed shipments of some flex assemblies.

Net sales into the wireless sector decreased to $253.3 million for the six months ended March 31, 2010, from $273.7 million for the six months ended March 31, 2009. The decrease of $20.4 million, or 7.5%, was primarily due to certain programs approaching the end of their life cycle. For the six months ended March 31, 2010 and 2009, the wireless sector was comprised of both smart phones and feature phones, which accounted for approximately 94% and 6%, and 70% and 30% of total sales into the wireless sector, respectively. Sales into the wireless sector comprised approximately 66% and 70% of total net sales for the six months ended March 31, 2010 and 2009, respectively.

Net sales into the consumer electronics sector were $119.6 million for the six months ended March 31, 2010, versus $100.6 million for the six months ended March 31, 2009. The increase in sales into the consumer electronics sector was driven primarily by increases in unit volume shipments to key customers due to increased consumer demand. Shipments into the consumer electronics sector accounted for approximately 31% and 26% of total net sales for the six months ended March 31, 2010 and 2009, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales decreased to 84.7% for the six months ended March 31, 2010 compared to 85.2% for the six months ended March 31, 2009. The decrease in cost of sales as a percentage of net sales of 0.5% was primarily attributable to cost reductions from improved labor efficiencies, operational improvement initiatives and overhead reductions, partially offset by price changes and the increase of average material content from new programs in the current and prior fiscal years. As a result, gross profit increased to $58.8 million for the six months ended March 31, 2010 versus $57.7 million for the six months ended March 31, 2009, or 1.9%. As a percentage of net sales, gross profit increased to 15.3% for the six months ended March 31, 2010 from 14.8% for the six months ended March 31, 2009.

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Research and Development. Research and development expense increased to $6.3 million for the six months ended March 31, 2010, from $2.4 million in the comparable period of the prior year, an increase of 162.5%. The increase is primarily attributable to our increased emphasis on expanding our research and development activities related to the development of new technologies. As a percentage of net sales, research and development expense increased to 1.6% versus 0.6% in the comparable period of the prior year.

Sales and Marketing. Sales and marketing expense increased by $1.1 million to $12.5 million for the six months ended March 31, 2010, from $11.4 million in the comparable period in the prior year, an increase of 9.6%. The increase is primarily attributable to a $0.3 million increase for compensation and benefits expense as a result of headcount growth to expand our customer base and geographic coverage, a $0.4 million increase for information technology and human resource support expenses to support expanded infrastructure, and a net increase of $0.4 million from other sales and marketing activities. As a percentage of net sales, sales and marketing expense increased to 3.3% versus 2.9% in the comparable period of the prior year.

General and Administrative. General and administrative expense decreased by $2.5 million to $10.8 million for the six months ended March 31, 2010, from $13.3 million for the six months ended March 31, 2009, a decrease of 18.8%. The decrease was primarily attributable to decreases in professional fees, reduced travel expenses and other reduced discretionary spending. As a percentage of net sales, general and administrative expense decreased to 2.8% of net sales for the six months ended March 31, 2010 from 3.4% in for the comparable period of the prior year.

Impairment and Restructuring. Impairment and restructuring costs increased by $1.8 million to $1.9 million for the six months ended March 31, 2010, from $0.1 million for the six months ended March 31, 2009. The increase was primarily attributable to asset impairments relating to our plan to close one of our satellite facilities in Anaheim as part of a strategic effort to move more functions, specifically low volume production and process research and development associated with the our flex and flex assembly processes, to Asia.

Interest Income. Interest income decreased to $0.2 million for the six months ended March 31, 2010 from $0.6 million for the six months ended March 31, 2009. The decrease is primarily attributable to a significant decline in interest rates.

Interest Expense. Interest expense increased to $0.5 million for the six months ended March 31, 2010, from $0.2 for the six months ended March 31, 2009. Interest expense incurred is primarily related to interest accrued against the notes payable issued as part of our acquisition of Pelikon, amortization of deferred financing costs and unused line fees on our bank loan facilities.

Other Income (Expense), Net. Other income (expense), net increased to income of $0.5 million for the six months ended March 31, 2010, from a net expense of $1.3 million for the six months ended March 31, 2009. The change to other income from other expense was primarily attributable to decreased expenses of $1.1 million due to an impairment associated with the decline in value of our auction rate securities during the six months ended March 31, 2009. The remaining increase is the result of net gains from foreign exchange due to the movement of the U.S. dollar versus the RMB and other foreign currencies.

Income Taxes. The effective tax rate for the six months ended March 31, 2010 and 2009 was 22.4% and 22.8%, respectively.

Liquidity and Capital Resources

Our principal sources of liquidity have been cash provided by operations and borrowings under our various credit facilities. Our principal uses of cash have been to finance working capital, facility expansions and other capital expenditures. We anticipate these uses will continue to be our principal uses of cash in the future. Global financial and credit markets recently have been, and continue to be, extremely unstable and unpredictable. Worldwide economic conditions have been weak and may be further deteriorating. Continued, and potentially increased, volatility, instability and weakness in the financial and credit markets could affect our ability to sell our investment securities and other financial assets, which in turn could adversely affect our liquidity and financial position. This instability also could affect the prices at which we could make any such sales, which could also adversely affect our earnings and financial condition. These conditions could also negatively affect our ability to secure funds or raise capital at a reasonable cost, if needed.

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It is our policy to carefully monitor the state of our business, cash requirements and capital structure. We believe that funds generated from our operations and available from our borrowing facilities will be sufficient to fund current business operations as well as anticipated growth over at least the next 12 months. We also believe we will have sufficient capital to fund our operations without the need to derive cash from the sale of our auction rate securities; however, there can be no assurance that any growth will occur and unexpected events may result in our need to raise additional capital. The valuation of our investment portfolio is subject to uncertainties that are difficult to predict.

During the six months ended March 31, 2010, net income of $21.3 million combined with adjustments to reconcile net income to net cash provided by operating activities of $30.3 million and $3.7 million of cash used in working capital generated net cash from operations of $47.9 million.

Changes in the principal components of operating cash flows during our six months ended March 31, 2010 were as follows:

• Our net accounts receivable decreased to $101.7 million as of March 31, 2010 from $129.3 million as of September 30, 2009, or 21.3%, due to lower sales volumes in the most recent fiscal quarter. Our net inventory balances decreased to $40.1 million as of March 31, 2010 from $50.3 million as of September 30, 2009, a decrease of 20.3%. Inventory decreased as a result of decreased production volume in the most recent fiscal quarter. Our accounts payable decreased to $84.2 million as of March 31, 2010 from $122.5 million as of September 30, 2009, a decrease of 31.3%, as a result of decreased production volume previously mentioned.

• Depreciation and amortization expense was $23.7 million for the six months ended March 31, 2010 versus $19.9 million for the comparable period of the prior year due to the increased fixed asset base in manufacturing operations, mainly at MFC1 and MFC2.

Our principal investing and financing activities during our six months ended March 31, 2010 were as follows:

• Net cash used in investing activities was $30.2 million for the six months ended March 31, 2010. Capital expenditures included cash purchases of $30.9 million of capital equipment and other fixed assets, which were primarily related to the construction of our new facility in Suzhou, China (“MFC3”), and manufacturing capacity expansion at MFC2. As of March 31, 2010, we had outstanding purchase commitments totaling $52.1 million primarily related to capital projects at our various facilities.

• Net cash used in financing activities was $10.7 million for the six months ended March 31, 2010 and consisted of repayments of long-term debt of $11.1 million, tax withholdings for net share settlement of equity awards of $1.2 million, partially offset by proceeds from exercises of stock options and income tax benefits related to stock option exercises of $1.6 million. Our loans payable and borrowings outstanding against credit facilities were zero as of March 31, 2010 and September 30, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Market risk represents the risk of loss arising from adverse changes in liquidity, market rates and foreign exchange rates. As of March 31, 2010, no amounts were outstanding under our loan agreements with Bank of America, N.A., Shanghai Pudong Development Bank, China Construction Bank or Bank of China. The amounts outstanding under these loan agreements at any time may fluctuate and we may from time to time be subject to refinancing risk. We do not believe that a change of 100 basis points in interest would have a material effect on our results of operations or financial condition based on our current borrowing level.

Foreign Currency Risk

We derive a substantial portion of our sales outside of the U.S. Approximately $369.5 million, or 96%, of total shipments to these foreign manufacturers during the six months ended March 31, 2010, were made in U.S. dollars with the remaining balance of our net sales denominated in RMB. The exchange rate for the RMB to the U.S. dollar has been an average of 6.83 RMB per U.S. dollar for the six months ended March 31, 2010. In addition, we are potentially subject to a 0.3% maximum daily appreciation against the U.S. dollar. To date, we attempt to manage our working capital in a manner to minimize foreign currency exposure. However, we continue to be vulnerable to appreciation or depreciation of foreign currencies against the U.S. dollar.

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Liquidity Risk

In September 2009, we entered into a written agreement with UBS AG (“UBS”), the fund manager with whom we hold our auction rate securities, which allows us to sell the auction rate securities to UBS at par value during the period beginning June 30, 2010 through July 1, 2012. Our agreement related to the auction rate securities represent firm commitments in accordance with FASB authoritative guidance, which defines a firm commitment as an agreement with an unrelated party, binding on both parties and usually legally enforceable. The enforceability of the agreement results in a put option and is recognized as a freestanding asset separate from the auction rate securities in the consolidated balance sheet. We have elected to measure the put option at fair value, which permits us to elect the fair value option for recognizing financial assets, in order to match the changes in the fair value of the auction rate securities. We expect that the future changes in the fair value of the put option will approximate fair value movements in the related auction rate securities.

We believe our anticipated cash flows from operations are sufficient to fund our operations, including capital expenditure requirements, through at least the remainder of the fiscal year. If there was a need for additional cash to fund our operations, we would access our global credit lines. As a result, we do not believe that the current lack of liquidity relating to auction rate securities will have an impact on our ability to fund operations in the near term.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation carried out as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

FACTORS THAT MAY AFFECT OUR OPERATING RESULTS

Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, any of which could cause our results to be adversely impacted and could result in a decline in the value or loss of an investment in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.

Risks Related to Our Business

We are heavily dependent upon the wireless and consumer electronics industries, and any downturn in these sectors may reduce our net sales.

For the six months ended March 31, 2010 and 2009, 66% and 70%, respectively, of our net sales were derived from sales to companies that provide products or services to the wireless industry, including wireless handsets, and approximately 31% and 26%, respectively, of our net sales were derived from sales to companies that provide products to the consumer electronics industry during those same periods. In general, the wireless and consumer electronics industries are subject to economic cycles and periods of slowdown. Intense competition, relatively short product life cycles and significant fluctuations in product demand characterize these industries, and both industries are also generally subject to rapid technological change and product obsolescence. Fluctuations in demand for our products as a result of periods of slowdown in these markets (including the current economic downturn) or discontinuation of products or modifications developed in connection with next generation products could reduce our net sales.

We depend on a limited number of key customers, and a limited number of programs from those customers, for significant portions of our net sales and if we lose business with any of these customers, our net sales could decline substantially.

For the past several years, a substantial portion of our net sales has been derived from products that are incorporated into products manufactured by or on behalf of a limited number of key customers and their subcontractors, including Apple Inc., Motorola, Inc., Research in Motion Limited and Sony Ericsson Mobile Communications. In addition, a substantial portion of our sales to each customer is often tied to only one, or a small number, of programs. In the fiscal years ended September 30, 2009, 2008 and 2007 approximately 96%, 95% and 93% respectively, of our net sales were to these four customers in the aggregate and approximately 43%, 45% and 57% of our net sales in each of the fiscal years ended September 30, 2009, 2008 and 2007, respectively, were to one customer (not the same customer in each of the three years) and approximately 80%, 65% and 82% of our net sales were to two of our customers in each of the three years, respectively. In addition, two customers constituted approximately 87% of our net sales in the six months ended March 31, 2010. The loss of a major customer or a significant reduction in sales to a major customer, including due to the lack of commercial success of a customer’s program upon which we were relying, would seriously harm our business. Although we are continuing our efforts to reduce dependence on a limited number of customers, net sales attributable to a limited number of customers and their subcontractors are expected to continue to represent a substantial portion of our business for the foreseeable future.

We will have difficulty selling our products if customers do not design our flexible printed circuit products into their product offerings or our customers’ product offerings are not commercially successful.

We sell our flexible printed circuit products directly or indirectly to OEMs, who include our products and component assemblies in their product offerings. We must continue to design our products into our customers’ product offerings in order to remain competitive. However, our OEM customers may decide not to design our products into their product offerings in the future. If an OEM selects one of our competitors to provide a product instead of us or switches to alternative technologies developed or manufactured by one or more of our competitors, it becomes significantly more difficult for us to sell our products to that OEM because changing component providers after the initial production runs begin involves significant cost, time, effort and risk for the OEM. Even if an OEM designs one of our products into its product offering, the product may not be commercially successful, we may not receive any orders from that manufacturer, the OEM may qualify additional vendors for the product or we could be undercut by a competitor’s pricing. Additionally, if an OEM selects one or more of our competitors, they may rely upon such competitors for the life of specific offering and, to the extent possible, subsequent generations of similar offerings. Any of these events would result in fewer sales and reduced profits for us, and could adversely affect the accuracy of any forward-looking guidance we may give.

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Our customers have in the past and likely will continue to cancel their orders, change production quantities, delay production or qualify additional vendors, any of which could reduce our net sales and/or increase our expenses.

Substantially all of our sales are made on a purchase order basis, and we are not always able to predict with certainty the number of orders we will receive or the timing or magnitude of the orders. Our customers may cancel, change or delay product purchase orders with little or no advance notice to us, and we believe customers are doing so with increased frequency. These changes may be for a variety of reasons, including changes in their prospects, the success of their products in the market, reliance on a new vendor and the overall economic forecast. In general, we do not have long-term contractual relationships with our customers that require them to order minimum quantities of our products, and our customers may decide to use another manufacturer or discontinue ordering from us in their discretion. As a result of these factors, we are not always able to forecast accurately the net sales that we will make in a given period. Changes in orders can also result in layoffs and associated severance costs, which in any given financial period could materially adversely affect our financial results.

In addition, we are increasingly being required to purchase materials, components and equipment before a customer becomes contractually committed to an order so that we may timely deliver the expected order to the customer. We may increase our production capacity, working capital and overhead in expectation of orders that may never be placed, or, if placed, may be delayed, reduced or canceled. As a result, we may be unable to recover costs that we incur in anticipation of orders that are never placed, such as costs associated with purchased raw materials, components or equipment. Delayed, reduced or canceled orders could also result in write-offs of obsolete inventory and the underutilization of our manufacturing capacity if we decline other potential orders because we expect to use our capacity to produce orders that are later delayed, reduced or canceled.

Our industry is extremely competitive, and if we are unable to respond to competitive pressures we may lose sales and our market share could decline.

We compete primarily with large flexible printed circuit board manufacturers located throughout Asia, including Taiwan, China, Korea, Japan and Singapore. We believe that the number of companies producing flexible printed circuit boards has increased materially in recent years and may continue to increase. Certain EMS providers have developed or acquired their own flexible printed circuit manufacturing capabilities or have extensive experience in electronics assembly, and in the future may cease ordering products from us or even compete with us on OEM programs. In addition, the number of customers in the market has been decreasing through consolidation and otherwise. Furthermore, many companies in our target customer base may move the design and manufacturing of their products to original design manufacturers in Asia. These factors, among others, make our industry extremely competitive. We believe that one of our principal competitive advantages is our ability to interact closely with our customers throughout the design and engineering process. If we are not successful in addressing these competitive aspects of our business, including maintaining or establishing close relationships with customers in markets in which we compete, we may not be able to grow or maintain our market share or net sales.

Our products and their terms of sale are subject to various pressures from our customers and competitors, any of which could harm our gross profits.

Our selling prices are affected by changes in overall demand for our products, changes in the specific products our customers buy, pricing of competitors’ products, our products’ life cycles and general economic conditions. In addition, from time to time we may elect to reduce the price of certain programs we produce in order to gain additional orders on those programs. A typical life cycle for one of our products begins with higher prices when the product is introduced and decreasing prices as it matures. To offset price decreases during a product’s life cycle, we rely primarily on higher sales volume and improving our manufacturing yield and productivity to reduce a product’s cost. If we cannot reduce our manufacturing costs as prices decline during a product’s life cycle, or if we are required to pay damages to a customer due to a breach of contract or other claim, including due to quality or delivery issues, our cost of sales may increase, which would harm our profitability.

In addition, our key customers and their subcontractors are able to exert significant pricing pressure on us and often require us to renegotiate the terms of our arrangements with them, including liability and indemnification thresholds and payment terms, among other terms. Changes in contract terms, the extension of payment terms and regular price reductions may result in lower gross margins for us. These trends make it more difficult to compete effectively and put increased pressure on our pricing.

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Significant product failures or safety concerns about our or our customers’ products could harm our reputation and our business.

Continued improvement in manufacturing capabilities, quality control, material costs and successful product testing capabilities are critical to our growth. Our efforts to monitor, develop, modify and implement stringent testing and manufacturing processes for our products may not be sufficient. If any flaw in the design, production, assembly or testing of our products were to occur or if our, or our customers’, products were believed to be unsafe, it could result in significant delays in product shipments by, or cancellation of orders or, substantial penalties from, our customers and their customers, substantial repair or replacement costs, an increased return rate for our products, potential damage to our reputation, or potential lawsuits which could prove to be time consuming and costly.

Problems with manufacturing yields and/or our inability to ramp up production could impair our ability to meet customer demand for our products.

We could experience low manufacturing yields due to, among other things, design errors, manufacturing failures in new or existing products, the inexperience of new employees, component defects, or the learning curve experienced during the initial and ramp up stages of new product introduction. If we cannot achieve expected yields in the manufacture of our products, this could result in higher operating costs, which could result in higher per unit costs, reduced product availability and may be subject to substantial penalties by our customers. Reduced yields can significantly harm our gross margins, resulting in lower profitability or even losses. In addition, if we were unable to ramp up our production in order to meet customer demand, whether due to yield or other issues, it would impair our ability to meet customer demand for our products, and our net sales and profitability would be negatively affected.

We must develop and adopt new technology and manufacture new products and product features in order to remain competitive, and we may not be able to do so successfully.

Our long-term strategy relies in part on timely adopting, developing and manufacturing technological advances and new products and product features to meet our customers’ needs, including advanced technologies such as rigid flex and high density interconnect. However, any new technology and products adopted or developed by us may not be selected by existing or potential customers. Our customers could decide to switch to alternative technologies, adopt new or competing industry standards with which our products are incompatible or fail to adopt standards with which our products are compatible. If we choose to focus on new technology or a standard that is ultimately not accepted by the industry and/or does not become the industry standard, we may be unable to sell those products. If we are unable to obtain customer qualifications for new products or product features, cannot qualify our products for high-volume production quantities or do not execute our operational and strategic plans for new products or advanced technologies in a timely manner, our net sales may decrease. In addition, we may incur higher manufacturing costs in connection with new technology, products or product features, as we may be required to replace, modify, design, build and install equipment, all of which would require additional capital expenditures.

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We must continue to be able to procure raw materials and components on commercially reasonable terms to manufacture our products profitably.

Generally we do not maintain a large surplus stock of raw materials or components for our products because the specific assemblies are uniquely applicable to the products we produce for our customers; therefore, we rely on third-party suppliers to provide these raw materials and components in a timely fashion and on commercially reasonable terms. In addition, we are often required by our customers to seek components from a limited number of suppliers that have been pre-qualified by the customer and, from time to time we have experienced shortages of the components and raw materials used in the fabrication of our products. For example, certain of our suppliers reduced their capacity in connection with the economic slowdown, and we have experienced shortages in flexible printed circuit materials due to such reduction in capacity. In addition, we have recently experienced component shortages, which resulted in delayed shipments to customers. We expect that these delays are likely to occur in the current or future periods. We may not be successful in managing any shortage of raw materials or components that we may experience in the future, which could adversely affect our relationships with our customers and result in a decrease in our net sales. Component shortages could also increase our cost of goods sold because we may be required to pay higher prices for components in short supply. In addition, suppliers could go out of business, discontinue the supply of key materials, or consider us too small of a customer to sell to directly, and could require us to buy through distributors, increasing the cost of such components to us.

Our manufacturing and shipping costs may also be impacted by fluctuations in the cost of oil and gas. Any fluctuations in the supply or prices of these commodities could have an adverse effect on our profit margins and financial condition.

If we are unable to attract or retain personnel necessary to operate our business, our ability to develop and market our products successfully could be harmed.

We believe that our success is highly dependent on our current executive officers and management team. We do not have an employment contract with Reza Meshgin, our president and chief executive officer, or any of our other key personnel, and their knowledge of our business and industry would be extremely difficult to replace. The loss of any key employee or the inability to attract or retain qualified personnel, including engineers, sales and marketing personnel, management or finance personnel could delay the development and introduction of our products, harm our reputation or otherwise damage our business.

Furthermore, we have experienced very high employee turnover in our facilities in China, and are experiencing increased difficulty in recruiting employees for these facilities. A large number of our employees work in our facilities in China, and our costs associated with hiring these employees have increased over the past several years. The high turnover rate and our difficulty in recruiting and retaining qualified employees have resulted in an increase in our expenses related to recruitment and training of qualified employees and a continuation of this trend could result in even higher costs for us.

Our manufacturing capacity may be interrupted, limited or delayed if we cannot maintain sufficient sources of electricity in China.

The flexible printed circuit fabrication process requires a stable source of electricity. As our production capabilities increase in China and our business grows, our requirements for a stable source of electricity in China will grow substantially. We have experienced a lack of sufficient electricity supply in China and expect that we may continue to experience insufficient power supplies in the foreseeable future, particularly while the World Expo is held in Shanghai, China in the coming months. Although we have purchased several generators, such generators may not produce sufficient electricity supply in the event of a disruption in power. Power interruptions, electricity shortages, the cost of diesel fuel to run our back-up generators or government intervention, particularly in the form of rationing, are factors that could restrict our access to electricity in Suzhou, China, the location of our Chinese manufacturing facilities, and affect our ability to manufacture and related costs. Any such shortages could result in delays in our shipments to our customers and, potentially, the loss of customer orders and penalties from such customers for the delay.

Our global operations expose us to additional risk and uncertainties.

We have operations in a number of countries, including the United States, China, the United Kingdom, the Netherlands, Malaysia and Singapore. Our global operations may be subject to risks that may limit our ability to operate our business. We manufacture the bulk of our products in China and sell our products globally, which exposes us to a number of risks that can arise from international trade transactions, local business practices and cultural considerations, including:

• political unrest, terrorism and economic or financial instability;

• restrictions on our ability to repatriate earnings;

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• unexpected changes in regulatory requirements and uncertainty related to developing legal and regulatory systems related to economic and business activities;

• nationalization programs that may be implemented by foreign governments;

• import-export regulations;

• difficulties in enforcing agreements and collecting receivables;

• difficulties in ensuring compliance with the laws and regulations of multiple jurisdictions;

• difficulties in ensuring that health, safety, environmental and other working conditions are properly implemented and/or maintained by the local office;

• limited intellectual property protection;

• longer payment cycles;

• currency exchange fluctuations;

• inadequate local infrastructure and disruptions of service from utilities or telecommunications providers, including electricity shortages;

• transportation delays and difficulties in managing international distribution channels;

• difficulties in staffing foreign subsidiaries and in managing an expatriate workforce;

• potentially adverse tax consequences;

• differing employment practices and labor issues;

• the occurrence of natural disasters or other acts of force majeure; and

• public health emergencies such as SARS, avian flu and Swine flu.

We also face risks associated with currency exchange and convertibility, inflation and repatriation of earnings as a result of our foreign operations. In some countries, economic, monetary and regulatory factors could affect our ability to convert funds to U.S. dollars or move funds from accounts in these countries. We are also vulnerable to appreciation or depreciation of foreign currencies against the U.S. dollar. Although we have significant operations in Asia, a substantial portion of transactions are denominated in U.S. dollars, including approximately 90% of the total shipments made to foreign manufacturers during the fiscal year 2009. The balance of our net sales is denominated in RMB. As a result, if appreciation against the U.S. dollar were to increase, it would result in an increase in the cost of our business expenses in China. Further, downward fluctuations in the value of foreign currencies relative to the U.S. dollar may make our products less price competitive than local solutions. We do not currently engage in currency hedging activities to limit the risks of currency fluctuations.

In addition, our activities in China are subject to administrative review and approval by various national and local agencies of China’s government. Given the changes occurring in China’s legal and regulatory structure, we may not be able to secure required governmental approval for our activities or facilities. For example, in 2007 we were informed that one of our facilities in China no longer meets the current fire department regulations. If we were required to take immediate corrective action, it could adversely affect our ability to maintain or expand our operations at that facility and/or increase our costs. In addition, certain of our insurance policies may be deemed to be ineffective without a current fire certificate.

We are in the process of increasing our manufacturing capacity, and we may have difficulty managing these changes.

We are engaged in a number of manufacturing expansion projects, including new manufacturing facilities in both Suzhou and Chengdu, China and the establishment of manufacturing functions in Malaysia. In addition, we have been engaged in an international restructuring effort to transition various business functions to our offices in Singapore, in order to better align these activities with our international operations. Although we intend to manage development of these expansion activities and requisite capital expenditures in discrete phases, these efforts require significant investment by us, and have in the past and could continue to result in increased expenses and inefficiencies and reduced gross margins.

Our management team may have difficulty managing our manufacturing expansion projects or otherwise managing any growth in our business that we may experience. Risks associated with managing expansion and growth may include those related to:

• managing multiple, concurrent major manufacturing expansion projects;

• hiring and retaining employees, particularly in China;

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• accurately predicting any increases or decreases in demand for our products and managing our manufacturing capacity appropriately;

• under-utilized capacity, particularly during the start-up phase of a new manufacturing facility and the effects on our gross margin of under-utilization;

• managing increased employment costs and scrap rates often associated with periods of growth;

• implementing, integrating and improving operational and financial systems, procedures and controls, including our computer systems;

• construction delays, equipment delays or shortages, labor shortages and disputes and production start-up problems;

• cost overruns and charges related to our expansion activities; and

• managing expanding operations in multiple locations and multiple time zones.

Our management team may not be effective in expanding our manufacturing facilities and operations, and our systems, procedures and controls may not be adequate to support such expansion. Any inability to manage our growth may harm our profitability and growth.

If we encounter problems during the merging of our operation management and information systems, we could experience a disruption of our operations and unanticipated increases in our costs.

We are in the process of merging our information systems for certain of our China facilities. Any problems encountered in the merger of these systems could result in material adverse consequences, including disruption of operations, loss of information and unanticipated increases in costs.

WBL Corporation Limited beneficially owns approximately 58% of our outstanding common stock and is able to exert influence over us and our major corporate decisions.

WBL Corporation Limited, together with its affiliates and subsidiaries (“WBL”) beneficially owns approximately 58% of our outstanding common stock, and we expect to be a principal subsidiary of WBL for the foreseeable future. As a result of this ownership interest and the resulting influence over the composition of our board of directors, WBL has influence over our management, operations and potential significant corporate actions. For example, so long as WBL continues to control more than a majority of our outstanding common stock, it will have the ability to control who is elected to our board of directors each year. In addition, for so long as WBL effectively owns at least one-third of our voting stock, it has the ability, through a stockholders’ agreement with us, to approve the appointment of any new chief executive officer or the issuance of securities that would reduce WBL’s effective ownership of us to a level that is below a majority of our outstanding shares of common stock, as determined on a fully diluted basis. As a result, WBL could preclude us from engaging in an acquisition or other strategic opportunity that we may want to pursue if such acquisition or opportunity required the issuance of our common stock. This concentration of ownership may also discourage, delay or prevent a change of control of our company, which could deprive our other stockholders of an opportunity to receive a premium for their stock as part of a sale of our company, could harm the market price of our common stock and could impede the growth of our company. WBL could also sell a controlling interest in us to a third party, including a participant in our industry, or buy additional shares of our stock. We also make purchases from MFS Technology Pte. Ltd. (“MFS”) and MFS Technologies (Hunan) Co. Ltd., a subsidiary of MFS. MFS is an indirect subsidiary of WBL.

WBL and its designees on our board of directors may have interests that conflict with, or are different from, the interests of our other stockholders. These conflicts of interest could include potential competitive business activities, corporate opportunities, indemnity arrangements, sales or distributions by WBL of our common stock and the exercise by WBL of its ability to influence our management and affairs. In general, our certificate of incorporation does not contain any provision that is designed to facilitate resolution of actual or potential conflicts of interest. If any conflict of interest is not resolved in a manner favorable to our stockholders, our stockholders’ interests may be substantially harmed.

WBL is currently unable to vote its shares on specified matters that require stockholder approval without obtaining its own stockholders’ and regulatory approval and it is possible that WBL’s stockholders or the relevant regulators may not approve the proposed corporate action.

WBL’s ordinary shares are listed on the Singapore Securities Exchange Trading Limited (the “Singapore Exchange”). Under the rules of the Singapore Exchange, to the extent that we constitute a principal subsidiary of WBL as defined by the rules of the Singapore Exchange at any time that we submit a matter for the approval of our stockholders, WBL may be required to obtain the approval of its own stockholders for such action before it can vote its shares with respect to our proposal or dispose of our shares of common stock. Examples of corporate actions we may seek to take that may require WBL to obtain its stockholders’ approval include an amendment of our certificate of incorporation, a sale of all or substantially all of our assets, a merger or reorganization transaction, and certain issuances of our capital stock.

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To obtain stockholder approval, WBL must prepare a circular describing the proposal, obtain approval from the Singapore Exchange and send the circular to its stockholders, which may take several weeks or longer. In addition, WBL is required under its corporate rules to give its stockholders advance notice of the meeting. Consequently, if we need to obtain the approval of WBL at a time in which we qualify as a principal subsidiary (including this year), the process of seeking WBL’s stockholder approval may delay our proposed action and it is possible that WBL’s stockholders may not approve our proposed corporate action. It is also possible that we might not be able to establish a quorum at our stockholder meeting if WBL was unable to vote at the meeting as a result of the Singapore Exchange rules. The rules of the Singapore Exchange that govern WBL are subject to revision from time to time, and policy considerations may affect rule interpretation and application. It is possible that any change to or interpretation of existing or future rules may be more restrictive and complex than the existing rules and interpretations.

Our business requires significant investments in capital equipment, facilities and technological improvements, and we may not be able to obtain sufficient funds to make such capital expenditures.

To remain competitive we must continue to make significant investments in capital equipment, facilities and technological improvements. We expect that substantial capital will be required to expand our manufacturing capacity and fund working capital requirements for our anticipated growth. In addition, we expect that new technology requirements may increase the capital intensity of our business. We may need to raise additional funds through further debt or equity financings in order to fund our anticipated growth and capital expenditures, and we may not be able to raise additional capital on reasonable terms, or at all, particularly given the current turmoil in global credit markets. If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a reduction in net sales, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation, reduced manufacturing efficiencies or other harm to our business.

In addition, WBL’s approval is required for the issuance of securities that would reduce its effective ownership of us to below a majority of the outstanding shares of our common stock as determined on a fully diluted basis. If WBL’s approval is required for a proposed financing, it is possible that it may not approve the financing and we may not be able to complete the transaction, which could make it more difficult to obtain sufficient funds to operate and expand our business.

The global credit market crisis and economic weakness may adversely affect our earnings, liquidity and financial condition.

Global financial and credit markets recently have been, and continue to be, unstable and unpredictable. Worldwide economic conditions have been weak. The instability of the markets and weakness of the economy could affect the demand for our customers’ products, the amount, timing and stability of their orders to us, the financial strength of our customers and suppliers, their ability or willingness to do business with us, our willingness to do business with them, and/or our suppliers’ and customers’ ability to fulfill their obligations to us. These factors could adversely affect our operations, earnings and financial condition.

In addition, continued, and potentially increased, volatility, instability and weakness in the financial and credit markets could affect our ability to sell our investment securities and other financial assets, which in turn could adversely affect our liquidity and financial position.

A portion of our investment portfolio is in auction rate securities.

As of March 31, 2010, we held approximately $13.0 million (par value) of investments consisting of auction rate securities. On September 24, 2009, we accepted an offer from UBS AG (“UBS”), the fund manager with whom we hold our auction rate securities, pursuant to which UBS issued to us Series C-2 Auction Rate Securities Rights (the “Rights”), which allow us to sell our auction rate securities to UBS at par value during the period beginning June 30, 2010 and ending July 2, 2012. In exchange, the Company released UBS from certain claims that it may have for damages related to the auction rate securities, and we granted UBS the right to sell or otherwise dispose of the auction rate securities on its behalf (so long as we are paid the par value of the auction rate securities upon any disposition).

The Rights are subject to a number of risks. Given the substantial dislocation in the financial markets and among financial services companies, we cannot assure you that UBS will ultimately have the ability to repurchase our auction rate securities at par, or at any other price during the put period described above. We will be required to periodically assess the economic ability of UBS to meet that obligation in assessing the fair value of the Rights. Moreover, if we choose to not exercise the Rights or if UBS is unable to honor the Rights, our ability to liquidate our investments in the near term may be limited, and our ability to fully recover the carrying value of our investments may be limited or non-existent. If issuers of

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these securities are unable to successfully close future auctions or their credit ratings deteriorate, we may in the future be required to record further impairment charges on these investments. It could take until the final maturity of the underlying notes to realize our investments’ recorded value. Based on our ability to access our cash and cash equivalents, expected operating cash flows, and our other sources of cash, we do not anticipate that the current lack of liquidity on these investments will affect our ability to continue to operate our business in the ordinary course. However, we can provide no assurance as to when these investments will again become liquid or as to whether we may ultimately have to recognize additional impairment charges in our results of operations with respect to these investments.

We are subject to the risk of increased and changing income tax rates and other taxes.

A number of countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. We currently enjoy tax incentives for our facility in Singapore and, in the recent past, we enjoyed tax holidays for certain of our facilities in China. However, any tax holiday we may have received could be challenged, modified or even eliminated by taxing authorities or changes in law. In addition, the tax laws and rates in certain jurisdictions in which we operate (China, for example) can change with little or no notice, and any such change may even apply retroactively. Furthermore, our taxes could increase if incentives are not renewed upon expiration, or if tax rates applicable to us are otherwise increased. For example, in March 2007, the Chinese government passed a new unified enterprise income tax law which became effective on January 1, 2008. Among other things, this law cancelled certain income tax incentives and increased the standard withholding rate on earnings distributions. The effect of these and other changes in Chinese tax laws on our overall tax rate will be affected by, among other things, our income, the manner in which China interprets, implements and applies the new tax provisions and our ability to qualify for any exceptions or new incentives. In addition, from time to time we may be subject to various types of tax audits and in light of recent proposed tax law changes in the United States, it is possible our tax rates in future periods may increase.

If we fail to secure or protect our intellectual property rights, competitors may be able to use our technologies, which could weaken our competitive position and harm our business.

We rely primarily on trade secrets and confidentiality procedures relating to our manufacturing processes to protect our proprietary rights. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise obtain and use our intellectual property. If we fail to protect our proprietary rights adequately, our competitors could offer similar products using processes or technologies developed by us, potentially harming our competitive position. In addition, other parties may independently develop similar or competing technologies.

We also rely on patent protection for some of our intellectual property. Our patents may be expensive to obtain and there is no guarantee that either our current or future patents will provide us with any competitive advantages. A third party may challenge the validity of our patents, or circumvent our patents by developing competing products based on technology that does not infringe our patents. Further, patent protection is not available at all in certain countries and some countries that do allow registration of patents do not provide meaningful redress for patent violations. As a result, protecting intellectual property in those countries is difficult, and competitors could sell products in those countries that have functions and features that would otherwise infringe on our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business may be harmed.

We may be sued by third parties for alleged infringement of their proprietary rights.

From time to time, we have received, and expect to continue to receive, notices of claims of infringement, misappropriation or misuse of other parties’ proprietary rights. We could also be subject to claims arising from the allocation of intellectual property rights among us and our customers. Any claims brought against us or our customers, with or without merit, could be time-consuming and expensive to litigate or settle, and could divert management attention away from our business plan. Adverse determinations in litigation could subject us to significant liability and could result in the loss of our proprietary rights. A successful lawsuit against us could also force us to cease selling or require us to redesign any products or marks that incorporate the infringed intellectual property. In addition, we could be required to seek a license from the holder of the intellectual property to use the infringed technology, and it is possible that we may not be able to obtain a license on reasonable terms, or at all. If we fail to develop a non-infringing technology on a timely basis or to license the infringed technology on acceptable terms, our business, financial condition and results of operations could be harmed.

Complying with environmental laws and regulations may increase our costs and reduce our profitability.

We are subject to a variety of environmental laws and regulations relating to the storage, discharge, handling, emission, generation, manufacture, use and disposal of chemicals, solid and hazardous waste and other toxic and hazardous materials used in the manufacture of flexible printed circuits and component assemblies in our operations in the United States and Asia.

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A significant portion of our manufacturing operations are located in China, where we are subject to constantly evolving environmental regulation. The costs of complying with any change in such regulations and the costs of remedying potential violations or resolving enforcement actions that might be initiated by governmental entities in China could be substantial.

In the event of a violation, we may be required to halt one or more segments of our operations until such violation is cured. The costs of remedying violations or resolving enforcement actions that might be initiated by governmental authorities could be substantial. Any remediation of environmental contamination would involve substantial expense that could harm our results of operations. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our operations may be subject or the manner in which existing or future laws will be administered or interpreted. Future regulations may be applied to materials, products or activities that have not been subject to regulation previously. The costs of complying with new or more stringent regulations could be significant.

Potential future acquisitions could be difficult to integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value and adversely affect our financial results.

As part of our business strategy, we intend to continue to consider acquisitions of companies, technologies and products that we feel could enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. We have limited experience in acquiring other businesses and technologies. Potential and completed acquisitions and strategic investments involve numerous risks, including:

• difficulties in integrating operations, technologies, accounting and personnel;

• problems maintaining uniform standards, procedures, controls and policies;

• difficulties in supporting and transitioning customers of our acquired companies;

• diversion of financial and management resources from existing operations;

• risks associated with entering new markets in which we have no or limited prior experience;

• potential loss of key employees; and

• inability to generate sufficient revenues to offset acquisition or start-up costs.

Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted, which could affect the market price of our stock. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate.

We face potential risks associated with loss, theft or damage of our property or property of our customers.

Some of our customers have entrusted us with proprietary equipment or intellectual property to be used in the design, manufacture and testing of the products we make for them. In some instances, we face potentially millions of dollars in financial exposure to those customers if such equipment or intellectual property is lost, damaged or stolen. Although we take precautions against such loss, theft or damage and we may insure against a portion of these risks, such insurance is expensive, may not be applicable to any loss we may experience and, even if applicable, may not be sufficient to cover any such loss. Further, deductibles for such insurance may be substantial and may adversely affect our operations if we were to experience a loss, even if insured.

Litigation may distract us from operating our business.

Litigation that may be brought by or against us could cause us to incur significant expenditures and distract our management from the operations and conduct of our business. Furthermore, there can be no assurance that we would prevail in such litigation or resolve such litigation on terms favorable to us, which may adversely affect our operations.

The trading price of our common stock is volatile.

The trading prices of the securities of technology companies, including the trading price of our common stock, have historically been highly volatile. During the 12 month period from April 1, 2009 through March 31, 2010, our common stock traded between $17.60 and $30.56 per share. Factors that could affect the trading price of our common stock include, but are not limited to:

• fluctuations in our financial results;

• announcements of technological innovations or events affecting other companies in our industry;

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• changes in the estimates of our financial results;

• changes in the recommendations of any securities analysts that elect to follow our common stock; and

• market conditions in our industry, the industries of our customers and the economy as a whole.

In addition, although we have approximately 25.5 million shares of common stock outstanding as of March 31, 2010, approximately 14.8 million of those shares are held by a few investors. As a result, there is a limited public float in our common stock. If any of our significant stockholders were to decide to sell a substantial portion of its shares the trading price of our common stock could decline.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results.

Effective internal controls are necessary for us to provide reliable financial reports. This effort is made more challenging by our significant overseas operations. If we cannot provide reliable financial reports, our operating results could be misstated, current and potential stockholders could lose confidence in our financial reporting and the trading price of our stock could be negatively affected. There can be no assurance that our internal controls over financial processes and reporting will be effective in the future.

Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management including, among other things, provisions providing for a classified board of directors, authorizing the board of directors to issue preferred stock and the elimination of stockholder voting by written consent. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These provisions in our charter, bylaws and under Delaware law could discourage delay or prevent potential takeover attempts that stockholders may consider favorable.

Because we do not intend to pay dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates in value.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend entirely upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which it was purchased.

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Item 5. Other Information

(a) Costs Associated with Exit or Disposal Activities

On February 22, 2010, the Company committed to close one of its satellite facilities in Anaheim as part of a strategic effort to move more functions, specifically low volume production and process research and development associated with the Company’s flex and flex assembly processes, to Asia. The Company expects this restructuring to be complete by the end of the fourth fiscal quarter of 2010, and expects to incur approximately $3.3 million in total restructuring related charges. Based on the Company’s evaluation of the recoverability of impacted long-lived assets, a pre-tax asset impairment charge of $1.9 million was recorded during the three months ended March 31, 2010, including $1.3 million of machinery and equipment and $0.6 million of leasehold improvements. Further, in connection with this restructuring, on May 4, 2010 the Company notified 85 employees of their planned termination, which the Company anticipates will result in additional charges for severance and outplacement services of $1.0 million during the Company’s third fiscal quarter of 2010 and an additional $0.1 million during the fourth fiscal quarter of 2010. In addition, the Company expects to incur an additional $0.3 million related to lease related costs during the fourth fiscal quarter of 2010.

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Item 6. Exhibits

3.2(1)	Restated Certificate of Incorporation of the Company.
3.4(2)	Amended and Restated Bylaws of the Company.
4.1(1)	Form of Common Stock Certificate.
10.1(1)(14)	Form of Indemnification Agreement between the Company and its officers, directors and agents.
10.2(1)(14)	1994 Stock Plan of the Company, as amended.
10.3(4)(14)	2004 Stock Incentive Plan of the Company, as amended and restated.
10.20(3)	Amended and Restated Stockholders Agreement dated October 25, 2005 between Multi-Fineline Electronix, Inc., Wearnes Technology Pte. Ltd, United Wearnes Technology Pte. Ltd., and WBL Corporation Limited.
10.38(5)	Master Purchase Agreement between Multi-Fineline Electronix, Inc., Multi-Fineline Electronix (Suzhou) Co., Ltd., and Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Sony Ericsson Mobile Communications (USA) Inc. dated April 19, 2006.
10.45(8) (14)	Form of Stock Appreciation Right Agreement.
10.46(8)	Share Purchase Agreement by and among Multi-Fineline Electronix Singapore Pte. Ltd., Pelikon Limited, Multi-Fineline Electronix, Inc., the members of the Company set forth on the signatures pages thereto, and Michael Powell, as the Shareholders’ Representative, dated November 18, 2008.
10.47(9)	Master Development and Supply Agreement by and between Apple Computer, Inc. and Multi-Fineline Electronix, Inc. dated June 22, 2006.
10.50(10)	Engineering, Procurement and Construction/Turn Key Project Agreement by and among Multi-Fineline Electronix (Suzhou) Co., Ltd., Beijing Shiyuan Xida Construction and Technology Company, and China Electronics Engineering Design Institute dated April 24, 2009.
10.51(11)	Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated February 12, 2009.
10.52(7)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.53(7)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.54(7)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.55(7)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.56(12 )	Amendment No. 1 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated August 27, 2009.
10.57(13)(14)	Form of Restricted Stock Unit Agreement.
10.58(6)	Line of Credit Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd., and Bank of China Co., Ltd., Wuzhong Branch dated January 25, 2010.
10.59(6)	Line of Credit Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and Bank of China Co., Ltd., Wuzhong Branch dated January 25, 2010.
10.60(15)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

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10.61(15)	Facility Offer Letter between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.62(15)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.63(15)	Facility Offer Letter between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.64(16)	Engineering, Procurement and Construction/Turn Key Project Agreement by and among MFLEX (Chengdu) Co., Ltd., Beijing Shiyuan Xida Construction and Technology Company, and China Electronics Engineering Design Institute, dated April 15, 2010.
10.65*	Amendment No. 2 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated February 15, 2010.
10.66*	Amendment No. 3 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated March 17, 2010.
31.1*	Section 302 Certification by the Company’s chief executive officer.
31.2*	Section 302 Certification by the Company’s chief financial officer.
32.1*	Section 906 Certification by the Company’s chief executive officer and chief financial officer.

* Filed herewith

⁽¹⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Registration Statement on Form S-1, as amended (File No. 333-114510) declared effective by the Securities and Exchange Commission (“SEC”), on June 24, 2004.

⁽²⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2009.

⁽³⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2005.

⁽⁴⁾ Incorporated by reference to exhibit (as Exhibit A) to the Company’s Proxy Statement for its 2010 Annual Meeting of Stockholders on Form DEF 14A filed with the SEC on January 20, 2010.

⁽⁵⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2007. Confidential treatment has been granted for certain portions of this agreement.

⁽⁶⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2010.

⁽⁷⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2009.

⁽⁸⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008.

⁽⁹⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008. Confidential treatment has been granted for certain portions of this agreement.

⁽¹⁰⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2009.

⁽¹¹⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2009. Confidential treatment has been granted for certain portions of this agreement.

⁽¹²⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009. Confidential treatment has been granted for certain portions of this agreement.

⁽¹³⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009.

⁽¹⁴⁾ Indicates management contract or compensatory plan.

⁽¹⁵⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2010.

⁽¹⁶⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2010.

37

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.

	Multi-Fineline Electronix, Inc., a Delaware corporation
Date: May 6, 2010	By:	/s/    Thomas Liguori
		Thomas Liguori Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer of the Registrant)

38

EXHIBIT INDEX

3.2(1)	Restated Certificate of Incorporation of the Company.
3.4(2)	Amended and Restated Bylaws of the Company.
4.1(1)	Form of Common Stock Certificate.
10.1(1)(14)	Form of Indemnification Agreement between the Company and its officers, directors and agents.
10.2(1)(14)	1994 Stock Plan of the Company, as amended.
10.3(4)(14)	2004 Stock Incentive Plan of the Company, as amended and restated.
10.20(3)	Amended and Restated Stockholders Agreement dated October 25, 2005 between Multi-Fineline Electronix, Inc., Wearnes Technology Pte. Ltd, United Wearnes Technology Pte. Ltd., and WBL Corporation Limited.
10.38(5)	Master Purchase Agreement between Multi-Fineline Electronix, Inc., Multi-Fineline Electronix (Suzhou) Co., Ltd., and Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Sony Ericsson Mobile Communications (USA) Inc. dated April 19, 2006.
10.45(8) (14)	Form of Stock Appreciation Right Agreement.
10.46(8)	Share Purchase Agreement by and among Multi-Fineline Electronix Singapore Pte. Ltd., Pelikon Limited, Multi-Fineline Electronix, Inc., the members of the Company set forth on the signatures pages thereto, and Michael Powell, as the Shareholders’ Representative, dated November 18, 2008.
10.47(9)	Master Development and Supply Agreement by and between Apple Computer, Inc. and Multi-Fineline Electronix, Inc. dated June 22, 2006.
10.50(10)	Engineering, Procurement and Construction/Turn Key Project Agreement by and among Multi-Fineline Electronix (Suzhou) Co., Ltd., Beijing Shiyuan Xida Construction and Technology Company, and China Electronics Engineering Design Institute dated April 24, 2009.
10.51(11)	Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated February 12, 2009.
10.52(7)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.53(7)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.54(7)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.55(7)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2009.
10.56(12)	Amendment No. 1 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated August 27, 2009.
10.57(13)(14)	Form of Restricted Stock Unit Agreement.
10.58(6)	Line of Credit Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd., and Bank of China Co., Ltd., Wuzhong Branch dated January 25, 2010.
10.59(6)	Line of Credit Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and Bank of China Co., Ltd., Wuzhong Branch dated January 25, 2010.
10.60(15)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.61(15)	Facility Offer Letter between Multi-Fineline Electronix (Suzhou) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.62(15)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.

39

10.63(15)	Facility Offer Letter between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., and China Construction Bank, Suzhou Industry Park Sub-Branch dated March 29, 2010.
10.64(16)	Engineering, Procurement and Construction/Turn Key Project Agreement by and among MFLEX (Chengdu) Co., Ltd., Beijing Shiyuan Xida Construction and Technology Company, and China Electronics Engineering Design Institute, dated April 15, 2010.
10.65*	Amendment No. 2 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated February 15, 2010.
10.66*	Amendment No. 3 to Loan and Security Agreement by and among Multi-Fineline Electronix, Inc., Multi-Fineline Electronix Singapore Pte. Ltd., and Bank of America, N.A. dated March 17, 2010.
31.1*	Section 302 Certification by the Company’s chief executive officer.
31.2*	Section 302 Certification by the Company’s chief financial officer.
32.1*	Section 906 Certification by the Company’s chief executive officer and chief financial officer.

* Filed herewith

⁽¹⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Registration Statement on Form S-1, as amended (File No. 333-114510) declared effective by the Securities and Exchange Commission (“SEC”), on June 24, 2004.

⁽²⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on December 8, 2009.

⁽³⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on October 25, 2005.

⁽⁴⁾ Incorporated by reference to exhibit (as Exhibit A) to the Company’s Proxy Statement for its 2010 Annual Meeting of Stockholders on Form DEF 14A filed with the SEC on January 20, 2010.

⁽⁵⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2007. Confidential treatment has been granted for certain portions of this agreement.

⁽⁶⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2010.

⁽⁷⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on August 6, 2009.

⁽⁸⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008.

⁽⁹⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2008. Confidential treatment has been granted for certain portions of this agreement.

⁽¹⁰⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on April 29, 2009.

⁽¹¹⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Quarterly Report on Form 10-Q filed with the SEC for the quarter ended March 31, 2009. Confidential treatment has been granted for certain portions of this agreement.

⁽¹²⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009. Confidential treatment has been granted for certain portions of this agreement.

⁽¹³⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Annual Report on Form 10-K filed with the SEC for the year ended September 30, 2009.

⁽¹⁴⁾ Indicates management contract or compensatory plan.

⁽¹⁵⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 1, 2010.

⁽¹⁶⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2010.

40

EX-10.65

Exhibit 10.65

AMENDMENT NO. 2

TO

LOAN AGREEMENT

AMENDMENT NO. 2 TO LOAN AGREEMENT, dated as of February 15, 2010 (this “Agreement”), among MULTI-FINELINE ELECTRONIX, INC., a Delaware corporation (“U.S. Borrower”), MULTI-FINELINE ELECTRONIX SINGAPORE PTE. LTD., a Singapore corporation (“Singapore Borrower”, and together with U.S. Borrower, collectively, “Borrowers”), the various Subsidiaries (such capitalized term and all other capitalized terms not defined herein shall have the meanings provided for in Article I) of the Borrowers that are parties hereto, the various financial institutions that are parties hereto (collectively, “Lenders”), and BANK OF AMERICA, N.A., a national banking association, as agent for the Lenders (“Agent”).

W I T N E S S E T H:

WHEREAS, the Borrowers, the Lenders and the Agent are parties to the Loan and Security Agreement, dated as of February 12, 2009, as amended (the “Existing Loan Agreement”), and the other Loan Documents; and

WHEREAS, the Borrowers have requested that, as of the Effective Date, the Existing Loan Agreement be amended as herein provided; and

WHEREAS, the Lenders are willing, subject to the terms and conditions hereinafter set forth, to make such amendments;

NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Certain Definitions. The following terms (whether or not underscored) when used in this Agreement shall have the following meanings:

“Agent”: defined in the preamble.

“Agreement”: is defined in the preamble.

“Amended Loan Agreement”: the Existing Loan Agreement as amended by this Agreement as of the Effective Date.

“Borrowers”: defined in the preamble.

“Effective Date”: defined in Section 5.1.

“Existing Loan Agreement”: defined in the first recital.

“Lenders”: defined in the preamble.

“Singapore Borrower” defined in the preamble.

“U.S. Borrower” defined in the preamble.

SECTION 1.2. Other Definitions. Unless otherwise defined or the context otherwise requires, terms used herein (including in the preamble and recitals hereto) have the meanings provided for in the Existing Loan Agreement.

ARTICLE II

AMENDMENTS

Effective on (and subject to the occurrence of) the Effective Date, the Existing Loan Agreement is amended as follows:

SECTION 2.1. Amendments to Section 1.1.

(a) The following new definition is added to Section 1.1 of the Existing Loan Agreement in the appropriate alphabetical order:

“Amendment No. 2 to Loan Agreement: means Amendment No. 2 to Loan Agreement, dated as of February 15, 2010, among the parties to this Agreement.”

(b) The following definition set forth in Section 1.1 of the Existing Loan Agreement is amended in the entirety to read as follows:

“Refinancing Debt: Borrowed Money that is the result of an extension, renewal or refinancing of Debt permitted under Section 10.2.1(b), (d), (f), (h), (i) and (j).”

SECTION 2.2. Amendment to Section 7.1.1(n). Section 7.1.1(n) of the Existing Loan Agreement is amended in the entirety to read as follows:

“(n) all Pledged Notes described on Part B of Schedule 7.1 attached hereto (as such Schedule may be amended or supplemented from time to time), together with all other notes evidencing the Debt permitted by Section 10.2.1(n) (collectively, the “Pledged Notes”;”

SECTION 2.3. Amendments to Section 10.2.1. Section 10.2.1 of the Existing Loan Agreement is hereby amended in the entirety as follows:

“10.2.1. Permitted Debt. Create, incur, guarantee or suffer to exist any Debt, except:

(a) the Obligations;

(b) Subordinated Debt;

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(c) Permitted Purchase Money Debt;

(d) Borrowed Money (other than the Obligations, Subordinated Debt and Permitted Purchase Money Debt), but only to the extent outstanding on the Closing Date and not satisfied with proceeds of the initial Revolver Loans;

(e) Bank Product Debt;

(f) Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when acquired by a Borrower or Subsidiary, as long as such Debt was not incurred in contemplation of such Person becoming a Subsidiary or such acquisition, and does not exceed $2,000,000 in the aggregate at any time;

(g) Pelikon Notes and the Pelikon Contingent Note;

(h) the MFC1 and MFC2 lines of credit with Bank of China in an aggregate amount not to exceed, when added to the amounts outstanding pursuant to Section 10.2.1(i), (j) and (k), 900,000,000 RMB at any time on or prior to September 30, 2010, and 550,000,000 RMB at any time thereafter; provided that no Obligor has any Contingent Obligation with respect to such Debt;

(i) the MFC1 and MFC2 lines of credit with Shanghai Pudong Development Bank in an aggregate amount not to exceed, when added to the amounts outstanding pursuant to Section 10.2.1(h), (j) and (k), 900,000,000 RMB at any time on or prior to September 30, 2010, and 550,000,000 RMB at any time thereafter; provided that no Obligor has any Contingent Obligation with respect to such Debt;

(j) Debt owing to the China Construction Bank in an aggregate amount not to exceed, when added to the amounts outstanding pursuant to Section 10.2.1(h), (i) and (k), 900,000,000 RMB at any time on or prior to September 30, 2010, and 550,000,000 RMB at any time thereafter; provided that no Obligor has any Contingent Obligation with respect to such Debt;

(k) Debt owing to the Agricultural Bank of China in an aggregate amount not to exceed, when added to the amounts outstanding pursuant to Section 10.2.1(h), (i) and (j), 900,000,000 RMB at any time on or prior to September 30, 2010, and 550,000,000 RMB at any time thereafter; provided that no Obligor has any Contingent Obligation with respect to such Debt;

(l) Permitted Contingent Obligations;

(m) Refinancing Debt as long as each Refinancing Condition is satisfied; provided that for purposes of determining whether the Refinancing Condition is satisfied with respect to the refinancing of Debt described in Section 10.2.1(h), (i) and (j), clause (a) of the Refinancing Condition shall be deemed to refer to the aggregate principal amount of such Debt permitted by such sections, rather than the aggregate principal amount of the Debt being extended, renewed or refinanced;

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(n) Debt that is not included in any of the preceding clauses of this Section, is not secured by a Lien and does not exceed $2,000,000 in the aggregate at any time; and

(o) Debt permitted to be incurred pursuant to Section 10.2.6(e)-(h).”

SECTION 2.4. Amendments to Section 10.2.3. Section 10.2.3 of the Existing Loan Agreement is amended in the entirety as follows:

“10.2.3. Distributions; Upstream Payments. (a) Declare or make any Distributions, except (i) Upstream Payments; (ii) U.S. Borrower may make Distributions if (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) the Aggregate Availability after giving effect to any such Distribution is not less than 20% of the Revolver Commitments, (C) the Fixed Charge Coverage Ratio after giving effect to any such Distribution is, at any time on or before March 31, 2009, at least 0.90 to 1.0 or, at any time thereafter, not less than 1.0 to 1.0, and (D) the aggregate amount of such Distributions (x) made at any one time or as part of a series of related Distributions shall not exceed $5,000,000 in the aggregate or (y) since the Closing Date shall not exceed $10,000,000 in the aggregate; and (iii) U.S. Borrower may purchase its Equity Interests from its shareholders in Fiscal Year 2009 (and, with the consent of Agent, any other Fiscal Year), if: (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) Adjusted Cash Liquidity prior to any such repurchase is not less than $20,000,000, (C) the Adjusted Fixed Charge Coverage Ratio after giving effect to any such repurchase is not less than 0.60 to 1.0, and (D) the aggregate amount of all such repurchases since the Closing Date does not exceed $25,000,000; provided, that with respect to Fiscal Year 2010 only, U.S. Borrower may purchase Equity Interests of its shareholders, subject to the conditions set forth in the preceding sub-clauses (A), (C) and (D), in an amount not to exceed $1,600,000 per Fiscal Quarter (provided that the dollar limitation per Fiscal Quarter shall not apply if, prior to any such repurchase, the Adjusted Cash Liquidity is $20,000,000 or more) and $6,300,000 for all of Fiscal Year 2010; or (b) create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Upstream Payment, except for restrictions under the Loan Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule 9.1.16.”

SECTION 2.5 Amendment to Exhibit D. Exhibit D of the Existing Loan Agreement is amended in the entirety as set forth on Exhibit A hereto.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders to make the amendments provided for in Article II, each Borrower hereby (a) represents and warrants that (i) each of the representations and warranties of the Obligors contained in the Loan Agreement and in the other Loan Documents is true and correct as of the date hereof as if made on the date hereof (except, if any such representation and warranty relates to an earlier date, such representation and warranty shall be true and correct as of such earlier date) and (ii) no Default or Event of Default has occurred and is continuing and (b) agrees that the incorrectness in any material respect of any representation and warranty contained in the preceding clause (a) shall constitute an immediate Event of Default. Without limiting the foregoing, each Borrower hereby (i) ratifies and confirms all of the terms, covenants and conditions set forth in the Loan Documents and hereby agrees that it remains unconditionally liable to the Agent and the Lenders in accordance with the respective terms, covenants and conditions set forth in the Loan Documents, and all the Collateral thereto in favor of the Agent and each Lender continues unimpaired and in full force and effect, and (ii) waives all defenses, claims, counterclaims, rights of recoupment or set-off against any of its Obligations.

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ARTICLE IV

ACKNOWLEDGMENT OF SUBSIDIARIES

By executing this Agreement, each Subsidiary of a Borrower that is a party hereto hereby confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Effective Date each reference therein to the Loan Agreement shall refer to the Loan Agreement after giving effect to this Agreement. Without limiting the foregoing, each such Subsidiary waives all defenses, claims, counterclaims, rights of recoupment or set-off with respect to any of such Subsidiary’s Obligations.

ARTICLE V

CONDITIONS TO EFFECTIVENESS; EXPIRATION

SECTION 5.1. Effective Date. This Agreement shall become effective on such date (herein called the “Effective Date”) when the conditions set forth in this Section have been satisfied.

SECTION 5.1.1 Execution of Agreement. The Agent shall have received counterparts of this Agreement duly executed and delivered on behalf of each Borrower, each of its Subsidiaries that are parties hereto, the Agent and all the Lenders.

SECTION 5.1.2 Representations and Warranties. The representations and warranties made by each Borrower pursuant to Article III as of the Effective Date shall be true and correct.

SECTION 5.2. Expiration. If the Effective Date has not occurred on or prior to April 1, 2010, the agreements of the parties contained in this Agreement shall, unless otherwise agreed by all the Lenders terminate immediately on such date and without further action.

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ARTICLE VI

MISCELLANEOUS

SECTION 6.1. Cross-References. References in this Agreement to any Article or Section are, unless otherwise specified, to such Article or Section of this Agreement.

SECTION 6.2. Loan Document Pursuant to Amended Loan Agreement. This Agreement is a Loan Document executed pursuant to the Amended Loan Agreement. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions contained in the Existing Loan Agreement and each other Loan Document shall remain unamended or otherwise unmodified and in full force and effect.

SECTION 6.3. Limitation of Amendments. The amendments set forth in Article II shall be limited precisely as provided for herein and shall not be deemed to be a waiver of, amendment of, consent to or modification of any other term or provision of the Existing Loan Agreement or of any term or provision of any other Loan Document or of any transaction or further or future action on the part of either Borrower or any other Obligor which would require the consent of any of the Lenders under the Existing Loan Agreement or any other Loan Document.

SECTION 6.4. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement.

SECTION 6.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

SECTION 6.6. Further Assurances. Each Borrower execute and deliver, and shall cause each other Obligor to execute and deliver, from time to time in favor of the Agent and the Lenders, such documents, agreements, certificates and other instruments as shall be necessary or advisable to effect the purposes of this Agreement.

SECTION 6.7. Costs and Expenses. Each Borrower agrees to pay all reasonable costs and expenses of the Agent (including the reasonable fees and out-of-pocket expenses of legal counsel of the Agent) that are incurred in connection with the execution and delivery of this Agreement and the other agreements and documents entered into in connection herewith.

SECTION 6.8. GOVERNING LAW; WAIVER OF JURY TRIAL; ENTIRE AGREEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PERSON A PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT OR DOCUMENT ENTERED INTO IN CONNECTION HEREWITH. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY PRIOR AGREEMENT, WRITTEN OR ORAL, WITH RESPECT HERETO.

-6-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the day and year first above written.

BORROWERS:
MULTI-FINELINE ELECTRONIX, INC.
By:	/s/ Tom Liguori
Name: Title:	Tom Liguori Executive Vice President & CFO
MULTI-FINELINE ELECTRONIX SINGAPORE PTE. LTD.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President

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AGENT AND LENDERS:
BANK OF AMERICA, N.A., as Agent and Lender
By:	/s/ Carlos Gil
Name: Title:	Carlos Gil Vice President

-8-

SUBSIDIARIES:
AURORA OPTICAL, INC.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin Chief Operating Officer
M-FLEX CAYMAN ISLANDS, INC.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President and Chief Executive Officer
PELIKON LIMITED
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President and Chief Executive Officer

-9-

EXHIBIT A TO AMENDMENT NO. 2

“EXHIBIT D

to

Loan and Security Agreement

COMPLIANCE CERTIFICATE

[LETTERHEAD OF BORROWER]

[DATE]

Bank of America, N.A., as Agent

55 South Lake Avenue, Suite 900

Pasadena, California 91101

Attention: Loan Administration Manager

The undersigned, the [chief financial officer, treasurer or controller] of Multi-Fineline Electronix, Inc., a Delaware corporation (U.S. Borrower”) acting in its capacity as Borrower Agent (“Borrower Agent”), gives this Compliance Certificate (this “Certificate”) to Bank of America, N.A., in its capacity as Agent (“Agent”) in accordance with the requirements of Section 10.1.2 of the Loan and Security Agreement dated as of February 12, 2009 among U.S. Borrower, Multi-Fineline Electronix Singapore PTE. Ltd, a Singapore corporation (“Singapore Borrower”; together with the U.S. Borrower, the “Borrowers”), Agent and the Lenders party thereto (the “Loan Agreement”). Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings ascribed to them in the Loan Agreement.

Based upon my review of the consolidated balance sheet and statement of income of U.S. Borrower for the [Fiscal Month] [Fiscal Year] ending                      (the “Determination Date”), copies of which are attached hereto, I hereby certify that:

1. Adjusted Fixed Charge Coverage Ratio. As of the Determination Date, the Adjusted Fixed Charge Coverage Ratio for the most recently ended Fiscal Quarter, for the purpose of calculating the Applicable Margin, is:

Adjusted Fixed Charge Coverage Ratio:          to 1.00

2. Capital Expenditures¹. As of the Determination Date, the aggregate amount of all costs of constructing and equipping the MFC3 Plant deemed to not constitute Capital Expenditures during the current Fiscal Year (or portion thereof) ended on the Determination Date is:

¹ To be included when the Determination Date is on or prior to December 31, 2009

Exhibit D

-1-

Actual amount:	$
Maximum permitted:	$	23,000,000

3. Section 10.2.1(c). As of the Determination Date the aggregate amount of Permitted Purchase Money Debt of Borrowers and Subsidiaries that is unsecured or secured only by a Purchase Money Lien, is:

Actual amount:	$
Maximum permitted:	$	2,000,000

4. Section 10.2.1(f). As of the Determination Date the aggregate amount of Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when acquired by any Borrower or any of its Subsidiaries, is:

Actual amount:	$
Maximum permitted:	$	2,000,000

5. Section 10.2.1(h). As of the Determination Date:

The aggregate amount of the MFC1 and MFC2 lines of credit with Bank of China:	$
Line of credit pursuant to Section 10.2.1(i)	$
Actual amount outstanding pursuant to Section 10.2.1(j)	$
Actual amount outstanding pursuant to Section 10.2.1(k)	$
Total	$
Maximum permitted on or prior to September 30, 2010:		900,000,000 RMB
Maximum amount permitted thereafter		550,000,000 RMB

6. Section 10.2.1(i). As of the Determination Date:

The aggregate amount of the MFC1 and MFC2 lines of credit with Shanghai Pudong Development Bank: $

Exhibit D

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Line of credit pursuant to Section 10.2.1(h)	$
Actual amount outstanding pursuant to Section 10.2.1(j)	$
Actual amount outstanding pursuant to Section 10.2.1(k)	$
Total	$
Maximum permitted on or prior to September 30, 2010:		900,000,000 RMB
Maximum amount permitted thereafter		550,000,000 RMB

7. Section 10.2.1(j). As of the Determination Date::

The aggregate Debt owing to the China Construction Bank is:	$
Line of credit pursuant to Section 10.2.1(h)	$
Line of credit pursuant to Section 10.2.1(i)	$
Actual amount outstanding pursuant to Section 10.2.1(k)	$
Total	$
Maximum permitted on or prior to September 30, 2010:		900,000,000 RMB
Maximum amount permitted thereafter		550,000,000 RMB

8. Section 10.2.1(k). As of the Determination Date::

The aggregate Debt owing to the Agricultural Bank of China is: $

Exhibit D

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Line of credit pursuant to Section 10.2.1(h)	$
Line of credit pursuant to Section 10.2.1(i)	$
Actual amount outstanding pursuant to Section 10.2.1(j)	$
Total	$
Maximum permitted on or prior to September 30, 2010:		900,000,000 RMB
Maximum amount permitted thereafter		550,000,000 RMB

9. Section 10.2.1(n). As of the Determination Date, the aggregate principal amount of Debt of any Borrower outstanding pursuant to Section 10.2.1(m) of the Loan Agreement is:

Actual amount:	$
Maximum permitted:	$	2,000,000

Exhibit D

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10. Section  10.2.3(a)(ii)². As of the Determination Date,

(a) the Aggregate Availability is:

Actual amount: $

Minimum permitted: [20% of the Revolver Commitments]

(b) the Fixed Charge Coverage Ratio after giving effect to the proposed Distribution is:

	to 1.0
Minimum required:	1.0 to 1.0

(c) the amount of such Distributions since the Closing Date is:

Individually	$
Maximum permitted	$	5,000,000
In the aggregate	$
Maximum permitted	$	10,000,000

11. Section  10.2.3(a)(iii)³. As of the Determination Date,

(a) Adjusted Cash Liquidity (as calculated pursuant to Exhibit A attached hereto) prior to giving effect to the proposed purchase of Equity Interests is:

$

If more than $20,000,000, then $1,600,000 per Fiscal Quarter limitation is not applicable

(b) the Adjusted Fixed Charge Coverage Ratio after giving effect to the proposed dividend purchase of Equity Interests is:

	to 1.0
Minimum required:	0.60 to 1.0

² To be included in a Compliance Certificate that is delivered in connection with the making of a Distribution pursuant to Section 10.2.3(ii) of the Loan Agreement and be calculated as of the end of the preceding Fiscal Month.

³ To be included in a Compliance Certificate that is delivered in connection with the purchase of Equity Interests pursuant to Section 10.2.3(iii) of the Loan Agreement and be calculated as of the end of the preceding Fiscal Month.

Exhibit D

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(c) the amount of the proposed purchase of Equity Interest is:

$

(d) the aggregate amount of purchases of Equity Interests is:

During the Fiscal Quarter	$
Maximum permitted	$	1,600,000
Not applicable if the Adjusted Cash Liquidity is $20,000,000 or more
During the Fiscal Year	$
Maximum permitted	$	20,000,000

12. Section  10.3.1.⁴ As of the Determination Date, the Fixed Charge Coverage Ratio is:

Actual:	to 1.0
Minimum required:	1.0 to 1.0

13. No Default exists on the date hereof, other than:                                                                   [if none, so state].

14. No Event of Default exists on the date hereof, other than                                                                   [if none, so state].

Very truly yours,
MULTI-FINELINE ELECTRONIX, INC., a Delaware corporation
By:
Name:
Title:	[Chief Financial Officer][Controller] [Treasurer]

⁴ To be included during any Trigger Period.

Exhibit D

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EXHIBIT A

Adjusted Cash Liquidity

Multi-Fineline Electronix Inc. and Multi-Fineline Electronix Singapore PTE, Ltd.	Amount
Fiscal Year 2010
Cash Liquidity (in thousands)
Cash and Cash Equivalents of Borrowers on deposit in Deposit Accounts subject to a Deposit Account Control Agreement in favor of Agent
(+) Cash and Cash Equivalents of any Subsidiary of any Borrower
(-) the aggregate principal amount trade payables that are more than five days past due
(-) the aggregate principal amount of all Revolver Loans and LC Obligations
Total Cash Liquidity
(-) the aggregate amount of Capital Expenditures that have been identified in the Capital Expenditures Budget during the current Fiscal Year
(+) the aggregate amount of Capital Expenditures that have been identified in the Capital Expenditures Budget and paid during the current Fiscal Year
Adjusted Cash Liquidity prior to any buyback
If Adjusted Cash Liquidity exceeds $20 million, the $1,600,000 per Fiscal Quarter limitation does not apply

Exhibit D

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EX-10.66

Exhibit 10.66

AMENDMENT NO. 3

TO

LOAN AGREEMENT

AMENDMENT NO. 3 TO LOAN AGREEMENT, dated as of March 17, 2010 (this “Agreement”), among MULTI-FINELINE ELECTRONIX, INC., a Delaware corporation (“U.S. Borrower”), MULTI-FINELINE ELECTRONIX SINGAPORE PTE. LTD., a Singapore corporation (“Singapore Borrower”, and together with U.S. Borrower, collectively, “Borrowers”), the various Subsidiaries (such capitalized term and all other capitalized terms not defined herein shall have the meanings provided for in Article I) of the Borrowers that are parties hereto, the various financial institutions that are parties hereto (collectively, “Lenders”), and BANK OF AMERICA, N.A., a national banking association, as agent for the Lenders (“Agent”).

W I T N E S S E T H:

WHEREAS, the Borrowers, the Lenders and the Agent are parties to the Loan and Security Agreement, dated as of February 12, 2009, as amended (the “Existing Loan Agreement”), and the other Loan Documents; and

WHEREAS, the Borrowers have requested that, as of the Effective Date, the Existing Loan Agreement be amended as herein provided; and

WHEREAS, the Lenders are willing, subject to the terms and conditions hereinafter set forth, to make such amendments;

NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1. Certain Definitions. The following terms (whether or not underscored) when used in this Agreement shall have the following meanings:

“Agent”: defined in the preamble.

“Agreement”: is defined in the preamble.

“Amended Loan Agreement”: the Existing Loan Agreement as amended by this Agreement as of the Effective Date.

“Borrowers”: defined in the preamble.

“Effective Date”: defined in Section 5.1.

“Existing Loan Agreement”: defined in the first recital.

“Lenders”: defined in the preamble.

“Singapore Borrower” defined in the preamble.

“U.S. Borrower” defined in the preamble.

SECTION 1.2. Other Definitions. Unless otherwise defined or the context otherwise requires, terms used herein (including in the preamble and recitals hereto) have the meanings provided for in the Existing Loan Agreement.

ARTICLE II

AMENDMENTS

Effective on (and subject to the occurrence of) the Effective Date, the Existing Loan Agreement is amended as follows:

SECTION 2.1. Addition to Section 1.1. (a) The following new definition is added to Section 1.1 of the Existing Loan Agreement in the appropriate alphabetical order:

“Amendment No. 3 to Loan Agreement” means Amendment No. 3 to Loan Agreement, dated as of March 17, 2010, among the parties to this Agreement.

SECTION 2.2. Amendment to Section 1.1. Clauses (f) and (g) of the definition “Restricted Investment” in the Existing Credit Agreement are amended in the entirety as follows:

“(f) other Investments to fund payroll, payroll taxes and other operating expenses of MFlex Malaysia, in each case to the extent that the foregoing are incurred in the Ordinary Course of Business of MFlex Malaysia, in an aggregate amount not to exceed the lesser of (A) $15,000,000 and (B) the amount set forth in the quarterly budget referred to in sub-clause (iii) in the parenthetical following clause (h) in this definition minus the aggregate principal amount of loans outstanding on such date pursuant to Section 10.2.6(g) to MFlex Malaysia;

(g) other Investments to fund payroll, payroll taxes and other operating expenses of MFlex UK, in each case to the extent that the foregoing are incurred in the Ordinary Course of Business of MFlex UK, in an aggregate amount not to exceed the lesser of (A) $20,000,000 and (B) the amount set forth in the quarterly budget referred to in sub-clause (iii) in the parenthetical following clause (h) in this definition minus the aggregate principal amount of loans outstanding on such date pursuant to Section 10.2.6(h) to MFlex UK;”.

SECTION 2.3. Amendments to Section 10.2.6. Clauses (g) and (h) of Section 10.2.6 of the Existing Loan Agreement are amended in the entirety as follows:

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“(g) intercompany loans by a Borrower to MFlex Malaysia, provided that

(i) Borrowers are in compliance with Section 10.3.1 if a Trigger Period is continuing at the time of the making of any such intercompany loan (provided that this clause (i) shall not apply with respect to any intercompany loan that is made in order to fund the payroll or payroll taxes of MFlex Malaysia),

(ii) the aggregate principal amount of such loans shall not exceed the lesser of (A) $15,000,000 and (B) the amount set forth in the quarterly budget referred to in sub-clause (v) below minus the amount of Restricted Payments made to MFlex Malaysia pursuant to clause (f) of the definition of Restricted Investment,

(iii) such loans are evidenced by one or more promissory notes, in a form reasonably satisfactory to Agent, duly executed and delivered to Agent, which notes shall be pledged to Agent (for the benefit of Agent and Lenders) to secure the repayment of the Obligations (in the case of a note in which the payor is U.S. Borrower) or Singapore Obligations (in the case of a note in which the payor is Singapore Borrower),

(iv) such intercompany loan shall not be forgiven or otherwise discharged for any consideration other than the payment in full in cash,

(v) Borrower Agent has delivered a quarterly budget that is acceptable to Agent, and

(vi) all the proceeds of such intercompany loans are applied to pay the payroll, payroll taxes and other operating expenses of MFlex Malaysia, in each case to the extent that the foregoing are incurred in the Ordinary Course of Business of MFlex Malaysia;

(h) intercompany loans by a Borrower to MFlex UK, provided that

(vii) Borrowers are in compliance with Section 10.3.1 if a Trigger Period is continuing at the time of the making of any such intercompany loan (provided that this clause (i) shall not apply with respect to any intercompany loan that is made in order to fund the payroll or payroll taxes of MFlex UK),

(viii) the aggregate principal amount of such loans shall not exceed the lesser of (A) $20,000,000 and (B) the amount set forth in the quarterly budget referred to in sub-clause (v) below minus the amount of Restricted Payments made to MFlex UK pursuant to clause (g) of the definition of Restricted Investment,

(ix) such loans are evidenced by one or more promissory notes, in a form reasonably satisfactory to Agent, duly executed and delivered to Agent, which notes shall be pledged to Agent (for the benefit of Agent and Lenders) to secure the repayment of the Obligations (in the case of a note in which the payor is U.S. Borrower) or Singapore Obligations (in the case of a note in which the payor is Singapore Borrower),

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(x) such intercompany loan shall not be forgiven or otherwise discharged for any consideration other than the payment in full in cash,

(xi) Borrower Agent has delivered a quarterly budget that is acceptable to Agent, and

(xii) all the proceeds of such intercompany loans are applied to pay the payroll, payroll taxes and other operating expenses of MFlex UK, in each case to the extent that the foregoing are incurred in the Ordinary Course of Business of MFlex UK; and”.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders to make the amendments provided for in Article II, each Borrower hereby (a) represents and warrants that as of the Effective Date (i) each of the representations and warranties of the Obligors contained in the Loan Agreement and in the other Loan Documents is true and correct as of the date hereof as if made on the date hereof (except, if any such representation and warranty relates to an earlier date, such representation and warranty shall be true and correct as of such earlier date) and (ii) no Default or Event of Default has occurred and is continuing and (b) agrees that the incorrectness in any material respect of any representation and warranty contained in the preceding clause (a) shall constitute an immediate Event of Default. Without limiting the foregoing, each Borrower hereby (i) ratifies and confirms all of the terms, covenants and conditions set forth in the Loan Documents and hereby agrees that it remains unconditionally liable to the Agent and the Lenders in accordance with the respective terms, covenants and conditions set forth in the Loan Documents, and all the Collateral thereto in favor of the Agent and each Lender continues unimpaired and in full force and effect, and (ii) waives all defenses, claims, counterclaims, rights of recoupment or set-off against any of its Obligations.

ARTICLE IV

ACKNOWLEDGMENT OF SUBSIDIARIES

By executing this Agreement, each Subsidiary of a Borrower that is a party hereto hereby confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Effective Date each reference therein to the Loan Agreement shall refer to the Loan Agreement after giving effect to this Agreement. Without limiting the foregoing, each such Subsidiary waives all defenses, claims, counterclaims, rights of recoupment or set-off with respect to any of such Subsidiary’s Obligations.

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ARTICLE V

CONDITIONS TO EFFECTIVENESS; EXPIRATION

SECTION 5.1. Effective Date. This Agreement shall become effective on such date (herein called the “Effective Date”) when the conditions set forth in this Section have been satisfied.

SECTION 5.1.1 Execution of Agreement. The Agent shall have received counterparts of this Agreement duly executed and delivered on behalf of each Borrower, each of its Subsidiaries that are parties hereto, the Agent and all the Lenders.

SECTION 5.1.2 Representations and Warranties. The representations and warranties made by each Borrower pursuant to Article III as of the Effective Date shall be true and correct.

SECTION 5.2. Retroactive Effectiveness of Amendments. Upon the occurrence of the Effective Date the amendments set forth in Article II shall be effective retroactive as of February 1, 2010.

SECTION 5.3. Expiration. If the Effective Date has not occurred on or prior to March 31, 2010 the agreements of the parties contained in this Agreement shall, unless otherwise agreed by all the Lenders terminate immediately on such date and without further action.

ARTICLE VI

MISCELLANEOUS

SECTION 6.1. Cross-References. References in this Agreement to any Article or Section are, unless otherwise specified, to such Article or Section of this Agreement.

SECTION 6.2. Loan Document Pursuant to Amended Loan Agreement. This Agreement is a Loan Document executed pursuant to the Amended Loan Agreement. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions contained in the Existing Loan Agreement and each other Loan Document shall remain unamended or otherwise unmodified and in full force and effect.

SECTION 6.3. Limitation of Amendments. The amendments set forth in Article II shall be limited precisely as provided for herein and shall not be deemed to be a waiver of, amendment of, consent to or modification of any other term or provision of the Existing Loan Agreement or of any term or provision of any other Loan Document or of any transaction or further or future action on the part of either Borrower or any other Obligor which would require the consent of any of the Lenders under the Existing Loan Agreement or any other Loan Document.

SECTION 6.4. Counterparts. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement.

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SECTION 6.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

SECTION 6.6. Further Assurances. Each Borrower execute and deliver, and shall cause each other Obligor to execute and deliver, from time to time in favor of the Agent and the Lenders, such documents, agreements, certificates and other instruments as shall be necessary or advisable to effect the purposes of this Agreement.

SECTION 6.7. Costs and Expenses. Each Borrower agrees to pay all reasonable costs and expenses of the Agent (including the reasonable fees and out-of-pocket expenses of legal counsel of the Agent) that are incurred in connection with the execution and delivery of this Agreement and the other agreements and documents entered into in connection herewith.

SECTION 6.8. GOVERNING LAW; WAIVER OF JURY TRIAL; ENTIRE AGREEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PERSON A PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT OR DOCUMENT ENTERED INTO IN CONNECTION HEREWITH. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY PRIOR AGREEMENT, WRITTEN OR ORAL, WITH RESPECT HERETO.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the day and year first above written.

BORROWERS:
MULTI-FINELINE ELECTRONIX, INC.
By:	/s/ Tom Liguori
Name: Title:	Tom Liguori Executive Vice President & CFO
MULTI-FINELINE ELECTRONIX SINGAPORE PTE. LTD.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President and Chief Executive Officer

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AGENT AND LENDERS:
BANK OF AMERICA, N.A., as Agent and Lender
By:	/s/ Carlos Gil
Name: Title:	Carlos Gil Vice President

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SUBSIDIARIES:
AURORA OPTICAL, INC.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President and Chief Executive Officer
M-FLEX CAYMAN ISLANDS, INC.
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin President and Chief Executive Officer
PELIKON LIMITED
By:	/s/ Reza Meshgin
Name: Title:	Reza Meshgin Executive Chairman

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Reza Meshgin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Multi-Fineline Electronix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 6, 2010	By:	/s/    Reza Meshgin
		Reza Meshgin Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Thomas Liguori, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Multi-Fineline Electronix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 6, 2010	By:	/s/    Thomas Liguori
		Thomas Liguori Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”) of Multi-Fineline Electronix, Inc. (the “Company”) for the period ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof, Reza Meshgin, as Chief Executive Officer of the Company, and Thomas Liguori, as Chief Financial Officer of the Company, each hereby certifies, to the best of his respective knowledge, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 6, 2010	/s/    Reza Meshgin	/s/    Thomas Liguori
	Chief Executive Officer	Chief Financial Officer