Multi Fineline Electronix (MFLX) 10-Q 2007 Q4 Quarterly report

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 December 31, 2007

OR

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

For the transition period from                to                

Commission file 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨        Accelerated filer  x        Non-accelerated filer  ¨

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 January 31, 2008 was 24,711,711.

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	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	17
	PART II. OTHER INFORMATION
Item 1A.	Risk Factors	17
Item 6.	Exhibits	31
Signatures		33

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

	December 31, 2007		September 30, 2007
	(unaudited)
ASSETS
Cash and cash equivalents	$	32,092	$	27,955
Short term investments		10,000		7,000
Restricted cash		2,389		2,343
Accounts receivable, net of allowances of $1,749 and $1,300		134,558		124,313
Inventories		54,882		63,424
Deferred taxes		4,073		4,073
Income tax receivable		1,276		2,701
Other current assets		2,680		2,749
Total current assets		241,950		234,558
Property, plant and equipment, net		134,632		133,633
Restricted cash		135		135
Deferred taxes		4,233		2,185
Goodwill		3,629		3,629
Other assets		4,251		3,147
Total assets	$	388,830	$	377,287
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	96,762	$	111,934
Accrued liabilities		17,864		14,994
Due to affiliates		74		30
Other current liabilities		348		119
Total current liabilities		115,048		127,077
Other long-term liabilities		5,994		204
Total liabilities		121,042		127,281
Commitments and contingencies (Note 2)
Stockholders’ equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized; none issued or outstanding		—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized; 24,708,683 and 24,598,510 shares issued and outstanding		2		2
Additional paid-in capital		109,990		108,872
Retained earnings		145,877		132,532
Accumulated other comprehensive income		11,919		8,600
Total stockholders’ equity		267,788		250,006
Total liabilities and stockholders’ equity	$	388,830	$	377,287

The accompanying notes are an integral part of these 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 December 31,
	2007			2006
Net sales	$	184,152		$	123,887
Cost of sales		153,366			108,880
Gross profit		30,786			15,007
Operating expenses
Research and development		493			589
Sales and marketing		4,617			2,558
General and administrative		6,777			6,966
Total operating expenses		11,887			10,113
Operating income		18,899			4,894
Other income, net
Interest income		359			406
Interest expense		(59	)		(173	)
Other income, net		349			124
Income before income taxes		19,548			5,251
Provision for income taxes		(5,962	)		(1,598	)
Net income	$	13,586		$	3,653
Net income per share
Basic	$	0.55		$	0.15
Diluted	$	0.54		$	0.14
Shares used in computing net income per share
Basic		24,654,297			24,452,611
Diluted		25,248,598			25,210,346

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

2

MULTI-FINELINE ELECTRONIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(unaudited)

	Three Months Ended December 31,
	2007			2006
Cash flows from operating activities
Net income	$	13,586		$	3,653
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		6,305			4,279
Provision for doubtful accounts		449			43
Stock-based compensation expense		637			580
Loss on disposal of equipment		98			54
Deferred taxes		(48	)		—
Changes in operating assets and liabilities
Accounts receivable		(10,694	)		(3,323	)
Inventories		8,542			(4,033	)
Due to/from affiliates, net		29			(6	)
Other current assets		84			(3	)
Other assets		312			(1,572	)
Accounts payable		(15,172	)		5,966
Accrued liabilities		2,870			110
Income tax payable		4,929			1,252
Other current liabilities		(11	)		—
Other long-term liabilities		285			76
Net cash provided by operating activities		12,201			7,076
Cash flows from investing activities
Sale (purchase) of short term investments		(3,000	)		50
Cash paid for property and equipment		(4,339	)		(8,216	)
Purchases of software and capitalized internal-use software		(18	)		(48	)
Deposits on property and equipment		(1,808	)		(2,191	)
Proceeds from sale of equipment		551			271
Increase in restricted cash, net		(46	)		(1,080	)
Net cash used in investing activities		(8,660	)		(11,214	)
Cash flows from financing activities
Proceeds from exercise of stock options		468			98
Income tax benefit related to stock option exercise		13			254
Net cash provided by financing activities		481			352
Effect of exchange rate changes on cash		115			1,242
Net increase (decrease) in cash		4,137			(2,544	)
Cash and cash equivalents at beginning of period		27,955			24,460
Cash and cash equivalents at end of period	$	32,092		$	21,916

The accompanying notes are an integral part of these 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. (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 “Wearnes”), a Singapore company, owned approximately 60% of the Company’s outstanding common stock as of December 31 and September 30, 2007, allowing Wearnes to exercise operating control over the Company.

2. BASIS OF PRESENTATION

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has two wholly owned subsidiaries located in China, Multi-Fineline Electronix (Suzhou) Co., Ltd. (“MFC1”), and Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. (“MFC2”); one located in the Cayman Islands: M-Flex Cayman Islands Inc.; one located in Singapore: Multi-Fineline Electronix Singapore Pte. Ltd.; and one located in Arizona, Aurora Optical, Inc. (“Aurora Optical”). 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 have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2007 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 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Short-Term Investments

Short-term investments consist of certain marketable debt securities, which consist primarily of auction rate obligation securities of short to intermediate term fixed income securities issued by U.S. government agencies and state municipalities. The Company only invests in marketable securities with active secondary or resale markets to ensure portfolio liquidity and the ability to readily convert investments to cash to fund current operations, or satisfy other cash requirements as needed. Short-term investments are classified as available for sale and are carried at fair value, which approximates amortized cost.

Inventories

Inventories are comprised of the following:

	December 31, 2007		September 30, 2007
Raw materials and supplies	$	18,501	$	25,436
Work-in-progress		22,205		26,341
Finished goods		14,176		11,647
	$	54,882	$	63,424

4

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

Property, Plant and Equipment

Property, plant and equipment are comprised of the following:

	December 31, 2007			September 30, 2007
Land	$	4,054		$	4,054
Building		40,558			39,483
Machinery and equipment		147,171			141,129
Furniture and fixtures		5,490			5,131
Leasehold improvements		2,736			2,703
		200,009			192,500
Accumulated depreciation		(65,377	)		(58,867	)
	$	134,632		$	133,633

Depreciation expense for the three months ended December 31, 2007 and 2006 was $6,190 and $4,145, respectively.

Included in other assets as of December 31, 2007 and September 30, 2007 is capitalized purchased software and internally developed software costs. Amortization of software costs and intangibles for the three months ended December 31, 2007 and 2006 was $115 and $134, respectively.

Warranty

The Company warrants its products from 2 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 amounts 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 product warranty accrual for the three months ended December 31, 2007 and 2006 were as follows:

	Warranty Accrual Balance at September 30,		Warranty Expenditures			Provision for Estimated Warranty Cost		Warranty Accrual Balance at December 31,
2007	$	1,673	$	(2,255	)	$	2,110	$	1,528
2006	$	1,285	$	(1,507	)	$	1,851	$	1,629

Comprehensive Income

Comprehensive income or loss is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The difference between net income and comprehensive income or loss for the three months ended December 31, 2007 and 2006 was comprised entirely of the Company’s foreign currency translation adjustment. For the three months ended December 31, 2007 and 2006, comprehensive income was $16,905, and $4,895, respectively.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the local currency. Balances are translated into U.S. Dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for statement of income amounts. Currency translation adjustments are recorded in other comprehensive income, a component of stockholders’ equity.

5

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(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 consolidated statements of operations. For the three months ended December 31, 2007 and 2006, foreign exchange transaction gains and losses were included in other expenses and were net gains of $176 and $98, respectively.

Net Income Per Share-Basic and Diluted

Basic earnings per share is 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 are determined using the treasury stock method.

The following table presents a reconciliation of basic and diluted income per share:

	Three Months Ended December 31,
	2007	2006
Basic weighted-average number of common shares outstanding	24,654,297	24,452,611
Dilutive effect of outstanding stock options and restricted stock units	594,301	757,735
Diluted weighted-average number of common and potential common shares outstanding	25,248,598	25,210,346
Potential weighted-average common shares excluded from the per share calculation because the effect of their inclusion would be anti-dilutive	195,782	148,143

Commitments and Contingencies

Litigation

The Company is involved in litigation from time to time in the ordinary course of business, the outcome of which the Company’s management believes will not have a material adverse affect on the Company’s financial position, results of operations or cash flows.

Other Commitments

As of December 31, 2007 and September 30, 2007, the Company had outstanding purchase commitments related to MFC2 capital projects which totaled $1,472 and $8,457, respectively.

Pursuant to the laws applicable to the Peoples’ Republic of China’s Foreign Investment Enterprises, the Company’s two wholly owned subsidiaries in China, MFC1 and MFC2, are restricted from paying cash dividends on 10% of net income, subject to certain cumulative limits. These restrictions on net income for the three months ended December 31, 2007 and for the year ended September 30, 2007 are equal to $7,537 and $5,362, respectively.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109(“FIN 48”), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. FIN 48 was adopted on October 1, 2007. See Note 8 “Income Taxes” in the Notes to Condensed Consolidated Financial Statements for further discussion including the cumulative effect adjustment of adoption of FIN 48 on October 1, 2007.

6

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

In September 2006, the FASB issued Statement on Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements(“FAS 157”). FAS 157 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is in the process of determining the effect, if any, that the adoption of FAS 157 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 (“FAS 159”),The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 permits companies to make a one-time election to carry eligible types of financial assets and liabilities at fair value, even if fair value measurement is not required under U.S. GAAP. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the provisions of FAS 159 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations (“FAS 141R”). FAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. FAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not believe that FAS 141R will have an impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51 (“FAS 160”). FAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not believe that FAS 160 will have an impact on its consolidated financial statements.

Significant Concentrations

Net sales to the Company’s customers, which account for more than 10% of the Company’s net sales, are presented below. The Company’s customers consist principally of major U.S. based electronic companies and their subcontractors.

	Three Months Ended December 31,
	2007		2006
Company A	31	%	78	%
Company B	42	%	14	%
Company C	14	%	0	%

In the three months ended December 31, 2007 and 2006, 94% and 91% of net sales were derived from sales to companies that provide products or services to the wireless industry. The wireless industry is subject to economic cycles and has experienced period of slowdown in the past.

3. RELATED PARTY TRANSACTIONS

During the three months ended December 31, 2007 and 2006, the Company has recognized revenue and recorded purchases and other payments from the following affiliated companies: (a) MFS Technologies (M) Sdn. Bhd., a subsidiary of MFS Technology Ltd. (“MFS”); (c) Wearnes and (d) Suzhou Wearnes-Xirlink Electric Co. Ltd., a subsidiary of Wearnes. As discussed in Note 1, Wearnes owns approximately 60% of the Company’s common stock as of December 31 and September 30, 2007, respectively. MFS is an indirect subsidiary of WBL Corporation Limited (“WBL Corporation”).

7

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

Net amounts due from/to affiliated companies comprise the following:

	December 31, 2007		September 30, 2007
Due from affiliates
MFS Technologies (M) Sdn. Bhd.	$	15	$	—
	December 31, 2007		September 30, 2007
Due to affiliates
Wearnes	$	74	$	—
Suzhou Wearnes-Xirlink Electric Co. Ltd.		—		30
	$	74	$	30

4. EQUITY INVESTMENT

In June 2004, the Company entered into a definitive agreement with Cornerstone Equipment Management, Inc. (“Cornerstone”), in which the Company agreed to invest $450 in exchange for shares equal to approximately 14% of the ownership of Cornerstone. In addition, the Company agreed to provide certain services to Cornerstone at the Company’s standard terms and conditions. The investment balance as of December 31, 2007 is $450 and is included in other assets in the consolidated balance sheets. The Company accounts for its investment in Cornerstone using the cost method of accounting.

The Company periodically reviews this investment for other-than-temporary declines in fair value. Fair value for the this investment is evaluated based on several factors including; recent financial information, historical and forecasted financial and business information, and estimates of fair value of the Cornerstone comment stock or potential new investments in Cornerstone by third parties. As of December 31, 2007, there has been no impairment of the investment in Cornerstone.

5. LINES OF CREDIT

In January 2007, the Company entered into credit line agreements with Bank of China (“BC”) providing for two lines of credit in an aggregate of 200,000 RMB ($27,380 at December 31, 2007). The lines of credit matured in January 2008 and bore interest at a 10% discount of the People’s Bank of China six-month RMB Benchmark Interest Rate (5.913% at December 31, 2007). As of December 31, 2007 and September 30, 2007, the Company had no borrowings outstanding under these lines of credit.

The Company maintains a line of credit with Shanghai Pudong Development Bank (“SPDB”). The line of credit has two borrowing facilities, 75,000 RMB each ($10,268 each at December 31, 2007). The line of credit will mature in July 2008 and bears interest at a 10% discount of the People’s Bank of China six-month RMB Benchmark Interest Rate (5.913% at December 31, 2007). As of December 31 and September 30, 2007, the Company had no borrowings outstanding under this line of credit.

In July 2005, the Company entered into a $15,000 credit facility with Norddeutsche Landesbank Girozentrale (“NLG”). Borrowings under this facility will bear interest at LIBOR plus 2.5% correlating with the time period of the borrowing. Each borrowing under the facility matures six months after the borrowing date with respect to such borrowing. As of December 31 and September 30, 2007, the Company had no borrowings outstanding under this line of credit.

The Company is required under the line of credit with NLG to maintain certain financial ratios and the facility must be equal as to priority with all other obligations, with certain limited exceptions. In the event the Company defaults under its representations, warranties or covenants in the facility, including the covenants described above, NLG could require the Company to immediately repay all amounts outstanding under the facility and, if the Company were unable to make such payments, could seize the Company’s assets and property. In addition, if the Company defaults under its credit agreements with any other party, the Company will be considered in default under the agreement with NLG. As of December 31 and September 30, 2007, the Company was in compliance with the covenants in the NLG credit facility.

8

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

A summary of the lines of credit follows:

	Amounts Available at				Amounts Outstanding at
	December 31, 2007		September 30, 2007		December 31, 2007		September 30, 2007
Line of credit (BC)	$	27,380	$	26,604	$	—	$	—
Line of credit (SPDB)		20,536		20,619		—		—
Line of credit (NLG)		15,000		15,000		—		—
	$	62,916	$	62,223	$	—	$	—

6. 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 along with related component assemblies. The Company operates in two geographical areas: domestic (U.S.) and international (China). 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.

Financial information by geographic segment is as follows:

	Three Months Ended December 31,
	2007			2006
Net sales
United States	$	176,006		$	116,764
China		131,554			60,881
Eliminations		(123,408	)		(53,758	)
Total	$	184,152		$	123,887
Operating income
United States		6,772			3,437
China		11,614			1,144
Eliminations		513			313
Total	$	18,899		$	4,894
Depreciation and amortization
United States		731			873
China		5,574			3,406
Total	$	6,305		$	4,279
Capital expenditures
United States		480			809
China		5,667			9,646
Total	$	6,147		$	10,455

9

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

	December 31, 2007			September 30, 2007
Total assets
United States	$	274,039		$	307,661
China		248,594			236,432
Eliminations		(133,803	)		(166,806	)
Total	$	388,830		$	377,287
Long-lived assets
United States		19,839			20,421
China		114,928			113,347
Total	$	134,767		$	133,768

7. STOCK OPTION PLANS

Stock Options

Stock option activity for the three months ended December 31, 2007 and 2006 under the 1994 and 2004 Plans is summarized as follows:

	Number of Shares		Weighted- Average Exercise Price
Options outstanding at September 30, 2007	1,557,540		$	8.10
Exercised	(95,800	)		4.85
Forfeited	(4,555	)		17.69
Options outstanding at December 31, 2007	1,457,185		$	8.28

	Number of Shares		Weighted- Average Exercise Price
Options outstanding at September 30, 2006	1,706,067		$	7.89
Exercised	(13,695	)		7.10
Forfeited	(5,294	)		10.00
Options outstanding at December 31, 2006	1,687,078		$	7.89

The intrinsic value of options exercised during the three months ended December 31, 2007 and 2006, was $1,256 and $199, respectively. During the three months ended December 31, 2007 and 2006, the Company recognized compensation expense of $240 and $273 respectively, related to stock options. As of December 31 and September 30, 2007, there were stock options exercisable for up to 1,305,554 and 1,339,190 shares of stock outstanding. Unearned compensation of $848 existed at December 31, 2007, related to non-vested stock options which will be recognized into expense over a weighted average period of 1.0 year.

10

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

The following table summarizes information about stock options outstanding and exercisable, as adjusted for the expected forfeiture rate, as of December 31, 2007:

Fully vested and expected to vest							Fully vested options
Range of Exercise Prices	Outstanding	Weighted- Average Remaining Contractual Life (in years	Weighted- Average Exercise Price		Aggregate Intrinsic Value (000’s)		Number of Shares Exercisable	Weighted- Average Exercise Price		Aggregate Intrinsic Value (000’s)		Weighted- Average Remaining Contractual Life (in years
$2.00—$2.07	224,555	1.1	$	2.05		—	224,555	$	2.05		—	1.1
$3.73—$4.00	368,620	1.6		3.99		—	368,620		3.99		—	1.6
$8.75	18,816	6.7		8.75	$	162	16,664		8.75	$	143	6.7
$10.00	657,207	6.5		10.00		4,824	567,019		10.00		4,162	6.5
$16.80—$18.08	90,510	7.4		17.47		—	63,074		17.47		—	7.4
$20.18—$20.81	64,347	7.2		20.58		—	65,622		20.61		—	7.2
	1,424,055		$	8.13	$	4,986	1,305,554	$	7.82	$	4,305

Restricted Stock Units

In December 2007, the Company made restricted stock unit grants equal to 114,100 shares of the Company’s common stock, under the Company’s 2004 Stock Incentive Plan (the “2004 Plan”) to certain employees, including executive officers, at no cost to the employee. Each restricted stock unit represents one hypothetical share of the Company’s common stock, without voting or dividend rights. The restricted stock units granted to employees vest over a period of three years with one-third vesting on each of the anniversary dates of the vesting commencement date. No shares are delivered until the employee satisfies the vesting schedule. Unearned compensation related to the restricted stock units is determined based on the fair value of the Company’s stock on the date of grant and is amortized to expense over the vesting period. Unearned compensation of $5,080 existed at December 31, 2007, related to non-vested restricted stock units which will be recognized into expense over a weighted average period of 2.35 years. During the three months ended December 31, 2007 and 2006, the Company recognized compensation expense of $397 and $307, respectively, related to restricted stock units. No restricted stock units were granted during the three months ended December 31, 2006. The Company anticipates making future grants of restricted stock units in lieu of stock options.

Restricted stock unit activity for the three months ended December 31, 2007 and 2006 under the 2004 Plan is summarized as follows:

	Number of Shares		Weighted- Average Grant-Date Fair Value
Non-vested shares outstanding at September 30, 2007	247,118		$	22.99
Granted	114,100			17.62
Vested	(14,373	)		38.65
Forfeited	(52,962	)		17.88
Non-vested shares outstanding at December 31, 2007	293,883		$	21.06

	Number of Shares		Weighted- Average Grant-Date Fair Value
Non-vested shares outstanding at September 30, 2006	86,890		$	42.49
Vested	(14,697	)		38.65
Forfeited	(1,000	)		48.99
Non-vested shares outstanding at December 31, 2006	71,193		$	43.25

The Company realized a tax benefit of $284 and $151 for the three months ended December 31, 2007 and 2006, respectively, related to FAS No. 123R,Share Based Payment: An Amendment of FASB Statements No. 123 and 95 (“FAS 123R”).

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MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(In Thousands, Except Share and Per Share Data)

(unaudited)

8. INCOME TAXES

As of October 1, 2007, the Company adopted FIN 48. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As a result of the implementation of FIN 48, the Company recognized a $241 decrease to the October 1, 2007 balance of retained earnings related to adjustments to certain unrecognized tax benefits. As of the adoption date, the Company had $5,070 of unrecognized tax benefits on the balance sheet, of which $3,317, if recognized, would affect the effective tax rate. The unrecognized tax benefits have not changed significantly during the quarter ended December 31, 2007. It is expected that the amount of unrecognized tax benefits may change in the next 12 months; however, quantification of such change cannot be estimated at this time.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. In addition to the unrecognized tax benefits noted above, the Company had accrued $652 and $23 of interest and penalties, respectively, as of the adoption date.

The Company conducts business globally and, as a result, it or more of its subsidiaries files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years through fiscal 2003. The Company is currently being examined by the Internal Revenue Service for fiscal year 2005. With limited exceptions, the Company is no longer subject to state and foreign income tax examinations by taxing authorities for years through fiscal 2001.

9. SUBSEQUENT EVENT

In January 2008, the Company entered into credit line agreements with BC, providing for two lines of credit in an aggregate amount of 200,000 RMB (equal to $27,380 at January 24, 2008). The lines of credit will mature in January 2009 and bear interest at LIBOR (5.913% at January 24, 2008).

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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 operating expenses, net sales, sales, operations, gross margins, including without limitation, our targeted range of gross margins and our achievement of margins within or outside of such range, yields, anticipated cash needs, 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 of our China operations, anticipated growth strategies, ability to attract customers and diversify our customer base, including without limitation the relative size or each customer to us, sources of net sales, anticipated trends and challenges in our business and the markets in which we operate, the adequacy and expansion of our facilities, the impact of economic and industry conditions on our customers and our business, 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,” “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 degree to which we are able to utilize available manufacturing capacity, achieve expected yields and obtain expected gross margins, and the impact of competition and of 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 leading 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 provides a seamless, integrated end-to-end flexible printed circuit solution for our customers, ranging from design and application engineering, prototyping and high-volume manufacturing to turnkey 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 and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. We expect that the usage of flexible printed circuits and component assemblies will continue to increase in our target markets.

Critical Accounting Policy

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 35-37 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, 2007. Management believes that at December 31, 2007, there have been no material changes to this information other than the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”) on October 1, 2007. See Note 8 “Income Taxes” in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report for further discussion including the cumulative effect adjustment of adoption of FIN 48 on October 1, 2007.

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Comparison of the Three Months Ended December 31, 2007 and 2006

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

	Three Months Ended December 31,
	2007		2006
Net sales	100.0	%	100.0	%
Cost of sales	83.3		87.9
Gross profit	16.7		12.1
Operating expenses:
Research and development	0.3		0.5
Sales and marketing	2.5		2.1
General and administrative	3.7		5.6
Total operating expenses	6.5		8.2
Operating income	10.2		3.9
Interest income	0.2		0.3
Interest expense	0.0		0.1
Other income / (expense), net	0.2		(0.1	)
Income before income taxes	10.6		4.2
Provision for income taxes	3.2		1.3
Net income	7.4	%	2.9	%

Net Sales.Net sales increased from $123.9 million in the three months ended December 31, 2006 to $184.1 million in the three months ended December 31, 2007. The increase of $60.2 million, or 49%, was primarily attributable to an increase in sales to the wireless sector of $60.8 million, which accounted for approximately 94% and 91% of total net sales for the three months ended December 31, 2007 and 2006, respectively, driven primarily by the ramp up in volume to three of our key customers related to several programs that were established in fiscal 2007. Sales to three customers exceeded 10 percent of net sales during the three months ended December 31, 2007, with sales to two of these customers each exceeding 25 percent of net sales, as compared to two customers who exceeded 10 percent of net sales, with one of these customers exceeding 25% of our net sales for the comparable period in the prior year.

Net sales to the industrial sector, our second largest sector, were $4.8 million for the three months ended December 31, 2007, a decrease of $1.8 million, or 27%, as compared to the comparable period in the prior year, primarily due to order volume decreases. In comparison to the three months ended December 31, 2006, net sales to the consumer products increased $2.2 million for the three months ended December 31, 2007 compared to $6,000 for the comparable period in the prior year, which was driven by new programs established in fiscal 2007.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales decreased to 83% for the three months ended December 31, 2007 versus 88% for the comparable period in the prior year. The decrease in cost of sales as a percentage of net sales was driven by several factors. The main driver related to significant increases in customer sales volumes with higher margins due to product mix changes, which contributed approximately 85% of the decrease, offset by the impact of price reductions experienced in fiscal year 2007 of approximately 70%. Cost reductions from improved manufacturing yields and efficiencies resulting from operational improvement initiatives and the leveraging of fixed overhead expenses on the higher net sales comprised approximately 40% and 45% of the decrease, respectively.

Gross profit increased to $30.8 million for the three months ended December 31, 2007 versus $15.0 million in the comparable period in the prior year, an increase of 105%. As a percentage of net sales, gross profit increased to 17% for the three months ended December 31, 2007 from 12% in the comparable period in the prior year. While gross margins were above our targeted range of 10 – 15 percent during first quarter of fiscal 2008, we continue to believe that 10 – 15 percent is our sustainable gross margin range, although some quarterly fluctuations outside of the range could occur.

Research and Development. Research and development expenses decreased to $493,000 for the three months ended December 31, 2007 from $589,000 in the comparable period in the prior year, a decrease of 16%. The decrease was primarily due to a decrease in the purchase of materials related to research and development activities. Our research and development activities primarily focus on new technologies, primarily lens applications and low profile camera modules. We expect these expenses to grow as we continue to focus on product development activities.

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Sales and Marketing Expense. Sales and marketing expenses increased by $2 million to $4.6 million in the three months ended December 31, 2007 from $2.6 million in the comparable period in the prior year, an increase of 77%. The increase is primarily attributable to a $1.2 million increase in commission expense related to higher average commission rates on new programs and increased sales volumes, as well as a $370,000 increase in customer support expenses related to the expansion of our international sales office activities, particularly our Netherlands sales office. Compensation and benefit expense increased to $1.8 million in the three months ended December 31, 2007 from $1.3 million in the comparable period in the prior year, an increase of 38%. The increase is primarily attributable to the increased engineering headcount in China to support the number of new program ramp-ups during fiscal 2007 and increased sales headcount at our Aurora Optical location.

General and Administrative Expense. General and administrative expense remained constant at $7 million during the three months ended December 31, 2007 and 2006. Although general and administrative expenses remained constant, compensation and benefits expense increased by $900,000 due to an increase in headcount at both our China and U.S. locations to support the growth in sales offset mostly by a decrease in legal fees of $1 million attributable to the terminated acquisition of MFS in the prior year. As a percentage of net sales, general and administrative expenses decreased to 4% of net sales for the three months ended December 31, 2007 from 6% for the comparable period in the prior year. The decrease in percentage of net sales was attributable to the increase in our net sales. We expect general and administrative expense of 4% to be the bottom end of the range.

Interest Income. Interest income decreased to $359,000 for the three months ended December 31, 2007 from $406,000 for the three months ended December 31, 2006. The decrease is primarily attributable to a decrease in the average short-term investment balance invested as compared to the comparable period.

Interest Expense. Interest expense decreased to $59,000 for the three months ended December 31, 2007 from $173,000 for the three months ended December 31, 2006. The decrease is attributable to the $4.0 million line of credit that was outstanding during the three months ended December 31, 2006 which was paid off during fiscal year 2007.

Other Income (Expense), Net. Other income (expense), net increased to income of $349,000 for the three months ended December 31, 2007 from income of $124,000 for the comparable period in the prior year. The increase is attributable primarily to an increase on foreign currency exchange during the three months ended December 31, 2007 versus the comparable period in the prior year. The increase in gain on foreign exchange is due to gains experienced on MFC2 related to the timing of purchases made in U.S. Dollars and recorded in RMB.

Income Taxes. The effective tax rate for the three months ended December 31, 2007 remained relatively consistent at 31% from the comparable period in the prior year.

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.

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 twelve months; however, there can be no assurance that any growth will occur and unexpected events may result in our need to raise additional capital.

During the three months ended December 31, 2007, net income of $13.6 million, adjusted for depreciation and amortization, loss on equipment disposal, stock-based compensation expense, deferred taxes and provision for doubtful accounts, generated $20.2 million of operating cash. This amount was decreased by $8.0 million used to meet working capital requirements.

Changes in the principal components of working capital for the three months ended December 31, 2007 were as follows:

• Net accounts receivable increased 8% to $134.6 million at December 31, 2007 from $124.3 million at September 30, 2007. The increase in outstanding accounts receivable was attributable to increased monthly sales during the three months ended December 31, 2007 and a slight decline in our collections experience during the current fiscal quarter.

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• Inventory balance decreased to $54.9 million at December 31, 2007 from $63.4 million at September 30, 2007, a decrease of 13%. The principal reason relates to decreases in raw materials and work-in-progress levels related to improvement in throughput from numerous programs for several key customers during the three months ended December 31, 2007.

• Accounts payable balance decreased to $96.8 million at December 31, 2007 from $111.9 million at September 30, 2007, a decrease of 14%, as a result of our ramp up of inventories in the prior quarter to support the high-volume production anticipated during the three months ended December 31, 2007.

• Depreciation and amortization expense was $6.3 million for the three months ended December 31, 2007 versus $4.3 million in the comparable period in the prior year due to the increased fixed asset base, mainly at MFC2.

Our principal investing and financing activities for the three months ended December 31, 2007 were as follows:

• Net cash used in investing activities was $8.7 million for the three months ended December 31, 2007. Capital expenditures included $4.3 million of capital equipment, and $1.8 million in deposits for fixed asset purchases, which were primarily related to the MFC2 manufacturing capacity expansion. As of December 31, 2007 and September 30, 2007, we had outstanding purchase commitments related to MFC2 capital projects which totaled $1.3 million and $8.5 million, respectively.

• We invested $3.0 million in short-term investments in the three months ended December 31, 2007.

• Net cash provided by financing activities was $481,000 for the three months ended December 31, 2007 primarily attributable to proceeds received from the exercise of stock options.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Market risk represents the risk of loss arising from adverse changes in market rates and foreign exchange rates. At December 31 and September 30, 2007, no amounts were outstanding under our loan agreements with Shanghai Pudong Development Bank, Bank of China or NLG. 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.

We derive a substantial portion of our sales outside of the United States. Approximately $444 million, or 96%, of total shipments to these foreign manufacturers for fiscal 2007 were made in U.S. Dollars. The balance of our net sales are denominated in Chinese Renminbi, or RMB. The exchange rate for the RMB to the U.S. Dollar has been an average of 7.7 RMB and 7.4 RMB per U.S. Dollar for the fiscal year ended September 30, 2007 and the three months ended December 31, 2007, respectively. Transactions in RMB represent approximately 4% of total net sales from foreign customers for the fiscal year ended September 30, 2007 and the three months ended December 31, 2007. In July 2005, the People’s Bank of China, or PBOC, terminated the fixed exchange rate between the RMB and the U.S. Dollar, adjusted the exchange rate from 8.3 to 8.1 and established a 0.3% maximum daily appreciation limit against the U.S. Dollar. However, during the third quarter of fiscal 2007, the PBOC increased the rate at which the RMB/U.S. Dollar exchange can fluctuate, which resulted in a greater RMB appreciation. We expect the RMB appreciation against the U.S. Dollar to continue to increase in the future, which will result in an increase in the cost of our business expenses in China due to the movement of the exchange rates. We generally do not consider it necessary to hedge against currency risk, as a significant portion of our material cost of sales is denominated in U.S. Dollars, eliminating much of the need to hedge; however, we continue to be vulnerable to appreciation or depreciation of foreign currencies against the U.S. Dollar.

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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 controls 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.

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 actual results to vary materially from recent results or from our anticipated future results.

Risks Related to Our Business

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

For the past several years, a substantial portion of our net sales has been derived from products that have been incorporated into products that are manufactured by or on behalf of a limited number of key customers, which currently includes Apple Inc., Motorola, Inc., Research in Motion and Sony Ericsson. For example, in the first quarter of fiscal year 2008, approximately 95% of our net sales were to these four customers, with sales to three of these customers each exceeding 10%, and sales to two of these customers each exceeding 25%, of our net sales in the quarter. In addition, 91% of our net sales were to three of these customers in fiscal year 2007, with net sales to one of these customers comprising 57%, 82% and 81% of our net sales in fiscal years 2007, 2006 and 2005, respectively.

Several subcontractors of certain of these key customers also have, from time to time, constituted our significant customers. Although generally we assist our customers in the design of their products and the customer directs its subcontractors to purchase products from us, one or more subcontractors could look to another source for the components to be incorporated into the products they supply to the customer. In addition, if the customer were to reduce its orders to any of its subcontractors or if the customer were to choose another flexible printed circuit assembly manufacturer to supply any portion of its products, it could reduce the orders that these customers place with us, which could substantially harm our business, financial condition and results of operations. For example, our net sales in fiscal year 2007 were impacted by a significant decline in net sales of 33% to Motorola, compared to the prior year.

We must obtain orders from new and existing customers on an ongoing basis to increase our net sales and grow our business. We are continuing our efforts to reduce dependence on a limited number of customers; however, net sales attributable to a limited number of customers and their subcontractors are expected to continue to represent a substantial portion of our net sales for the foreseeable future. The loss of any one of these customers, a significant reduction in sales we make to them, a reduction in the pricing of our products sold to them or any problem collecting accounts receivable from them would reduce our net income.

In addition, even if we are able to increase sales to other customers, we still expect to have a small number of key customers to whom we make significant sales.

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We are heavily dependent upon the wireless industry, and in particular, the handset market, and any downturn in this industry may reduce our net sales.

For the three months ended December 31, 2007 and 2006, 94% and 91%, respectively, of our net sales were derived from sales to companies that provide products or services to the wireless industry. In general, the wireless industry is subject to economic cycles and has experienced in the past, and is likely to experience in the future, periods of slowdown. Intense competition, relatively short product life cycles and significant fluctuations in product demand characterize the industry as a whole. The wireless industry also generally is subject to rapid technological change and product obsolescence. Fluctuations in demand for our products as a result of periods of slowdown in the wireless market or discontinuation of products or modifications developed in connection with next generation products could reduce our net sales.

Our customers have and may continue to cancel their orders, change production quantities, delay production or qualify additional vendors, any of which could reduce our net sales.

Substantially all of our sales are made on a purchase order basis, and we are not always able to predict with certainty the timing or magnitude of these orders. We cannot guarantee that we will continue to receive any orders from our customers, and our net sales will be harmed if we are unable to obtain a sufficient number of orders from, or ship a sufficient number of products to, customers in each quarter. In addition, our customers may cancel, change or delay product purchase orders with little or no advance notice to us. Business practices of certain customers may change from sales on a purchase order basis to sales on a master purchase contract basis, which may affect the way we do business with those customers. Also, we believe customers may be increasing the number of vendors upon which they rely for manufacturing. Qualification of additional vendors for an application for which we are also qualified may result in our net sales being lower than our forecast of sales. As a result of the foregoing factors, we are not able always to forecast with certainty the net sales that we will make in a given period and sometimes 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. The following factors, among others, affect our ability to forecast accurately our net sales and production capacity:

• changes in the specific products or quantities our customers order;

• variability in our manufacturing yields;

• long lead times and advance financial commitments for our plant and equipment expenditures;

• long lead times and advance financial commitments for components required to complete anticipated customer orders; and

• price reductions due to competitive pressure.

Delayed, reduced or canceled orders also may result in our inability to recover costs that we incur in anticipation of those orders, such as costs associated with purchased raw materials or components, because we are often required, and in the past year, we have experienced a trend where we are more often being required, to purchase materials and components before a customer becomes contractually committed to an order in order to be able to timely deliver such order to the customer. In addition, delayed, reduced or canceled orders may 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. For example, in fiscal 2006, we incurred a net $3 million in write-downs as a result of the bankruptcy of one of our customers, which had a material impact on our earnings in the fourth quarter of fiscal year 2006 (although a certain portion of this amount was recovered in the second and third quarters of fiscal 2007).

We will have difficulty selling our products if customers do not design our flexible printed circuit products into their product offerings, if our customers’ product offerings are not commercially successful, or if we do not timely execute our operational and strategic plans.

We sell our flexible printed circuit products directly or indirectly to original equipment manufacturers, or OEMs, that include our products and component assemblies in their product offerings. As a result, we rely on OEMs to select our products to be designed into their product offerings. We must qualify our products with our customers, which involves demonstrating to our customers that our products can be manufactured within specified tolerances. This process can be time-consuming, complex, costly and difficult. If an OEM selects one of our competitors to provide a product instead of us, 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. Our customers typically are not obligated to purchase products from us and can stop using our products at any time. Even if an OEM designs one of our products into its product offering, we have no assurance that the product will be commercially successful, that we will receive any order from that manufacturer or that we will not be undercut by a competitor’s pricing.

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We cannot be certain that our current products will continue to be selected for design into our customers’ products or that our customers will not also qualify additional vendors for their products. In addition, our long term strategy relies in part on new technologies and products. We cannot be certain that our new technology and products will be selected by customers, especially if we are unable to obtain certain industry approval, including Underwriters Laboratory approval for the charger products we are working to develop. If we are unable to obtain additional customer qualifications, if we cannot qualify our products for high-volume production quantities, if we do not execute our operational and strategic plans for new products in a timely manner or if our customers increase their reliance on additional sources for their production, our net sales may decrease.

WBL Corporation beneficially owns 60% of our outstanding common stock and is able to exert influence over us and our major corporate decisions.

WBL Corporation beneficially owns 60% of our outstanding common stock. As a result of WBL Corporation’s ownership interest and its influence over the composition of our board of directors, WBL Corporation has influence over our management, operations and potential significant corporate actions. For example, so long as WBL Corporation 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 Corporation 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 Corporation’s effective ownership of us to a level that is below a majority of our outstanding shares of common stock. As defined in this stockholders agreement, WBL Corporation is deemed to effectively own approximately 56% of our current outstanding stock. Given that WBL Corporation has the ability to block any proposed issuance of shares that would reduce its effective ownership to less than a majority of our common stock, measured on an effective ownership basis, WBL Corporation 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. To the extent that WBL Corporation beneficially owns a significant portion of our outstanding common stock, even if less than a majority, it will continue to have significant influence over all matters submitted to our stockholders. WBL Corporation is not prohibited from selling a controlling interest in us to a third party, including a participant in our industry, or from buying additional shares of our stock.

WBL Corporation and its designees on our board of directors may have interests that conflict with our interests.

We believe that WBL Corporation and its designees on our board of directors may have interests that conflict with, or are different from, the interests of our other stockholders, including, for example, as a result of WBL Corporation’s substantial ownership of MFS Technology Ltd., or MFS.

These conflicts of interest could include potential competitive business activities, corporate opportunities, indemnity arrangements, registration rights, sales or distributions by WBL Corporation of our common stock and the exercise by WBL Corporation of its ability to influence our management and affairs. If any conflict of interest is not resolved in a manner favorable to our stockholders, our stockholders’ interests may be substantially harmed.

In general, WBL Corporation does not have the ability to prevent us from making operational decisions that do not require stockholder approval; however, WBL Corporation does have the ability to control who is elected to our board of directors each year and therefore can influence decisions that require board approval. In addition, pursuant to our stockholders agreement with WBL Corporation, for so long as WBL Corporation effectively owns at least one-third of our voting stock, it has the ability to approve the appointment of any new chief executive officer or the issuance of securities that would reduce WBL Corporation’s effective ownership of us to a level that is below a majority of the outstanding shares of our common stock.

In general, our certificate of incorporation does not contain any provision and we do not have any other established procedure that is designed to facilitate resolution of actual or potential conflicts of interest or to ensure that potential business opportunities that may become available to both WBL Corporation and us will be reserved for or made available to us.

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WBL Corporation 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 Corporation’s stockholders or the relevant regulators may not approve the proposed corporate action.

WBL Corporation’s ordinary shares are listed on the Singapore Securities Exchange Trading Limited, or the Singapore Exchange. Under the rules of the Singapore Exchange, to the extent that we constitute a principal subsidiary of WBL Corporation, as defined by the rules of the Singapore Exchange, at any time that we submit a matter for the approval of our stockholders, WBL Corporation 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.

For the fiscal year ended September 30, 2007, we were a principal subsidiary of WBL Corporation as defined by the rules of the Singapore Exchange, which state that we are deemed a principal subsidiary of WBL Corporation for any given fiscal year that our audited consolidated pre-tax profits consolidated into WBL Corporation accounts for more than 20% of the consolidated pre-tax profits of WBL Corporation during our immediately prior fiscal year. We expect to continue to be a principal subsidiary of WBL Corporation for the foreseeable future.

Examples of corporate action we may seek to take for which we would need to obtain our stockholder 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

• an issuance of shares of our common stock in an offering other than a public offering at a price of less than fair market value if the number of shares being sold exceeds 20% of our then outstanding common stock.

To obtain stockholder approval, WBL Corporation 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 Corporation 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 Corporation at a time in which we qualify as a principal subsidiary (including this year), the process of seeking WBL Corporation’s stockholder approval may delay our proposed action and it is possible that WBL Corporation’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 Corporation was unable to vote at the meeting as a result of the Singapore Exchange rules.

The rules of the Singapore Exchange that govern WBL Corporation 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 adverse to us than the existing rules and interpretations.

One stockholder group beneficially owns 18% of our outstanding common stock, or approximately 46% of the shares not held by WBL Corporation, the “minority interest”, and thus, they may have the ability to control the outcome of any vote requiring the approval of the minority interest.

Stark Investments and its affiliated funds (“Stark”) owns approximately 18% of our outstanding common stock, and owns approximately 46% of our minority interest. Given that Stark effectively has control of over a majority of our minority interest, any related-party transaction that requires the approval of a majority of our minority interest, as is required by our charter in related-party transactions, will require the approval or abstention of Stark.

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 are heavily dependent on our current executive officers and management. We believe that our success is highly dependent on the contributions of Philip A. Harding, our chief executive officer and chairman of the board of directors, and Reza Meshgin, our president and chief operating officer. We do not have employment contracts with these or any other key personnel, and their knowledge of our business and industry would be extremely difficult to replace.

In addition, due to the expansion of companies into the flex market and increased competition in the flex market, we anticipate that our employees may be heavily recruited by our competitors. Furthermore, we believe an increase in the number of manufacturers in Suzhou, China and the surrounding areas has increased the competition for qualified employees and we are experiencing a significant employee turn-over rate in our facilities in China. The costs of retaining such employees, in China, and the location of certain of our facilities in the United States may make it difficult to recruit qualified employees at those facilities.

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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.

Rapidly changing standards and competing technologies could make our products obsolete, which would cause our net sales to decrease.

The development and evolution of markets for our flexible printed circuit products depends on industry standards. Our products are designed to conform to current specific industry standards, such as operating temperature range. Competing standards or products may emerge that are preferred by our customers. For example, we foresee a trend toward the usage of rigid flex in addition to, and in some instances in place of, the current flexible printed circuit technology. We will need to make capital expenditures to support technological advances and to develop and manufacture new products and product features that our customers demand. In addition, any new product we introduce may have competing technologies available from which we may have to choose. If we choose technology or a standard that does not become the industry standard, we may be unable to sell those products or we may be unable to obtain a supplier for the raw materials for such products.

We also expect future flex and component assembly solutions to require higher performance specifications, including, for example, higher density circuitry than we have historically produced, and to incorporate new technology, materials and components which may impact manufacturing yields and efficiencies. We may incur higher manufacturing costs if manufacturing processes or standards change, and we may need to replace, modify or design, build and install equipment, all of which would require additional capital expenditures. If our customers were to switch to alternative technologies or adopt new or competing industry standards with which our products are not compatible or fail to adopt standards with which our products are compatible, or if we were unsuccessful in manufacturing or selling products in high volumes that incorporate new technologies (rigid flex, for example), our existing products would become less desirable to our customers and our net sales may decrease.

Problems with manufacturing yields could result in higher operating costs and could impair our ability to meet customer demand for our products.

If we cannot achieve expected yields in the manufacture of our products, we may incur higher per unit costs, lower profits and reduced product availability and may be subject to substantial penalties by our customers. Low yields may result from, among other things, design errors, manufacturing failures in new or existing products, the inexperience of new employees, or the learning curve experienced during the initial and ramp-up stages of a new product introduction. Any reduction in our ability to timely deliver products to customers could adversely affect our customer relationships and make it more difficult to sustain and grow our business. In addition, reduced yields can significantly harm our gross margins thereby contributing to lower profitability or even losses. Further, we have not yet manufactured camera modules in high-volume production, and we may encounter difficulties in doing so. Any such difficulties could harm our ability to sustain or grow our business.

We may not be able to compete effectively, which will cause our net sales and market share to decline.

On a global level, we compete primarily with large flexible printed circuit board manufacturers located throughout Asia, including Taiwan, China, Korea, Japan and Singapore. We believe the number of customers in the market may continue to consolidate and the number of suppliers may continue to increase. The competitive landscape in our market is changing rapidly and we may lose our market share if we do not implement operational improvements in response to the evolving marketplace. If we do not compete successfully, our net sales and market share may decline. 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 maintaining or establishing close relationships with customers in markets in which we compete, we may not be able to grow our market share or net sales. To the extent that we are not able to provide regular interaction between our engineers and our customers and potential customers, our business may be harmed. In some cases, our competitors may offer more favorable pricing to potential or existing customers. In addition, we believe more companies are now producing flexible printed circuit boards than before. Such competition could increase pressure on us to lower our prices, which, in turn, would harm our margins and operating results.

In addition, many of our customers are larger, established electronic manufacturing services, or EMS, providers. Certain of these 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 and may compete with us on future OEM programs. Furthermore, many companies in our target customer base are moving the design and manufacturing of their products to original design manufacturers, or ODMs, in Asia. If we are unable to capture, maintain and continue to service these ODMs as customers, we may be unable to sustain or grow our business.

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In addition, we sell both flex and flex assemblies to our customers, which include both EMS providers and OEMs. Even if the EMS providers aren’t able to capture a significant portion of the flex business from us, they or the OEMs could still stop ordering the flex assembly from us, or significantly reduced their assembly orders to us. If this occurs, our net sales could be significantly reduced and our net income would also be impacted.

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

We deal with a limited number of large customers who are able to exert significant pressure on us, both in terms of pricing and contract terms. We enter into price reduction negotiations with these customers on a periodic basis, typically annually, semi-annually or quarterly. We also renegotiate the terms of our contracts, which specify, among other items, quality requirements, liability and indemnification thresholds and payment terms, with many of our customers on an annual or semi-annual basis. Due to increased competition, customers have recently exerted significant pricing pressure on us, which has contributed to a decline in our profitability. We may lose our market share if we do not participate in such negotiations; furthermore, changes in contract terms, including price reduction activities, may result in lower margins for us and the extension of payment terms for our customers, which could negatively affect our cash flow. Our selling prices are also affected by changes in overall demand for our products, changes in the specific products our customers buy, pricing of competitors’ products and our products’ life cycles. 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 liquidated damages to a customer due to a breach of contract claim, including due to quality or delivery issues, our cost of sales may increase, which would harm our profitability.

Significant product failures 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. Return rates on our products may fluctuate, and we have recently experienced an increase in our return rate. 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 flexible printed circuit products was to occur, we may experience a rate of failure in our products that would result in significant delays in product shipments, cancellation of orders, substantial penalties from our customers and their customers, substantial repair or replacement costs and potential damage to our reputation.

Any failure to maintain ongoing sales through our independent sales representatives could harm our business.

To date, we have sold our products through our direct sales force and a network of non-exclusive independent sales representatives. We rely on these sales representatives to provide customer contacts and market our products directly to our global customer base. Our sales representatives are not obligated to continue selling our products, and they may terminate their arrangements with us at any time with limited notice. It is possible that we may not be able to maintain or expand these relationships successfully or secure agreements with additional sales representatives on commercially reasonable terms, or at all. Any failure to develop and maintain our relationships with these sales representatives and any failure of our sales representatives to effectively market our products could harm our business, financial condition and results of operations.

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

At times, there are worldwide shortages of the components and raw materials used in the fabrication of flexible printed circuits and imaging solutions. Our customers require that we use components that have been pre-qualified by them, which further limits the supply of components available to us and frequently results in our need to seek components from a limited number of suppliers. In addition, suppliers of certain of our components may consider us too small of a customer to sell to directly, which could require us to buy through distributors, which could increase the cost of such components. We generally 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 short-term supply contracts with third-party suppliers to provide these raw materials and components in a timely fashion and on commercially reasonable terms. Our operations would be negatively impacted if we are unable to receive raw materials or components on a timely or cost-effective basis. In addition, our operations and gross margins may be negatively impacted if materials or components do not meet our or our customers’ specifications, even if our customer had specified from whom we must purchase such materials or components.

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Given the rapid increase in demand for flexible printed circuits and imaging solutions, a worldwide shortage for these materials may exist from time to time. In the past, a similar shortage for flexible printed circuit materials required that we qualify an additional supplier in order to maintain the delivery of our largest production run, and during certain quarters of fiscal 2006, we experienced component shortages which resulted in delayed shipments to customers. We expect that these delays could occur in future periods, and we may not be successful in managing any shortage of raw materials or components that we may experience, which would decrease our net sales. During the three months ended December 31, 2007, we purchased substantially all materials used to make flexible printed circuits from a limited number of vendors.

We face business, political, regulatory, operational, financial and economic risks because a significant portion of our operations and sales are to customers outside of the United States.

Our primary manufacturing facilities are located in China. Although our headquarters are located in California and we also have operations in Arizona, we expect that our operations in China will continue to assume a larger and more important role in our business. We are subject to risks inherent in international business, many of which are beyond our control, including:

• difficulties in obtaining domestic and foreign export, import and other governmental approvals, permits and licenses and compliance with foreign laws, including employment laws;

• difficulties in collecting payments from foreign customers to whom we have extended significant amounts of credit if those customers do not pay us on the payment terms extended to them;

• difficulties in staffing and managing foreign operations, including cultural differences in the conduct of business, labor and other workforce requirements and inadequate local infrastructure;

• the need to successfully migrate our foreign locations to the financial reporting system used by us in the United States, including the need to implement and maintain financial controls that comply with the Sarbanes-Oxley Act;

• trade restrictions or higher tariffs;

• transportation delays and difficulties of managing international distribution channels;

• longer payment cycles for, and greater difficulty collecting, accounts receivable;

• foreign currency exchange rate fluctuations that render our prices uncompetitive or increase our cost of doing business, specifically the Chinese RMB, which has consistently appreciated against the U.S. Dollar since the fourth quarter of our fiscal 2005. During the third quarter of fiscal 2007, the People’s Bank of China increased the rate at which the RMB/U.S. Dollar exchange can fluctuate, which resulted in greater RMB appreciation during the third and fourth quarters. We expect the RMB appreciation against the U.S. Dollar to continue to increase in the future, which will result in the increase in the cost of our business in China due to the movement in the exchange rates;

• unexpected changes in regulatory requirements, royalties and withholding taxes that restrict the repatriation of earnings and affect our effective income tax rate due to profits generated or lost in foreign countries;

• political and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions;

• increases in the cost of doing business in China, including increases due to changes in environmental regulations, increased competition for employees and new or increased governmental fees or assessments;

• requests from the government that we relocate facilities which we had planned to continue to operate for the foreseeable future, and actions from agencies controlled by the government possibly designed to compel or encourage such relocation;

• unforeseen changes in regulatory requirements, including without limitation, safety, labor, health or occupational welfare regulations, which could require us to change the manner in which we do business or increase the costs of our doing business. For example, in October 2007, the minimum wage in Suzhou, China was increased from a monthly wage of RMB 750 to RMB 850 with only two weeks’ notice to employers;

• new labor contractual laws in China, which became effective in January 2008, which make it costly to terminate any employee whose term of employment with us has been renewed three times (most of our employees in China work under an employment contract with a term varying from one to three years). Once we renew the employee’s contract for the third time, if we thereafter desires not to renew such employee’s contract, we must pay the employee one month’s salary for every year of service, unless the termination is for cause;

• disruptions or shortages in the supply of electricity or other utilities;

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• the occurrence of natural disasters or other acts of force majeure which may disrupt or otherwise impede communications between our facilities and may cause our facilities not to have access to the systems or information required to operate the business; and

• public health emergencies such as SARS and avian flu.

Any of these factors could harm our international sales and operations significantly.

Our manufacturing capacity may be interrupted, limited or delayed if we cannot maintain sufficient sources of electricity in China, or if there is a natural disaster or other catastrophic event 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. In January 2008, we experienced a lack of electricity on at least one occasion at our China facilities, and expect that we will continue to experience insufficient power supplies in China in the foreseeable future. Although we have purchased several generators for certain of our facilities in China, we do not have generators at all of our China locations and cannot be assured that the generators we do have will produce sufficient electricity supply in the event of a disruption in power. Power interruptions, electricity shortages, the cost and availability 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 manufacturing 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 two primary manufacturing facilities are both located in Suzhou, China. Natural disasters or other catastrophic events, including wildfires and other fires, earthquakes, excessive rain, cold or snow storms, terrorist attacks and wars, could disrupt our manufacturing or operational abilities, which could harm our operations and financial results. Specifically, there have been several recent winter storms in China. If these conditions persist (which is expected), it is possible that our operating results may be adversely impacted for a variety of reasons, including transportation issues, material supply issues, power outages and building integrity issues.

China’s legal and regulatory systems embody uncertainties that could harm our business operations.

Since 1979, many new laws and regulations covering general economic matters have been promulgated in China. Despite the development of the legal system, China’s system of laws is not yet complete. Even where adequate law exists in China, enforcement of contracts based on existing law may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. In addition, changes in the regulations or policies (or the application of existing regulations or policies) in China generally, or specifically in Suzhou, China, where our factories are located, may affect our ability to conduct or expand our business.

For example, in 2006 the Chinese government announced that the printed circuit board, or PCB, business was no longer considered to be a high-tech industry, and as such, it was no longer an encouraged industry to migrate to, or expand in, China. In addition, in 2007, we were informed that effective December 1, 2007, the production of single-sided flexible printed circuit boards would no longer be considered a high-tech industry. Although these classifications have not affected our operations to date, if the government were to determine that multi-layer flexible printed circuit boards are no longer within the high-tech industry classification, it could adversely affect our ability to maintain or expand operations in China. As another example, in 2007 we were informed that one of our facilities in China may no longer meet the current fire department regulations. If interpretations or changes in the application of the fire code resulted in our need to take immediate corrective action, it could also adversely affect our ability to maintain or expand our operations in Suzhou, China.

Our activities in China will be 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 the requisite governmental approval for our activities. Failure to obtain the requisite governmental approval for any of our activities could impede our ability to operate our business or increase our expenses.

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We may have difficulty managing any growth that we might experience.

If we continue to experience growth in our operations, our manufacturing facilities, operational and financial systems, procedures and controls may need to be expanded, which may distract our management team from our business plan and involve increased expenses. Our success will depend substantially on the ability of our management team to manage any growth effectively. These challenges may include:

• the ability to timely and in a cost-effective manner hire and retain employees, particularly in our Suzhou, China locations;

• the ability of our management to predict accurately increases or decreases in demand for our products and manage our manufacturing capacity appropriately;

• maintaining our cost structure at an appropriate level based on the net sales we generate;

• managing multiple, concurrent manufacturing expansion projects;

• the ability to ramp-up and manage multiple new programs concurrently;

• higher over-time and scrap rates often associated with periods of growth;

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

• managing operations in multiple locations and multiple time zones;

• the ability to timely and in a cost-effective manner increase our manufacturing capacity and build new manufacturing facilities in order to meet customer demands, the failure of either of which could cause customers to take their business to our competitors; and

• the ability to acquire customers in a new line of business.

If we do not effectively manage any growth we might experience, and deliver on any increase in orders we might receive from any customer, in addition to losing a growth opportunity, we may lose the customer and its orders all together, which could adversely affect our net sales and income.

The Sarbanes-Oxley Act and other rules and regulations may increase the time and costs of certain activities.

We incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, have required changes in corporate governance practices of public companies. These rules and regulations have increased our financial compliance costs and have made some activities more time-consuming and costly. We believe that these rules and regulations have also affected the cost of our director and officer liability insurance, and, from time to time, we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Our business is capital intensive and the failure to obtain capital could require that we curtail 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 for 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. We may not be able to raise additional capital on reasonable terms, or at all. In addition, under the terms of our stockholders agreement with WBL Corporation, WBL Corporation’s approval is required for the issuance of securities that would reduce its effective ownership of us to a level that is below a majority of the outstanding shares of common stock. If WBL Corporation’s approval is required, it is possible that WBL Corporation may not approve any transaction we may seek to complete, which could affect whether we are able to complete such a transaction. If we cannot raise the required capital when needed, we may not be able to satisfy the demands of existing and prospective customers and may lose net sales and market share.

The following factors could affect our ability to obtain additional capital on favorable terms, or at all:

• our results of operations;

• general economic conditions and conditions in the electronics industry;

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• the perception of our business in the capital markets;

• our ratio of debt to equity;

• our financial condition;

• our business prospects;

• WBL Corporation’s approval, if required;

• the international aspects of our business, including the foreign location of a majority of our physical assets and the fact that a majority of our customers are located overseas; and

• interest rates.

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.

We are subject to the risk of increased income and other taxes in China.

We currently enjoy tax holidays and other tax incentives for our operations in China. The tax holiday rate of 12% for our first manufacturing facility in China, MFC1, expired on December 31, 2007, and MFC1 is now subject to an income tax rate of 25%, based on current law.

We have obtained two tax holidays for our second manufacturing facility in China, MFC2. The first tax holiday, which commenced in 2004, allows for tax-free operation for the first two years (beginning in the first year of profitability) followed by three years of operation at a reduced rate of income tax equal to 12% on the profits generated from the original registered capital. The second tax holiday, which commenced in 2006, allows for tax-free operation for the first two years followed by three years of operation at a reduced rate of income tax equal to 12% on the profits generated from the increased capital. On February 1, 2008, MFC2 became subject to a tax holiday rate of 12% on both the original and increased capital. However, these tax holidays may be challenged, modified or even eliminated by taxing authorities or changes in law. For the fiscal years ended September 30, 2007 and 2006 we realized tax savings of $1.5 million and $4.4 million respectively, for our operations in China.

The National People’s Congress, China’s top legislative body, passed the Unified China Corporate Income Tax Law on March 16, 2007. The new corporate income tax rate decreased from 27% to 25% effective January 1, 2008. Unused tax holidays for existing foreign invested enterprises will be grandfathered until they expire. MFC1’s tax holiday expired on December 31, 2007. MFC2’s first and second tax holidays will expire on December 31, 2008 and 2010, respectively. We have analyzed the tax impact of this law change and concluded that there is no material impact on our consolidated financial position, results of operations or cash flows.

In addition, from time to time we may be subject to various types of tax audits by the tax authorities. For example, an audit relating to the import and export of raw and component materials at MFC1 during fiscal year 2005 resulted in our need to incur a charge of approximately $1.5 million to cost of sales for value added tax and duty, plus interest and penalties.

Our bank facilities contain restrictive covenants that, if not satisfied or waived, could impact our ability to borrow money under these facilities and could result in acceleration of our debt obligations under these facilities that may be outstanding from time to time.

Our failure to comply with restrictive covenants in our bank facilities could result in an event of default which, if not satisfied or waived, could preclude us from borrowing money under one or more of these facilities or may result in us being required to repay any borrowings we may have under our facilities from time to time. In addition, our facility with Norddeutsche Landesbank Girozentrale, or NLG, provides that NLG can refuse to honor a draw request from us for any reason and can terminate our facility with them at any time, even if we are in full compliance with the terms of the facility. If we were unable to borrow under these facilities to finance our operations or we were unable to refinance borrowings under our facilities that may come due, our financial condition and results of operations could be harmed.

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, reduce our net sales or increase our costs.

We primarily rely on trade secrets relating to our manufacturing processes to protect our proprietary rights. Our efforts to protect our intellectual property may not be effective and may be challenged by third parties. In addition, other parties may independently develop similar or competing technologies. We compete in industries with rapid development and technological innovation. If we fail to protect our proprietary rights adequately, our competitors could offer similar products using processes or technologies developed by us and thereby potentially harm our competitive position and our financial condition.

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We also rely on patent protection for the intellectual property that we have developed. It is possible that a third party may challenge the validity of any of these patents, or circumvent the patents by developing competing products based on technology that does not infringe our patents. Consequently, our patents may not provide meaningful protections against competition for these products. Further, in some countries outside the United States, patent protection is not available. Moreover, 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 may sell products in those countries that have functions and features that infringe on our intellectual property.

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. Some of these claims may lead to litigation. Any intellectual property lawsuit, whether or not determined in our favor or settled, could be costly, could harm our reputation and could divert our management from normal business operations. 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 redesign products 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. 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.

Environmental laws require us to maintain and comply with a number of permits, authorizations and approvals and to maintain and update training programs and safety data for materials used in our manufacturing processes. We reserved $135,000 and $129,000 of restricted cash for the fiscal years ended September 30, 2007 and 2006, respectively, at the direction of the County of Orange, California, to finance estimated environmental clean-up costs in the event that we vacate our Anaheim facilities.

In the event of a violation, we may be required to halt one or more segments of our operations until such violation is cured. Although we attempt to operate in compliance with all applicable environmental laws and regulations, we may not succeed in this effort at all times. 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.

We may not address successfully problems encountered in connection with any acquisition.

We expect to continue to consider opportunities to acquire or make investments in other technologies, products and businesses that 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:

• problems assimilating the purchased technologies, products or business operations, including the timely integration of financial reporting systems.

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

• unanticipated costs associated with the acquisition;

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• start-up costs associated with any new line of business we may acquire;

• diversion of management’s attention from our core business;

• adverse effects on existing business relationships with suppliers and customers;

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

• potential loss of key employees of acquired businesses;

• potential litigation risks associated with acquisitions, whether completed or not;

• the need to hire additional employees to operate effectively the acquired business, including employees with specialized knowledge; and

• increased legal and accounting costs as a result of the Sarbanes-Oxley Act.

If we fail to evaluate and execute acquisitions and strategic investments properly, our management team may be distracted from our day-to-day operations, our business may be disrupted and our operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities, our stockholders would be diluted. We also may be limited in our ability to finance an acquisition through the issuance of convertible debt or equity as a result of our stockholders agreement with WBL Corporation, which requires WBL Corporation’s approval before we issue securities which would dilute its effective ownership (as defined in the agreements) below 50% of our outstanding common stock.

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.

In connection with the terminated conditional offer for the outstanding shares of MFS, we may be sued by WBL Corporation, MFS, or others, including stockholders of us and/or MFS. There is no guarantee that any such suits will be covered by our insurance or that such suits might not result in substantial fines, penalties or adverse judgments against us.

In addition, the Singapore Securities Industry Council, or the SIC, may review whether the actions of our board of directors and special committee of our board of directors are, from the Singapore regulatory perspective, reasonable and appropriate in light of the developments and circumstances. Any such review, if it commences, likely will involve a significant distraction to management. Further, if the SIC determines that our board of directors or special committee have not acted appropriately, it may impose sanctions or fines or censures on us, which may further distract our management and harm our business.

Risks Related to the Market for our Common Stock

Our stock price may be volatile, and you may not be able to resell our shares at a profit or at all.

The trading price of our common stock could fluctuate, and has fluctuated, due to the factors discussed in this report and elsewhere in our SEC filings. For example, during the 12 months ended January 31, 2008, our stock traded between $10.28 and $22.46 per share. In addition, the trading market for our common stock may be influenced by the public float that exists in our stock from time to time. For example, although we have approximately 24.7 million shares of common stock outstanding, approximately 19.3 million of those shares are held by a few investors. If any of those investors were to decide to sell a substantial portion of their respective shares, it would place substantial downward pressure on our stock price. The trading market for our common stock also may be influenced by the research and reports that industry or securities analysts publish about us or our industry. If one or more of the analysts who cover us were to publish an unfavorable research report or to downgrade our stock, our stock price likely would decline. If one or more of these analysts were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

In addition, the stock market in general, and Nasdaq and technology companies in particular, have experienced extreme price and volume fluctuations. Our historical trading prices and valuations may not be sustainable. These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

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In the event we are unable to remedy any deficiency we identify in our system of internal controls over financial reporting, or if our internal controls are not effective, our business and our stock price could suffer.

In preparation for the annual report of management regarding our evaluation of our internal controls that is required to be included in each of our fiscal year-end annual reports by Section 404 of the Sarbanes-Oxley Act, or Section 404, we adopted a project work plan to assess the adequacy of our internal controls, remediate any deficiency that we may identify, validate that controls are functioning as documented and implement a continuous reporting and improvement process for internal controls. As part of this continuous process, we may discover deficiencies that require us to improve our procedures, processes and systems in order to ensure that our internal controls are adequate and effective and that we are in compliance with the requirements of Section 404.

If any deficiency we may find from time to time is not adequately addressed, or if we are unable to complete all of our testing and any remediation in time for compliance with the requirements of Section 404 and the SEC rules thereunder, we would be unable to conclude that our internal controls over financial reporting are effective, which could adversely affect investor confidence in our internal controls over financial reporting. If we do not complete our testing with sufficient time for an independent registered public accounting firm to complete their audit of internal control over financial reporting, we may not be compliant with all of the requirements under Section 404 since we may not receive an unqualified report on internal control over financial reporting, and our business and stock price may be adversely affected.

Fluctuations in our operating results on a quarterly and annual basis could cause the market price of our common stock to decline.

Our operating results fluctuate from quarter to quarter as a result of changes in demand for our products, our ability to sell our products at specific prices, our effectiveness in managing manufacturing processes and costs and the degree to which we are able to utilize our available manufacturing capacity. Historically, we have experienced a strong first fiscal quarter, followed by reduced net sales in the second fiscal quarter, as a result of partial seasonality of our major customers and the markets that we serve. As a result, our net sales and operating results have fluctuated significantly from period-to-period in the past and are likely to do so in the future. These fluctuations could cause the market price of our common stock to decline. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. In future periods, our net sales and results of operations may be below our expectations or the expectations of analysts and investors, which could cause the market price of our common stock to decline.

Our expense levels in the future will be based, in large part, on our expectations regarding net sales. Many of our expenses are fixed in the short term or are incurred in advance of anticipated sales. We may not be able to decrease our expenses in a timely manner to offset any shortfall of sales.

Future sales of our common stock in the public market could cause our stock price to fall.

Future sales of our common stock in the public market, or the perception that such sales might occur, could cause the market price of our common stock to decline. As of December 31, 2007, we had 24.7 million shares of common stock outstanding and 1.3 million shares subject to unexercised options that are fully vested. All of these shares are eligible for resale, subject to certain volume limitations. To the extent any major stockholder sells its shares into the market, the market price of our common stock could decline.

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. These provisions include the following:

• the existence of a classified board of directors requiring that not all directors be elected at one time;

• a majority of our directors are required to be independent;

• the ability of our board of directors to increase or decrease the size of our board of directors without stockholder approval;

• the ability of our board of directors to fill vacancies on the board of directors created by the death, resignation or incapacity of a director or the enlargement of the board of directors without stockholder approval;

• the prohibition of cumulative voting in the election of directors which would otherwise allow less than a majority of stockholders to elect director candidates;

• advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at a stockholders’ meeting;

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• the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

• the ability of the board of directors to issue and designate the rights of, without stockholder approval, up to 5,000,000 shares of preferred stock, which rights could be senior to those of common stock;

• the elimination of the right of stockholders to call a special meeting of stockholders and to take action by written consent; and

• so long as a single or related group of stockholders own at least one-third of our outstanding common stock, a transaction between us and any person or entity in which such stockholder or stockholders have a material interest, if required under applicable federal and state law and/or Nasdaq rules to be approved by our stockholders, will require approval of a majority of the outstanding shares not held by such interested stockholders present in person or by proxy at the meeting of stockholders held with respect to such transaction.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or Delaware law. These provisions may prohibit stockholders owning 15% or more of our outstanding voting stock, from merging or combining with us. These provisions in our charter, bylaws and under Delaware law could discourage potential takeover attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would without these provisions.

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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)	Form of Indemnification Agreement between the Company and its officers, directors and agents
10.2(1)	1994 Stock Plan of the Company, as amended
10.3(6)	2004 Stock Incentive Plan of the Company, as amended and restated
10.4(1)	Corporate Services Agreement dated as of June 4, 2004 by and between the Company and Wearnes Brothers Services (Private) Limited
10.18(3)	Uncommitted Revolving Credit Facility Agreement by and between Norddeutsche Landesbank Girozentrale, New York Branch and the company dated July 14, 2005
10.19(3)	Revolving Credit Note dated July 14, 2005 with the Company as Borrower and Norddeutsche Landesbank Girozentrale, New York Branch, as Lender
10.20(4)	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
10.21(5)	Form of Restricted Stock Unit Agreement
10.33(7)	Corporate Supply Agreement between Multi-Fineline Electronix, Inc. and Motorola, Inc. dated October 1, 2006
10.34(8)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.35(8)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou) Co. Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.36(8)	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, 2007
10.37(8)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co. Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.38(9)	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
10.39(10)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Bank of China Co., Ltd. Suzhou Wuzhong Sub-branch dated January 24, 2008
10.40(10)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Bank of China Co., Ltd. Suzhou Wuzhong Sub-branch dated January 24, 2008
31.1	Section 302 Certification by the Company’s chief executive officer
31.2	Section 302 Certification by the Company’s principal financial officer
32.1	Section 906 Certification by the Company’s chief executive officer and principal financial officer

⁽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 an exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2005.

⁽³⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2005.

⁽⁴⁾ 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.

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⁽⁵⁾ 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 9, 2005.

⁽⁶⁾ Incorporated by reference to exhibit (as Appendix A) to the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders on Form DEF 14A filed with the SEC on January 26, 2006.

⁽⁷⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K/A filed with the SEC on July 26, 2007. Confidential treatment has been granted for certain portions of this agreement.

⁽⁸⁾ 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, 2007.

⁽⁹⁾ Confidential treatment is being requested with respect to portions of this agreement.

⁽¹⁰⁾ 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 30, 2008.

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SIGNATURE

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

	Multi-Fineline Electronix, Inc.,
	a Delaware corporation
Date: February 7, 2008	By:	/s/ CRAIG RIEDEL
		Craig Riedel Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer of the Registrant)

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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)	Form of Indemnification Agreement between the Company and its officers, directors and agents
10.2(1)	1994 Stock Plan of the Company, as amended
10.3(6)	2004 Stock Incentive Plan of the Company, as amended and restated
10.4(1)	Corporate Services Agreement dated as of June 4, 2004 by and between the Company and Wearnes Brothers Services (Private) Limited
10.18(3)	Uncommitted Revolving Credit Facility Agreement by and between Norddeutsche Landesbank Girozentrale, New York Branch and the company dated July 14, 2005
10.19(3)	Revolving Credit Note dated July 14, 2005 with the Company as Borrower and Norddeutsche Landesbank Girozentrale, New York Branch, as Lender
10.20(4)	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
10.21(5)	Form of Restricted Stock Unit Agreement
10.33(7)	Corporate Supply Agreement between Multi-Fineline Electronix, Inc. and Motorola, Inc. dated October 1, 2006
10.34(8)	Comprehensive Credit Line Agreement by and between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.35(8)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou) Co. Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.36(8)	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, 2007
10.37(8)	Collaboration Agreement by and between Multi-Fineline Electronix (Suzhou No. 2) Co. Ltd. and Shanghai Pudong Development Bank Suzhou Branch dated July 31, 2007
10.38(9)	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
10.39(10)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou) Co., Ltd. and Bank of China Co., Ltd. Suzhou Wuzhong Sub-branch dated January 24, 2008
10.40(10)	Line of Credit Agreement between Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd. and Bank of China Co., Ltd. Suzhou Wuzhong Sub-branch dated January 24, 2008
31.1	Section 302 Certification by the Company’s chief executive officer
31.2	Section 302 Certification by the Company’s principal financial officer
32.1	Section 906 Certification by the Company’s chief executive officer and principal financial officer

⁽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 an exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2005.

⁽³⁾ Incorporated by reference to exhibits (with same exhibit numbers) to the Company’s Current Report on Form 8-K filed with the SEC on July 20, 2005.

⁽⁴⁾ 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.

⁽⁵⁾ 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 9, 2005.

⁽⁶⁾ Incorporated by reference to exhibit (as Appendix A) to the Company’s Proxy Statement for its 2006 Annual Meeting of Stockholders on Form DEF 14A filed with the SEC on January 26, 2006.

⁽⁷⁾ Incorporated by reference to exhibit (with same exhibit number) to the Company’s Current Report on Form 8-K/A filed with the SEC on July 26, 2007. Confidential treatment has been granted for certain portions of this agreement.

⁽⁸⁾ 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, 2007.

⁽⁹⁾ Confidential treatment is being requested with respect to portions of this agreement.

⁽¹⁰⁾ 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 30, 2008.