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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended September 30, 2004

OR

For the transition period from                      to                     .

Commission file number: 000-50812

MULTI-FINELINE ELECTRONIX, INC.

(Exact name of registrant as specified in its charter)

3140 East Coronado Street, Suite A

Anaheim, California 92806

(Address of principal executive offices, Zip code)

(714) 238-1488

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0001 per share

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

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

The aggregate market value of Common Stock held by non-affiliates of the registrant (based upon the closing sale price of the NASDAQ National Market on December 1, 2004) was $286,338,543. The registrant’s common stock was not publicly traded as of the last business day of its most recently completed second fiscal quarter (March 31, 2004). Shares held by each executive officer, director and by each person that owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of outstanding shares of the registrant’s Common Stock, $0.0001 par value, as of December 1, 2004 was 23,264,835.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10 (as to directors and Section 16(a) Beneficial Ownership Reporting Compliance), 11, 12 (as to Beneficial Ownership), 13 and 14 of Part III incorporate by reference information from the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2005 Annual Meeting of Stockholders expected to be held on February 2, 2005.

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Multi-Fineline Electronix, Inc.

Index

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Part. I

Item 1.    Business

Overview

This Annual Report on Form 10-K (this “Annual 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, sales and operations, anticipated cash needs, capital requirements and capital expenditures, needs for additional financing, use of working capital, the benefits of our China operations, plans for future products and services and for enhancements of existing products and services, anticipated growth strategies, ability to attract customers, sources of net sales, anticipated trends and challenges in our business and the markets in which we operate, the adequacy 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,” “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 effectiveness in managing manufacturing processes and costs and expansion of our operations, the degree to which we are able to utilize available manufacturing capacity, the impact of competition and of technological advances, and the risks set forth below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Operating Results.” These forward-looking statements represent our judgment as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements.

We are a global provider of high-quality, technologically advanced flexible printed circuits and value-added component assembly solutions to the electronics industry. We believe that we are one of a limited number of manufacturers that has the ability to offer a seamless, integrated flexible printed circuit and assembly solution from design and application engineering and prototyping through high-volume fabrication, component assembly and testing. We target our solutions within the electronics market and, in particular, we focus on applications where flexible printed circuits facilitate human interaction with an electronic device and are the enabling technology in achieving a desired size, shape, weight or functionality of the device. Current applications for our products include mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. We provide our solutions to original equipment manufacturers, or OEMs, such as Motorola, Inc., Symbol Technologies, Inc. and EMC Corporation, to electronic manufacturing services, or EMS, providers such as Foxconn Electronics, Inc. and Flextronics International Ltd. and to display manufacturers such as Koninklijke Philips Electronics NV, Hosiden F.D. Corporation, Sharp Electronics Corporation and Optrex Corporation Japan.

We were incorporated as Multi-Fineline Electronix, Inc. in California in October 1984. In connection with our initial public offering, we reincorporated as Multi-Fineline Electronix, Inc. in Delaware on June 4, 2004. References in this Annual Report to “we,” “our,” “us” and “M-Flex” refer to Multi-Fineline Electronix, Inc. and our consolidated subsidiaries, Multi-Fineline Electronix (Suzhou) Co., Ltd., or MFC1, and Multi-Fineline Electronix (Suzhou No. 2) Co., Ltd., or MFC2, except where it is made clear that the term means only the parent company.

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Industry Background

We believe that the global market for flexible printed circuits will continue to grow over the coming years as consumers continue to demand smaller, more functional devices. Given inherent design and cost advantages of flexible printed circuits, they quickly are becoming a favored solution for electronics manufacturers who are striving to increase the features and functionality of electronic devices while reducing the size, shape and weight of such devices. Asia is the largest and fastest growing market for flexible printed circuits largely because of two trends that occurred in the early 1990s—the outsourcing by OEMs of their manufacturing needs and the shift of manufacturing facilities in the United States to Asian countries.

Historically, electronics manufacturers have relied upon rigid printed circuit boards to provide the electrical interconnections between the components in electronics devices. Rigid printed circuit boards consist of a board that contains multiple transistors, microprocessors and other components that are connected by copper wires embedded on the circuit board. Given that the rigid printed circuit boards cannot bend or twist, they inherently limit the design options available to engineers. For example, in order to design and build “flip-phone” style mobile phones, engineers had to create a method to connect the rigid printed circuit board in the base of the phone with the rigid printed circuit board in the screen. Copper wires could not be used because they are subject to failure as a result of stress from the constant bending and flexing of the wires; therefore, design engineers had to look to new materials to provide a means of electrical interconnection between the various components of the device.

To address this need, companies such as M-Flex began to design flexible printed circuits and flexible printed circuits containing components, which we refer to as component assemblies, to serve as electrical interconnections. These flexible printed circuits can twist, bend and flex in a device with less risk of failure while connecting the components of the device. In addition to these functionality advantages, flexible printed circuits and component assemblies enable OEMs, EMS providers and display manufacturers to design and construct modular components that can be incorporated into the final product, which in turn reduces the complexity of the assembly of the final product and manufacturing costs and facilitates human interaction with the electronic device. As a result, manufacturers can reduce the number of assembly operations required for a product and improve the efficiency of their supply chains.

We believe that the overall market for flexible printed circuits and component assemblies is poised for substantial growth over the next several years as a result of favorable technological and market developments, including:

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An example of an industry where demand for flexible printed circuits and component assemblies is increasing rapidly is mobile phones and smart mobile devices. While the mobile phone and smart mobile device industry in general is expanding rapidly, the number of flexible printed circuits and component assemblies incorporated into these mobile devices is growing even more rapidly. For example, the number of circuit layers per part that we manufactured increased 23% for fiscal year 2004 as compared to fiscal year 2003. We expect that this number will continue to increase as OEMs, such as Motorola, strive to increase the features and functionality and reduce the size, shape and weight of such devices in response to consumer demand.

Competitive Strengths

We are a leading global provider of high-quality, technologically advanced flexible printed circuit and component assembly solutions to the electronics industry. We believe our competitive strengths include:

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Business Strategy

Our objective is to continue to expand our product offering to become a global provider of electronic products packaging technology and manufacturing by using our core technologies of high-quality, technologically advanced flexible printed circuits and assemblies as the essential ingredients. To achieve our objective, we intend to pursue the following strategies:

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Products

Our design and application engineering expertise enable us to offer flexible printed circuit and value-added component assembly solutions for a wide range of electronic applications. We offer products in a broad range of markets, including mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. Representative OEM customers and their end products that incorporate our flexible printed circuit products include the following:

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Flexible Printed Circuits.    Flexible printed circuits, which consist of copper conductive patterns that have been etched or printed while affixed to flexible substrate materials such as polyimide or polyester, are used to provide connections between electronic components and as a substrate to support these electronic devices. The circuits are manufactured by subjecting the base materials to multiple processes, such as drilling, screening, photo imaging, etching, plating and finishing. We produce a wide range of flexible printed circuits, including single-sided, double-sided, multi-layer (with and without gaps between layers) and rigid-flex. Single-sided flexible printed circuits, which have an etched conductive pattern on one side of the substrate, are normally less costly and more flexible than double-sided flexible printed circuits because their construction consists of a single patterned conductor layer. Double-sided flexible printed circuits, which have conductive patterns or materials on both sides of the substrate that are interconnected by a drilled or copper-plated hole, can provide either more functionality than a single-sided flexible printed circuit by containing conductive patterns on both sides or greater shielding of components against electromagnetic interference than a single-sided flexible printed circuit by covering one side of the circuit with a shielding material rather than a circuit pattern. Multi-layer and rigid-flex printed circuits, which consist of layers of circuitry that are stacked and then laminated, are used where the complexity of the design demands multiple layers of flexible printed circuitry. If some of the layers of circuitry are rigid printed circuit material, the product is known as a rigid-flex printed circuit. Gapped flexible printed circuits, which consist of layers of circuitry that are stacked and separated in some parts of the circuit and laminated in other parts of the circuit, are used where the complexity of the design demands multiple layers of flexible printed circuitry but the flexibility of a single-sided flexible printed circuit in some parts of the circuit.

Flexible Printed Circuit Assemblies.    Flexible printed circuits can be enhanced by attaching electronic components, such as connectors, switches, resistors, capacitors, light emitting devices, integrated circuits, cameras and optical sensors, to the circuit. The reliability of flexible printed circuit component assemblies is dependent upon proper assembly design and the use of appropriate fixtures to protect the flex-to-connector interface. Connector selection is also important in determining the signal integrity of the overall assembly—a factor which is very important to devices that rely upon high system speed to function properly. We are one of the pioneers in attaching connectors and components to flexible printed circuits and have developed the expertise and technology to mount a full range of electronic devices, from passive components to computing devices.

Customers

Our customers include leading OEMs, EMS providers and display manufacturers in a variety of sectors of the electronics industry. These sectors include mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors. Our expertise in flexible printed circuit design and component assembly enables us to assist our customers in resolving their design challenges through our design and assembly techniques, which results frequently in the customer placing our product designs on the customers’ design specifications and enhances our likelihood of becoming the main provider for flexible printed circuits and component assembly included in that product. Achieving status as a main provider, or sole provider, to an OEM for a high-volume program enables us to build strong customer relationships with respect to existing products and any future product that requires the use of flexible printed circuits and component assemblies.

We generally work with OEMs in the design of their products, and the OEMs subsequently either purchase our products directly or instruct the EMS providers and display manufacturers to purchase our products to be incorporated into the OEM’s product. EMS providers and display manufacturers that we sell to include Foxconn, Flextronics, Philips, Hosiden, Optrex and Sharp Electronics. Our relationships with EMS providers and display manufacturers normally are directed by the OEMs; therefore, it is the OEMs that negotiate product pricing and volumes directly with us, even though the purchase orders come from the EMS providers and display manufacturers. For the past several years, Motorola and its subcontractors have been our largest customers. In the fiscal years ended September 30, 2004, 2003 and 2002, we sold products to be incorporated into Motorola’s products to 40, 35 and 32 Motorola subcontractors, which aggregated 80%, 71% and 70% of our net sales (including direct sales to Motorola).

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Several subcontractors of Motorola also constitute significant customers of the company. In the fiscal year ended September 30, 2004, sales to Hosiden and its affiliates, Optrex and its affiliates and Philips and its affiliates accounted for 11%, 10% and 7% of our net sales. In the fiscal year ended September 30, 2003, sales to Hosiden and its affiliates, Optrex and its affiliates and Philips and its affiliates accounted for 14%, 12% and 21% of our net sales. In the fiscal year ended September 30, 2002, sales to Hosiden and its affiliates, Optrex and its affiliates and Philips and its affiliates accounted for 14%, 7% and 24% of our net sales.

Our net sales fluctuate from quarter to quarter as a result of changes in demand for our product. 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. Our major customers provide consumer-related products that generally experience their highest sales activity during the calendar year-end holiday season; therefore, we typically experience a decline in our second quarter sales as this holiday period ends. We anticipate that this seasonal impact on our net sales is likely to continue. 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.

Our facilities in the United States and China enable us to manufacture products for shipment anywhere in the world. For the fiscal year ended September 30, 2004, we derived 13% of our net sales in North America and 83% of our net sales outside the United States. For the fiscal year ended September 30, 2003, we derived 22% of our net sales in North America and 78% of our net sales outside the United States. For the fiscal year ended September 30, 2002, we derived 29% of our net sales in North America and 71% of our net sales outside the United States.

For the fiscal year ended September 30, 2004, 16% of our net sales were attributed to Hong Kong, 46% of our net sales were attributed to China, 11% of our net sales were attributable to Japan, and 13% of our net sales were attributed to North America. For the fiscal year ended September 30, 2003, 18% of our net sales were attributable to Hong Kong, 33% of our net sales were attributable to China, 13% of our net sales were attributable to Japan, and 22% of our net sales were attributable to North America. For the fiscal year ended September 30, 2002, 16% of our net sales were attributable to Hong Kong, 37% of our net sales were attributable to China and 29% of our net sales were attributable to North America.

For the fiscal years ended September 30, 2004, 2003 and 2002, we had long-lived assets of $17.9 million, $17.9 million and $7.5 million, respectively, in the United States and $46 million, $30.3 million and $16.4 million, respectively, in China.

Sales and Marketing

We sell our products primarily through our in-house design and application engineers, who meet regularly with our customers and potential customers to assist in the initial design of the proposed products and to provide suggestions on how our flexible printed circuit solutions can enhance product design. By utilizing market and product teams in each sector of the electronics industry that we target, we have successfully expanded our market penetration by leveraging our design and application engineers within each of these teams. In particular, these engineers apply the principal of concurrent engineering to our customers’ engineers in the early phases of the product development cycle.

We engage the services of 18 non-exclusive sales representatives to interact with customers and potential customers on our behalf. Thirteen of these sales representatives are located throughout the United States. We also have one sales representative in each of Canada, Europe, Japan, Korea and Taiwan. We rely on these sales representatives to initiate contact with potential customers and provide leads to our internal sales and marketing teams, as well as to create, build and maintain our customer relationships and assist in the resolution of contractual disputes.

As of September 30, 2004, our backlog, which constitutes customer orders placed with us but not yet shipped, believed to be firm was $90.9 million. We expect to ship this entire backlog during the current fiscal year. We

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cannot guarantee that our customers will not cancel any or all of the orders in our backlog. Our current backlog also is not indicative of our future operating results. As of September 30, 2003, our backlog believed to be firm was $50.2 million.

Technology

We are a global provider of single, double-sided, multi-layer and gapped flexible printed circuit technology and component assemblies. Our process technology includes proprietary processes and chemical recipes, which coupled with our design expertise, unique customized fixtures and tooling and manufacturing experience, enables us to deliver high unit volumes of complex flexible printed circuits and component assemblies at cost-effective yields.

Design Technology.    The flexible printed circuits we manufacture are designed specifically for each application, frequently requiring significant joint design activities with the customer at the start of a project. We have developed design methodologies that solve difficult interconnection problems and save our customers time and money. We design and mass produce flexible printed circuits that range from single-sided circuits to more complex double-sided, multi-layer (with and without gaps between layers) and rigid-flex. We continually are investing in and improving our computer-based design tools to more quickly design new flexible printed circuits, enhance cooperative design and communication with our customers and more closely integrate design and application engineering to our prototyping and manufacturing process.

Circuit Fabrication Technology.    We have extensive experience producing fine-line flexible printed circuits and have developed manufacturing processes that are designed to deliver high-unit volumes at cost-effective yields. In the flexible printed circuit industry, fine-line flexible printed circuits are easier to construct as the thickness of the copper decreases; however, as the thickness of the copper decreases, the cost of fabrication increases. We have developed a manufacturing process to pattern plate in selective regions of the circuitry pattern, such as around the holes used to connect the two sides of a double-sided flexible printed circuit. In addition, the normal manufacturing technology, by itself, has been improved with new equipment which enables thicker, less expensive copper to be etched down precisely enough to form fine-line circuitry. The combination of these two processes allows us to achieve finer patterns without a substantial increase in costs and with acceptable yields.

In addition to fine-line techniques, we have developed a proprietary process using ultraviolet lasers to drill 0.003 inch diameter holes, known as micro-vias, for the connection of circuits on the reverse side of the substrate. The combination of the fine-lines and micro-vias are part of the new high density interconnect technology that is one of our primary marketing and engineering competitive strengths.

Component Assembly and Test Technology.    Our component assembly and test technology involve the arrangement of the circuits on a panel to minimize material waste and facilitate requirements for component assembly, such as placing tooling holes, optical locators for vision-based machines, test points and pre-cut zones to allow part removal without compromising the integrity of the components. We assemble passive electrical and various mechanical components, including capacitors, resistors, integrated circuits, connectors, stiffeners, diodes and other devices to flexible printed circuits. We also perform advanced assembly of integrated circuit devices, as well as the functional testing of these flexible printed circuit component assemblies. Assembling these components directly onto the flexible printed circuit increases performance and reduces space, weight and cost.

Intellectual Property

Our success will depend in part on our ability to protect our intellectual property. Our intellectual property relates to proprietary processes and know-how covering methods of designing and manufacturing flexible printed circuits and attaching components. We regularly require our employees to enter into confidentiality agreements and assignment of invention agreements to protect our intellectual property. In addition, we consider filing patents on our inventions that are significant to our business, although none of our existing patents or patent applications pertain to inventions that are significant to our current business. We also pursue trademarks where applicable and necessary.

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In the future, we may encounter disputes over rights and obligations concerning intellectual property. We believe that our design and manufacturing processes do not infringe the intellectual property rights of any third party; however, we cannot assure you that we will prevail in any intellectual property dispute.

Suppliers

We purchase raw circuit materials, process chemicals and various components from a limited number of outside sources, including E.I. DuPont de Nemours & Co., Rogers Corporation, Molex Inc. and Supertex, Inc. For components, we normally make short-term purchasing commitments to key suppliers for specific customer programs. These commitments are usually made for three to 12-month periods. These suppliers agree to cooperate with us in engineering activities, as required, and in some cases maintain a local inventory to provide shorter lead times and reduced inventory levels for us. In most cases, suppliers are approved and often dictated by our customers. For process chemicals, certain copper and polyimide laminate materials and certain specialty chemicals used in our manufacturing process, we rely on a limited number of key suppliers. Alternate chemical products are available from other sources, but process chemical changes often require approval by our customers and requalification of the processes, which could take weeks or months to complete. We seek to mitigate these risks by identifying stable companies with leading technology and delivery capabilities and by attempting to qualify at least two suppliers for all critical raw materials and components.

Competition

The flexible printed circuit market is competitive with a variety of large and small companies offering design and manufacturing services. The flexible printed circuit market is differentiated by customers, applications and geography, with each niche requiring specific combinations of complex packaging and interconnection. We believe that our ability to offer an integrated, end-to-end flexible printed circuit solution has enabled us to compete favorably with respect to design capabilities; product performance, reliability and consistency; price; customer support and application support; and resources, equipment and expertise in component assembly on flexible printed circuits.

We compete on a global level with a number of leading Japanese providers, such as Nippon Mektron, Nitto Denko Corporation and Fujikura Ltd., and with domestic providers, such as Innovex, Inc., Sheldahl, Inc. and Parlex Corporation. Also, we expect more competition from emerging flexible printed circuit assembly producers in Taiwan, South Korea and China. We are aware of at least 20 companies in Asia with which we compete, and we expect others to enter the market in this region because of government subsidies and lower labor rates available there. We also compete with MFS Technology Ltd., or MFS, which is a subsidiary of WBL Corporation Limited, or WBL Corporation, located in Singapore. WBL Corporation owns 64% of our outstanding common stock.

We believe that our technology leadership and capabilities in designing and manufacturing flexible printed circuits have enabled us to build strong partnerships and customer relationships with many companies. We believe that customers typically rely upon one or two vendors’ designs for the life of specific applications and, to the extent possible, subsequent generations of similar applications. Accordingly, it is difficult to achieve significant sales to a particular customer for any application once a different vendor has been selected to design and manufacture a specific flexible printed circuit. This market paradigm may provide a barrier to our competitors in the markets in which we compete; however, it may also present an obstacle to our entry into other markets. Any expansion of existing products or services could expose us to new competition.

Employees

As of October 31, 2004, we employed approximately 6,170 full-time employees and 453 contract employees, including 597 full-time employees and 10 contract employees in the United States and 5,573 full-time employees and 443 contract employees in China. We have never had a work stoppage. We consider our employee relations to be good.

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We do not have employment agreements with any of our executive officers. We have entered into employment agreements with substantially all of our employees in China. In general, these employment agreements provide for either a one or two-year term.

In addition, we believe that less than ten of our employees in China have formed a trade union committee and thereafter proposed that we enter into a collective bargaining agreement. At this time, we are not a party to, nor do we intend to enter into, a collective bargaining agreement with these or our other employees at MFC1 or any of our other China operations. We are not aware that the committee represents any employee other than the employees who actually are members of the committee. We presently do not believe that we will experience any material harm to our business if we do not enter into a collective bargaining agreement.

Environmental Controls

Flexible printed circuit manufacturing requires the use of chemicals. As a result, we are subject to a variety of environmental laws 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 to manufacture our products in the United States and China. As of September 30, 2004 and 2003, we reserved $122,000 and $121,000 of restricted cash, 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; otherwise, our review of our facilities suggests that no material remediation costs will be required. However, given the uncertainties associated with environmental contamination, there can be no assurance that such costs will not harm our business, financial condition or results of operations.

We believe we have been operating our facilities in substantial compliance in all material respects with existing environmental laws and regulations. However, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted with respect to products or activities to which they have not previously been applied. For this reason, we implemented procedures geared toward minimizing the negative impacts and reducing potential financial risks arising from environmental issues. Compliance with more stringent laws or regulations, or more vigorous enforcement policies of regulatory agencies could require substantial expenditures by us and could harm our business, results of operations and financial condition. We do not anticipate any material amount of environmental-related capital expenditures in fiscal years 2005 or 2006.

Item 2.    Properties

Our corporate headquarters are located in Anaheim, California and our manufacturing facilities are located in Anaheim, California and Suzhou, China, as follows:

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We believe our facilities are adequate for our current needs and that suitable additional or substitute space will be available to accommodate foreseeable expansion of our operations or to move our operations in the event one or more of our short-term leases can no longer be renewed on commercially reasonable terms at the expiration of its term.

Item 3.    Legal Proceedings

From time to time, we may be party to lawsuits in the ordinary course of business; however, we are currently not a party to any material legal proceeding.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of our fiscal year through the solicitation of proxies or otherwise.

Executive Officers of the Registrant

The following table sets forth information about our executive officers as of November 30, 2004:

Philip A. Harding has served as our Chief Executive Officer since January 1988 and as a director since September 1988. In December 2003, Mr. Harding assumed the position of Chairman of the board of directors. Prior to joining us, Mr. Harding served as the Chief Executive Officer of Weltec Digital Corporation from 1984 to 1987. From 1981 to 1984, Mr. Harding served as the President of the Remex Division of Excello Corporation after joining Excello in 1979 as the Vice President of Engineering. Prior to joining Excello, Mr. Harding served as the General Manager of the Commercial Systems Division of Electronic Memories and Magnetics Corporation from 1973 to 1979. Each of these companies manufactured computer peripherals and components. From February 1988 to March 2004, Mr. Harding served as Chief Executive Officer of Wearnes Hollingsworth Corporation, an electronic connector company and a member of the WBL Corporation group of companies. Mr. Harding also served as Chairman of the board of directors of Advanced Logic Research, Inc., a former member of the WBL Corporation group of companies, from October 1985 to March 1988. Mr. Harding also served as a member of the board of directors of MFS, a member of the WBL Corporation group of companies, from October 1994 to September 2000. Mr. Harding holds a B.S.E.E. from Cooper Union College and an M.S. from Columbia University.

Reza Meshgin joined us in June 1989 and has served as Engineering Supervisor, Application Engineering Manager, Director of Engineering and Telecommunications Division Manager. Prior to assuming his current position as President and Chief Operating Officer in January 2004, Mr. Meshgin served as Vice President and General Manager from May 2002 through December 2003. Mr. Meshgin holds a B.S. in electrical engineering from Wichita State University and an M.B.A. from University of California at Irvine.

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Craig Riedel has served as our Chief Financial Officer and Secretary since November 1992. Mr. Riedel served as the Chief Financial Officer of Wearnes Hollingsworth Corporation from 1998 until March 2004. From 1986 to 1992, Mr. Riedel served in various positions, including Controller, for Interconnection Products, Inc., a member of the WBL Corporation group of companies. Prior to joining Interconnection, Mr. Riedel held various finance positions from 1981 to 1986 and served as an accountant with Deloitte Haskins & Sells (now Deloitte & Touche LLP), most recently as Audit Senior, from 1978 to 1981. Mr. Riedel holds an AA.S. in financial services and a B.S. in business administration from Lake Erie College.

Thomas Lee joined us in October 1986 as the Supervisor of Photo Department and subsequently served as our Manufacturing Manager and Director of Operations from May 1995 to May 2002. Since May 2002, Mr. Lee has served as our Vice President of Operations. Prior to joining us, Mr. Lee served as a mechanical engineer at the Agricultural Corporation in Burma. Mr. Lee holds a B.E. in mechanical engineering from the Rangoon Institute of Technology in Burma.

Charles Tapscott joined us in November 1994 as Director of Business Development and has served as our Vice President of Sales and Marketing since January 2002. Prior to joining us, Mr. Tapscott served as Vice President of Marketing at Targ-It-Tronics, Inc. from July 1990 to November 1994. Prior to Targ-It-Tronics, Mr. Tapscott served in various positions at Harris Corporation supporting the development of defense-based communications from June 1966 to July 1990. Mr. Tapscott holds a B.S.I.E., with a minor in electrical engineering, from the University of Florida.

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Part II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock, par value $0.0001 (“Common Stock”) is traded on the NASDAQ National Market (“Nasdaq”) under the symbol “MFLX.” The following table sets forth, for the periods indicated, the high and low sales closing prices for the Common Stock on Nasdaq, as reported in its consolidated transaction reporting system:

Stockholders of record on October 31, 2004 numbered approximately 61. Because many of the shares of our Common Stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record. We have never declared or paid any cash dividend on our Common Stock, nor do we currently intend to pay any cash dividend on our Common Stock in the foreseeable future. We expect to retain our earnings, if any, for the growth and development of our business. In addition, the terms of our revolving credit facility limit our ability to pay cash dividends on our Common Stock. A description of the terms of our revolving credit facility can be found in this Annual Report under Item 7 under the caption “Liquidity and Capital Resources” and under Item 8 under Note 7.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding the Securities Authorized for Issuance under our Equity Compensation Plans can be found under Item 12 of this Annual Report.

Recent Sales of Unregistered Securities

In September 2003, we issued to all of our stockholders rights to acquire shares of our common stock at a price of approximately $3.86 per share. In October 2003, certain of these stockholders exercised these rights to acquire an aggregate of 6,537,540 shares of common stock for aggregate consideration of $25,251,000. The issuance of these shares of common stock was considered to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The recipients of shares of common stock represented their intention to acquire the shares for investment only and not with a view to or for sale with any distribution thereof, and appropriate legends were affixed to the share certificates issued in these transactions. All recipients had adequate access to information about the company through their relationship with the company.

Use of Proceeds from Registered Securities

We registered 5,566,508 shares of our Common Stock in connection with our initial public offering (“IPO”) under the Securities Act of 1933 (5,000,000 for us and 566,508 for our selling stockholders). The Securities and Exchange Commission (“SEC”) declared our Registration Statement on Form S-1, as amended (Reg. No. 333-114510), for the IPO effective on June 24, 2004. The net offering proceeds to us after deducting expenses were $44,600,000. We used $21.0 million of the proceeds to pay the outstanding amount of the revolving line of credit with Norddeutsche Landesbank Girozentrale (“NLG”) through September 30, 2004. In addition, we used $2.0 million of the proceeds to pay the outstanding amount of the revolving line of credit with Bank of China (“BC”) in September 2004, and $1.0 million of the proceeds to reduce the outstanding balance of our revolving line of credit with Shanghai Pudong Development Bank (“SPDB”). We also utilized $1.9 million of the proceeds to offset expenses incurred in the IPO. We invested the remaining net proceeds in seven-day municipal securities and in a money market account.

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Item 6.    Selected Consolidated Financial Data

The following selected consolidated financial data is qualified by reference to, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report. The selected consolidated statements of income data as of September 30, 2004, 2003 and 2002 and selected consolidated balance sheet data as of September 30, 2004 and 2003 are derived from audited consolidated financial statements included elsewhere in this Annual Report. The selected consolidated statements of income data as of September 30, 2001 and 2000 and selected consolidated balance sheet data as of September 30, 2002, 2001 and 2000 were derived from audited consolidated financial statements not included in this Annual Report. Our historical results are not necessarily indicative of our future results.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global provider of high-quality, technologically advanced flexible printed circuits and value-added component assembly solutions to the electronics industry. We offer customized flexible printed circuit applications and services ranging from design and application engineering, prototyping and high-volume manufacturing to turnkey component assembly and testing. We focus on portions of the electronics market where reduced packaging size and functionality dictate the need for flexible printed circuits and flexible printed circuit component assemblies, such as mobile phones and smart mobile devices, portable bar code scanners, personal digital assistants, power supplies and consumable medical sensors.

From inception in 1984 until 1989, we were engaged primarily in the manufacturing of flexible printed circuits for military and aerospace applications. In early 1990, we began to develop the concept of attaching components on flexible printed circuits for Motorola. Through these early efforts, we developed the concept of the value-added approach with respect to integrating our design engineering expertise with our component assembly capabilities. This strategy has enabled us to capitalize on two trends over the course of the 1990s: the outsourcing by OEMs of their manufacturing needs and the shift of manufacturing facilities outside of the United States. In 1994, we formed a wholly owned Chinese subsidiary, MFC1, to better serve customers that have production facilities in Asia and provide a cost-effective, high-volume production platform for the manufacture of our products. MFC1 provides a complete range of capabilities and services to support our global customer base, including design engineering and high-volume production of single-sided, double-sided and multi-layer flexible printed circuits and component assemblies. In fiscal 2002, we formed a second wholly owned subsidiary in China, MFC2, to further expand our flexible printed circuit manufacturing and assembly capacity.

Net Sales

We design and manufacture our products to customer specifications. We engage the services of 18 non-exclusive sales representatives to provide customer contacts and market our products directly to our global customer base. Thirteen of these sales representatives are located throughout the United States. We also have one sales representative in each of Canada, Europe, Japan, Korea and Taiwan. The variety of products our customers manufacture are referred to as programs. The majority of our sales are to customers outside of the United States. Sales volumes may be impacted by customer program and product mix changes and delivery schedule changes imposed on us by our customers. All sales from our Anaheim, California facilities are denominated in U.S. Dollars. All sales from our China facilities are denominated in U.S. Dollars for sales outside China or Chinese Renminbi for sales made in China.

Cost of Sales

Cost of sales consists of four major categories: material, overhead, labor and purchased process services. Material cost relates primarily to the purchase of copper foil, polyimide substrates and electronic components. Overhead costs include all materials and facilities associated with manufacturing support, processing supplies and expenses, support personnel costs, utilities, amortization of facilities and equipment and other related costs. Labor cost represents the cost of personnel related to the manufacture of the completed product. Purchased process services relate to the subcontracting of specific manufacturing processes to outside contractors. Cost of sales may be impacted by capacity utilization, manufacturing yields, product mix and production efficiencies. Also, we may be subject to increased costs as a result of changing material prices because we do not have long-term fixed supply agreements.

Sales and Marketing Expense

Sales and marketing expense includes commissions paid to sales representatives, personnel-related costs associated with our customer division support groups and expenses for overseas sales support, trade show and

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promotional and marketing brochures. We expect our sales and marketing expense to increase in absolute dollars as we hire additional personnel to expand our marketing efforts and pay increased sales commissions on higher net sales volumes.

General and Administrative Expense

General and administrative expense primarily consists of salaries and benefits of administrative, finance, human resources, regulatory, information services and executive personnel and other expenses related to external accounting, legal and professional expenses, business insurance, management information systems, travel and entertainment and other corporate office expenses. We anticipate that general and administrative expense will increase in absolute dollars as we hire additional personnel and incur costs related to the anticipated growth of our company and our operations as a public company.

Interest Expense, Net

Interest expense, net, consists of interest income earned on cash and cash equivalents balances and interest expense incurred on our lines of credit and loans payable.

Other (Income) Expense

Other income and expense consists primarily of income or loss on our investment in Mind Wurx LLC, or Mind Wurx. In April 2002, we agreed to provide Mind Wurx with advances to fund its operations and use of our facilities and personnel support in exchange for 15% of its equity. Due to our ability to significantly influence the operations of Mind Wurx, we accounted for this investment under the equity method of accounting. We terminated our agreements with Mind Wurx in their entirety in March 2004; however, we have retained our 15% ownership interest.

Provision for Income Taxes

We record a provision for income taxes based on the statutory rates applicable in the countries we do business, subject to any tax holiday periods granted by the respective governmental authorities. The provision for income taxes represents the income taxes payable plus the changes in deferred tax assets and liabilities.

Subsequent to our year end, The American Job Creation Act of 2004 (the “Act”) was signed into law on October 22, 2004. The Act contains provisions that will replace an export incentive with a deduction from domestic manufacturing income. As we are both an exporter and a domestic manufacturer, we are determining the impact this change could have on our future income tax provision. The Act also allows us to repatriate, subject to certain restrictions, including restrictions on dividend payments by the foreign jurisdiction, our permanently reinvested foreign earnings in 2005, at an effective tax rate of 5.25%. We are still evaluating whether to take advantage of this opportunity and the potential impact on our tax provision.

Critical Accounting Policies and Estimates

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including those related to inventories, income taxes, accounts receivable allowances and warranty. We base our estimates on historical experience, performance metrics and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates under different assumptions or conditions.

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We apply the following critical accounting policies in the preparation of our consolidated financial statements:

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Results of Operations

The following table sets forth the Statement of Operations data of M-Flex expressed as a percentage of net sales for the periods indicated.

Year Ended September 30, 2004 Compared to Year Ended September 30, 2003

Net Sales.    The increase of $123.6 million was attributable primarily to $112.7 million of increased net sales to the wireless telecommunications sector, which accounted for approximately 83% of total net sales in fiscal year 2004 versus 75% in fiscal 2003. The increased wireless sales were attributable to the increased unit volume shipped and continued transition to “flip phone” style models, which utilize flexible circuitry, and the added level of phone features, which utilize additional flex circuits and value-added components per phone. Industrial customers net sales, our second largest sector, increased by $8.6 million or 48% as compared to fiscal 2003, due to the growth of several new programs related to bar code scanners and industrial data storage devices. The personal digital assistant, network telecommunications and power transmission sectors all remained relatively unchanged from the prior year levels.

Cost of Sales and Gross Profit.    Cost of sales as a percentage of net sales decreased to 78% versus 83% in the prior year. Increases in the material cost percentage of sales were offset by favorable declines in labor and overhead cost percentages, primarily attributable to the commencement of high volume production at MFC2 during the year. The increase in material costs was due primarily to growth in net sales volume and the value added assembly portion of our business, which carries a higher material cost of sales content, partially offset by improvements in production yields.

Gross profit increased to $55.6 million in fiscal 2004 from $22.0 million in fiscal 2003. As a percentage of sales, gross profit increased to 22% from 17% in the prior year. The increase in gross margin was primarily due to the increased benefit derived from the lower offshore cost structure and increased plant utilization, the leveraging of our fixed overhead cost structure on increased sales volume, as well as efficiency and manufacturing yield improvements on stable high volume production levels during fiscal 2004.

Sales and Marketing Expense.    Sales representatives’ commissions and other sales related expense increased to $4.1 million for fiscal 2004 from $2.5 million in fiscal 2003, an increase of 64%, primarily due to higher net sales. As a percent of net sales, commissions remained relatively unchanged at approximately 2%. Compensation and benefit expense increased to $3.5 million in fiscal 2004 from $3.1 million in fiscal 2003, an increase of 13%, primarily as the result of headcount additions to support the increased business volume and wage increases. As a percentage of net sales, compensation and benefit expense decreased to 1% in fiscal 2004 from 2% in fiscal 2003, due to the leveraging of fixed marketing expense, primarily compensation and benefits, over increased net sales. Even with our focus to continually decrease operating expenses as a percentage of sales, this may be at the lower end of our sustainable range.

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General and Administrative Expense.    As a percentage of net sales, general and administrative expense decreased to 5% in fiscal 2004 from 7% in fiscal 2003. This percentage decrease was primarily attributable to leveraging of a small increase in the compensation and benefits expense, due to increased headcount, over a much larger increase in net sales. As stated above, we believe this may be at the lower end of our sustainable range.

Interest Expense, Net.    Net interest expense increased to $468,000 for fiscal 2004 from $310,000 for fiscal 2003, an increase of 51%. The increase in interest expense, net was primarily due to increased borrowings to support working capitals needs as a result of the business growth and to support the capacity expansion in MFC2. Additional interest expense was incurred on the GE Capital Asset loan as well as an interest penalty of $181,000 resulting from the early repayment of that debt in February 2004. We expect to reduce our interest expense, net amount in fiscal 2005 based on our repayment of debt with proceeds from the IPO.

Other (Income) Expense, Net.    The principal component of the other expense for fiscal 2004 and fiscal 2003 was a $250,000 and $441,000, respectively, loss from our investment in Mind Wurx.

Income Taxes.    The effective tax rate for fiscal 2004 was 28% compared to 33% for fiscal 2003. The lower effective tax rate is due primarily to foreign tax credits utilized and a higher percentage of China generated pre-tax income, which is taxed at a lower rate. We expect our overall tax rate to increase 3% to 5% in fiscal 2005 due to the expiration of the MFC1 tax holiday on December 31, 2004.

Year Ended September 30, 2003 Compared to Year Ended September 30, 2002

Net Sales.    Approximately $17.8 million of the increase in net sales was attributable to increased demand in the wireless telecommunications sector, which accounted for approximately 75% of net sales in fiscal 2003 versus 72% in fiscal 2002, and not to price increases as the competitive global environment has experienced limited product price increases. Improved net sales were the result of increased unit volume shipments and the transition to “flip-phone” style mobile devices that require flexible printed circuitry and added levels of phone features, which in turn require additional flexible printed circuits per phone. Sales in our industrial sector increased by approximately $2.4 million and accounted for 13% of net sales in fiscal 2003 and 14% in the prior year. These favorable trends were offset by declines in sales to our tape and disk drive customers. The personal digital assistant, network telecommunications and power transmission sectors all remained relatively unchanged from the prior year levels.

Cost of Sales and Gross Profit.    Cost of sales as a percentage of net sales increased to 83% from 82% for the prior year. Increased business volumes required facility and infrastructure expansion in both the United States and China. The need to produce a high-volume program at our Anaheim facilities that was originally intended for production in China required an increase in headcount at higher labor rates than China and resulted in additional labor costs of $1.1 million due to the higher average hourly rate. High-volume programs, which potentially involve quantities in the millions, must be competitively priced and are normally scheduled for offshore production in order to take advantage of the lower offshore cost structure. Total overhead costs increased as a result of headcount and infrastructure increases to support the additional business volumes. Total overhead compensation and benefits expense increased $3.2 million in fiscal 2003 versus the prior year due to headcount increases. Depreciation expense increased by $1.6 million as the result of increased capital expenditures for new equipment. Freight, duty and VAT expense increased $1.3 million as a result of increased transfer of product between our Anaheim and China operations. Increased manufacturing output resulted in an increase in manufacturing expenses of $872,000.

Gross profit increased to $22.0 million in fiscal 2003 from $20.0 million in the prior year. As a percentage of sales, gross profit decreased to 17% from 18% for the prior year. The decrease in gross profit percentage was caused primarily by the increased cost of component material included on the flexible circuits. The rapid growth of new Motorola programs also had an adverse impact on production yields, which increased total cost of sales and labor costs as a result of producing a high-volume fine-line program at our Anaheim facilities. Gross profit realized on the production of flexible printed circuit assemblies depends on the level of components included on

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the flexible printed circuit, the complexity of flexible printed circuit design, the stage in program life cycle and production yields. Production yields are expected to improve as programs reach stable production levels. We expect gross profit to increase in the second and third quarters of fiscal 2004 as production levels for newer programs reach optimum volumes and the manufacturing process stabilizes, including the transfer of programs to MFC2.

Sales and Marketing Expense.    Sales representatives’ commissions increased to $2.5 million in fiscal 2003 from $2.2 million in the prior year on the higher net sales volumes. As a percentage of net sales, commissions remained relatively unchanged at 2% in fiscal 2003 from the prior year due to lower average commission rates paid on larger high-volume programs. Compensation and benefits expense increased to $3.1 million in fiscal 2003 from $2.7 million in the prior year, primarily as a result of headcount additions to support the increased business volume and wage increases. As a percentage of net sales, compensation and benefits expense decreased to 2% in fiscal 2003 from 3% in the prior year, primarily due to the leveraging of expense over the increased net sales.

General and Administrative Expense.    As a percentage of net sales, administrative expense remained unchanged at approximately 7%. General and administrative expense increased primarily as a result of increased compensation and benefits expense from headcount additions of $425,000, enterprise resource planning, or ERP, system training expense of $271,000, increases in office and telephone expenses of $189,000 and insurance expense of $52,000 (as a result of premium and coverage increases and expanded coverage) due to increased business activity.

Interest Expense, Net.    The $210,000 increase in net interest expense in fiscal 2003 was primarily due to interest on the GE Capital loan of $127,000 incurred in connection with the purchase of our headquarters facility in Anaheim, California and $65,000 in interest accrued on advances from Wearnes Technology Pte. Ltd.

Other (Income) Expense, Net.    The principal component in fiscal 2003 was a $441,000 loss from our investment in Mind Wurx, whereas the principal component in the prior year was a $189,000 loss from our investment in Mind Wurx.

Income Taxes.    The effective tax rate for fiscal 2003 was 33% compared to 34% for the prior year. The lower effective tax rate is due primarily to the higher percentage of China generated pre-tax income, which is taxed at a lower rate, to total pre-tax income during the current versus the prior year. We had no tax liability in China for the first quarter of fiscal 2002.

Liquidity and Capital Resources

Our principal sources of liquidity have been cash provided by operations, equity offerings and borrowings under our various credit facilities. Our principal uses of cash have been to finance working capital, facility expansions, capital expenditures and debt service requirements. We anticipate these uses will continue to be our principal uses of cash in the future.

The following table sets forth, for the years indicated, our net cash flows provided by (used in) operating, investing and financing activities, our period-end cash and cash equivalents and other operating measures:

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Net cash generated from operations during fiscal 2004 was $5.1 million. During fiscal 2004, net income of $25.7 million, adjusted for depreciation, deferred taxes, loss on equipment disposal and loss on equity investment generated $29.8 million of operating cash, offset by $24.7 million required for working capital.

It is our policy to carefully monitor the state of our business, cash requirements and capital structure. We believe that cash on hand and funds generated from our operations and available from our borrowing facilities will be sufficient to fund current business operations as well as anticipated growth over at least the next 12 months;, however, there can be no assurance that any growth will occur and unexpected events may result in our need to raise additional capital.

Changes in the principal components of working capital in our 2004 fiscal year were as follows:

Our principal investing and financing activities in our 2004 fiscal year were as follows:

Net cash generated from operations during fiscal 2003 was $5.9 million. During fiscal 2003, net income of $4.6 million, adjusted for depreciation and amortization, deferred taxes, loss on equipment disposal and loss on equity investment generated $9.6 million of operating cash, offset by $3.7 million required for working capital.

Changes in the principal components of working capital in our 2003 fiscal year were as follows:

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Our principal investing and financing activities in our 2003 fiscal year were as follows:

Capital Commitments

As of September 30, 2004, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K. The following summarizes our contractual obligations at September 30, 2004 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

In May 2002, we executed a purchase and sale agreement with Glenborough Fund VIII, LLC for the purchase of a 93,000 square feet leased facility located at 3140 East Coronado Street, Anaheim, California for a negotiated purchase price of $6.4 million. In October 2002, we signed a commitment letter with GE Capital for the financing of the facility being purchased for an amount equal to 75% of the property’s appraised market value, or approximately $4.8 million. The remaining 25% was paid using on-hand cash balances. The terms of the GE Capital commitment letter called for a 15-year note, at an interest rate of LIBOR plus 2.35%, and the payment of a 1% loan fee, or $48,000. The transaction closed in December 2002. We repaid the loan in full on February 2004 by taking an advance on our facility with NLG (thereby eliminating all of our long-term debt in the table above). As a result of the early repayment of the loan, we paid a penalty of $181,000.

In March 2003, we commenced construction of a new 285,000 square feet manufacturing facility at MFC2 to provide additional capacity for flexible printed circuit assembly production and to support other new business activities. The purchase obligations related to MFC 2 relate to amounts due to complete construction of the facility and amounts to be paid for the purchase of manufacturing equipment.

Recent Accounting Pronouncements

In December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB No. 104”), which codifies, revises and rescinds certain sections of SAB No. 101, Revenue Recognition, in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance

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and SEC rules and regulations. The changes noted in SAB No. 104 did not have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2004, a consensus was reached in EITF Issue No. 03-16, Accounting for Investments in Limited Liability Companies. The EITF concluded that an investment in a limited liability company (“LLC”) that maintains a “specific ownership account” for each investor should be viewed as similar to an investment in a limited partnership for determining whether a noncontrolling investment in an LLC should be accounted for using the cost or equity method. The changes noted in EITF Issue No. 03-16 did not have a material effect on the Company’s financial position, results from operations or cash flows.

In June 2004, a consensus was reached in EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The EITF concluded that a common approach to evaluating other-than-temporary impairment for certain debt and equity securities would reduce the ambiguities in existing literature and reduce the inconsistent application of such guidance. A consensus was reached that the application guidance for certain investments, as defined, should be used to determine when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The guidance also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The changes noted in EITF Issue No. 03-01 did not have a material effect on the Company’s financial position, results of operations or cash flows.

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FACTORS THAT MAY AFFECT OUR OPERATING RESULTS

Risks Related to Our Business

We depend on Motorola and subcontractors of Motorola for a significant portion of our net sales and if we lose these relationships, our net sales would 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 Motorola, Inc. For the years ended September 30, 2004 and 2003, 80% and 71%, respectively, of our net sales were to Motorola and 40 and 35 of its subcontractors, respectively. Several subcontractors of Motorola also constitute significant customers of ours. For the years ended September 30, 2004 and 2003, sales of our products to Hosiden F.D. Corporation and its affiliates, Optrex Corporation Japan and its affiliates and Koninklijke Philips Electronics NV and its affiliates accounted for 11%, 10% and 7%, and 14%, 12% and 21% of our net sales, respectively.

Although generally we assist Motorola in the design of products and Motorola directs 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 Motorola. In addition, if Motorola were to reduce its orders to any of these customers or if Motorola 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.

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 Motorola and its subcontractors are expected to continue to represent a substantial portion of our net sales for the foreseeable future. The loss of Motorola and its subcontractors, a significant reduction in sales we make to them, a reduction in the pricing of our products sold to them or any problems collecting accounts receivable from them would reduce our net income.

We are heavily dependent upon the wireless telecommunications industry, and any downturn in the industry may reduce our net sales.

For the years ended September 30, 2004 and 2003, 83% and 75%, respectively, of our net sales were derived from sales to companies that provide products or services to the wireless telecommunications industry. In general, the wireless telecommunications 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 telecommunications 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 telecommunications 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 order from our customers, and our sales will be harmed if we are unable to obtain a sufficient number of orders from customers in each quarter. In addition, because our customers purchase from us on a purchase order basis, they may cancel, change or delay product purchase commitments with little or no advance notice to us. 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 cause our forecast of sales to be higher than actual sales. As a result of the foregoing factors, we are not able always to forecast with

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certainty the 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 sales and production capacity:

Delayed, reduced or canceled purchase 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, 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.

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

We sell our flexible printed circuit products directly or indirectly to 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 assurances 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.

We cannot be certain that our products will continue to be selected for design into our customers’ products or that our customers will not also qualify an additional vendor for its products. If we are unable to obtain additional customer qualifications, if we cannot qualify our products for high-volume production quantities or if our customers increase their reliance on second sources for their production, our net sales may decrease.

WBL Corporation controls 64% of our outstanding common stock and is able to exert influence over us and our major corporate decisions.

WBL Corporation beneficially owns 64% 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; although, through our Stockholders Agreement with WBL Corporation, it has agreed not to nominate WBL Corporation representatives to more than one-third of the seats on our board of directors at any time.

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

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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.

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

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. For example, MFS, a subsidiary of WBL Corporation that is located in Singapore, competes with us in many markets, including telecommunications. Although WBL Corporation has advised us that the individuals who manage WBL’s investment in MFS are not the same as the individuals who manage WBL’s investment in us and are subject to confidentiality obligations, there is a risk that conflicts of interest may arise because of WBL Corporation’s substantial ownership of us and 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. For example, WBL Corporation has issued bonds under an indenture that, among other things, contains restrictive covenants that prohibit WBL Corporation and its principal subsidiaries from incurring debt under some circumstances. Although we are not bound by the terms of the indenture, if we entered into an obligation that was prohibited by the indenture, it could result in WBL Corporation being in default under the indenture because the indenture prohibits principal subsidiaries of WBL Corporation, as defined in the indenture, from granting a security interest in or otherwise encumbering their assets. If these conflicts of interest are not resolved in a manner favorable to our stockholders, our stockholders’ interests may be substantially harmed.

As a stockholder, WBL Corporation will not have the ability to prevent us from making operational decisions that do not require stockholder approval; however, WBL Corporation will have the ability to nominate one-third of our board of directors and therefore can influence decisions that require board approval.

In general, our certificate of incorporation does not contain any provision 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.

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.

We have been advised by WBL Corporation that the individuals representing WBL Corporation who are on our board have authority to vote our shares of common stock; however, prior to voting our shares of common stock on any significant matter or disposing of our shares of common stock, the approval of WBL Corporation’s board of directors must be obtained. In addition, WBL Corporation is listed on 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 also 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, 2004, 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.

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

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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 notice of the meeting ranging from 14 to 28 days. 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.

If we are unable to retain our 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. The loss of any key employee or the inability to attract or retain qualified personnel, including engineers and sales and marketing personnel, could delay the development and introduction of, and harm our ability to sell, our products and damage the market’s perception of us. We believe that our future 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, an increase in the number of manufacturers in Suzhou, China and the surrounding areas could increase the competition for qualified employees and according, the costs of retaining such employees, in China. Our future success may also depend on our ability to attract and retain additional qualified management, engineering and sales and marketing personnel.

We are currently precluded from granting any security interest in or otherwise encumbering any of our assets, which could harm our ability to borrow funds.

WBL Corporation completed a corporate bond issuance in June 2000 in which WBL Corporation agreed that it and each of its principal subsidiaries, as defined in the indenture for the bonds, will not create or allow to continue to exist any security interest in or other encumbrance on any of their assets or revenue other than purchase money indebtedness. As of the end of fiscal year 2004, we were a principal subsidiary of WBL Corporation as defined in the bond indenture. At no time during past years in which we were a principal subsidiary, as defined in the bond indenture, did we create or allow to exist any indebtedness so as to cause a default under the indenture. The bonds issued by WBL Corporation mature in June 2005. WBL Corporation has advised us that it intends to refinance or repay the bonds in 2005 and to eliminate the restrictive covenant as it applies to us; however, there is no guarantee that WBL Corporation, if it refinances the bonds, will be successful in eliminating the covenant as it applies to us and it is possible that it may be required to agree to additional restrictive covenants that are more onerous.

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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 may emerge that are preferred by our customers. 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.

We also expect future flexible printed circuits to require higher performance specifications, including, for example, higher density circuitry than we are producing currently, and to incorporate new 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, 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. Low yields may result from, among other things, design errors or manufacturing failures in new or existing products. Any reduction in our ability to timely deliver products to customers could affect adversely our customer relationships and make it more difficult to sustain and 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 in Taiwan, China or Japan and, to a lesser degree, with smaller manufacturers of flexible printed circuits and component assemblies located in Europe and North America. We also compete with MFS, a subsidiary of WBL Corporation located in Singapore. 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. Such competitive pricing 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 EMS providers. It is possible that any of these EMS providers may develop their own flexible printed circuit manufacturing capabilities, in which case they may cease ordering products from us and may compete with us on future OEM programs.

Our products are subject to pricing pressure from our customers and market pressure from our competitors, either of which could harm our gross profit.

We deal with a limited number of large customers who are able to exert significant pricing pressure on us. We enter into price reduction negotiations with these customers on an annual, semi-annual or quarterly basis. We may lose our market share if we do not participate in such negotiations; furthermore, our participation in price reduction activities may result in lower margins for our company. 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. A typical life cycle for one of our products begins with higher prices when

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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, our cost of sales may increase, which would result in decreased gross profit or increased gross loss in a period in which we do not have gross profit.

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. 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 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. Our ability to increase our net sales in the future will depend in large part on our success in developing and maintaining relationships with these representatives. 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 raw materials and components used in the fabrication of flexible printed circuits. Our customers require that we use raw materials and components that have been pre-qualified by them, which limits further the supply of raw materials and components available to us and frequently results in our need to seek raw materials and components from a limited number of suppliers. 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.

Given the rapid increase in demand for flexible printed circuits, a worldwide shortage for these materials may exist from time to time. In the past, a similar shortage required that we qualify an additional supplier in order to maintain the delivery of our largest production run. Historically, we have experienced component delays of one to ten days, which we have managed by expediting our production schedules, resulting in insignificant delays to our customers. We may not be successful in the future in managing any shortage of raw materials or components that we may experience.

We purchase substantially all of our materials used to make flexible printed circuits from two sources, E.I. Dupont de Nemours & Co. and Rogers Corporation. In the fiscal years 2004, 2003 and 2002, we purchased approximately 77%, 87% and 89% of these materials from Dupont and approximately 23%, 13% and 11% from Rogers. Currently, Molex Inc., Supertex, Inc. and Panasonic are our largest component suppliers. In the fiscal

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year 2004, we purchased 10%, 2% and 13% of our components from Molex, Supertex, and Panasonic. In the fiscal year 2003, we purchased 11%, 8% and 5% of our components from Molex, Supertex, and Panasonic. In the fiscal year 2002, we purchased 12%, 10% and 5% of our components from Molex, Supertex and Panasonic.

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, 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:

Any of these factors could harm our future 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. We have experienced a lack of sufficient electricity supply and expect to continue to experience insufficient power supplies in the foreseeable future. Although we have purchased a generator and plan to purchase or lease additional generators, we cannot be assured that such generators will produce sufficient electricity supply in the event of a disruption in power. Power interruptions, electricity shortages 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. Any such shortages could result in delays in our shipments to our customers and, potentially, the loss of customer orders.

Our two primary manufacturing facilities are both located in Suzhou, China. Natural disasters or other catastrophic events, including wildfires and other fires, earthquakes, terrorist attacks and wars, could disrupt our manufacturing ability, which could have a significant negative impact on our operations and financial results.

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China’s legal system embodies 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. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes.

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.

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

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:

If we fail to properly evaluate and execute acquisitions and strategic investments, 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 may have difficulty managing any growth that we might experience.

If we continue to experience growth in our operations, our operational and financial systems, procedures and controls may need to be expanded, which will 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:

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In addition, we will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and Nasdaq, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and 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 currently are evaluating and monitoring developments with respect to these new 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. 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, and it is possible that WBL Corporation may not approve of any financing we may seek to complete, which could affect whether we are able to complete such a transaction. In addition, the terms of the WBL Corporation bond issue, which prohibits principal subsidiaries of WBL Corporation from granting any security interest with respect to any of their assets, could raise a conflict of interest between us and WBL Corporation if we needed to raise funds in a financing that involved a pledge of our assets. It is possible that, based upon this conflict, our board of directors could decide against such a financing. 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 financing on favorable terms, or at all:

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 for our first manufacturing facility in China, MFC1, will expire at December 31, 2004. For the fiscal years ended September 30, 2004, and 2003, we realized tax savings of $2,750,000 and $258,000, respectively, for our operations in China related to MFC1. We are in the process of an audit of our tax holiday for MFC1 by the relevant taxing authorities in China. Upon completion of this audit, we may be required to pay increased taxes and penalties.

We also have obtained a tax holiday for our new manufacturing facility in China, MFC2, that allows for tax-free operation for the first five years (beginning in the first year of profitability) followed by five years of

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operation at a reduced rate of income tax equal to 12%. However, this tax holiday may be challenged, modified or even eliminated by taxing authorities or changes in law. We cannot determine with certainty the amount of tax savings we will realize, if any, as a result of this tax holiday.

In February 2004, China’s deputy finance minister announced that the Chinese government plans to unify the tax code for domestic and foreign companies by as early as 2006, thereby eliminating the current tax holidays. The new rate is expected to be between 24% and 26% and is expected to treat domestic and foreign entities equally. The exact timing and nature of the changes to China’s tax code are unknown at this time. Without the benefit of the tax holiday for our China operations, our net income in prior periods would have been reduced and net income in future periods will be reduced.

We are also currently in the process of an audit in China relating to the import and export of raw and component materials at MFC1. We have been advised by the relevant custom authorities that upon completion of this audit, we may be required to pay penalties due to excess stock of these raw and component materials.

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. 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 revenue 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.

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

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toxic and hazardous materials used in the manufacture of flexible printed circuits and component assemblies. A significant part of our manufacturing operations is located in China, where we are subject to constantly evolving environmental regulation. The costs of complying with any changes 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 $122,000 and 121,000 of restricted cash for the fiscal years ended September 30, 2004 and 2003, 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.

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 due to the factors discussed in this section and elsewhere in our SEC filings. 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. These 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.

We may not have effective internal controls if we fail to remedy any deficiency we may identify in our system of internal controls.

In preparation for the annual report of management regarding our evaluation of our internal controls that is required to be included in our annual report for the year ended September 30, 2005 by Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we are adopting a project work plan to assess the adequacy of our internal controls, remediate any weakness that may be identified, validate that controls are functioning as documented and implement a continuous reporting and improvement process for internal controls. 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 the deficiencies are not adequately addressed, or if we are unable to complete all of our testing and any

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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 designed and operating effectively, which could adversely affect our investor confidence in our internal controls over financial reporting. If we do not complete our testing with sufficient time for independent accountants to complete their audit of internal controls, we may not be compliant with all of the requirements under Section 404 since we may not receive an independent accountants’ report.

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 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. We anticipate that this seasonal impact on our net sales is likely to continue. 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 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 November 30, 2004 we have 23,264,835 shares of common stock outstanding and 1,768,305 shares subject to unexercised options that are fully vested. Of these shares,

Any or all of the shares subject to the lock-up agreements may be released prior to expiration of the lock-up period at the discretion of Needham & Company, Inc. To the extent shares are released before the expiration of the lock-up period and these shares are sold 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:

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In addition, because we reincorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or Delaware law. These provisions may prohibit large stockholders, in particular those 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.

Item 7A.    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 September 30, 2004, we had $0, $3.4 and $0 million outstanding under our loan agreements with NLG, SPDB and BC, respectively. 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. We derive a substantial portion of our sales outside of the United States. Approximately $151.5 million, or 71%, of total shipments to these foreign manufacturers for fiscal 2004 was made in U.S. Dollars. The balance of our sales are denominated in Chinese Renminbi, or RMB. The exchange rate for the RMB to the U.S. Dollar has been 8.3 RMB per U.S. Dollar for the fiscal year ended September 30, 2004. Transactions in RMB represent approximately 29% of total revenues from foreign customers for the fiscal year ended September 30, 2004. We generally do not consider it necessary to hedge against currency risk, as a significant portion or our expenses are denominated in RMB, providing a natural hedge; however, we continue to be vulnerable to appreciation or depreciation of foreign currencies against the U.S. Dollar.

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Item 8.    Financial Statements and Supplementary Data

MULTI-FINELINE ELECTRONIX, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Multi-Fineline Electronix, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Multi-Fineline Electronix, Inc. and its subsidiaries at September 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Orange County, California

November 22, 2004

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MULTI-FINELINE ELECTRONIX, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share and Share Data)

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

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MULTI-FINELINE ELECTRONIX, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share and Share Data)

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

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MULTI-FINELINE ELECTRONIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Data)