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

Overview

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

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

Critical Accounting Policies

Information with respect to our critical accounting policies which we believe have the most significant effect on our reported results and require subjective or complex judgments of management are contained on pages 26-28 in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended September 30, 2008.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), goodwill is assigned to reporting units, which may be one level below the Company's operating segments. Goodwill is assigned to the reporting units that benefit from the synergies arising from each particular business combination. We consider this to be one of the critical accounting estimates used in the preparation of our financial statements, and believe the current assumptions and other considerations used to value goodwill and long-lived intangible assets to be appropriate. However, if actual experience differs from the assumptions and considerations used in our analysis, the resulting change could have a material adverse impact on our consolidated results of operations and statement of position. Goodwill and long-lived intangible assets are reviewed annually, or more frequently, if changes in circumstances indicate the carrying value may not be recoverable. To test for recoverability, we typically utilize valuations, discounted estimated future cash flows or other acceptable methods to measure fair value for each asset value. During the quarter ended December 31, 2008, our stock price, along with the stock market in general, declined, resulting in our market capitalization falling below our book value. We consider this decline temporary and based on general economic conditions, and not based on any events or conditions specific to us. During the quarter ended June 30, 2009, there were no triggering events that warranted a goodwill impairment analysis.

Comparison of the Three Months Ended June 30, 2009 and 2008

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



                                                            Three
                                                         Months Ended
                                                           June 30,
                                                       2009       2008
           Net sales                                   100.0 %    100.0 %
           Cost of sales                                85.7       86.2

           Gross profit                                 14.3       13.8
           Operating expenses:
           Research and development                      0.8        0.4
           Sales and marketing                           3.0        3.0
           General and administrative                    3.5        4.5
           Impairment and restructuring expense           -          -

           Total operating expenses                      7.3        7.9

           Operating income                              7.0        5.9
           Interest income                               0.1        0.3
           Interest expense                             (0.1 )     (0.0 )
           Other (expense) income, net                  (0.1 )      0.0

           Income before income taxes                    6.9        6.2
           (Benefit from) provision for income taxes     0.2        0.9

           Net income                                    6.7 %      5.3 %

Net Sales. Net sales increased to $174.5 million for the three months ended June 30, 2009, from $167.6 million in the three months ended June 30, 2008. The increase of $6.9 million, or 4%, was primarily attributable to an increase in average unit sales prices resulting from added material content, partially offset by reduced unit volume shipments. Sales into the consumer products sector were $35.3 million for the three months ended June 30, 2009, up from $0.6 million for the three months ended June 30, 2008, driven primarily by the ramp up in unit volume shipments to one of our key customers related to new programs that were started in fiscal 2008. This sector accounted for approximately 20% and 0% of total net sales for the three months ended June 30, 2009 and 2008, respectively, and is a result of our on-going efforts to diversify both our customers and the market sectors into which we sell.

Net sales into the wireless sector decreased to $134.3 million for the three months ended June 30, 2009, from $155.8 million during the three months ended June 30, 2008. The decrease of $21.5 million, or 14%, versus the comparable period of the prior year was primarily due to decreased unit volume shipments as a result of reduced demand from two of our major customers, partially offset by an increase in sales to another major customer. Sales into the wireless sector comprised 77% and 93% of total net sales for the three months ended June 30, 2009 and 2008, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales decreased to approximately 85.7% for the three months ended June 30, 2009 versus 86.2% for the three months ended June 30, 2008. Factors impacting cost of sales included increased material content on newer programs, offset by improved manufacturing yields and labor efficiencies. Smart phones and other wireless products typically have high material requirements due to the increased functionality of those devices.

Gross profit increased to $25.0 million for the three months ended June 30, 2009, versus $23.2 million in the comparable period in the prior year, an increase of approximately 8%. As a percentage of net sales, gross profit increased to approximately 14.3% for the three months ended June 30, 2009 from 13.8% for the three months ended June 30, 2008.

Research and Development. Research and development expense increased to $1.5 million for the three months ended June 30, 2009, from $0.6 million in the comparable period in the prior year, an increase of 150%. The increase was primarily due to an increase in compensation and benefits expenses related to increased headcount, bonus accruals of $0.4 million, increased depreciation expense of $0.1 million on research and development equipment purchases, increased purchases of test materials of $0.1 million, and $0.3 million on other research and development expenses. Our research and development activities focus on new technologies, primarily those which are expected to provide for additional miniaturization, cost reduction, and differentiation from our competition, as well as activities related to Pelikon Limited ("Pelikon"). We expect these expenses to continue to grow as we focus on expanding our product development activities.

Sales and Marketing Expense. Sales and marketing expense increased to $5.2 million during the three months ended June 30, 2009 from $5.1 million during the three months ended June 30, 2008. As a percentage of net sales, sales and marketing expense was 3.0% for both the three months ended June 30, 2009 and June 30, 2008. Changes include a $0.6 million increase in compensation and benefit expense due to headcount to support expanded program management activities, a $0.3 million increase in information technology and human resource support expenses due to expanded infrastructure growth, and a $0.1 million increase in other sales and marketing expenses. These increases were offset by a $0.9 million decrease in commissions due to a change in customer mix.

General and Administrative Expense. General and administrative expense decreased to $6.1 million during the three months ended June 30, 2009, from $7.6 million for the comparable period in the prior year, a decrease of $1.5 million or 20%. As a percentage of net sales, general and administrative expense declined to 3.5% versus 4.5% for the comparable period of the prior year. This was primarily attributable to $1.3 million for information technology and human resource expenses as activities were shifted to support expanded manufacturing operations and infrastructure growth in other areas and reduced compensation expenses of $0.2 million.

Interest Income. Interest income decreased to $0.1 million for the three months ended June 30, 2009, from $0.4 million for the three months ended June 30, 2008. The decrease is primarily attributable to a significant decline in interest rates.

Interest Expense. Interest expense increased to $0.3 million for the three months ended June 30, 2009, from less than $0.1 million for the three months ended June 30, 2008. The increase in interest expense is primarily related to interest accrued against the notes payable issued as part of our acquisition of Pelikon and unused line fees on our bank loan facilities.

Other (Expense) Income, Net. Other (expense) income, net changed to a net expense of $0.2 million for the three months ended June 30, 2009, from net income of less than $0.1 million for the comparable period in the prior year. This change from income to expense is primarily attributable to the movement of the U.S. dollar against the Chinese Renminbi ("RMB") and other foreign currencies.

Income Taxes. The effective tax rate for the three months ended June 30, 2009 was 2% versus 14% for the comparable period in the prior year. The tax rate declined primarily as a result of the recognition of discrete tax benefits of $3.4 million due to the expiration of a statute of limitation related to an international tax position and $0.8 million due to re-measurement of a liability associated with an international tax position. The Company also recognized a discrete tax expense during the three months ended June 30, 2009 of $1.2 million due to a change in tax regulations enacted and effective during 2009. The prior year tax rate benefited from an increase in income generated in a lower tax jurisdiction and decrease in income generated in a higher tax jurisdiction in the period.

Comparison of the Nine Months Ended June 30, 2009 and 2008

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



                                                           Nine
                                                       Months Ended
                                                         June 30,
                                                     2009       2008
              Net sales                              100.0 %    100.0 %
              Cost of sales                           85.4       83.9

              Gross profit                            14.6       16.1
              Operating expenses:
              Research and development                 0.7        0.3
              Sales and marketing                      2.9        2.8
              General and administrative               3.4        4.3
              Impairment and restructuring expense      -          -

              Total operating expenses                 7.0        7.4

              Operating income                         7.6        8.7
              Interest income                          0.1        0.2
              Interest expense                        (0.1 )     (0.0 )
              Other expense, net                      (0.2 )     (0.3 )

              Income before income taxes               7.4        8.6
              Provision for income taxes               1.3        2.2

              Net income                               6.1 %      6.4 %

Net Sales. Net sales increased to $565.3 million in the nine months ended June 30, 2009, from $515.7 million in the nine months ended June 30, 2008. The increase of $49.6 million, or 10%, was primarily attributable to an increase in average unit sales prices resulting from added material content, partially offset by reduced unit volume shipments. Sales into the consumer products sector were $135.9 million for the nine months ended June 30, 2009, up from $3.3 million for the nine months ended June 30, 2008. The increase was driven primarily by increases in unit volume shipments to one of our key customers related to several programs that were started in fiscal 2008. Shipments into the consumer products sector accounted for approximately 24% and 1% of total net sales for the nine months ended June 30, 2009 and 2008, respectively.

Net sales into the wireless sector decreased to $408.0 million for the nine months ended June 30, 2009, from $483.0 million in the nine months ended June 30, 2008. The decrease of $75.0 million, or 16%, versus the comparable period of the prior year was primarily due to reduced unit volume shipments to two of our major customers as a result of reduced demand, partially offset by an increase in sales to another major customer. Sales into the wireless sector comprised 72% and 94% of total net sales for the nine months ended June 30, 2009 and 2008, respectively.

Cost of Sales and Gross Profit. Cost of sales as a percentage of net sales increased to 85.4% for the nine months ended June 30, 2009, versus 83.9% for the comparable period in the prior year. The increase in cost of sales as a percentage of net sales of 1.5% was primarily attributable to the increase of average material content as a percent of sales from new programs in the current fiscal year and cost reductions from improved manufacturing yields resulting from operational improvement initiatives.

Gross profit decreased to $82.7 million for the nine months ended June 30, 2009, versus $82.9 million in the comparable period in the prior year, a decrease of less than 1%. As a percentage of net sales, gross profit decreased to 14.6% for the nine months ended June 30, 2009 from 16.1% in the comparable period in the prior year.

Research and Development.Research and development expense increased to $3.9 million for the nine months ended June 30, 2009, from $1.7 million in the comparable period of the prior year, an increase of 129%. The increase was primarily due to an increase in compensation and benefits of $1.0 million resulting from headcount and salary increases related to our increased emphasis on expanding our research and development activities in Anaheim and in our Pelikon subsidiary, increased depreciation of $0.4 million on research and development equipment purchases, increased purchased materials of $0.2 million related to research and development activities, $0.3 million for increased information technology and human resource support expenses due to expanded activities, and $0.3 million of other research and development expenses.

Sales and Marketing Expense. Sales and marketing expense increased by $2.4 million to $16.6 million in the nine months ended June 30, 2009, from $14.2 million in the comparable period in the prior year, an increase of 17%. The increase is primarily attributable to a compensation and benefits expense increase of $2.5 million, as a result of headcount growth, $0.7 million for information technology and human resource support expenses to support the expanded infrastructure, $0.3 million related to travel expenses, and a net increase of $0.3 million from other sales and marketing expenses. These increases were partially offset by reduced commissions expense of $1.4 million due to a change in customer mix and a new negotiated sales commission structure. As a percentage of net sales, sales and marketing expense increased to 2.9% versus 2.8% in the same period of the prior year.

General and Administrative Expense. General and administrative expense decreased by $2.8 million to $19.4 million in the nine months ended June 30, 2009, from $22.2 million in the comparable period in the prior year, a decrease of 13%. The decrease was primarily attributable to a decrease of $3.2 million for information technology and human resource expenses, as activities were shifted to support expanded manufacturing operations and infrastructure growth and a net decrease of other general and administrative expenses of $0.2 million, partially offset by an increase in compensation and benefits expense of $0.6 million due to the increase in salaries and headcount at various locations to support business growth. As a percentage of net sales, general and administrative expense decreased to 3.4% of net sales for the nine months ended June 30, 2009 from 4.3% for the comparable period of the prior year, attributable to the favorable leveraging impact on our operating expenses from the increased net sales.

Restructuring Cost. During the nine months ended June 30, 2009, we recorded a net restructuring charge of $0.1 million which consisted of $0.3 million related to the restructuring of our wholly owned subsidiary, Aurora Optical, in Tucson, Arizona, offset by a gain of $0.2 million related to the sale of equipment. No charges were recorded during the comparable period of the prior fiscal year.

Interest Income. Interest income decreased to $0.8 million for the nine months ended June 30, 2009, from $1.3 million for the nine months ended June 30, 2008. The decrease is primarily attributable to a significant decline in interest rates.

Interest Expense. Interest expense increased to $0.5 million for the nine months ended June 30, 2009, from $0.1 million for the nine months ended June 30, 2008. The increase in interest expense is primarily related to interest accrued against the notes payable issued as part of our acquisition of Pelikon and unused line fees on our bank loan facilities.

Other Expense, Net. Other expense, net decreased to $1.5 million for the nine months ended June 30, 2009, from $1.7 million for the comparable period in the prior year. The reduced expense was primarily attributable to a decrease in net losses from foreign exchange due to the movement of the U.S. dollar versus the RMB and other foreign currencies.

Income Taxes. The effective tax rate for the nine months ended June 30, 2009, was 17% versus 26% for the comparable period in the prior year. The tax rate declined primarily as a result of the recognition of discrete tax benefits of $3.4 million due to the expiration of a statute of limitation related to an international tax position and $0.8 million due to re-measurement of a liability associated with an international tax position. The Company also recognized a discrete tax expense during the nine months ended June 30, 2009 of $1.2 million due to a change in tax regulations enacted and effective during 2009.

Liquidity and Capital Resources

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

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

uncertainties that are difficult to predict. Factors that may impact its valuation include changes to credit ratings of the securities, as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, market interest rates, discount rates and ongoing strength. Market variables utilized in developing the valuation model for these securities include relative yields on federal student loan securities, average 90 day T-Bill rates, 90 day LIBOR rates, interest rate spreads as determined by the changing credit market environment and quality of market credit and liquidity.

During the nine months ended June 30, 2009, net income of $34.5 million, adjusted for depreciation and amortization, gain on equipment disposal, stock-based compensation expense and related tax benefit, deferred taxes, impairments and provision for doubtful accounts, generated $69.0 million of operating cash. This amount was increased by $16.2 million generated from working capital.

Depreciation and amortization expense was $30.4 million for the nine months ended June 30, 2009, versus $21.2 million in the comparable period in the prior . . .