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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2008

OR

For the transition period from              to             .

Commission File Number: 000-50855

Auxilium Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

40 Valley Stream Parkway, Malvern, PA 19355

(Address of principal executive offices) (Zip Code)

(484) 321-5900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨    Smaller reporting company  ¨

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

As of April 30, 2008, the number of shares outstanding of the issuer’s common stock, $0.01 par value, was 41,146,578.

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AUXILIUM PHARMACEUTICALS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2008

(In thousands, except share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Auxilium Pharmaceuticals, Inc. and its wholly owned subsidiaries (the Company), and have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) pertaining to Form 10-Q. Certain disclosures required for complete annual financial statements are not included herein. All significant intercompany accounts and transactions have been eliminated in consolidation. The information at March 31, 2008 and for the respective three-month periods ended March 31, 2008 and 2007 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of the Company’s management, are necessary to state fairly the financial information set forth herein. The December 31, 2007 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 2007 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the SEC.

(b) Net Loss Per Common Share

Net loss per common share is calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under the provisions of SFAS No. 128, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period reduced, where applicable, for unvested outstanding restricted shares.

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The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except share and per share amounts):

Diluted net loss per common share is computed giving effect to all potentially dilutive securities, including stock options and warrants. Diluted net loss per common share for all periods presented is the same as basic net loss per common share because the potential common stock is anti-dilutive.

(c) New Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”, on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is applicable to other accounting literature that requires fair value measurement and does not require any new fair value measurements. On February 12, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which amends SFAS No. 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on January 1, 2008, this statement applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On January 1, 2009 the standard will also apply to all other fair value measurements. While the adoption of the statement did not materially impact its results of operation or financial position, the Company is required to provide additional disclosures as part of its financial statements.

SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of March 31, 2008, the Company held certain investments classified as “available for sale” under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are required to be measured at fair value on a recurring basis. These are investments in cash equivalents and auction-rate securities (ARS). Cash equivalents, which amounted to $55,016,000 and are included in “Cash and cash equivalents” at March 31, 2008, are carried at fair value based on quoted market prices for identical securities (Level 1 inputs). ARS, which amounted to $5,800,000 and are classified as “Long-term investments” at March 31, 2008, are carried at par value which is considered to approximate fair value based on market prices for similar securities (Level 2 inputs).

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Further, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 provides companies the option to measure at fair value many financial instruments and certain other assets and liabilities on an instrument-by-instrument basis. The Company has not elected the fair value option for any of its financial assets or liabilities.

2. INVENTORIES

Inventories consist of the following (in thousands):

3. LONG-TERM INVESTMENTS

As of March 31, 2008, the Company held $5.8 million of ARS. These investments are private placement securities with long-term stated maturities for which interest rates are reset through a “Dutch” auction every 28 or 35 days. They carry AAA/Aaa ratings and are backed by student loans which carry guarantees as provided under the Federal Family Education Loan Program of the U.S. Department of Education. The Dutch auction mechanism, which allows investors to sell or hold the securities at par, had in the past provided a liquid market for these types of securities. Given this liquidity, the Company had previously classified investments in ARS as current and reported them as “Short-term investments” in its Consolidated Balance Sheet. However, with liquidity issues experienced in global credit and capital markets, the auctions for these securities have failed since February 10, 2008. Since the Company is unable to predict when the market for these securities will recover, these investments have been classified as non-current and are reported as “Long-term investments” in the unaudited Consolidated Balance Sheet at March 31, 2008.

4. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

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5. STOCK OPTIONS AND STOCK AWARDS

Under the Company’s 2004 Equity Compensation Plan (the 2004 Plan), as approved by the stockholders of the Company, qualified and nonqualified stock options and stock awards may be granted to employees, non-employee directors and consultants and advisors who provide services. As of March 31, 2008, the Company has granted non-qualified stock options and restricted stock under this plan. At March 31, 2008, there were 1,536,467 shares available for future grants under the 2004 Plan.

(a) Stock Option Information

During the three months ended March 31, 2008, the Company granted 889,883 standard non-qualified stock options and 180,000 performance-based non-qualified stock options to employees to purchase shares of the Company’s common stock pursuant to the 2004 Plan. The options expire ten years from date of grant and their exercise prices represent the closing price of the common stock of the Company on the respective dates that the options were granted. The standard non-qualified stock options vest rateably over four years at one year intervals from the grant date, assuming continued employment of the grantee. The performance-based options were awarded to certain officers. The ultimate amount of performance options that will accrue to these grantees is dependent upon attainment of one of the defined levels of performance related to the submission of a Biologic License Application (the BLA) for XIAFLEX™ (clostridial collagenase for injection), formerly referred to as AA4500, for the treatment of Dupuytren’s contracture to the U.S. Food & Drug Administration (FDA), or the timing of a change in control of the Company, prior to July 1, 2009. The full amount of the performance award is earned if the BLA is submitted to the FDA on or before March 31, 2009 and the FDA has granted an expedited review for the BLA. Two-thirds of the performance award is earned if the BLA is submitted on or before March 31, 2009 and the FDA did not grant an expedited review, or if there is a change in control of the Company on or before March 31, 2009. One-third of the performance award is earned if the BLA is submitted, or if there is a change in control of the Company, during the period from April 1, 2009 to June 30, 2009. None of the performance award is earned if the BLA is filed, or there is a change in control, after June 30, 2009. Each performance-based option has an exercise price of $32.72 and vests 33-1/3% on each 10 month anniversary of the date the performance goal is met. If the performance goal has been met and there is a change in control of the Company while the grantee is employed by, or providing service to the Company, any portion of the option that has not yet become exercisable shall automatically become immediately exercisable in full.

The following tables summarize stock option activity for the three month period ended March 31, 2008:

During the three months ended March 31, 2008, total intrinsic value of options exercised was $2,614,493. The aggregate intrinsic values in the preceding table represent the total pretax intrinsic value,

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based on the Company’s stock closing price of $26.74 as of March 31, 2008, that would have been received by the option holders had all option holders exercised their options as of that date. All 1,317,406 exercisable options as of March 31, 2008 were in-the-money.

(b) Restricted Stock Information

The compensation cost of restricted stock awards is determined by their intrinsic value on the grant date. The following table summarizes the restricted stock activity for the three month period ended March 31, 2008:

(c) Valuation Assumptions and Expense Information

The fair value of each share-based award was estimated on the date of grant using the Black-Scholes model and applying the assumptions in the following table.

During the three months ended March 31, 2008, the weighted-average grant-date fair value of options granted was $16.42 and the total fair value of options vested was $1,729,106.

Through March 31, 2008, no expense has been recognized for the 180,000 performance-based non-qualified stock options described above since it is not currently probable that any of the performance conditions will be met. As of March 31, 2008, there was approximately $25,100,000 of total unrecognized stock-based compensation cost related to all share-based payments that will be recognized over the weighted-average period of 2.70 years.

6. OTHER COMPREHENSIVE LOSS

Total comprehensive loss was as follows (in thousands):

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The foreign currency translation amounts relate to the Company’s foreign subsidiary.

The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the consolidated financial statements and the notes thereto appearing elsewhere in this report.

Special Note Regarding Forward-Looking Statements

Certain statements in this quarterly report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements made with respect to our strategy, progress and timing of development programs and related trials, the efficacy of our product candidates, the commercial benefits available to us as a result of our agreements with third parties, future operations, financial position, future revenues, projected costs, the size of addressable markets, prospects, plans and objectives of management and other statements regarding matters that are not historical facts and involve predictions. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “seem,” “seek,” “future,” “continue,” or “appear” or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to a number of risks and uncertainties including, among other things:

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These risks are not exhaustive. For a more detailed discussion of risks and uncertainties, see “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and “Item 1A – Risk Factors” of this quarterly report. Other sections of this quarterly report and in our other SEC filings, verbal or written statements and presentations may include additional factors which could materially and adversely impact our future results, performance, achievements and prospects. Moreover, we operate in a very competitive and rapidly changing environment. Given these risks and uncertainties, we cannot guarantee that the future results, performance, achievements and prospects reflected therein will be achieved or occur. Therefore, you should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statement other than as required under the federal securities laws. We qualify all forward-looking statements by these cautionary statements.

Overview

We are a specialty biopharmaceutical company with a focus on developing and marketing products to urologists, endocrinologists, orthopedists and select primary care physicians. We currently have approximately 320 employees. Our only marketed product, Testim^®, is a proprietary, topical 1% testosterone once-a-day gel indicated for the treatment of hypogonadism. Hypogonadism is defined as reduced or absent secretion of testosterone which can lead to symptoms such as low energy, loss of libido, adverse changes in body composition, irritability and poor concentration.

Our current product pipeline includes:

Phase III:

- XIAFLEX for the treatment of Dupuytren’s contracture

Phase II:

- XIAFLEX for the treatment of Peyronie’s disease

- XIAFLEX for the treatment of Frozen Shoulder syndrome, or Adhesive Capsulitis

Phase I:

- AA4010, treatment for overactive bladder using our transmucosal film delivery system

Preclinical:

- one pain product using our transmucosal film delivery system.

In addition to the above, we have the rights to develop seven other compounds for the treatment of pain using our transmucosal film technology and other products using our transmucosal film delivery system for treatment of urological disease and for hormone replacement therapy. We also have the option to license other indications for XIAFLEX other than dermal products for topical administration.

With regard to the development of XIAFLEX for the treatment of Dupuytren’s contracture, we have enrolled over 900 patients in the four on-going phase III XIAFLEX clinical trials (CORD I, CORD II, JOINT I and JOINT II) that started in the third quarter of 2007. As of March 31, 2008, over 1,000 patients have been dosed and over 2,000 XIAFLEX injections have been given across all Dupuytren’s contracture clinical trials. We expect to release top line efficacy results from the CORD I and CORD II phase III trials in the second quarter of 2008 and we believe we are on track to submit the BLA for Dupuytren’s contracture in early 2009.

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With regard to the development of XIAFLEX for the treatment of Peyronie’s disease, the FDA required that we conduct an animal study in order to evaluate the potential impact of XIAFLEX on normal penile tissue, in case the injection misses the targeted Peyronie’s plaque, prior to commencing phase IIb studies. The protocol for the animal study was approved by the FDA in June 2007 and the study has been completed. The FDA is currently reviewing the final report from this pre-clinical local effects/ tolerability study and we expect to begin dosing patients in the phase IIb study of XIAFLEX for the treatment of Peyronie’s disease in the second quarter of 2008. We anticipate that this phase IIb study will test different regimens and further validate a patient-reported outcomes questionnaire that we have developed for Peyronie’s disease.

We have begun to explore partnering opportunities for XIAFLEX as part of our ongoing evaluation of options to maximize the product’s potential in Europe.

We have never been profitable and have incurred an accumulated deficit of $236.5 million as of March 31, 2008. We expect to incur significant operating losses for the foreseeable future. We anticipate that commercialization expenses, development costs, and in-licensing milestone payments related to existing and new product candidates and to enhance our core technologies will continue to increase in the near term. In particular, we expect to incur increased costs for selling and marketing as we continue to market Testim and additional development and pre-commercialization costs for:

We will need to generate significant revenues to achieve profitability.

We expect that quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors including:

Our limited operating history makes accurate prediction of future operating results difficult.

Results of Operations

Three Months Ended March 31, 2008 and 2007

Net revenues. Net revenues increased $8.7 million, or 47%, to $27.1 million for the quarter ended March 31, 2008 from $18.4 million for the comparable 2007 period. This increase in net revenues resulted primarily from substantial growth in Testim demand resulting from increased prescriptions and increases in pricing, net of discounts, rebates and coupons. According to National Prescription Audit (NPA) data from IMS Health (IMS), a pharmaceutical market research firm, Testim total prescriptions for the first quarter of 2008 grew 31% over the comparable period of 2007. We believe that Testim prescription growth in the 2008 period over the 2007 period was driven by physician and patient acceptance that Testim provides better patient outcomes, the shift in prescriptions away from the testosterone patch product and the other gel product to Testim, and the continued focus of our sales force on the promotion of Testim to urologists, endocrinologists and select primary care physicians. Net

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revenues for the first quarter of 2008 benefited from price increases having a cumulative impact of 10% over the comparable 2007 period. Revenue from international product shipments in the first quarter of 2008 and 2007 amounted to zero and $0.3 million, respectively. Total product sales allowances for the first quarter of 2008 and 2007 amounted to 19.3% and 19.2%, respectively, of total gross revenue with increases in the percentages for product rebates and coupons usage for new patients offset by declines in the percentages for fee for service and returns and allowances.

Cost of goods sold. Cost of goods sold was $6.0 million and $5.1 million for the three months ended March 31, 2008 and 2007, respectively. The increase in cost of goods sold for the three months ended March 31, 2008 over the comparable period in 2007 was principally attributable to the increase in Testim revenue in the U.S. Gross margin on our net revenues was 77.9% in the first quarter of 2008 compared to 72.4% in the comparable 2007 period. Gross margin reflects the cost of product sold as well as royalty payments made to the Company’s licensor on the sales of Testim. The increase in gross margin reflects the impact of year-over-year price increases, the decline in low margin international product shipments, the benefit of a one-time manufacturing fee rebate and the lack of expenses related to Testim manufacturing and quality improvement programs carried out in the first quarter of 2007.

Research and development expenses. Research and development costs for the first quarter of 2008 were $13.2 million compared with $8.7 million for the comparable year-ago period. The increase in research and development costs was primarily due to the increased spending for development and manufacturing of XIAFLEX.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $21.0 million for the quarter ended March 31, 2008 compared with $17.2 million for the year-ago quarter. The increase was primarily due to higher investment in promotional spending for Testim, investments in market research and incremental personnel for XIAFLEX, and higher stock-based compensation expense.

Interest income (expense), net. Interest income, net was $0.8 million and $0.7 million for the three months ended March 31, 2008 and 2007, respectively. Net interest income relates primarily to interest earned on cash, cash equivalents and short-term investments.

Liquidity and Capital Resources

Since inception through March 31, 2008, we have financed our product development, operations and capital expenditures primarily from private and public sales of equity securities. Since inception through March 31, 2008, we received net proceeds of approximately $277.1 million from private and public sales of equity securities and the exercise of stock options and warrants. We had $56.9 million and $70.3 million in cash and cash equivalents as of March 31, 2008 and December 31, 2007, respectively. As of March 31, 2008, we held $5.8 million of ARS. Prior to 2008, we classified investments in ARS as current and reported them as “Short-term investments” in our Consolidated Balance Sheet. However, with liquidity issues experienced in global credit and capital markets, the auctions for these securities have failed since February 10, 2008. Since we are unable to predict when the market for these securities will recover, these investments have been classified as non-current and are reported as “Long-term investments” in the unaudited Consolidated Balance Sheet at March 31, 2008.

We believe that our current financial resources and sources of liquidity will be adequate to fund our anticipated operations through the second quarter of 2009. We may, however, need to raise additional funds prior to this time because of a number of factors, including:

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Insufficient funds may cause us to delay, reduce the scope of, or eliminate one or more of our development, commercialization or expansion activities. If additional funds are required, we may raise such funds from time to time through public or private sales of equity or debt securities or from bank or other loans. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans, financial condition, results of operations and prospects. Additional equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business.

Sources and Uses of Cash

Cash used in operations was $13.5 million and $13.7 million for the three months ended March 31, 2008 and 2007, respectively. In both periods, cash used in operations resulted primarily from operating losses. Cash used in operations for the three months ended March 31, 2008 included a $2.9 million increase in inventory which was primarily due to the Company’s decision to increase the finished inventory level on hand and available for sale.

Cash used in investing activities was $0.8 million for the three months ended March 31, 2008 compared to cash provided of $1.4 million for the three months ended March 31, 2007. The cash impact of investing activities in the 2008 and the 2007 periods relates primarily to the net effect of purchases and redemptions of short-term investments, together with our investments in property and equipment.

Cash provided by financing activities was $0.9 million and $3.1 million for the three months ended March 31, 2008 and 2007, respectively. Cash provided by financing activities for the 2008 period results primarily from cash receipts from stock option exercises. Cash provided by financing activities in the 2007 period results primarily from the cash receipts from stock option exercises and employee stock purchases.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a) (4) of Regulation S-K.

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New Accounting Pronouncements

See Note 1(c)—New Accounting Pronouncements to the Company’s Consolidated Financial Statements.

We are subject to market risks in the normal course of our business, including changes in interest rates and exchange rates. There have been no significant changes in our exposure to market risks since December 31, 2007. Refer to “Item 7 A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2007 for additional information.

Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their respective evaluations as of the end of the period covered by this Report, that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report are effective to provide reasonable assurance that the information required to be disclosed in the reports we file under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. A controls system cannot provide absolute assurances, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting.

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

In addition to the other information contained in this Report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 in evaluating our business, financial position, future results and prospects. Although there have been no material changes to the risk factors described in such Annual Report on Form 10-K, the risks described therein are not the only risks facing our company. Additional risks that we do not presently know or that we currently believe are immaterial could also materially and adversely affect our business, financial position, future results and prospects.

Issuer Purchases of Equity Securities

The following table summarizes the Company’s purchases of its common stock for the three months ended March 31, 2008:

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Unregistered Sale of Equity Securities

None.

Use of Proceeds

None.

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SIGNATURES

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

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EXHIBIT INDEX

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