First Solar - 10-Q quarterly report FY

     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 þ No o

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

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

     As of April 25, 2008 there were 79,751,626 shares of the registrant’s common stock, par value $0.001, outstanding.

     Basis of presentation. The accompanying unaudited condensed consolidated financial statements of First Solar, Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, these interim financial statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 29, 2008 are not necessarily indicative of the results that may be expected for the year ending December 27, 2008, or for any other period. The balance sheet at December 29, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements and notes should be read in conjunction with the financial statements and notes thereto for the year ended December 29, 2007 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

     Fiscal periods. We report our results of operations using a 52 or 53 week fiscal year, which ends on the Saturday on or before December 31. Our fiscal quarters end on the Saturday closest to the end of the applicable calendar quarter. Fiscal 2008 will end on December 27, 2008 and will consist of 52 weeks.

     Our significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 29, 2007 filed with the Securities and Exchange Commission. Our significant accounting policies reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements in the first quarter of fiscal 2008.

     On December 30, 2007, we adopted SFAS 157 for our financial assets and financial liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands financial statement disclosure requirements for fair value measurements. See Note 9 for more information about our adoption of SFAS 157 for our financial assets and financial liabilities and about our accounting policies related to fair value measurement. Our adoption of SFAS 157 did not have a material impact on our financial position, results of operations or cash flows.

     In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R, Business Combinations, which replaces SFAS 141. SFAS 141R requires most assets acquired and liabilities assumed in a business combination, contingent consideration and certain acquired contingencies to be measured at their fair value as of the date of the acquisition. SFAS 141R also requires that acquisition related costs and restructuring costs be recognized separately from the business combination. SFAS 141R will be effective for us for the fiscal year 2009 and will be effective for business combinations entered into after December 27, 2008.

     In December 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value and to report unrealized gains and losses on those assets and liabilities in earnings. We did not elect to adopt the fair value option under this statement.

     In December 2007, the FASB issued SFAS 160, Noncontrolling Interest in Consolidated Financial Statements. SFAS 160 amends previous accounting literature to establish new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 will become effective for us as of the beginning of fiscal 2010. We have not yet evaluated the impact, if any, the adoption of this Statement will have on our financial position, results of operations or cash flows.

     In February 2008, the FASB issued FASB Staff Position No. FAS 157-1 (FSP 157-1), Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification under Statement 13. FSP 157-1 states that SFAS 157 does not apply to fair value measurements for purposes of lease

classification or measurement. However, SFAS 157 does apply to fair value measurements of lease-related assets or liabilities assumed in a business combination. We adopted FSP 157-1 concurrent with our adoption of SFAS 157 and this did not have a material impact on our financial position, results of operations or cash flows.

     In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2), Effective Date of FASB Statement No. 157. FSP 157-2 deferred the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. As a result of FSP 157-2, we will adopt SFAS 157 for our nonfinancial assets and nonfinancial liabilities beginning with the first interim period of our fiscal year 2009. We are currently evaluating the impact of the adoption of SFAS 157 for our nonfinancial assets and nonfinancial liabilities on our financial position, results of operations or cash flows.

     In March 2008, the FASB issued SFAS 161, Disclosures About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. SFAS 161 expands quarterly disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We are currently assessing the impact of SFAS 161 on our financial position and results of operations.

     On November 30, 2007, we acquired 100% of the outstanding membership interests of Turner Renewable Energy, LLC. Under the purchase method of accounting, we allocated $33.4 million to goodwill as of December 29, 2007, which represents the excess of the purchase price over the fair value of the identifiable net tangible and intangible assets of Turner Renewable Energy, LLC.

     The changes in the carrying amount of goodwill for the three months ended March 29, 2008 are as follows (in thousands):

     The goodwill adjustment of $0.4 million was primarily a result of adjustments made to the opening balance sheet for the acquisition-related intangible assets and related deferred taxes.

     In addition, with the acquisition of Turner Renewable Energy, LLC in November 2007, we identified two intangible assets, which represent customer contracts already in progress and customer contracts not yet started. We amortize these costs using the percentage of completion method.

     Information regarding our acquisition-related intangible assets that are being amortized is as follows (in thousands):

     Amortization expense for acquisition-related intangible assets was $0.1 million for the three months ended March 29, 2008.

     On July 26, 2006, we were approved to receive taxable investment incentives(“Investitionszuschüsse”) of approximately €21.5 million ($34.0 million at the balance sheet close rate on March 29, 2008 of $1.58/€1.00) from the State of Brandenburg, Germany. These funds will reimburse us for certain costs we incurred building our plant in Frankfurt/Oder, Germany, including costs for the construction of buildings and the purchase of machinery and equipment. Receipt of these incentives is conditional upon the State of Brandenburg having sufficient funds allocated to this program to pay the reimbursements we claim. In addition, we are required to operate our facility for a minimum of five years and employ a specified number of associates during this period. Our incentive approval expires on December 31, 2009. As of March 29, 2008, we had received cash payments of $32.3 million under this program, and we had accrued an additional $0.9 million that we are eligible to receive under this program based on qualifying expenditures that we had incurred through that date.

     We were eligible to recover up to approximately €23.8 million of expenditures related to the construction of our plant in Frankfurt/Oder, Germany under the German Investment Grant Act of 2005(“Investitionszulagen”). This act permits us to claim tax-exempt reimbursements for certain costs we incurred building our plant in Frankfurt/Oder, Germany, including costs for the construction of buildings and the purchase of machinery and equipment. Tangible assets subsidized under this program have to remain in the region for at least five years. In accordance with the administrative requirements of this act, we claimed reimbursement under the Act in conjunction with the filing of our tax returns with the local German tax office during the third quarter of fiscal 2007. In addition, this program expired on December 31, 2006, and we can only claim reimbursement for investments completed by that date. The majority of our buildings and structures and our investment in machinery and equipment were completed by that date. In January 2008, we received a cash payment of $34.2 million under this program. As of March 29, 2008, there were no additional investment incentives that we were eligible to receive under this program.

     We have classified our marketable securities as “available-for-sale.” Accordingly, they are recorded at fair value and net unrealized gains and losses are recorded as part of other comprehensive income until realized. We report realized gains and losses on the sale of our marketable securities in earnings, computed using the specific identification method. During the three months ended March 29, 2008, we realized $0.4 million in gains and $0.1 million in losses on our marketable securities. See Note 9 for information about the fair value measurement of our marketable securities.

     All of our available-for-sale marketable securities are subject to a periodic impairment review. We consider our marketable debt securities impaired, when a significant decline in the issuer’s credit quality is likely to have a significant adverse effect on the fair value of the investment. Investments identified as being impaired are subject to further review to determine if the investment is other than temporarily impaired, in which case the investment is written down to its impaired value and a new cost basis is established.

     A summary of available-for-sale marketable securities by major security type as of March 29, 2008 are as follows (in thousands):

     Contractual maturities of our available-for-sale marketable securities as of March 29, 2008 were as follows (in thousands):

     The net $0.5 million unrealized gain on our investments as of March 29, 2008 was primarily a result of changes in interest rates. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, limits the types of acceptable investments, limits the concentration as to security holder and limits the duration of the investment.

     Accounts receivable, net consisted of the following at March 29, 2008 and December 29, 2007 (in thousands):

     Inventories consisted of the following at March 29, 2008 and December 29, 2007 (in thousands):

     Prepaid expenses and other current assets consisted of the following at March 29, 2008 and December 29, 2007 (in thousands):

     Property, plant and equipment consisted of the following at March 29, 2008 and December 29, 2007 (in thousands):

     Depreciation of property, plant and equipment was $10.1 million and $5.1 million for the three months ended March 29, 2008 and March 31, 2007, respectively.

     We incurred and capitalized interest cost (into our property, plant and equipment) as follows during the three months ended March 29, 2008 and March 31, 2007 (in thousands):

     Accounts payable and accrued expenses consisted of the following at March 29, 2008 and December 29, 2007 (in thousands):

     As a global company, we are exposed in the normal course of business to interest rate risk and foreign currency risk that could affect our net assets, financial position and results of operations. It is our policy to use derivative financial instruments to minimize or eliminate the risks associated with operating activities and the resulting financing requirements. We use derivative financial instruments exclusively to hedge realized or forecasted transactions. We do not use derivative financial instruments for speculative or trading purposes. Our use of derivative financial instruments is subject to strict internal controls based on centrally defined mechanisms and guidelines. The various risk classes and risk management systems are outlined below. See Note 9 for information about the fair value measurement of our derivative financial instruments.

     We use interest rate swap agreements to mitigate our exposure to interest rate fluctuations associated with certain of our debt instruments; we do not use interest rate swap agreements for speculative or trading purposes. We have interest rate swaps with a financial institution that effectively converts to fixed rates the floating variable rate of Euribor on certain drawdowns taken on the term loan portion of our credit facility with a consortium of banks led by IKB Deutsche Industriebank AG. As of March 29, 2008, the total notional value of the interest rate swaps was€46.0 million ($72.7 million at the balance sheet close rate on March 29, 2008 of $1.58/€1.00).

     The notional amounts of the interest rate swaps are scheduled to decline in accordance with our scheduled principal payments on the hedged term loan drawdowns. These derivative financial instruments qualified for accounting as cash flow hedges in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and we designated them as such. As a result, we classified the aggregate fair value of the interest rate swap agreements with other assets on our balance sheet, which was $0.1 million, at March 29, 2008. We record changes in that fair value in other comprehensive income. We assessed the interest rate swap agreements as highly effective cash flow hedges as of March 29, 2008.

  Cash Flow Exposure

     We have forecasted future cash flows, including revenues and expenses, denominated in currencies other than the relevant entity’s functional currency. Our primary cash flow exposures are customer collections and vendor payments. Changes in the relevant entity’s functional currency value will cause fluctuations in the cash flows we expect to receive when these cash flows are realized or settled. We may enter into foreign exchange forward contracts or other derivatives to hedge the value of a portion of these cash flows. We account for these foreign exchange contracts as cash flow hedges. The effective portion of the derivative’s gain or loss is initially

reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the transaction is settled.

     We purchased forward contracts to hedge the exchange risk on forecasted cash flows denominated in Euro. On March 29, 2008, the unrealized loss of these forward contracts was $32.4 million. The total notional value of the forward contracts was €289.8 million ($457.9 million at the balance sheet close rate on March 29, 2008 of $1.58/€1.00) on March 29, 2008. The forward exchange rates for these contracts range between $1.4431/€1.00 and $1.4612/€1.00.

     The foreign exchange contracts that hedge our forecasted future cash flows qualified for accounting as cash flow hedges in accordance with SFAS 133, and we designated them as such. As a result, we report the aggregate fair value on our balance sheet, and we record changes in that fair value in other comprehensive income. We determined that these derivative financial instruments were highly effective cash flow hedges as of March 29, 2008.

     Transaction Exposure

     We have certain assets and liabilities, primarily receivables, investments and accounts payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may enter into foreign exchange forward contracts or other instruments to minimize the short-term foreign currency fluctuations on such assets and liabilities. The gains and losses on the foreign exchange forward contracts offset the transaction gains and losses on certain foreign currency receivables, investments and payables recognized in earnings.

     In 2007, we purchased a forward foreign exchange contract to hedge certain foreign currency denominated intercompany long-term debt. We recognize gains or losses from the fluctuation in foreign exchange rates and the valuation of this hedging contract in foreign currency gain (loss) on our consolidated statements of operations. As of March 29, 2008, we had a single outstanding foreign exchange hedge contract to sell €20.0 million ($26.8 million at a fixed exchange rate of $1.34/€1.00). Unrealized mark-to-market losses recorded on this contract as of March 29, 2008 were $4.2 million. The contract is scheduled to settle on February 27, 2009.

     On December 30, 2007, the beginning of our fiscal year, we adopted SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands financial statement disclosure requirements for fair value measurements. Our adoption of SFAS 157 was limited to our financial assets and financial liabilities, as permitted by FSP 157-2. We do not have any nonfinancial assets or nonfinancial liabilities that are recognized or disclosed at fair value in our financial statements on a recurring basis. The implementation of the fair value measurement guidance of SFAS 157 did not result in any changes to the carrying values of our financial instruments on our opening balance sheet on December 30, 2007 for fiscal year 2008.

     SFAS 157 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. SFAS 157 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

     When available, we use quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, we will measure fair value using valuation techniques that use, when possible, current market-based or independently-

sourced market parameters, such as interest rates and currency rates. Following is a description of the valuation techniques that we use to measure the fair value of assets and liabilities that we measure and report on our balance sheet at fair value on a recurring basis:

     For the three months ended March 29, 2008, information about inputs into the fair value measurements of our assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows (in thousands):

     Our long-term debt at March 29, 2008 and December 29, 2007 consisted of the following (in thousands):

     We had outstanding borrowings of $24.5 million at December 29, 2007, which we classified as short-term debt. In February 2008, we repaid the full amount of our short-term debt that related to our bridge loan with a consortium of banks led by IKB Deutsche Industriebank AG.

     As of March 29, 2008, we had the following four outstanding commercial commitments in the form of letters of credit and bank guarantees: $0.7 million dated September 2007 for an energy supply agreement; MYR 4.0 million dated October 2007 for Malaysian custom and excise tax ($1.2 million at the balance sheet close rate on March 29, 2008 of $0.31/MYR1.00); MYR 2.2 million dated December 2007 for an energy supply agreement ($0.7 million at the balance sheet close rate on March 29, 2008 of $0.31/MYR1.00); and $1.3 million dated January 2008 for a sales and purchase agreement.

  Product warranties

     We offer warranties on our products and record an estimate of the associated liability based on the number of solar modules under warranty at customer locations, our historical experience with warranty claims, our monitoring of field installation sites, our in-house testing of our solar modules and our estimated per-module replacement cost.

     Product warranty activity during the three months ended March 29, 2008 and March 31, 2007 was as follows (in thousands):

     We measure share-based compensation cost at the grant date based on the fair value of the award and recognize this cost as an expense over the grant recipients’ requisite service periods, in accordance with SFAS 123(R). The share-based compensation expense that we recognized in our consolidated statements of operations for the three months ended March 29, 2008 and March 31, 2007 was as follows (in thousands):

     The increase in share-based compensation expense was primarily the result of new awards.

     The following table presents our share-based compensation expense by type of award for the three months ended March 29, 2008 and March 31, 2007 (in thousands):

     Share-based compensation cost capitalized in our inventory was $0.4 million and $0.2 million at March 29, 2008 and March 31, 2007, respectively. As of March 29, 2008, we had $20.6 million of unrecognized share-based compensation cost related to unvested stock option awards, which we expect to recognize as an expense over a weighted-average period of approximately 2 years, and $87.2

million of unrecognized share-based compensation cost related to unvested restricted stock units, which we expect to recognize as an expense over a weighted-average period of approximately 2 years.

     On December 31, 2006, we adopted the provisions of FASB Interpretation No. (FIN) 48, which is an interpretation of SFAS 109, Accounting for Income Taxes. Tax law is subject to significant and varied interpretation, so an enterprise may be uncertain whether a tax position that it has taken will ultimately be sustained when it files its tax return. FIN 48 establishes a “more-likely-than-not” threshold that must be met before a tax benefit can be recognized in the financial statements and, for those benefits that may be recognized, stipulates that enterprises should recognize the largest amount of the tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority. FIN 48 also addresses changes in judgments about the realizability of tax benefits, accrual of interest and penalties on unrecognized tax benefits, classification of liabilities for unrecognized tax benefits and related financial statement disclosures.

     During the three months ended March 29, 2008, we recorded $1.4 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. During the three months ended March 29, 2008, we did not identify any reductions in unrecognized tax benefits resulting from settlements with taxing authorities or due to the lapse of applicable statutes of limitations. We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. As a result of ongoing examinations and the timing of completion, it is not possible to estimate the potential net increase or decrease to our unrecognized tax benefits during the next twelve months.

     We are subject to filing requirements for income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are presently undergoing an examination by the German taxing authorities. Additionally, our tax years going back to 2003 are subject to examination in all tax jurisdictions in which we operate.

     At each period end, we exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our likelihood of utilizing any future tax benefit from our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions during the future periods in which the underlying tax-deductible temporary differences become deductible. We determined the valuation allowance on our deferred tax assets in accordance with the provisions of SFAS 109, which require us to weigh both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. We evaluated all significant available positive and negative evidence, including the existence of cumulative net losses, benefits that could be realized from available tax strategies and forecasts of future taxable income, in determining the need for a valuation allowance on our deferred tax assets.

      After applying the evaluation guidance of SFAS 109 as of March 29, 2008, we concluded that it was more-likely-than-not that the net deferred tax assets in Malaysia would be utilized in future periods. Therefore, based upon management’s assessment of the available evidence at March 29, 2008, we reversed the $0.6 million of valuation allowances established during fiscal 2007.

     Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed giving effect to all potential dilutive common stock, including stock options and restricted stock units.

     The reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is as follows (in thousands):

     The following number of outstanding options and restricted stock units was excluded from the computation of diluted net income per share as they would have had an antidilutive effect (in thousands):

     Comprehensive income, which includes foreign currency translation adjustments, unrealized gains on derivate instruments designated and qualifying as cash flow hedges and unrealized losses on available-for-sale securities, the impact of which has been excluded from net income and reflected as components of stockholders’ equity, is as follows (in thousands):

     Components of accumulated other comprehensive income (loss) were as follows (in thousands):

     Following is a reconciliation of net income to net cash provided by operating activities for the three months ended March 29, 2008 and March 31, 2007 (in thousands):

     SFAS 131, Disclosure about Segments of an Enterprise and Related Information, establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas and major customers. The method of determining what information to report is based on the way that management organizes the operating segments within the enterprise for making operating decisions and assessing financial performance. The component segment, which is our principal business, is the design, manufacture and sale of solar modules, which convert sunlight to electricity. We sell our solar modules to thirteen principal customers, which we have long term supply contracts with. These customers include project developers, system integrators and operators of renewable energy projects.

     We also sell solar power systems comprised of our solar modules and balance of system components procured from third parties directly to system owners. This may include services such as development, engineering, procurement of permits and equipment, construction management, monitoring and maintenance. For the three months ended March 29, 2008, we have not sold solar power systems using our solar modules, as we continued to sell third party solar modules acquired through the acquisition of Turner Renewable Energy, LLC consummated on November 30, 2007. These operations do not currently meet the quantitative criteria for segments and therefore are reflected in the Other category in the following table below (in thousands):

     On March 31, 2008, First Solar Manufacturing GmbH, a wholly owned indirect subsidiary of First Solar, Inc. and a consortium of banks led by IKB Deutsche Industriebank AG agreed to modify certain terms of the credit facility that the consortium of banks had entered into with First Solar Manufacturing GmbH on July 27, 2006. The amendment extends the principal repayment period on the term loan portion of the facility from eighteen quarters to twenty quarters, removes a provision requiring an additional one-time principal repayment during fiscal 2009 based on First Solar Manufacturing GmbH’s fiscal 2008 cash flows, permits First Solar Manufacturing GmbH to take on a variety of financial liabilities in the normal course of its business and enables First Solar Manufacturing GmbH’s to make payments to affiliates.

     On April 28, 2008, we granted 182,961 restricted units at a market price of $285.52 to our associates as part of our annual stock refresh program. The grant date fair value for these awards is approximately $52.2 million and will be amortized over the vesting period, which is generally four years.

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks, uncertainties and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, concerning our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs and capital expenditures; research and development programs; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict” and “continue,” the negative or plural of these words and other comparable terminology. Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Risk Factors” elsewhere in this Quarterly Report on Form 10-Q. You should carefully consider the risks and uncertainties described under this section.

     The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “First Solar” refer to First Solar, Inc. and its subsidiaries.

     We design and manufacture solar modules using a proprietary thin film semiconductor technology that has allowed us to reduce our average solar module manufacturing costs to among the lowest in the world. Each solar module uses a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. We manufacture our solar modules on high-throughput production lines and we perform all manufacturing steps ourselves in an automated, proprietary, continuous process. In 2007 and the three months ended March 29, 2008, we sold most of our solar modules to solar project developers and system integrators headquartered in Germany, France and Spain.

     First Solar was founded in 1999 to bring an advanced thin film semiconductor process into commercial production through the acquisition of predecessor technologies and the initiation of a research, development and production program that allowed us to improve upon the predecessor technologies and launch commercial operations in January 2002. Currently, we manufacture our solar modules at our Perrysburg, Ohio and Frankfurt/Oder, Germany manufacturing facilities and conduct our research and development activities at our Perrysburg, Ohio manufacturing facility. Our objective is to become, by 2010, the first solar module manufacturer to offer a solar electricity solution that generates electricity on a non-subsidized basis at a price equal to the price of retail electricity in key markets in North America, Europe and Asia.

     On January 24, 2007 we entered into a land lease agreement for a manufacturing center site in the Kulim Hi-Tech Park in the State of Kedah, Malaysia. The Malaysia site accommodates up to four plants, each with four productions lines. In April 2007, we began construction of plant one of our Malaysian manufacturing center. In the third and fourth quarters of 2007, we began construction of plants two and three respectively, and in the first quarter of 2008, we began construction of plant four. We expect plant one to reach its full capacity in the second half of 2008; plant two to reach its full capacity in the first half of 2009; and plants three and four to reach full capacity in the second half of 2009. After plant four of our Malaysian manufacturing center reaches its full capacity, planned for the second half of 2009, we will have 23 production lines and an annual global manufacturing capacity of 1035MW based on the first quarter of 2008 average run rate at our existing plants.

     On November 30, 2007, we completed the acquisition of Turner Renewable Energy, LLC, a privately held company which designed and deployed commercial solar projects for utilities and Fortune 500 companies in the United States. Starting in December 2007, we operate this wholly owned subsidiary under the name of First Solar Electric, LLC.

     On February 22, 2006, we were incorporated as a Delaware corporation. Prior to that date, we operated as a Delaware limited liability company.

     We generate substantially all of our net sales from the sale of solar modules. Over the past four years and the three months ended March 29, 2008, the main constraint limiting our sales has been production capacity as customer demand has exceeded the number of solar modules we could produce. We price and sell our solar modules per watt of power. As a result, our net sales can fluctuate based on our output of sellable watts. We currently sell almost all of our solar modules to solar project developers and system integrators headquartered in Germany, France and Spain, which then resell our solar modules to end-users who receive government subsidies. The majority of our sales are denominated in foreign currency and subject to the fluctuation of the exchange rate between the euro and U.S. dollar. Our net sales could be negatively impacted if legislation reduces the current subsidy programs in Europe, North America or Asia or if interest rates increase, which could impact our end-users’ ability to either meet their target return on investment or finance their projects.

     Under our customer contracts, starting in April 2006, we transfer title and risk of loss to the customer and recognize revenue upon shipment. Under our customer contracts in effect prior to April 1, 2006, we did not transfer title or risk of loss, or recognize revenue, until the solar modules were received by our customers. Our customers do not have extended payment terms or rights of return under these contracts.

     Under our long-term solar module supply contracts (“Long Term Supply Contracts”) with our customers, we have the right to terminate certain contracts upon 12 months notice and a payment of a termination fee, if we determine that certain material adverse changes have occurred, including, depending on the contract, one or more of the following: new laws; rules or regulations with respect to our production, distribution, installation or collection and recycling program which have a substantial adverse impact on our business; unanticipated technical or operational issues which result in our experiencing widespread, persistent quality problems or the inability to achieve stable conversion efficiencies at planned levels; or extraordinary events beyond our control which substantially increase the cost of our labor, materials or utility expenses or significantly reduce our throughput.

     Our customers are entitled to certain remedies in the event of missed deliveries of kilowatt volume. These delivery commitments are established through rolling four quarter forecasts that are agreed to with each of the customers within the parameters established in the Long Term Supply Contracts and define the specific quantities to be purchased on a quarterly basis and the schedules of the individual shipments to be made to the customers. In the case of a late delivery, certain of our customers are entitled to a maximum charge representing a percentage of the value of the delinquent delivery. If we do not meet our annual minimum volume shipments, our customers also have the right to terminate these contracts on a prospective basis.

     With our acquisition of Turner Renewable Energy, LLC on November 30, 2007, a small portion of our revenues have been accounted for using the percent of completion method of accounting. Revenues for First Solar Electric, LLC for the three months ended March 29, 2008 were $3.1 million and not material to our consolidated results of operations.

     No single customer accounted for more than 20% of our net sales in the three months ended March 29, 2008.

     Our cost of sales includes the cost of raw materials and components, such as tempered back glass, transparent conductive oxide or TCO coated front glass, cadmium telluride, laminate, connector assemblies and laminate edge seal and others. Other items contributing to our cost of sales are direct labor and manufacturing overhead such as engineering expense, equipment maintenance, environmental health and safety, quality and production control and procurement. Cost of sales also includes depreciation of manufacturing plant and equipment and facility related expenses. In addition, we accrue warranty and end-of-life collection and recycling expenses to our cost of sales.

     We implemented a program in 2005 to collect and recycle our solar modules after their use. Under our collection and recycling program, we enter into an agreement with the end-users of the photovoltaic systems that use our solar modules. In the agreement, we commit, at our expense, to remove the solar modules from the installation site at the end of their life and transport them to a processing center where the solar module materials and components will be either refurbished and resold as used panels or recycled to recover some of the raw materials. In return, the owner agrees not to dispose of the solar modules except through our end-of-life

collection and recycling program or another program that we approve, and the photovoltaic system owner is responsible for disassembling the solar modules and packaging them in containers that we provide. At the time we sell a solar module, we record an expense in cost of sales equal to the present value of the estimated future end-of-life collection and recycling obligation. We record the accretion expense on this future obligation to selling, general and administrative expense.

     Overall, we expect our cost of sales per watt to decrease over the next several years due to an increase of sellable watts per solar module, an increase in unit output per line, geographic diversification into lower-cost manufacturing regions and more efficient absorption of fixed costs driven by economies of scale.

     Gross profit is affected by numerous factors, including our average selling prices, foreign exchange rates, our manufacturing costs and the effective utilization of our production facilities. For example, our Long Term Supply Contracts specify a sales price per watt that declines approximately 6.5% at the beginning of each year. Another factor impacting gross profits is the ramp of production on new plants due to a reduced ability to absorb fixed costs until full production volumes are reached. As a result, gross profits may vary from quarter to quarter and year to year.

     Research and development expense consists primarily of salaries and personnel-related costs and the cost of products, materials and outside services used in our process and product research and development activities. We continuously add equipment for further process developments and record the depreciation of such equipment as research and development expense. We may also allocate a portion of the annual operating cost of our Ohio expansion to research and development expense.

     Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expense and other selling expenses. We expect these expenses to increase in the near term, both in absolute dollars and as a percentage of net sales, in order to support the growth of our business as we expand our sales and marketing efforts, improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required for a public company. Over time, we expect selling, general and administrative expense to decline as a percentage of net sales and on a cost per watt basis as our net sales and our total watts produced increase.

     Production start-up expense consists primarily of salaries and personnel-related costs and the cost of operating a production line before it has been qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase. It also includes all expenses related to the selection of a new site and the related legal and regulatory costs and the costs to maintain our plant replication program, to the extent we cannot capitalize these expenditures. We incurred production start-up expense of $16.9 million during 2007 in connection with the qualification of the German plant and the planning and preparation of our plants at our Malaysian manufacturing center. Production start-up expense for the three months ended March 29, 2008, was $12.8 million relating to the planning and preparation of our plants at the Malaysian manufacturing center. We expect to incur significant production start-up expense in fiscal year 2008 in connection with our plants at the Malaysian manufacturing center. In general, we expect production start-up expense per production line to be higher when we build an entirely new manufacturing facility compared with the addition of new production lines at an existing manufacturing facility, primarily due to the additional infrastructure investment required when building an entirely new facility. Over time, we expect production start-up expense to decline as a percentage of net sales and on a cost per watt basis as a result of economies of scale.

     Interest income is earned on our cash, cash equivalents, marketable securities and restricted cash.

     Interest expense, net of amounts capitalized, is incurred on various debt financings.

     Foreign currency gain (loss) consists of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than the functional currency of the respective subsidiaries.

     Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP for interim financial information. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, intangible assets, income taxes, warranty obligations, marketable securities valuation, derivative financial instrument valuation, end-of-life collection and recycling, contingencies and litigation and share-based compensation. We base our estimates on historical experience 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.

     The following table sets forth our consolidated statements of operations as a percentage of net sales for the periods indicated:

     Net sales

     Net sales increased by $130.0 million from $66.9 million in the three months ended March 31, 2007 to $196.9 million in the three months ended March 29, 2008, primarily as a result of a 173% increase in the MW volume of solar modules sold. The increase in the MW volume of solar modules sold was due to the full ramp of our German facility and continued improvements to our overall production throughput. In addition, the average number of sellable watts per solar module increased by 9% in the three months ended March 29, 2008 and the average selling price increased to $2.45 from $2.32 in the three months ended March 31, 2007. Our average selling price was positively impacted by $0.27 due to a favorable foreign exchange rate between the U.S. dollar and the euro; which was partially offset by a price decline of $0.14. During the three months ended March 29, 2008 and March 31, 2007, approximately 87% and 98%, respectively, of our net sales resulted from sales of solar modules to customers headquartered in Germany.

     Cost of sales

     Cost of sales increased by $55.7 million from $36.9 million in the three months ended March 31, 2007 to $92.6 million in the three months ended March 29, 2008, primarily as a result of higher production and sales volumes which caused a $31.7 million increase in direct material expense, $4.5 million increase in warranty and end-of-life costs relating to the collection and recycling of our solar modules, $1.1 million increase in sales freight and other costs and $18.4 million increase in manufacturing overhead costs. The increase in manufacturing overhead costs was due to a $9.9 million increase in salaries and personnel-related expenses as a result of increased head count, which included a $0.5 million increase in share-based compensation expense. In addition, the increase in manufacturing overhead costs included a $5.7 million increase in facility and related expenses and a $2.8 million increase in depreciation expense, which was primarily the result of additional equipment becoming operational at our German plant.

     Gross profit

     Gross profit increased by $74.3 million from $30.0 million in the three months ended March 31, 2007 to $104.3 million in the three months ended March 29, 2008, reflecting an increase in net sales. As a percentage of net sales, gross profit increased 8.1% percentage points from 44.9% to 53.0%, representing increased leverage of our fixed cost infrastructure and scalability associated with our German plant expansion, which drove a 173% increase in the number of MW sold over the same time period.

     Research and development

     Research and development expense increased by $1.7 million from $3.1 million in the three months ended March 31, 2007 to $4.8 million in the three months ended March 29, 2008, primarily as a result of an increase in headcount, which resulted in a $1.6 million increase in personnel-related expense and was offset by a $0.2 million reduction in share-based compensation expense from $1.2 million in the three months ended March 31, 2007 compared with $1.0 million in the three months ended March 29, 2008. In addition, consulting and other expenses increased by $0.3 million.

     Selling, general and administrative

     Selling, general and administrative expense increased by $15.0 million from $13.7 million in the three months ended March 31, 2007 to $28.7 million in the three months ended March 29, 2008, primarily as a result of an increase in headcount, which resulted in a $10.1 million increase in personnel-related expense and included a $4.5 million increase in share-based compensation expense from $2.9 million in the three months ended March 31, 2007 compared with $7.4 million in the three months ended March 29, 2008. In addition, legal and professional service fees expense increased by $2.7 million and all other expenses increased by $2.2 million, primarily as a result of infrastructure build out related to our continued expansion and increased compliance cost associated with being a public company.

     Production start-up

     In the three months ended March 29, 2008, we incurred $12.8 million of production start-up expense related to our sixteen line Malaysian expansion, which included related legal and regulatory costs, compared with $8.5 million of production start-up expense related to the ramp and qualification of our four line German plant during the three months ended March 31, 2007. Production start-up expense is primarily attributable to the cost of labor and material and depreciation expense to run and qualify the line prior to production, related facility expenses, management of our replication process and third party expenses.

     Foreign currency gain (loss)

     Foreign currency gain for three months ended March 29, 2008, was $0.8 million compared with a foreign currency loss of $0.3 million for the three months ended March 31, 2007, primarily as a result of a significant increase in the value of the euro in the three months ended March 29, 2008 compared to an average decline in the three months ended March 31, 2007.

     Interest income

     Interest income increased by $2.6 million from $4.1 million in the three months ended March 31, 2007 to $6.7 million in the three months ended March 29, 2008, primarily as a result of higher cash, cash equivalents and marketable securities balances throughout the first quarter of 2008 due to the $366.0 million net proceeds received from our August 2007 equity follow-on public offering.

     Interest expense, net

     Interest expense, net of amounts capitalized, decreased by $0.2 million during the three months ended March 29, 2008 compared with the three months ended March 31, 2007, primarily as a result of higher amounts of interest expense capitalized.

     Other expense

     Other expense increased by $0.2 million during the three months ended March 29, 2008 compared with the three months ended March 31, 2007. Other expense consists mainly of financing fees related to our credit facility with a consortium of banks led by IKB Deutsche Industriebank AG.

     Income tax expense

     Income tax expense increased by $15.3 million from $3.3 million in the three months ended March 31, 2007 to $18.6 million in the three months ended March 29, 2008, primarily as a result of an increase in our income before taxes. The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rate principally due to foreign income with lower tax rates

and from tax credits that lower the effective tax rate; the effect of which are partially offset by non-deductible expenses that increase the effective tax rate. The lower effective tax rates for the three months ended March 29, 2008, compared to the three months ended March 31, 2007, resulted primarily from the expansion of our international operations and a reduction of the German tax rate.

     For a description of the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 29, 2007 filed with the Securities and Exchange Commission. There have been no changes to our critical accounting policies since December 29, 2007, with the exception of the adoption of SFAS 157, Fair Value Measurements, effective December 30, 2007. SFAS 157 establishes a framework for the fair value measurement of our marketable securities and derivative instruments.

     See Note 3 for a summary of recent accounting pronouncements.

     As of March 29, 2008, we had $709.0 million in cash, cash equivalents and marketable securities compared to $669.7 million at December 29, 2007.

     Cash provided by operating activities was $63.3 million during the three months ended March 29, 2008 compared with $38.9 million during the same period in 2007. Cash received from customers increased to $194.6 million during the three months ended March 29, 2008 from $86.6 million during the three months ended March 31, 2007 primarily due to an increase in net sales. This increase was partially offset by cash paid to suppliers and employees of $137.8 million during the three months ended March 29, 2008 compared with cash paid to suppliers and employees of $46.4 million during the same period in 2007, mainly due to an increase in raw material and component purchases, an increase in personnel-related costs due to higher headcount and other costs supporting our global expansion.

     Cash provided by investing activities was $90.7 million during the three months ended March 29, 2008 compared with cash used of $40.8 million during the same period in 2007. Cash provided by investing activities resulted primarily from the net proceeds of marketable securities of $177.4 million during the three months ended March 29, 2008. Capital expenditures were $74.6 million during the three months ended March 29, 2008 and $40.8 million during the same period in 2007. The increase in capital expenditures was primarily due to our investments related to the construction of our new plants in Malaysia. Cash provided by investing activities for the three months ended March 29, 2008, was offset by $12.1 million of cash placed in restricted accounts to fund our solar module collection and recycling program.

     Cash provided by financing activities was $20.2 million during the three months ended March 29, 2008 compared with $18.7 million during the same period in 2007. Cash provided by financing activities resulted primarily from an increase in taxable investment incentives from the State of Brandenburg (“Investitionszuschüsse”) and from the Federal Republic of Germany under the Investment Grant Act of 2005 (“Investitionszulagen”) related to the construction of our plant in Frankfurt/Oder, Germany to $35.7 million during the three months ended March 29, 2008 from $4.0 million during the same period in 2007. This increase was partially offset by the repayment of long-term debt of $25.7 million during the three months ended March 29, 2008 compared with payments of $0.8 million during the same period in 2007. During the three months ended March 31, 2007 we received $14.8 million from additional drawings under our credit facilities with a consortium of banks led by IKB Deutsche Industriebank AG.

     We believe that our current cash and cash equivalents, marketable securities, cash flows from operating activities, government grants and low interest debt financings for our German plant will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, if our financial results or operating plans change from our current assumptions, we may not have sufficient resources to support our business plan. As a result, we may engage in one or more debt or equity financings in the future that could result in increased expenses or dilution to our existing stockholders. If we are unable to obtain debt or equity financing on reasonable terms, we may be unable to execute our expansion strategy.

     On December 30, 2007, the beginning of our fiscal year 2008, we adopted SFAS 157. Our adoption of SFAS 157 was limited to our financial assets and financial liabilities, as permitted by FSP 157-2. We do not have any nonfinancial assets or nonfinancial liabilities that are recognized or disclosed at fair value in our financial statements on a recurring basis. Our adoption of SFAS 157 did not have a material effect on our financial position and results of operations, and our fair value models do not make material use of unobservable inputs. See Note 9 for further information about our adoption of SFAS 157.

     We had no off-balance sheet arrangements as of March 29, 2008.

     Our international operations accounted for approximately 98.4% of our net sales in the three months ended March 29, 2008 and 100.0% of our net sales in the three months ended March 31, 2007; all of which were denominated in euros. As a result, we have exposure to foreign exchange risk with respect to almost all of our net sales. Fluctuations in exchange rates, particularly in the U.S. dollar to euro exchange rate, affect our gross and net profit margins and could result in foreign exchange and operating losses. Historically, most of our exposure to foreign exchange risk has related to currency gains and losses between the times we sign and settle our sales contracts. For example, our Long Term Supply Contracts obligate us to deliver solar modules at a fixed price in euros per watt and do not adjust for fluctuations in the U.S. dollar to euro exchange rate. In the three months ended March 29, 2008, a 10% change in the euro exchange rates would have impacted our net sales by $19.7 million. With the expansion of our manufacturing operations into Germany and the current expansion into Malaysia, many of our operating expenses for the plants in these countries will be denominated in the local currency.

     In the past, currency exchange rate fluctuations have had an impact on our business and results of operations. For example, currency exchange rate fluctuations positively impacted our cash flows by $12.2 million in the three months ended March 29, 2008 and positively impacted our cash flows by $0.1 million during the same period of 2007. Although we cannot predict the impact of future currency exchange rate fluctuations on our business or results of operations, we believe that we may have increased risk associated with currency exchange rate fluctuations in the future. As of March 29, 2008, we had one outstanding foreign exchange forward contract to sell €20.0 million ($26.8 million at a fixed exchange rate of $1.34/€1.00). The contract is due to settle on February 27, 2009. This currency forward contract hedges an intercompany loan. Most of our German plant’s operating expenses will be denominated in euros, creating increasing opportunities for some natural hedges against the currency risk in our net sales. In addition, we purchased forward contracts to hedge the exchange risk on forecasted cash flows denominated in Euro. The total notional value of the forward contracts was €289.8 million ($457.9 million at the balance sheet close rate on March 29, 2008 of $1.58/€1.00) on March 29, 2008.

     We are exposed to interest rate risk because many of our end-users depend on debt financing to purchase and install a solar electricity generation system. Although the useful life of a solar electricity generation system is approximately 25 years, end-users of our solar modules must pay the entire cost of the system at the time of installation. As a result, many of our end-users rely on debt financing to fund their up-front capital expenditure and final project. An increase in interest rates could make it difficult for our end-users to secure the financing necessary to purchase and install a system on favorable terms, or at all, and thus lower demand for our solar modules and system development services and reduce our net sales. In addition, we believe that a significant percentage of our end-users install solar electricity generation systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates could lower an investor’s return on investment in a system or make alternative investments more attractive relative to solar electricity generation systems, which, in each case, could cause these end-users to seek alternative investments that promise higher returns.

     During 2006, we entered into a credit facility with a consortium of banks led by IKB Deutsche Industriebank AG, which bears interest at Euribor plus 1.6% for a term loan, Euribor plus 2.0% for a bridge loan and Euribor plus 1.8% for a revolving credit facility. As of March 29, 2008, we hedged our exposure to changes in Euribor using interest rate swaps with a combined notional value of €46.0 million ($72.7 million at the balance sheet close rate on March 29, 2008 of $1.58/€1.00).

     In addition, we invest some of our cash in debt securities, which exposes us to interest rate risk. The primary objective of our investment activities is to preserve principal and provide liquidity on demand, while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, we maintain our portfolio of cash equivalents and marketable securities in a variety of securities, including money market funds, government and non-government debt securities and certificates of deposit. As of March 29, 2008, our fixed-income investments earned a pretax yield of approximately 3.9%, with a

weighted average maturity of two months. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our total investment portfolio could decrease (increase) by approximately $1.0 million. The direct risk to us associated with fluctuating interest rates is limited to our investment portfolio and we do not believe that a 10% change in interest rates will have a significant impact on our consolidated statements of operations and statements of cash flows. As of March 29, 2008, all of our investments were in money market accounts or U.S. government securities and federal agency debt.

      We are exposed to price risks for the raw materials and components used in the manufacture of our modules. Also, some of our raw materials and components are sourced from a limited number of suppliers or a sole supplier. We endeavor to hold limited inventory of key raw materials or components sufficient for our manufacturing needs and to qualify multiple suppliers, a process which could take up to 12 months if successful, but some suppliers are unique and it may not be feasible to qualify second source suppliers. In some cases, we also enter into long term supply contracts for raw materials and components, but these arrangements are normally of shorter duration than the term of our Long Term Supply Contracts with our customers. As a result, we remain exposed to price changes in the raw materials and components used in our modules. In addition, a failure by a key supplier could disrupt our supply chain which could result in higher prices for our raw materials and components and even a disruption in our manufacturing process. Since our selling price under our Long Term Supply Contracts does not adjust in the event of price changes in our underlying raw material or component and require minimum deliveries of our products during their term, we are unable to pass along changes in the cost of the raw materials and components for our products and may be in default of our delivery obligations if we experience a manufacturing disruption.

     Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of March 29, 2008 of the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 29, 2008, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

     Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our “internal control over financial reporting” as defined in Exchange Act Rule 13a-15(f) to determine whether any changes in our internal control over financial reporting occurred during the three months ended March 29, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there have been no such changes in our internal control over financial reporting during the three months ended March 29, 2008.

     We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4 be read in conjunction with those certifications for a more complete understanding of the subject matter presented.

     Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns

can occur because of simple error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

     In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, results of operations, cash flows or financial condition.

     In accordance with SFAS 5, “Accounting for Contingencies,” we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

     In addition to the other information set forth 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 29, 2007 and our registration statement on Form S-1/A filed on August 3, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. The risk factors included in our Annual Report on Form 10-K for the year ended December 29, 2007 and our registration statement on Form S-1/A filed on August 3, 2007, have not materially changed.

     The following exhibits are filed with this Quarterly Report on Form 10-Q:

     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.