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|   | þ | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | For      the Quarterly Period Ended December 31,2007 |
|--------|------------------------------------------------------|

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

|   | For      the Transition Period From _____ to_____ |
|--------|---------------------------------------------------|

| Delaware                             | 33-0732700                  |
|--------------------------------------|-----------------------------|
| (State      or other jurisdiction of | (IRS      Employer          |
| Incorporation      or Organization)  | Identification      Number) |

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Table of Contents

INDEX TO FORM 10-Q

| PART I.           | FINANCIAL INFORMATION                                                                                                        |
|-------------------|------------------------------------------------------------------------------------------------------------------------------|
| Item 1.           | Financial Statements                                                                                                         |   |
|              | Condensed Consolidated Balance Sheets         as of December 31, 2007 and September 30, 2007      (unaudited) |  1 |
|              | Condensed Consolidated Statements of Operations      (unaudited)for the three months ended December 31, 2007 and      2006   |  2 |
|              | Condensed Consolidated Statements of Cash Flows      (unaudited)for the three months ended December 31, 2007 and      2006   |  3 |
|              | Notes to Condensed Consolidated Financial      Statements                                                                    | 4 –      11 |
| Item 2.           | Management’s Discussion and Analysis of Financial Condition      and Results of Operations                             | 12      – 20 |
| Item 3.           | Quantitative and Qualitative Disclosures About Market      Risks                                                             | 21 |
| Item 4.           | Controls and Procedures                                                                                                      | 21 |
| PART II.          | OTHER INFORMATION                                                                                                            |   |
| Item 1A.          | Risk Factors                                                                                                                 | 22 |
| Item 6.           | Exhibits                                                                                                                     | 22 |
| Signatures        | 23                                                                                                                           |
| Index to Exhibits |                                                                                                                         |
| Exhibit 31.1      |                                                                                                                         |
| Exhibit 31.2      |                                                                                                                         |
| Exhibit 32.1      |                                                                                                                         |
| Exhibit 32.2      |                                                                                                                         |

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PART 

Item 1

| HIFN, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONDENSED      CONSOLIDATED BALANCE SHEETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| (in      thousands)(unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | December      31,2007 |   |   | September      30, 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| CURRENT      ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |
|          Cash and cash      equivalents                                                                                                               |   | $ | 25,460 |   |   | $ | 17,049 |   |
|          Short-term      investments                                                                                                                  |   |   | 11,747 |   |   |   | 18,273 |   |
|          Accounts receivable,      net                                                                                                                |   |   | 8,863 |   |   |   | 7,450 |   |
|          Inventories (finished      goods)                                                                                                            |   |   | 2,543 |   |   |   | 2,784 |   |
|          Prepaid expenses and other current      assets                                                                                               |   |   | 1,303 |   |   |   | 1,428 |   |
|           Total current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 49,916 |   |   |   | 46,984 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|          Other      receivables                                                                                                             |   |   | 166 |   |   |   | 189 |   |
|          Property and equipment,      net                                                                                                   |   |   | 1,943 |   |   |   | 1,982 |   |
|          Goodwill and intangible assets,      net                                                                                           |   |   | 6,704 |   |   |   | 7,453 |   |
|          Other      assets                                                                                                                  |   |   | 2,320 |   |   |   | 2,358 |   |
|                  Total assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $ | 61,049 |   |   | $ | 58,966 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| CURRENT      LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
|          Accounts      payable                                                                                                                        |   | $ | 2,420 |   |   | $ | 1,467 |   |
|          Accrued expenses and other current      liabilities                                                                                          |   |   | 3,930 |   |   |   | 4,051 |   |
|      Total      current      liabilities                                                                                                                             |   |   | 6,350 |   |   |   | 5,518 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| STOCKHOLDERS’      EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |
|          Common      stock                                                                                                                            |   |   | 15 |   |   |   | 15 |   |
|          Additional paid-in      capital                                                                                                              |   |   | 173,503 |   |   |   | 171,573 |   |
|          Accumulated other comprehensive      income                                                                                                  |   |   | 4 |   |   |   | 3 |   |
|          Accumulated      deficit                                                                                                                     |   |   | (114,396 | ) |   |   | (113,716 | ) |
|          Treasury stock, at      cost                                                                                                                 |   |   | (4,427 | ) |   |   | (4,427 | ) |
|         Total stockholders’      equity                                                                                                                                  |   |   | 54,699 |   |   |   | 53,448 |   |
|                  Total liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $ | 61,049 |   |   | $ | 58,966 |   |

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| HIFN, INC.CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (in      thousands, except per share data)(unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | December      31, |   |
| Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |
| Net      revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |
| Processors                                                                                                                                                                                   |   | $ | 9,985 |   |   | $ | 8,565 |   |
| Software      licenses and      other                                                                                                                                                        |   |   | 944 |   |   |   | 704 |   |
|                Total net      revenues                                                                                                                              |   |   | 10,929 |   |   |   | 9,269 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| Costs      and operating expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Cost      of revenues –      processors                                                                                                                                                |   |   | 3,320 |   |   |   | 3,122 |   |
| Cost      of revenues – software licenses and      other                                                                                                                               |   |   | 152 |   |   |   | 82 |   |
| Research      and      development                                                                                                                                                           |   |   | 3,602 |   |   |   | 4,319 |   |
| Sales      and      marketing                                                                                                                                                                |   |   | 2,394 |   |   |   | 1,822 |   |
| General      and      administrative                                                                                                                                                         |   |   | 1,722 |   |   |   | 2,442 |   |
| Amortization      of intangible      assets                                                                                                                                                  |   |   | 749 |   |   |   | 737 |   |
|                Total costs and operating      expenses                                                                                                              |   |   | 11,939 |   |   |   | 12,524 |   |
| Loss from      operations                                                                                                                                           |   |   | (1,010 | ) |   |   | (3,255 | ) |
|         Interest      income                                                                                                                                                       |   |   | 462 |   |   |   | 505 |   |
|         Other expenses,      net                                                                                                                                                   |   |   | (117 | ) |   |   | (15 | ) |
| Loss before income      taxes                                                                                                                                       |   |   | (665 | ) |   |   | (2,765 | ) |
| Provision      for (benefit from) income      taxes                                                                                                                 |   |   | 15 |   |   |   | (63 | ) |
| Net      loss                                                                                                                                                       |   | $ | (680 | ) |   | $ | (2,702 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| Net      loss per share, basic and      diluted                                                                                                                     |   | $ | (0.05 | ) |   | $ | (0.19 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding, basic and      diluted                                                                                                    |   |   | 14,776 |   |   |   | 13,948 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |

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| HIFN, INC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| (in      thousands)(unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | December      31, |   |
| Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
| Cash      flows from operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
| Net      loss                                                                                                                                                                                          |   | $ | (680 | ) |   | $ | (2,702 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
| Adjustments      to reconcile net loss to net cash provided by (used in) operating      activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
|          Depreciation and      amortization                                                                                                                                                       |   |   | 387 |   |   |   | 471 |   |
|          Amortization of intangible      assets                                                                                                                                                   |   |   | 749 |   |   |   | 737 |   |
|          Short-term investment impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 90 |   |   |   | - |   |
|          Stock-based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 433 |   |   |   | 443 |   |
|          Write-down of excess and obsolete      inventory                                                                                                                                    |   |   | 22 |   |   |   | 35 |   |
|          Reduction of allowance for doubtful      accounts                                                                                                                                        |   |   | - |   |   |   | (15 | ) |
| Changes      in assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
|          Accounts      receivable                                                                                                                                                                 |   |   | (1,413 | ) |   |   | (139 | ) |
|          Inventories                                                                                                                                                                              |   |   | 219 |   |   |   | (527 | ) |
|          Prepaid expenses and other current      assets                                                                                                                                           |   |   | 125 |   |   |   | 116 |   |
|          Other      receivables                                                                                                                                                                   |   |   | 23 |   |   |   | - |   |
|          Other      assets                                                                                                                                                                        |   |   | (106 | ) |   |   | (319 | ) |
|          Accounts      payable                                                                                                                                                                    |   |   | 1,103 |   |   |   | 831 |   |
|          Accrued expenses and other current      liabilities                                                                                                                                      |   |   | (121 | ) |   |   | (218 | ) |
|           Net cash provided by (used in) operating      activities                                                                                                                                          |   |   |   831 |   |   |   | (1,287 | ) |
| Cash      flows from investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Sale      and maturities of short-term      investments                                                                                                                                                |   |   | 11,571 |   |   |   | 8,266 |   |
| Purchases      of short-term      investments                                                                                                                                                          |   |   | (5,134 | ) |   |   | (11,174 | ) |
| Purchases      of property and      equipment                                                                                                                                                          |   |   | (204 | ) |   |   | (111 | ) |
| Refund      of escrow funds relating to Siafu      acquisition                                                                                                                                         |   |   |   (150 | ) |   |   | - |   |
|          Net cash provided by (used in) investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   6,083 |   |   |   | (3,019 | ) |
| Cash      flows from financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Proceeds      from issuance of common stock for stock option exercises and employee      stock purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 1,497 |   |   |   | 271 |   |
|          Net cash provided by financing      activities                                                                                                                                                          |   |   | 1,497 |   |   |   | 271 |   |
| Net increase (decrease) in cash      and cash      equivalents                                                                                                      |   |   | 8,411 |   |   |   | (4,035 | ) |
| Cash      and cash equivalents at beginning of      period                                                                                                          |   |   | 17,049 |   |   |   | 20,437 |   |
| Cash      and cash equivalents at end of      period                                                                                                                |   | $ | 25,460 |   |   | $ | 16,402 |   |

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HIFN, INC.

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | December      31,2007 |         |   | September      30, 2007 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | ($      in thousands) |         |
| Property      and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                  |         |   |                         |   |
|              Computer      equipment                                                                                                                      |   | $                     | 8,669        |   |                         | $      | 8,465 |   |
|              Furniture and      fixtures                                                                                                                  |   |                  | 912          |   |                         |   | 912 |   |
|              Leasehold      improvements                                                                                                                  |   |                  | 789          |   |                         |   | 789 |   |
|              Office      equipment                                                                                                                        |   |                  |  906    |   |                         |   | 906 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                  | 11,276       |   |                         |   | 11,072 |   |
|              Less: accumulated depreciation and      amortization                                                                                         |   |                  |  (9,333 | )      |                         |   | (9,090 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                     | 1,943        |   |                         | $      | 1,982 |   |

| Intangible      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |    |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|          Developed and core      technology                                                                                                               |   | $      | 16,771  |   |   | $      | 16,771 |   |
|              Less: accumulated      amortization                                                                                      |   |   | (11,492 | )      |   |   | (10,743 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 5,279   |   |   |   | 6,028 |   |
|          Goodwill                                                                                                                                         |   |   | 1,425   |   |   |   | 1,425 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $      | 6,704   |   |   | $      | 7,453 |   |

| Fiscal      year ending September 30,              |   |   |   |   |   |   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|     2008 (9      months ended) |   |   |   |   |   |   |   |   |
|          2009                       |   |   | 1,231  |   |   |   |   |   |
|          2010                       |   |   | 643    |   |   |   |   |   |
|          2011                       |   |   | 643    |   |   |   |   |   |
|          2012                       |   |   | 515    |   |   |   |   |   |
| Total      estimated amortization                  |   | $      | 5,279  |   |   |   |   |   |

| Other      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|         Design      tools and other licensed intellectual property, net of      amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $      | 1,965  |   |   | $      | 2,000 |   |
|              Refundable      deposits                                                                                         |   |   | 355    |   |   |   | 358 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $      | 2,320  |   |   | $      | 2,358 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |

| Accrued      expenses and other current liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|              Accrued vacant facility lease      cost                                                                                              |   | $      | 465    |   |   | $      | 713 |   |
|              Accrued non-recurring engineering      costs                                                                                         |   |   | 582    |   |   |   | 104 |   |
|              Compensation and employee      benefits                                                                                              |   |   | 1,560  |   |   |   | 1,606 |   |
|              Deferred income and      revenue                                                                                                     |   |   | 787    |   |   |   | 1,004 |   |
|              Income taxes      payable                                                                                                            |   |   | 9      |   |   |   | 9 |   |
|              Other                                                                                                                                |   |   | 527    |   |   |   | 615 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $      | 3,930  |   |   | $      | 4,051 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | December      31, |      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|
|          Three Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2007              |      |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |              |      |   |   |   |
| Outstanding      options to purchase common      stock                                                                                             |   |              | 3,579,701 |   |   |   | 4,282,213 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | December      31,   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|          Three Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2007                |   |   | 2006 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | (in      thousands) |   |
| Net      loss                                                                                                                                        |   | $                   | (680   | ) |   | $ | (2,702 | ) |
| Unrealized      gain on short-term investments,      net                                                                                             |   |                | 1      |   |   |   | 1 |   |
| Comprehensive      loss                                                                                                                              |   | $                   | (679   | ) |   | $ | (2,701 | ) |

|   |                                                                                                                                                                                                                                                                   |   | Options      Availablefor      Grant |      |   | Outstanding      Options / Quantity |   |      | Weighted      Average Exercise Price (per share) |   |   | Weighted      Average Contractual Term |   |   | Aggregate      Intrinsic Value (in thousands) |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|--------|-------------------------------------|--------|-----------|--------------------------------------------------|--------|--------|----------------------------------------|--------|--------|-----------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                   |   |                                 |      |   |                                |   |      |                                             |   |   |                                   |   |   |                                          |   |
|   | Balance      at September 30, 2007                                                                                                                                                                                                                                     |   |                                 | 1,137,745 |   |                                |   | 3,769,411 |                                             |   | $      | 9.11                                   |   |   |                                          |   |   |   |   |
|   | Options      granted                                           |   |                                 | (351,869  | )      |                                |   | 351,869   |                                             |   |   | 4.53                                   |   |   |                                          |   |   |   |   |
|   | Options      exercised                                                                                                                                                                                                                                                 |   |                                 | -         |   |                                |   | (264,712  | )                                                |   |   | 4.91                                   |   |   |                                          |   |   | $ | 406 |   |
|   | Options      cancelled                                         |   |                                 | 276,867   |   |                                |   | (276,867  | )                                                |   |   | 17.95                                  |   |   |                                          |   |   |   |   |   |
|   | Balance      at December 31, 2007                                                                                                                                                                                                                                      |   |                                 | 1,062,743 |   |                                |   | 3,579,701 |                                             |   |   | 8.29                                   |   |   |                                          |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                   |   |                                 |      |   |                                |   |      |                                             |   |   |                                   |   |   |                                          |   |   |   |   |   |
|   | Fully      vested and expected to vest at December 31, 2007                                                                                                                                                                                                            |   |                                 |      |   |                                |   | 3,419,757 |                                             |   | $      | 8.41                                   |   |   |                                          | 6.20   |   |   | $ | 1,261 |   |
|   | Fully      vested and exercisable at December 31, 2007                                                                                                                                                                                                                 |   |                                 |      |   |                                |   | 2,247,041 |                                             |   | $      | 9.94                                   |   |   |                                          | 4.63   |   |   | $ | 507 |   |

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|                              |                                                        |   | Options      Outstanding |   |      | Options      Vested and Exercisable                     |   |
|-----------------------------------|-------------------------------------------------------------|--------|--------------------------|--------|-----------|---------------------------------------------------------|--------|
| Range      ofExercise      Prices |                                                        |   |   Quantity     |   |      | Weighted      AverageRemaining      Life(in      years) |   |   | Weighted      AverageExercise      Price |   |   | Quantity |   |   | Weighted      AverageExercise      Price |   |
|                              |                                                        |   |                     |   |      |                                                    |   |   |   |   |   |   |   |   |   |   |
| $                                 |     0.00 -      $  4.85                 |   |                     |   | 480,209   |                                                    |   |   | 7.67 |   |   | $ | 3.65 |   |   |   | 238,276 |   |   | $ | 4.32 |   |
|                              |          4.90 -     5.00      |   |                     |   | 118,287   |                                                    |   |   | 1.13 |   |   |   | 4.99 |   |   |   | 118,287 |   |   |   | 4.99 |   |
|                              |          5.09 -     5.10      |   |                     |   | 377,602   |                                                    |   |   | 8.82 |   |   |   | 5.10 |   |   |   | 106,131 |   |   |   | 5.10 |   |
|                              |          5.11 -     5.99 |   |                     |   | 358,138   |                                                    |   |   | 8.77 |   |   |   | 5.71 |   |   |   | 75,599 |   |   |   | 5.44 |   |
|                              |          6.01 -     6.33 |   |                     |   | 400,342   |                                                    |   |   | 9.11 |   |   |   | 6.18 |   |   |   | 148,866 |   |   |   | 6.18 |   |
|                              |          6.40 -     6.74 |   |                     |   | 360,730   |                                                    |   |   | 5.83 |   |   |   | 6.62 |   |   |   | 211,219 |   |   |   | 6.66 |   |
|                              |          6.82 -     8.35 |   |                     |   | 383,737   |                                                    |   |   | 7.22 |   |   |   | 7.55 |   |   |   | 270,507 |   |   |   | 7.57 |   |
|                              |          8.43 -   10.52            |   |                     |   | 433,100   |                                                    |   |   | 4.32 |   |   |   | 9.89 |   |   |   | 410,600 |   |   |   | 9.96 |   |
|                              |   10.76      -   15.74                  |   |                     |   | 450,385   |                                                    |   |   | 3.22 |   |   |   | 13.84 |   |   |   | 450,385 |   |   |   | 13.84 |   |
|                              |        15.99 -   69.88                       |   |                     |   | 217,171   |                                                    |   |   | 2.53 |   |   |   | 23.38 |   |   |   | 217,171 |   |   |   | 23.38 |   |
|                              |          0.00 -   69.88            |   |                     |   | 3,579,701 |                                                    |   |   | 6.34 |   |   | $ | 8.29 |   |   |   | 2,247,041 |   |   | $ | 9.94 |   |

|   |                               |   | Shares |    |   | Weighted      AverageFair      ValuePer      Share |   |
|--------|------------------------------------|--------|--------|---------|--------|----------------------------------------------------|--------|
|   | Balance      at September 30, 2007 |   |   | 111,619 |   |                                               | $      | 6.04 |   |
|   | Options      Granted               |   |   | 137,500 |   |                                               |   | 5.84 |   |
|   | Options      Exercised             |   |   | (36,619 | )      |                                               |   | 5.45 |   |
|   | Options      Forfeited/Cancelled   |   |   | -       |   |                                               |   | - |   |
|   | Balance      at December 31, 2007  |   |   | 212,500 |   |                                               | $      | 6.01 |   |

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|                                        |   | December      31,   |   |
|---------------------------------------------|--------|---------------------|--------|
| Three      Months Ended                     |   | 2007                |   |   | 2006 |   |
|                                        |   | (in      thousands) |   |
| Cost      of revenues                       |   | $                   | 7      |   |   | $ | 6 |   |
| Research      and development               |   |                | 168    |   |   |   | 169 |   |
| Sales      and marketing                    |   |                | 99     |   |   |   | 58 |   |
| General      and administrative             |   |                | 159    |   |   |   | 210 |   |
| Total      stock-based compensation expense |   | $                   | 433    |   |   | $ | 443 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | December      31,   |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2007                |   |   | 2006 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (in      thousands) |   |
|   | North      America:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                |   |   |   |   |
|   |    United      States                                                                                                                       |   | $                   | 4,719  |   |   | $ | 3,555 |   |
|   |    Other                                                                                                                                    |   |                | 116    |   |   |   | 191 |   |
|   |       Total      North      America                                                                                          |   |                | 4,835  |   |   |   | 3,746 |   |
|   | Asia:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                |   |   |   |   |   |   |
|   |    Hong      Kong                                                                                                                           |   |                | 3,970  |   |   |   | 4,045 |   |
|   |    Malaysia                                                                                                                                 |   |                | 532    |   |   |   | 687 |   |
|   |    Singapore                                                                                                                                |   |                | 149    |   |   |   | 134 |   |
|   |    Japan                                                                                                                                    |   |                | 198    |   |   |   | 277 |   |
|   |    Thailand                                                                                                                                 |   |                | 215    |   |   |   | 29 |   |
|   |    Taiwan                                                                                                                                   |   |                | 20     |   |   |   | - |   |
|   |        Total      Asia                                                                                                  |   |                | 5,084  |   |   |   | 5,172 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                |   |   |   |   |   |   |
|   | Europe      and      other                                                                                                                                 |   |                | 1,010  |   |   |   | 351 |   |
|   |             Total                                                                                                            |   | $                   | 10,929 |   |   | $ | 9,269 |   |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | December      31, |                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------------------------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2007              |                        |   | 2006 |   |
|   | Cisco      Systems,      Inc.                                                                                                |   |              | 50%     |   |   |   | 53%     |   |
|   | EMC      Corporation                                                                                                         |   |              | 13%     |   |   |   | 2%     |   |
|   | Huawei      Technologies,      Inc.                                                                                          |   |              | 4%      |   |   |   | 15%     |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |              | 67%     |   |   |   | 70%     |   |

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|   |                             |   | December      31,                 |    |   |   |                        |
|--------|----------------------------------|--------|-----------------------------------|---------|--------|--------|-----------------------------|
|   |                             |   | 2007                              |    |   | 2006   |                        |   |   |   |
|   | Three      Months Ended          |   |                              | $  |   |   | %      of net revenues |   |   |   | $  |   |   | %      of net revenues |   |   | Year-over-Year      Growth |   |
|   |                             |   | (dollars      in thousands)  |    |
|   | Processors                       |   | $                                 | 9,985   |   |   |                        | 91% |   |   | $ | 8,565 |   |   |   | 92% |   |   |   | 17% |   |
|   | Software      licenses and other |   |                              | 944     |   |   |                        | 9% |   |   |   | 704 |   |   |   | 8% |   |   |   | 34% |   |
|   |                             |   | $                                 | 10,929  |   |   |                        | 100% |   |   | $ | 9,269 |   |   |   | 100% |   |   |   | 18% |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | December      31, |                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------------------------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2007              |                        |   | 2006 |   |
|   | Cisco      Systems,      Inc.                                                                                                |   |              | 50%     |   |   |   | 53%     |   |
|   | EMC      Corporation                                                                                                         |   |              | 13%     |   |   |   | 2%     |   |
|   | Huawei      Technologies,      Inc.                                                                                          |   |              | 4%      |   |   |   | 15%     |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |              | 67%     |   |   |   | 70%     |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                           |   | December      31,                 |    |   |   |                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------|--------|---------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                           |   | 2007                              |    |   | 2006   |                      |   |   |   |
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                        |   |                              | $  |   |   | %      of revenuecategory |   |   |   | $  |   |   | %      of revenue category |   |   | Year-over-Year      Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                           |   | (dollars      in thousands)  |    |
|   | Processors                                                               |   | $                                 | 3,320   |   |   |                      | 33% |   |   | $ | 3,122 |   |   |   | 36% |   |   |   | 6% |   |
|   | Software      licenses and other                                                                                                                                                                                                                                                                                                                                                               |   |                              | 152     |   |   |                      | 16% |   |   |   | 82 |   |   |   | 12% |   |   |   | 85% |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                           |   | $                                 | 3,472   |   |   |                      | 32% |   |   | $ | 3,204 |   |   |   | 35% |   |   |   | 8% |   |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | December      31,                 |   |   |  Year-over-Year |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|----------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2007                              |   |   | 2006                 |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (dollars      in thousands)  |   |   |                 |   |
|   | Research      & development      expenses                                                                             |   | $                                 | 3,602  |   |                 | $      | 4,319 |   |   |   | (17)% |   |
|   | As      a percentage of net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                              | 33%    |   |                 |   | 47% |   |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | December      31,                 |   |   |  Year-over-Year |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|----------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2007                              |   |   | 2006                 |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | (dollars      in thousands)  |   |   |                 |   |
|   | Sales      & marketing      expenses                                                                             |   | $                                 | 2,394  |   |                 | $      | 1,822 |   |   |   | 31% |   |
|   | As      a percentage of net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                              | 22%    |   |                 |   | 20% |   |   |   |   |   |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | December      31,                 |   |   |  Year-over-Year |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|----------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2007                              |   |   | 2006                 |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | (dollars      in thousands)  |   |   |                 |   |
|   | General      & administrative      expenses                                                                             |   | $                                 | 1,722  |   |                 | $      | 2,442 |   |   |   | (29)% |   |
|   | As      a percentage of net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                              | 16%    |   |                 |   | 26% |   |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | December      31,                 |   |   |  Year-over-Year |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|----------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2007                              |   |   | 2006                 |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | (dollars      in thousands)  |   |   |                 |   |
|   | Amortization      of      intangibles                                                                             |   | $                                 | 749    |   |                 | $      | 737 |   |   |   | 2% |   |
|   | As      a percentage of net revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                              | 7%     |   |                 |   | 8% |   |   |   |   |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | December      31,                 |   |   | Year-over-Year |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|----------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2007                              |   |   | 2006           |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (dollars      in thousands)  |   |   |           |   |
|   | Interest      income and other expenses,      net                                                                             |   | $                                 | 345    |   |           | $      | 490 |   |   |   | (30)% |   |
|   | As      a percentage of net      revenues                                                                                     |   |                              | 3%     |   |           |   | 5% |   |   |   |  |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | December      31,           |   |   |  Year-over-Year |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|----------------------|--------|
|   | Three      Months Ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2007                        |   |   | 2006                 |   |   | Growth |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (dollars      in thousands) |   |   |                 |   |
|   | Provision      for (benefit from) income      taxes                                                                             |   | $                           | 15     |   |                 | $      | (63 | ) |   |   | 124% |   |
|   | As      a percentage of net      revenues                                                                                       |   | Less      than 1%           |   |   |                 | (1)%   |   |   |   |   |   |

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|   |                                                      |   | December      31,         |   |
|--------|-----------------------------------------------------------|--------|---------------------------|--------|
|   | Three      Months Ended                                   |   | 2007                      |   |   | 2006 |   |
|   |                                                      |   | (in      thousands)  |   |
|   | Net      cash provided by (used in) operating activities  |   | $                         | 831    |   |   | $ | (1,287 | ) |
|   | Net      cash provided by (used in) investing activities  |   |                      | 6,083  |   |   |   | (3,019 | ) |
|   | Net      cash provided by financing activities            |   |                      | 1,497  |   |   |   | 271 |   |
|   | Net increase (decrease) in cash      and cash equivalents |   | $                         | 8,411  |   |   | $ | (4,035 | ) |

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|   |                                   |   |                      |   |   | Payments      Due By Period |   |
|--------|----------------------------------------|--------|---------------------------|--------|--------|-----------------------------|--------|
|   | Contractual      Obligations           |   | Total                     |   |   | Less      than1      year   |   |   | 1      – 3years |   |   | 3      – 5years |   |   | More      than 5 years |   |
|   |                                   |   | (in      thousands)  |   |
|   | Operating      lease commitments       |   | $                         | 2,803  |   |                        | $      | 1,364 |   |   | $ | 1,332 |   |   | $ | 107 |   |   | $ | - |   |
|   | Inventory      purchases               |   |                      | 2,593  |   |                        |   | 2,593 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|   | Non-recurring      engineering expense |   |                      | 582    |   |                        |   | 582 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|   | Totals                                 |   | $                         | 5,978  |   |                        | $      | 4,539 |   |   | $ | 1,332 |   |   | $ | 107 |   |   | $ | - |   |

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PART II 

Item 1A

Item6

| Exhibit Number |   |                                                                                                                                                         |   | Incorporated      by Reference |   |    |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|---------|
|  Exhibit       |   | Form                                                                                                                                                         |   | File      No.                  |   | Exhibit |   | Filing      Date |   | Filed      Herewith |
|                |   |                                                                                                                                                         |   |                           |   |    |   |   |   |   |   |   |
| 31.1                |        | Certification      of Chief Executive Officer pursuant to Rule 13A-14(a) or      15D-14(a)                                                                   |   |                           |   |    |   |   |   |   |   | X |
| 31.2                |        | Certification      of Chief Financial Officer pursuant to Rule 13A-14(a) or      15D-14(a)                                                                   |   |                           |   |    |   |   |   |   |   | X |
| 32.1                |        | Certification      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |   |                           |   |    |   |   |   |   |   | X |
| 32.2                |        | Certification      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |   |                           |   |    |   |   |   |   |   | X |

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SIGNATURES

|                        |   | hi/fn,      inc.(Registrant)                                                                                                                     |   |
|-----------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                        |   |                                                                                                                                             |   |
| Date: February 8,      2008 |   | By:                                                                                                                                              |   |
|                        |   | William      R. WalkerVice      President, Finance, Chief Financial Officer and Secretary (principal      financial and accounting officer) |   |

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INDEX TO EXHIBITS

| Exhibit Number |   |                                                                                                                                                         |   | Incorporated      by Reference |   |    |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|---------|
|  Exhibit       |   | Form                                                                                                                                                         |   | File      No.                  |   | Exhibit |   | Filing      Date |   | Filed      Herewith |
|                |   |                                                                                                                                                         |   |                           |   |    |   |   |   |   |   |   |
| 31.1                |        | Certification      of Chief Executive Officer pursuant to Rule 13A-14(a) or      15D-14(a)                                                                   |   |                           |   |    |   |   |   |   |   | X |
| 31.2                |        | Certification      of Chief Financial Officer pursuant to Rule 13A-14(a) or      15D-14(a)                                                                   |   |                           |   |    |   |   |   |   |   | X |
| 32.1                |        | Certification      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |   |                           |   |    |   |   |   |   |   | X |
| 32.2                |        | Certification      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |   |                           |   |    |   |   |   |   |   | X |

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