**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

**FORM 10-Q**
| **(Mark One)**                                    | ** **                                                                                           | ** **                         | ** ** | ** ** |
|---------------------------------------------------|------------------------------------------------------------------------------------------------------|------------------------------------|------------|------------|
| ** **                                        | ** **                                                                                           | ** **                         | ** ** | ** ** |
| **x**                                             | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                        | ** **                                                                                           | ** **                         | ** ** | ** ** |
| **For the  quarterly period ended June 30, 2007** |
| ** **                                        | ** **                                                                                           | ** **                         | ** ** | ** ** |
| **Or**                                            |
| ** **                                        |
| o                                                 | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                        | ** **                                                                                           | ** **                         | ** ** | ** ** |
| ** **                                        | ** **                                                                                           | ** **                         | ** ** | ** ** |
| ** **                                        | ** **                                                                                           | **For the transition period from** | **to**     | ** ** |

 

**Commission File Number 000-51844**

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**iPCS, INC.**(Exact name of registrant as specified in its charter)

| **Delaware**                                      |   | **36-4350876**                        |
|---------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or |   | (I.R.S. Employer  Identification No.) |
| organization)                                     |   |                                  |
|                                              |   |                                  |
| **1901 N.  Roselle Road, Schaumburg, Illinois**   |   | **60195**                             |
| (Address of  principal executive offices)         |   | (Zip code)                            |

 

**(847) 885-2833**

(Registrant’s telephone number, including zip code)

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.
|   | Yes x  No o |
|--------|---------------------------------|

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):
| Large  accelerated filer o | Accelerated  filer x | Non-accelerated  filer o |
|----------------------------|----------------------|--------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
|   | Yes o  No x |
|--------|---------------------------------|

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of theSecurities Exchange Act of 1934 subsequent to the distribution of securitiesunder a plan confirmed by a court.
|   | Yes x  No o |
|--------|---------------------------------|

 

As of July 31, 2007,there were 17,009,920 shares of common stock, $0.01 par value per share,outstanding.

 

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**TABLE OF CONTENTS**
| PART I    |   | FINANCIAL INFORMATION                                                                                         |   | 3      |
|----------------|--------|---------------------------------------------------------------------------------------------------------------|--------|--------|
|           |   |                                                                                                          |   |   |
| ITEM 1.        |   | FINANCIAL STATEMENTS                                                                                          |   | 3      |
|           |   | CONSOLIDATED  BALANCE SHEETS AS OF JUNE 30, 2007 AND DECEMBER 31, 2006 (UNAUDITED)                            |   | 3      |
|           |   | CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND  2006 (UNAUDITED) |   | 4      |
|           |   | CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (UNAUDITED)            |   | 5      |
|           |   | NOTES TO  UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                         |   | 6      |
| ITEM 2.        |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                   |   | 22     |
| ITEM 3.        |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |   | 40     |
| ITEM 4.        |   | CONTROLS AND PROCEDURES                                                                                       |   | 40     |
|           |   |                                                                                                          |   |   |
| PART II   |   | OTHER INFORMATION                                                                                             |   | 41     |
|           |   |                                                                                                          |   |   |
| ITEM 1.        |   | LEGAL PROCEEDINGS                                                                                             |   | 41     |
| ITEM 1A.       |   | RISK FACTORS                                                                                                  |   | 41     |
| ITEM 2.        |   | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                  |   | 41     |
| ITEM 3.        |   | DEFAULTS UPON  SENIOR SECURITIES                                                                              |   | 41     |
| ITEM 4.        |   | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |   | 42     |
| ITEM 5.        |   | OTHER INFORMATION                                                                                             |   | 42     |
| ITEM 6.        |   | EXHIBITS                                                                                                      |   | 43     |
|           |   |                                                                                                          |   |   |
| SIGNATURES     |   | 45                                                                                                            |
|           |   |                                                                                                          |   |   |
| CERTIFICATIONS |   |                                                                                                          |

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1.FINANCIAL STATEMENTS**

**iPCS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**(Dollars in thousands, except share and per share amounts)
| ** **                                                                                                                                    | ** ** | **June 30,  2007** | ** ** | **December 31,  2006 (a)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------------|------------|
|                                                                                                                                          |       |                    |       |                                 |       |
| **Assets**                                                                                                                                    | ** ** | ** **              | ** ** | ** **                           | ** ** |
| Current Assets:                                                                                                                               |       |                    |       |                                 |       |
| Cash and cash  equivalents                                                                                                                    |       | $                       | 66,541     |                                 | $          | 120,499 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $8,437 and $6,663, respectively                                               |       | 31,570                  |       | 29,700                               |       |
| Receivable from Sprint  (Note 3)                                                                                                              |       | 35,220                  |       | 40,724                               |       |
| Inventories, net of  reserves for excess/obsolescence of $171 and $243, respectively (Note 3)                                                 |       | 4,237                   |       | 4,291                                |       |
| Assets held for sale  (Note 4)                                                                                                                |       | 1,320                   |       | —                               |       |
| Prepaid expenses                                                                                                                              |       | 5,941                   |       | 7,468                                |       |
| Other current assets                                                                                                                          |       | 352                     |       | 272                                  |       |
| Total current  assets                                                                                                                         |       | 145,181                 |       | 202,954                              |       |
| Property and equipment,  net (Note 4)                                                                                                         |       | 136,140                 |       | 139,641                              |       |
| Financing costs                                                                                                                               |       | 8,210                   |       | 7,724                                |       |
| Customer activation  costs                                                                                                                    |       | 4,463                   |       | 3,252                                |       |
| Intangible assets, net  of accumulated amortization of $83,812 and $68,624, respectively  (Note 5)                                       |       | 116,165                 |       | 131,353                              |       |
| Goodwill (Note 5)                                                                                                                             |       | 141,783                 |       | 141,783                              |       |
| Other assets                                                                                                                                  |       | 362                     |       | 364                                  |       |
| Total assets                                                                                                                                  |       | $                       | 552,304    |                                 | $          | 627,071 |   |
|                                                                                                                                          |       |                    |       |                                 |       |
| **Liabilities  and Stockholders’ Equity (Deficiency)**                                                                                   | ** ** | ** **              | ** ** | ** **                           | ** ** |
| Current Liabilities:                                                                                                                          |       |                    |       |                                 |       |
| Accounts payable                                                                                                                              |       | $                       | 6,313      |                                 | $          | 7,387 |   |
| Accrued expenses                                                                                                                              |       | 14,957                  |       | 14,340                               |       |
| Payable to Sprint (Note  3)                                                                                                                   |       | 51,516                  |       | 58,196                               |       |
| Deferred revenue                                                                                                                              |       | 10,965                  |       | 11,065                               |       |
| Accrued interest                                                                                                                              |       | 7,083                   |       | 9,758                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 6)                                                                  |       | 27                      |       | 24                                   |       |
| Total current  liabilities                                                                                                                    |       | 90,861                  |       | 100,770                              |       |
| Customer activation fee  revenue                                                                                                              |       | 4,463                   |       | 3,252                                |       |
| Other long-term  liabilities                                                                                                                  |       | 7,350                   |       | 6,819                                |       |
| Long-term debt and  capital lease obligations, excluding current maturities (Note 6)                                                          |       | 475,453                 |       | 302,045                              |       |
| Total liabilities                                                                                                                             |       | 578,127                 |       | 412,886                              |       |
|                                                                                                                                          |       |                    |       |                                 |       |
| Commitments and  contingencies (Note 9)                                                                                                       |       | —                  |       | —                               |       |
|                                                                                                                                          |       |                    |       |                                 |       |
| Stockholders’ Equity  (Deficiency):                                                                                                      |       |                    |       |                                 |       |
| Preferred stock, par  value $.01 per share; 25,000,000 shares authorized; none issued                                                         |       | —                  |       | —                               |       |
| Common stock, par value  $.01 per share; 75,000,000 shares authorized, 17,009,336 and 16,774,060  shares issued and outstanding, respectively |       | 170                     |       | 168                                  |       |
| Additional  paid-in-capital                                                                                                                   |       | 156,933                 |       | 334,156                              |       |
| Accumulated deficiency                                                                                                                        |       | (182,926                | )          | (120,139                             | )          |
| Total stockholders’  equity (deficiency)                                                                                                 |       | (25,823                 | )          | 214,185                              |       |
| Total liabilities and stockholders’ equity (deficiency)                                                                                  |       | $                       | 552,304    |                                 | $          | 627,071 |   |

 

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(a)    Derived from the Company’s audited financialstatements as of December 31, 2006.

See Notes to unaudited consolidated financialstatements.

3

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**iPCS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**(Dollars in thousands, except per share data)
| ** **                                                                                            | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **June 30, 2007**                        | ** ** | **June 30, 2006**                      | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| ** **                                                                                            | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                                                         | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                                       |       | $                                                  | 89,924     |                                             | $          | 77,314 |   | $ | 174,945 |   | $ | 152,720 |   |
| Roaming revenue                                                                                       |       | 40,036                                             |       | 39,533                                           |       | 72,997 |   | 73,160 |   |
| Equipment and  other                                                                                  |       | 3,273                                              |       | 3,526                                            |       | 6,144 |   | 6,978 |   |
| Total revenues                                                                                        |       | 133,233                                            |       | 120,373                                          |       | 254,086 |   | 232,858 |   |
| **Operating Expenses:**                                                                               | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service  and roaming (exclusive of depreciation and amortization, as shown separately  below) |       | (78,739                                            | )          | (68,630                                          | )          | (152,154 | ) | (133,651 | ) |
| Cost of  equipment                                                                                    |       | (12,770                                            | )          | (9,868                                           | )          | (25,949 | ) | (19,397 | ) |
| Selling and  marketing                                                                                |       | (19,108                                            | )          | (17,344                                          | )          | (39,682 | ) | (34,104 | ) |
| General and  administrative                                                                           |       | (8,670                                             | )          | (5,737                                           | )          | (15,597 | ) | (12,868 | ) |
| Depreciation  (Note 4)                                                                                |       | (12,031                                            | )          | (12,913                                          | )          | (23,869 | ) | (27,327 | ) |
| Amortization of  intangible assets (Note 5)                                                           |       | (7,594                                             | )          | (9,490                                           | )          | (15,188 | ) | (18,979 | ) |
| Loss on disposal  of property and equipment, net                                                      |       | (6                                                 | )          | (176                                             | )          | (65 | ) | (413 | ) |
| Total operating  expenses                                                                             |       | (138,918                                           | )          | (124,158                                         | )          | (272,504 | ) | (246,739 | ) |
| **Operating loss**                                                                                    |       | (5,685                                             | )          | (3,785                                           | )          | (18,418 | ) | (13,881 | ) |
| Interest income                                                                                       |       | 1,555                                              |       | 1,286                                            |       | 3,098 |   | 2,468 |   |
| Interest expense                                                                                      |       | (9,128                                             | )          | (7,896                                           | )          | (17,098 | ) | (16,017 | ) |
| Debt extinguishment  costs (Note 6)                                                                   |       | (30,501                                            | )          | —                                           |       | (30,501 | ) | — |   |
| Other income, net                                                                                     |       | 115                                                |       | 21                                               |       | 132 |   | 54 |   |
| **Loss before benefit from income  taxes**                                                            |       | (43,644                                            | )          | (10,374                                          | )          | (62,787 | ) | (27,376 | ) |
| Benefit from income  taxes                                                                            |       | —                                             |       | —                                           |       | — |   | — |   |
| **Net loss**                                                                                          |       | $                                                  | (43,644    | )                                                | $          | (10,374 | ) | $ | (62,787 | ) | $ | (27,376 | ) |
|                                                                                                  |       |                                               |       |                                             |       |   |   |   |   |
| Basic and  diluted loss per share of common stock                                                     |       | $                                                  | (2.58      | )                                                | $          | (0.62 | ) | $ | (3.71 | ) | $ | (1.64 | ) |
| Weighted average common  shares outstanding                                                           |       | 16,938,265                                         |       | 16,701,677                                       |       | 16,906,242 |   | 16,694,394 |   |

 

See Notes to unaudited consolidated financialstatements.

4

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**iPCS, INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)(Dollars in thousands)**
| ** **                                                                                                               | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **June 30,  2007**                          | ** ** | **June 30,  2006** | ** ** |
| **Cash Flows from Operating  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net loss                                                                                                                 |       | $                                                | (62,787    | ) | $ | (27,376 | ) |
| Adjustments to  reconcile net loss to net cash flows from operating activities:                                          |       |                                             |       |   |   |
| Loss on disposal  of property and equipment                                                                              |       | 65                                               |       | 413 |   |
| Depreciation and  amortization                                                                                           |       | 39,057                                           |       | 46,306 |   |
| Non-cash  interest expense, net of amortization of debt fair value adjustment                                            |       | 35                                               |       | (325 | ) |
| Debt  extinguishment costs                                                                                               |       | 30,501                                           |       | — |   |
| Stock-based  compensation expense                                                                                        |       | 6,730                                            |       | 1,317 |   |
| Provision for  doubtful accounts                                                                                         |       | 6,975                                            |       | 3,836 |   |
| Changes in  assets and liabilities:                                                                                      |       |                                             |       |   |   |
| Accounts  receivable                                                                                                     |       | (8,844                                           | )          | (20 | ) |
| Receivable from  Sprint                                                                                                  |       | 5,504                                            |       | (2,104 | ) |
| Inventories, net                                                                                                         |       | 54                                               |       | (1,433 | ) |
| Prepaid  expenses, other current and long term assets                                                                    |       | 448                                              |       | (448 | ) |
| Accounts  payable, accrued expenses and other long term liabilities                                                      |       | (5,955                                           | )          | (1,337 | ) |
| Payable to  Sprint                                                                                                       |       | (6,680                                           | )          | (2,702 | ) |
| Deferred revenue                                                                                                         |       | 1,111                                            |       | 1,234 |   |
| Net cash flows  from operating activities                                                                                |       | 6,214                                            |       | 17,361 |   |
| **Cash Flows from Investing  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Purchases of  property and equipment                                                                                     |       | (19,921                                          | )          | (20,547 | ) |
| Proceeds from  disposition of property and equipment                                                                     |       | 300                                              |       | 1,037 |   |
| Net cash flows  from investing activities                                                                                |       | (19,621                                          | )          | (19,510 | ) |
| **Cash Flows from Financing  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Proceeds from  senior secured notes offering                                                                             |       | 475,000                                          |       | — |   |
| Proceeds from  the exercise of stock options                                                                             |       | 3,064                                            |       | 1,132 |   |
| Repayments of  senior notes                                                                                              |       | (290,000                                         | )          | — |   |
| Tender premium  on senior notes                                                                                          |       | (34,155                                          | )          | — |   |
| Payments on  capital lease obligations                                                                                   |       | (12                                              | )          | (5 | ) |
| Debt financing  costs                                                                                                    |       | (7,977                                           | )          | — |   |
| Special cash dividend  paid                                                                                              |       | (186,471                                         | )          | — |   |
| Net cash flows  from financing activities                                                                                |       | (40,551                                          | )          | 1,127 |   |
| Net decrease in  cash and cash equivalents                                                                               |       | (53,958                                          | )          | (1,022 | ) |
| **Cash and cash equivalents at  beginning of period**                                                                    |       | 120,499                                          |       | 110,837 |   |
| **Cash and cash equivalents at  end of period**                                                                          |       | $                                                | 66,541     |   | $ | 109,815 |   |
|                                                                                                                     |       |                                             |       |   |   |
| **Supplemental disclosure of cash  flow information- cash paid for interest**                                            |       | $                                                | 20,046     |   | $ | 16,597 |   |
| **Supplemental disclosure for  non-cash investing activities:**                                                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Capitalized  interest                                                                                                    |       | $                                                | 365        |   | $ | 317 |   |
| Accounts payable  and accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | 4,409                                            |       | 3,484 |   |
| **Supplemental disclosure for  non-cash financing activities:**                                                          |       |                                             |       |   |   |
| Dividends declared, but  not paid                                                                                        |       | $                                                | 544        |   | $ | — |   |

 

See Notes to unaudited consolidated financialstatements.

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**iPCS, INC. AND SUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**(1) Business and Basis of Presentation**

iPCS, Inc.(the “Company” or “iPCS”) is a holding company that operates as a PCS Affiliateof Sprint through three wholly owned subsidiaries: iPCS Wireless, Inc.,Horizon Personal Communications, Inc. and Bright Personal CommunicationsServices, LLC. Each of these subsidiaries is a party to a separate affiliationagreement with Sprint PCS, the operator of a 100% digital personal communicationsservice (“PCS”) wireless network with licenses to provide voice and dataservice to the entire United States population using a single frequency bandand a single technology.

iPCS, Inc.was formed in March 2000 as a holding company for iPCS Wireless. iPCSWireless, as the successor to Illinois PCS, LLC, became a PCS affiliate ofSprint in 1999. Through this affiliation agreement, as amended, iPCS has theexclusive right to market and provide Sprint PCS products and services in 40markets in Illinois, Michigan, Iowa, and eastern Nebraska. On November 30,2001, the Company was acquired by AirGate PCS, Inc. (“AirGate”), anotherPCS Affiliate of Sprint. iPCS was designated as an unrestricted subsidiary ofAirGate and both companies operated as separate business entities. OnFebruary 23, 2003, the Company and its subsidiaries filed for Chapter 11bankruptcy protection. On October 17, 2003, AirGate irrevocablytransferred its ownership of iPCS to a trust, the beneficial owners of whichtrust were AirGate’s stockholders at the date of transfer. AirGate retained noownership interest in the trust or the Company. Upon the Company’s emergencefrom bankruptcy on July 20, 2004, iPCS’s common stock held by the trustwas cancelled and the trust terminated by its terms.

OnJuly 1, 2005, iPCS completed a merger with Horizon PCS, Inc. (“HorizonPCS”), another PCS Affiliate of Sprint, in which Horizon PCS merged with andinto iPCS, Inc., with iPCS, Inc. as the surviving corporation.Through its two affiliation agreements with Sprint PCS, two wholly ownedsubsidiaries of Horizon PCS have the exclusive right to market and provideSprint PCS products and services in 40 markets in Ohio, Indiana, Tennessee,Michigan, New York, New Jersey, Maryland, Pennsylvania, and West Virginia.

Theunaudited consolidated balance sheet as of June 30, 2007 and December 31, 2006,the unaudited consolidated statements of operations for the three and sixmonths ended June 30, 2007 and 2006, the unaudited consolidated statements ofcash flows for the six months ended June 30, 2007 and 2006 and relatedfootnotes have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andRule 10-01 of Regulation S-X. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements. The financialinformation presented herein should be read in conjunction with the Company’s2006 Annual Report on Form 10-K which includes information and disclosuresnot presented herein. All intercompany accounts and transactions have beeneliminated in consolidation. In the opinion of management, the unauditedconsolidated financial statements contain all of the adjustments, consistingonly of normal recurring adjustments, necessary to present fairly, insummarized form, the consolidated financial position, results of operations andcash flows of the Company. The results of operations for the three and sixmonths ended June 30, 2007 are not indicative of the results that may beexpected for the full year 2007.

ThePCS market is characterized by significant risks as a result of rapid changesin technology and increasing competition. The Company’s continuing operationsare dependent upon Sprint’s ability to perform its obligations under theaffiliation agreements. In addition, the Company must be able to attract andmaintain a sufficient customer base and achieve satisfactory growth whilesuccessfully managing operations to generate enough cash from operations tomeet future obligations. Changes in technology, increased competition, or theinability to obtain required financing or achieve and maintain break-evenoperating cash flow, among other factors, could have an adverse effect on theCompany’s financial position and results of operations.

**(2) Summary of Significant Accounting Policies**

*LossPer Share:*

Basic and dilutedloss per share for the Company are calculated by dividing the net loss by theweighted average number of shares of common stock of the Company. Thecalculation was made in accordance with SFAS No. 128, “Earnings Per Share.”The basic and diluted loss per share are the same because the inclusion of theincremental potential common shares

6

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from any assumedexercise of stock options is antidilutive. Potential common shares excludedfrom the loss per share computations for each of the three and six months endedJune 30, 2007 and 2006 were 841,670, and 720,447, respectively.

*NewAccounting Pronouncements*

InFebruary 2007, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 159, “The FairValue Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”),to permit all entities to choose to elect, at specified election dates, tomeasure eligible financial instruments at fair value. An entity shall reportunrealized gains and losses on items for which the fair value option has beenelected in earnings at each subsequent reporting date, and recognize upfrontcosts and fees related to those items in earnings as incurred and not deferred.SFAS No. 159 applies to fiscal years beginning after November 15,2007, with early adoption permitted for an entity that has also elected toapply the provisions of SFAS No. 157, “Fair Value Measurements.” An entityis prohibited from retrospectively applying SFAS No. 159, unless itchooses early adoption. SFAS No. 159 also applies to eligible itemsexisting at November 15, 2007 (or early adoption date). The Company isstill evaluating the impact of the implementation of SFAS No. 159 on itsfinancial position, results of operations or cash flows.

InSeptember 2006, the FASB issued Statement 157, Fair Value Measurements, which definesfair value, provides guidelines for measuring fair value and expands disclosurerequirements. Statement 157 does not require any new fair value measurement butapplies to the accounting pronouncements that require or permit fair valuemeasurement. Statement 157 is effective for fiscal years beginning afterNovember 15, 2007. The Company does not anticipate that the implementation ofStatement 157 will have a material impact on its financial position, results ofoperation, or cash flows.

InJuly 2006, FASB issued Interpretation No. 48, “Accounting forUncertainty in Income Taxes” (“FIN 48”), which is effective for fiscal yearsbeginning after December 15, 2006. FIN 48 clarifies the accounting foruncertainty in income taxes recognized in the financial statements inaccordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48prescribes a comprehensive model for how a company should recognize, measure,present, and disclose in its financial statements uncertain tax positions thatthe company has taken or expects to take on a tax return. The Company adoptedFIN 48 on January 1, 2007 and it did not have a material impact on the Company’sfinancial position, results of operations and cash flows.

**(3) Sprint Agreements**

Underthe Sprint agreements, Sprint provides the Company significant support servicessuch as customer service, billing, long distance transport services, nationalnetwork operations support, inventory logistics support, use of the Sprint andSprint PCS brand name, national advertising, national distribution and productdevelopment. Additionally, the Company derives substantial roaming revenue whenwireless customers of Sprint and other PCS Affiliates of Sprint incur minutesof use in the Company’s territories and incurs expense to Sprint and to otherPCS Affiliates of Sprint when the Company’s customers incur minutes of use inthe territories of Sprint and other PCS Affiliates of Sprint. Cost of serviceand roaming transactions with Sprint include the 8% affiliation fee, longdistance, roaming expenses, billing support and customer care support. Cost ofequipment relates to inventory sold by the Company that was purchased fromSprint under the Sprint agreements. Selling and marketing transactions relateto subsidized costs on wireless handsets and commissions under Sprint’snational distribution program.

Thecosts incurred by the Company for the support services provided by Sprint aredetermined on a per-average-monthly-subscriber rate and on aper-customer-addition rate. Pursuant to the Company’s affiliation agreementswith Sprint PCS, the per-average-monthly-subscriber rate was set at $7.25 for2004, $7.00 for 2005 and $6.75 for 2006 and the per-customer-addition rate wasset at $23.00 in iPCS Wireless’s territory and $22.00 in the Horizon/Brightterritory. The agreements also provide that, for each three-year period afterDecember 31, 2006, these rates will be reset based on Sprint’s reasonablecosts. In February 2007, Sprint notified the Company that the per averagemonthly cash cost per user rate (“CCPU”) would be $7.50 for 2007, $7.09 for2008, and $6.81 for 2009, and the cost per gross customer addition (“CPGA”)rate would be $20.09 for 2007, $19.41 for 2008 and $18.58 for 2009. The Companystrongly disagrees with Sprint’s new rates and, pursuant to the terms of itsaffiliation agreements with Sprint, on December 8, 2006, submitted thedetermination of the new rates to binding arbitration before the InternationalInstitute for Conflict Prevention and Resolution. A three-judge panel has beenselected and the parties are engaged in discovery. The Company currentlyexpects that a hearing before the panel will occur next year. In the meantime,the Company continues to obtain the support services from Sprint at the ratesproposed by Sprint in February 2007. If the arbitration panel imposes ratesdifferent than the ones proposed by Sprint, then the rates imposed by the panelwould be retroactively applied to January 1, 2007. However, in the meantime, asrequired by the services agreements, beginning on January 1, 2007, theCompany began paying the rates proposed by Sprint. The Company continues toengage in discussions with Sprint to reach a negotiated settlement.

7

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Aspreviously mentioned, the Company derives substantial roaming revenue fromSprint PCS and incurs roaming expense to Sprint PCS. The Company’s affiliationagreements with Sprint PCS set the reciprocal roaming rate with Sprint PCSthrough December 31, 2006 at $0.058 per minute for voice and 2G data, and$0.002 per kilobyte for 3G data. Thereafter, the affiliation agreements providethat the reciprocal roaming rates are to be calculated based upon Sprint’sretail yield for the prior year. With respect to certain of the Company’smarkets in western and eastern Pennsylvania, the Company receives the benefitof a special reciprocal rate for voice and 2G data of $0.10 per minute.This special rate will terminate, with respect to each of these two sets ofmarkets, on the earlier of December 31, 2011 or the first day of the calendarmonth which follows the first calendar quarter during which the Companyachieves a subscriber penetration rate of at least 7% of the Company’s coveredpopulations in those markets. In February 2007, Sprint notified theCompany that effective January 1, 2007, the reciprocal roaming rates are$0.0403 per minute for voice and 2G data and $0.001 per kilobyte for 3G data.The Company strongly disagrees with Sprint’s reciprocal roaming rates andintends to vigorously oppose them, including by submitting the matter toarbitration or litigation, if necessary. If the matter is submitted to anarbitration panel and the arbitration panel imposes rates different than theones then in effect, the new rates would be retroactively applied to theappropriate period. However, in the meantime, the new rates went into effect onJanuary 1, 2007. The Company continues to engage in discussions withSprint to reach a negotiated settlement.

Forthe three and six months ended June 30, 2007, approximately 98% of the Company’srevenue was derived from data provided by Sprint. This compares to 97% for thecomparative periods ended June 30, 2006. For the three and six month ended June30, 2007, approximately 66% and 67%, respectively, of the Company’s cost ofservice and roaming was derived from data provided by Sprint. For both thethree and six months ended June 30, 2006, approximately 68% of the Company’scost of service and roaming was derived from data provided by Sprint. TheCompany reviews all charges from Sprint and disputes certain of these chargesin cases where the Company does not receive enough supporting detail tovalidate the charges or it does not believe Sprint can charge the Company forcertain expenses under the terms of the Sprint agreements. The Company did nothave any disputed charges with Sprint at June 30, 2007 or December 31, 2006.

Amountsrelating to the Sprint agreements for the three and six months ended June 30, 2007 and 2006 are as follows(in thousands):
| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                          | ** ** | **June 30,  2007**                            | ** ** | **June 30,  2006**                          | ** ** | **June 30,  2007** | ** ** | **June 30,  2006** | ** ** |
| **Amounts  included in the Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 89,924     |                                             | $          | 77,314 |   | $ | 174,945 |   | $ | 152,720 |   |
| Roaming revenue                                                     |       | $                                                  | 40,036     |                                             | $          | 39,533 |   | $ | 72,997 |   | $ | 73,160 |   |
| Cost of service  and roaming:                                       |       |                                               |       |                                             |       |   |   |   |   |
| Roaming                                                             |       | $                                                  | 25,731     |                                             | $          | 25,434 |   | $ | 49,935 |   | $ | 48,520 |   |
| Customer service                                                    |       | 15,398                                             |       | 10,940                                           |       | 29,161 |   | 21,619 |   |
| Affiliation fees                                                    |       | 7,308                                              |       | 6,077                                            |       | 14,009 |   | 12,129 |   |
| Long distance                                                       |       | 3,216                                              |       | 3,104                                            |       | 6,465 |   | 6,066 |   |
| Other                                                               |       | 452                                                |       | 878                                              |       | 2,208 |   | 2,152 |   |
| Total cost of  service and roaming                                  |       | $                                                  | 52,105     |                                             | $          | 46,433 |   | $ | 101,778 |   | $ | 90,486 |   |
| Cost of  equipment                                                  |       | $                                                  | 12,770     |                                             | $          | 9,868 |   | $ | 25,949 |   | $ | 19,397 |   |
| Selling and marketing                                               |       | $                                                  | 5,058      |                                             | $          | 4,314 |   | $ | 10,491 |   | $ | 9,471 |   |

 
| ** **                                                | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **Amounts  included in the Consolidated Balance Sheets:** | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Receivable from Sprint                                    |       | $                       | 35,220     |                        | $          | 40,724 |   |
| Inventories, net                                          |       | 4,237                   |       | 4,291                       |       |
| Payable to  Sprint                                        |       | 51,516                  |       | 58,196                      |       |
|                                                           |            |                         |            |                             |            |  |  |

 

8

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**(4) Property and Equipment**

Propertyand equipment consists of the following at June 30, 2007 and December 31, 2006(in thousands):
| ** **                                      | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Network assets                                  |       | $                       | 224,780    |                        | $          | 214,348 |   |
| Computer  equipment                             |       | 4,613                   |       | 4,299                       |       |
| Furniture,  fixtures, and office equipment      |       | 7,646                   |       | 7,117                       |       |
| Vehicles                                        |       | 1,933                   |       | 294                         |       |
| Construction in  progress                       |       | 18,987                  |       | 16,143                      |       |
| Total property  and equipment                   |       | 257,959                 |       | 242,201                     |       |
| Less accumulated  depreciation and amortization |       | (121,819                | )          | (102,560                    | )          |
| Total property and  equipment, net              |       | $                       | 136,140    |                        | $          | 139,641 |   |

 

OnMarch 21, 2006, the Company amended the payment terms of the letter ofagreement with Nortel Networks to replace the Motorola equipment deployed inthe Company’s Pennsylvania, New York, New Jersey and Maryland markets with Nortelequipment. This amendment accelerated payments for equipment totaling $4.0million from 2007 to 2006; thereby, reducing the original timeline tocomplete this project. Because of this amendment, the estimated remaininguseful life of the Motorola equipment was shortened by approximately ninemonths, resulting in additional depreciation expense of approximately $0.7million and $2.8 million for the three and six months ended June 30, 2006,respectively.

Inmid-2006 the Company engaged independent agents to sell the remaining Motorolaequipment from the legacy Horizon PCS markets on behalf of the Company.Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets”, during the three months ended March 31, 2007, the Companyreclassified $1.8 million from Property and equipment, net, to Assets held forsale for that portion of the Motorola equipment expected to be sold within thenext twelve months. During the three months ended June 30, 2007, the Companysold approximately $0.5 million of this equipment for an immaterial gain includedin Loss on disposal of property and equipment, net. At June 30, 2007,approximately $0.3 million had been received related to these sales. The remainingreceivable of approximately $0.2 million was reflected in Other current assetsat June 30, 2007, and was subsequently received in July 2007.

**(5) Intangible Assets and Goodwill**

As aresult of the Company’s reorganization in 2004 and in accordance withfresh-start accounting under SOP 90-7, “Financial Reporting by Entities inReorganization under the Bankruptcy Code”, the Company revalued its assets totheir estimated fair values and the Company recorded intangible assets of$19.0 million relating to the fair value of the customer base and$59.5 million relating to the fair value of the right to provide serviceunder the Sprint affiliation agreements.

Inconnection with the merger with Horizon PCS in 2005, the Company allocatedportions of the Horizon PCS purchase price to identifiable intangible assetsconsisting of the right to provide service under the Sprint affiliationagreements, the acquired customer base, and an FCC license for a small marketin Ohio. The amount allocated to each of these items was $67.0 million, $53.0million, and $1.5 million, respectively. In addition, the excess of thepurchase price over the fair value of the net assets acquired, including theseidentifiable intangible assets, which totaled $141.8 million, was recorded asgoodwill. The goodwill is not deductible for income taxes.

Theintangible assets relating to the customer base are being amortized over theestimated average life of a customer of 30 months. The intangible assetsrelating to the right to provide service under the Sprint affiliationagreements are being amortized over the remaining term of the respectiveagreements. The FCC license was determined to have an indefinite life as it isexpected to be renewed with minimal effort and cost.

9

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Theweighted average amortization period, gross carrying amount, accumulatedamortization and net carrying amount of intangible assets at June 30, 2007 andDecember 31, 2006 are as follows (in thousands):
| ** **                                                        | ** ** | **June 30, 2007**                     | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized  intangible asset:**                              | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized  intangible assets:**                                 | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide  service under the Sprint affiliation agreements |       | 167 months                                      |       | 126,521 |   | (22,456 | ) | 104,065 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (61,356 | ) | 10,600 |   |
|                                                              |       |                                            |       | $ | 199,977 |   | $ | (83,812 | ) | $ | 116,165 |   |

 
| ** **                                                        | ** ** | **December 31, 2006**                 | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Weighted Average  Amortization  Period** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Value** | ** ** |
| **Non-amortized  intangible asset:**                              | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| FCC license                                                       |       |                                            |       | $ | 1,500 |   | $ | — |   | $ | 1,500 |   |
| **Amortized  intangible assets:**                                 | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Right to provide  service under the Sprint affiliation agreements |       | 167 months                                      |       | 126,521 |   | (17,868 | ) | 108,653 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (50,756 | ) | 21,200 |   |
|                                                              |       |                                            |       | $ | 199,977 |   | $ | (68,624 | ) | $ | 131,353 |   |

 

The amortizationexpense for the three months ended June 30, 2007 and 2006 was approximately$7.6 million and $9.5 million, respectively. Amortization expense for the sixmonths ended June 30, 2007 and 2006 was approximately $15.2 million and $19.0million, respectively. Aggregate amortization expense relative to intangibleassets for the periods shown will be as follows:
| **Year Ended December 31** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|
| 2007                                      |       | $          | 30,376     |   |
| 2008                                      |       | 9,176      |       |
| 2009                                      |       | 9,176      |       |
| 2010                                      |       | 9,176      |       |
| 2011                                      |       | 9,176      |       |
| Thereafter                                |       | 62,773     |       |
| Total                                     |       | $          | 129,853    |   |

 

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**(6) Long-TermDebt**

Long-termdebt consists of the following at June 30, 2007 and December 31, 2006 (inthousands):
| ** **                                                                  | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Senior notes 11-1/2%                                                        |       | $                           | —     |                            | $          | 165,000 |   |
| Senior notes 11-3/8%                                                        |       | —                      |       | 125,000                         |       |
| Unamortized fair value  adjustment for 11-3/8% senior notes                 |       | —                      |       | 11,577                          |       |
| First lien senior  secured floating rate notes                              |       | 300,000                     |       | —                          |       |
| Second lien senior  secured floating rate notes                             |       | 175,000                     |       | —                          |       |
| Capital lease  obligations                                                  |       | 480                         |       | 492                             |       |
| Total long-term debt  and capital lease obligations                         |       | 475,480                     |       | 302,069                         |       |
| Less: current  maturities                                                   |       | (27                         | )          | (24                             | )          |
| Long-term debt and capital lease obligations, excluding current  maturities |       | $                           | 475,453    |                            | $          | 302,045 |   |

 

On April 23, 2007, the Company closed its offeringof $475.0 million in aggregate principal amount of senior secured  notes, consisting of $300.0 million inaggregate principal amount of First Lien Senior Secured Floating Rate Notes due2013 (“First Lien Notes”) and $175.0 million in aggregate principal amount ofSecond Lien Senior Secured Floating Rate Notes due 2014 (“Second Lien Notes”and together with the First Lien Notes, the “Secured Notes”) in a privateplacement transaction pursuant to Rule 144A and Regulation S under theSecurities Act of 1933, as amended. The Secured Notes are senior secured obligationsof the Company and are unconditionally guaranteed on a senior secured basis byall the Company’s existing and future domestic restricted subsidiaries. TheFirst Lien Notes are secured by a first priority security interest, subject topermitted liens, in substantially all of the Company and its subsidiaryguarantor assets, including, but not limited to:  (1) all the capital stock of each restrictedsubsidiary owned by the Company, or any subsidiary guarantor; (2) all depositaccounts, security accounts, accounts receivable, inventory, investmentproperty, inter-company notes, general intangible assets, equipment,instruments, contract rights, chattel paper, promissory notes and leases; (3)all fixtures; (4) patents, trademarks, copyrights and other intellectualproperty; and (5) all proceeds of, and all other amounts arising from, thecollection, sale, lease, exchange, assignment, licensing, or other dispositionor realization of the foregoing assets (collectively the “Collateral”). The Second Lien Notes are secured by asecond priority security interest, subject to permitted liens, in the Collateral.

Interest on the First Lien Notes accrues at anannual rate equal to three-month LIBOR plus 2.125% and is payable quarterly incash on February 1, May 1, August 1 and November 1 of each year, commencing onAugust 1, 2007. Interest on the Second Lien Notes accrues at an annual rateequal to three-month LIBOR plus 3.25% and is payable quarterly on February 1,May 1, August 1 and November 1 of each year, commencing on August 1, 2007. Followingthe first interest payment on August 1, 2007, the Company may elect to payinterest on the Second Lien Notes entirely in cash or entirely by increasingthe principal amount of the Second Lien Notes (“PIK Interest”). PIK Interest onthe Second Lien Notes accrues at an annual rate equal to three-month LIBOR plus4.0%. Three-month LIBOR for the Secured Notes resets on February 1, May 1,August 1 and November 1 of each year, commencing on August 1, 2007. The initialthree-month LIBOR was set for the Secured Notes on April 23, 2007 at 5.36% andreset on August 1, 2007 at 5.36%.

The Company used a portion of the proceeds of theSecured Notes offering to repurchase all of its outstanding 11-1/2% notes and11-3/8% notes, as well as to pay the related fees and expenses of the offering.In connection with the Secured Notes offering, for the three months ended June30, 2007, the Company recorded debt extinguishment costs as follows (dollars inthousands):
| Tender offer premium and  consent costs                                                                           |   | $       | 34,155 |   |
|-------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
| Write off of  remaining deferred financing costs of 11-1/2% and 11-3/8% senior notes                              |   | 7,284   |   |
| Acceleration of  the unamortized balance of the purchase price fair value adjustment to the  11-3/8% senior notes |   | (10,938 | )      |
| Total debt  extinguishment costs                                                                                  |   | $       | 30,501 |   |

 

Inconnection with the merger of Horizon PCS in 2005, the allocation of thepurchase price resulted in an increase of the value of the 11-3/8% senior notesof approximately $14.7 million, which was recorded as long-term debt inthe Consolidated Balance Sheets. This amount was to be amortized over theremaining life of the 11-3/8% senior notes as a reduction to interest expense.For the three months ended June 30, 2007 and 2006, the reduction to interest expensewas approximately $0.1 million and $0.5 million, respectively. For the sixmonths ended June 30, 2007 and 2006, the reduction to interest expense was $0.6 million and $1.0 million, respectively. This amount was reduced to zero inconnection with the Secured Notes offering in April 2007.

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Theindentures governing the Secured Notes contain covenants which restrict theCompany’s ability to incur additional indebtedness, merge, pay dividends,dispose of its assets, and certain other matters as defined in the indentures.

**(7) Income Taxes**

TheCompany’s effective income tax rate for the interim periods presented is basedon management’s estimate of the Company’s effective tax rate for the applicableyear and differs from the federal statutory income tax rate primarily due tonondeductible permanent differences, state income taxes and changes in thevaluation allowance for deferred income taxes. In assessing the realizabilityof deferred tax assets, management considers whether it is more likely than notthat some portion or all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation offuture taxable income during the periods in which those temporary differencesbecome deductible. No benefit for federal income taxes has been recorded forthe three and six months ended June 30, 2007 and 2006 as the net deferred taxasset generated, primarily from temporary differences related to the netoperating loss, was offset by a full valuation allowance because it is notconsidered more likely than not that these benefits will be realized due to theCompany’s losses since inception.

**(8) Stock-Based Compensation**

TheCompany has two long-term incentive plans currently in place. The iPCS 2004long-term incentive plan, as amended (the “iPCS Plan”), was approved by theCompany’s board of directors as provided by the Company’s plan ofreorganization. The Horizon PCS 2004 stock incentive plan, as amended (the “HorizonPlan”), was assumed by the Company in its merger with Horizon PCS in 2005.

**iPCS Plan.**Under the iPCS Plan, the Company may grant to employees,directors and consultants of the Company or its subsidiaries incentive andnon-qualified stock options, stock appreciation rights, restricted and unrestrictedstock awards and cash incentive awards. All of the stock options and restrictedstock awarded to date under the iPCS Plan have a ten-year life with vesting ona quarterly basis over four years for employees, and over one year fordirectors. The iPCS Plan has been amended twice to increase the number ofshares available for issuance thereunder. On May 5, 2005, the iPCS Plan wasamended to increase the number of shares available for issuance by 250,000shares, and on September 28, 2006, the iPCS Plan was amended to increase thenumber of shares available for issuance by 500,000 shares. In connection withthe second amendment to the iPCS Plan, the Horizon Plan (discussed below) wasamended to decrease the number of shares available for issuance thereunder by211,227. Each of these amendments was approved by the Company’s stockholders. Inconnection with a special cash dividend paid on May 16, 2007, as discussedbelow, on May 2, 2007, the Compensation Committee of the Board of Directors ofthe Company increased the number of shares remaining available for award underthe iPCS Plan by 342,630 shares. Giving effect to these amendments andmodifications, the total number of shares remaining available to be awardedunder the iPCS Plan as of June 30, 2007 is 760,099 shares of common stock.

**HorizonPlan.**Under the Horizon Plan, the Company may grant toemployees, directors and consultants of the Company or its subsidiariesincentive or non-qualified stock options or stock appreciation rights. All ofthe stock options issued to date under the Horizon Plan have a ten-year lifeand vest equally in six-month increments over three years from the date ofgrant. As discussed above, in connection with the most recent amendment to theiPCS Plan, the Horizon Plan was amended to decrease the number of sharesavailable for issuance thereunder by 211,227. This amendment was approved bythe Company’s stockholders. On May 2, 2007, as discussed below, theCompensation Committee of the Board of Directors of the Company increased thenumber of shares remaining available for award under the Horizon Plan by 7,602shares. Giving effect to this amendment and modification, the total number ofshares that may be granted under the Horizon Plan is 558,602 shares of commonstock, which approximately equals the number of shares underlying awardspreviously made under the Horizon Plan and outstanding on the date ofmodification.

On April 26, 2007, the Board of Directors declared aspecial cash dividend of $11.00 per share, approximately $187.0 million in theaggregate, payable to all holders of record of our common stock on May 8, 2007.Of this amount, approximately $186.5 millionwas paid on May 16, 2007. OnMay 2, 2007, in connection with such dividend, the Compensation Committee ofthe Board of Directors of the Company resolved that each stock option that isoutstanding under the iPCS Plan and the Horizon Plan, on the trading dayimmediately preceding the trading day designated by the NASDAQ Stock Market asthe ex-dividend date (the “Adjustment Date”) shall be adjusted as followseffective as of the opening of business on the Adjustment Date:

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·      Thenumber of shares of stock then subject to each option shall be adjusted bydividing the number of shares of stock then subject to the option by the AdjustmentFactor; and

·      Theexercise price of each option shall be adjusted by multiplying the exerciseprice by the Adjustment Factor.

The “AdjustmentFactor” was 0.78282 and is equal to one minus the percentage reduction in theclosing sale price of a share of stock on the Adjustment Date reported by theNASDAQ Stock Market at the regular hours closing price (“Closing Price”) ascompared to the Closing Price of a share of stock on the Adjustment Date minus$11.00. In addition, on the Adjustment Date, the number of shares under theiPCS Plan and the Horizon Plan was adjusted by dividing the number of shares ofstock reserved for issuance by the Adjustment Factor; thereby increasing thenumber of shares reserved for issuance. The modification resulted in anadditional 184,537 shares to 75 employees and directors who had optionsoutstanding on the modification date. All option information has beenretroactively restated to reflect this modification. With this modification,the Company will record additional stock-based compensation expense ofapproximately $6.7 million, of which approximately $3.2 million was recorded asof the date of modification and the remainder will be recognized over theremaining vesting period for the options. An additional $0.6 million ofcompensation expense related to the modification was recorded in the threemonths ended June 30, 2007 with the quarter-end vesting of stock options.

EffectiveJanuary 24, 2007, Alan Morse ceased to be the Company’s Chief Operating Officer.As a result of his separation, Mr. Morse received an accelerated additionalyear of vesting of his options. With this agreement, the modification of hisoption awards resulted in a new measurement date. The fair value of the optionsprior to the modification was zero. The fair value of the options subsequent tothe modification resulted in an additional $0.6 million of stock-basedcompensation expense recorded in the six months ended June 30, 2007.

The table belowoutlines the assumptions used for the option modifications:
| ** **               | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **               | ** ** | **June 30, 2007**                        | ** ** | **June 30, 2007**                      | ** ** |
| ** **               | ** ** | **Range**                                          | ** ** | **Weighted Average**                        | ** ** | **Range** | ** ** | **Weighted Average** | ** ** |
| Risk free  interest rate |       | 4.32% - 4.55                                       | %          | 4.44                                             | %          | 4.32%-5.13 | % | 4.47 | % |
| Volatility               |       |                                               |       | 38.00                                            | %          |   |   | 38.00 | % |
| Dividend yield           |       |                                               |       | 0.00                                             | %          |   |   | 0.00 | % |
| Expected life in  years  |       |                                               |       | 4.39                                             |       |   |   | 4.21 |   |
| Fair value price         |       |                                               |       | $                                                | 9.84       |   |   |   | $ | 10.31 |   |
|                          |            |                                                    |            |                                                  |            |  |  |  |  |  |  |

 

Duringthe three and six months ended June 30, 2007, the Company awarded 958 and267,985 stock options, respectively, to employees and the board of directorswith exercise prices equal to the fair market value on the date of grants. Thefair value of each grant is estimated at the grant date using the Black Scholesoption pricing method. There were no grants awarded during the three and sixmonths ended June 30, 2006. The table below outlines the assumptions used forthe options granted during the three and six months ended June 30, 2007:
| ** **                             | ** ** | **For the Three Months Ended  June 30, 2007** | ** ** | **For the Six Months Ended  June 30, 2007** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **Range**                                                                   | ** ** | **Weighted Average**                                                 | ** ** | **Range** | ** ** | **Weighted Average** | ** ** |
| Risk free interest rate |       | 4.56                                                                        | %          | 4.56                                                                      | %          | 4.45% to 4.8 | 1% | 4.48 | % |
| Volatility                             |       |                                                                        |       | 38.00                                                                     | %          |   |   | 38.00 | % |
| Dividend yield                         |       |                                                                        |       | 0.00                                                                      | %          |   |   | 0.00 | % |
| Expected life in  years                |       |                                                                        |       | 6.08                                                                      |       |   |   | 5.92 |   |
| Fair value price                       |       |                                                                        |       | $                                                                         | 17.17      |   |   |   | $ | 17.48 |   |
|                                        |            |                                                                             |            |                                                                           |            |  |  |  |  |  |  |

 

The followingtable shows stock-based compensation expense by type of share-based award forthe three and six months ended June 30, 2007 and 2006 included in theconsolidated statements of operations (in thousands):

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| ** **                                                    | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                    | ** ** | **June 30, 2007**                        | ** ** | **June 30, 2006**                      | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| Restricted stock                                              |       | $                                                  | 201        |                                             | $          | 25 |   | $ | 402 |   | $ | 50 |   |
| Amortization of  unearned compensation of stock option awards |       | 30                                                 |       | 89                                               |       | 237 |   | 180 |   |
| Fair value  expense of stock option awards                    |       | 4,586                                              |       | 740                                              |       | 6,091 |   | 1,087 |   |
| Total stock-based  compensation                               |       | $                                                  | 4,817      |                                             | $          | 854 |   | $ | 6,730 |   | $ | 1,317 |   |

 

Thefollowing table shows the total remaining unrecognized compensation costrelated to: restricted stock grants, unearned compensation of stock optionawards, and fair value expense of stock option awards; as well as the weightedaverage remaining required service period over which such costs will berecognized:
|                                               | ** ** | **Total Remaining  Unrecognized  Compensation Cost (in millions)** | ** ** | **Weighted Average  Remaining Required  Service Period  (in years)** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Restricted stock                              |       | $                                                                                 | 2.6        |                                                                                     | 3.41       |   |
| Unearned  compensation of stock option awards |       | 0.0                                                                               |       | 0.25                                                                                     |       |
| Fair value expense of  stock option awards    |       | 7.6                                                                               |       | 2.91                                                                                     |       |
|                                               |            |                                                                                   |            |                                                                                          |            |  |

 

Stock-basedcompensation expense is included in the consolidated statements of operationsas follows (in thousands):
| ** **                      | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **June 30, 2007**                        | ** ** | **June 30, 2006**                      | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| Cost of service  and roaming    |       | $                                                  | 291        |                                             | $          | 31 |   | $ | 379 |   | $ | 62 |   |
| Sales and  marketing            |       | 650                                                |       | 198                                              |       | 797 |   | 268 |   |
| General and  administrative     |       | 3,876                                              |       | 625                                              |       | 5,554 |   | 987 |   |
| Total stock-based  compensation |       | $                                                  | 4,817      |                                             | $          | 854 |   | $ | 6,730 |   | $ | 1,317 |   |

 

Asummary of activity related to the Company’s stock option plans is as follows:
| ** **                        | ** ** | **Number of Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life  (in years)** | ** ** | **Aggregate  Intrinsic Value  (In thousands)** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Outstanding at  December 31, 2006 |       | 831,078                        |       | $                                              | 12.19      |                                                                     |       |                                                     |       |   |
| Granted                           |       | 267,985                        |       | 39.56                                          |       |                                                                     |       |                                                     |       |
| Exercised                         |       | (227,165                       | )          | (13.49                                         | )          |                                                                     |       |                                                     |       |
| Forfeited                         |       | (30,228                        | )          | (22.77                                         | )          |                                                                     |       |                                                     |       |
| Outstanding at  June 30, 2007     |       | 841,670                        |       | $                                              | 20.17      |                                                                     | 7.97       |                                                     | $          | 13,053 |   |
| Exercisable at June 30,  2007     |       | 435,798                        |       | $                                              | 15.09      |                                                                     | 7.51       |                                                     | $          | 8,493 |   |

 

Asummary of activity related to the Company’s restricted shares is as follows:
| ** **                              | ** ** | **Shares** | ** ** | **Weighted Average  Fair Value Price** | ** ** |
|-----------------------------------------|------------|------------|------------|-------------------------------------------------------|------------|
| Restricted  shares at December 31, 2006 |       | 7,552      |       | $                                                     | 22.67      |   |
| Granted                                 |       | 55,700     |       | 50.53                                                 |       |
| Vested                                  |       | (9,293     | )          | (43.22                                                | )          |
| Restricted shares at  June 30, 2007     |       | 53,959     |       | $                                                     | 47.89      |   |

 

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**(9) Commitments and Contingencies**

*(a) Commitments*

On December 29,2006, the Company signed a letter of agreement with Nortel Networks to purchaseEV-DO Rev. A equipment and services totaling $17.1 million in aggregate. The$17.1 million commitment consists of a non-cancelable purchase of $8.9 millionof equipment and services and an option to purchase an additional $8.2 millionof equipment and services.  As ofDecember 31, 2006, the Company has submitted a non-cancelable purchaseorder for the $8.9 million, and therefore has no further commitment under thisletter of agreement. However, if the Company elects to exercise its option topurchase any additional equipment and services from Nortel Networks under thisletter of agreement, the Company will be required to purchase the entireadditional $8.2 million of equipment and services.  In addition, if the Company elects toexercise this option after November 30, 2007, the Company will be required topay an additional $1.0 million. As of June 30, 2007, the Company has paid thefull $8.9 million of this commitment, and therefore has no further obligationsunder this commitment.

In conjunctionwith the issuance of the Secured Notes, the Company entered into registrationrights agreements with the initial purchasers of the Secured notes.  Under the agreements, the Company acceptedcertain obligations with respect to registration of the Secured Notes with theSEC.  Failure to satisfy theseobligations could result in monetary damages due to the Secured Note holdersduring the period of failure.  Ifincurred, monetary damages could aggregate $23,750 per week with respect to thefirst 90-day period of failure, and increase by $23,750 per week for eachsubsequent 90-day period of failure up to a maximum of $237,500 per week untilthe Company’s obligations under these agreements have been satisfied.

*(b) Litigation*

On July 15,2005, iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc.,filed a complaint against Sprint and Sprint PCS in the Circuit Court of CookCounty, Illinois. On July 22, 2005, Horizon PersonalCommunications, Inc. and Bright Personal Communications Services, LLC,wholly owned subsidiaries of iPCS, Inc., filed a complaint against Sprintand Sprint PCS and Nextel Communications, Inc. in the Court of Chancery ofthe State of Delaware, New Castle County. The complaints allege, among otherthings, that Sprint’s conduct following the consummation of the merger betweenSprint and Nextel, would breach its exclusivity obligations under the Company’saffiliation agreements, as amended. The Company sought, among other things, atemporary restraining order (a TRO), a preliminary injunction and a permanentinjunction enjoining Sprint and those acting in concert with it from engagingin conduct that would violate the Company’s affiliation agreements with SprintPCS.

On July 28,2005, iPCS, Inc. and certain of its wholly owned subsidiaries entered intoa Forbearance Agreement with Sprint relating to the complaints filed againstSprint. The Forbearance Agreement sets forth the Company’s agreement that itwould not seek a TRO or a preliminary injunction against Sprint so long asSprint operates subject to the limitations set forth in the ForbearanceAgreement. Although the Forbearance Agreement expired on January 1, 2006in the territory managed by iPCS Wireless and on August 4, 2006 in theterritory managed by Horizon Personal Communications and Bright PersonalCommunications Services, Sprint committed to continue to abide by the terms ofthe Forbearance Agreement in the territory managed iPCS Wireless during thependency of Sprint’s appeal of the Illinois court final order (discussedbelow).

The trial in theDelaware court occurred in January 2006. On August 4, 2006, theDelaware court issued its decision and, on September 7, 2006 issued afinal order and judgment effecting its decision. The final order and judgmentprovides that:

·         Sprint will violate theimplied duty of good faith and fair dealing if it offers iDEN products andservices using the same Sprint brand and marks that plaintiffs (HorizonPersonal Communications and Bright Personal Communications Services) have usedor are using in connection with their sale of Sprint PCS Products and Services(the “Sprint pcs brand and/or marks”) or a brand or mark confusingly similar tothe Sprint pcs brand or marks in plaintiffs’ Service Areas. Sprint may re-brandthe legacy Nextel stores in plaintiffs’ Service Areas, but it must do so in away that does not create a likelihood of confusion in the minds of consumers asto the sponsor of the store or which products and services are available in it,and it may not use the new Sprint logo.

·         Within plaintiffs’Service Areas, Sprint and those acting in concert with it are enjoined from:

·        offering iDEN products andservices that use the same or confusingly similar brands or marks as the Sprintpcs brand or marks; provided that Sprint is not enjoined or otherwiseprohibited from conducting national advertising offering iDEN products andservices that use the same or similar brands and marks as the Sprint pcs brandsor marks, subject to appropriate disclaimers regarding availability in certainmarkets; and

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·        re-branding the legacyNextel stores with the new Sprint logo or the same or confusingly similarbrands or marks as the Sprint pcs brand and marks.

·        In light of certainoperational and confidentiality representations made by Sprint, plaintiffs’claims and requests for relief against such future Sprint behavior were deemednot ripe for adjudication and therefore denied. If, however, Sprint in thefuture breaches these representations, the court will promptly entertain a requestfor appropriate relief.

·        Plaintiffs’ claims fortortious interference and civil conspiracy against Nextel were dismissed withprejudice.

The trial in theIllinois court was held for 25 days between early March and earlyJuly 2006. On August 14, 2006, the Illinois court issued its decisionand on September 20, 2006 issued a final order effecting its decision. Thefinal order provides that:

·        Within 180 days of thedate of the final order, Sprint and those acting in concert with it must ceaseowning, operating, and managing the Nextel wireless network in iPCS Wireless’sterritory.

·        Sprint shall continue tocomply with all terms and conditions of the Forbearance Agreement.

OnSeptember 28, 2006, Sprint appealed the ruling of the Illinois trial courtto the Appellate Court of Illinois, First Judicial District. In earlyOctober 2006, Sprint requested a stay of the Illinois trial court’s orderpending appeal and an accelerated appeal. On October 13, 2006, theIllinois appellate court denied Sprint’s request for an accelerated appeal andordered a stay of the Illinois trial court’s order pending appeal on thecondition that (i) Sprint continue to comply with the ForbearanceAgreement and (ii) Sprint comply with the September 7, 2006 order ofthe Delaware court. Accordingly, Sprint must comply with the ForbearanceAgreement, as well as the order of the Delaware court, in iPCS Wireless’sterritory pending a decision from the Illinois appellate court.

As of the datehereof, the parties have completed the briefing stage of the appeal and areawaiting the scheduling of oral arguments followed by a decision.  The Company expects a decision from theappellate court as soon as later this year or early 2008.

On December 8,2006, the Company initiated arbitration proceedings against Sprint with respectto the Company’s dispute regarding the rates that Sprint charges the Companyfor providing certain back-office support services to the Company.  As discussed above in Note 3, the Companystrongly disagrees with the Sprint-proposed rates and, as provided for in theCompany’s agreements with Sprint, the Company elected to submit thedetermination of the new rates to binding arbitration before the InternationalInstitute for Conflict Prevention and Resolution.  A three-judge panel has been selected and theparties are engaged in discovery.  TheCompany currently expects that its hearing before the panel will occur nextyear.

Inaddition to the foregoing, from time to time, the Company is involved in variouslegal proceedings relating to claims arising in the ordinary course ofbusiness. The Company is not currently a party to any such legal proceedings,the outcome of which, individually or in the aggregate, is expected to have amaterial adverse effect on the Company’s business, financial condition orresults of operations.

*(c)**                    FCC Licenses*

SprintPCS holds the licenses necessary to provide wireless services in the Company’sterritory. The Federal Communications Commission (“FCC”) requires thatlicensees like Sprint PCS maintain control of their licensed spectrums and notdelegate control to third-party operators or managers without FCC consent andare subject to renewal and revocation by the FCC. Certain Sprint PCS wirelesslicenses in the Company’s territory were scheduled to expire in April and June2007.  All licenses that were scheduledto expire in April 2007 and June 2007 were renewed for additional ten-yearterms, except that one such license was renewed for an additional eight years.The FCC has adopted specific standards that apply to wireless personalcommunications services license renewals. Any failure by Sprint PCS or theCompany to comply with these standards could result in the non-renewal of theSprint PCS licenses for the Company’s territory. Additionally, if Sprint PCSdoes not demonstrate to the FCC that Sprint PCS has met the constructionrequirements for each of its wireless personal communications serviceslicenses, it can lose those licenses. If Sprint PCS loses its licenses in theCompany’s territory for any of these reasons, the Company would not be able toprovide wireless services without obtaining rights to other licenses.

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If Sprint PCS loses itslicenses in another territory, Sprint PCS or the applicable PCS Affiliate orSprint would not be able to provide wireless services without obtaining rightsto other licenses and the Company’s ability to offer nationwide calling planswould be diminished and potentially more costly.

**(10) ConsolidatingFinancial Information**

TheSecured Notes are fully, unconditionally and joint and severally guaranteed bythe Company’s domestic restricted subsidiaries, including iPCSWireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc., and Bright Personal CommunicationsServices, LLC, which are 100% owned subsidiaries of iPCS, Inc. (SeeNote 6, Long-Term Debt). The following consolidating financial information asof June 30, 2007 and December 31, 2006 and for the three and six months endedJune 30, 2007 and 2006 is presented for iPCS, Inc., iPCSWireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc., and Bright Personal CommunicationsServices, LLC (in thousands):

17

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**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of June 30, 2007**
| ** **                                                        | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                        |       | $                  | —     |               | $          | 31,778              |       | $                         | —     |       | $          | 34,555           |       | $                      | 208        |   | $ | — |   | $ | 66,541 |   |
| Other current assets                                              |       | 423,638            |       | 264,562            |       | 46,041              |       | 111,895                   |       | 91,328     |       | (858,824         | )          | 78,640                 |       |
| Total current assets                                              |       | 423,638            |       | 296,340            |       | 46,041              |       | 146,450                   |       | 91,536     |       | (858,824         | )          | 145,181                |       |
| Property and equipment,  net                                      |       | —             |       | 69,922             |       | 3,234               |       | 44,763                    |       | 18,273     |       | (52              | )          | 136,140                |       |
| Intangible assets, net                                            |       | —             |       | 47,206             |       | —              |       | 156,582                   |       | 54,160     |       | —           |       | 257,948                |       |
| Other non-current  assets                                         |       | 8,210              |       | 2,191              |       | —              |       | 2,615                     |       | 19         |       | —           |       | 13,035                 |       |
| Investment in  subsidiaries                                       |       | 228,097            |       | —             |       | —              |       | —                    |       | —     |       | (228,097         | )          | —                 |       |
| Total assets                                                      |       | $                  | 659,945    |               | $          | 415,659             |       | $                         | 49,275     |       | $          | 350,410          |       | $                      | 163,988    |   | $ | (1,086,973 | ) | $ | 552,304 |   |
| Current liabilities                                               |       | $                  | 210,406    |               | $          | 378,065             |       | $                         | 43         |       | $          | 252,275          |       | $                      | 108,948    |   | $ | (858,876 | ) | $ | 90,861 |   |
| Long-term debt                                                    |       | 475,000            |       | 453                |       | —              |       | —                    |       | —     |       | —           |       | 475,453                |       |
| Other long-term  liabilities                                      |       | 362                |       | 4,683              |       | —              |       | 6,134                     |       | 634        |       | —           |       | 11,813                 |       |
| Total liabilities                                                 |       | 685,768            |       | 383,201            |       | 43                  |       | 258,409                   |       | 109,582    |       | (858,876         | )          | 578,127                |       |
| Stockholders’ equity  (deficiency)                           |       | (25,823            | )          | 32,458             |       | 49,232              |       | 92,001                    |       | 54,406     |       | (228,097         | )          | (25,823                | )          |
| Total liabilities and stockholders’ equity (deficiency) |       | $                  | 659,945    |               | $          | 415,659             |       | $                         | 49,275     |       | $          | 350,410          |       | $                      | 163,988    |   | $ | (1,086,973 | ) | $ | 552,304 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of December 31, 2006**
|                                                                    | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                         |       | $                  | —     |               | $          | 85,474              |       | $                         | —     |       | $          | 34,823           |       | $                      | 202        |   | $ | — |   | $ | 120,499 |   |
| Other current  assets                                              |       | 139,294            |       | 73,621             |       | 38,200              |       | 94,771                    |       | 72,499     |       | (335,930         | )          | 82,455                 |       |
| Total current  assets                                              |       | 139,294            |       | 159,095            |       | 38,200              |       | 129,594                   |       | 72,701     |       | (335,930         | )          | 202,954                |       |
| Property and  equipment, net                                       |       | —             |       | 64,773             |       | 6,375               |       | 51,960                    |       | 16,597     |       | (64              | )          | 139,641                |       |
| Intangible  assets, net                                            |       | —             |       | 49,259             |       | —              |       | 166,609                   |       | 57,268     |       | —           |       | 273,136                |       |
| Other  non-current assets                                          |       | 4,790              |       | 1,756              |       | —              |       | 4,079                     |       | 715        |       | —           |       | 11,340                 |       |
| Investment in  subsidiaries                                        |       | 253,001            |       | —             |       | —              |       | —                    |       | —     |       | (253,001         | )          | —                 |       |
| Total assets                                                       |       | $                  | 397,085    |               | $          | 274,883             |       | $                         | 44,575     |       | $          | 352,242          |       | $                      | 147,281    |   | $ | (588,995 | ) | $ | 627,071 |   |
| Current  liabilities                                               |       | $                  | 17,900     |               | $          | 232,247             |       | $                         | 42         |       | $          | 127,688          |       | $                      | 58,887     |   | $ | (335,994 | ) | $ | 100,770 |   |
| Long-term debt                                                     |       | 165,000            |       | 468                |       | —              |       | 104,400                   |       | 32,177     |       | —           |       | 302,045                |       |
| Other long-term  liabilities                                       |       | —             |       | 4,088              |       | —              |       | 5,402                     |       | 581        |       | —           |       | 10,071                 |       |
| Total  liabilities                                                 |       | 182,900            |       | 236,803            |       | 42                  |       | 237,490                   |       | 91,645     |       | (335,994         | )          | 412,886                |       |
| Stockholders’  equity (deficiency)                            |       | 214,185            |       | 38,080             |       | 44,533              |       | 114,752                   |       | 55,636     |       | (253,001         | )          | 214,185                |       |
| Total liabilities and  stockholders’ equity (deficiency) |       | $                  | 397,085    |               | $          | 274,883             |       | $                         | 44,575     |       | $          | 352,242          |       | $                      | 147,281    |   | $ | (588,995 | ) | $ | 627,071 |   |

 

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**iPCS, Inc.and SubsidiariesCondensed Consolidating Statement of OperationsFor the Three Months Ended June 30, 2007**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 73,646              |       | $                         | 420        |       | $          | 38,793           |       | $                      | 20,794     |   | $ | (420 | ) | $ | 133,233 |   |
| Cost of revenues                                   |       | —             |       | (49,243            | )          | —              |       | (28,998                   | )          | (13,688    | )          | 420              |       | (91,509                | )          |
| Selling and  marketing                             |       | —             |       | (10,130            | )          | —              |       | (6,368                    | )          | (2,610     | )          | —           |       | (19,108                | )          |
| General and  administrative                        |       | (598               | )          | (5,944             | )          | —              |       | (1,675                    | )          | (453       | )          | —           |       | (8,670                 | )          |
| Depreciation and  amortization                     |       | —             |       | (7,523             | )          | (546                | )          | (8,736                    | )          | (2,820     | )          | —           |       | (19,625                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (2,468             | )          | 2,444               |       | 12                        |       | —     |       | 6                |       | (6                     | )          |
| Total operating expenses                           |       | (598               | )          | (75,308            | )          | 1,898               |       | (45,765                   | )          | (19,571    | )          | 426              |       | (138,918               | )          |
| Other, net                                         |       | (31,780            | )          | 550                |       | 835                 |       | (5,711                    | )          | (1,853     | )          | —           |       | (37,959                | )          |
| Loss in subsidiaries                               |       | (11,272            | )          | —             |       | —              |       | —                    |       | —     |       | 11,272           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (43,650    | )                  | $          | (1,112              | )          | $                         | 3,153      |       | $          | (12,683          | )          | $                      | (630       | ) | $ | 11,278 |   | $ | (43,644 | ) |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Three Months Ended June 30, 2006**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 67,100              |       | $                         | 1,112      |       | $          | 51,891           |       | $                      | 1,382      |   | $ | (1,112 | ) | $ | 120,373 |   |
| Cost of revenues                                   |       | —             |       | (43,613            | )          | —              |       | (33,026                   | )          | (2,971     | )          | 1,112            |       | (78,498                | )          |
| Selling and  marketing                             |       | —             |       | (9,623             | )          | —              |       | (6,227                    | )          | (1,494     | )          | —           |       | (17,344                | )          |
| General and  administrative                        |       | (531               | )          | (3,031             | )          | —              |       | (2,090                    | )          | (85        | )          | —           |       | (5,737                 | )          |
| Depreciation and  amortization                     |       | —             |       | (8,923             | )          | (1,186              | )          | (9,589                    | )          | (2,705     | )          | —           |       | (22,403                | )          |
| Gain (loss) on  disposal of property and equipment |       | —             |       | (151               | )          | 87                  |       | (118                      | )          | —     |       | 6                |       | (176                   | )          |
| Total operating expenses                           |       | (531               | )          | (65,341            | )          | (1,099              | )          | (51,050                   | )          | (7,255     | )          | 1,118            |       | (124,158               | )          |
| Other, net                                         |       | (4,968             | )          | 44                 |       | 871                 |       | (1,809                    | )          | (727       | )          | —           |       | (6,589                 | )          |
| Loss in  subsidiaries                              |       | (4,881             | )          | —             |       | —              |       | —                    |       | —     |       | 4,881            |       | —                 |       |
| Net income (loss)                                  |       | $                  | (10,380    | )                  | $          | 1,803               |       | $                         | 884        |       | $          | (968             | )          | $                      | (6,600     | ) | $ | 4,887 |   | $ | (10,374 | ) |

 

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**iPCS, Inc.and SubsidiariesCondensed Consolidating Statement of OperationsFor the Six Months Ended June 30, 2007**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 139,156             |       | $                         | 1,106      |       | $          | 74,775           |       | $                      | 40,155     |   | $ | (1,106 | ) | $ | 254,086 |   |
| Cost of revenues                                   |       | —             |       | (96,672            | )          | —              |       | (56,113                   | )          | (26,424    | )          | 1,106            |       | (178,103               | )          |
| Selling and marketing                              |       | —             |       | (21,134            | )          | —              |       | (13,034                   | )          | (5,514     | )          | —           |       | (39,682                | )          |
| General and  administrative                        |       | (1,147             | )          | (10,015            | )          | (1                  | )          | (3,218                    | )          | (1,216     | )          | —           |       | (15,597                | )          |
| Depreciation and  amortization                     |       | —             |       | (14,536            | )          | (1,397              | )          | (17,430                   | )          | (5,694     | )          | —           |       | (39,057                | )          |
| Gain (loss) on disposal  of property and equipment |       | —             |       | (3,178             | )          | 3,124               |       | (22                       | )          | (2         | )          | 13               |       | (65                    | )          |
| Total operating  expenses                          |       | (1,147             | )          | (145,535           | )          | 1,726               |       | (89,817                   | )          | (38,850    | )          | 1,119            |       | (272,504               | )          |
| Other, net                                         |       | (36,749            | )          | 757                |       | 1,868               |       | (7,709                    | )          | (2,536     | )          | —           |       | (44,369                | )          |
| Loss in subsidiaries                               |       | (24,904            | )          | —             |       | —              |       | —                    |       | —     |       | 24,904           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (62,800    | )                  | $          | (5,622              | )          | $                         | 4,700      |       | $          | (22,751          | )          | $                      | (1,231     | ) | $ | 24,917 |   | $ | (62,787 | ) |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Six Months Ended June 30, 2006**
| ** **                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|----------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                     |       | $                  | —     |               | $          | 130,835             |       | $                         | 2,391      |       | $          | 83,865           |       | $                      | 18,158     |   | $ | (2,391 | ) | $ | 232,858 |   |
| Cost of revenues                                   |       | —             |       | (86,354            | )          | —              |       | (55,710                   | )          | (13,375    | )          | 2,391            |       | (153,048               | )          |
| Selling and marketing                              |       | —             |       | (18,457            | )          | —              |       | (11,488                   | )          | (4,159     | )          | —           |       | (34,104                | )          |
| General and  administrative                        |       | (1,084             | )          | (6,760             | )          | (1                  | )          | (4,762                    | )          | (261       | )          | —           |       | (12,868                | )          |
| Depreciation and  amortization                     |       | —             |       | (17,595            | )          | (2,581              | )          | (20,602                   | )          | (5,528     | )          | —           |       | (46,306                | )          |
| Gain (loss) on disposal  of property and equipment |       | —             |       | (356               | )          | 104                 |       | (172                      | )          | —     |       | 11               |       | (413                   | )          |
| Total operating  expenses                          |       | (1,084             | )          | (129,522           | )          | (2,478              | )          | (92,734                   | )          | (23,323    | )          | 2,402            |       | (246,739               | )          |
| Other, net                                         |       | (9,937             | )          | 77                 |       | 1,665               |       | (3,847                    | )          | (1,453     | )          | —           |       | (13,495                | )          |
| Loss in subsidiaries                               |       | (16,366            | )          | —             |       | —              |       | —                    |       | —     |       | 16,366           |       | —                 |       |
| Net income (loss)                                  |       | $                  | (27,387    | )                  | $          | 1,390               |       | $                         | 1,578      |       | $          | (12,716          | )          | $                      | (6,618     | ) | $ | 16,377 |   | $ | (27,376 | ) |

 

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**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of Cash FlowsFor the Six Months Ended June 30, 2007**
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Operating  activities                                  |       | $                  | (99,877    | )                  | $          | (35,263             | )          | $                         | (4,709     | )          | $          | 110,374          |       | $                      | 35,689     |   | $ | — |   | $ | 6,214 |   |
| Investing  activities                                  |       | —             |       | (18,422            | )          | 4,709               |       | (3,306                    | )          | (2,602     | )          |             |       | (19,621                | )          |
| Financing  activities                                  |       | 99,877             |       | (11                | )          | —              |       | (107,336                  | )          | (33,081    | )          | —           |       | (40,551                | )          |
| Increase  (decrease) in cash and cash equivalents      |       | —             |       | (53,696            | )          | —              |       | (268                      | )          | 6          |       | —           |       | (53,958                | )          |
| Cash and cash  equivalents at beginning of period |       | —             |       | 85,474             |       | —              |       | 34,823                    |       | 202        |       | —           |       | 120,499                |       |
| Cash and cash  equivalents at end of period            |       | $                  | —     |               | $          | 31,778              |       | $                         | —     |       | $          | 34,555           |       | $                      | 208        |   | $ | — |   | $ | 66,541 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of Cash FlowsFor the Six Months Ended June 30, 2006**
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Operating  activities                                  |       | $                  | —     |               | $          | 11,251              |       | $                         | (1,527     | )          | $          | 6,949            |       | $                      | 688        |   | $ | — |   | $ | 17,361 |   |
| Investing  activities                                  |       | —             |       | (5,927             | )          | 1,527               |       | (14,012                   | )          | (1,098     | )          | —           |       | (19,510                | )          |
| Financing  activities                                  |       | —             |       | 1,127              |       | —              |       | —                    |       | —     |       | —           |       | 1,127                  |       |
| Increase  (decrease) in cash and cash equivalents      |       | —             |       | 6,451              |       | —              |       | (7,063                    | )          | (410       | )          | —           |       | (1,022                 | )          |
| Cash and cash  equivalents at beginning of period |       | —             |       | 68,993             |       | —              |       | 41,099                    |       | 745        |       | —           |       | 110,837                |       |
| Cash and cash  equivalents at end of period            |       | $                  | —     |               | $          | 75,444              |       | $                         | —     |       | $          | 34,036           |       | $                      | 335        |   | $ | — |   | $ | 109,815 |   |

 

**(11) SubsequentEvent**

On July 20, 2007, the Company entered into aninterest rate swap agreement for a notional amount of $300.0 million associatedwith the interest on the Company’s First Lien Notes effective August 1, 2007for a period of three years.  Under thisagreement, the Company receives interest at a floating rate of three-monthLIBOR and pays interest at a fixed rate of 5.34%, resulting in an effectiverate in relation to the First Lien Notes of 7.47% throughout the term of the swap. The interest rate swap has been designated as a cash flow hedge.  The fair value of the interest rate swap willbe recorded in Stockholders’ Equity (Deficiency) under Accumulated Other ComprehensiveIncome (Loss), net of applicable income tax expense or benefit.  The counterparty to the swap is a majorfinancial institution and has been accorded high ratings by primary ratingagencies.  While the Company is exposedto credit risk due to the possibility of non-performance of its counterparty,the Company considers this risk to be remote.

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**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

As used in thisquarterly report on Form 10-Q, unless the context otherwise requires:(i) “Sprint PCS” refers to the affiliated entities of Sprint NextelCorporation that are party to our affiliation agreements; (ii) “Sprint”refers to Sprint Nextel Corporation and its affiliates; (iii) a “PCSAffiliate of Sprint” is an entity whose sole or predominant business isoperating (directly or through one or more subsidiaries) a personalcommunications service business pursuant to affiliation agreements with SprintSpectrum L.P. and/or its affiliates or their successors; (iv) “Sprint PCSproducts and services” refers to digital wireless personal communicationsservices, including wireless voice and data services, and related retailproducts, including handsets, in any case, offered under the Sprint brand name;and (v) “our subscribers” refers to Sprint PCS subscribers who reside inour territory, excluding reseller subscribers.

Statements in thisquarterly report on Form 10-Q regarding Sprint or Sprint PCS are derivedfrom information contained in our affiliation agreements with Sprint PCS,periodic reports and other documents filed by Sprint with the SEC. Thisquarterly report on Form 10-Q contains trademarks, service marks and tradenames of companies and organizations other than us. Other than with respect toSprint PCS, our use or display of other parties’ trade names, trademarks orproducts is not intended to and does not imply a relationship with, orendorsement or sponsorship of us by, the trade name or trademark owners.

The following isan analysis of our results of operations, liquidity and capital resources andshould be read in conjunction with the unaudited Consolidated FinancialStatements and notes related thereto included in this Form 10-Q. To theextent that the following Management’s Discussion and Analysis containsstatements which are not of a historical nature, such statements areforward-looking statements which involve risks and uncertainties. These risksinclude, but are not limited to the risk and uncertainties listed in the nextsection entitled “Forward-Looking Statements” and other factors discussedelsewhere herein and in our other filings with the SEC.

**Forward-LookingStatements**

This quarterlyreport on Form 10-Q contains statements about future events andexpectations that are “forward-looking statements.” These statements relate tofuture events or our future financial performance, and involve known andunknown risks, uncertainties and other factors that may cause our actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these forward-looking statements. In somecases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” or the negative use of these terms or other comparableterminology. Any statement in this report that is not a statement of historicalfact may be deemed to be a forward-looking statement. These forward-lookingstatements include:

·                  statementsregarding our anticipated revenues, expense levels, capital expenditures,liquidity and capital resources and operating losses; and

·                  statementsregarding expectations or projections about markets in our territory.

Although webelieve that the expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to becorrect. Important factors with respect to any such forward-looking statements,including certain risks and uncertainties that could cause actual results to differmaterially from our expectations, include, but are not limited to:

·                  our dependenceon our affiliation with Sprint;

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·                  the impact andfinal outcome of our litigation and arbitration against Sprint, Nextel andSprint PCS;

·                  changes inSprint’s affiliation strategy as a result of the Sprint/Nextel merger andSprint’s acquisitions of other PCS Affiliates of Sprint;

·                  the ability ofSprint PCS to alter the terms of our affiliation agreements with it, includingfees paid or charged to us and other program requirements;

·                  our dependenceon back office services, such as billing and customer care, provided by SprintPCS, and the costs we incur to obtain such services;

·                  changes oradvances in technology in general, or specifically related to Sprint and its affiliates;

·                  competition inthe industry and markets in which we operate;

·                  our ability toattract and retain skilled personnel;

·                  our potentialneed for additional capital or the need for refinancing any existingindebtedness;

·                  our potentialinability to expand our services and related products in the event ofsubstantial increases in demand for these services and related products;

·                  changes ingovernment regulation;

·                  thecompetitiveness and impact of Sprint PCS’s pricing plans and PCS products andservices on us;

·                  our subscribercredit quality and its ultimate impact on bad debt expense;

·                  the potentialfor us to experience a continued high rate of subscriber turnover;

·                  inaccuracies inour financial information provided to us by Sprint PCS;

·                  our failure tomaintain effective internal controls to satisfy the requirements ofSection 404 of the Sarbanes-Oxley Act, which requires annual managementassessments of the effectiveness of internal control over financial reporting;

·                  our rates ofpenetration in the wireless industry and in our territories;

·                  our significantlevel of indebtedness;

·                  adequacy of baddebt and other reserves;

·                  our anticipatedfuture losses;

·                  our subscriberpurchasing patterns;

·                  subscribersatisfaction with our network and operations, including with services providedto us by Sprint, such as billing and customer care;

·                  availability ofan adequate supply of subscriber equipment to Sprint PCS and to usspecifically;

·                  risks related tofuture growth and expansion, including subscriber growth;

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·                  general economicand business conditions;

·                  additionalterrorist attacks; and

·                  effects ofmergers and consolidations within the wireless telecommunications industry,particularly business combinations involving Sprint Nextel or affiliates of SprintNextel, and unexpected announcements or developments from others in thewireless telecommunications industry.

**NewAccounting Pronouncements**

InFebruary 2007, the Financial Accounting Standards Board (the “FASB”)issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS No. 159”), to permit all entities to chooseto elect, at specified election dates, to measure eligible financialinstruments at fair value. An entity shall report unrealized gains and losseson items for which the fair value option has been elected in earnings at eachsubsequent reporting date, and recognize upfront costs and fees related tothose items in earnings as incurred and not deferred. SFAS No. 159 appliesto fiscal years beginning after November 15, 2007, with early adoptionpermitted for an entity that has also elected to apply the provisions of SFASNo. 157, “Fair Value Measurements.” An entity is prohibited fromretrospectively applying SFAS No. 159, unless it chooses early adoption.SFAS No. 159 also applies to eligible items existing at November 15,2007 (or early adoption date). We are still evaluating the impact of theimplementation of SFAS No. 159 on our financial position, results of operationsor cash flows.

In September 2006,the FASB issued Statement 157, Fair Value Measurements, which defines fairvalue, provides guidelines for measuring fair value and expands disclosurerequirements.  Statement 157 does notrequire any new fair value measurement but applies to the accounting pronouncementsthat require or permit fair value measurement. Statement 157 is effective for fiscal years beginning after November 15,2007. We do not anticipate that the implementation of Statement 157 will have amaterial impact on our financial position, results of operation, or cash flows.

In July 2006,the FASB issued Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes” (“FIN 48”), which is effective for fiscal years beginning afterDecember 15, 2006. FIN 48 clarifies the accounting for uncertainty inincome taxes recognized in the financial statements in accordance with SFASNo. 109, “Accounting for Income Taxes”. FIN 48 prescribes a comprehensivemodel for how a company should recognize, measure, present, and disclose in itsfinancial statements uncertain tax positions that the company has taken orexpects to take on a tax return. We adopted FIN 48 on January 1, 2007 and itdid not have a material impact on our financial position, results of operationsand cash flows.

**Definitionsof Operating Metrics**

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section, we provide certain financial measures that are calculated inaccordance with accounting principles generally accepted in the United States (“GAAP”)and as adjusted to GAAP (“non-GAAP”) to assess our financial performance. Inaddition, we use certain non-financial terms that are not measures of financialperformance under GAAP. Terms such as net subscriber additions and churn areterms used in the wireless telecommunications industry. The non-GAAP financialmeasures of average revenue per user (“ARPU”) and cost per gross addition (“CPGA”)reflect standard measures of performance commonly used in the wirelesstelecommunications industry. The non-financial terms and the non-GAAP measuresreflect wireless telecommunications industry conventions and are commonly usedby the investment community for comparability purposes. The non-GAAP financialmeasures included in this “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” are reconciled below in “Reconciliation ofNon-GAAP Financial Measures” and, together with the non-financial terms, aresummarized as follows:

·                  Netsubscriber additions for the period represented is calculated as the gross newsubscribers acquired in the period less the number of subscribers deactivatedplus the net subscribers transferred in or out of our markets during theperiod.

·                  Churnis a measure of the average monthly rate at which subscribers based in ourterritory deactivate service on a voluntary or involuntary (credit-related)basis. We calculate average monthly churn based on the number of subscribersdeactivated during the period (net of those who deactivated within 30 daysof activation and excluding transfers out of our territory) as a percentage ofour average monthly subscriber base during the period divided by the number ofmonths during the period.

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·                  ARPU,or average revenue per user, is a measure of the average monthly servicerevenue earned from subscribers based in our territory. This measure iscalculated by dividing subscriber revenues in our consolidated statement ofoperations by the number of our average monthly subscribers during the perioddivided by the number of months in the period.

·                  CPGA,or cost per gross addition, is a measure of the average cost we incur to add anew subscriber in our territory. These costs include handset subsidies on newsubscriber activations, commissions, rebates and other selling and marketingcosts. We calculate CPGA by dividing (a) the sum of cost of products soldless product sales revenues associated with transactions with new subscribers,and selling and marketing expenses, net of stock-based compensation expense,during the measurement period, by (b) the total number of subscribersactivated in our territory during the period.

·                  Licensedpopulation represents the number of residents in the markets in our territoryfor which we have an exclusive right to provide wireless mobilitycommunications services under the Sprint brand name. The number of residentslocated in our territory does not represent the number of wireless subscribersthat we serve or expect to serve in our territory.

·                  Coveredpopulation represents the number of residents covered by our portion of thewireless network of Sprint. The number of residents covered by our network doesnot represent the number of wireless subscribers that we serve or expect toserve in our territory.

In this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”unless the context indicates otherwise, all references to “subscribers” or “customers”and other operating metrics mean subscribers or customers excluding subscribersof resellers known as Mobile Virtual Network Operators, or MVNOs, that use ournetwork and resell wireless service under private brands.

**BusinessOverview**

As a PCS Affiliateof Sprint, we have the exclusive right to provide digital wireless personalcommunications services, or PCS, under the Sprint brand name in 80 marketsincluding markets in Illinois, Michigan, Pennsylvania, New York, Indiana, Iowa,Ohio and Tennessee. The territory includes key markets such as Grand Rapids(MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (Johnson City,Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), and the QuadCities region of Illinois and Iowa (Bettendorf and Davenport, IA, and Molineand Rock Island, IL). We own and are responsible for building, operating andmanaging the portion of the 100% digital, 100% PCS wireless network ofSprint PCS located in our territory. We offer national calling plans designedby Sprint PCS as well as local plans tailored to our markets. Our PCS networkis designed to offer a seamless connection with the wireless network ofSprint PCS. We market Sprint PCS products and services through a number ofdistribution outlets located in our territory, including our company-ownedretail stores, co-branded dealers, major national retailers and local thirdparty distributors. As of June 30, 2007, our licensed territory had a totalpopulation of approximately 15.0 million residents, of which our wirelessnetwork covered approximately 11.9 million residents, and we hadapproximately 612,000 subscribers.

We recognizerevenues from the provision of wireless telecommunications services to oursubscribers, proceeds from the sale of handsets and accessories throughchannels controlled by us and roaming fees. Sprint PCS retains 8% of allservice revenue collected from our subscribers (not including product sales orroaming charges billed to our subscribers) and 8% of all fees collected from otherwireless service providers when their subscribers roam onto our network. Wereport the amount retained by Sprint PCS as an operating expense. In addition,Sprint PCS bills our subscribers for taxes, handset insurance and UniversalService Fund charges which we do not recognize. Sprint PCS collects theseamounts from the subscribers and remits them to the appropriate entity.

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***Relationship with Sprint***

Our relationshipwith Sprint is the most significant relationship we have. The terms of ourrelationship are set forth in our affiliation agreements with Sprint PCS.Pursuant to these affiliation agreements, we agreed to offer PCS services usingSprint’s spectrum under the Sprint brand name on a wireless network built andoperated at our own expense. We believe that our strategic relationship withSprint PCS provides significant competitive advantages. In particular, webelieve that our affiliation agreements with Sprint PCS allow us to offer highquality, nationally branded wireless voice and data services for lower cost andlower capital requirements than would otherwise be possible.

Sprint’s mergerwith Nextel, which closed in August 2005, has thrust our relationship withSprint into a state of uncertainty, the resolution of which may have a materialadverse effect on our business. As discussed in “—Commitments and Contingencies”below, Sprint’s merger with Nextel has been the subject of two separatelawsuits that we filed against Sprint in July 2005. Although we havereceived final orders in both lawsuits, Sprint has appealed the Illinoisorder.  Accordingly, the final outcome ofthe dispute is still unknown pending appeal. In addition to our complaints, anumber of other PCS Affiliates of Sprint also filed complaints against Sprint,Sprint PCS and Nextel, including AirGate PCS (a wholly owned subsidiary ofAlamosa Holdings, Inc.), UbiquiTel, Inc., U.S. Unwired, Inc.,Gulf Coast Wireless, Inc., Enterprise Communications Partnership andNorthern PCS Services, LLC.  Sprint hasacquired each of these other PCS Affiliates of Sprint and the complaints havebeen dismissed.

We do not know thefinal outcome of our litigation against Sprint. If we do not prevail, Sprintmay engage in conduct that has a material adverse effect on our business andoperations. We intend to continue to enforce our rights to the fullest extent,but there is no assurance that we will prevail.

Effective January1, 2007, Sprint increased its rates for certain back-office services Sprintprovides to us.  We strongly disagreewith these rates and have submitted the matter to arbitration.  Likewise, Sprint also decreased thereciprocal roaming rates we receive for voice and data when subscribers ofSprint PCS and other PCS Affiliates of Sprint roam onto our network.  We strongly disagree with Sprint’s newroaming rates and continue to oppose them. We plan to submit the matter to arbitration or litigation if necessary.See discussion below regarding both these rate issues with Sprint in “—Commitmentsand Contingencies.”

**ConsolidatedResults of Operations**

***Summary***

For thethree and six months ended June 30, 2007 our net loss was $43.6 million and$62.8 million, respectively, compared to $10.4 million and $27.4 million forthe same periods in 2006.  The higher netloss for the periods ended June 30, 2007 included $30.5 million of costsrelated to the repurchase of our 11-1/2% and 11-3/8% senior notes (see Note 6,Long-Term Debt, of the “Notes to Unaudited Consolidated Financial Statements”in this Form 10-Q). The remaining higher net losses for the periods endedJune 30, 2007 primarily reflected increases in subscriber acquisition costs asa result of our growth in gross additions, and increases in operating expenses,including higher bad debt expenses, upgrade and retention costs, back officeservice fees paid to Sprint and stock-based compensation expenses.  These increased expenses were partiallyoffset by higher revenues, primarily reflecting our larger subscriber base,lower Sprint litigation expense and lower depreciation and amortizationexpenses. Additionally, the higher net loss for the 2007 periods reflected theimpact of the lower reciprocal roaming rates partially offset by a substantialincrease in data kilobytes usage on our network.

Presentedbelow is more detailed comparative data and discussion regarding ourconsolidated results of operations for the three and six months ended June 30,2007 versus the three and six months ended June 30, 2006.

***For the Three and Six Months Ended June 30, 2007 compared tothe Three and Six Months Ended June 30, 2006***

Results ofoperations for any period less than one year are not necessarily indicative ofresults of operations for a full year.

***Key Performance Metrics.***

Management usesseveral key performance metrics to analyze the operations of our business.Below are tables setting forth the metrics that we use for the relevant timeperiods:

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|                           | ** ** | **As of and for the Three Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|---------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **2007**                                                                                       | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total  Subscribers        |       | 612,000                                                                                        |       | 517,500       |       | 94,500         |       | 18 | % |
| Net Subscriber  Additions |       | 21,000                                                                                         |       | 10,900        |       | 10,100         |       | 93 | % |
| Churn                     |       | 2.2                                                                                            | %          | 2.5           | %          | (0.3           | )%         | (12 | )% |
| ARPU                      |       | $                                                                                              | 49.80      |          | $          | 50.27          |       | $ | (0.47 | ) | (1 | )% |
| CPGA                      |       | $                                                                                              | 364        |          | $          | 381            |       | $ | (17 | ) | (4 | )% |

 
|                           | ** ** | **As of and for the Six Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                | ** ** | **2007**                                                                                     | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Total  Subscribers        |       | 612,000                                                                                      |       | 517,500       |       | 94,500         |       | 18 | % |
| Net Subscriber  Additions |       | 50,700                                                                                       |       | 23,900        |       | 26,800         |       | 112 | % |
| Churn                     |       | 2.2                                                                                          | %          | 2.5           | %          | (0.3           | )%         | (12 | )% |
| ARPU                      |       | $                                                                                            | 49.56      |          | $          | 50.18          |       | $ | (0.63 | ) | (1 | )% |
| CPGA                      |       | $                                                                                            | 368        |          | $          | 375            |       | $ | (7 | ) | (2 | )% |

 

***Net Subscriber Additions.***     For the periods ended June 30, 2007, strong handset promotions, an increasednumber of net ported-in subscribers from other wireless carriers, and anincrease of 15 exclusive co-branded dealer locations, helped to drive newsubscriber growth. The effectiveness of family add-a-phone plans helped toreduce churn, which coupled with the new subscriber growth contributed to theincreases in net subscriber additions in the periods ended June 30, 2007compared to the same periods in 2006.

***Churn.***     Thedecrease in churn for the periods ended June 30, 2007 was due to improvementsin both voluntary and involuntary (credit-related) deactivations. At June 30,2007 approximately 90% of our subscribers were under contract compared to 88%at June 30, 2006.

***Average Revenue Per User.***     We continue to experience decreasing voice revenue offset by increasing datarevenue. Average monthly voice revenue per subscriber decreased 7% for both thethree month and six month comparative periods from $41.08 and $41.15 in thethree and six months ended June 30, 2006 compared to $38.12 and $38.07 in thethree and six months ended June 30, 2007. These decreases can be largely attributed to the continued growth of thefamily add-a-phone plans.  While thesecustomers are not as likely to switch to another wireless company, or churn,their ARPU is lower due to the lower monthly recurring charge on add-a- phonerate plans.  Average monthly data revenueincreased from $9.09 and $8.81 in the three and six months ended June 30, 2006,respectively, to $10.75 and $10.93 for the three and six months ended June 30, 2007,respectively. Data revenue continues to increase due to the use of data cardsand the popularity of our data products, including text messaging, downloadingringers, music and games, sending and receiving pictures, playing games andbrowsing the Internet.

***Cost Per Gross Addition.***     Dueto increases in gross additions of 24% and 28% in the three and six monthsended June 30, 2007, respectively, compared to the same periods in 2006, fixedcosts per gross additions dropped $43 and $37 for the same periods,respectively.  Offsetting these decreasesin fixed costs per gross addition, the variable costs of commissions andsubsidy costs increased $26 and $30 per gross addition in the three and sixmonth periods ended June 30, 2007 compared to the same periods in 2006,respectively. At June 30, 2007, we operated 38 retail stores and managed 91 exclusiveco-branded dealers, compared to 38 retail stores and 76 exclusive co-brandeddealers at June 30, 2006.

***Reconciliation of Non-GAAP FinancialMeasures (All Revenues and Expenses in Thousands)***

Weutilize certain financial measures that are not calculated in accordance withGAAP to assess our financial performance. A non-GAAP financial measure isdefined as a numerical measure of financial performance that (a) excludesamounts, or is subject to adjustments that have the effect of excludingamounts, that are included in the comparable measure calculated and presentedin accordance with GAAP in the statement of income or statement of cash flows;or (b) includes amounts, or is subject to adjustments that have the effectof including amounts, that are excluded from the comparable measure socalculated and presented. The non-GAAP financial measures discussed in “—Resultsof Operations” are ARPU and CPGA. A description of each of these non-GAAPfinancial measures is provided in “—Definition of Operating Metrics.”

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The followingtables reconcile the non-GAAP financial measures with our consolidatedfinancial statements presented in accordance with GAAP, excluding subscriberdata:
|                      | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|----------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **           | ** ** | **2007**                                                              | ** ** | **2006**                                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ***ARPU***           |       |                                                                  |       |                                                                |       |   |   |   |   |
| Service revenue      |       | $                                                                     | 89,924     |                                                                | $          | 77,314 |   | $ | 174,945 |   | $ | 152,720 |   |
| Average  subscribers |       | 601,868                                                               |       | 512,677                                                             |       | 588,345 |   | 507,191 |   |
| ARPU                 |       | $                                                                     | 49.80      |                                                                | $          | 50.27 |   | $ | 49.56 |   | $ | 50.18 |   |

 

ARPU,which is utilized by most wireless companies to determine recurring monthlyrevenue on a per subscriber basis, is used by analysts and investors to comparerelative subscriber revenue across the wireless industry. We use ARPU to assistin evaluating past selling performance and the success of specific rate planpromotions. We also use ARPU as a basis to forecast future service revenues.
| ** **                                      | ** ** | **For the Three Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                                              | ** ** | **2006**                                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| ***CPGA***                                      |       |                                                                  |       |                                                                |       |   |   |   |   |
| Selling and  Marketing:                         |       | $                                                                     | 19,108     |                                                                | $          | 17,344 |   | $ | 39,682 |   | $ | 34,104 |   |
| plus: Equipment costs, net of cost of upgrades  |       | 8,968                                                                 |       | 6,386                                                               |       | 19,218 |   | 13,292 |   |
| less: Equipment revenue, net of upgrade revenue |       | (2,809                                                                | )          | (2,684                                                              | )          | (5,386 | ) | (5,105 | ) |
| less: Stock-based compensation expense          |       | (650                                                                  | )          | (198                                                                | )          | (797 | ) | (268 | ) |
| CPGA costs                                      |       | $                                                                     | 24,617     |                                                                | $          | 20,848 |   | 52,717 |   | 42,023 |   |
| Gross adds                                      |       | 67,688                                                                |       | 54,780                                                              |       | 143,346 |   | 112,165 |   |
| CPGA                                            |       | $                                                                     | 364        |                                                                | $          | 381 |   | $ | 368 |   | $ | 375 |   |

 

CPGA is utilized bymost wireless companies to determine their cost to acquire a new subscriber.CPGA is used by analysts and investors to compare us to other wirelesscompanies. We use CPGA to evaluate past selling performance, the success ofspecific promotions and as a basis to determine the amount of time we mustretain a new subscriber before we recover this cost. In addition, we use CPGAas a basis for budgeting.

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***Revenues.***

Thefollowing tables set forth a breakdown of revenues by type:
| ** **                                                                         | ** ** | **For the Three Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2007**                                                              | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                     | 89,924     |          | $          | 77,314         |       | $ | 12,610 |   | 16 | % |
| Roaming revenue from  subscribers of Sprint PCS and other PCS affiliates of Sprint |       | 33,059                                                                |       | 34,442        |       | (1,383         | )          | (4 | )% |
| Roaming revenue from  other wireless carriers                                      |       | 3,004                                                                 |       | 2,292         |       | 712            |       | 31 | % |
| Reseller revenue                                                                   |       | 3,973                                                                 |       | 2,799         |       | 1,174          |       | 42 | % |
| Equipment and other  revenue                                                       |       | 3,273                                                                 |       | 3,526         |       | (253           | )          | (7 | )% |
| Total revenues                                                                     |       | $                                                                     | 133,233    |          | $          | 120,373        |       | $ | 12,860 |   | 11 | % |

 
| ** **                                                                         | ** ** | **For the Six Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                                                         | ** ** | **2007**                                                            | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Service revenue                                                                    |       | $                                                                   | 174,945    |          | $          | 152,720        |       | $ | 22,225 |   | 15 | % |
| Roaming revenue from  subscribers of Sprint PCS and other PCS affiliates of Sprint |       | 59,576                                                              |       | 63,159        |       | (3,583         | )          | (6 | )% |
| Roaming revenue from  other wireless carriers                                      |       | 5,341                                                               |       | 4,380         |       | 961            |       | 22 | % |
| Reseller revenue                                                                   |       | 8,080                                                               |       | 5,621         |       | 2,459          |       | 44 | % |
| Equipment and other  revenue                                                       |       | 6,144                                                               |       | 6,978         |       | (834           | )          | (12 | )% |
| Total revenues                                                                     |       | $                                                                   | 254,086    |          | $          | 232,858        |       | $ | 21,228 |   | 9 | % |

 

·                    ***Service revenue.***   Service revenue is comprised of themonthly recurring charges for voice and data usage and the monthlynon-recurring charges for voice and data minutes over plan, long distance,roaming usage charges, other feature revenues and late payment fee and earlycancellation fee revenues. Deductions for billing adjustments and promotionalcredits are recorded as a reduction to service revenue. Increases in averagesubscribers were attributable for $13.5 million and $24.4 million of theincreases in revenue for the three and six month periods, respectively.  These increases were offset by decreases of$0.9 million and $2.2 million due to the decreases in ARPU for the sameperiods, respectively.

·                    ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.***   We receive revenue on a per minutebasis for voice traffic and per kilobyte basis for data traffic whensubscribers of Sprint PCS and other PCS Affiliates of Sprint use ournetwork.  In addition, we receive toll revenue for any long distance callsmade by these subscribers while roaming on our network.  For the periods ended June 30, 2006, thereciprocal roaming rate was $0.058 per minute for voice traffic ($0.10 perminute in certain markets in eastern and western Pennsylvania) and $0.002 perkilobyte for data traffic.  For theperiods ended June 30, 2007, the reciprocal rate was $0.0403 per minute for voicetraffic ($0.10 per minute in certain markets in eastern and westernPennsylvania) and $0.001 per kilobyte for data traffic  For the three and six months ended June 30,2007 compared to the three and six months ended June 30, 2006, voice roamingrevenue from subscribers of Sprint PCS and other PCS Affiliates of Sprint,including related toll revenue, decreased by $4.7 million and $8.6 million,respectively, due mainly to the decrease in the rate.  Data roaming revenue increased by $3.3million and $5.0 million for the three and six month periods, due mainly toincreases in data usage of 162% and 157%, respectively, offset by a decrease inthe rate. We continue to experience increased growth in kilobyte data usagefrom subscribers of Sprint PCS and other PCS Affiliates of Sprint as more subscribersutilize data products with their handsets and air cards. Roaming minutes fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint wereessentially unchanged at 0.4 billion and 0.8 billion for the three and sixmonths ended June 30, 2007 and 2006, respectively.  Roaming kilobytes from subscribers ofSprint PCS and other PCS Affiliates of Sprint for the three and six monthsended June 30, 2007 were 9.4 billion and 15.7 billion, respectively, comparedto 3.6 billion and 6.1 billion for the three and six months ended June 30,2006, respectively.

·                    ***Roaming revenue from other wirelesscarriers.***   We receiveroaming revenue from wireless carriers other than Sprint and other PCSAffiliates of Sprint when subscribers of such other wireless carriers roam inour territory. We do not have agreements with these other wireless carriers.Instead, we rely on roaming arrangements Sprint PCS 

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has negotiated with them. We are paid on a per minute basis for voicetraffic pursuant to these agreements.  For the three and six months endedJune 30, 2007 compared to the three and six months ended June 30, 2006, roamingrevenue from other wireless carriers increased by $0.7 million and $1.0million, respectively.  For the three and six months ended June 30, 2007,roaming minutes were 55.4 million and 97.7 million, respectively, comparedto 21.1 million and 40.1 million for the same periods in 2006.  The average per minute rate decreased from$0.11 per minute for the three and six months ended June 30, 2006 to $0.05 perminute for the three and six months ended June 30, 2007.  Roaming minutes increased while the averageper minute rate decreased due mainly to a new roaming agreement Sprint signedwith Alltel in mid-2006.  This agreementhas increased the number of roaming minutes we receive from Alltel, but at arate significantly lower than what we had received in the first half of 2006.

·                    ***Reseller revenue.***   Through Sprint PCS we allow resellers,known as MVNOs, such as Virgin Mobile, to use our network. Pursuant to thesearrangements, we are paid on a per minute and per kilobyte basis. The three andsix months increases primarily reflect increases in reseller subscribers andincreased ARPU per reseller subscriber. At June 30, 2007, we had approximately 248,700 reseller subscriberscompared to approximately 183,400 at June 30, 2006.  For the three and six months ended June 30,2007 reseller ARPU was $5.34 and $5.54, respectively, compared to $5.07 and$5.14 for the three and six months ended June 30, 2006, respectively.

·                     ***Equipment and other revenue.***   Equipment and other revenue is derivedprimarily from the sale of handsets and accessories to new customers and fromcurrent customers who upgrade their handsets through our retail and localdistribution channels, in each case, net of sales incentives, rebates and anallowance for returns. Through June 18, 2006, our handset return policy allowedcustomers to return their handsets for a full refund within 14 days afterthe date of purchase. With respect to handsets sold after such date, we allowcustomers to return their handsets for a full refund within 30 days after thedate of purchase. This change was consistent with the change in Sprint’s returnpolicy.  Decreases in equipment and otherrevenue for the three and six month periods reflect higher promotionaldiscounts for upgrades.

***Operating and Non-Operating Expenses.***

Thefollowing tables set forth a breakdown of selected operating and non-operatingexpenses by type:
| ** **                     | ** ** | **For the Three Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                     | ** ** | **2007**                                                              | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service  and roaming   |       | $                                                                     | 78,739     |          | $          | 68,630         |       | $ | 10,109 |   | 15 | % |
| Cost of  equipment             |       | 12,770                                                                |       | 9,868         |       | 2,902          |       | 29 |   |
| Selling and  marketing         |       | 19,108                                                                |       | 17,344        |       | 1,764          |       | 10 |   |
| General and  administrative    |       | 8,670                                                                 |       | 5,737         |       | 2,933          |       | 51 |   |
| Depreciation and  amortization |       | 19,625                                                                |       | 22,403        |       | (2,778         | )          | (12 | ) |
| Interest expense               |       | 9,128                                                                 |       | 7,896         |       | 1,232          |       | 16 |   |
| Debt extinguishment  costs     |       | 30,501                                                                |       | —        |       | 30,501         |       | — |   |
|                                |            |                                                                       |            |               |            |                |            |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Six Months Ended June 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|--------------------------------|------------|---------------------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                     | ** ** | **2007**                                                            | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| Cost of service  and roaming   |       | $                                                                   | 152,154    |          | $          | 133,651        |       | $ | 18,503 |   | 14 | % |
| Cost of  equipment             |       | 25,949                                                              |       | 19,397        |       | 6,552          |       | 34 |   |
| Selling and  marketing         |       | 39,682                                                              |       | 34,104        |       | 5,578          |       | 16 |   |
| General and  administrative    |       | 15,597                                                              |       | 12,868        |       | 2,729          |       | 21 |   |
| Depreciation and  amortization |       | 39,057                                                              |       | 46,306        |       | (7,249         | )          | (16 | ) |
| Interest expense               |       | 17,098                                                              |       | 16,017        |       | 1,081          |       | 7 |   |
| Debt extinguishment  costs     |       | 30,501                                                              |       | —        |       | 30,501         |       | — |   |
|                                |            |                                                                     |            |               |            |                |            |  |  |  |  |  |

 

***Cost of Service and Roaming.***   Cost of service and roaming includesnetwork operations expense, roaming expense relating to when our subscribersroam either on other Sprint PCS networks or other wireless carriers’ networks,expense for back-office customer services provided by Sprint PCS, bad debtexpense, long distance expense, the 8% 

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affiliation fee due toSprint PCS for collected revenues and stock-based compensation expense. Networkoperations expenses include salaries and benefits for network personnel, cellsite rent, utilities and maintenance expenses, fees relating to the connectionof our cell sites to our switches and other transport and facility expenses.Roaming expense is our cost of our subscribers using Sprint PCS and otherwireless carriers’ networks. Roaming expense on the Sprint PCS network is atthe reciprocal rates as described above under “—Roaming revenue fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint.” Roamingexpense when our subscribers use other wireless carriers networks is at ratesas determined by the roaming agreements signed by Sprint PCS with theseother wireless carriers. Of the increases for the two periods, $3.2 million and$6.1 million, or 32% and 33%, of the total increase, respectively, was due tohigher per user fees charged by Sprint for back-office customer service,reflecting higher average subscribers coupled with an increase in rates chargedby Sprint between 2007 and 2006. Effective January 1, 2007, this rate increased from $6.75 per subscriberper month to $7.50 per subscriber per month. In the three and six months endedJune 30, 2007 compared to the same 2006 periods, bad debt expense increased$1.9 million and $3.1 million, respectively, due to a higher number ofsub-prime credit subscribers, an overall deterioration of our customer aging,higher average write-offs per subscriber and lower recoveries as a percentageof write-offs.  Roaming expense increased$0.3 million and $1.4 million for the three and six month periods,respectively; however voice roaming expense with Sprint decreased $3.7 million and $7.1 million, respectively, dueto the decrease in the reciprocal rate with Sprint, while data roaming expenseincreased $3.7 million and $8.2 million, respectively, due to 231% and 254%increases in kilobyte usage in the three and six months ended June 30, 2007compared to this same period in 2006. The remaining increase was due to the related costs of servicing alarger network and larger subscriber base.

At June 30, 2007,our network consisted of 1,656 leased cell sites and five switches.  At June 30, 2006, our network consisted of1,524 leased cell sites and five switches.

***Cost of equipment.***   Cost of equipment includes the cost ofhandsets and accessories sold or upgraded from our retail and localdistribution channels. Cost of equipment for new activations increased $2.6million and $5.9 million, or 40% and 45%, respectively, in the three and sixmonths ended June 30, 2007 compared to the same period in 2006 reflectingincreases of 38% and 43%, respectively, in new activations from our retail andlocal distribution channels. The remaining increase was due to higher equipmentcosts related to upgrades.

***Selling and marketing.******  ***Sellingand marketing expense includes the costs to operate our retail stores,advertising and promotional expenses, commissions, equipment subsidies andrebate expenses relating to new subscriber additions from national thirdparties and other Sprint-controlled channels and stock-based compensationexpense.  The increases for the three andsix month periods were primarily due to higher costs related to handset subsidiesfrom our indirect channels, and commissions and fees paid for each new activation,all of which totaled $2.3 million and $5.5 million, respectively.  These increases were a direct result ofincreases in gross subscriber additions in the three and six months ended June30, 2007 compared to the same periods of 2006. For the three and six monthsended June 30, 2007 compared to the three and six months ended June 30, 2006,salaries and benefits increased $0.3 million and $0.8 million, respectively,due to additional employees hired to support the growth in our exclusivebranded dealer channels during 2006. These increases were offset by decreases in promotional expenses for thethree and six month periods in 2007 as compared to the same periods in 2006.  Stock-based compensation expense included inselling and marketing totaled approximately $0.6 million and $0.8 millionfor the three and six months ended June 30, 2007 compared to $0.2 million and$0.3 million for the three and six months ended June 30, 2006.  Included in the stock-based compensationexpense for the 2007 periods was $0.4 million relating to stock optionmodifications in connection with the special cash dividend paid in May 2007(see Note 8, Stock-Based Compensation, of the “Notes to UnauditedConsolidated Financial Statements” in this Form 10-Q).

***General and administrative.******  ***Generaland administrative expenses include administrative salaries and benefits, legalfees, insurance expense, other professional expenses and stock-basedcompensation expenses.  Results for the three and six months ended June30, 2007 included approximately $0.4 million and $1.1 million, respectively, inSprint litigation expenses.  Thiscompares to $2.0 million and $5.1 million for the three and six months endedJune 30, 2006, respectively.  Stock-based compensation expense included in general and administrativeexpense totaled approximately $3.9 million and $5.6 million for the threeand six months ended June 30, 2007, compared to $0.6 million and $1.0 millionfor the three and six months ended June 30, 2006.  Included in the stock-based compensationexpense for the 2007 periods was $3.1 million relating to stock optionmodifications in connection with the special cash dividend paid in May2007.  Additionally, the six months endedJune 30, 2007 includes $0.6 million related to a modification to option awardagreements held by our former chief operating officer in connection with hisseparation in January 2007 (see Note 8, Stock-Based Compensation, of the“Notes to Unaudited Consolidated Financial Statements” in this Form 10-Q).  In the six months ended June 30, 2007, wealso incurred $0.5 million of severance expense related to this separation.

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***Depreciation and amortization.******  ***Amortizationof intangible assets totaled $7.6 million and $15.1 million for thethree and six months ended June 30, 2007, respectively, compared to $9.5million and $19.0 million for the three and six months ended June 30, 2006,decreases of $1.9 million and $3.9 million for the two respective periods.  At December 31, 2006, the intangible assetrelated to the iPCS Wireless subscriber base was fully amortized whichdecreased the amortization in 2007. Depreciation expense totaled $12.0 millionand $23.9 million for the three and six months ended June 30, 2007 compared to$12.9 million and $27.3 million for the three and six months ended June 30,2006, decreases of $0.9 million and $3.4 million for the respectiveperiods.  During the three and six monthsended June 30, 2006, we recorded accelerated depreciation expense of $0.7million and $2.8 million, respectively, due to a reduction in the remaininguseful lives of Motorola equipment being replaced in the Pennsylvania,Maryland, New York and New Jersey markets.

***Interest expense.***   Priorto April 23, 2007, interest expense consisted of interest on our 11-1/2% seniornotes and 11-3/8% senior notes, totaling $290.0 million in principal, includingnormal amortization of financing costs, net of capitalized interest andamortization of the fair value adjustment for the 11-3/8% senior notes.  Since April 23, 2007, interest expenseconsists of interest on our SecuredNotes (see Liquidity and Capital Resources below), totaling $475.0million in principal, including normal amortization of financing costs, net ofcapitalized interest.  The increase ininterest expense in the three and six month periods primarily reflects higherborrowings under the Secured Notes than under the 11-1/2% senior notes and 11-3/8%senior notes.  These higher borrowingswere partially offset by a lower average interest rate on the newly issuedLIBOR-based Secured Notes of 7.89% than on the fixed rate notes.

***Debt extinguishment costs. ***Debt extinguishment costs represent expenses recognized during thethree months ended June 30, 2007 in connection with the repurchase of ouroutstanding 11-1/2% and 11-3/8% notes. In the three months ended June 30, 2007, we recorded approximately $34.2million of expense related to the tender offer premium and consent payments onthe tender offering, approximately $7.3 million of expense related to the writeoff of the remaining deferred financing fees for the repurchased notes andapproximately $10.9 million as a reduction to interest expense to reflect theaccelerated amortization of the remaining unamortized balance of the purchaseprice fair value allocation to the 11-3/8% notes recorded in July 2005 relatedto the Horizon PCS merger.

**Liquidityand Capital Resources**

On April 23, 2007, we closed our offering of $475.0million in aggregate principal amount of senior secured  notes, consisting of $300.0 million inaggregate principal amount of First Lien Senior Secured Floating Rate Notes due2013 (“First Lien Notes”) and $175.0 million in aggregate principal amount ofSecond Lien Senior Secured Floating Rate Notes (“Second Lien Notes” due 2014and together with the First Lien Notes, the “Secured Notes”) in a privateplacement transaction pursuant to Rule 144A and Regulation S under theSecurities Act of 1933, as amended. The Secured Notes are senior securedobligations and are unconditionally guaranteed on a senior secured basis by allof our existing and future domestic restricted subsidiaries.  The First Lien Notes are secured by a firstpriority security interest, subject to permitted liens, in substantially all ofour and our subsidiary guarantor assets. The Second Lien Notes are secured by a second priority securityinterest, subject to permitted liens, in the collateral.

Interest on the First Lien Notes accrues at anannual rate equal to three-month LIBOR plus 2.125% and is payable quarterly incash on February 1, May 1, August 1 and November 1 of each year, commencing onAugust 1, 2007.  Interest on the SecondLien Notes accrues at an annual rate equal to three-month LIBOR plus 3.25% andis payable quarterly on February 1, May 1, August 1 and November 1 of eachyear, commencing on August 1, 2007. Following the first interest payment on August 1, 2007, we may elect topay interest on the Second Lien Notes entirely in cash or entirely byincreasing the principal amount of the Second Lien Notes (“PIK Interest”).  PIK Interest on the Second Lien Notes accruesat an annual rate equal to three-month LIBOR plus 4.0%.  Three-month LIBOR for the Secured Notesresets on February 1, May 1, August 1 and November 1 of each year, commencingon August 1, 2007.  The initialthree-month LIBOR was set for the Secured Notes on April 23, 2007 at 5.36% andreset on August 1, 2007 at 5.36%.

We used a portion of the proceeds of the Secured Notes offering torepurchase all of our outstanding 11-1/2% notes and 11-3/8% notes, as well asto pay the related fees and expenses of the offering.  We also used the remaining net proceeds fromthe Secured Notes offering, together with approximately $58.0 millionof our available cash, to pay a special cash dividend to common stockholders.On April 26, 2007, our Board of Directors declared a special cash dividend of$11.00 per share, approximately $187.0 million in the aggregate, payable to allholders of record of our common stock on May 8, 2007.  Of this, approximately $186.5 million was paid on May 16, 2007.

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We are completely dependent on available cash on hand and operating cashflow to operate our business and fund our capital needs.  We believe our available cash and operatingcash flow will be sufficient to operate our business and fund our capital needsfor the foreseeable future.  However, ourliquidity is dependent on a number of factors influencing our forecast ofearnings and operating cash flows, including those discussed below in -“RecentTrends, Risks and Uncertainties That May Affect Operating Results, Liquidityand Capital Resources”.

***Significant Sources of Cash***

We generated$6.2 million in operating cash flows for the six months ended June 30,2007, compared to $17.4 million for the six months ended June 30, 2006, adecrease of $11.2 million. For the six months ended June 30, 2007, net loss, asadjusted for the exclusion of debt extinguishment costs and non-cash items,provided $20.6 million of cash.  Thiscompares to $24.2 million for the six months ended June 30, 2006.  For the six months ended June 30, 2007,changes in Sprint related working capital used cash of $1.2 million and changesin non-Sprint related working capital used cash of $13.2 million, reflectingincreased sales, timing of interest payments in connection with the repurchaseof our senior notes as well as a general deterioration in our customeraging.  For this same period 2006, Sprintrelated working capital used $4.8 million and non-Sprint related workingcapital used $2.0 million as a result of increased sales.

We received $475.0million in proceeds from the Secured Notes offering during the six months endedJune 30, 2007.

For the six monthsended June 30, 2007 we received $3.1 million in proceeds from the exercise ofoptions representing approximately 179,600 shares.   This compares to $1.1 million in proceedsfrom the exercise of options representing approximately 49,300 shares in thesix months ended June 30, 2006

In addition, wereceived approximately $0.3 million and $1.0 million from the sale of usedequipment during the six months ended June 30, 2007 and 2006, respectively,

***Significant Uses of Cash***

Cash flows usedfor investing activities for the six months ended June 30, 2007 included$19.9 million for capital expenditures.  Included in this total were$17.4 million for new cell site construction and other network-relatedcapital expenditures including $9.5 million for EVDO Rev. A equipment, and$2.5 million for new stores, store improvements, IT and othercorporate-related capital expenditures.

Cash flows usedfor investing activities for the six months ended June 30, 2006 included$20.5 million for capital expenditures. Included in this total was $15.9 million for the Nortel swap in ourHorizon PCS markets, $2.5 million for new cell site construction and otherrelated network capital expenditures, and $2.1 million for new stores, storeimprovements, IT and other corporate-related capital expenditures.

As discussedabove, we used $290.0 million to repurchase all of our outstanding 11-1/2%notes and 11-3/8% notes during the six months ended June 30, 2007.  In connection with the repurchase, we paid$34.2 million in tender premium payments during the six months ended June 30,2007.  Similarly, we used $8.0 million topay the related fees and expenses of the Secured Notes offering during the sixmonths ended June 30, 2007.

During the sixmonths ended June 30, 2007, we used $186.5 million for our special cashdividend to common stockholders as discussed above.

Principal paymentson the Secured Notes discussed above are not due until 2013 and 2014. However, we expect that our annual cash interest payments will increase as aresult of the larger principal amount of the Secured Notes.  In addition, the interest rates on our newnotes are variable, and the amount of our interest payments will be impacted bya change in interest rates.  In July 2007,we entered into an interest rate swap agreement that effectively fixes theinterest rate related to the $300.0 million First Lien of the Secured Notes at7.47% for three years starting August 1, 2007 (see Note 11, SubsequentEvent, of the “Notes to Unaudited Consolidated Financial Statements” in thisForm 10-Q).

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***Recent Trends, Risks and Uncertainties ThatMay Affect Operating Results, Liquidity and Capital Resources***

We have identifiedthe following important trends and factors (as well as risks and uncertaintiesassociated with such items) that could impact our future financialperformance.  This section should be read in conjunction with the “RisksRelated to Our Business, Strategy and Operations” section found in Item 1Aof Part I of our annual report on Form 10-K, filed with the SEC onMarch 16, 2007, as updated by our risk factors included in Item 1A of Part IIof our quarterly report on Form 10-Q filed with the SEC on May 10, 2007.

·        Aswe have accelerated our subscriber additions in 2007, we have incurredsignificant upfront subscriber acquisition expenses (including customer handsetsubsidies, commissions and promotional expenses) that have contributed toincreased losses and reduced levels of cash flows from operating activities. Inthe three and six months ended June 30, 2007, we incurred $3.8 million and $10.7million, respectively, more of subscriber acquisition costs compared to thesame periods in 2006 due to 24% and 28% more gross additions,respectively.  To the extent we continueto accelerate our subscriber additions, we will continue to incur increasedacquisition expenses.  Alternatively, wemay choose to slow, or be unable to maintain, our subscriber growth, which maymake it more difficult for us to obtain sufficient revenue to achieve andsustain profitability.

·        While our churn decreasedin the three and six months ended June 30, 2007 compared to the same period in2006, it is still higher than our competition. Our churn may increase in the future due to credit-relateddeactivations, increased competitive advertising, the relative attractiveness ofcompetitors’ phones, pricing plans and customer service, as well as continuingbrand confusion related to the Sprint Nextel merger.  If churn continuesto remain high or increases over the long-term, we would lose the cash flowsattributable to these subscribers and have greater than projected losses.

·         The voice portion of ARPU continues to decrease.  Competition in the wireless industry remainsintense as more competitors enter the market via MVNO or other relationshipswith existing carriers, or through the acquisition of new wireless spectrum,such as the FCC’s Advanced Wireless Services (AWS) spectrum auction in 2006 andadditional auctions of spectrum. Unlimited minute and pre-paid plans, neither of which we currentlyoffer, also continue to increase in popularity, offering consumers morealternatives.  Accordingly, incumbentcarriers, including us, may incur higher per subscriber acquisition expensesand/or offer more aggressive rate plans in order to maintain or achievesubscriber growth.  We expect to seecontinued pressure in pricing in the future as a result of this increasedcompetition and, among other things, an increased focus on family plans.Although we believe that family plans improve churn, these plans tend to lowervoice revenue on a per subscriber basis. Although increases in the data portionof ARPU continues to partially offset the decrease in voice ARPU, and isexpected to continue to do so, declining voice ARPU resulting in lower overallARPU will make it more difficult to obtain sufficient revenue to achieve orsustain profitability.

·         While our cost per gross addition, or CPGA, decreased in 2007 ascompared to the prior year periods, we may experience higher costs to acquiresubscribers in the future. To the extent that we increase our distribution, wewill increase the fixed costs in our sales and marketing organization. Also,more aggressive promotional efforts have led, and may continue to lead, tohigher handset subsidies.  In addition,we may increase our marketing expenses and pay higher commissions in an effortto attract and acquire new subscribers. With a higher CPGA, subscribers mustremain our subscribers for a longer period of time at a stable ARPU for us torecover those acquisition costs.

·          Our operating costs continue to increase and may continue to increasein the future due to, among other reasons:

·                  Higher bad debt expense due to ahigher number of sub-prime credit subscribers, an overall deterioration of ourcustomer aging, higher average write-offs per subscriber and lower recoveriesas a percentage of write-offs;

·                  Higher handset subsidy and other retentionexpenses for existing subscribers who upgrade to a new handset as part of ourpromotional efforts to reduce churn;

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·                  Higher back office expenses due to the largernumber of subscribers served and an increase in the per subscriber fees weincur for certain back office services we obtain from Sprint, as discussedbelow in “—Commitments and Contingencies;” and

·                  Higher roaming expenses, primarily relatedto the growth in outbound roaming kilobytes reflecting increased usage of dataapplications and expanded coverage of Sprint’s 3G network.

At the same time, a portionof our ongoing network and general and administrative expenses are fixed. Webelieve that we need to add more subscribers to recognize increased economiesof scale in our business. If we are unable to add more subscribers or continueto improve the efficiencies in our operating costs, results will be negativelyaffected.

·         A substantial portion of our revenue (approximately 25% and 23% for thethree and six months ended June 30, 2007, respectively) is derived from roamingrevenue from subscribers of Sprint PCS based outside our territory. Despite anincrease in roaming data kilobytes of use, our roaming revenue from Sprint PCSfor the periods ended June 30, 2007 was negatively impacted by a lowerreciprocal roaming rate that went into effect on January 1, 2007. Inaddition, there has been a significant slow down in Sprint PCS’s subscribergrowth during the past two years which has further adversely affected ourroaming revenue from Sprint PCS, thereby impacting our overall ratioof inbound to outbound roaming. This ratio declined in the first half of2007 as compared to the same period in 2006. We expect it to continue to decline in the future, as well. If wereceive less roaming traffic on our network, our results of operations will benegatively affected.

·        As we continue to add capacity and coverage and to upgrade our PCSnetwork, we incurred approximately $19.9 million in capital expenditures forthe six months ended June 30, 2007.  Weanticipate that total capital expenditures for the full year 2007 will bebetween $38.0 million and $42.0 million, of which, approximately $10.0 millionwill be spent for EVDO Rev. A deployment. Prior to 2007, we have deployed EV-DOtechnology in a small portion of our service area. During the first half of2007 we have selectively deployed EV-DO Rev. A technology but we may decide to expandour deployment during the year which may significantly increase our anticipatedcapital expenditures and operating expenses beyond our current plans.Unforeseen changes in technology and changes in our plans to upgrade or expandour network may require us to spend more money than we expected and have anegative effect on our cash flow.

·        Our revenue from customersof resellers, or MVNO’s, continues to increase, growing more than 40% in thethree and six months ended June 30, 2007 as compared to the prior yearperiods.  Resellers, such as Virgin,Qwest and Embarq, are subject to a number of risks, including high churn, highbad debt expense, increased competition, dependence on fourth quarter grossadditions and reliance, in many cases, on specific segments of the market, forexample, the youth segment.  We are notparty to the underlying agreements that the resellers have with Sprint Nexteland therefore are unable to set prices or otherwise monitor the performance ofthe reseller.  If any reseller, particularlyVirgin, has a disruption in its business plan, experiences financialdifficulties or ceases to grow or service its customer base, we may lose therelated revenue and it may make it more difficult for us to obtain sufficientrevenue to achieve and sustain profitability.

·         We rely on Sprint for anumber of important functions, including but not limited to, customer service,billing, long-distance transport services, national network operations,support, inventory logistics support, national advertising, productdevelopment, and financial information. Failure of Sprint to provide these andother services on a timely and cost efficient manner would negatively impactour results of operations. Sprint may also make decisions that could reduce ourrevenues, increase our expenses and/or our capital expenditure requirements andmake our affiliate relationships with Sprint less advantageous than expected.For example, effective January 1, 2007, the rate that we pay for certainback-office functions that we purchase from Sprint increased by approximately10%. See “—Commitments and Contingencies” below.

·         We may not be able toaccess the credit or equity markets for additional capital if the liquiditydiscussed above is not sufficient for the cash needs of our business. If theneed for additional capital arises due to our actual results differingsignificantly from our business plan or for any other reason, we may be unableto raise additional capital.

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***Commitments and Contingencies***

A substantialportion of our revenue is derived from roaming revenue when subscribers ofSprint PCS and other PCS Affiliates of Sprint roam onto our network.  Effective January 1, 2007, the roaming ratepaid to us by Sprint PCS and other PCS Affiliates of Sprint for voice is $0.043per minute of use for the majority of our markets, and for data is $0.001 perkilobyte in all of our markets.  This compareswith roaming rates in 2006 of $0.058 minute for voice and $0.002 per kilobyte.These rates were fixed through December 31, 2006 and, now will change annuallyto equal 90% of Sprint PCS’s retail yield for voice usage and data usage fromthe prior year.   Such a reduction in thereciprocal roaming rates may have a material adverse effect on ourbusiness.  We strongly disagree withSprint’s estimated new roaming rates and, pursuant to the terms of ouraffiliation agreements, may elect to submit the matter to arbitration orlitigation if necessary.  If the matteris submitted to an arbitration panel and the arbitration panel imposes a ratedifferent than the one then in effect, the new rate would be retroactivelyapplied to the appropriate period. However, in the meantime, we began payingthe new rates on January 1, 2007 and we continue to engage in discussionswith Sprint to reach a negotiated settlement.

We purchasecertain customer-related back-office services, such as customer billing andcustomer care, from Sprint PCS pursuant to our affiliation agreement withSprint PCS.  Depending on the type ofservice provided, we incur these costs on either a per user basis (these servicesare referred to as “CCPU services”) or on a per gross subscriber addition basis(these services are referred to as “CPGA services”).  The total cost for these services is recordedas an operating expense.  For the threeand six months ended June 30, 2007, CCPU expenses were approximately $13.7million and $26.7 million, respectively, and CPGA expenses wereapproximately $1.3 million and $2.8 million, respectively.  Because weincur these costs on a per subscriber basis, we expect the aggregate cost forsuch services to increase as the number of our subscribers increases.  Ouraffiliation agreements with Sprint PCS set the monthly rate per subscribercharged to us by Sprint for the CCPU services at $7.25 during 2004, $7.00 for2005 and $6.75 for 2006, and the per gross addition rate for the CPGA services for2004 through 2006 at $23.00 for iPCS Wireless and $22.00 for Horizon.  Our affiliation agreements with Sprint PCSprovide that, beginning on January 1, 2007, the monthly rate for these servicesis reset by Sprint PCS to the amount necessary to recover Sprint PCS’sreasonable costs for providing such services. Effective January 1, 2007, the costs we incur for the CCPU servicesincreased from $6.75 per average monthly subscriber to $7.50 for 2007, $7.09for 2008 and $6.81 for 2009, and the costs we incur for the CPGA servicesdecreased to $20.09 for 2007, $19.41 for 2008 and $18.58 for 2009. Ouraffiliation agreements provide that, if we disagree with Sprint on its proposednew rates, we have the right to obtain the back-office services from a thirdparty, self-provide the services or submit the determination of the new ratesto arbitration.  We strongly disagreewith Sprint’s new rates and, pursuant to the terms of our affiliationagreements, on December 8, 2006 we submitted the determination of the newrates to binding arbitration before the International Institute for ConflictPrevention and Resolution. A three-judge panel has been selected and theparties are engaged in discovery. We currently expect that a hearing before thepanel will occur next year.  If thearbitration panel imposes a rate different than the one then in effect, the newrate would be retroactively applied to the appropriate period.  However, in the meantime, as of January 1, 2007,we are required to pay the new higher rate and we continue to engage indiscussions with Sprint to reach a negotiated settlement.

Although SprintPCS has not done so, it may elect to terminate any service provided under ourservices agreements upon nine months’ prior written notice, but if we wouldlike to continue receiving such service, Sprint PCS has agreed that it willassist us in developing that function internally or locating a third-partyvendor that will provide that service. Although Sprint PCS has agreed in suchan event to reimburse us for expenses we incur in transitioning to any serviceinternally or to a third-party, if Sprint PCS terminates a service for which wehave not developed or are unable to develop a cost-effective alternative, ouroperating costs may increase beyond our expectations and our operations may beinterrupted or restricted. We do not currently have a contingency plan ifSprint PCS terminates a service we currently receive from it.

On July 15, 2005,iPCS Wireless, Inc., a wholly owned subsidiary of iPCS, Inc., filed a complaintagainst Sprint and Sprint PCS in the Circuit Court of Cook County, Illinois. OnJuly 22, 2005, Horizon Personal Communications, Inc. and Bright PersonalCommunications Services, LLC, wholly owned subsidiaries of iPCS, Inc., filed acomplaint against Sprint and Sprint PCS and Nextel Communications, Inc. in theCourt of Chancery of the State of Delaware, New Castle County. The complaintsallege, among other things, that following the consummation of the mergerbetween Sprint and Nextel, Sprint will breach its exclusivity obligations underour affiliation agreements, as amended. We sought, among other things, atemporary restraining order (a TRO), a preliminary injunction and a permanentinjunction enjoining Sprint and those acting in concert with it from engagingin certain conduct post-closing that would violate our affiliation agreementswith Sprint PCS.

On July 28, 2005,iPCS, Inc. and certain of its wholly owned subsidiaries entered into aForbearance Agreement with Sprint relating to the complaints filed againstSprint. The Forbearance Agreement sets forth our agreement that we would notseek a TRO or a preliminary injunction against Sprint so long as Sprintoperates the Nextel business subject to the 

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limitations set forth inthe Agreement.  Although the ForbearanceAgreement expired on January 1, 2006 in the territory managed by iPCS Wirelessand on August 4, 2006 in the territory managed by Horizon Personal Communicationsand Bright Personal Communications Services, Sprint committed to continue toabide by the terms of the Forbearance Agreement in the territory managed iPCSWireless during the pendency of Sprint’s appeal of the Illinois court(discussed below).

The trial in theDelaware court began in January 2006.  OnAugust 4, 2006, the Delaware court issued its decision and, on September 7,2006 issued a final order and judgment effecting its decision. The final orderand judgment provides that:

·                  Sprint willviolate the implied duty of good faith and fair dealing if it offers iDENproducts and services using the same Sprint brand and marks that plaintiffs(Horizon Personal Communications and Bright Personal Communications Services)have used or are using in connection with their sale of Sprint PCS Products andServices (the “Sprint pcs brand and/or marks”) or a brand or mark confusinglysimilar to the Sprint pcs brand or marks in plaintiffs’ Service Areas.  Sprint may re-brand the legacy Nextel storesin plaintiffs’ Service Areas, but it must do so in a way that does not create alikelihood of confusion in the minds of consumers as to the sponsor of thestore or which products and services are available in it, and it may not usethe new Sprint logo.

·                  Withinplaintiffs’ Service Areas, Sprint and those acting in concert with it areenjoined from:

·                  offeringiDEN products and services that use the same or confusingly similar brands ormarks as the Sprint pcs brand or marks; provided that Sprint is not enjoined orotherwise prohibited from conducting national advertising offering iDENproducts and services that use the same or similar brands and marks as theSprint pcs brands or marks, subject to appropriate disclaimers regardingavailability in certain markets; and

·                  re-brandingthe legacy Nextel stores with the new Sprint logo or the same or confusinglysimilar brands or marks as the Sprint pcs brand and marks.

·                  Inlight of certain operational and confidentiality representations made bySprint, plaintiffs’ claims and requests for relief against such future Sprintbehavior were deemed not ripe for adjudication and therefore denied.  If, however, Sprint in the future breachesthese representations, the court will promptly entertain a request forappropriate relief.

·                  Plaintiffs’claims for tortious interference and civil conspiracy against Nextel weredismissed with prejudice.

The trial in theIllinois court was held for 25 days between early March and early July2006.  On August 14, 2006, the Illinoiscourt issued its decision and on September 20, 2006 issued a final ordereffecting its decision.  The final orderprovides that:

·                  Within 180 daysof the date of the final order, Sprint and those acting in concert with it mustcease owning, operating, and managing the Nextel wireless network in iPCSWireless’s territory.

·                  Sprint shallcontinue to comply with all terms and conditions of the Forbearance Agreement.

On September 28,2006, Sprint appealed the ruling of the Illinois trial court to the AppellateCourt of Illinois, First Judicial District. In early October 2006, Sprint requested a stay of the Illinois trialcourt’s order pending appeal and an accelerated appeal.  On October 13, 2006, the Illinois appellatecourt denied Sprint’s request for an accelerated appeal and ordered a stay ofthe Illinois trial court’s order pending appeal on the condition that (i)Sprint continue to comply with the Forbearance Agreement and (ii) Sprint complywith the September 7, 2006 order of the Delaware court.  Accordingly, Sprint must comply with theForbearance Agreement, as well as the order of the Delaware court, in iPCSWireless’s territory pending a decision from the Illinois appellate court.

As of the datehearof, the parties have completed the briefing stage of the appeal and areawaiting the scheduling of oral arguments followed by a decision.  We expect a decision from the appellate courtas soon as later this year or early 2008.

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***Nortel Networks Equipment Agreement***

OnDecember 29, 2006, we signed a letter of agreement with Nortel Networks topurchase EV-DO Rev. A equipment and services totaling up to $17.1 million inthe aggregate. The $17.1 million commitment consists of a non-cancelablepurchase of $8.9 million of equipment and services and an option to purchase anadditional $8.2 million of equipment and services. Prior to December 31,2006 we submitted a non-cancelable purchase order for $8.9 million of equipmentand services and, therefore, have no further commitments under this letter ofagreement. However, if we elect to exercise our option to purchase any additionalequipment and services from Nortel Networks under this letter of agreement,then we are required to purchase the entire additional $8.2 million ofequipment and services. In addition, if we elect to exercise this option afterNovember 30, 2007, we will be required to pay an additional $1.0million.  As of June 30, 2007, we havepaid the full $8.9 million of this commitment and therefore have no furtherobligations under this agreement.

***Registration Rights Agreements***

In conjunctionwith the issuance of the Secured Notes, we entered into registration rightsagreements with the initial purchasers of the Secured notes.  Under the agreements, we accepted certainobligations with respect to registration of the Secured Notes with the SEC.  Failure to satisfy these obligations could resultin monetary damages due to the Secured Note holders during the period offailure.  If incurred, monetary damagescould aggregate $23,750 per week with respect to the first 90-day period offailure, and increase by $23,750 per week for each subsequent 90-day period offailure up to a maximum of $237,500 per week until our obligations under theseagreements have been satisfied.

**Off-Balance Sheet Arrangements**

For informationregarding off-balance sheet arrangements, see the caption “Off-Balance SheetArrangements” in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in the Company’s Annual Report onForm 10-K for the year ended December 31, 2006.  At June30, 2007, there had not been a material change to the off-balance sheetcontractual obligations disclosed in the Company’s Annual Report onForm 10-K for the year ended December 31, 2006.

**Seasonality**

Our business issubject to seasonality because the wireless telecommunications industryhistorically has been dependent on fourth calendar quarter results. Among otherthings, the industry relies on moderately higher subscriber additions andhandset sales in the fourth calendar quarter as compared to the other threecalendar quarters. A number of factors contribute to this trend, including: theuse of retail distribution, which is heavily dependent upon the year-endholiday shopping season; the timing of new product and service announcementsand introductions; competitive pricing pressures; and aggressive marketing andpromotions. In addition, our roaming revenue and roaming expense is subject toseasonality because of decreased travel of wireless subscribers into ourterritory during the winter months.

**CriticalAccounting Policies**

Our financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States and require us to select appropriate accountingpolicies.  The assumptions and judgments we use in applying our accountingpolicies have a significant impact on our reported amounts of assets,liabilities, revenue and expenses.  While we believe that the assumptionsand judgments used in our estimates are reasonable, actual results may differfrom these estimates under different assumptions or conditions.

We have identifiedthe most critical accounting policies upon which our financial statusdepends.  The critical policies were determined by considering accountingpolicies that involve the most complex or subjective decisions or assessments.We also have other policies considered key accounting policies; however, thesepolicies do not meet the definition of critical accounting policies becausethey do not generally require us to make estimates or judgments that arecomplex or subjective.  Our critical accounting policies include thefollowing:

·                    Revenuerecognition

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·                    Allowance fordoubtful accounts

·                    Long-livedasset recovery

·                    Intangibleassets

·                    Income taxes

·                    Stock-basedcompensation expense

Additionalinformation regarding these critical accounting policies can be found in the “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”section of our Annual Report on Form 10-K for the year ended December31, 2006, filed with the SEC on March 16, 2007.

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**ITEM3.****   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We do not engagein commodity futures trading activities. Although we entered into a derivative financial instrument transactionfor hedging purposes as discussed below, we do not enter into derivativefinancial instrument transactions for trading or other speculative purposes. Wealso do not engage in transactions in foreign currencies that could expose usto market risk.  Our exposure to marketrisk is limited primarily to the fluctuating interest rates associated withvariable rate indebtedness.  At June 30,2007, $475.0 million of our $475.5 of indebtedness was variable rateindebtedness.  In July 2007, we enteredinto an interest rate swap agreement that effectively fixes the interest rateon $300.0 million of this variable rate indebtedness at 7.47% for three yearsstarting August 1, 2007.  A prospectiveincrease of 100 basis points in the interest rate applicable to the remaining$175.0 million of variable rate indebtedness would result in an increase ofapproximately $1.8 million in our annual interest expense.

**ITEM4.****   CONTROLSAND PROCEDURES**

Each of our ChiefExecutive Officer and Chief Financial Officer has evaluated the effectivenessof our disclosure controls and procedures (as such term is defined inRules 13a-14(c) and 15d-14(c) under the Exchange Act) as of theend of the period covered by this quarterly report. Based on such evaluation,such officers have concluded that, as of the end of the period covered by thisquarterly report, our disclosure controls and procedures are effective inalerting them on a timely basis to material information relating to us(including our consolidated subsidiaries) required to be included in ourreports filed or submitted under the Exchange Act.

We place relianceon Sprint to adequately design its internal controls with respect to theprocesses established to provide financial information and other information tous and the other PCS Affiliates of Sprint. To address this issue, Sprintengages an independent registered public accounting firm to perform a periodicevaluation of these controls and to provide a “Report on Controls Placed inOperation and Tests of Operating Effectiveness for Affiliates” under guidanceprovided in Statement of Auditing Standards No. 70. This report isprovided bi-annually to us.

There have been nochanges in our internal control over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the quarter ended June 30, 2007 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

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**PART II.****   OTHER INFORMATION**

**ITEM1.****   LEGALPROCEEDINGS**

See  — “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Commitments and Contingencies” of this report.

In addition to theabove, from time to time, we are involved in various legal proceedings relatingto claims arising in the ordinary course of business.  We are not currently a party to any suchlegal proceedings, the outcome of which, individually or in the aggregate, isexpected to have a material adverse effect on our business, financial conditionor results of operations.

**ITEM1A.****   RISKFACTORS**

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A of our Annual Report on Form 10-K for the year ended December 31, 2006(as updated in Part II, Item 1A of our Quarterly Report on Form 10-Qfor the quarter ended March 31, 2007) and the other information in oursubsequent filings with the SEC, including this Quarterly Report onForm 10-Q. Our business, financial condition, results of operations andstock price could be materially adversely affected by any of these risks. Therisks described in our Annual Report on Form 10-K (as updated in Part II,Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31,2007) are not the only ones facing us. Additional risks and uncertainties thatare currently unknown to us or that we currently consider to be immaterial mayalso impair our business or adversely affect our financial condition, resultsof operations and stock price.

**ITEM2.****   UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM3.****   DEFAULTSUPON SENIOR SECURITIES**

None.

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**ITEM4.****   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

At our Annual Meeting of Stockholders held on June 12,2007, the stockholders voted on the following:

1.  The election of seven directors to our boardof directors:
| ** **           | ** ** | **For**    | ** ** | **Withheld** |
|----------------------|------------|------------|------------|--------------|
| Timothy G. Biltz     |       | 11,951,715 |       | 29,403       |
| Jeffrey W. Jones     |       | 11,951,715 |       | 29,403       |
| Ryan L. Langdon      |       | 11,963,810 |       | 17,308       |
| Kevin M. Roe         |       | 11,965,150 |       | 15,968       |
| Mikal J. Thomsen     |       | 11,934,564 |       | 46,554       |
| Timothy M. Yager     |       | 11,963,810 |       | 17,308       |
| Eric L.  Zinterhofer |       | 11,965,150 |       | 15,968       |

 

2.  The ratification of the appointment ofDeloitte & Touche LLP as our independent registered public accountingfirm for the year ending December 31, 2007:
| For        | ** ** | **Against** | ** ** | **Abstain** |
|------------|------------|-------------|------------|-------------|
| 11,975,958 |       | 5,160       |       | -0-         |

 

**ITEM5.****   OTHERINFORMATION**

None

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**ITEM 6.   EXHIBITS**
| 3.1    |   | Second Restated  Certificate of Incorporation of iPCS, Inc. (Incorporated by reference to  Exhibit 3.1 to the Form 8-K filed by iPCS, Inc. on  July 1, 2005)                                                                                                                                                                                                                                                                  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2    |   | Amended and  Restated Bylaws of iPCS, Inc. (Incorporated by reference to Exhibit 3.2  to the Form 10-Q filed by iPCS, Inc. on February 14, 2006)                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.3    |   | Certificate of  Incorporation of iPCS Wireless, Inc. (Incorporated by reference to  Exhibit 3.4 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.4    |   | Bylaws of iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 3.5 to the  Form S-4 filed by iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.5    |   | Certificate of  Incorporation of iPCS Equipment, Inc. (Incorporated by reference to  Exhibit 3.6 to the Form S-4 filed by iPCS, Inc. on  January 8, 2001)                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.6    |   | Bylaws of iPCS  Equipment, Inc. (Incorporated by reference to Exhibit 3.7 to the  Form S-4 filed by iPCS, Inc. on January 8, 2001)                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.7    |   | Articles of  Incorporation of Bright Personal Communications Services, LLC. (Incorporated  by reference to Exhibit 3.7 to the Form S-1 filed by  iPCS, Inc. on August 11, 2005)                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.8    |   | Bylaws of Bright  Personal Communications Services, LLC (Incorporated by reference to  Exhibit 3.8 to the Form S-1 filed by iPCS, Inc. on  August 11, 2005)                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.9    |   | Articles of  Incorporation of Horizon Personal Communications, Inc. (Incorporated by  reference to Exhibit 3.9 to the Form S-1 filed by iPCS, Inc.  on August 11, 2005)                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.10   |   | Bylaws of  Horizon Personal Communications, Inc. (Incorporated by reference to  Exhibit 3.10 to the Form S-1 filed by iPCS, Inc. on  August 11, 2005)                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1    |   | Amended and  Restated Common Stock Registration Rights Agreement, dated as of June 30,  2005, by and among iPCS, Inc., affiliates of Silver Point Capital,  affiliates of AIG Global Investment Corp., the Timothy M. Yager 2001 Trust,  Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P.  (Incorporated by reference to Exhibit 99.1 to the Form 8-K filed by  iPCS, Inc. with the SEC on July 1, 2005) |

 

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| 4.2    |   | First Lien  Indenture, dated as of April 23, 2007, by and among iPCS, Inc., the  Guarantors and U.S. Bank National Association, as trustee (Incorporated by  reference to Exhibit 99.3 to the Form 8-K filed by iPCS, Inc. on April 25,  2007)  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                            |
| 4.3    |   | Second Lien  Indenture, dated as of April 23, 2007, by and among iPCS, Inc., the  Guarantors and U.S. Bank National Association, as trustee (Incorporated by  reference to Exhibit 99.4 to the Form 8-K filed by iPCS, Inc. on April 25,  2007) |
|   |   |                                                                                                                                                                                                                                            |
| 31.1   |   | Certification of  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                            |
| 31.2   |   | Certification of  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                            |
| 32.1   |   | Certification of  the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002                                                        |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                                                   | iPCS, Inc. |
|---------------------------------------------------|-----------------|
|                                              |            |
|                                              | By:             | /s/  TIMOTHY M. YAGER |
|                                              |            | Timothy M.  Yager |
|                                              |            | President and  Chief Executive Officer  (Principal Executive Officer) |
|                                              |
| Date:    August 6, 2007  |
|                                              | By:             | /s/ STEBBINS B.  CHANDOR, JR. |
|                                              |            | Stebbins B.  Chandor, Jr. |
|                                              |            | Executive Vice  President and  Chief Financial Officer  (Principal Financial Officer) |
|                                              |
| Date:    August 6 , 2007 |

 

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