**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, 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, 2006**                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** **                                                                                           |
| **Or**                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| o                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** **                                                                                           |
| **For the  transition period from                                   to                                   ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                      |            |  |

 

**CommissionFile 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’stelephone number, including zip code)

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.
| Yes x  No o |
|---------------------------------|

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated  filer o | Non-accelerated  filer x |
|---------------------------|----------------------|--------------------------|

 

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

 

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court.
| Yes x  No o |
|---------------------------------|

 

As of July 28, 2006, there were 16,704,614 shares ofcommon stock, $0.01 par value per share, outstanding.

 

 

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**TABLE OF CONTENTS**
| PART I    |                                                                                                                         |   |
|----------------|------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                         |   |
| ITEM 1.        | FINANCIAL  INFORMATION                                                                                                       | 3      |
|           | FINANCIAL  STATEMENTS                                                                                                        | 3      |
|           | CONSOLIDATED  BALANCE SHEETS AS OF JUNE 30, 2006 AND SEPTEMBER 30, 2005 (UNAUDITED)                                     | 3      |
|           | CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE  MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005 (UNAUDITED) | 4      |
|           | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX  MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005 (UNAUDITED)             | 5      |
|           | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                                         | 6      |
| ITEM 2.        | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                                  | 17     |
| ITEM 3.        | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                  | 36     |
| ITEM 4.        | CONTROLS AND  PROCEDURES                                                                                                     | 36     |
|           |                                                                                                                         |   |
| PART II   | OTHER INFORMATION                                                                                                            | 37     |
|           |                                                                                                                         |   |
| ITEM 1.        | LEGAL PROCEEDINGS                                                                                                            | 37     |
| ITEM 1A.       | RISK  FACTORS                                                                                                                | 37     |
| ITEM 2.        | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                 | 37     |
| ITEM 3.        | DEFAULTS UPON  SENIOR SECURITIES                                                                                             | 37     |
| ITEM 4.        | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                         | 37     |
| ITEM 5.        | OTHER INFORMATION                                                                                                            | 37     |
| ITEM 6.        | EXHIBITS                                                                                                                     | 38     |
|           |                                                                                                                         |   |
| SIGNATURES     |                                                                                                                         | 40     |
|           |                                                                                                                         |   |
| CERTIFICATIONS |                                                                                                                         |   |

 

 

2

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**PART I.FINANCIAL INFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**iPCS, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

**(Dollars inthousands, except share and per share amounts)**

 
| ** **                                                                                                                                    | ** ** | **June 30,  2006** | ** ** | **September 30,  2005 (a)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|
|                                                                                                                                          |       |                    |       |                                  |       |
| **Assets**                                                                                                                                    | ** ** | ** **              | ** ** | ** **                            | ** ** |
| Current Assets:                                                                                                                               |       |                    |       |                                  |       |
| Cash and cash  equivalents                                                                                                                    |       | $                       | 109,815    |                                  | $          | 98,107 |   |
| Investments                                                                                                                                   |       | —                  |       | 16,700                                |       |
| Accounts receivable,  net of allowance for doubtful accounts of $4,287 and $3,653, respectively                                               |       | 27,301                  |       | 25,601                                |       |
| Receivable from Sprint  (Note 4)                                                                                                              |       | 46,297                  |       | 30,837                                |       |
| Inventories, net of  reserves for excess/obsolescence of $353 and $338, respectively (Note 4)                                                 |       | 5,016                   |       | 3,179                                 |       |
| Prepaid expenses                                                                                                                              |       | 5,958                   |       | 5,717                                 |       |
| Other current assets                                                                                                                          |       | 2,951                   |       | 4,092                                 |       |
| Total current  assets                                                                                                                         |       | 197,338                 |       | 184,233                               |       |
| Property and equipment,  net (Note 5)                                                                                                         |       | 140,811                 |       | 153,504                               |       |
| Financing costs                                                                                                                               |       | 8,435                   |       | 9,590                                 |       |
| Customer activation  costs                                                                                                                    |       | 2,357                   |       | 1,003                                 |       |
| Intangible assets, net  (Note 6)                                                                                                         |       | 150,332                 |       | 178,800                               |       |
| Goodwill (Note 6)                                                                                                                             |       | 146,391                 |       | 146,391                               |       |
| Other assets                                                                                                                                  |       | 370                     |       | 469                                   |       |
| Total assets                                                                                                                                  |       | $                       | 646,034    |                                  | $          | 673,990 |   |
|                                                                                                                                          |       |                    |       |                                  |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                | ** ** | ** **              | ** ** | ** **                            | ** ** |
| Current Liabilities:                                                                                                                          |       |                    |       |                                  |       |
| Accounts payable                                                                                                                              |       | $                       | 4,882      |                                  | $          | 4,322 |   |
| Accrued expenses                                                                                                                              |       | 28,325                  |       | 33,275                                |       |
| Payable to Sprint (Note  4)                                                                                                                   |       | 57,503                  |       | 41,135                                |       |
| Deferred revenue                                                                                                                              |       | 10,869                  |       | 10,486                                |       |
| Current maturities of  long-term debt and capital lease obligations (Note 7)                                                                  |       | 13                      |       | 17                                    |       |
| Total current  liabilities                                                                                                                    |       | 101,592                 |       | 89,235                                |       |
| Customer activation fee  revenue                                                                                                              |       | 2,357                   |       | 1,003                                 |       |
| Other long-term  liabilities                                                                                                                  |       | 9,011                   |       | 9,112                                 |       |
| Long-term debt and  capital lease obligations, excluding current maturities (Note 7)                                                          |       | 302,993                 |       | 304,558                               |       |
| Total  liabilities                                                                                                                            |       | 415,953                 |       | 403,908                               |       |
| Commitments and  contingencies (Note 10)                                                                                                      |       | —                  |       | —                                |       |
|                                                                                                                                          |       |                    |       |                                  |       |
| Stockholders’ Equity:                                                                                                                    |       |                    |       |                                  |       |
|                                                                                                                                          |       |                    |       |                                  |       |
| 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, 16,704,614 and 16,635,482  shares issued and outstanding, respectively |       | 167                     |       | 166                                   |       |
| Additional  paid-in-capital                                                                                                                   |       | 331,389                 |       | 328,202                               |       |
| Unearned compensation                                                                                                                         |       | —                  |       | (1,372                                | )          |
| Accumulated deficiency                                                                                                                        |       | (101,475                | )          | (56,914                               | )          |
| Total stockholders’  equity                                                                                                              |       | 230,081                 |       | 270,082                               |       |
| Total liabilities and stockholders’ equity                                                                                               |       | $                       | 646,034    |                                  | $          | 673,990 |   |

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(a)             Derivedfrom the Company’s audited financial statements as of September 30, 2005.

See Notes tounaudited consolidated financial statements.

 

3

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**iPCS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(Dollars inthousands, except per share data)**

 
| ** **                                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                          | ** ** | **June 30, 2006**                        | ** ** | **June 30, 2005**                      | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                                                          | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                                                       | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                     |       | $                                                  | 77,314     |                                             | $          | 41,307 |   | $ | 152,720 |   | $ | 80,401 |   |
| Roaming revenue                                                                     |       | 39,533                                             |       | 16,520                                           |       | 73,160 |   | 31,042 |   |
| Equipment and other                                                                 |       | 3,526                                              |       | 1,686                                            |       | 6,978 |   | 3,524 |   |
| Total revenues                                                                      |       | 120,373                                            |       | 59,513                                           |       | 232,858 |   | 114,967 |   |
| **Operating  Expenses:**                                                            | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of service and roaming (exclusive of  depreciation, as shown separately below) |       | (68,630                                            | )          | (31,750                                          | )          | (133,651 | ) | (62,165 | ) |
| Cost of equipment                                                                   |       | (9,868                                             | )          | (6,064                                           | )          | (19,397 | ) | (12,222 | ) |
| Selling and marketing                                                               |       | (17,344                                            | )          | (8,995                                           | )          | (34,104 | ) | (17,303 | ) |
| General and administrative                                                          |       | (5,737                                             | )          | (2,630                                           | )          | (12,868 | ) | (4,644 | ) |
| Depreciation (Note 5)                                                               |       | (12,913                                            | )          | (15,390                                          | )          | (27,327 | ) | (30,692 | ) |
| Amortization of intangible assets (Note 6)                                          |       | (9,490                                             | )          | (2,605                                           | )          | (18,979 | ) | (5,655 | ) |
| Loss on disposal of property and equipment                                          |       | (176                                               | )          | (41                                              | )          | (413 | ) | (73 | ) |
| Total operating expenses                                                            |       | (124,158                                           | )          | (67,475                                          | )          | (246,739 | ) | (132,754 | ) |
| **Operating  loss**                                                                 |       | (3,785                                             | )          | (7,962                                           | )          | (13,881 | ) | (17,787 | ) |
| Interest income                                                                     |       | 1,286                                              |       | 412                                              |       | 2,468 |   | 777 |   |
| Interest expense                                                                    |       | (7,896                                             | )          | (4,981                                           | )          | (16,017 | ) | (9,961 | ) |
| Other income                                                                        |       | 21                                                 |       | 6                                                |       | 54 |   | 10 |   |
| **Loss  before benefit from income taxes**                                          |       | (10,374                                            | )          | (12,525                                          | )          | (27,376 | ) | (26,961 | ) |
| Benefit from  income taxes                                                          |       | —                                             |       | —                                           |       | — |   | — |   |
| **Net  loss**                                                                       |       | $                                                  | (10,374    | )                                                | $          | (12,525 | ) | $ | (27,376 | ) | $ | (26,961 | ) |
|                                                                                |       |                                               |       |                                             |       |   |   |   |   |
| Basic and diluted loss per share of common stock                                    |       | $                                                  | (0.62      | )                                                | $          | (1.35 | ) | $ | (1.64 | ) | $ | (2.91 | ) |
| Weighted average  common shares outstanding                                         |       | 16,701,677                                         |       | 9,261,549                                        |       | 16,694,394 |   | 9,265,337 |   |

 

See Notes tounaudited consolidated financial statements.

4

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**iPCS, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)(Dollars in thousands)**

 
| ** **                                                                                                               | ** ** | **For the Six Months Ended** | ** ** | ** **                  |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-----------------------------|
| ** **                                                                                                               | ** ** | **June 30, 2006**                      | ** ** | **June 30, 2005** | ** ** | ** ** |
| **Cash Flows from Operating  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** **                  | ** ** | ** ** |
| Net loss                                                                                                                 |       | $                                                | (27,376    | )                           | $ | (26,961 | ) |   |
| Adjustments to  reconcile net loss to net cash flows from operating activities:                                          |       |                                             |       |                        |   |   |
| Loss on disposal of property and equipment                                                                               |       | 413                                              |       | 73                          |   |   |
| Depreciation and amortization                                                                                            |       | 46,306                                           |       | 36,347                      |   |   |
| Non-cash interest expense net of amortization of  debt fair value adjustment                                             |       | (325                                             | )          | 449                         |   |   |
| Stock-based compensation expense                                                                                         |       | 1,317                                            |       | 402                         |   |   |
| Provision for doubtful accounts                                                                                          |       | 3,836                                            |       | 346                         |   |   |
| Changes in  assets and liabilities:                                                                                      |       |                                             |       |                        |   |   |
| Accounts receivable                                                                                                      |       | (20                                              | )          | (4,375                      | ) |   |
| Receivable from Sprint                                                                                                   |       | (2,104                                           | )          | (787                        | ) |   |
| Inventories, net                                                                                                         |       | (1,433                                           | )          | 86                          |   |   |
| Prepaid expenses, other current and long term assets                                                                     |       | (448                                             | )          | (1,071                      | ) |   |
| Accounts payable, accrued expenses and other long  term liabilities                                                      |       | (1,337                                           | )          | 751                         |   |   |
| Payable to Sprint                                                                                                        |       | (2,702                                           | )          | (410                        | ) |   |
| Deferred revenue                                                                                                         |       | 1,234                                            |       | 569                         |   |   |
| Net cash flows from operating activities                                                                                 |       | 17,361                                           |       | 5,419                       |   |   |
| **Cash Flows from Investing  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** **                  | ** ** | ** ** |
| Purchases of property and equipment                                                                                      |       | (20,547                                          | )          | (7,290                      | ) |   |
| Proceeds from disposition of property and equipment                                                                      |       | 1,037                                            |       | 3,706                       |   |   |
| Net cash flows from investing activities                                                                                 |       | (19,510                                          | )          | (3,584                      | ) |   |
| **Cash Flows from Financing  Activities:**                                                                               | ** ** | ** **                                       | ** ** | ** **                  | ** ** | ** ** |
| Proceeds from the exercise of stock options                                                                              |       | 1,132                                            |       | 499                         |   |   |
| Stock purchased and retirements                                                                                          |       | —                                           |       | (1,626                      | ) |   |
| Payments on capital lease obligations                                                                                    |       | (5                                               | )          | (4                          | ) |   |
| Debt financing costs                                                                                                     |       | —                                           |       | (52                         | ) |   |
| Net cash flows from financing activities                                                                                 |       | 1,127                                            |       | (1,183                      | ) |   |
| Net increase (decrease) in cash and cash equivalents                                                                     |       | (1,022                                           | )          | 652                         |   |   |
| **Cash  and cash equivalents at beginning of period**                                                                    |       | 110,837                                          |       | 59,958                      |   |   |
| **Cash  and cash equivalents at end of period**                                                                          |       | $                                                | 109,815    |                        | $ | 60,610 |   |   |
|                                                                                                                     |       |                                             |       |                        |   |   |
| **Supplemental  disclosure of cash flow information- cash paid for interest**                                            |       | $                                                | 16,597     |                        | $ | 9,488 |   |   |
| **Supplemental disclosure for  non-cash investing activities:**                                                          | ** ** | ** **                                       | ** ** | ** **                  | ** ** | ** ** |
| Capitalized interest                                                                                                     |       | $                                                | 317        |                        | $ | — |   |   |
| Accounts payable  and accrued expenses incurred for the acquisition of property, equipment and  construction in progress |       | 3,484                                            |       | 2,388                       |   |   |

 

See Notes tounaudited consolidated financial statements.

 

5

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**iPCS, INC. ANDSUBSIDIARIESNOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**(1)  Businessand 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.

On July 1,2005, iPCS completed a merger with Horizon PCS, Inc. (“Horizon PCS”),another PCS Affiliate of Sprint, in which Horizon PCS merged with and intoiPCS, Inc., with iPCS, Inc. as the surviving corporation (see Note3). 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.

In February 2006,the Company changed its fiscal year-end from September 30 to December 31commencing in 2006. The Company’s 2005 fiscal year ended on September 30, 2005.

The unauditedconsolidated balance sheet as of June 30, 2006, the unaudited consolidatedstatements of operations for the three months and six months endedJune 30, 2006 and 2005, the unaudited consolidated statements of cashflows for the six months ended June 30, 2006 and 2005 and related footnoteshave been prepared in accordance with accounting principles generally acceptedin 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’s2005 Annual Report on Form 10-K which includes information and disclosuresnot presented herein. All significant intercompany accounts and transactionshave been eliminated in consolidation. In the opinion of management, theunaudited consolidated financial statements contain all of the adjustments,consisting only of normal recurring adjustments, necessary to present fairly,in summarized form, the consolidated financial position, results of operationsand cash flows of the Company. The results of operations for the three monthsand six months ended June 30, 2006, are not indicative of the results thatmay be expected for the full year 2006.

The PCS market ischaracterized by significant risks as a result of rapid changes in technologyand increasing competition. The Company’s continuing operations are dependentupon Sprint’s ability to perform its obligations under the affiliationagreements. In addition, the Company must be able to attract and maintain asufficient customer base and achieve satisfactory growth while successfullymanaging operations to generate enough cash from operations to meet futureobligations. Changes in technology, increased competition, or the inability toobtain required financing or achieve break-even operating cash flow, amongother factors, could have an adverse effect on the Company’s financial positionand results of operations.

Certainreclassifications have been made to the Consolidated Statement of Operationsfor the three months and six months ended June 30, 2005 to conform to thecurrent year presentation.

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

*LossPer Share:*

Basic and diluted lossper share for the Company are calculated by dividing the net loss by theweighted average number of shares of

6

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common stock of theCompany. The calculation was made in accordance with SFAS No. 128, “EarningsPer Share.” The basic and diluted loss per share are the same because theinclusion of the incremental potential common shares from any assumed exerciseof stock options is antidilutive. Potential common shares excluded from theloss per share computations as of June 30, 2006 and 2005 were 720,447 and578,250, respectively.

*New Accounting Pronouncements*

On**July 13, 2006, the Financial Accounting Standards Board (“FASB”)issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”), which is effective for fiscal years beginning after December 15,2006.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in the financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes”.  This Interpretation prescribes acomprehensive model for how a company should recognize, measure, present, anddisclose in its financial statements uncertain tax positions that the companyhas taken or expects to take on a tax return. The Company does not anticipate that the implementation of FIN 48 willhave a material impact on its financial position, results of operations andcash flows.

**(3) Merger with Horizon PCS**

On July 1,2005, the Company completed its tax-free stock for stock merger transactionwith Horizon PCS in which Horizon PCS merged with and into iPCS, Inc. withiPCS, Inc. as the surviving corporation. Horizon PCS was a PCS Affiliateof Sprint whose territory included 40 markets in nine contiguous states. Thetransaction was accounted for under the purchase method and the results ofHorizon PCS have been included in the Company’s consolidated financialstatements since the acquisition date.

The unaudited proforma condensed consolidated statement of operations for the three months andsix ended June 30, 2005, set forth below, present the results ofoperations as if the merger had occurred at the beginning of the respectiveperiod and are not necessarily indicative of future results or actual resultsthat would have been achieved had the acquisition occurred as of the beginningof such period.

 
| ** **                                        | ** ** | **For the Three Months  Ended  June 30, 2005** | ** ** | **For the Six Months  Ended  June 30, 2005** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                                              | ** ** | ** **                                                            | ** ** |
| Total revenues (in thousands)      |       | $                                                                       | 105,520    |                                                                  | $          | 203,938 | ** ** |
| Net loss (in  thousands)                          |       | (30,082                                                                 | )          | (56,550                                                               | )          |
| Basic and  diluted loss per share of common stock |       | $                                                                       | (1.85      | )                                                                     | $          | (3.48 | ) |
| Weighted average shares  outstanding              |       | 16,224,309                                                              |       | 16,228,097                                                            |       |

 

**(4) Sprint Agreements**

Under the Sprintagreements, Sprint provides the Company significant support services such ascustomer service, billing, long distance transport services, national networkoperations support, inventory logistics support, use of the Sprint and SprintPCS 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.

For each of thethree months and six months ended June 30, 2006 and 2005, approximately97% of the Company’s revenue was derived from data provided by Sprint. For thethree months ended June 30, 2006 and 2005, approximately 69% and 66%,respectively, of the Company’s cost of service and roaming was derived fromdata provided by Sprint. For the six months ended June 30, 2006 and 2005,approximately 68% and 70%, respectively, of the Company’s cost of service androaming was derived from data provided by Sprint. The Company reviews all chargesfrom Sprint and disputes certain of these charges in cases where the Companydoes not receive enough supporting detail to validate the charges or it doesnot believe Sprint can charge the Company for certain expenses under the termsof the Sprint agreements. At June 30, 2006 and September 30, 2005, theCompany had approximately $0.1 million in disputed charges.

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Amounts relatingto the Sprint agreements for the three months and six months ended June 30, 2006 and 2005are as follows (in thousands):
| ** **                                                          | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                          | ** ** | **June 30, 2006**                        | ** ** | **June 30, 2005**                      | ** ** | **June 30, 2006** | ** ** | **June 30. 2005** | ** ** |
| **Amounts included in the  Consolidated Statements of Operations:** | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                     |       | $                                                  | 77,314     |                                             | $          | 41,307 |   | $ | 152,720 |   | $ | 80,401 |   |
| Roaming revenue                                                     |       | $                                                  | 39,533     |                                             | $          | 16,520 |   | $ | 73,160 |   | $ | 31,042 |   |
| Cost of service and  roaming:                                       |       |                                               |       |                                             |       |   |   |   |   |
| Roaming                                                             |       | $                                                  | 25,434     |                                             | $          | 11,084 |   | $ | 48,520 |   | $ | 21,257 |   |
| Customer service                                                    |       | 10,940                                             |       | 5,840                                            |       | 21,619 |   | 11,236 |   |
| Affiliation fees                                                    |       | 6,077                                              |       | 3,292                                            |       | 12,129 |   | 6,378 |   |
| Long distance                                                       |       | 3,104                                              |       | 1,717                                            |       | 6,066 |   | 3,258 |   |
| Other                                                               |       | 1,515                                              |       | 965                                              |       | 2,965 |   | 1,692 |   |
| Total cost of  service and roaming                                  |       | $                                                  | 47,070     |                                             | $          | 22,898 |   | $ | 91,299 |   | $ | 43,821 |   |
| Cost of  equipment                                                  |       | $                                                  | 9,868      |                                             | $          | 6,064 |   | $ | 19,397 |   | $ | 12,222 |   |
| Selling and marketing                                               |       | $                                                  | 4,314      |                                             | $          | 1,801 |   | $ | 9,471 |   | $ | 3,960 |   |

 
| ** **                                                | ** ** | **June 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| **Amounts included in the  Consolidated Balance Sheets:** | ** ** | ** **                  | ** ** | ** **                       | ** ** |
| Receivable from Sprint                                    |       | $                           | 46,297     |                             | $          | 30,837 |   |
| Inventories, net                                          |       | 5,016                       |       | 3,179                            |       |
| Payable to Sprint                                         |       | 57,503                      |       | 41,135                           |       |
|                                                           |            |                             |            |                                  |            |  |  |

 

**(5) Property and Equipment**

Property andequipment consists of the following at June 30, 2006 andSeptember 30, 2005 (in thousands):
| ** **                                      | ** ** | **June 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| Network assets                                  |       | $                           | 186,839    |                             | $          | 177,200 |   |
| Computer  equipment                             |       | 3,847                       |       | 1,603                            |       |
| Furniture,  fixtures, and office equipment      |       | 6,580                       |       | 5,105                            |       |
| Vehicles                                        |       | 316                         |       | 396                              |       |
| Construction in  progress                       |       | 23,229                      |       | 10,105                           |       |
| Total property  and equipment                   |       | 220,811                     |       | 194,409                          |       |
| Less accumulated  depreciation and amortization |       | (80,000                     | )          | (40,905                          | )          |
| Total property and  equipment, net              |       | $                           | 140,811    |                             | $          | 153,504 |   |

 

On March 21, 2006,the Company amended the payment terms of the letter of agreement with NortelNetworks to replace the Motorola equipment currently deployed in the Company’sPennsylvania, New York, New Jersey and Maryland markets with Nortel equipment(see Note 10). 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 recorded in the three months and six months ended June30, 2006, respectively.

As a result of theCompany’s decision to replace the Lucent equipment in its Michigan markets withNortel equipment, the estimated remaining useful life of the Lucent  equipment was shortened by approximately 3years.   In addition, on April 5, 2005,the Company signed an agreement with Teltech Communications, L.L.C (“Teltech”)to sell the Company’s Lucent equipment for approximately $4.3 million, whichadjusted the salvage value of the equipment. The effect of both of these changes resulted in additional depreciationexpense of approximately $6.8 million and $13.6 million in the three months andsix months ended June 30, 2005, respectively.

**(6) Intangible Assets and Goodwill**

As a result of theCompany’s reorganization in 2004 and in accordance with fresh-start accountingunder SOP 90-7, “Financial Reporting by Entities in Reorganization under theBankruptcy Code”, the Company revalued its assets to their estimated fairvalues and the Company recorded intangible assets of $19.8 millionrelating to the fair value of the customer base and $62.1 million relatingto the fair value of the right to provide service under the Sprint affiliationagreements.

8

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In connection withthe merger with Horizon PCS (see Note 3), the Company allocated portions of thepurchase price to identifiable intangible assets consisting of the right toprovide service under the Sprint affiliation agreements, the acquired customer base,and an FCC license for a small market in Ohio. The amount allocated to theright to provide service under the Sprint affiliation agreements, the customerbase and the FCC license was $67.0 million, $53.0 million, and $1.5 million,respectively. In addition, the excess of the purchase price over the fair valueof the net assets acquired, including these identifiable intangible assets,which totaled $146.4 million was recorded as goodwill. The goodwill is notdeductible for income taxes.

The intangible assetsrelating to the customer base are being amortized over the estimated averagelife of a customer of 30 months. The intangible assets for the right toprovide service under the Sprint affiliation agreements are being amortizedover the remaining term of the respective agreements. The FCC license wasdetermined to have an indefinite life as it is expected to be renewed withminimal effort and cost.

Theweighted average amortization period, gross carrying amount, accumulatedamortization and net carrying amount of intangible assets at June 30, 2006 andSeptember 30, 2005 are as follows (in thousands):
| ** **                                                        | ** ** | **June 30, 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 |   | (13,280 | ) | 113,241 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (36,365 | ) | 35,591 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (49,645 | ) | $ | 150,332 |   |

 
| ** **                                                        | ** ** | **September 30, 2005**                | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **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 |   | (6,399 | ) | 120,122 |   |
| Customer base                                                     |       | 30 months                                       |       | 71,956 |   | (14,778 | ) | 57,178 |   |
|                                                              |       | 117 months                                      |       | $ | 199,977 |   | $ | (21,177 | ) | $ | 178,800 |   |

 

The amortization expense for the three months endedJune 30, 2006 and 2005 was $9.5 million and $2.6 million, respectively. Theamortization expense for the six months ended June 30, 2006 and 2005 was$19.0 million and $5.7 million, respectively. Aggregate amortizationexpense relative to intangible assets for the periods shown will be as follows:
| **Year Ended December 31** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                      |       | $          | 37,958     |       |
| 2007                                      |       | 30,376     |       |
| 2008                                      |       | 9,176      |       |
| 2009                                      |       | 9,176      |       |
| 2010                                      |       | 9,176      |       |
| Thereafter                                |       | 71,949     |       |
| Total                                     |       | $          | 167,811    |       |

 

9

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**(7) Long-TermDebt**

Long-termdebt consists of the following at June 30, 2006 and September 30, 2005 (inthousands):
| ** **                                                                  | ** ** | **June 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| Senior notes 11-1/2%  $165 million due 2012                                 |       | $                           | 165,000    |                             | $          | 165,000 |   |
| Senior notes 11-3/8%  $125 million due 2012                                 |       | 125,000                     |       | 125,000                          |       |
| Unamortized fair  value adjustment for 11-3/8% senior notes                 |       | 12,614                      |       | 14,169                           |       |
| Capital lease  obligations                                                  |       | 392                         |       | 406                              |       |
| Total long-term  debt and capital lease obligations                         |       | 303,006                     |       | 304,575                          |       |
| Less: current  maturities                                                   |       | (13                         | )          | (17                              | )          |
| Long-term debt and  capital lease obligations, excluding current maturities |       | $                           | 302,993    |                             | $          | 304,558 |   |

 

In connection withthe merger of Horizon PCS (see Note 3), the allocation of the purchase priceresulted in an increase of the value of the 11-3/8% senior notes ofapproximately $14.7 million, which is recorded as long-term debt in theConsolidated Balance Sheets. This amount will be amortized over the remaininglife of the 11-3/8% senior notes as a reduction to interest expense. For thethree months and six months ended June 30, 2006, the reduction to interestexpense was approximately $0.5 million and $1.0 million,respectively. This amortization will not increase the principal amount due tothe 11-3/8% senior note holders or reduce the amount of interest owed to the 11-3/8%senior note holders.

The indenturesgoverning the $165.0 million in aggregate principal amount of 11-1/2%senior notes and the $125.0 million in aggregate principal amount of 11-3/8%senior notes contain covenants which restrict the Company’s ability to incuradditional indebtedness, merge, pay dividends, dispose of its assets, andcertain other matters as defined in the indentures. However, the senior notesare subordinated to all secured indebtedness of the Company to the extent ofthe assets securing such indebtedness, and to any indebtedness of subsidiariesof the Company that do not guarantee the senior notes. For the 11-3/8% seniornotes, interest is payable semi-annually in arrears on May 1 andNovember 1 to the holders of record on the immediately precedingApril 15 and October 15. For the 11-3/8% senior notes, interest ispayable semi-annually in arrears on July 15 and January 15, to theholders of record on the immediately preceding July 1 and January 1.

**(8) Income Taxes**

The Company’seffective income tax rate for the interim periods presented is based onmanagement’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 months or six months ended June 30, 2006 and 2005 as the net deferredtax asset 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.

**(9) Stock-Based Compensation**

The Company hastwo long-term incentive plans currently in place. The iPCS 2004 long-termincentive plan, as amended, (the “iPCS Plan”) was approved by the Company’sboard of directors as provided by the Company’s plan of reorganization. Underthe iPCS Plan, the Company may grant to employees, directors and consultants ofthe Company incentive and non-qualified stock options, stock appreciationrights, restricted and unrestricted stock awards and cash incentive awards. Thetotal number of shares that may be awarded under this plan is 1.25 millionshares of common stock. All of the stock options issued to date under the iPCSPlan have a ten-year life with vesting on a quarterly basis over four years foremployees and over one year for directors. The Horizon PCS long-term incentiveplan (the “Horizon Plan”) was assumed in connection with the merger withHorizon PCS (see Note 3). Under the Horizon Plan, the Company may grant optionsto employees and directors. All of the stock options issued under the HorizonPlan to date have a ten-year life and vest equally in six-month increments overthree years from the date of grant. The total number of shares that may begranted under the Horizon Plan is 762,227 shares of common stock.

EffectiveOctober 1, 2005, the Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 123R, “Share-Based Payment” utilizing the modifiedprospective method. Under SFAS No. 123R companies are required to recordcompensation expense for all share based payment award transactions measured atfair value. Under the modified prospective method SFAS No. 123R requirescompensation cost to be recognized for 1) all share-based compensation expensearrangements granted after the adoption date and 2) all remaining unvestedshare-based compensation arrangements granted prior to the adoption date. Priorperiods have not been restated. The Company uses the Black-Scholes model tovalue its stock option grants; however, there have been  no stock optiongrants since the Company adopted SFAS No. 123R.

10

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Thefollowing table shows stock-based compensation expense by type of share-basedaward for the three months and six months ended June 30, 2006 and 2005 includedin the consolidated statements of operations (in thousands):
| ** **                                                    | ** ** | **For the Three Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                    | ** ** | **June 30, 2006**                        | ** ** | **June 30, 2005**                      | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| Restricted stock                                              |       | $                                                  | 25         |                                             | $          | 24 |   | $ | 50 |   | $ | 47 |   |
| Amortization of  unearned compensation of stock option awards |       | 89                                                 |       | —                                           |       | 180 |   | — |   |
| Fair value  expense of stock option awards                    |       | 740                                                |       | 355                                              |       | 1,087 |   | 355 |   |
| Total stock-based  compensation                               |       | $                                                  | 854        |                                             | $          | 379 |   | $ | 1,317 |   | $ | 402 |   |

 

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                              |       | $                                                                                  | 0.2        |                                                                                     | 2.2        |   |
| Unearned  compensation of stock option awards |       | 0.4                                                                                |       | 1.3                                                                                      |       |
| Fair value  expense of stock option awards    |       | 3.7                                                                                |       | 2.1                                                                                      |       |
|                                               |            |                                                                                    |            |                                                                                          |            |  |

 

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, 2006**                        | ** ** | **June 30, 2005**                      | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| Cost of service  and roaming    |       | $                                                  | 31         |                                             | $          | 6 |   | $ | 62 |   | $ | 14 |   |
| Sales and  marketing            |       | 198                                                |       | 9                                                |       | 268 |   | 14 |   |
| General and  administrative     |       | 625                                                |       | 364                                              |       | 987 |   | 374 |   |
| Total stock-based  compensation |       | $                                                  | 854        |                                             | $          | 379 |   | $ | 1,317 |   | $ | 402 |   |

 

The following is a summary of optionsactivity under the Company’s long-term incentive plans for the six months endedJune 30, 2006:
| ** **                                   | ** ** | **Number of Options** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|-------------------------------------------|------------|
| Options  outstanding as of December 31, 2005 |       | 773,086                         |       | $                                         | 16.73      |   |
| Exercised                                    |       | (49,304                         | )          | 23.00                                     |       |
| Forfeited                                    |       | (3,335                          | )          | 23.00                                     |       |
| Options outstanding as  of June 30, 2006     |       | 720,447                         |       | $                                         | 16.28      |   |

 

Thefollowing is a summary of options outstanding and exercisable at June 30, 2006:
| ** **                              | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | ** **                   | ** ** | **Number  Outstanding**      | ** ** | **Weighted  Average  Remaining  Contractual  Life   (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value  (in  thousands)** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Remaining  Contractual  Life   (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value  (in   thousands)** | ** ** |
| $10.27                                  |       | 446,875                      |       | 8.05                         |       | $ | 10.27 |   |   |   | 213,125 |   | 8.05 |   | $ | 10.27 |   |   |   |
| $19.00                                  |       | 47,000                       |       | 8.15                         |       | 19.00 |   |   |   | 22,000 |   | 8.15 |   | 19.00 |   |   |   |
| $23.00-$25.60                           |       | 158,822                      |       | 8.33                         |       | 23.60 |   |   |   | 71,538 |   | 8.33 |   | 23.41 |   |   |   |
| $35.00-$40.50                           |       | 67,750                       |       | 9.06                         |       | 36.85 |   |   |   | 50,687 |   | 9.05 |   | 35.62 |   |   |   |
|                                    |       | 720,447                      |       | 8.22                         |       | $ | 16.28 |   | $ | 23,256 |   | 357,350 |   | 8.26 |   | $ | 17.03 |   | $ | 11,173 |   |
|                                         |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Prior toOctober 1, 2005, the Company applied APB Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations to account for itsemployee and director stock options. The Company did not record any stock-basedcompensation expense for stock option awards prior to October 1, 2005because all stock option awards were granted at fair market value; however,there were no stock option awards in the three months or six months ended June30, 2005.

11

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In connection withthe Company’s merger with Horizon PCS (see Note 3), the then Chairman of theBoard, Mr. James J. Gaffney, resigned from the Company’s board ofdirectors on June 30, 2005.  Effective asof such date, the Company amended Mr. Gaffney’s stock option award agreement toextend the termination date of his options from 90 days to 210 dayspost-resignation.  As a result of thisamendment, the Company recorded additional compensation expense of approximately$0.4 million for the three and six months ended June 30, 2005. The amount ofstock-based compensation expense was calculated using the intrinsic valuemethod.

As part of theCompany’s reorganization, the Company awarded Mr. Timothy M. Yager, the Company’sformer chief restructuring officer and current chief executive officer, 250,000stock and stock unit awards as consideration for facilitating the Company’semergence from bankruptcy.  Per the termsof this award agreement Mr. Yager was allowed to surrender shares to theCompany as repayment for his withholding obligations.  During the three months ended June 30, 2005,Mr. Yager surrendered approximately 46,000 shares as payment for his taxwithholding obligations of approximately $1.6 million related to the deliveryof the remaining 125,000 shares to Mr. Yager pursuant to the stock unit award.

Priorto the adoption ofSFAS No. 123R, the Company provided the disclosures required under SFASNo. 123 “Accounting for Stock-Based Compensation.”  For the threemonths and six months ended June 30, 2005, if compensation expense for thestock option grants had been determined on fair value at the grant dateconsistent with the requirements of SFAS No. 123, the Company’s net lossand net loss per common share would have been the pro forma amounts below:
| ** **                                                             | ** ** | **For the Three  Months Ended  June 30, 2005** | ** ** | **For the Six  Months Ended  June 30, 2005** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **Net  loss (in thousands):**                                          | ** ** | ** **                                                              | ** ** | ** **                                                            | ** ** |
| As reported                                                            |       | $                                                                       | (12,525    | )                                                                     | $          | (26,961 | ) |
| Plus non-cash stock compensation in accordance with  SFAS No. 123 |       | (351                                                                    | )          | (702                                                                  | )          |
| Pro forma                                                              |       | $                                                                       | (12,876    | )                                                                     | $          | (27,663 | ) |
| **Basic  and diluted loss per common share:**                          | ** ** | ** **                                                              | ** ** | ** **                                                            | ** ** |
| As reported                                                            |       | $                                                                       | (1.35      | )                                                                     | $          | (2.91 | ) |
| Pro forma                                                              |       | $                                                                       | (1.39      | )                                                                     | $          | (2.99 | ) |

 

**(10) Commitments and Contingencies**

*Commitments*

OnNovember 22, 2004, the Company signed a letter of agreement with NortelNetworks to replace the Company’s Lucent network equipment deployed in itsMichigan markets with Nortel equipment including one switch, 232 base stationsand various additional capacity and network equipment. Under the terms of theagreement, the Company is required to purchase equipment and services totalingapproximately $15.2 million and will receive special pricing on futurepurchases through December 31, 2007. As of March 31, 2006, the Company hadpurchased the $15.2 million of network equipment required under this agreement.Accordingly, the Company is not required to purchase additional equipment orservices under this agreement.

In addition, inJanuary 2005, Horizon PCS signed a letter of agreement for $14.0 millionwith Nortel Networks to replace the Motorola network equipment deployed in itsFort Wayne, Indiana, Chillicothe, Ohio, and Johnson City, Tennessee marketswith Nortel equipment including 390 base stations, various additional capacitygrowth and network equipment. Under the terms of the agreement, the Company isrequired to purchase equipment and services totaling $13.0 million andwill receive special pricing on future purchases through December 31, 2007. Asof December 31, 2005, the Company had purchased the $13.0 million ofequipment required under this agreement. Accordingly, the Company is notrequired to purchase additional equipment or services under this agreement.

12

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OnDecember 31, 2005, the Company signed a letter of agreement with NortelNetworks to replace the Company’s Motorola equipment currently deployed in itsPennsylvania, New York, New Jersey and Maryland markets with Nortel equipment.Under the terms of the agreement, the Company is required to purchase equipmentnecessary to replace 425 existing base stations and related networkinfrastructure, plus various additional equipment to support future networkfootprint and capacity expansion, totaling approximately $16.5 million, with anoption to purchase additional network capacity equipment totaling $0.5 million.On March 21, 2006, the Company amended the terms of this agreement acceleratingpayments for equipment totaling $4.0 million from 2007 to 2006. As of June 30,2006, the Company had purchased $12.0 million of the required $16.5 million ofequipment under this agreement. Accordingly, the Company is required topurchase an additional $4.5 million of equipment under this agreement.

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 complaintsare substantially similar and allege, among other things, that following theconsummation of the merger between Sprint and Nextel, Sprint will breach itsexclusivity obligations under its affiliation agreements, as amended, with theCompany (see Note 4). The Company sought, among other things, a temporaryrestraining order (a TRO), a preliminary injunction and a permanent injunctionenjoining Sprint and those acting in concert with it from engaging in certainconduct post-closing that would violate the Company’s affiliation agreementswith Sprint PCS.

On July 28, 2005,iPCS, Inc. and certain of its wholly owned subsidiaries entered into aForbearance Agreement (the “Agreement”) with Sprint relating to the complaintsfiled against Sprint. The Agreement sets forth the Company’s agreement that theCompany’s subsidiaries would not seek a TRO or a preliminary injunction againstSprint so long as Sprint operates the Nextel business subject to thelimitations set forth in the Agreement. The Agreement expired on January 1,2006 in the territory managed by iPCS Wireless, Inc., but remains in effect inthe legacy Horizon PCS territory until a ruling is issued in the Delaware Courtof Chancery.

The trial in theDelaware Court of Chancery occurred from January 9 to January 23, 2006 andclosing arguments were held on April 4, 2006. The Court continues to deliberatethe case and the Company expects a ruling in the near term.

The trial in CookCounty Circuit Court occurred from March 9 to July 10, 2006.  Post-trial briefing is expected to beconcluded by mid-August, after which time the Court will deliberate the caseand issue a ruling.  The Company expectsthe Court to issue a ruling in 2006.

Inaddition to the foregoing, from time to time, the Company is involved invarious legal 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.

(11)                                 Tower Sales

On September 4, 2004, the Company signed an agreement with TCP Communications,LLC (“TCP”) whereby the Company agreed to sell up to 92 of its owned towers toTCP.  The towers were priced individuallyand after the sale, the Company would lease space on the towers sold to TCP atrates and terms consistent with that of the Company’s existing leases.  On April 27, 2005, pursuant to the agreement,TCP notified the Company that it had elected to exclude 16 towers based on itsdue diligence and other customary closing conditions.  On June 14, 2005, the Company sold 8 towersto TCP for proceeds net of brokers fees of approximately $0.8 million andreceived additional proceeds of approximately $0.6 million related to priorsales from December, 2004.

On May 25, 2005, the Company signed an agreement with Global Tower, LLCwhereby the Company agreed to sell its remaining 16 towers to GlobalTower.  On June 29, 2005, the Companysold 10 towers to Global Tower for approximately $1.7 million.

 

13

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**(12) ConsolidatingFinancial Information**

The 11-1/2 %senior notes and the 11-3/8 % senior notes are fully, unconditionally and jointand severally guaranteed by the Company’s domestic restricted subsidiaries,including iPCS Wireless, Inc., iPCS Equipment, Inc., HorizonPersonal Communications, Inc., and Bright Personal CommunicationsServices, LLC, which are wholly owned subsidiaries of iPCS, Inc. Thefollowing consolidating financial information as of June 30, 2006 and September 30,2005 and for the three months and six months ended June 30, 2006 and 2005 ispresented for iPCS, Inc., iPCS Wireless, Inc., iPCSEquipment, Inc., Horizon Personal Communications, Inc., and BrightPersonal Communications Services, LLC (in thousands):

**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of June 30, 2006**
| ** **                                                        | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                        |       | $                  | —     |               | $          | 75,444              |       | $                         | —     |       | $          | 34,036           |       | $                      | 335        |   | $ | — |   | $ | 109,815 |   |
| Other current assets                                              |       | 135,819            |       | 53,711             |       | 32,515              |       | 85,512                    |       | 42,575     |       | (262,609         | )          | 87,523                 |       |
| Total current assets                                              |       | 135,819            |       | 129,155            |       | 32,515              |       | 119,548                   |       | 42,910     |       | (262,609         | )          | 197,338                |       |
| Property and equipment,  net                                      |       | —             |       | 63,722             |       | 9,963               |       | 51,715                    |       | 15,487     |       | (76              | )          | 140,811                |       |
| Goodwill and intangible  assets, net                              |       | —             |       | 55,103             |       | —              |       | 180,015                   |       | 61,605     |       | —           |       | 296,723                |       |
| Other non-current assets                                          |       | 5,239              |       | 1,478              |       | —              |       | 3,666                     |       | 779        |       | —           |       | 11,162                 |       |
| Investment in  subsidiaries                                       |       | 260,605            |       | —             |       | —              |       | —                    |       | —     |       | (260,605         | )          | —                 |       |
| Total assets                                                      |       | $                  | 401,663    |               | $          | 249,458             |       | $                         | 42,478     |       | $          | 354,944          |       | $                      | 120,781    |   | $ | (523,290 | ) | $ | 646,034 |   |
| Current liabilities                                               |       | $                  | 6,582      |               | $          | 214,195             |       | $                         | 20         |       | $          | 102,844          |       | $                      | 40,636     |   | $ | (262,685 | ) | $ | 101,592 |   |
| Long-term debt                                                    |       | 165,000            |       | 379                |       | —              |       | 105,193                   |       | 32,421     |       | —           |       | 302,993                |       |
| Other long-term  liabilities                                      |       | —             |       | 3,589              |       | —              |       | 7,472                     |       | 307        |       | —           |       | 11,368                 |       |
| Total liabilities                                                 |       | 171,582            |       | 218,163            |       | 20                  |       | 215,509                   |       | 73,364     |       | (262,685         | )          | 415,953                |       |
| Stockholders’ equity  (deficiency)                           |       | 230,081            |       | 31,295             |       | 42,458              |       | 139,435                   |       | 47,417     |       | (260,605         | )          | 230,081                |       |
| Total liabilities and stockholders’ equity (deficiency) |       | $                  | 401,663    |               | $          | 249,458             |       | $                         | 42,478     |       | $          | 354,944          |       | $                      | 120,781    |   | $ | (523,290 | ) | $ | 646,034 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Balance Sheetas of September 30, 2005**
| ** **                                                         | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Horizon  Per Com** | ** ** | **Bright** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|---------------------------|------------|------------|------------|------------------|------------|------------------------|------------|
| Cash and cash  equivalents                                         |       | $                  | —     |               | $          | 75,805              |       | $                         | —     |       | $          | 22,112           |       | $                      | 190        |   | $ | — |   | $ | 98,107 |   |
| Other current  assets                                              |       | 150,398            |       | 41,314             |       | 24,967              |       | 49,848                    |       | 23,720     |       | (204,121         | )          | 86,126                 |       |
| Total current  assets                                              |       | 150,398            |       | 117,119            |       | 24,967              |       | 71,960                    |       | 23,910     |       | (204,121         | )          | 184,233                |       |
| Property and equipment,  net                                       |       | —             |       | 72,503             |       | 15,256              |       | 48,476                    |       | 17,363     |       | (94              | )          | 153,504                |       |
| Goodwill and  intangible  assets, net                              |       | —             |       | 63,868             |       | —              |       | 195,056                   |       | 66,267     |       | —           |       | 325,191                |       |
| Other non-current  assets                                          |       | 5,912              |       | 1,033              |       | —              |       | 3,172                     |       | 945        |       | —           |       | 11,062                 |       |
| Investment in  subsidiaries                                        |       | 288,666            |       | —             |       | —              |       | —                    |       | —     |       | (288,666         | )          | —                 |       |
| Total assets                                                       |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |
| Current  liabilities                                               |       | $                  | 9,894      |               | $          | 220,007             |       | $                         | 29         |       | $          | 42,372           |       | $                      | 21,148     |   | $ | (204,215 | ) | $ | 89,235 |   |
| Long-term debt                                                     |       | 165,000            |       | 389                |       | —              |       | 106,381                   |       | 32,788     |       | —           |       | 304,558                |       |
| Other long-term  liabilities                                       |       | —             |       | 2,970              |       | —              |       | 6,946                     |       | 199        |       | —           |       | 10,115                 |       |
| Total liabilities                                                  |       | 174,894            |       | 223,366            |       | 29                  |       | 155,699                   |       | 54,135     |       | (204,215         | )          | 403,908                |       |
| Stockholders’  equity (deficiency)                            |       | 270,082            |       | 31,157             |       | 40,194              |       | 162,965                   |       | 54,350     |       | (288,666         | )          | 270,082                |       |
| Total liabilities and  stockholders’ equity (deficiency) |       | $                  | 444,976    |               | $          | 254,523             |       | $                         | 40,223     |       | $          | 318,664          |       | $                      | 108,485    |   | $ | (492,881 | ) | $ | 673,990 |   |

 

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**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 | ) |
|                                                      |            |                    |            |                    |            |                     |            |                           |            |            |            |                  |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of OperationsFor the Three Months Ended June 30, 2005**
| ** **                                           | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                       |       | $                  | —     |               | $          | 59,513              |       | $                | 1,327      |                   | $          | (1,327 | ) | $ | 59,513 |   |
| Cost of revenues                                     |       | —             |       | (39,177            | )          | —              |       | 1,326            |       | (37,851                | )          |
| Selling and marketing                                |       | —             |       | (9,056             | )          | —              |       | —           |       | (9,056                 | )          |
| General and  administrative                          |       | (516               | )          | (2,016             | )          | —              |       | —           |       | (2,532                 | )          |
| Depreciation and  amortization                       |       | —             |       | (16,614            | )          | (1,381              | )          | —           |       | (17,995                | )          |
| Gain (loss) on disposal  of property   and equipment |       | —             |       | (46                | )          | —              |       | 5                |       | (41                    | )          |
| Total operating  expenses                            |       | (516               | )          | (66,909            | )          | (1,381              | )          | 1,331            |       | (67,475                | )          |
| Other, net                                           |       | (4,968             | )          | (267               | )          | 672                 |       | —           |       | (4,563                 | )          |
| Loss in subsidiaries                                 |       | (7,045             | )          | —             |       | —              |       | 7,045            |       | —                 |       |
| Net income (loss)                                    |       | $                  | (12,529    | )                  | $          | (7,663              | )          | $                | 618        |                   | $          | 7,049 |   | $ | (12,525 | ) |

 

**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 OperationsFor the Six Months Ended June 30, 2005**
| ** **                                           | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------------|------------|
| Total revenues                                       |       | $                  | —     |               | $          | 114,967             |       | $                | 2,667      |                   | $          | (2,667 | ) | $ | 114,967 |   |
| Cost of revenues                                     |       | —             |       | (77,054            | )          | —              |       | 2,667            |       | (74,387                | )          |
| Selling and  marketing                               |       | —             |       | (17,303            | )          | —              |       | —           |       | (17,303                | )          |
| General and  administrative                          |       | (751               | )          | (3,892             | )          | (1                  | )          | —           |       | (4,644                 | )          |
| Depreciation and  amortization                       |       | —             |       | (33,556            | )          | (2,791              | )          | —           |       | (36,347                | )          |
| Gain (loss) on  disposal of property   and equipment |       | —             |       | (83                | )          | —              |       | 10               |       | (73                    | )          |
| Total operating expenses                             |       | (751               | )          | (131,888           | )          | (2,792              | )          | 2,677            |       | (132,754               | )          |
| Other, net                                           |       | (9,937             | )          | (540               | )          | 1,303               |       | —           |       | (9,174                 | )          |
| Loss in  subsidiaries                                |       | (16,283            | )          | —             |       | —              |       | 16,283           |       | —                 |       |
| Net income (loss)                                    |       | $                  | (26,971    | )                  | $          | (17,461             | )          | $                | 1,178      |                   | $          | 16,293 |   | $ | (26,961 | ) |

 

**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 |   |

 

**iPCS, Inc. and SubsidiariesCondensed Consolidating Statement of Cash FlowsFor the Six Months Ended June 30, 2005**
| ** **                                             | ** ** | **iPCS Inc.** | ** ** | **iPCS  Wireless** | ** ** | **iPCS  Equipment** | ** ** | **Eliminations** | ** ** | **iPCS  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|------------------------|------------|
| Operating  activities                                  |       | $                  | 1,294      |               | $          | 3,962               |       | $                | 153        |                   | $          | 10 |   | $ | 5,419 |   |
| Investing  activities                                  |       | —             |       | (3,421             | )          | (153                | )          | (10              | )          | (3,584                 | )          |
| Financing  activities                                  |       | (1,294             | )          | 111                |       | —              |       | —           |       | (1,183                 | )          |
| Increase in cash  or cash equivalents                  |       | —             |       | 652                |       | —              |       | —           |       | 652                    |       |
| Cash and cash  equivalents at beginning of period |       | —             |       | 59,958             |       | —              |       | —           |       | 59,958                 |       |
| Cash and cash  equivalents at end of period            |       | $                  | —     |               | $          | 60,610              |       | $                | —     |                   | $          | — |   | $ | 60,610 |   |

 

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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 or pressreleases issued by Sprint or Sprint PCS.

This quarterlyreport on Form 10-Q contains trademarks, service marks and trade names ofcompanies and organizations other than us. Other than with respect to SprintPCS, our use or display of other parties’ trade names, trademarks or productsis not intended to and does not imply a relationship with, or endorsement orsponsorship 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-Looking Statements**

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, liquidity and capitalresources 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 todiffer materially from our expectations, include, but are not limited to:

•                       ourdependence on our affiliation with Sprint;

•                       theimpact and outcome of our litigation against Sprint, Nextel and Sprint PCS, aswell as the impact and outcome of the other litigation involving Sprint, SprintPCS and another PCS Affiliate of Sprint;

•                       changesin Sprint’s affiliation strategy as a result of the Sprint/Nextel merger andSprint’s recent acquisitions of other PCS Affiliates of Sprint;

•                       theability of Sprint PCS to alter the terms of our affiliation agreements with it,including fees paid or charged to us and other program requirements;

•                       ourdependence on back office services, such as billing and customer care, providedby Sprint PCS;

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•                       potentialfluctuations in our operating results;

•                       changesor advances in technology in general, or specifically related to Sprint and itsaffiliates;

•                       competitionin the industry and markets in which we operate;

•                       ourability to attract and retain skilled personnel;

•                       ourpotential need for additional capital or the need for refinancing any existingindebtedness;

•                       ourpotential inability to expand our services and related products in the event ofsubstantial increases in demand for these services and related products;

•                       changesin government regulation;

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

•                       oursubscriber credit quality;

•                       thepotential for us to experience a continued high rate of subscriber turnover;

•                       inaccuraciesin our financial information provided to us by Sprint PCS;

•                       ourfailure to establish and maintain effective internal controls to satisfy therequirements of Section 404 of the Sarbanes-Oxley Act, which requiresannual management assessments of the effectiveness of internal control overfinancial reporting;

•                       ourrates of penetration in the wireless industry and in our territories;

•                       oursignificant level of indebtedness;

•                       adequacyof bad debt and other reserves;

•                       ouranticipated future losses;

•                       oursubscriber purchasing patterns;

•                       subscribersatisfaction with our network and operations, including with services, such asbilling and customer care, provided to us by Sprint;

•                       availabilityof an adequate supply of subscriber equipment to Sprint PCS and to usspecifically;

•                       risksrelated to future growth and expansion, including subscriber growth;

•                       generaleconomic and business conditions; and

•                       effectsof mergers and consolidations within the wireless telecommunications industry, particularlybusiness combinations involving Sprint Nextel or affiliates of Sprint Nextel,and unexpected announcements or developments from others in the wirelesstelecommunications industry.

**NewAccounting Pronouncements**

On July 13, 2006,the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN 48”), which is effective forfiscal years beginning after December 15, 2006. FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in the financialstatements in accordance with FASB Statement No.109, “Accounting for IncomeTaxes.” This Interpretation prescribes a comprehensive model for how a companyshould recognize, measure, present and disclose in its financial statementsuncertain tax positions that the company has taken or expects to take on a taxreturn.   We do not anticipate that theimplementation of FIN 48 will have a material impact on our financial position,results of operations and cash flows

Effective October 1,2005, we adopted Statement of Financial Accounting Standards No. 123R (“SFASNo. 123R”) using the modified prospective method. The adoption of thisstandard requires the recognition of compensation expense for all share basedpayment award transactions measured at fair value. Under the modifiedprospective method, SFAS No. 123R requires compensation cost to berecognized for 1) all share-based compensation expense arrangements grantedafter the adoption date and 2) all remaining unvested share-based compensationarrangements granted prior to the adoption date. Results for prior periods havenot been restated.

Prior toOctober 1, 2005, we applied APB Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations to account for our employeeand director stock options. We did not record any stock-based compensationexpense for stock option grants prior to October 1, 2005 because all stockoption awards were granted at fair market value.

For the threemonths and six months ended June 30, 2006, we recorded total stock-basedcompensation expense of approximately $0.9 million and $1.3 million,respectively, compared to approximately $0.4 million for both the three and sixmonths ended June 30, 2005. For more information regarding the impact of theadoption of SFAS No. 123R and the comparison of results of operations forthe three months and six months ended June 30, 2006 and 2005, see Note 9, “Stock-basedCompensation” in the notes to our consolidated financial statements foundelsewhere in this quarterly report on Form 10-Q.

 

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**Definitions of 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:

•        Net subscriber additions for theperiod represented is calculated as the gross new subscribers acquired in theperiod less the number of subscribers deactivated plus the net subscriberstransferred in or out of our markets during the period.

•        Average monthly churn is ameasure of the rate at which subscribers based in our territory deactivateservice on a voluntary or involuntary basis. We calculate average monthly churnbased on the number of subscribers deactivated during the period (net oftransfers out of our territory and those who deactivated within 30 days ofactivation) as a percentage of our average monthly subscriber base during theperiod divided by the number of months during the period.

•        ARPU, or average revenue peruser, is a measure of the average monthly service revenue earned fromsubscribers based in our territory. This measure is calculated by dividingsubscriber revenues in our consolidated statement of operations by the numberof our average monthly subscribers during the period divided by the number ofmonths in the period.

•        CPGA, or cost per gross addition,is a measure of the average cost we incur to add a new subscriber in ourterritory. These costs include handset subsidies on new subscriber activations,commissions, rebates and other selling and marketing costs. We calculate CPGAby dividing (a) the sum of cost of products sold less product salesrevenues associated with transactions with new subscribers, and selling andmarketing expenses, net of stock-based compensation expense, during themeasurement period, by (b) the total number of subscribers activated inour territory during the period.

•        Licensed population representsthe number of residents (usually expressed in millions) in the markets in ourterritory for 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.

•        Covered population represents thenumber of residents (usually expressed in millions) covered by our portion ofthe wireless network of Sprint. The number of residents covered by our networkdoes not represent the number of wireless subscribers that we serve or expectto serve 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 plansdesigned by Sprint PCS as well as local plans tailored to our markets. Ourportion of the PCS network of Sprint PCS is designed to offer a seamlessconnection with the wireless network of Sprint PCS. We market Sprint 

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PCS products and services through a number ofdistribution outlets located in our territory, including our company-ownedretail stores, exclusive co-branded dealers, major national retailers and localthird party distributors. Based on the 2000 population counts compiled by theU.S. Census Bureau adjusted by estimated growth rates from third partyproprietary demographic databases, as of June 30, 2006, our licensed territoryhad a total population of approximately 15.0 million residents, of whichour wireless network covered approximately 11.4 million residents. At June30, 2006, we had approximately 517,500 subscribers. We are headquartered inSchaumburg, Illinois.

We recognizerevenues from our subscribers for the provision of wireless telecommunicationsservices, proceeds from the sale of handsets and accessories through channelscontrolled by us and fees from Sprint PCS and other wireless service providersand resellers when their subscribers roam onto our network. Sprint PCS retains8% of all service revenue collected from our subscribers (not including productsales or roaming charges billed to our subscribers) and 8% of all feescollected from other wireless service providers and resellers when theirsubscribers roam onto our network. We report the amount retained by Sprint PCSas an operating expense. In addition, Sprint PCS bills our subscribers fortaxes, handset insurance and Universal Service Fund charges which we do notrecord. Sprint PCS collects these amounts from the subscribers and remits themto the appropriate entity.

As part of ouraffiliation agreements with Sprint PCS, we have contracted with Sprint to provideto us back-office services such as subscriber activation, handset logistics,billing, customer care and network monitoring services throughDecember 31, 2006. We elected to obtain these services from Sprint to takeadvantage of its economies of scale, to accelerate our build-out and marketlaunches and to lower our capital requirements. The cost for these services isprimarily on a per subscriber or per transaction basis and is recorded as anoperating expense. We have begun discussions with Sprint regarding the termsand conditions under which we would continue to purchase these services fromSprint after December 31, 2006, if at all.

***Reorganization***

OnFebruary 23, 2003, while we were wholly owned by AirGate, we filed forbankruptcy under Chapter 11 of the Bankruptcy Code. The decision to file wasbased on a combination of factors, including weakness in the wirelesstelecommunications industry and the economy generally. In addition, we hadexperienced a decline in liquidity and cash flow, making it difficult for us tocomply with our debt service obligations. We believe that actions taken bySprint—specifically, decreasing our roaming rate and imposing new and higherfees on us—were the primary reason for the decline in our liquidity.Accordingly, in connection with our bankruptcy filing, we filed a complaintagainst Sprint and Sprint PCS alleging that Sprint breached its affiliationagreements with us.  As a part of our approved plan of reorganization, allthen existing claims against Sprint, including those included in thatcomplaint, were settled.

During ourbankruptcy we operated our business and managed our assets asdebtors-in-possession, subject to the supervision of the bankruptcy court,without obtaining debtor-in-possession financing. This relief provided us thetime necessary to reorganize our business, which included slowing subscribergrowth to reduce our acquisition costs, increasing our focus on primesubscribers and aligning our operations through cost reductions to compete inour marketplace and to improve our financial results.

On July 9,2004, the bankruptcy court confirmed our plan of reorganization and the plan ofreorganization became effective on July 20, 2004. On the effective date wepaid a portion of the net proceeds from the senior notes issued in connectionwith our emergence to satisfy in full in cash our obligations to each of thelenders under our then existing senior secured credit facility and topermanently retire the loans thereunder. The remaining net proceeds from thesenior notes was used to satisfy all other secured claims, administrative andother priority claims and unsecured convenience claims and to pay fees andexpenses related to the reorganization, as well as for general corporatepurposes. Additionally, all of our subordinated claims were discharged and allof our then existing capital stock was cancelled. As a result of theconsummation of our reorganization, our senior secured credit facility has beenrepaid in full in cash and terminated, and our senior discount notes have beencancelled and the holders have received shares of our common stock.

***Merger with Horizon PCS, Inc.***

On July 1,2005, we completed our tax-free stock for stock merger transaction with HorizonPCS, Inc., in which Horizon PCS, Inc. merged with and intoiPCS, Inc. with iPCS, Inc. as the surviving corporation. HorizonPCS, Inc. was a PCS Affiliate of Sprint whose territory covered 40 marketsin nine contiguous states.  The transaction nearly doubled the size of ouroperations, thereby providing synergies in a number of operating andadministrative areas.  Based on covered population and total subscribers,we are now the largest PCS Affiliate of Sprint. The transaction was accountedfor under the purchase method and the results of Horizon PCS, Inc. areincluded in our consolidated results of operations from the date ofacquisition.

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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 with SprintPCS provides significant competitive advantages. In particular, we believe thatour affiliation agreements with Sprint PCS allow us to offer high quality,nationally branded wireless voice and data services for lower cost and lowercapital 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 amaterially adverse effect on our business. On December 15, 2004, Sprintannounced that it had signed a merger agreement with Nextel pursuant to whichSprint and Nextel would merge and combine their operations. Shortly afterannouncing the merger, Sprint also announced that it would pursue discussionswith the PCS Affiliates of Sprint—including us—directed toward a modificationof their affiliation agreements to address the implications of its merger withNextel. Although the parties engaged in discussions with respect to such amodification, no agreement has been reached.

As discussed in “—Commitmentsand Contingencies” below, we filed lawsuits against Sprint, Sprint PCS andNextel in July 2005 and entered into a Forbearance Agreement with Sprintlater that same month. In addition to our complaints, a number of other PCSAffiliates of Sprint also filed complaints against Sprint, Sprint PCS andNextel, including AirGate PCS (a wholly owned subsidiary of Alamosa Holdings,Inc.), UbiquiTel, Inc., U.S. Unwired, Inc., Gulf Coast Wireless, Inc.,Enterprise Communications Partnership and Northern PCS Services, LLC. Sprinthas acquired each of these other PCS Affiliates of Sprint, other than NorthernPCS.

The ForbearanceAgreement expired on January 1, 2006 in the territory managed by iPCSWireless, and continues until a decision is rendered by the Delaware Court ofChancery in the territories managed by Horizon PCS.  To our knowledge,Sprint has not yet changed its operations in the territory managed by iPCSWireless as a result of the expiration of the Forbearance Agreement onJanuary 1, 2006, and we do not know when they will change, if atall.  Similarly, we do not know how Sprint will operate inHorizon PCS’s territory after the date that any decision is rendered fromour trial in the Delaware Court of Chancery. Sprint may elect to operate thelegacy Nextel business in a manner that may have a material adverse effect onus. We do not know whether we will ultimately reach agreement with Sprint onmutually satisfactory terms for revised affiliation agreements. If we are ableto modify our affiliation agreements with Sprint, it is likely that any suchrevised affiliation agreements would materially change our business andoperations. We do not know the outcome of our pending litigation againstSprint. If we do not prevail, Sprint may engage in conduct that has a materialadverse effect on our business and operations. We intend to continue to enforceour rights to the fullest extent, but there is no assurance that we willprevail.

**ConsolidatedResults of Operations**

***For the Three Months Ended June 30, 2006 compared to theThree Months Ended June 30, 2005***

Results ofoperations for any periods less than one year are not necessarily indicative ofresults of operations for a full year.  In addition, results for the threemonths ended June 30, 2006 include results for the markets we acquired in ourmerger with Horizon PCS, Inc., which closed on July 1, 2005, and accordinglyare not comparable to the results of operations for periods prior to July 1,2005.

Managementuses several key performance metrics to analyze the operations of our business.Below is a table setting forth the metrics that we use for the relevant timeperiods:

|                           | ** ** | **As of and For the  Three Months Ended  June 30, 2006** | ** ** | **As of and For the  Three Months Ended  June 30, 2005** | ** ** |
|---------------------------|------------|--------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| Total  Subscribers        |       | 517,500                                                                                          |       | 271,000                                                                                          |       |
| Net Subscriber  Additions |       | 10,900                                                                                           |       | 11,800                                                                                           |       |
| Churn                     |       | 2.5                                                                                              | %          | 2.2                                                                                              | %          |
| ARPU                      |       | $                                                                                                | 50.27      |                                                                                             | $          | 51.91 |   |
| CPGA                      |       | $                                                                                                | 381        |                                                                                             | $          | 384 |   |

 

***Net Subscriber Additions.***     Netsubscriber additions decreased by 900, or 8%, in the three months endedJune 30, 

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2006 compared to the three months ended June 30,2005. The acquisition of Horizon PCS contributed net subscriber additions ofapproximately 6,800 for the quarter; however, in the legacy iPCS markets, netsubscriber additions of approximately 4,200 for the three months ended June 30,2006 decreased from approximately 11,800 for the three months ended June 30,2005, a decrease of approximately 64%.  We believe that, across ourterritory, we are experiencing both an increase in the number of subscribersdeactivating service and a slow down in gross additions due to our recenteffort to de-emphasize “family add-a-phone” plans, increased competitiveadvertising, the relative attractiveness of competitors’ phones and pricingplans and continuing brand confusion related to the Sprint Nextel merger.

***Churn.***     Churnfor the three months ended June 30, 2006 of 2.5% increased from 2.2% for thethree months ending June 30, 2005 due to an increase in involuntary churn. AtJune 30, 2006 approximately 88% of our subscribers were under contract comparedto 87% at June 30, 2005.

***Average Revenue Per User.***     Thedecrease in ARPU in the three months ended June 30, 2006 compared to the samethree months in 2005 is due to lower minutes over plan revenue and lowermonthly recurring charges, offset partially with higher data revenue.  Forthe three months ended June 30, 2006 our average monthly minutes over planrevenue per user was $2.15 compared to $4.33 for the three months ended June30, 2005.   Average monthly recurring charges dropped from $41.90 forthe three months ended June 30, 2005 to $40.18 for the three months ended June30, 2006.  Offsetting these decreases was our average monthly data revenuewhich increased to $7.85 for the three months ended June 30, 2006 compared to$5.92 for the three months ended June 30, 2005. The decrease in minutes overplan revenue and monthly recurring charges can be attributed to the increasingpopularity of the “PCS-to-PCS” program (now called “mobile-to-mobile” and whichnow includes Nextel subscribers), “Fair and Flexible” plans and “familyadd-a-phone” plans. Data revenue continues to increase due to the popularity ofour various data products, including text messaging, downloading ringers,taking and receiving pictures, playing games and browsing the Internet.

***Cost Per Gross Addition.***     AlthoughCPGA decreased by $3 for the three months ended June 30, 2006 compared to thethree months ended June 30, 2005, our retail store, employee and commissionrelated expenses increased by approximately $26 per gross addition due to lowersales productivity in our retail stores.  However, these increases wereoffset with lower subsidy and activation fee expenses of approximately $29 pergross addition in the three months ended June 30, 2006 compared to thesame period in 2005.  At June 30, 2006,we operated 38 retail stores, including 15 stores in the legacy Horizon PCSterritory, and managed 76 exclusive co-branded dealers, including 28 dealers inthe legacy Horizon PCS territory. At June 30, 2005, we operated 20 retailstores and managed 42 exclusive co-branded dealers.

***Reconciliation of Non-GAAP Financial Measures (All Revenuesand 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.” Thefollowing tables reconcile the non-GAAP financial measures with ourconsolidated financial statements presented in accordance with GAAP, excludingsubscriber data:

|                      | ** **   | **For the Three  Months Ended  June 30, 2006** | ** **   | **For the Three  Months Ended  June 30, 2005** | ** **   |
|----------------------|--------------|-------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| ***ARPU***           | *** *** | *** ***                                                            | *** *** | *** ***                                                            | *** *** |
| Service revenue      |         | $                                                                       | 77,314       |                                                                    | $            | 41,307 |   |
| Average  subscribers |         | 512,677                                                                 |         | 265,227                                                                 |         |
| ARPU                 |         | $                                                                       | 50.27        |                                                                    | $            | 51.91 |   |

 

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.

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|                                                 | ** **   | **For the Three  Months Ended  June 30, 2006** | ** **   | **For the Three  Months Ended  June 30, 2005** | ** **   |
|-------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------|--------------|
| ***CPGA***                                      | *** *** | *** ***                                                            | *** *** | *** ***                                                            | *** *** |
| Selling and  Marketing:                         |         | $                                                                       | 17,344       |                                                                    | $            | 8,995 |   |
| plus: Equipment costs, net of cost of upgrades  |         | 6,386                                                                   |         | 4,642                                                                   |         |
| less: Equipment revenue, net of upgrade revenue |         | (2,684                                                                  | )            | (1,248                                                                  | )            |
| less: Stock-based compensation expense          |         | (198                                                                    | )            | (9                                                                      | )            |
| CPGA costs                                      |         | $                                                                       | 20,848       |                                                                    | $            | 12,380 |   |
| Gross adds                                      |         | 54,780                                                                  |         | 32,272                                                                  |         |
| CPGA                                            |         | $                                                                       | 381          |                                                                    | $            | 384 |   |

 

CPGA is utilizedby most 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.

***Revenues***

Thefollowing table sets forth a breakdown of revenues by type:

|                                                                                      | ** ** | **For the Three  Months Ended  June 30, 2006** | ** ** | **For the Three  Months Ended  June 30, 2005** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
|                                                                                 |       |                                                                    |       |                                                                    |       |
| Service revenue                                                                      |       | $                                                                       | 77,314     |                                                                    | $          | 41,307 |   |
| Roaming revenue  from subscribers of Sprint PCS   and other PCS affiliates of Sprint |       | 34,442                                                                  |       | 14,914                                                                  |       |
| Roaming revenue  from other wireless carriers                                        |       | 2,292                                                                   |       | 852                                                                     |       |
| Reseller revenue                                                                     |       | 2,799                                                                   |       | 754                                                                     |       |
| Equipment  revenue                                                                   |       | 3,523                                                                   |       | 1,632                                                                   |       |
| Other revenue                                                                        |       | 3                                                                       |       | 54                                                                      |       |
| Total revenues                                                                       |       | $                                                                       | 120,373    |                                                                    | $          | 59,513 |   |

 

•          ***Service revenue.***   Servicerevenue is comprised of the monthly recurring charges for voice and data usageand the monthly non-recurring charges for voice and data minutes over plan,long distance, travel and roaming usage charges, other feature revenues andlate payment fee and early cancellation fee revenues. Deductions for billingadjustments and promotional credits are recorded as a reduction to servicerevenue. For the three months ended June 30, 2006 compared to the three monthsended June 30, 2005, service revenue increased by $36.0 million, or 87%,as a result of an increase of $37.3 million due to the increase in subscribers,primarily as a result of the subscribers acquired with the merger with HorizonPCS, offset with a decrease in service revenue of $1.3 million due to thedrop in ARPU as described above.

•          ***Roaming revenue from subscribers of Sprint PCS andother PCS Affiliates of Sprint.***   We receive revenue on aper minute basis 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. The reciprocal roamingrate arrangement we have with Sprint PCS for inbound and outbound roaming forthe three months ended June 30, 2006 and 2005 was $0.058 per minute for voicetraffic ($0.10 per minute in certain markets in eastern and westernPennsylvania) and $0.0020 per kilobyte for data traffic. These rates areeffective through December 31, 2006 and will be reset effectiveJanuary 1, 2007; provided, however that the special rate for certain ofour Pennsylvania markets will terminate on the earlier to occur of December 

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31, 2011 or the date that we achieve a subscriberpenetration rate of at least 7% of our covered population.

For the three months ended June 30, 2006 compared to the three monthsended June 30, 2005, roaming revenue from subscribers of Sprint PCS and otherPCS Affiliates of Sprint increased by $19.5 million, or 131%.  Of thisincrease, 17% was driven by increased roaming revenue in the legacy iPCSmarkets and the remaining 83% was due to our acquisition of the legacy HorizonPCS markets.  Of the 17% increase in the legacy iPCS markets, 79% of theincrease reflected increased data revenue. We continue to experience increased growth in kilobyte data usage fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint as moresubscribers utilize data products with their handsets. Roaming minutes andkilobytes from subscribers of Sprint PCS and other PCS Affiliates ofSprint for the three months ended June 30, 2006 were 400 million and3.6 billion, respectively, compared to 207 million and743 million for the three months ended June 30, 2005, respectively.

•       ***Roaming revenue from other wirelesscarriers.***   We receive roaming revenue from wirelesscarriers other than Sprint and other PCS Affiliates of Sprint when subscribersof such other wireless carriers roam in our territory. We do not haveagreements with these other wireless carriers. Instead, we rely on roamingarrangements Sprint PCS has negotiated with them. We are paid on a per minutebasis for voice traffic pursuant to these agreements.  For the threemonths ended June 30, 2006 compared to the three months ended June 30,2005, roaming revenue from other wireless carriers increased by $1.4 million,or 169%.  The increase in roaming revenue was due to the acquisition ofthe legacy Horizon PCS markets, which historically had stronger roamingrevenues than the legacy iPCS markets.  Roaming revenue in the legacy iPCSmarkets, excluding the legacy Horizon PCS markets, decreased 15% in the threemonths ended June 30, 2006 compared to the three months endedJune 30, 2005 due primarily to a reduction in roaming minutes as carrierscontinue the build-out of their own coverage, thereby reducing the need forroaming.  For the three months ended June 30, 2006, roaming minutes were21.1 million compared to 7.6 million for the same period in 2005. Forboth of these same periods, the average per minute rates were $0.11.

•       ***Reseller revenue.***   Through SprintPCS we allow resellers, known as MVNOs, such as Virgin Mobile, to use ournetwork. Pursuant to these arrangements, we are paid on a per minute and perkilobyte basis. For the three months ended June 30, 2006 compared to the threemonths ended June 30, 2005, reseller revenue increased $2.0 million.Theincrease in reseller revenue was due to an increase in the number of resellersubscribers in our territory, primarily as a result of our merger with HorizonPCS. For the legacy iPCS markets alone, reseller revenue increased 84% in thethree months ended June 30, 2006 compared to the three months endedJune 30, 2005.  At June 30, 2006, we had approximately 183,400reseller subscribers, of which approximately 101,000 reseller subscribers wereacquired in the Horizon PCS merger on July 1, 2005. At June 30, 2005,we had approximately 41,200 reseller subscribers.

•        ***Equipment revenue.***   Equipmentrevenue is derived from the sale of handsets and accessories to new customersand from current customers who upgrade their handsets through our retail andlocal distribution channels, in each case, net of sales incentives, rebates andan allowance for returns. Through June 18, 2006, our handset return policyallowed customers to return their handsets for a full refund within14 days after the date of purchase. With respect to handsets sold aftersuch date, we allow customers to return their handsets for a full refund within30 days after the date of purchase.  Forthe three months ended June 30, 2006 compared to the three months endedJune 30, 2005, equipment revenue increased by $1.9 million, or 116%. For the three months ended June 30, 2006 compared to the three months endedJune 30, 2005, equipment revenue in the legacy iPCS markets increasedapproximately 33% despite lower gross adds during this period.  Thisincrease in revenue was due to increased equipment upgrade revenue and higherphone prices, net of discounts and rebates offered during the second quarter of2006 compared to the same period in 2005.  The remaining increase is dueto equipment revenue from the legacy Horizon PCS markets.

•        ***Other revenue.***   For the threemonths ended June 30, 2005, other revenue consisted primarily of tower leasingrevenue. During fiscal year 2005, we sold all the towers we owned in the legacyiPCS markets, which eliminated this revenue stream.  For the three monthsended June 30, 2006, other revenue consisted of restocking fees for handsetsreturned by our exclusive co-branded dealers.

***Cost of Service and Roaming.***   Costof service and roaming includes network operations expense, roaming expenserelating to when our subscribers roam either on other Sprint PCS networks orother wireless carriers’ networks, back-office customer services provided bySprint PCS, the provision for doubtful accounts, long distance expense, the 8%affiliation fee due to Sprint PCS for collected revenues and stock-basedcompensation expense. Network operations expenses include salaries and benefitsfor network personnel, cell site rent, utilities and maintenance expenses, feesrelating to the connection of our cell sites to our switches and othertransport and facility expenses. Roaming expense is our cost of our subscribersusing Sprint PCS and other wireless carriers’ networks. Roaming expense onthe Sprint PCS network is at the reciprocal rates as described above under “—Roamingrevenue from subscribers of Sprint PCS and other PCS Affiliates of Sprint.”Roaming expense when our 

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subscribers use other wireless carriers networks is atrates as determined by the roaming agreements signed by Sprint PCS withthese other wireless carriers. Cost of service and roaming was $68.6 millionfor the three months ended June 30, 2006 compared to $31.8 million for thethree months ended June 30, 2005. Of this increase, 12% or $4.4 million wasfrom the legacy iPCS markets mainly due to a larger number of subscribersserved, increased bad debt expense and an increase in travel and roamingexpenses.   The remaining increase was due to the increased costsassociated with the acquired Horizon PCS markets.

At June 30, 2006,our network consisted of 1,524 leased cell sites, including 809 in the acquiredHorizon PCS markets, and five switches, including three switches in the legacyHorizon PCS markets. At June 30, 2005, our network consisted of 690 cellsites and we had two switches in operation.

***Cost of Equipment.***   Cost ofequipment includes the cost of handsets and accessories sold or upgraded fromour retail and local distribution channels. Cost of equipment for the threemonths ended June 30, 2006 and the three months ended June 30, 2005 was$9.9 million and $6.1 million, respectively, an increase of $3.8million.  For the three months ended June30, 2006 compared to the three months ended June 30, 2005, cost of equipment inthe legacy iPCS markets increased 5% or $0.3 million due to a 74% increase inequipment upgrade costs partially offset with a decrease in cost of equipmentexpense associated with new subscribers. The remaining increase was due to the increased cost of equipmentassociated with the acquired Horizon PCS markets.

***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. Selling and marketing expense for the three months ended June 30, 2006was $17.3 million compared to $9.0 million for the three months ended June30, 2005, an increase of $8.3 million. Of this increase, 92% was due to theacquisition of the legacy Horizon PCS markets.

***General and Administrative.  ***Generaland administrative expenses include administrative salaries and benefits, legalfees, insurance expense, other professional expenses and stock-basedcompensation expenses  For the three months ended June 30, 2006, generaland administrative expenses totaled $5.7 million compared to $2.6 millionfor the three months ended June 30, 2005, an increase of $3.1 million or 118%.Approximately $1.3 million of this increase is attributable to general andadministrative costs related to the legacy Horizon PCS markets. During thethree months ended June 30, 2006, we incurred approximately $2.0 million ofcosts related to our litigation with Sprint.  With the adoption of SFAS No. 123R on October 1, 2005, stock-basedcompensation expense included in general and administrative totaledapproximately $0.6 million for the three months ended June 30, 2006compared to approximately $0.4 million for the three months ended June 30,2005.

***Depreciation and Amortization.  ***Forthe three months ended June 30, 2006 and June 30, 2005, depreciation andamortization expense totaled $22.4 million and $18.0 million,respectively. Of these amounts, amortization of intangibles totaled$9.5 million and $2.6 million for these same periods, respectively.

For the threemonths ended June 30, 2006 compared to the three months ended June 30, 2005,depreciation in the legacy iPCS markets decreased by approximately $8.2 milliondue to the completion of the Nortel swap in the Michigan markets in June2005.  Depreciation expense decreased in the three months ended June 30,2006 compared to 2005 due to 1) lower original costs for the new Nortelequipment compared to the replaced Lucent equipment and 2) acceleration ofdepreciation expense beginning January 1, 2005 for the reduced estimated usefullives of the Lucent assets.  Offsetting the decrease was depreciation fromthe legacy Horizon PCS markets of approximately $5.7 million which included anadditional $0.7 million of depreciation expense due to a reduction in theremaining useful lives of Motorola equipment being replaced in thePennsylvania, Maryland, New York and New Jersey markets.  The remainingincrease in depreciation and amortization relates to the property, equipmentand intangibles recorded as a result of the merger with Horizon PCS.

***Interest Income.  ***For the threemonths ended June 30, 2006 and the three months ended June 30, 2005, interestincome totaled $1.3 million and $0.4 million, respectively. The increasewas due to a 30% higher average cash balance from the legacy iPCS markets forthe three months ended June 30, 2006 compared to the same three months endedJune 30, 2005 coupled with approximately $0.4 million of interest earned on thecash balance acquired in the merger with Horizon PCS on July 1, 2005.

***Interest Expense.***   For the threemonths ended June 30, 2006, interest expense was $7.9 million compared to$5.0 million for the three months ended June 30, 2005.  Interestexpense consists of interest on our 11-1/2% senior notes and 11-3/8%senior notes, net of capitalized interest.  The increase was attributableto the interest expense associated with the 11-3/8% senior notes assumedin our merger with Horizon PCS on July 1, 2005. In the three months endedJune 30, 2006, we capitalized interest of approximately $0.3 million. We didnot capitalize interest in the three months ended June 30, 2005.

***Net Loss.***   Our net loss was$10.4 million for the three months ended June 30, 2006 compared to a netloss of $12.5 million for the three months ended June 30, 2006.

 

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***For the Six Months Ended June 30, 2006 compared to the SixMonths Ended June 30, 2005***

Results ofoperations for any periods less than one year are not necessarily indicative ofresults of operations for a full year.  In addition, results for the sixmonths ended June 30, 2006 include results for the markets we acquired in ourmerger with Horizon PCS, Inc., which closed on July 1, 2005, and accordinglyare not comparable to the results of operations for periods prior to July 1,2005.

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

|                           | ** ** | **As of and For the   Six Months Ended   June 30, 2006** | ** ** | **As of and For the   Six Months Ended   June 30, 2005** | ** ** |
|---------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|
| Total  Subscribers        |       | 517,500                                                                                                    |       | 271,000                                                                                                    |       |
| Net Subscriber  Additions |       | 23,900                                                                                                     |       | 21,800                                                                                                     |       |
| Churn                     |       | 2.5                                                                                                        | %          | 2.4                                                                                                        | %          |
| ARPU                      |       | $                                                                                                          | 50.18      |                                                                                                       | $          | 51.67 |   |
| CPGA                      |       | $                                                                                                          | 375        |                                                                                                       | $          | 371 |   |

 

***Net Subscriber Additions.***   Netsubscriber additions increased by 2,100, or 10%, in the six months endedJune 30, 2006 compared to the six months ended June 30, 2005. Theacquisition of Horizon PCS contributed net subscriber additions ofapproximately 15,200 for the six month period ending June 30, 2006; however, inthe legacy iPCS markets, net subscriber additions decreased from 21,800 in thesix months ended June 30, 2005 to 8,700 in the six months ended June 30, 2006,a decrease of approximately 60%.  We believe that, across our territory,we are experiencing both an increase in the number of subscribers deactivatingservice and a slow down in gross additions due to our recent effort tode-emphasize “family add-a-phone” plans, increased competitive advertising, therelative attractiveness of competitors’ phones and pricing plans and continuingbrand confusion related to the Sprint Nextel merger.

***Churn.***   Churn for the six monthsended June 30, 2006 of 2.5% increased slightly from 2.4% for the six monthsending June 30, 2005 due to an increase in involuntary churn.

***Average Revenue Per User.  ***Thedecrease in ARPU in the six months ended June 30, 2006 compared to the same sixmonths in 2005 is due to lower minutes over plan revenue and lower monthlyrecurring charges, offset partially with higher data revenue.  For the sixmonths ended June 30, 2006 our average monthly minutes over plan revenue peruser was $2.09 compared to $4.20 for the six months ended June 30,2005.   Average monthly recurring charges dropped from $42.17 for thesix months ended June 30, 2005 to $40.33 for the six months ended June 30,2006.  Offsetting these decreases was our average monthly data revenuewhich increased to $7.55 for the six months ended June 30, 2006 compared to$5.72 for the six months ended June 30, 2005.  The decrease in minutesover plan revenue and monthly recurring charges can be attributed to theincreasing popularity of the “PCS-to-PCS” program (now called “mobile-to-mobile”and which now includes Nextel subscribers), “Fair and Flexible” plans and “familyadd-a-phone” plans.  Data revenue continues to increase due to thepopularity of our various data products, including text messaging, downloadingringers, taking and receiving pictures, playing games and browsing theInternet.

***Cost Per Gross Addition.  ***CPGAincreased $4 for the six months ended June 30, 2006 compared to the six monthsended June 30, 2005 as our retail store, employee and commission relatedexpenses increased by approximately $29 per gross addition due to lower salesproductivity in our retail stores.  However, these increases were offsetwith lower subsidy and activation fee expenses of approximately $25 per grossaddition in the six months ended June 30, 2006 compared to the same period in2005.

***Reconciliation of Non-GAAP Financial Measures (All Revenuesand Expenses in Thousands)***

|                      | ** **   | **For the Six   Months Ended  June 30, 2006** | ** **   | **For the Six   Months Ended   June 30, 2005** | ** **   |
|----------------------|--------------|-----------------------------------------------------------------------------|--------------|-----------------------------------------------------------------------------------|--------------|
| ***ARPU***           | *** *** | *** ***                                                                | *** *** | *** ***                                                                      | *** *** |
| Service revenue      |         | $                                                                           | 152,720      |                                                                              | $            | 80,401 |   |
| Average  subscribers |         | 507,191                                                                     |         | 259,317                                                                           |         |
| ARPU                 |         | $                                                                           | 50.18        |                                                                              | $            | 51.67 |   |

 

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| ** **                                      | ** **   | **For the Six  Months Ended   June 30, 2006** | ** **   | **For the Six  Months Ended   June 30, 2005** | ** **   |
|-------------------------------------------------|--------------|-----------------------------------------------------------------------------|--------------|-----------------------------------------------------------------------------|--------------|
| ***CPGA***                                      | *** *** | *** ***                                                                | *** *** | *** ***                                                                | *** *** |
| Selling and  Marketing:                         |         | $                                                                           | 34,104       |                                                                        | $            | 17,303 |   |
| plus: Equipment costs, net of cost of upgrades  |         | 13,292                                                                      |         | 9,359                                                                       |         |
| less: Equipment revenue, net of upgrade revenue |         | (5,105                                                                      | )            | (2,556                                                                      | )            |
| less: Stock-based compensation expense          |         | (268                                                                        | )            | (14                                                                         | )            |
| CPGA costs                                      |         | $                                                                           | 42,023       |                                                                        | $            | 24,092 |   |
| Gross adds                                      |         | 112,165                                                                     |         | 64,979                                                                      |         |
| CPGA                                            |         | $                                                                           | 375          |                                                                        | $            | 371 |   |

 

***Revenues***

The followingtable sets forth a breakdown of revenues by type:
| ** **                                                                         | ** ** | **For the Six  Months Ended  June 30, 2006** | ** ** | **For the Six  Months Ended  June 30, 2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
|                                                                               |       |                                                                  |       |                                                                  |       |
| Service revenue                                                                    |       | $                                                                     | 152,720    |                                                                  | $          | 80,401 |   |
| Roaming revenue  from subscribers of Sprint PCS and other PCS affiliates of Sprint |       | 63,159                                                                |       | 27,916                                                                |       |
| Roaming revenue  from other wireless carriers                                      |       | 4,380                                                                 |       | 1,766                                                                 |       |
| Reseller revenue                                                                   |       | 5,621                                                                 |       | 1,360                                                                 |       |
| Equipment  revenue                                                                 |       | 6,970                                                                 |       | 3,420                                                                 |       |
| Other revenue                                                                      |       | 8                                                                     |       | 104                                                                   |       |
| Total revenues                                                                     |       | $                                                                     | 232,858    |                                                                  | $          | 114,967 |   |

 

·                     ***Service revenue.***   Forthe six months ended June 30, 2006 compared to the six months ended June 30,2005, service revenue increased by $72.3 million, or 90%, as a result of anincrease of $74.6 million due to the increase in subscribers, primarily as aresult of the subscribers acquired with the merger with Horizon PCS, offsetwith a decrease in service revenue of $2.3 million due to the drop in ARPU asdescribed above.

·                     ***Roaming revenue from subscribers ofSprint PCS and other PCS Affiliates of Sprint.  ***For the sixmonths ended June 30, 2006 compared to the six months ended June 30, 2005,roaming revenue from subscribers of Sprint PCS and other PCS Affiliates ofSprint increased by $35.2 million, or 126%.  Of this increase, 16% wasdriven by increased roaming revenue in the legacy iPCS markets and theremaining 84% was due to our acquisition of the legacy Horizon PCSmarkets.  Of the 16% increase in the legacy iPCS markets, 76% of theincrease reflected increased data revenue. We continue to experience increased growth in kilobyte data usage fromsubscribers of Sprint PCS and other PCS Affiliates of Sprint as moresubscribers utilize data products with their handsets. Roaming minutes andkilobytes from subscribers of Sprint PCS and other PCS Affiliates ofSprint for the six months ended June 30, 2006 were 764 million and6.1 billion, respectively, compared to 391 million and 1.3 billionfor the six months ended June 30, 2005, respectively.

·                     ***Roaming revenue from other wirelesscarriers.***   For the six months ended June 30, 2006compared to the six months ended June 30, 2005, roaming revenue from otherwireless carriers increased by $2.6 million, or 148%.  The increase inroaming revenue was due to the acquisition of the legacy Horizon PCS markets,which historically had stronger roaming revenues than the legacy iPCSmarkets.  Roaming revenue in the legacy iPCS markets, excluding the legacyHorizon PCS markets, decreased 21% in the six months ended June 30, 2006compared to the six months ended June 30, 2005 due primarily to areduction in roaming minutes as carriers continue the build-out of their owncoverage, thereby reducing the need for roaming.  For the six months endedJune 30, 2006, roaming minutes were 40.1 million compared to 14.7 millionfor the same period in 2005. For the six months ended June 30, 2006, theaverage per minute rate was $0.11 compared to $0.12 for the six months endedJune 30, 2005.

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·                     ***Reseller revenue.***   Forthe six months ended June 30, 2006 compared to the six months endedJune 30, 2005, reseller revenue increased $4.3 million.  The increasein reseller revenue was due to an increase in the number of resellersubscribers in our territory, primarily as a result of our merger with HorizonPCS. For the legacy iPCS markets alone, reseller revenue increased 105% in thesix months ended June 30, 2006 compared to the six months ended June 30,2005.

·                     ***Equipment revenue.***   Forthe six months ended June 30, 2006 compared to the six months endedJune 30, 2005, equipment revenue increased by $3.5 million, or 104%. For the six months ended June 30, 2006 compared to the six months ended June30, 2005, equipment revenue in the legacy iPCS markets increased approximately25% despite lower gross adds from our retail and local dealer distributionchannels. This increase in revenue was due to increased equipment upgraderevenue and higher phone prices, net of discounts and rebates offered duringthe six months ended June 30, 2006 compared to the same period in 2005. The remaining increase is due to equipment revenue from the legacy Horizon PCSmarkets.

·                     ***Other revenue.***   Forthe six months ended June 30, 2005, other revenue consisted primarily of towerleasing revenue. During fiscal year 2005, we sold all of the owned towers inthe legacy iPCS markets, which eliminated this revenue stream.  For thesix months ended June 30, 2006, other revenue consisted of restocking fees forhandsets returned by our exclusive co-branded dealers.

***Cost of Service and Roaming.***   Costof service and roaming was $133.7 million for the six months endedJune 30, 2006 compared to $62.2 million for the six months ended June 30,2005. Of this increase, 13% was from the legacy iPCS markets mainly due to alarger number of subscribers served, increased bad debt expense and an increasein travel and roaming expenses.   The remaining increase was due to theincreased costs associated with the acquired Horizon PCS markets.

***Cost of Equipment.***   Cost ofequipment for the six months ended June 30, 2006 and the six months endedJune 30, 2005 was $19.4 million and $12.2 million, respectively,an increase of $7.2 million.  For the sixmonths ended June 30, 2006 compared to the six months ended June 30, 2005, costof equipment in the legacy iPCS markets increased 3% due to 50% higherequipment upgrade costs partially offset with a decrease in cost of equipmentexpense associated with new subscribers. The remaining increase was due to the increased cost of equipmentassociated with the acquired Horizon PCS markets.

***Selling and Marketing.***   Sellingand marketing expense for the six months ended June 30, 2006 was$34.1 million compared to $17.3 million for the six months ended June 30,2005, an increase of $16.8 million. Of this increase, 93% was due to theacquisition of the legacy Horizon PCS markets.

***General and Administrative.***   Forthe six months ended June 30, 2006, general and administrative expenses totaled$12.9 million compared to $4.6 million for the six months ended June 30,2005, an increase of $8.2 million. Approximately $2.9 million of this increase is attributable to generaland administrative costs related to the legacy Horizon PCS markets. During thesix months ended June 30, 2006, we incurred approximately $5.1 million of costsrelated to our litigation with Sprint.  Withthe adoption of SFAS No. 123R on October 1, 2005, stock-based compensationexpense included in general and administrative totaled approximately $1.0million for the six months ended June 30, 2006 compared to approximately$0.4 million for the six months ended June 30, 2005.

***Depreciation and Amortization.***   Forthe six months ended June 30, 2006 and June 30, 2005, depreciation andamortization totaled $46.3 million and $36.3 million, respectively.Of these amounts, amortization of intangibles totaled $19.0 million and$5.7 million for these same periods, respectively.

For the six monthsended June 30, 2006 compared to the six months ended June 30, 2005,depreciation in the legacy iPCS markets decreased by approximately $16.4million due to the completion of the Nortel swap in the Michigan markets inJune 2005.  Depreciation expense decreased in the six months ended June30, 2006 compared to 2005 due to 1) lower original costs for the new Nortelequipment compared to the replaced Lucent equipment and 2) acceleration ofdepreciation expense beginning January 1, 2005 for the reduced estimated usefullives of the Lucent assets.  During the six months ended June 30, 2006, werecorded additional depreciation expense of approximately $2.8 million due to areduction in the remaining useful lives of Motorola equipment being replaced inthe Pennsylvania, Maryland, New York and New Jersey markets of the legacyHorizon PCS territory.   The remaining increase in depreciation andamortization relates to the property, plant, equipment and intangibles recordedas a result of the merger with Horizon PCS.

***Interest Income.***   For the sixmonths ended June 30, 2006 and the six months ended June 30, 2005, interestincome totaled $2.5 million and $0.8 million, respectively. The increasewas due to a 23% higher average cash balance from the legacy 

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iPCS markets for the sixmonths ended June 30, 2006 compared to the same six months ended June 30, 2005coupled with interest income of $0.7 million earned on the cash balanceacquired in the merger with Horizon PCS on July 1, 2005.

***Interest Expense.***   For the sixmonths ended June 30, 2006, interest expense was $16.0 million compared to$10.0 million for the six months ended June 30, 2005.  Interestexpense consists of interest on our 11-1/2% senior notes and 11-3/8%senior notes, net of capitalized interest. The increase was attributable to the interest expense associated withthe 11-3/8% senior notes assumed in our merger with Horizon PCS onJuly 1, 2005. In the six months ended June 30, 2006, we capitalizedinterest of approximately $0.3 million. We did not capitalize interest in thesix months ended June 30, 2005.

***Net Loss.***   Our net loss was$27.4 million for the six months ended June 30, 2006 compared to a netloss of $27.0 million for the six months ended June 30, 2005.

**Liquidity and Capital Resources**

***Significant Sources of Cash***

We generated$17.4 million in operating cash flows for the six months ended June 30,2006, compared to $5.4 million for the six months ended June 30, 2005. Thepurchase of the Horizon markets contributed $7.6 million of the $12.0 millionincrease.  The remaining increase inoperating cash flows was due to lower net operating losses after adjustmentsfor non-cash items in the legacy iPCS markets of approximately $5.3 million.

For the six monthsended June 30, 2006, we received approximately $0.5 million from the sale ofland and other equipment no longer needed for operations and approximately$0.1 million from the sale of used equipment which was replaced withequipment we purchased from Nortel Networks as described below in “—ContractualObligations”. In addition, for the six months ended June 30, 2006 we receivedapproximately $0.4 million from the sale of the remaining four Horizon PCSowned towers. During the six months ended June 30, 2005, we receivedapproximately $3.1 million for the remaining towers sold in the legacy iPCSmarkets, $0.5 million from the sale of used equipment which was replaced withequipment we purchased from Nortel Networks as described below in “—ContractualObligations” and $0.1 million from the sale of equipment no longer needed foroperations.

For the six monthsended June 30, 2006, we received a total of $1.1 million in proceeds fromthe exercise of options representing approximately 49,300 shares.  For the six months ended June 30, 2005, wereceived $0.5 million in proceeds from the exercise of options representingapproximately 42,300 shares.

***Significant Uses of Cash***

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 our Horizon PCS markets, $2.5 millionfor new cell site construction and other related network capital expenditures,$0.8 million for new store and store improvements and $1.3 million for ITand other corporate-related capital expenditures.

Cash flows usedfor investing activities for the six months ended June 30, 2005 included$7.3 million for capital expenditures, of which $5.2 million related tothe Nortel swap project in the legacy iPCS markets as described below in “—Contractual Obligations”. The remaining capital expenditures related mostlyto new cell site construction and other network related capital expenditures.

Cash flows usedfor financing activities for the six months ended June 30, 2005 included $1.6million for the payment of our CEO’s withholding obligations related to hisremaining stock unit awards, which payment was made through the return ofshares to the Company.

Principal paymentson our long-term debt, other than capital leases, are not due until 2012. During the six months ended June 30, 2006, we made one semi-annual interestpayment on our 11-3/8% senior notes of approximately $7.1 millionand one semi-annual interest payment on our 11-1/2% senior notes ofapproximately $9.5 million.  The interest rates on our senior notes arefixed and therefore the amount of our interest payments would not be impactedby a change in the overall interest rate environment.

***Trends, Risks and Uncertainties That May AffectOperating 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 

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Our Business, Strategyand Operations” section found in Item 1A of Part I of our annualreport on Form 10-K, filed with the SEC on December 23, 2005, asupdated by our quarterly report on Form 10-Q, filed with the SEC on May 12,2006.

·        *Continuing focus on subscriber additions.  *We havecontinued to increase our distribution and marketing efforts, including theopening of new retail stores and exclusive co-branded dealers, to accelerateour subscriber additions. To the extent that we continue to seek to accelerateour subscriber additions, we will incur significant upfront subscriberacquisition expenses (including the customer handset subsidy, commissions andpromotional expenses) that initially will result in increased losses andreduced levels of cash flows from operating activities. At the same time, competitionin the wireless industry remains intense as more competitors enter the marketvia MVNO relationships or through the acquisition of new wireless spectrum,such as the FCC’s pending AWS auction. Unlimited minute and pre-paid plans, neither of which we currentlyoffer, also continue to increase in popularity, offering consumers morealternatives.  Accordingly, we may incur higher per subscriber acquisitionexpenses and/or offer more aggressive rate plans in order to maintain orachieve our planned growth.  Alternatively, we may not be able to maintainor achieve our planned growth in subscribers or obtain sufficient revenue toachieve and sustain profitability. If we are not able to achieve our plannedsubscriber growth, it will make it more difficult to obtain sufficient revenueto achieve or sustain profitability.

·        *Increasing churn.  *We are experiencing a higher churnrate which may be higher in the future. In addition, to the extent oursubscriber growth includes a higher percentage of sub-prime credit subscribers,our churn and bad debt expense may increase. If churn continues to increaseover the long-term, we would lose the cash flows attributable to thesesubscribers and have greater than projected losses.

·        *Declining voice revenue per subscriber.  *Our minutes over plan revenuecontinues to decrease. The wireless industry is very competitive and continuedpressure in pricing is expected in the future as a result of, among otherthings, increased focus on family plans and overage protection plans. Althoughwe believe that family plans and overage protection plans should improve churn,these plans tend to lower voice revenue on a per subscriber basis. Although thedata portion of ARPU is expected to continue to increase as more subscribersutilize data products, declining voice ARPU resulting in lower overall ARPUwill make it more difficult to obtain sufficient revenue to achieve or sustainprofitability.

·        *Higher subscriber acquisition costs.  *We may continueto experience higher costs to acquire subscribers. As we continue to increaseour distribution, we will increase the fixed costs in our sales and marketingorganization. In addition, we may increase our marketing expenses in an effortto attract and acquire new subscribers. Also, more aggressive promotionalefforts may lead to higher handset subsidies. With a higher CPGA, subscribersmust remain our subscribers for a longer period of time at a stable ARPU for usto recover those acquisition costs.

·        *Higher operating costs.  *Our operating costs continue to increase due to our largernumber of subscribers served, the increased size of our network, increases inroaming expense and an increase in collected revenue, upon which our 8%affiliation fee is calculated. If our subscriber base continues to increase,our operating costs will continue to increase.  In addition, we may incursignificant wireless handset costs for existing subscribers who upgrade to anew handset. As our subscriber base matures and technological innovations occur,more existing subscribers may begin to upgrade to new wireless handsets forwhich we subsidize the cost to the subscriber. We also expect to continue toincur costs related to our litigation with Sprint, though at a decreasing rateas the current litigation winds down. At the same time, a large portion of ourongoing network and general and administrative expenses are fixed. We believethat we need to add more subscribers to recognize increased economies of scalein our business. If we are unable to add more subscribers to our network orcontinue to improve the efficiencies in our operating costs, results will benegatively affected.

·        *Roaming revenue.  *A substantial portion of our revenueis derived from roaming revenue from Sprint PCS and other PCS Affiliates ofSprint. The increase in roaming revenue during the three months ended June 30,2006 was due to an increase in roaming minutes and increased kilobyte traffic.The roaming rate paid to us by Sprint PCS and other PCS Affiliates of Sprintfor voice was set at $0.058 per minute of use for the majority of our markets,and for data was set at $0.002 per kilobyte in all of our markets. These ratesare fixed through December 31, 2006. Thereafter, the rate will changeannually to equal 90% of Sprint PCS’s retail yield for voice usage from theprior year.   The new rate may be lowerthan our current rate which may have an adverse effect on us. In addition, ifwe receive fewer roaming minutes or kilobyte traffic on our network, ourresults of operations will be negatively affected.

·        *Increasing capital expenditures.  *As we continue to addcapacity and coverage to our wireless network, we will 

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 incur significantcapital expenditures. We currently anticipate that capital expenditures for2006 will be between $42.0 million and $48.0 million.  We have replacedour equipment in a number of our markets with Nortel equipment pursuant to twoagreements with Nortel and we are currently in the process of replacing theMotorola equipment in our remaining markets with Nortel equipment. Changes andupgrades in technology, like EV-DO, may require additional expenditures. SprintPCS has begun to deploy EV-DO technology in portions of its service area andhas stated its intent to cover 190 million people by the end of 2006. To date,we have deployed EV-DO technology in a small portion of our service area. Wemay elect to deploy EV-DO technology in additional portions of our service areawhich may significantly increase our capital expenditures and operatingexpenses. We have not yet determined when, and to what extent, we may furtherdeploy EV-DO throughout our territory. Unforeseen changes in technology andchanges in our plans to upgrade or expand our network may require us to spendmore money than we expected and have a negative effect on our cash flow.

·        *Ongoing Sprint Relationship and Litigation.  *We rely onSprint for a number of important functions, including but not limited to,customer service, billing, long-distance transport services, national networkoperations, 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 thanexpected.  For example, effective January1, 2007, Sprint has proposed to increase the rates that we currently pay forthe back-office functions that we purchase from Sprint. In addition, we filedcomplaints against Sprint alleging that, among other things, Sprint will breachthe exclusivity provisions of our management agreements. An adverse outcome toour proceedings will have a negative effect on our results of operations andour stock price.

·        *Capital Markets Availability.  *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. Wecontinually evaluate options for additional sources of capital to supplement ourliquidity position and maintain maximum financial flexibility. If the need foradditional capital arises due to our actual results differing significantlyfrom our business plan or for any other reason, we may be unable to raiseadditional capital.

***Commitments andContingencies***

The costs for theservices provided by Sprint PCS under our service agreements with Sprint PCSrelative to billing, customer care and other back-office functions for thethree months ended June 30, 2006 and 2005 were approximately $10.9 million and$5.8 million, respectively.  For the six months ended June 30, 2006and 2005, we incurred approximately $21.6 million and $11.2 million,respectively, for these same services. Because we incur the majority of thesecosts on a per subscriber basis, which cost per subscriber is fixed until theend of December 2006, we expect the aggregate cost for such services toincrease as the number of our subscribers increases.  Beginning in 2007,the monthly rates for these services will be reset to amounts based on theamount necessary to recover Sprint PCS’s reasonable costs for providing suchservices.  Sprint has proposed to us monthly rates that would begin onJanuary 1, 2007 that are higher than the rates we currently pay.  Wehave had, and expect to continue to have, discussions with Sprint regarding theterms and conditions under which we would continue to purchase these servicesfrom Sprint after December 31, 2006, if at all. If we cannot agree withSprint PCS on new rates beyond 2006, we have the option to continue to purchasethe Sprint services at Sprint’s proposed rates until an arbitrator resolves thedispute regarding the new rates, or to self-provision or to procure thoseservices elsewhere.

In addition,Sprint PCS may terminate any service provided under our services agreementsupon nine months’ prior written notice, but if we would like to continuereceiving such service, Sprint PCS has agreed that it will assist us indeveloping that function internally or locating a third-party vendor that willprovide that service. Although Sprint PCS has agreed in such an event toreimburse us for expenses we incur in transitioning to any service internallyor to a third-party, if Sprint PCS terminates a service for which we have notdeveloped or are unable to develop a cost-effective alternative, our operatingcosts 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.

Variable interestrates may increase substantially. At June 30, 2006 we have only fixed rateindebtedness under our existing capital leases and the senior notes. To theextent that we incur any floating rate financing in the future, we would beexposed to interest rate risk on such indebtedness.

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 complaints 

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are substantially similarand allege, among other things, that following the consummation of the mergerbetween Sprint and Nextel, Sprint will breach its exclusivity obligations underour affiliation agreements, as amended. The Company sought, among other things,a temporary 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 (the “Agreement”) with Sprint relating to the complaintsfiled against Sprint. The 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 limitations set forth in theAgreement. The Agreement expired on January 1, 2006 in the territory managed byiPCS Wireless, Inc., but remains in effect in the legacy Horizon PCS territoryuntil a ruling is issued in the Delaware Court of Chancery.

The trial in theDelaware Court of Chancery occurred from January 9 to January 23, 2006 andclosing arguments were held on April 4, 2006. The Court continues to deliberatethe case and we expect a ruling in the near term.

The trial in CookCounty Circuit Court occurred intermittently from March 9 to July 10,2006.  Post-trial briefing is expected tobe concluded by mid-August, after which time the Court will deliberate the caseand issue a ruling.  We expect the Courtto issue a ruling in 2006.

**ContractualObligations**

We are obligatedto make future payments under various contracts we have entered into, includingamounts pursuant to the senior notes, capital leases and non-cancelableoperating lease agreements for office space, cell sites, vehicles and officeequipment. Future minimum contractual cash obligations for the next five yearsand in the aggregate at September 30, 2005, are as follows (dollars inthousands):

 
| ** **                 | ** ** | ** ** | ** ** | **Payments Due by Period  Year Ended September 30,** | ** ** |
|----------------------------|------------|------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **Total**  | ** ** | **2006**                                                                           | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** |
| Long-term debt             |       | $          | 290,000    |                                                                               | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 290,000 |   |
| Cash interest              |       | 232,304    |       | 33,194                                                                             |       | 33,194 |   | 33,194 |   | 33,194 |   | 33,194 |   | 66,334 |   |
| Operating  leases(1)       |       | 103,121    |       | 28,284                                                                             |       | 21,428 |   | 19,368 |   | 18,271 |   | 11,175 |   | 4,595 |   |
| Capital lease  obligations |       | 805        |       | 68                                                                                 |       | 63 |   | 66 |   | 69 |   | 71 |   | 468 |   |
| Purchase  obligations (2)  |       | 8,350      |       | 8,350                                                                              |       | — |   | — |   | — |   | — |   | — |   |
| Total                      |       | $          | 634,580    |                                                                               | $          | 69,896 |   | $ | 54,685 |   | $ | 52,628 |   | $ | 51,534 |   | $ | 44,440 |   | $ | 361,397 |   |

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(1)             Doesnot include payments due under renewals to the original lease terms.

(2)             Doesnot include commitments totaling $16.5 million to Nortel Networks for agreementsigned December 31, 2005, as discussed below under “Nortel NetworksEquipment Agreements”.

Both of our seniornotes contain covenants which restrict our ability to incur additionalindebtedness, merge, pay dividends, dispose of our assets, and certain othermatters as defined in the indentures. In addition, the senior notes:

·                         rank*pari passu* in right of payment with allour existing and future unsecured senior indebtedness;

·                         ranksenior in right of payment to all our future subordinated indebtedness; and

·                         areunconditionally guaranteed by our domestic restricted subsidiaries, includingiPCS Wireless, Inc., iPCS Equipment, Inc., Horizon PersonalCommunications, Inc. and Bright Personal Communication Services, LLC andany new domestic restricted subsidiaries of ours.

However, the senior notesare subordinated to all our secured indebtedness to the extent of the assetssecuring such indebtedness, and to any indebtedness of our subsidiaries that donot guarantee the new senior notes.

Upon a change ofcontrol as defined in the indentures, we will be required to make an offer topurchase the senior notes at a price equal to 101% of the aggregate principalamount of senior notes repurchased plus accrued and unpaid interest andliquidated damages, if any, to the date of purchase.

*11-1/2%Senior Notes:  *Interest on our 11-1/2% senior notes ispayable semi-annually in arrears on May 1 and November 1, commencingon November 1, 2004 to the holders of record on the immediately precedingApril 15 and October 15. At any time 

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prior to May 1,2007, we may redeem up to 35% of the aggregate principal amount of the 11-1/2%senior notes at a redemption price of 111.50% of the principal amount thereof,plus accrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

·                         at least65% of aggregate principal amount of senior notes originally issued remainsoutstanding immediately after the redemption; and

·                         theredemption occurs within 90 days of the date of the closing of such saleof equity interests or contribution.

Except pursuant tothe preceding paragraph, the senior notes will not be redeemable at our optionprior to May 1, 2008.

On or afterMay 1, 2008, we may redeem all or a part of the senior notes issued underthe indenture upon not less than 30 nor more than 60 days’ notice, at theredemption prices (expressed as percentages of principal amount) set forthbelow plus accrued and unpaid interest and liquidated damages, if any, on thesenior notes redeemed, to the applicable redemption date, if redeemed duringthe twelve-month period beginning on May 1 of the years indicated below,subject to the rights of holders of senior notes on the relevant record date toreceive interest on the relevant interest payment date:

| Year                | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.750        | %          |
| 2009                |       | 102.875        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

*11-3/8%Senior Notes:*   Interest on our 11-3/8 % seniornotes is payable semi-annually in arrears on July 15 and January 15,commencing on January 15, 2005 to the holders of record on the immediatelypreceding July 1 and January 1. At any time prior to July 15,2007, we may redeem up to 35% of the aggregate principal amount of the 11-3/8%senior notes at a redemption price of 111.375% of the principal amount thereof,plus accrued and unpaid interest, and liquidated damages (as defined in theindenture), if applicable, to the redemption date with the net cash proceeds ofa sale of our equity interests or a contribution to our common equity capital;provided that:

·        at least 65% of aggregateprincipal amount of senior notes originally issued remains outstandingimmediately after the redemption; and

·        the redemption occurswithin 90 days of the date of the closing of such sale of equity interestsor contribution.

Except pursuant tothe preceding paragraph, the senior notes will not be redeemable at our optionprior to July 15, 2008.

On orafter July 15, 2008, we may redeem all or a part of the senior notesissued under the indenture upon not less than 30 nor more than 60 days’notice, at the redemption prices (expressed as percentages of principal amount)set forth below plus accrued and unpaid interest and liquidated damages, ifany, on the senior notes redeemed, to the applicable redemption date, ifredeemed during the twelve-month period beginning on May 1 of the yearsindicated below, subject to the rights of holders of senior notes on therelevant record date to receive interest on the relevant interest payment date:

| Year                | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2008                |       | 105.688        | %          |
| 2009                |       | 102.844        | %          |
| 2010 and thereafter |       | 100.000        | %          |

 

***Nortel NetworksEquipment Agreements***

OnNovember 22, 2004, we signed a letter of agreement with Nortel Networks toreplace the Lucent network equipment then deployed in our Michigan markets withNortel equipment including one switch, 232 base stations, various additionalcapacity growth and network equipment. Under the terms of the agreement, we arerequired to purchase equipment and services totaling $15.2 million andwill receive special pricing on future purchases through December 31,2007. As of March 31, 2005, we had purchased the $15.2 million of networkequipment required under this agreement.  Accordingly, we are not requiredto purchase additional equipment or services under this agreement.

In addition, inJanuary 2005, Horizon PCS signed a $14.0 million letter of agreement withNortel Networks to replace the Motorola network equipment currently deployed inits Fort Wayne, Indiana, Chillicothe, Ohio, and Johnson City, Tennessee marketswith Nortel equipment including 390 base stations, various additional capacitygrowth and network equipment. Under the terms of the agreement, we are requiredto purchase equipment and services totaling $13.0 million and will receivespecial 

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pricing on futurepurchases through December 31, 2007. As of December 31, 2005, we hadpurchased the $13.0 million of equipment required under thisagreement.  Accordingly, we are not required to purchase additionalequipment or services under this agreement.

OnDecember 31, 2005, we signed a letter of agreement with Nortel Networks toreplace the Motorola equipment currently deployed in our Pennsylvania, NewYork, New Jersey and Maryland markets with Nortel equipment.  Under theterms of the agreement, we are required to purchase equipment necessary to replace425 existing base stations and related network infrastructure, plus variousadditional equipment to support future network footprint and capacityexpansion, totaling approximately $16.5 million, with an option to purchaseadditional network enhancement equipment totaling $0.5 million.  On March21, 2006, we amended the terms of this agreement accelerating payments forequipment totaling $4.0 million from 2007 to 2006.  As of June 30, 2006,we had purchased $12.0 million of the required $16.5 million of equipment underthis agreement.  Accordingly, we are required to purchase an additional$4.5 million of equipment under this agreement.

**Off-Balance Sheet Arrangements**

Other than theoperating lease commitments included above, we have no off-balance sheet arrangementsthat would have a current or future material effect on the financial condition,changes in financial condition, revenues, expenses, results of operations,liquidity, capital expenditures or capital resources.

**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.

**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

·                    Allowance fordoubtful accounts

·                    Long-livedasset recovery

·                    Intangibleassets

·                    Income taxes

In light of theadoption of SFAS No. 123R — discussed in Item 2 of Part I of thisquarterly report on Form 10-Q — we have also included our stock-basedcompensation policy as a critical accounting policy.  SFAS No. 123Rrequires significant judgment and the use of estimates in the assumptions forthe model used to value the share-based payment awards, including stock pricevolatility, and expected option terms.  In addition, expected forfeiturerates for the share-based awards must be estimated.  Because of our smallnumber of option grants, the relatively short period of time that we haveoperated as a public company, and the limited trading of our stock, we arelimited in our historical experience to use as a basis for theseassumptions.  While we believe that the assumptions and judgments used inour estimates are reasonable, actual results may differ from these estimatesunder different assumptions or conditions.

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 

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September 30, 2005,filed with the SEC on December 23, 2005.

**Inflation**

We believe thatinflation has not had a significant impact in the past and is not likely tohave a significant impact in the foreseeable future on our results ofoperations.

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**ITEM3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We do not engagein commodity futures trading activities and 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.

**ITEM4.   CONTROLS AND PROCEDURES**

(a)    Evaluation of Disclosure Controls andProcedures. Each of our Chief Executive Officer and Chief Financial Officer hasevaluated the effectiveness of our disclosure controls and procedures (as suchterm is defined in Rules 13a-14(c) and 15d-14(c) under theExchange Act) as of the end of the period covered by this quarterly report.Based on such evaluation, such officers have concluded that, as of the end ofthe period covered by this quarterly report, our disclosure controls andprocedures are effective in alerting them on a timely basis to materialinformation relating to us (including our consolidated subsidiaries) requiredto be included in our reports filed or submitted under the Exchange Act.

(b)    Changes in Internal Controls overFinancial Reporting. There have not been any changes in our internal controlover financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during thethree months ended June 30, 2006 that have materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

(c)    We place reliance on Sprint PCS toadequately design its internal controls with respect to the processesestablished to provide financial information and other information to us andthe other PCS Affiliates of Sprint. To address this issue, Sprint engagesan 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. Our agreements withSprint provide that Sprint will provide us with this report twice annually. Themost recent report provided to us was as of September 30, 2005.

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**PART II.   OTHERINFORMATION**

**ITEM1.   LEGAL PROCEEDINGS**

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 such legalproceedings, 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.   RISK FACTORS**

You shouldcarefully consider the risks and uncertainties described in Part I, Item1A. Risk Factors in our Annual Report on Form 10-K for the fiscal yearended September 30, 2005, as updated by our Quarterly Report on Form 10-Qfor the quarter ended March 31, 2006, 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 by ourQuarterly Report on Form 10-Q for the quarter ended March 31, 2006, are not theonly ones facing us. Additional risks and uncertainties that are currentlyunknown to us or that we currently consider to be immaterial may also impairour business or adversely affect our financial condition, results of operationsand stock price.

**ITEM2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM3.   DEFAULTS UPON SENIOR SECURITIES**

None.

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

None.

**ITEM5.   OTHER INFORMATION**

None

 

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**ITEM6.   EXHIBITS**
| 2.1    |   | Agreement and Plan of Merger, dated as of  March 17, 2005, by and between iPCS, Inc. and Horizon  PCS, Inc. (Incorporated by reference to Exhibit 2.1 to the current  report on Form 8-K filed by iPCS, Inc. on March 18, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.2    |   | Second Amended and Restated Joint Plan of  Reorganization for iPCS, Inc., iPCS Wireless, Inc. and iPCS  Equipment, Inc., dated as of May 26, 2004 (Incorporated by  reference to Exhibit 2.1 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.3    |   | Technical Amendment to Second Amended and Restated  Joint Plan of Reorganization for iPCS, Inc., iPCS Wireless, Inc.  and iPCS Equipment, Inc., dated as of July 8, 2004 (Incorporated by  reference to Exhibit 2.2 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.4    |   | Modification to Second Amended and Restated Joint  Plan of Reorganization for iPCS, Inc., iPCS Wireless Inc. and iPCS  Equipment, Inc., dated as of July 8, 2004 (Incorporated by  reference to Exhibit 2.3 to the registration statement on Form S-4  filed by iPCS, Inc. on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.5    |   | Findings of Fact, Conclusions of Law and Order under  U.S.C. Section 1129(a) and (b) and Federal Rules of  Bankruptcy Procedure 3020 confirming the Second Amended Joint Plan of  Reorganization of iPCS, Inc., iPCS Wireless, Inc. and iPCS  Equipment, Inc., Debtors and Debtors In Possession, as modified, dated  as of July 8, 2004 (Incorporated by reference to Exhibit 2.4 to the  registration statement on Form S-4 filed by iPCS, Inc. on  August 5, 2004 (SEC File No. 333-117942)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 2.6    |   | Joint Plan of Reorganization of Horizon  PCS, Inc., Horizon Personal Communications, Inc. and Bright  Personal Communications Services, LLC, dated as of September 20, 2004  (Incorporated by reference to Exhibit 2.2 to the registration statement  on Form S-4 filed by Horizon PCS, Inc. on March 17, 2005 (SEC  File No. 333-123383))                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.1    |   | Second Restated Certificate of Incorporation of  iPCS, Inc. (Incorporated by reference to Exhibit 3.1 to the current  report on Form 8-K filed by iPCS, Inc. on July 1, 2005 (SEC  File No. 333-32064))                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.2    |   | Amended and Restated Bylaws of iPCS, Inc.  (Incorporated by reference to Exhibit 3.2 to the transition report on Form  10-Q filed by iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.3    |   | Certificate of Incorporation of iPCS  Wireless, Inc. (Incorporated by reference to Exhibit 3.4 to the  registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.4    |   | Bylaws of iPCS Wireless, Inc. (Incorporated by  reference to Exhibit 3.5 to the registration statement on Form S-4  filed by iPCS, Inc. on January 8, 2001 (SEC File  No. 333-47688))                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.5    |   | Certificate of Incorporation of iPCS  Equipment, Inc. (Incorporated by reference to Exhibit 3.6 to the  registration statement on Form S-4 filed by iPCS, Inc. on  January 8, 2001 (SEC File No. 333-47688))                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.6    |   | Bylaws of iPCS Equipment, Inc. (Incorporated by  reference to Exhibit 3.7 to the registration statement on Form S-4  filed by iPCS, Inc. on January 8, 2001 (SEC File  No. 333-47688))                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.7    |   | Articles of Incorporation of Bright Personal Communications  Services, LLC. (Incorporated by reference to Exhibit 3.7 to the  registration statement on Form S-1 filed by iPCS, Inc. on  August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                                                                                     |

 

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| 3.8    |   | Bylaws of Bright Personal Communications Services,  LLC (Incorporated by reference to Exhibit 3.8 to the registration  statement on Form S-1 filed by iPCS, Inc. on August 11, 2005  (SEC File No. 333-117944))                                                                                                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.9    |   | Articles of Incorporation of Horizon Personal  Communications, Inc. (Incorporated by reference to Exhibit 3.9 to  the registration statement on Form S-1 filed by iPCS, Inc. on  August 11, 2005 (SEC File No. 333-117944))                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.10   |   | Bylaws of Horizon Personal Communications, Inc.  (Incorporated by reference to Exhibit 3.10 to the registration statement  on Form S-1 filed by iPCS, Inc. on August 11, 2005 (SEC File  No. 333-117944))                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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 current report on Form 8-K filed by  iPCS, Inc. with the SEC on July 1, 2005 (SEC File  No. 333-32064)) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2    |   | Indenture dated as of April 30, 2004, by and  among, iPCS Escrow Company, iPCS, Inc., iPCS Wireless, Inc., iPCS  Equipment, Inc. and U.S. Bank National Association (Incorporated by  reference to Exhibit 4.1 to the registration statement on Form S-4  filed by iPCS, Inc. with the SEC on August 5, 2004 (SEC File  No. 333-117942))                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3    |   | Indenture, dated as of July 19, 2004, by and  among Horizon PCS Escrow Company, Horizon PCS, certain subsidiary guarantors  and U.S. Bank National Association, as Trustee (Incorporated by reference to  Exhibit 4.1 to the registration statement on Form S-4 filed by  Horizon PCS, Inc. with the SEC on March 19, 2005 (SEC File  No. 333-123383))                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4    |   | First Supplemental Indenture, dated as of June 30,  2005, by and between U.S. Bank National Association, as Trustee, and  iPCS, Inc. (Incorporated by reference to Exhibit 4.2 to the current  report on Form 8-K filed by iPCS, Inc. with the SEC on July 1,  2005 (SEC File No. 333-117942))                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5    |   | Second Supplemental Indenture, dated as of  July 15, 2005, by and among iPCS, Inc., iPCS Wireless, Inc.,  iPCS Equipment, Inc., Bright PCS Holdings, Inc. and U.S. Bank  National Association, as Trustee (Incorporated by reference to Exhibit 4.5  to the transition report on Form 10-Q filed by iPCS, Inc. on  February 14, 2006 (SEC File No. 333-32064))                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6    |   | First Supplemental Indenture, dated as of  July 15, 2005, by and among iPCS, Inc., Bright Personal  Communications Services, LLC, Horizon Personal Communications, Inc.,  Bright PCS Holdings, Inc. and U.S. Bank National Association, as Trustee  (Incorporated by reference to Exhibit 4.6 to the transition report on Form  10-Q filed by iPCS, Inc. on February 14, 2006 (SEC File No. 333-32064))                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as  amended                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as  amended                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1   |   | Certification Pursuant to 18 U.S.C.  Section 1350                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

 

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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 Office*(Principal Executive Officer) |
|   |                            |            |   |
|   | Date:   July 28, 2006 |            |   |
|   |                            | By:             | /s/ STEBBINS B. CHANDOR, JR. |
|   |                            |            | Stebbins B. Chandor, Jr.*Executive Vice President and  Chief Financial Officer*(Principal Financial Officer) |
|   |                            |            |   |
|   | Date:   July 28, 2006 |            |   |

 

 

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