##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 28, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-33576
 
 Airvana, Inc.
 (Exact name of registrant as specified in its charter)
 
 Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    04-3507654
(I.R.S. Employer
Identification Number)
 19 Alpha Road
Chelmsford, Massachusetts 01824
(Address of Principal Executive Offices including Zip Code)
 (978) 250-3000
(Registrants Telephone Number, Including Area Code)
 
 þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



AIRVANA, INC.
 QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED September 28, 2008
Table of Contents
 Page No.PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of December 30, 2007 and September 28, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2007 and September 28, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended
September 30, 2007 and September 28, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATION
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 6. Exhibits
    
    
    54SIGNATURES
    
    
    56Ex-31.1 Certification of CEOEx-31.2 Certification of CFOEx-32.1 Certification of CEOEx-32.2 Certification of CFO
  2




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##### Table of Contents



PART I  Financial Information
 
 Item 1  Condensed Consolidated Financial Statements (unaudited)
 
 AIRVANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 December 30,
    
    
    September 28,2007
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    43,547
    
    
    $
    55,320Investments
    
    
    178,416
    
    
    
    182,494Accounts receivable
    
    
    14,171
    
    
    
    8,093Deferred product cost, current
    
    
    1,050
    
    
    
    2,065Prepaid taxes
    
    
    115
    
    
    
    8,877Deferred tax assets, net
    
    
    1,422
    
    
    
    2,023Prepaid expenses and other current assets
    
    
    3,064
    
    
    
    3,241Total current assets
    
    
    241,785
    
    
    
    262,113Property and equipment
    
    
    17,831
    
    
    
    19,021Less: accumulated depreciation and amortization
    
    
    11,434
    
    
    
    13,7086,397
    
    
    
    5,313Deferred product cost, long-term
    
    
    
    
    
    
    332Deferred tax assets, net
    
    
    612
    
    
    
    941Restricted investments
    
    
    193
    
    
    
    193Goodwill and intangible assets, net
    
    
    12,165
    
    
    
    11,364Other assets
    
    
    414
    
    
    
    363Total assets
    
    $
    261,566
    
    
    $
    280,619Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    3,806
    
    
    $
    2,619Accrued expenses and other current liabilities
    
    
    11,162
    
    
    
    13,654Accrued income taxes
    
    
    15,016
    
    
    
    297Deferred revenue, current
    
    
    79,915
    
    
    
    107,372Total current liabilities
    
    
    109,899
    
    
    
    123,942Deferred revenue, long-term
    
    
    63
    
    
    
    4,762Accrued income taxes
    
    
    4,675
    
    
    
    4,799Other liabilities
    
    
    1,754
    
    
    
    1,305Total long-term liabilities
    
    
    6,492
    
    
    
    10,866Commitments (Note 11)
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.001 par value: 10,000,000
shares authorized, no shares issued or
outstanding at December 30, 2007 and September
28, 2008
    
    
    
    
    
    
    Common stock, $0.001 par value: 350,000,000
shares authorized, 63,559,983 and 64,707,153
shares issued and outstanding at December 30,
2007 and September 28, 2008, respectively (Note
9)
    
    
    64
    
    
    
    65Additional paid-in capital
    
    
    190,409
    
    
    
    194,600Accumulated deficit
    
    
    (45,298
    )
    
    
    (48,854
    )Total stockholders equity
    
    
    145,175
    
    
    
    145,811Total liabilities and stockholders equity
    
    $
    261,566
    
    
    $
    280,619
  3




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##### Table of Contents



AIRVANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 28,
    
    
    September 30,
    
    
    September 28,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Product
    
    $
    
    
    
    $
    5,362
    
    
    $
    141,641
    
    
    $
    65,679Service
    
    
    3,645
    
    
    
    2,885
    
    
    
    18,529
    
    
    
    9,225Total revenue
    
    
    3,645
    
    
    
    8,247
    
    
    
    160,170
    
    
    
    74,904Cost of revenue:Product
    
    
    13
    
    
    
    426
    
    
    
    33,944
    
    
    
    1,860Service
    
    
    1,676
    
    
    
    2,226
    
    
    
    5,198
    
    
    
    6,032Total cost of revenue
    
    
    1,689
    
    
    
    2,652
    
    
    
    39,142
    
    
    
    7,892Gross profit
    
    
    1,956
    
    
    
    5,595
    
    
    
    121,028
    
    
    
    67,012Operating expenses:Research and development
    
    
    20,395
    
    
    
    18,859
    
    
    
    54,976
    
    
    
    56,209Selling and marketing
    
    
    3,029
    
    
    
    3,809
    
    
    
    8,791
    
    
    
    11,212General and administrative
    
    
    1,743
    
    
    
    2,281
    
    
    
    4,980
    
    
    
    6,675In-process research and development
    
    
    
    
    
    
    
    
    
    
    2,340
    
    
    
    Total operating expenses
    
    
    25,167
    
    
    
    24,949
    
    
    
    71,087
    
    
    
    74,096Operating (loss) income
    
    
    (23,211
    )
    
    
    (19,354
    )
    
    
    49,941
    
    
    
    (7,084
    )Interest income, net
    
    
    2,514
    
    
    
    1,505
    
    
    
    7,101
    
    
    
    5,882(Loss) income before income tax expense
    
    
    (20,697
    )
    
    
    (17,849
    )
    
    
    57,042
    
    
    
    (1,202
    )Income tax (benefit) expense
    
    
    (2,478
    )
    
    
    (5,404
    )
    
    
    7,944
    
    
    
    2,354Net (loss) income
    
    $
    (18,219
    )
    
    $
    (12,445
    )
    
    $
    49,098
    
    
    $
    (3,556
    )Net (loss) income per common share
applicable to common stockholders:Basic
    
    $
    (0.35
    )
    
    $
    (0.19
    )
    
    $
    0.80
    
    
    $
    (0.06
    )Diluted
    
    $
    (0.35
    )
    
    $
    (0.19
    )
    
    $
    0.70
    
    
    $
    (0.06
    )Weighted average common shares outstanding:Basic
    
    
    53,814
    
    
    
    64,965
    
    
    
    27,098
    
    
    
    64,487Diluted
    
    
    53,814
    
    
    
    64,965
    
    
    
    34,238
    
    
    
    64,487
  4




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##### Table of Contents



AIRVANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 28,
    
    
    September 30,
    
    
    September 28,2007
    
    
    2008
    
    
    2007
    
    
    2008Operating activitiesNet (loss) income
    
    $
    (18,219
    )
    
    $
    (12,445
    )
    
    $
    49,098
    
    
    $
    (3,556
    )Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    754
    
    
    
    814
    
    
    
    2,258
    
    
    
    2,435Amortization of intangible assets
    
    
    268
    
    
    
    267
    
    
    
    446
    
    
    
    801In-process research and development
    
    
    
    
    
    
    
    
    
    
    2,340
    
    
    
    Stock-based compensation
    
    
    819
    
    
    
    1,278
    
    
    
    2,072
    
    
    
    3,542Deferred tax
(benefit) provision
    
    
    (960
    )
    
    
    (5,404
    )
    
    
    (955
    )
    
    
    2,354Tax benefit related to exercise of stock options
    
    
    
    
    
    
    (481
    )
    
    
    
    
    
    
    (1,978
    )Amortization of investments
    
    
    (1,436
    )
    
    
    (971
    )
    
    
    (4,023
    )
    
    
    (3,381
    )Amortization of leasehold incentive
    
    
    (131
    )
    
    
    (130
    )
    
    
    (391
    )
    
    
    (391
    )Non-cash interest income
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    8,547
    
    
    
    (152
    )
    
    
    37,851
    
    
    
    6,078Deferred product cost
    
    
    (622
    )
    
    
    (1,043
    )
    
    
    32,891
    
    
    
    (1,347
    )Prepaid taxes
    
    
    3,214
    
    
    
    (8,877
    )
    
    
    5,665
    
    
    
    (8,762
    )Prepaid expenses and other current assets
    
    
    (609
    )
    
    
    (960
    )
    
    
    (338
    )
    
    
    (177
    )Accounts payable
    
    
    987
    
    
    
    1,027
    
    
    
    302
    
    
    
    (1,187
    )Accrued expenses and other current liabilities
    
    
    2,340
    
    
    
    4,535
    
    
    
    1,784
    
    
    
    2,624Accrued income taxes
    
    
    (4,630
    )
    
    
    (125
    )
    
    
    3,807
    
    
    
    (15,901
    )Deferred revenue
    
    
    27,171
    
    
    
    34,738
    
    
    
    (51,329
    )
    
    
    32,156Net cash provided by operating activities
    
    
    17,493
    
    
    
    12,071
    
    
    
    81,375
    
    
    
    13,310Investing activitiesPurchases of property and equipment
    
    
    (812
    )
    
    
    (534
    )
    
    
    (3,071
    )
    
    
    (1,567
    )Purchase of 3Way Networks, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (10,907
    )
    
    
    Purchases of investments
    
    
    (134,385
    )
    
    
    (72,834
    )
    
    
    (298,195
    )
    
    
    (248,627
    )Maturities of investments
    
    
    76,940
    
    
    
    83,490
    
    
    
    200,534
    
    
    
    231,299Proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,631Other assets
    
    
    (30
    )
    
    
    32
    
    
    
    (117
    )
    
    
    51Net cash (used in) provided by investing activities
    
    
    (58,287
    )
    
    
    10,154
    
    
    
    (111,756
    )
    
    
    (2,213
    )Financing activitiesPayments on long-term debt
    
    
    (514
    )
    
    
    (7
    )
    
    
    (567
    )
    
    
    (119
    )Proceeds from initial public offering, net of offering costs
    
    
    53,089
    
    
    
    
    
    
    
    51,380
    
    
    
    Tax benefit related to exercise of stock options
    
    
    
    
    
    
    481
    
    
    
    
    
    
    
    1,978Payments of cash dividend
    
    
    
    
    
    
    (21
    )
    
    
    (72,707
    )
    
    
    (71
    )Purchase of treasury stock
    
    
    
    
    
    
    (3,547
    )
    
    
    (96
    )
    
    
    (3,547
    )Proceeds from exercise of stock options
    
    
    56
    
    
    
    733
    
    
    
    558
    
    
    
    2,219Net cash provided by (used in) financing activities
    
    
    52,631
    
    
    
    (2,361
    )
    
    
    (21,432
    )
    
    
    460Effect of exchange rate changes on cash and cash equivalents
    
    
    (35
    )
    
    
    144
    
    
    
    17
    
    
    
    216Net increase (decrease) in cash and cash equivalents
    
    
    11,802
    
    
    
    20,008
    
    
    
    (51,796
    )
    
    
    11,773Cash and cash equivalents at beginning of period
    
    
    23,217
    
    
    
    35,312
    
    
    
    86,815
    
    
    
    43,547Cash and cash equivalents at end of period
    
    $
    35,019
    
    
    $
    55,320
    
    
    $
    35,019
    
    
    $
    55,320Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    $
    45
    
    
    $
    9,025
    
    
    $
    100
    
    
    $
    24,603Supplemental Disclosure of Noncash ActivitiesAccretion of dividends on redeemable convertible preferred stock
    
    $
    363
    
    
    $
    
    
    
    $
    4,032
    
    
    $
    
  5




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##### Table of Contents



AIRVANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Operations
 Business Description
  2. Summary of Significant Accounting Policies
 Basis of Presentation and Principles of Consolidation
  Unaudited Interim Financial Statements
  Use of Estimates
  6




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Reclassification
 Accounting for Income Taxes
 Fiscal Year
  Cash and Cash Equivalents
  Investments and Restricted Investments
   Revenue Recognition
 Software Revenue
Recognition
  7




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8




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##### Table of Contents



Segment and Geographic Information
 Disclosures About Segments of an
Enterprise and Related Information
 Stock-Based Compensation
 Share-Based Payment
 Comprehensive Income
 Reporting Comprehensive Income
 9




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##### Table of Contents



Income Taxes
 Accounting for Income
Taxes
 Accounting for Uncertainty in Income Taxes
 New Pronouncements
 Business Combinations
 a.
    
    Recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree at their
acquisition-date fair values;b.
    
    Recognizes and measures the goodwill acquired in the business combination or a gain from
a bargain purchase; andc.
    
    Determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
  Fair Value Measurements
 Noncontrolling Interests in Consolidated
Financial Statements
 10




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Determination of the Useful Life of
Intangible Assets Goodwill
and Other Intangible Assets
  
    
    The weighted-average period prior to the next renewal or extension (whether
explicit and implicit) for each major intangible asset class;
    
    The entitys accounting policy for the treatment of costs incurred to renew or
extend the term of a recognized intangible asset; and
    
    For intangible asset renewed or extended during the period:
 
    
    For entities that capitalize renewal or extension costs, the costs
incurred to review or extend the asset, for each major intangible asset class and
    
    The weighted-average period prior to the next renewal or extension
(whether explicit and implicit) for each major intangible asset class.
  3. Investments
 Accounting for Certain Investments in Debt and Equity
Securities
  December 30, 2007
    
    
    September 28, 2008Amortized
    
    
    Fair Market
    
    
    Amortized
    
    
    Fair MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueCorporate debt securities
    
    $
    124,385
    
    
    $
    124,856
    
    
    $
    112,665
    
    
    $
    109,960Credit card asset-backed securities
    
    
    54,031
    
    
    
    54,092
    
    
    
    3,529
    
    
    
    3,531Debt securities of U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    66,300
    
    
    
    66,260$
    178,416
    
    
    $
    178,948
    
    
    $
    182,494
    
    
    $
    179,751
    11




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##### Table of Contents



4. Goodwill and Intangible Assets
  September 28, 2008Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    946
    
    
    $
    2,394Customer relationships
    
    
    1,350
    
    
    
    478
    
    
    
    872Non-compete agreements
    
    
    190
    
    
    
    90
    
    
    
    100Total intangible assets
    
    $
    4,880
    
    
    $
    1,514
    
    
    $
    3,366
 December 30, 2007Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    446
    
    
    $
    2,894Customer relationships
    
    
    1,350
    
    
    
    225
    
    
    
    1,125Non-compete agreements
    
    
    190
    
    
    
    42
    
    
    
    148Total intangible assets
    
    $
    4,880
    
    
    $
    713
    
    
    $
    4,167
  Fiscal year:Remainder of 2008
    
    $
    2672009
    
    
    1,0692010
    
    
    1,0272011
    
    
    7802012
    
    
    223$
    3,366
   5. Fair Value Measurements
  12




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
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
 
    
    Level 2  Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
 
    
    Level 3  Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes certain pricing
models, discounted cash flow methodologies and similar techniques that use significant
unobservable inputs.
  September 28,2008Corporate debt securities
    
    $
    113,491Debt securities of U.S. government agencies
    
    
    66,260$
    179,751
  September 28,2008Money market mutual funds
    
    $
    46,424
  6. Income Taxes
    13




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7. Property and Equipment
  December 30,
    
    
    September 28,Estimated Useful Life
    
    
    2007
    
    
    2008Computer equipment and purchased software
    
    1.5 - 3 years
    
    $
    5,343
    
    
    $
    5,372Test and lab equipment
    
    3 years
    
    
    5,100
    
    
    
    6,313Leasehold improvements
    
    Shorter of life of lease or 5 years
    
    
    6,497
    
    
    
    6,494Office furniture and equipment
    
    3 - 5 years
    
    
    891
    
    
    
    842Total property and equipment
    
    
    
    
    
    
    17,831
    
    
    
    19,021Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (11,434
    )
    
    
    (13,708
    )$
    6,397
    
    
    $
    5,313
  8. Concentrations of Credit Risk and Significant Customers
  14




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9. Common Stock
 Stock Option Plans
   Share-Based Payments and SFAS 123(R).
 15




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WeightedAverageWeighted
    
    
    Average
    
    
    
    
    
    
    Grant DateAverage
    
    
    Remaining
    
    
    
    
    
    
    FairNumber of
    
    
    Exercise Price
    
    
    Contractual
    
    
    Aggregate
    
    
    ValueShares
    
    
    per Share
    
    
    Term in Years
    
    
    Intrinsic Value
    
    
    Per ShareOutstanding at December 30, 2007
    
    
    13,335,453
    
    
    $
    2.24
    
    
    
    7.05
    
    
    $
    44,728Granted
    
    
    2,247,556
    
    
    
    5.42
    
    
    
    
    
    
    
    
    
    
    $
    3.11Exercised
    
    
    (1,815,504
    )
    
    
    1.22
    
    
    
    
    
    
    $
    7,623Cancelled
    
    
    (890,520
    )
    
    
    3.04Outstanding at September 28, 2008
    
    
    12,876,985
    
    
    
    2.88
    
    
    
    6.88
    
    
    $
    38,434Options outstanding at September
28, 2008 expected to vest (1)
    
    
    12,451,309
    
    
    $
    2.82
    
    
    
    6.82
    
    
    $
    28,233Exercisable at September 28, 2008
    
    
    6,903,484
    
    
    
    1.70
    
    
    
    5.66
    
    
    $
    37,852
 
 (1)
    
    This represents the number of vested stock options as of September 28, 2008 plus the unvested
outstanding options at September 28, 2008 expected to vest in the future, adjusted for
estimated forfeitures.    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 28,
    
    
    September 30,
    
    
    September 28,2007
    
    
    2008
    
    
    2007
    
    
    2008Cost of service revenue
    
    $
    45
    
    
    $
    70
    
    
    $
    122
    
    
    $
    181Research and development
    
    
    506
    
    
    
    757
    
    
    
    1,250
    
    
    
    2,112Selling and marketing
    
    
    185
    
    
    
    266
    
    
    
    501
    
    
    
    763General and administrative
    
    
    83
    
    
    
    185
    
    
    
    199
    
    
    
    486Total stock-based compensation
    
    $
    819
    
    
    $
    1,278
    
    
    $
    2,072
    
    
    $
    3,542
 Common Stock Repurchase Plan
  Approximate DollarTotal Number of
    
    Value of SharesShares Purchased as
    
    That May Yet BeTotal Number of
    
    Average Price Paid
    
    Part of Publicly
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    per Share
    
    Announced Program
    
    Announced ProgramJune 30, 2008  July 27, 2008
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    $
    20,000,000July 28, 2008  August 24, 2008
    
    
    205,100
    
    
    $
    5.30
    
    
    
    205,100
    
    
    $
    18,913,000August 25, 2008  September
28, 2008
    
    
    465,848
    
    
    $
    5.28
    
    
    
    465,848
    
    
    $
    16,451,000Total
    
    
    670,948
    (1)
    
    $
    5.29
    
    
    
    670,948
    (1)
    
    $
    16,451,000
 16




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##### Table of Contents



10. Net Income Per Share
 Earnings Per
Share
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 28,
    
    
    September 30,
    
    
    September 28,2007
    
    
    2008
    
    
    2007
    
    
    2008Numerator:Net (loss) income
    
    $
    (18,219
    )
    
    $
    (12,445
    )
    
    $
    49,098
    
    
    $
    (3,556
    )Allocation of net (loss) income:Basic:Accretion of redeemable preferred stock
    
    $
    363
    
    
    $
    
    
    
    $
    4,032
    
    
    $
    Dividend allocated to preferred stockholders
    
    
    
    
    
    
    
    
    
    
    23,434
    
    
    
    Net income applicable to preferred stockholders
    
    
    363
    
    
    
    
    
    
    
    27,466
    
    
    
    Net (loss) income applicable to common stockholders
    
    
    (18,582
    )
    
    
    (12,445
    )
    
    
    21,632
    
    
    
    (3,556
    )Net (loss) income
    
    $
    (18,219
    )
    
    $
    (12,445
    )
    
    $
    49,098
    
    
    $
    (3,556
    )Diluted:Accretion of redeemable preferred stock
    
    $
    363
    
    
    $
    
    
    
    $
    4,032
    
    
    $
    Dividend allocated to preferred stockholders
    
    
    
    
    
    
    
    
    
    
    21,181
    
    
    
    Net income applicable to preferred stockholders
    
    
    363
    
    
    
    
    
    
    
    25,213
    
    
    
    Net (loss) income applicable to common stockholders
    
    
    (18,582
    )
    
    
    (12,445
    )
    
    
    23,885
    
    
    
    (3,556
    )Net (loss) income
    
    $
    (18,219
    )
    
    $
    (12,445
    )
    
    $
    49,098
    
    
    $
    (3,556
    )Denominator:Basic weighted average shares
    
    
    53,814
    
    
    
    64,965
    
    
    
    27,098
    
    
    
    64,487Dilutive effect of common stock equivalents
    
    
    
    
    
    
    
    
    
    
    7,140
    
    
    
    Diluted weighted average shares
    
    
    53,814
    
    
    
    64,965
    
    
    
    34,238
    
    
    
    64,487Calculation of net income per share:Basic:Net (loss) income applicable to common stockholders
    
    $
    (18,582
    )
    
    $
    (12,445
    )
    
    $
    21,632
    
    
    $
    (3,556
    )Weighted average shares of common stock outstanding
    
    
    53,814
    
    
    
    64,965
    
    
    
    27,098
    
    
    
    64,487Net (loss) income per share
    
    $
    (0.35
    )
    
    $
    (0.19
    )
    
    $
    0.80
    
    
    $
    (0.06
    )
 17




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 28,
    
    
    September 30,
    
    
    September 28,2007
    
    
    2008
    
    
    2007
    
    
    2008Diluted:Net (loss) income applicable to common stockholders
    
    $
    (18,582
    )
    
    $
    (12,445
    )
    
    $
    23,885
    
    
    $
    (3,556
    )Weighted average shares of common stock outstanding
    
    
    53,814
    
    
    
    64,965
    
    
    
    34,238
    
    
    
    64,487Net (loss) income per share
    
    $
    (0.35
    )
    
    $
    (0.19
    )
    
    $
    0.70
    
    
    $
    (0.06
    )
  11. Lease Commitments
     Fiscal year:Remainder of 2008
    
    $
    3912009
    
    
    1,5232010
    
    
    1,5012011
    
    
    1,5082012
    
    
    429Thereafter
    
    
    9$
    5,361
 12. Deferred Revenue and Deferred Product Cost
   18




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Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to June 2007 specified upgrade
    
    $
    288
    
    
    $
    
    
    
    $
    288Deferred revenue related to December 2007 specified upgrade
    
    
    67,676
    
    
    
    
    
    
    
    67,676Deferred revenue related to July 2008 specified upgrade
    
    
    37,775
    
    
    
    
    
    
    
    37,775Other deferred revenue
    
    
    1,633
    
    
    
    4,762
    
    
    
    6,395Total deferred revenue
    
    $
    107,372
    
    
    $
    4,762
    
    
    $
    112,134Deferred product cost related to June 2007 specified upgrade
    
    $
    4
    
    
    $
    
    
    
    $
    4Deferred product cost related to December 2007 specified upgrade
    
    
    856
    
    
    
    
    
    
    
    856Deferred product cost related to July 2008 specified upgrade
    
    
    719
    
    
    
    
    
    
    
    719Other deferred product cost
    
    
    486
    
    
    
    332
    
    
    
    818Total deferred product cost
    
    $
    2,065
    
    
    $
    332
    
    
    $
    2,397
  Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to April 2005 specified upgrade
    
    $
    44
    
    
    $
    
    
    
    $
    44Deferred revenue related to September 2006 specified upgrade
    
    
    6,191
    
    
    
    
    
    
    
    6,191Deferred revenue related to June 2007 specified upgrade
    
    
    61,316
    
    
    
    
    
    
    
    61,316Deferred revenue related to December 2007 specified upgrade
    
    
    11,273
    
    
    
    
    
    
    
    11,273Other deferred revenue
    
    
    1,091
    
    
    
    63
    
    
    
    1,154Total deferred revenue
    
    $
    79,915
    
    
    $
    63
    
    
    $
    79,978Deferred product cost related to September 2006 specified upgrade
    
    $
    73
    
    
    $
    
    
    
    $
    73Deferred product cost related to June 2007 specified upgrade
    
    
    853
    
    
    
    
    
    
    
    853Deferred product cost related to December 2007 specified upgrade
    
    
    124
    
    
    
    
    
    
    
    124Total deferred product cost
    
    $
    1,050
    
    
    $
    
    
    
    $
    1,050
 13. Accrued Expenses and Other Current Liabilities
  December 30,
    
    
    September 28,2007
    
    
    2008Payroll and related accruals
    
    $
    7,668
    
    
    $
    8,775Accrued rent expense
    
    
    601
    
    
    
    606Accrued legal fees
    
    
    173
    
    
    
    191Accrued audit and tax
    
    
    504
    
    
    
    556Accrued royalties
    
    
    771
    
    
    
    1,604Other accruals
    
    
    1,445
    
    
    
    1,922$
    11,162
    
    
    $
    13,654
 14. Acquisition
  Business Combinations
 EstimatedUseful Life
    
    
    Fair ValueDeveloped Technology
    
    60 months
    
    $
    3,340Customer Relationships
    
    48 months
    
    
    1,350
 19




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EstimatedUseful Life
    
    
    Fair ValueNon-Compete Agreements
    
    36 months
    
    
    190Total Intangible Assets
    
    
    
    
    
    $
    4,880
    Fair ValueApril 30, 2007Assets Acquired:Current assets
    
    $
    462Fixed assets
    
    
    504Deferred tax asset
    
    
    509IPR&D
    
    
    2,340Intangible assets
    
    
    4,880Goodwill
    
    
    7,99816,693Liabilities Assumed:Current liabilities
    
    
    689Deferred tax liability
    
    
    1,464Non-current liabilities
    
    
    7042,857Net assets acquired
    
    $
    13,836
  20




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Pro Forma Results of Operations
  Three Months Ended
    
    Nine Months EndedSeptember 30, 2007
    
    September 30, 2007Pro forma revenues
    
    $
    3,645
    
    
    $
    160,629Pro forma net income
    
    $
    (18,219
    )
    
    $
    49,629Pro forma earnings per share
    
    $
    (0.35
    )
    
    $
    0.81
 15. Special Cash Dividend
  16. Related Party Transactions
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks
and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include any expectation of earnings, revenues, billings or other
financial items; any statements of the plans, strategies and objectives of management for future
operations; factors that may affect our operating results; statements concerning new products or
services; statements related to future capital expenditures; statements related to future economic
conditions or performance; statements as to industry trends and other matters that do not relate
 21




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strictly to historical facts or statements of assumptions underlying any of the foregoing.
These statements are often identified by the use of words such as, but not limited to,
anticipate, believe, continue, could, estimate, expect, intend, may, will,
plan, target, continue, and similar expressions or variations intended to identify
forward-looking statements. These statements are based on the beliefs and assumptions of our
management based on information currently available to management. Such forward-looking statements
are subject to risks, uncertainties and other important factors that could cause actual results and
the timing of certain events to differ materially from future results expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below, and those discussed in Part II, Item 1A Risk Factors
included elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.
Furthermore, such forward-looking statements speak only as of the date of this report. We undertake
no obligation to update any forward-looking statements to reflect events or circumstances after the
date of such statements.
 Overview
      22




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Our OEM Business Model
   23




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Software Revenue Recognition.
 Impact of SOP No. 97-2, Software Revenue Recognition
     
 
 
    
    Software release A is delivered and related product and service
billings are recognized as revenue because there are no
outstanding commitments for upgrades.
    
    Software upgrade B is committed in Period 1 and, therefore,
product and service billings for shipments of software release A
after that point cannot be recognized as revenue before software
upgrade B is delivered.
    
    Before software upgrade B is delivered, software upgrade C is
committed in Period 2 and, therefore, product and service billings
for shipments of software release A after that point cannot be
recognized before software upgrade C is delivered.
    
    When software upgrade B is delivered in Period 3, all deferred
revenue, which consists of deferred revenue from billings of
software release A, from the time of the commitment of software
upgrade B until the time of the commitment of software upgrade C
is recognized, subject to being able to establish VSOE of fair
value for maintenance and support services. 24




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##### Table of Contents



When software upgrade C is delivered in Period 4, all remaining
deferred revenue from the time of the commitment of software
upgrade C, which consists of deferred revenue from billings of
software release A and software upgrade B, is recognized because
no commitments are outstanding, subject to being able to establish
VSOE of fair value for maintenance and support services.  Key Elements of Financial Performance
 Revenue
  Product Revenue.
    25




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Service Revenue.
    Product and Service Billings
   26




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Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 28, 2008
    
    
    September 30, 2007
    
    
    September 28, 2008Revenue
    
    $
    3,645
    
    
    $
    8,247
    
    
    $
    160,170
    
    
    $
    74,904Less: deferred revenue acquired
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    192,259
    
    
    
    112,134
    
    
    
    192,259
    
    
    
    112,134Less: deferred revenue, at
beginning of period
    
    
    (165,088
    )
    
    
    (77,396
    )
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    30,816
    
    
    $
    42,985
    
    
    $
    108,840
    
    
    $
    107,060
 Deferred Revenue
  Cost of Revenue
  
    
    cost for channel card hardware provided by contract manufacturers;
    
    cost of hardware for our RNCs and network management systems;
    
    license fees for third-party software and other intellectual property used in our
products; and
    
    other related overhead costs.
   Cost Related to Product and Service Billings
 27




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##### Table of Contents



Deferred Product Cost
  Gross Profit
  Gross Profit on Billings
  Operating Expenses
 Research and Development.
 
    
    salaries, benefits and stock-based compensation related to our engineers;
    
    cost of prototypes and test equipment relating to the development of new products and the
enhancement of existing products;
    
    payments to suppliers for design and consulting services; and
    
    other related overhead costs.
  Sales and Marketing.
 
    
    salaries, benefits and stock-based compensation related to our sales, marketing and
customer support personnel;
    
    commissions payable to our sales personnel;
    
    travel, lodging and other out-of-pocket expenses;
    
    marketing program expenses; and
 28




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##### Table of Contents




    
    other related overhead costs.
  General and Administrative.
 
    
    salaries, benefits and stock-based compensation related to our executive, finance, legal,
human resource and administrative personnel;
    
    professional services costs; and
    
    other related overhead costs.
  Stock-Based Compensation Expense
   Operating Income on Billings
  Interest Income, Net
  Income Taxes
  Cash Flow from Operating Activities
  29




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##### Table of Contents



Cash and Investments
  Fiscal Year
  Critical Accounting Policies and Estimates
   Investments and Restricted Investments
   Revenue Recognition
 Software Revenue
Recognition.
  30




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31




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##### Table of Contents



Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation Transition and Disclosure an Amendment of FASB Statement No. 123. Accounting for Equity Instruments that are Issued
to Other than Employees for Acquiring, or in Conjunction with Selling, Goods and Services,
 Share-Based Payment
  32




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##### Table of Contents



Share-Based
Payments and SFAS 123(R).
 Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in Income
Taxes
 Results of Operations
 Comparison of Three Months Ended September 30, 2007 and September 28, 2008
 Revenue and Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(dollars in thousands)Revenue
    
    $
    3,645
    
    
    $
    8,247
    
    
    $
    4,602Deferred revenue, end of period
    
    
    192,259
    
    
    
    112,134Less: deferred revenue, beginning of period
    
    
    (165,088
    )
    
    
    (77,396
    )Product and service billings
    
    $
    30,816
    
    
    $
    42,985
    
    
    $
    12,169
  33




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##### Table of Contents



Cost of Revenue and Cost Related to Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(dollars in thousands)Cost of revenue
    
    $
    1,689
    
    
    $
    2,652
    
    
    $
    963Deferred product cost, end of period
    
    
    1,323
    
    
    
    2,397Less: deferred product cost, beginning of period
    
    
    (701
    )
    
    
    (1,354
    )Cost related to product billings
    
    $
    2,311
    
    
    $
    3,695
    
    
    $
    1,384
   Gross Profit and Gross Profit on Billings
 Three Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(In thousands)Gross profit
    
    $
    1,956
    
    
    $
    5,595
    
    
    $
    3,639Deferred revenue, at end of period
    
    
    192,259
    
    
    
    112,134Less: Deferred revenue, at beginning of period
    
    
    (165,088
    )
    
    
    (77,396
    )Deferred product cost, at beginning of period
    
    
    701
    
    
    
    1,354Less: Deferred product cost, at end of period
    
    
    (1,323
    )
    
    
    (2,397
    )Gross profit on Billings
    
    $
    28,505
    
    
    $
    39,290
    
    
    $
    10,785
   34




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Operating Expenses
 Three Months Ended
    
    
    Period-to-Period ChangeSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Amount
    
    
    Percentage(dollars in thousands)Research and development
    
    $
    20,395
    
    
    $
    18,859
    
    
    $
    (1,536
    )
    
    
    (7.5
    %)Sales and marketing
    
    
    3,029
    
    
    
    3,809
    
    
    
    780
    
    
    
    25.8
    %General and administrative
    
    
    1,743
    
    
    
    2,281
    
    
    
    538
    
    
    
    30.9
    %Total operating expenses
    
    $
    25,167
    
    
    $
    24,949
    
    
    $
    (218
    )
    
    
    (0.9
    %)
 Research and Development
 Sales and Marketing
 General and Administrative
 Operating Loss and Operating Profit on Billings
 Three Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(In thousands)Operating loss
    
    $
    (23,211
    )
    
    $
    (19,354
    )
    
    $
    (3,857
    )Deferred revenue, at end of period
    
    
    192,259
    
    
    
    112,134Less: Deferred revenue, at beginning of period
    
    
    (165,088
    )
    
    
    (77,396
    )Deferred product cost, at beginning of period
    
    
    701
    
    
    
    1,354Less: Deferred product cost, at end of period
    
    
    (1,323
    )
    
    
    (2,397
    )Operating profit on billings
    
    $
    3,338
    
    
    $
    14,341
    
    
    $
    11,003
   Interest Income, Net.
 Income Taxes.
 Comparison of Nine Months Ended September 30, 2007 and September 28, 2008
 35




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Revenue and Product and Service Billings
 Nine Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(dollars in thousands)Revenue
    
    $
    160,170
    
    
    $
    74,904
    
    
    $
    (85,266
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, end of period
    
    
    192,259
    
    
    
    112,134Less: deferred revenue, beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    108,840
    
    
    $
    107,060
    
    
    $
    (1,780
    )
   Cost of Revenue and Cost Related to Product and Service Billings
 Nine Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(dollars in thousands)Cost of revenue
    
    $
    39,142
    
    
    $
    7,892
    
    
    $
    (31,250
    )Deferred product cost, end of period
    
    
    1,323
    
    
    
    2,397Less: deferred product cost, beginning of period
    
    
    (34,214
    )
    
    
    (1,050
    )Cost related to product billings
    
    $
    6,251
    
    
    $
    9,239
    
    
    $
    2,988
   Gross Profit and Gross Profit on Billings
 Nine Months Ended
    
    
    Period-to-PeriodSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Change(In thousands)Gross profit
    
    $
    121,028
    
    
    $
    67,012
    
    
    $
    (54,016
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    192,259
    
    
    
    112,134Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Deferred product cost, at beginning of period
    
    
    34,214
    
    
    
    1,050Less: Deferred product cost, at end of period
    
    
    (1,323
    )
    
    
    (2,397
    )Gross profit on Billings
    
    $
    102,589
    
    
    $
    97,821
    
    
    $
    (4,768
    )
 36




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Operating Expenses
 Nine Months Ended
    
    
    Period-to-Period ChangeSeptember 30, 2007
    
    
    September 28, 2008
    
    
    Amount
    
    
    Percentage(dollars in thousands)Research and development
    
    $
    54,976
    
    
    $
    56,209
    
    
    $
    1,233
    
    
    
    2.2
    %Sales and marketing
    
    
    8,791
    
    
    
    11,212
    
    
    
    2,421
    
    
    
    27.5
    %General and administrative
    
    
    4,980
    
    
    
    6,675
    
    
    
    1,695
    
    
    
    34.0
    %In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    (2,340
    )Total operating expenses
    
    $
    71,087
    
    
    $
    74,096
    
    
    $
    3,009
    
    
    
    4.2
    %
 Research and Development
 Sales and Marketing
 General and Administrative
 37




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Operating Profit and Operating Profit on Billings
 Nine Months Ended
    
    
    Period-to-September 30,
    
    
    September 28,
    
    
    Period2007
    
    
    2008
    
    
    Change(In thousands)Operating profit (loss)
    
    $
    49,941
    
    
    $
    (7,084
    )
    
    $
    (57,025
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    192,259
    
    
    
    112,134Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Deferred product cost, at beginning of period
    
    
    34,214
    
    
    
    1,050Less: Deferred product cost, at end of period
    
    
    (1,323
    )
    
    
    (2,397
    )Operating profit on billings
    
    $
    31,502
    
    
    $
    23,725
    
    
    $
    (7,777
    )
   Interest Income, Net.
 Income Taxes.
 Liquidity and Capital Resources
   38




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Total Number
    
    
    Approximate DollarTotal
    
    
    
    
    
    
    of Shares
    
    
    Value of SharesNumber of
    
    
    Average
    
    
    Purchased as
    
    
    That May Yet BeShares
    
    
    Price Paid
    
    
    Part of Publicly
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Announced Program
    
    
    Announced ProgramJune 30, 2008  July 27, 2008
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    $
    20,000,000July 28, 2008  August 24, 2008
    
    
    205,100
    
    
    $
    5.30
    
    
    
    205,100
    
    
    $
    18,913,000August 25, 2008  September
28, 2008
    
    
    465,848
    
    
    $
    5.28
    
    
    
    465,848
    
    
    $
    16,451,000Total
    
    
    670,948
    (1)
    
    $
    5.29
    
    
    
    670,948
    (1)
    
    $
    16,451,000
  (in thousands)As of
    
    As ofDecember 30,
    
    September 28,2007
    
    2008Cash and cash equivalents
    
    $
    43,547
    
    
    $
    55,320Investments, short-term
    
    
    178,416
    
    
    
    182,494Accounts receivable, net
    
    
    14,171
    
    
    
    8,093Working capital
    
    
    131,886
    
    
    
    138,171
 (in thousands)Nine Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 28,2007
    
    2008Cash flow from operating activities
    
    $
    81,375
    
    
    $
    13,310Cash flow from investing activities
    
    
    (111,756
    )
    
    
    (2,213
    )Cash flow from financing activities
    
    
    (21,432
    )
    
    
    460
     39




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Fiscal year:Remainder of 2008
    
    $
    3912009
    
    
    1,5232010
    
    
    1,5012011
    
    
    1,5082012
    
    
    429Thereafter
    
    
    9$
    5,361
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
  40




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Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
 Our business is subject to numerous risks. We caution you that the following important
factors, among others, could cause our actual results to differ materially from those expressed in
forward-looking statements made by us or on our behalf in filings with the SEC, press releases,
communications with investors and oral statements. Any or all of our forward-looking statements in
this Quarterly Report on Form 10-Q and in any other public statements we make may turn out to be
wrong. They may be affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed. Actual future results
may vary materially from those anticipated in forward-looking statements. We undertake no
obligation to update any forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further disclosure we make in our
reports filed with the SEC.
 Risks Relating to Our Business
 We depend on a single OEM customer, Nortel Networks, for almost all of our revenue and billings,
and a significant shortfall in sales to Nortel Networks would significantly harm our business and
operating results.
  41




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Because our OEM business model requires us to defer the recognition of most of our revenue from
product sales until we deliver specified upgrades, and in some cases to further defer a portion of
our revenue until applicable warranty periods expire, our revenue in any period is not likely to
be indicative of the level of our sales activity in that period.
  Our revenue and billings growth may be constrained by our product concentration and lack of
revenue diversification.
  A majority of our current products are based exclusively on the CDMA2000 air interface standard
for wireless communications, and therefore any movement by existing or prospective operator
customers to a different standard could impair our business and operating results.
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The introduction of fourth generation wireless technology could reduce spending on our EV-DO
products and therefore harm our operating results.
   Qualcomm recently indicated to us that we may owe royalties on EV-DO products that we sold
beginning in 2007. If we are required to pay these royalties, our business and operating results
would be harmed.
  The variable sales and deployment cycles for our EV-DO products are likely to cause our quarterly
billings to fluctuate materially.
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If demand for mobile broadband services does not develop as quickly as we anticipate, or develops
in a manner that we do not anticipate, our revenue and billings may decline or fail to grow, which
would adversely affect our operating results.
  Deployments of our EV-DO products by two large wireless operators account for a substantial
majority of our revenue and billings, and a decision by these operators to reduce their use of our
products would harm our business and operating results.
  If the market for our FMC products does not develop as we expect, or our FMC products do not
achieve sufficient market acceptance, our business will suffer.
  Our future sales will depend on our success in generating sales to a limited number of OEM
customers, and any failure to do so would have a significant detrimental effect on our business.
  44




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The unpredictability of our future results may adversely affect the trading price of our common
stock.
  
    
    the effect of our OEM business model or changes to this model on our revenue recognition;
    
    the timing of agreements or commitments with our OEM customers for new products or
software upgrades;
    
    the timing of our delivery of software upgrades;
    
    the unpredictable deployment and purchasing patterns of operators;
    
    fluctuations in demand for products of our OEM customers that are sold together with our
products, and the timing and size of orders for such products of our OEM customers;
    
    new product introductions and enhancements by our competitors and us;
    
    the timing and acceptance of software upgrades sold by our OEM customers to their
installed base of operators;
    
    changes in our pricing policies or the pricing policies of our competitors;
    
    our ability to develop, introduce and deploy new products and product upgrades that meet
customer requirements in a timely manner;
    
    adjustments in the reporting of royalties and product sales by our OEM customers
resulting from reviews and audits of such reports;
    
    our and our OEM customers ability to obtain sufficient supplies of limited source
components or materials;
    
    our and our OEM customers ability to attain and maintain production volumes and quality
levels for our products; and
    
    general economic conditions, as well as those specific to the communications, networking,
wireless and related industries.
   We may not be able to achieve profitability for any period in the future or sustain cash flow
from operating activities.
  45




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Claims by other parties that we infringe their proprietary technology could force us to redesign
our products or to incur significant costs.
  
    
    stop selling, incorporating or using our products that use the challenged intellectual
property;
    
    obtain from the owner of the infringed intellectual property right a license to sell or
use the relevant technology, which license may not be available on reasonable terms, or at
all;
    
    redesign those products that use any allegedly infringing technology, which may be costly
and time-consuming; or
    
    refund deposits and other amounts received for allegedly infringing technology or
products.
   If we are not successful in obtaining from third parties licenses to intellectual property that
are required for GSM/UMTS products that we are developing, we may not be able to expand our
business as expected and our business may suffer.
  46




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If we do not timely deliver new and enhanced products that respond to customer requirements and
technological changes, operators may not buy our products and our revenue and product and service
billings may decline significantly.
    Our revenue and product and service billings growth will be limited if our OEM customers are
unable to continue to sell our products to large wireless operators or if we have to discount our
products to support the selling efforts of our OEM customers.
  We depend on sole sources for certain components of our products and our business would be harmed
if the supply from our sole sources were disrupted.
  The market for network infrastructure products is highly competitive and continually evolving, and
if we are not able to compete effectively, we may not be able to continue to expand our business
as expected and our business may suffer.
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Our agreement with our largest OEM customer, Nortel Networks, provides Nortel Networks with an
option to license some of our intellectual property to develop internally products competitive
with the products it currently purchases from us.
  Adverse
conditions in the global economy and disruption of financial markets
could negatively affect our customers, and therefore, our performance.
   Because our business depends on the continued strength of the communications industry, our
operating results will suffer if that industry experiences an economic downturn.
  The success of our business could be jeopardized if we are unable to protect our intellectual
property adequately.
  48




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We may engage in future acquisitions that could disrupt our business, cause dilution to our
stockholders and harm our financial condition and operating results.
  Future interpretations of existing accounting standards or the application of new standards could
adversely affect our operating results.
  Software Revenue Recognition
  The loss of key personnel or an inability to attract and retain additional personnel may impair
our ability to grow our business.
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We have incurred, and will continue to incur, significant increased costs as a result of operating
as a public company as compared with our history as a private company, and our management is
required to devote substantial time to public company compliance initiatives. If we are unable to
absorb these increased costs or maintain management focus on development and sales of our product
offerings and services, we may not be able to achieve our business plan.
   If we are unable to manage our growth and expand our operations successfully, our business and
operating results will be harmed and our reputation may be damaged.
   50




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We may need additional capital in the future, which may not be available to us, and if it is
available, may dilute our existing stockholders ownership of our common stock.
  
    
    fund ongoing operations;
    
    take advantage of opportunities, including more rapid expansion of our business or the
acquisition of complementary products, technologies or businesses;
    
    develop new products; or
    
    respond to competitive pressures.
  Our ability to sell our products depends in part on the quality of our support and services
offerings, and our failure to offer high quality support and services would have a material
adverse effect on our sales and operating results.
  Our products are highly technical and may contain undetected software or hardware errors, which
could cause harm to our reputation and adversely affect our business.
  Our international operations subject us to additional risks that can adversely affect our
operating results.
  
    
    the difficulty of managing and staffing foreign offices and the increased travel,
infrastructure and legal compliance costs associated with multiple international locations;
 51




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
    
    difficulties in enforcing contracts, collecting accounts receivable and longer payment
cycles, especially in emerging markets;
    
    the need to localize our products and licensing programs for international customers;
    
    tariffs and trade barriers and other regulatory or contractual limitations on our ability
to sell or develop our products in certain foreign markets;
    
    increased exposure to foreign currency exchange rate risk; and
    
    reduced protection for intellectual property rights in some countries.
  If wireless devices pose safety risks, we may be subject to new regulations, and demand for our
products and those of our licensees and customers may decrease.
  Risks Relating to Ownership of Our Common Stock
 The market price of our common stock may be volatile.
  
    
    fluctuations in our quarterly financial results or the quarterly financial results of
companies perceived to be similar to us;
    
    fluctuations in our revenue as a result of our revenue recognition policy, even during
periods of significant sales activity;
    
    changes in estimates of our financial results or recommendations by securities analysts;
    
    failure of any of our products to achieve or maintain market acceptance;
    
    any adverse change in our relationship with Nortel Networks;
    
    changes in market valuations of similar companies;
    
    success of competitive products;
    
    changes in our capital structure, such as future issuances of securities or the
incurrence of debt;
    
    announcements by us or our competitors of significant products, contracts, acquisitions
or strategic alliances;
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
    
    regulatory developments in the United States, foreign countries or both;
    
    litigation involving our company, our general industry or both;
    
    additions or departures of key personnel;
    
    general perception of the future of CDMA technology;
    
    investors general perception of us; and
    
    changes in general economic, industry and market conditions.
  If equity research analysts do not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
  A significant portion of our total outstanding shares may be sold into the public market in the
near future, which could cause the market price of our common stock to drop significantly, even if
our business is doing well.
   Our directors and management will exercise significant control over our company.
  Provisions in our certificate of incorporation, our by-laws or Delaware law might discourage,
delay or prevent a change in control of our company or changes in our management and, therefore,
depress the trading price of our common stock.
  
    
    limitations on the removal of directors;
    
    a classified board of directors so that not all members of our board are elected at one
time;
 53




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
    
    advance notice requirements for stockholder proposals and nominations;
    
    the inability of stockholders to act by written consent or to call special meetings;
    
    the ability of our board of directors to make, alter or repeal our by-laws; and
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock without stockholder approval, which could be used to institute a rights
plan, or a poison pill, that would work to dilute the stock ownership of a potential hostile
acquirer, likely preventing acquisitions that have not been approved by our board of
directors.
   We do not currently intend to pay dividends on our common stock and, consequently, the ability to
achieve a return on an investment in our common stock will depend on appreciation in the price of
our common stock.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Approximate DollarTotal Number of
    
    
    Value of SharesShares Purchased as
    
    
    That May Yet BeTotal Number of
    
    
    Average Price Paid
    
    
    Part of Publicly
    
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Announced Program
    
    
    Announced ProgramJune 30, 2008  July 27, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,000,000July 28, 2008  August 24, 2008
    
    
    205,100
    
    
    $
    5.30
    
    
    
    205,100
    
    
    $
    18,913,000August 25, 2008  September
28, 2008
    
    
    465,848
    
    
    $
    5.28
    
    
    
    465,848
    
    
    $
    16,451,000Total
    
    
    670,948
    (1)
    
    $
    5.29
    
    
    
    670,948
    
    
    $
    16,451,000
 
 (1)
    
    We repurchased 670,948 shares of our common stock under a Rule 10b5-1 plan pursuant to a share
repurchase program, which we publicly announced on August 6, 2008. Our board of directors approved
the repurchase by us of shares of our common stock having a value of up to $20.0 million in the
aggregate pursuant to the share repurchase program, which expires on July 29, 2009. 
 Item 6. Exhibits.
 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, Rule 13a-14(a)/15d- 14(a), by Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, Rule 13a-14(a)/15d-14(a), by Chief Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive
Officer.
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32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Financial
Officer.
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SIGNATURES
  AIRVANA, INC.By:
    /s/ Randall S. BattatRandall S. BattatDate: November 5, 2008
    
    President and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ Jeffrey D. GliddenJeffrey D. GliddenDate: November 5, 2008
    
    Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) 56