##### 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 March 30, 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
    
    04-3507654(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    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)
 
 o þ
  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 30, 2007
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 March 30, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended April 1, 2007 and March 30, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2007 and March 30, 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
    
    
    37Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATION
    
    
    38Item 1A. Risk Factors
    
    
    38Item 6. Exhibits
    
    
    52SIGNATURES
    
    
    53EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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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,
    
    
    March 30,2007
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    43,547
    
    
    $
    24,238Investments
    
    
    178,416
    
    
    
    191,585Accounts receivable
    
    
    14,171
    
    
    
    11,039Deferred product cost, current
    
    
    1,050
    
    
    
    1,651Prepaid taxes
    
    
    115
    
    
    
    618Deferred tax asset
    
    
    1,422
    
    
    
    6,464Prepaid expenses and other current assets
    
    
    3,064
    
    
    
    2,660Total current assets
    
    
    241,785
    
    
    
    238,255Property and equipment
    
    
    17,831
    
    
    
    18,390Less: accumulated depreciation and amortization
    
    
    11,434
    
    
    
    12,2356,397
    
    
    
    6,155Investments, long-term
    
    
    
    
    
    
    5,146Deferred tax asset
    
    
    1,786
    
    
    
    1,764Restricted investments
    
    
    193
    
    
    
    193Goodwill and intangible assets, net
    
    
    12,165
    
    
    
    11,898Other assets
    
    
    414
    
    
    
    411Total assets
    
    $
    262,740
    
    
    $
    263,822Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    3,806
    
    
    $
    3,239Accrued expenses and other current liabilities
    
    
    11,162
    
    
    
    7,549Accrued income taxes
    
    
    15,016
    
    
    
    184Deferred revenue, current
    
    
    79,915
    
    
    
    110,082Total current liabilities
    
    
    109,899
    
    
    
    121,054Deferred revenue, long-term
    
    
    63
    
    
    
    54Accrued income taxes
    
    
    4,675
    
    
    
    4,608Deferred tax liabilities
    
    
    1,174
    
    
    
    1,092Other liabilities
    
    
    1,754
    
    
    
    1,612Total long-term liabilities
    
    
    7,666
    
    
    
    7,366Commitments (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 March 30, 2008, respectively
    
    
    
    
    
    
    Common stock, $0.001 par value: 350,000,000 shares authorized,
63,559,983 and 64,304,618 shares issued and outstanding at December 30, 2007 and March 30, 2008, respectively (Note 9)
    
    
    64
    
    
    
    64Additional paid-in capital
    
    
    190,409
    
    
    
    192,310Accumulated deficit
    
    
    (45,298
    )
    
    
    (56,972
    )Total stockholders equity
    
    
    145,175
    
    
    
    135,402Total liabilities and stockholders equity
    
    $
    262,740
    
    
    $
    263,822
  3




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AIRVANA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
  Three Months EndedApril 1,
    
    
    March 30,2007
    
    
    2008Revenue:Product
    
    $
    
    
    
    $
    5,533Service
    
    
    269
    
    
    
    2,105Total revenue
    
    
    269
    
    
    
    7,638Cost of revenue:Product
    
    
    13
    
    
    
    120Service
    
    
    1,670
    
    
    
    1,793Total cost of revenue
    
    
    1,683
    
    
    
    1,913Gross (loss) profit
    
    
    (1,414
    )
    
    
    5,725Operating expenses:Research and development
    
    
    15,983
    
    
    
    19,259Selling and marketing
    
    
    2,580
    
    
    
    3,578General and administrative
    
    
    1,516
    
    
    
    2,073Total operating expenses
    
    
    20,079
    
    
    
    24,910Operating loss
    
    
    (21,493
    )
    
    
    (19,185
    )Interest income, net
    
    
    2,708
    
    
    
    2,585Loss before income tax benefit
    
    
    (18,785
    )
    
    
    (16,600
    )Income tax benefit
    
    
    
    
    
    
    (4,926
    )Net loss
    
    $
    (18,785
    )
    
    $
    (11,674
    )Net loss per common share applicable to common stockholders:Basic
    
    $
    (1.49
    )
    
    $
    (0.18
    )Diluted
    
    $
    (1.49
    )
    
    $
    (0.18
    )Weighted average common shares outstanding:Basic
    
    
    13,814
    
    
    
    63,895Diluted
    
    
    13,814
    
    
    
    63,895
  4




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AIRVANA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
  Three Months EndedApril 1,
    
    
    March 30,2007
    
    
    2008Operating activitiesNet loss
    
    $
    (18,785
    )
    
    $
    (11,674
    )Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    722
    
    
    
    807Amortization of intangible assets
    
    
    
    
    
    
    267Stock-based compensation
    
    
    514
    
    
    
    1,085Deferred tax benefit
    
    
    
    
    
    
    (5,102
    )Amortization of investments
    
    
    (1,249
    )
    
    
    (1,261
    )Amortization of leasehold incentive
    
    
    (130
    )
    
    
    (130
    )Non-cash interest income
    
    
    (88
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    42,810
    
    
    
    3,132Deferred product cost
    
    
    (159
    )
    
    
    (601
    )Prepaid taxes
    
    
    
    
    
    
    (503
    )Prepaid expenses and other current assets
    
    
    (16
    )
    
    
    404Accounts payable
    
    
    (529
    )
    
    
    (567
    )Accrued expenses and other current liabilities
    
    
    (3,084
    )
    
    
    (3,562
    )Accrued income taxes
    
    
    
    
    
    
    (14,899
    )Deferred revenue
    
    
    41,206
    
    
    
    30,158Net cash provided by (used in) operating activities
    
    
    61,212
    
    
    
    (2,446
    )Investing activitiesPurchases of property and equipment
    
    
    (1,586
    )
    
    
    (578
    )Restricted investments
    
    
    
    
    
    
    Purchases of investments
    
    
    (107,548
    )
    
    
    (106,990
    )Maturities of investments
    
    
    56,643
    
    
    
    73,305Proceeds from sale of investments
    
    
    
    
    
    
    16,631Other assets
    
    
    4
    
    
    
    3Net cash used in investing activities
    
    
    (52,487
    )
    
    
    (17,629
    )Financing activitiesPayments on long-term debt
    
    
    
    
    
    
    (18
    )Cost associated with initial public offering
    
    
    (868
    )
    
    
    Payments of cash dividend
    
    
    
    
    
    
    (45
    )Purchase of treasury stock
    
    
    (96
    )
    
    
    Proceeds from exercise of stock options
    
    
    236
    
    
    
    816Net cash (used in) provided by financing activities
    
    
    (728
    )
    
    
    753Effect of exchange rate changes on cash and cash
equivalents
    
    
    (4
    )
    
    
    13Net increase (decrease) in cash and cash equivalents
    
    
    7,993
    
    
    
    (19,309
    )Cash and cash equivalents at beginning of period
    
    
    86,815
    
    
    
    43,547Cash and cash equivalents at end of period
    
    $
    94,808
    
    
    $
    24,238Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    $
    
    
    
    $
    15,500Supplemental Disclosure of Noncash ActivitiesAccretion of dividends on redeemable convertible
preferred stock
    
    $
    1,834
    
    
    $
    
  5




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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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Fiscal Year
  Cash and Cash Equivalents
  Investments
  Revenue Recognition
 Software Revenue
Recognition
     7




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8




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




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Comprehensive Income
 Reporting Comprehensive Income
 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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3. Investments
 Accounting for Certain Investments in Debt and Equity
Securities
  December 30, 2007
    
    
    March 30, 2008Amortized
    
    
    Fair Market
    
    
    Amortized
    
    
    Fair MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueCorporate debt securities
    
    $
    124,385
    
    
    $
    124,856
    
    
    $
    138,859
    
    
    $
    139,270Credit card asset-backed securities
    
    
    54,031
    
    
    
    54,092
    
    
    
    33,070
    
    
    
    33,206Debt securities of U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    24,802
    
    
    
    24,811$
    178,416
    
    
    $
    178,948
    
    
    $
    196,731
    
    
    $
    197,287
    4. Goodwill and Intangible Assets
  March 30, 2008Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    612
    
    
    $
    2,728Customer relationships
    
    
    1,350
    
    
    
    310
    
    
    
    1,040Non-compete agreements
    
    
    190
    
    
    
    58
    
    
    
    132Total intangible assets
    
    $
    4,880
    
    
    $
    980
    
    
    $
    3,900
 11




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Fiscal year:Remainder of 2008
    
    $
    8022009
    
    
    1,0692010
    
    
    1,0262011
    
    
    7802012
    
    
    223$
    3,900
 5. Fair Value Measurements
  
    
    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.
  March 30,2008Cash
equivalents (a)
    
    $

    6,674Corporate
debt securities
    
    
    139,270Debt securities of U.S. government agencies
    
    
    24,811Credit card asset backed securities
    
    
    33,206$
    203,961
 (a)
    
    Securities include corporate debt securities and credit card asset backed
securities
  6. Income Taxes
    12




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7. Property and Equipment
  December 30,
    
    
    March 30,Estimated Useful Life

    
    2007
    
    
    2008Computer equipment and purchased software
    
    1.5 - 3 years
    
    $
    5,343
    
    
    $
    5,394Test and lab equipment
    
    3 years
    
    
    5,100
    
    
    
    5,612Leasehold improvements
    
    Shorter of life of lease or 5 years
    
    
    6,497
    
    
    
    6,489Office furniture and equipment
    
    3 - 5 years
    
    
    891
    
    
    
    896Total property and equipment
    
    
    
    
    
    
    17,831
    
    
    
    18,391Less: Accumulated depreciation and
amortization
    
    
    
    
    
    
    (11,434
    )
    
    
    (12,235
    )$
    6,397
    
    
    $
    6,156
  13




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8. Concentrations of Credit Risk and Significant Customers
   9. Common Stock
 Stock Option Plans
   Share-Based Payments and SFAS 123(R).
 14




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Weighted
    
    
    Average
    
    
    
    
    
    
    AverageAverage
    
    
    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
    
    
    1,744,525
    
    
    
    5.21
    
    
    
    
    
    
    
    
    
    
    $
    5.21Exercised
    
    
    (744,635
    )
    
    
    1.10
    
    
    
    
    
    
    $
    2,845Cancelled
    
    
    (331,004
    )
    
    
    2.54Outstanding at March 30, 2008
    
    
    14,004,339
    
    
    
    2.66
    
    
    
    7.24
    
    
    $
    33,474Exercisable at March 30, 2008
    
    
    6,831,775
    
    
    
    1.45
    
    
    
    5.95
    
    
    $
    24,623Options outstanding at March
30, 2008 expected to vest
    
    
    13,444,165
    
    
    $
    2.66
    
    
    
    7.24
    
    
    $
    32,135
   Three MonthsEndedApril 1,
    
    
    March 30,2007
    
    
    2008Cost of service revenue
    
    $
    33
    
    
    $
    62Research and development
    
    
    293
    
    
    
    671Selling and marketing
    
    
    144
    
    
    
    223General and administrative
    
    
    44
    
    
    
    129Total stock-based compensation
    
    $
    514
    
    
    $
    1,085
 10. Net Income Per Share
 Earnings Per
Share
 15




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Three MonthsEndedApril 1,
    
    
    March 30,2007
    
    
    2008Numerator:Net loss
    
    $
    (18,785
    )
    
    $
    (11,674
    )Allocation of net loss, Basic:Accretion of redeemable preferred stock
    
    $
    1,834
    
    
    $
    Net income applicable to preferred stockholders
    
    
    1,834
    
    
    
    Net loss applicable to common stockholders
    
    
    (20,619
    )
    
    
    Net loss
    
    $
    (18,785
    )
    
    $
    Allocation of net loss, Diluted:Accretion of redeemable preferred stock
    
    $
    1,834
    
    
    $
    Net income applicable to preferred stockholders
    
    
    1,834
    
    
    
    Net loss applicable to common stockholders
    
    
    (20,619
    )
    
    
    (11,674
    )Net loss income
    
    $
    (18,785
    )
    
    $
    (11,674
    )Denominator:Basic weighted average shares
    
    
    13,814
    
    
    
    63,895Dilutive effect of common stock equivalents
    
    
    
    
    
    
    Diluted weighted average shares
    
    
    13,814
    
    
    
    63,895Calculation of net loss per share:Basic and Diluted:Net loss applicable to common stockholders
    
    $
    (20,619
    )
    
    $
    (11,674
    )Weighted average shares of common stock outstanding
    
    
    13,814
    
    
    
    63,895Net loss per share
    
    $
    (1.49
    )
    
    $
    (0.18
    )
 11. Lease Commitments
    16




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Fiscal year:Remainder of 2008
    
    $
    1,0702009
    
    
    1,3492010
    
    
    1,3862011
    
    
    1,3942012
    
    
    279Thereafter
    
    
    $
    5,478
 12. Deferred Revenue and Deferred Product Cost
    Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to April 2005 specified upgrade
    
    $
    4
    
    
    $
    
    
    
    $
    4Deferred revenue related to September 2006 specified upgrade
    
    
    454
    
    
    
    
    
    
    
    454Deferred revenue related to June 2007 specified upgrade
    
    
    61,316
    
    
    
    
    
    
    
    61,316Deferred revenue related to December 2007 specified upgrade
    
    
    46,588
    
    
    
    
    
    
    
    46,588Other deferred revenue
    
    
    1,719
    
    
    
    54
    
    
    
    1,773Total deferred revenue
    
    $
    110,082
    
    
    $
    54
    
    
    $
    110,136Deferred product cost related to September 2006 specified upgrade
    
    $
    11
    
    
    $
    
    
    
    $
    11Deferred product cost related to June 2007 specified upgrade
    
    
    854
    
    
    
    
    
    
    
    854Deferred product cost related to December 2007 specified upgrade
    
    
    654
    
    
    
    
    
    
    
    654Other deferred product cost
    
    
    132
    
    
    
    
    
    
    
    132Total deferred product cost
    
    $
    1,651
    
    
    $
    
    
    
    $
    1,651
  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
 17




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13. Accrued Expenses and Other Current Liabilities
  December 30,
    
    
    March 30,2007
    
    
    2008Payroll and related accruals
    
    $
    7,668
    
    
    $
    3,922Accrued rent expense
    
    
    601
    
    
    
    608Accrued legal fees
    
    
    173
    
    
    
    125Accrued audit and tax
    
    
    504
    
    
    
    614Accrued royalties
    
    
    771
    
    
    
    1,039Other accruals
    
    
    1,445
    
    
    
    1,241$
    11,162
    
    
    $
    7,549
 14. Acquisition
  Business Combinations
 EstimatedUseful Life
    
    
    Fair ValueDeveloped Technology
    
    60 months
    
    $
    3,340Customer Relationships
    
    48 months
    
    
    1,350Non-Compete Agreements
    
    36 months
    
    
    190Total Intangible Assets
    
    
    
    
    
    $
    4,880
  18




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Fair ValueApril 30, 2007Assets Acquired:Current assets
    
    $
    462Fixed assets
    
    
    504Deferred tax asset
    
    
    509In-process research and development
    
    
    2,340Intangible assets
    
    
    4,880Goodwill
    
    
    7,99816,693Liabilities Assumed:Current liabilities
    
    
    689Deferred tax liability
    
    
    1,464Non-current liabilities
    
    
    7042,857Net assets acquired
    
    $
    13,836
  Pro Forma Results of Operations
  Three Months EndedApril 1, 2007Pro forma revenues
    
    $
    726Pro forma net (loss) income
    
    $
    (18,526
    )Pro forma (loss) earnings per share
    
    $
    (1.47
    )
 15. Special Cash Dividend
  19




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16. Related Party Transactions
  20




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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
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 the section titled 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
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Our OEM Business Model
   22




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Software Revenue Recognition.
 Impact of SOP No. 97-2, Software Revenue Recognition
     23




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
 
 
 
 
  24




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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 EndedApril 1, 2007
    
    
    March 30, 2008Revenue
    
    $
    269
    
    
    $
    7,638Deferred revenue, at end of
period
    
    
    284,624
    
    
    
    110,136Less: deferred revenue, at
beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    41,475
    
    
    $
    37,796
 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
  Deferred Product Cost
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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
    
    other related overhead costs.
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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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Cash and Investments
   Fiscal Year
  Critical Accounting Policies and Estimates
   Revenue Recognition
 Software Revenue
Recognition.
  30




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31




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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
 Share-Based Payments and SFAS 123(R).
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Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in Income
Taxes
 33




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Results of Operations
 Comparison of Three Months Ended April 1, 2007 and March 30, 2008
 Revenue and Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodApril 1, 2007
    
    
    March 30, 2008
    
    
    Change(dollars in thousands)Revenue
    
    $
    269
    
    
    $
    7,638
    
    
    $
    7,369Deferred revenue, end of period
    
    
    284,624
    
    
    
    110,136Less: deferred revenue, beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    41,475
    
    
    $
    37,796
    
    
    $
    (3,679
    )
   Cost of Revenue and Cost Related to Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodApril 1, 2007
    
    
    March 30, 2008
    
    
    Change(dollars in thousands)Cost of revenue
    
    $
    1,683
    
    
    $
    1,913
    
    
    $
    230Deferred product cost, end of period
    
    
    34,373
    
    
    
    1,651Less: deferred product cost, beginning of period
    
    
    (34,214
    )
    
    
    (1,050
    )Cost related to product billings
    
    $
    1,842
    
    
    $
    2,514
    
    
    $
    672
    Gross Profit (Loss) and Gross Profit (Loss) on Billings
 Three Months Ended
    
    
    Period-to-PeriodApril 1, 2007
    
    
    March 30,2008
    
    
    Change(In thousands)Gross (loss) profit
    
    $
    (1,414
    )
    
    $
    5,725
    
    
    $
    7,139Deferred revenue, at end of period
    
    
    284,624
    
    
    
    110,136Less: 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
    
    
    (34,373
    )
    
    
    (1,651
    )Gross profit on Billings
    
    $
    39,633
    
    
    $
    35,282
    
    
    $
    (4,351
    )
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Operating Expenses
 Period-to-PeriodThree Months Ended
    
    
    ChangeApril 1, 2007
    
    
    March 30, 2008
    
    
    Amount
    
    
    Percentage(dollars in thousands)Research and development
    
    $
    15,983
    
    
    $
    19,259
    
    
    $
    3,276
    
    
    
    20.5
    %Sales and marketing
    
    
    2,580
    
    
    
    3,578
    
    
    
    998
    
    
    
    38.7
    %General and administrative
    
    
    1,516
    
    
    
    2,073
    
    
    
    557
    
    
    
    36.7
    %Total operating expenses
    
    $
    20,079
    
    
    $
    24,910
    
    
    $
    4,831
    
    
    
    24.1
    %
 Research and Development
 Sales and Marketing
 General and Administrative
 Operating Profit (Loss) and Operating Profit (Loss) on Billings
 Three Months Ended
    
    
    Period-to-PeriodApril 1, 2007
    
    
    March 30, 2008
    
    
    Change(In thousands)Operating loss
    
    $
    (21,493
    )
    
    $
    (19,185
    )
    
    $
    2,308Deferred revenue, at end of period
    
    
    284,624
    
    
    
    110,136Less: 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
    
    
    (34,373
    )
    
    
    (1,651
    )Operating profit on billings
    
    $
    19,554
    
    
    $
    10,372
    
    
    $
    (9,182
    )
 35




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Interest Income, Net.
 Income
Taxes.
 Liquidity and Capital Resources
   As of
    
    As ofDecember 30,
    
    March 30,2007
    
    2008Cash and cash equivalents
    
    $
    43,547
    
    
    $
    24,238Investments, short-term
    
    
    178,416
    
    
    
    191,585Investments, long-term
    
    
    
    
    
    
    5,146Accounts receivable, net
    
    
    14,171
    
    
    
    11,039Working capital
    
    
    131,886
    
    
    
    117,201
 Three Months
    
    Three MonthsEnded
    
    EndedApril 1,
    
    March 30,2007
    
    2008Cash flow from operating activities
    
    $
    61,212
    
    
    $
    (2,446
    )Cash flow from investing activities
    
    
    (52,487
    )
    
    
    (17,629
    )Cash flow from financing activities
    
    
    (728
    )
    
    
    753
    36




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
   37




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Item 4. Changes in Internal Controls over Financial Reporting 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.
 38




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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.
  Because our OEM business model requires us to defer the recognition of most of our revenue from
product sales until we deliver specified upgrades, 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.
  39




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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.
   The introduction of fourth generation wireless technology could reduce spending on our EV-DO
products and therefore harm our operating results.
   The variable sales and deployment cycles for our EV-DO products are likely to cause our quarterly
billings to fluctuate materially.
   40




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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.
  41




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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.
  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
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
    
    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.
  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.
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If we are not successful in obtaining from third parties licenses to intellectual property that is
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.
  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.
    44




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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.
  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.
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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 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 will be
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.
   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.
  48




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
    
    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;
    
    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;
 49




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
    
    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;
    
    regulatory developments in the United States, foreign countries or both;
 50




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
    
    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;
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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 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.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: May 7, 2008
    
    President and Chief Executive Officer(Principal Executive Officer)By:
    /s/ Jeffrey D. GliddenJeffrey D. GliddenDate: May 7, 2008
    
    Vice President, Chief Financial Officer

(Principal Financial Officer) 53