##### 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 June 29, 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)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer
þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



AIRVANA, INC.
 QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 29, 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 June 29, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months
Ended July 1, 2007 and June 29, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three and Six Months
Ended July 1, 2007 and June 29, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATION
    
    
    42Item 1A. Risk Factors
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    57Item 6. Exhibits
    
    
    58SIGNATURES
    
    
    59Ex-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




---



##### Table of Contents



PART I  Financial Information
 
 Item 1  Condensed Consolidated Financial Statements (unaudited)
 AIRVANA, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
  December 30,
    
    
    June 29,2007
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    43,547
    
    
    $
    35,312Investments
    
    
    178,416
    
    
    
    189,111Accounts receivable
    
    
    14,171
    
    
    
    7,941Deferred product cost, current
    
    
    1,050
    
    
    
    1,354Prepaid taxes
    
    
    115
    
    
    
    Deferred tax asset
    
    
    1,422
    
    
    
    1,705Prepaid expenses and other current assets
    
    
    3,064
    
    
    
    2,281Total current assets
    
    
    241,785
    
    
    
    237,704Property and equipment
    
    
    17,831
    
    
    
    18,744Less: accumulated depreciation and amortization
    
    
    11,434
    
    
    
    13,0076,397
    
    
    
    5,737Investments, long-term
    
    
    
    
    
    
    3,068Deferred tax asset
    
    
    1,786
    
    
    
    1,777Restricted investments
    
    
    193
    
    
    
    193Goodwill and intangible assets, net
    
    
    12,165
    
    
    
    11,631Other assets
    
    
    414
    
    
    
    395Total assets
    
    $
    262,740
    
    
    $
    260,505Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    3,806
    
    
    $
    1,592Accrued expenses and other current liabilities
    
    
    11,162
    
    
    
    9,147Accrued income taxes
    
    
    15,016
    
    
    
    5,915Deferred revenue, current
    
    
    79,915
    
    
    
    76,374Total current liabilities
    
    
    109,899
    
    
    
    93,028Deferred revenue, long-term
    
    
    63
    
    
    
    1,022Accrued income taxes
    
    
    4,675
    
    
    
    4,692Deferred tax liabilities
    
    
    1,174
    
    
    
    1,017Other liabilities
    
    
    1,754
    
    
    
    1,435Total long-term liabilities
    
    
    7,666
    
    
    
    8,166Commitments (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 June 29,
2008
    
    
    
    
    
    
    Common stock, $0.001 par value: 350,000,000
shares authorized, 63,559,983 and 64,837,322
shares issued and outstanding at December 30,
2007 and June 29, 2008, respectively (Note 9)
    
    
    64
    
    
    
    65Additional paid-in capital
    
    
    190,409
    
    
    
    195,655Accumulated deficit
    
    
    (45,298
    )
    
    
    (36,409
    )Total stockholders equity
    
    
    145,175
    
    
    
    159,311Total liabilities and stockholders equity
    
    $
    262,740
    
    
    $
    260,505
  3




---



##### Table of Contents



AIRVANA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
  Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    June 29,
    
    
    July 1,
    
    
    June 29,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Product
    
    $
    141,641
    
    
    $
    54,784
    
    
    $
    141,641
    
    
    $
    60,317Service
    
    
    14,615
    
    
    
    4,235
    
    
    
    14,884
    
    
    
    6,340Total revenue
    
    
    156,256
    
    
    
    59,019
    
    
    
    156,525
    
    
    
    66,657Cost of revenue:Product
    
    
    33,918
    
    
    
    1,314
    
    
    
    33,931
    
    
    
    1,434Service
    
    
    1,852
    
    
    
    2,013
    
    
    
    3,522
    
    
    
    3,806Total cost of revenue
    
    
    35,770
    
    
    
    3,327
    
    
    
    37,453
    
    
    
    5,240Gross profit
    
    
    120,486
    
    
    
    55,692
    
    
    
    119,072
    
    
    
    61,417Operating expenses:Research and development
    
    
    18,598
    
    
    
    18,091
    
    
    
    34,581
    
    
    
    37,350Selling and marketing
    
    
    3,182
    
    
    
    3,825
    
    
    
    5,762
    
    
    
    7,403General and administrative
    
    
    1,721
    
    
    
    2,321
    
    
    
    3,237
    
    
    
    4,394In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    2,340
    
    
    
    Total operating expenses
    
    
    25,841
    
    
    
    24,237
    
    
    
    45,920
    
    
    
    49,147Operating income
    
    
    94,645
    
    
    
    31,455
    
    
    
    73,152
    
    
    
    12,270Interest income, net
    
    
    1,879
    
    
    
    1,792
    
    
    
    4,587
    
    
    
    4,377Income before income tax expense
    
    
    96,524
    
    
    
    33,247
    
    
    
    77,739
    
    
    
    16,647Income tax expense
    
    
    10,422
    
    
    
    12,684
    
    
    
    10,422
    
    
    
    7,758Net income
    
    $
    86,102
    
    
    $
    20,563
    
    
    $
    67,317
    
    
    $
    8,889Net income per common share applicable to
common stockholders:Basic
    
    $
    1.56
    
    
    $
    0.32
    
    
    $
    1.14
    
    
    $
    0.14Diluted
    
    $
    1.37
    
    
    $
    0.29
    
    
    $
    1.04
    
    
    $
    0.13Weighted average common shares outstanding:Basic
    
    
    14,017
    
    
    
    64,601
    
    
    
    13,938
    
    
    
    64,248Diluted
    
    
    21,526
    
    
    
    70,763
    
    
    
    20,793
    
    
    
    70,398
  4




---



##### Table of Contents



AIRVANA, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
  Three Months Ended
    
    
    Six Months EndedJuly 1,
    
    
    June 29,
    
    
    July 1,
    
    
    June 29,2007
    
    
    2008
    
    
    2007
    
    
    2008Operating activitiesNet income
    
    $
    86,102
    
    
    $
    20,563
    
    
    $
    67,317
    
    
    $
    8,889Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    782
    
    
    
    814
    
    
    
    1,504
    
    
    
    1,621Amortization of intangible assets
    
    
    178
    
    
    
    267
    
    
    
    178
    
    
    
    534In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    2,340
    
    
    
    Stock-based compensation
    
    
    739
    
    
    
    1,179
    
    
    
    1,253
    
    
    
    2,264Deferred tax benefit
    
    
    5
    
    
    
    12,684
    
    
    
    5
    
    
    
    7,758Tax benefit related to exercise of stock options
    
    
    
    
    
    
    (1,497
    )
    
    
    
    
    
    
    (1,497
    )Amortization of investments
    
    
    (1,338
    )
    
    
    (1,149
    )
    
    
    (2,587
    )
    
    
    (2,410
    )Amortization of leasehold incentive
    
    
    (130
    )
    
    
    (131
    )
    
    
    (260
    )
    
    
    (261
    )Non-cash interest income
    
    
    (15
    )
    
    
    
    
    
    
    (103
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (13,506
    )
    
    
    3,098
    
    
    
    29,304
    
    
    
    6,230Deferred cost
    
    
    33,672
    
    
    
    297
    
    
    
    33,513
    
    
    
    (304
    )Prepaid taxes
    
    
    2,451
    
    
    
    618
    
    
    
    2,451
    
    
    
    115Prepaid expenses and other current assets
    
    
    287
    
    
    
    379
    
    
    
    271
    
    
    
    783Accounts payable
    
    
    (156
    )
    
    
    (1,647
    )
    
    
    (685
    )
    
    
    (2,214
    )Accrued expenses and other current liabilities
    
    
    2,528
    
    
    
    1,651
    
    
    
    (556
    )
    
    
    (1,911
    )Accrued income taxes
    
    
    8,437
    
    
    
    (701
    )
    
    
    8,437
    
    
    
    (15,776
    )Deferred revenue
    
    
    (119,706
    )
    
    
    (32,740
    )
    
    
    (78,500
    )
    
    
    (2,582
    )Net cash provided by operating activities
    
    
    2,670
    
    
    
    3,685
    
    
    
    63,882
    
    
    
    1,239Investing activitiesPurchases of property and equipment
    
    
    (673
    )
    
    
    (455
    )
    
    
    (2,259
    )
    
    
    (1,033
    )Purchase of 3-Way Networks, net of cash acquired
    
    
    (10,907
    )
    
    
    
    
    
    
    (10,907
    )
    
    
    Purchases of investments
    
    
    (56,262
    )
    
    
    (68,803
    )
    
    
    (163,810
    )
    
    
    (175,793
    )Maturities of investments
    
    
    66,951
    
    
    
    74,504
    
    
    
    123,594
    
    
    
    147,809Proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,631Other assets
    
    
    (91
    )
    
    
    16
    
    
    
    (87
    )
    
    
    19Net cash (used in) provided by investing activities
    
    
    (982
    )
    
    
    5,262
    
    
    
    (53,469
    )
    
    
    (12,367
    )Financing activitiesPayments on long-term debt
    
    
    (53
    )
    
    
    (94
    )
    
    
    (53
    )
    
    
    (112
    )Costs associated with proposed initial public offering
    
    
    (841
    )
    
    
    
    
    
    
    (1,709
    )
    
    
    Tax benefit related to exercise of stock options
    
    
    
    
    
    
    1,497
    
    
    
    
    
    
    
    1,497Payments of cash dividend
    
    
    (72,707
    )
    
    
    (5
    )
    
    
    (72,707
    )
    
    
    (50
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    Proceeds from exercise of stock options
    
    
    266
    
    
    
    670
    
    
    
    502
    
    
    
    1,486Net cash (used in) provided by financing activities
    
    
    (73,335
    )
    
    
    2,068
    
    
    
    (74,063
    )
    
    
    2,821Effect of exchange rate changes on cash and cash
equivalents
    
    
    56
    
    
    
    59
    
    
    
    52
    
    
    
    72Net (decrease) increase in cash and cash equivalents
    
    
    (71,591
    )
    
    
    11,074
    
    
    
    (63,598
    )
    
    
    (8,235
    )Cash and cash equivalents at beginning of period
    
    
    94,808
    
    
    
    24,238
    
    
    
    86,815
    
    
    
    43,547Cash and cash equivalents at end of period
    
    $
    23,217
    
    
    $
    35,312
    
    
    $
    23,217
    
    
    $
    35,312Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    $
    55
    
    
    $
    78
    
    
    $
    55
    
    
    $
    15,578Supplemental Disclosure of Noncash ActivitiesAccretion of dividends on redeemable convertible
preferred stock
    
    $
    1,835
    
    
    $
    
    
    
    $
    3,669
    
    
    $
    
  5




---



##### 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




---



##### Table of Contents



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




---



##### Table of Contents



8




---



##### Table of Contents



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




---



##### Table of Contents



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
 10




---



##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements
 Determination of the Useful Life of
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
    
    For intangible asset renewed or extended during the period:
 o
    
    For entities that capitalize renewal or extension costs, the
costs incurred to review or extend the asset, for each major intangible asset
classo
    
    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
    
    
    June 29, 2008Amortized
    
    
    Fair Market
    
    
    Amortized
    
    
    Fair MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueCorporate debt securities
    
    $
    124,385
    
    
    $
    124,856
    
    
    $
    108,612
    
    
    $
    108,765Credit card asset-backed securities
    
    
    54,031
    
    
    
    54,092
    
    
    
    22,753
    
    
    
    22,811Debt securities of U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    60,814
    
    
    
    60,780$
    178,416
    
    
    $
    178,948
    
    
    $
    192,179
    
    
    $
    192,356
 11




---



##### Table of Contents



4. Goodwill and Intangible Assets
  June 29, 2008Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    779
    
    
    $
    2,561Customer relationships
    
    
    1,350
    
    
    
    394
    
    
    
    956Non-compete agreements
    
    
    190
    
    
    
    74
    
    
    
    116Total intangible assets
    
    $
    4,880
    
    
    $
    1,247
    
    
    $
    3,633
 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
    
    $
    5352009
    
    
    1,0692010
    
    
    1,0262011
    
    
    7802012
    
    
    223$
    3,633
 12




---



##### Table of Contents



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.
  June 29,2008Corporate debt securities
    
    $
    108,765Debt securities of U.S. government agencies
    
    
    60,780Credit card asset backed securities
    
    
    22,811$
    192,356
  June 29,2008Money market
mutual funds
    
    $
    32,262
  6. Income Taxes
      13




---



##### Table of Contents



7. Property and Equipment
  December 30,
    
    
    June 29,Estimated Useful Life
    
    2007
    
    
    2008Computer equipment and purchased software
    
    1.5 - 3 years
    
    $
    5,343
    
    
    $
    5,366Test and lab equipment
    
    3 years
    
    
    5,100
    
    
    
    6,046Leasehold improvements
    
    Shorter of life of lease or 5 years
    
    
    6,497
    
    
    
    6,448Office furniture and equipment
    
    3 - 5 years
    
    
    891
    
    
    
    884Total property and equipment
    
    
    
    
    
    
    17,831
    
    
    
    18,744Less: Accumulated depreciation and
amortization
    
    
    
    
    
    
    (11,434
    )
    
    
    (13,007
    )$
    6,397
    
    
    $
    5,737
  8. Concentrations of Credit Risk and Significant Customers
   14




---



##### Table of Contents



9. Common Stock
 Stock Option Plans
   Share-Based Payments and SFAS 123(R).
  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
    
    
    2,133,056
    
    
    
    5.39
    
    
    
    
    
    
    
    
    
    
    $
    3.10Exercised
    
    
    (1,277,339
    )
    
    
    1.16
    
    
    
    
    
    
    $
    5,293Cancelled
    
    
    (583,545
    )
    
    
    2.96Outstanding at June 29, 2008
    
    
    13,607,625
    
    
    
    2.80
    
    
    
    6.92
    
    
    $
    34,375Exercisable at June 29, 2008
    
    
    6,916,055
    
    
    
    1.57
    
    
    
    5.57
    
    
    $
    24,703Options outstanding at June 29,
2008 expected to vest (1)
    
    
    13,195,918
    
    
    $
    2.75
    
    
    
    6.86
    
    
    $
    33,907
 
 (1)
    
    This represents the number of vested stock options as of June 29, 2008 plus the unvested
outstanding options at June 29, 2008 expected to vest in the future, adjusted for estimated
forfeitures. 15




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 1,
    
    
    June 29,
    
    
    July 1,
    
    
    June 29,2007
    
    
    2008
    
    
    2007
    
    
    2008Cost of service revenue
    
    $
    44
    
    
    $
    49
    
    
    $
    77
    
    
    $
    111Research and development
    
    
    451
    
    
    
    684
    
    
    
    744
    
    
    
    1,355Selling and marketing
    
    
    172
    
    
    
    274
    
    
    
    316
    
    
    
    497General and administrative
    
    
    72
    
    
    
    172
    
    
    
    116
    
    
    
    301Total stock-based compensation
    
    $
    739
    
    
    $
    1,179
    
    
    $
    1,253
    
    
    $
    2,264
 10. Net Income Per Share
 Earnings Per
Share
  16




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 1,
    
    
    June 1,
    
    
    July 1,
    
    
    June 1,2007
    
    
    2008
    
    
    2007
    
    
    2008Numerator:Net income
    
    $
    86,102
    
    
    $
    20,563
    
    
    $
    67,317
    
    
    $
    8,889Allocation of net income:Basic:Accretion of redeemable preferred stock
    
    $
    1,835
    
    
    $
    
    
    
    $
    3,669
    
    
    $
    Dividend allocated to preferred stockholders
    
    
    53,803
    
    
    
    
    
    
    
    47,736
    
    
    
    Undistributed net income allocated to preferred stockholders
    
    
    8,554
    
    
    
    
    
    
    
    
    
    
    
    Net income applicable to preferred stockholders
    
    
    64,192
    
    
    
    
    
    
    
    51,405
    
    
    
    Net income applicable to common stockholders
    
    
    21,910
    
    
    
    20,563
    
    
    
    15,912
    
    
    
    8,889Net income
    
    $
    86,102
    
    
    $
    20,563
    
    
    $
    67,317
    
    
    $
    8,889Diluted:Accretion of redeemable preferred stock
    
    $
    1,835
    
    
    $
    
    
    
    $
    3,669
    
    
    $
    Dividend allocated to preferred stockholders
    
    $
    47,260
    
    
    $
    
    
    
    $
    42,008
    
    
    $
    Undistributed net income allocated to preferred stockholders
    
    
    7,514
    
    
    
    
    
    
    
    
    
    
    
    Net income applicable to preferred stockholders
    
    
    56,609
    
    
    
    
    
    
    
    45,677
    
    
    
    Net income applicable to common stockholders
    
    
    29,493
    
    
    
    20,563
    
    
    
    21,640
    
    
    
    8,889Net income
    
    $
    86,102
    
    
    $
    20,563
    
    
    $
    67,317
    
    
    $
    8,889Denominator:Basic weighted average shares
    
    
    14,017
    
    
    
    64,601
    
    
    
    13,938
    
    
    
    64,248Dilutive effect of common stock equivalents
    
    
    7,509
    
    
    
    6,162
    
    
    
    6,855
    
    
    
    6,150Diluted weighted average shares
    
    
    21,526
    
    
    
    70,763
    
    
    
    20,793
    
    
    
    70,398Calculation of net income per share:Basic:Net income applicable to common stockholders
    
    $
    21,910
    
    
    $
    20,563
    
    
    $
    15,912
    
    
    $
    8,889Weighted average shares of common stock outstanding
    
    
    14,017
    
    
    
    64,601
    
    
    
    13,938
    
    
    
    64,248Net income per share
    
    $
    1.56
    
    
    $
    0.32
    
    
    $
    1.14
    
    
    $
    0.14Diluted:Net income applicable to common stockholders
    
    $
    29,493
    
    
    $
    20,563
    
    
    $
    21,640
    
    
    $
    8,889Weighted average shares of common stock outstanding
    
    
    21,526
    
    
    
    70,763
    
    
    
    20,793
    
    
    
    70,398Net income per share
    
    $
    1.37
    
    
    $
    0.29
    
    
    $
    1.04
    
    
    $
    0.13
  11. Lease Commitments
   17




---



##### Table of Contents



Fiscal year:Remainder of 2008
    
    $
    8062009
    
    
    1,5102010
    
    
    1,5452011
    
    
    1,5522012
    
    
    439Thereafter
    
    
    9$
    5,861
 12. Deferred Revenue and Deferred Product Cost
    Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to June 2007 specified upgrade
    
    $
    5,800
    
    
    $
    
    
    
    $
    5,800Deferred revenue related to December 2007 specified upgrade
    
    
    67,676
    
    
    
    
    
    
    
    67,676Other deferred revenue
    
    
    2,898
    
    
    
    1,022
    
    
    
    3,920Total deferred revenue
    
    $
    76,374
    
    
    $
    1,022
    
    
    $
    77,396Deferred product cost related to June 2007 specified upgrade
    
    $
    88
    
    
    $
    
    
    
    $
    88Deferred product cost related to December 2007 specified upgrade
    
    
    856
    
    
    
    
    
    
    
    856Other deferred product cost
    
    
    410
    
    
    
    
    
    
    
    410Total deferred product cost
    
    $
    1,354
    
    
    $
    
    
    
    $
    1,354
  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
 18




---



##### Table of Contents



13. Accrued Expenses and Other Current Liabilities
  December 30,
    
    
    June 29,2007
    
    
    2008Payroll and related accruals
    
    $
    7,668
    
    
    $
    5,493Accrued rent expense
    
    
    601
    
    
    
    609Accrued legal fees
    
    
    173
    
    
    
    96Accrued audit and tax
    
    
    504
    
    
    
    509Accrued royalties
    
    
    771
    
    
    
    951Other accruals
    
    
    1,445
    
    
    
    1,489$
    11,162
    
    
    $
    9,147
 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
   19




---



##### Table of Contents



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
  Pro Forma Results of Operations
  Three Months Ended
    
    Six Months EndedJuly 1, 2007
    
    July 1, 2007Pro forma revenues
    
    $
    156,256
    
    
    $
    156,980Pro forma net income
    
    $
    85,832
    
    
    $
    66,791Pro forma earnings per share
    
    $
    1.56
    
    
    $
    1.13
 20




---



##### Table of Contents



15. Special Cash Dividend
  16. Related Party Transactions
   17. Subsequent Events
  21




---



##### Table of Contents



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 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




---



##### Table of Contents



Our OEM Business Model
  23




---



##### Table of Contents



Software Revenue Recognition.
 Impact of SOP No. 97-2, Software Revenue Recognition
     24




---



##### Table of Contents




    
    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 having vendor-specific objective evidence (VSOE) of fair value for maintenance and support
services.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 having VSOE of fair value for maintenance and support services.
  25




---



##### Table of Contents



Key Elements of Financial Performance
 Revenue
  Product Revenue.
    26




---



##### Table of Contents



Service Revenue.
    Product and Service Billings
    27




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 1, 2007
    
    
    June 29, 2008
    
    
    July 1, 2007
    
    
    June 29, 2008Revenue
    
    $
    156,256
    
    
    $
    59,019
    
    
    $
    156,525
    
    
    $
    66,657Less: deferred revenue acquired
    
    
    (171
    )
    
    
    
    
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    165,088
    
    
    
    77,396
    
    
    
    165,088
    
    
    
    77,396Less: deferred revenue, at beginning of period
    
    
    (284,624
    )
    
    
    (110,136
    )
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    36,549
    
    
    $
    26,279
    
    
    $
    78,024
    
    
    $
    64,075
 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
  28




---



##### Table of Contents



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.
  General and Administrative.
 
    
    salaries, benefits and stock-based compensation related to our executive, finance,
legal, human resource and administrative personnel;
 29




---



##### Table of Contents




    
    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
  Cash and Investments
  30




---



##### Table of Contents



Fiscal Year
  Critical Accounting Policies and Estimates
   Revenue Recognition
 Software Revenue
Recognition.
    31




---



##### Table of Contents



32




---



##### 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
 Share-Based Payments and SFAS 123(R).
 33




---



##### Table of Contents



Income Taxes
 Accounting for Income Taxes
 Accounting for Uncertainty in Income
Taxes
 Results of Operations
 Comparison of Three Months Ended July 1, 2007 and June 29, 2008
 Revenue and Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(dollars in thousands)Revenue
    
    $
    156,256
    
    
    $
    59,019
    
    
    $
    (97,237
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, end of period
    
    
    165,088
    
    
    
    77,396Less: deferred revenue, beginning of period
    
    
    (284,624
    )
    
    
    (110,136
    )Product and service billings
    
    $
    36,549
    
    
    $
    26,279
    
    
    $
    (10,270
    )
   34




---



##### Table of Contents



Cost of Revenue and Cost Related to Product and Service Billings
 Three Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(dollars in thousands)Cost of revenue
    
    $
    35,770
    
    
    $
    3,327
    
    
    $
    (32,443
    )Deferred product cost, end of period
    
    
    701
    
    
    
    1,354Less: deferred product cost, beginning of period
    
    
    (34,373
    )
    
    
    (1,651
    )Cost related to product billings
    
    $
    2,098
    
    
    $
    3,030
    
    
    $
    932
   Gross Profit and Gross Profit on Billings
 Three Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    

June 29, 2008
    
    
    Change(In thousands)Gross profit
    
    $
    120,486
    
    
    $
    55,692
    
    
    $
    (64,794
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    165,088
    
    
    
    77,396Less: Deferred revenue, at beginning of period
    
    
    (284,624
    )
    
    
    (110,136
    )Deferred product cost, at beginning of period
    
    
    34,373
    
    
    
    1,651Less: Deferred product cost, at end of period
    
    
    (701
    )
    
    
    (1,354
    )Gross profit on Billings
    
    $
    34,451
    
    
    $
    23,249
    
    
    $
    (11,202
    )
   Operating Expenses
 Period-to-PeriodThree Months Ended
    
    
    ChangeJuly 1, 2007
    
    
    June 29, 2008
    
    
    Amount
    
    
    Percentage(dollars in thousands)Research and development
    
    $
    18,598
    
    
    $
    18,091
    
    
    $
    (507
    )
    
    
    (2.7
    %)Sales and marketing
    
    
    3,182
    
    
    
    3,825
    
    
    
    643
    
    
    
    20.2
    %General and administrative
    
    
    1,721
    
    
    
    2,321
    
    
    
    600
    
    
    
    34.9
    %In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    (2,340
    )Total operating expenses
    
    $
    25,841
    
    
    $
    24,237
    
    
    $
    (1,604
    )
    
    
    (6.2
    %)
 Research and Development
 35




---



##### Table of Contents



Sales and Marketing
 General and Administrative
 Operating Profit and Operating Profit (Loss) on Billings
 Three Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(In thousands)Operating profit
    
    $
    94,645
    
    
    $
    31,455
    
    
    $
    (63,190
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    165,088
    
    
    
    77,396Less: Deferred revenue, at beginning of period
    
    
    (284,624
    )
    
    
    (110,136
    )Deferred product cost, at beginning of period
    
    
    34,373
    
    
    
    1,651Less: Deferred product cost, at end of period
    
    
    (701
    )
    
    
    (1,354
    )Operating profit (loss) on billings
    
    $
    8,610
    
    
    $
    (988
    )
    
    $
    (9,598
    )
   Interest Income, Net.
 Income Taxes.
 Comparison of Six Months Ended July 1, 2007 and June 29, 2008
 Revenue and Product and Service Billings
 36




---



##### Table of Contents



Six Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(dollars in thousands)Revenue
    
    $
    156,525
    
    
    $
    66,657
    
    
    $
    (89,868
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, end of period
    
    
    165,088
    
    
    
    77,396Less: deferred revenue, beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    78,024
    
    
    $
    64,075
    
    
    $
    (13,949
    )
   Cost of Revenue and Cost Related to Product and Service Billings
 Six Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(dollars in thousands)Cost of revenue
    
    $
    37,453
    
    
    $
    5,240
    
    
    $
    (32,213
    )Deferred product cost, end of period
    
    
    701
    
    
    
    1,354Less: deferred product cost, beginning of period
    
    
    (34,214
    )
    
    
    (1,050
    )Cost related to product billings
    
    $
    3,940
    
    
    $
    5,544
    
    
    $
    1,604
   Gross Profit and Gross Profit on Billings
 Six Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    

June 29, 2008
    
    
    Change(In thousands)Gross profit
    
    $
    119,072
    
    
    $
    61,417
    
    
    $
    (57,655
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    165,088
    
    
    
    77,396Less: 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
    
    
    (701
    )
    
    
    (1,354
    )Gross profit on Billings
    
    $
    74,084
    
    
    $
    58,531
    
    
    $
    (15,553
    )
  37




---



##### Table of Contents



Operating Expenses
 Period-to-PeriodSix Months Ended
    
    
    ChangeJuly 1, 2007
    
    
    June 29, 2008
    
    
    Amount
    
    
    Percentage(dollars in thousands)Research and development
    
    $
    34,581
    
    
    $
    37,350
    
    
    $
    2,769
    
    
    
    8.0
    %Sales and marketing
    
    
    5,762
    
    
    
    7,403
    
    
    
    1,641
    
    
    
    28.5
    %General and administrative
    
    
    3,237
    
    
    
    4,394
    
    
    
    1,157
    
    
    
    35.7
    %In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    (2,340
    )Total operating expenses
    
    $
    45,920
    
    
    $
    49,147
    
    
    $
    3,227
    
    
    
    7.0
    %
 Research and Development
 Sales and Marketing
 General and Administrative
 Operating Profit and Operating Profit on Billings
 Six Months Ended
    
    
    Period-to-PeriodJuly 1, 2007
    
    
    June 29, 2008
    
    
    Change(In thousands)Operating profit
    
    $
    73,152
    
    
    $
    12,270
    
    
    $
    (60,882
    )Less: deferred revenue acquired
    
    
    (171
    )
    
    
    Deferred revenue, at end of period
    
    
    165,088
    
    
    
    77,396Less: 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
    
    
    (701
    )
    
    
    (1,354
    )Operating profit on billings
    
    $
    28,164
    
    
    $
    9,384
    
    
    $
    (18,780
    )
  38




---



##### Table of Contents



Interest Income, Net.
 Income Taxes.
 Liquidity and Capital Resources
    (in thousands)As of
    
    As ofDecember 30,
    
    June 29,2007
    
    2008Cash and cash equivalents
    
    $
    43,547
    
    
    $
    35,312Investments, short-term
    
    
    178,416
    
    
    
    189,111Investments, long-term
    
    
    
    
    
    
    3,068Accounts receivable, net
    
    
    14,171
    
    
    
    7,941Working capital
    
    
    131,886
    
    
    
    144,676
 (in thousands)Six Months
    
    Six MonthsEnded
    
    EndedJuly 1,
    
    June 29,2007
    
    2008Cash flow from operating activities
    
    $
    63,882
    
    
    $
    1,239Cash flow from investing activities
    
    
    (53,469
    )
    
    
    (12,367
    )Cash flow from financing activities
    
    
    (74,063
    )
    
    
    2,821
  39




---



##### Table of Contents



Fiscal year:Remainder of 2008
    
    $
    8062009
    
    
    1,5102010
    
    
    1,5452011
    
    
    1,5522012
    
    
    439Thereafter
    
    
    9$
    5,861
 40




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
   41




---



##### Table of Contents



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.
  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.
  42




---



##### Table of Contents



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.
   The introduction of fourth generation wireless technology could reduce spending on our EV-DO
products and therefore harm our operating results.
   43




---



##### Table of Contents



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.
   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.
  44




---



##### Table of Contents



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.
  The unpredictability of our future results may adversely affect the trading price of our common
stock.
  45




---



##### Table of Contents




    
    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.
  46




---



##### Table of Contents



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.
  47




---



##### Table of Contents



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.
  48




---



##### Table of Contents



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.
 49




---



##### Table of Contents



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
 50




---



##### Table of Contents



The loss of key personnel or an inability to attract and retain additional personnel may impair
our ability to grow our business.
   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.
    51




---



##### Table of Contents



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.
  
    
    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.
  52




---



##### Table of Contents



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;
    
    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.
  53




---



##### Table of Contents



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;
    
    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.
  54




---



##### Table of Contents



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;
    
    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.
   55




---



##### Table of Contents



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.
  56




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
    
    Elected Sanjeev Verma as a Class I Director, to serve until our 2011 annual meeting
of stockholders and until his successor is duly elected and qualified. Holders of
54,224,752 shares of our common stock voted in favor of Mr. Vermas election, and
holders of 388,027 shares of our common stock withheld their votes in the election of
Mr. Verma
    
    Ratified the appointment by our board of directors of Ernst & Young LLP, an
independent registered public accounting firm, as our independent auditors for our
fiscal year ending December 28, 2008. Holders of 54,264,481 shares of our common stock
voted in favor of this proposal. Holders of 347,298 shares of our common stock voted
against this proposal. Holders of 1,000 shares of our common stock abstained from
voting on this matter.
  57




---



##### Table of Contents



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.
 58




---



##### Table of Contents



SIGNATURES
  AIRVANA, INC.By:
    /s/ Randall S. BattatRandall S. BattatDate: August 6, 2008
    
    President and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ Jeffrey D. GliddenJeffrey D. GliddenDate: August 6, 2008
    
    Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer) 59