##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2005
 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 00021091
 FIRST AVENUE NETWORKS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    52-1869023(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 7925 Jones Branch Drive, Suite 3300, McLean, VA 22102
 (Address of principal executive offices)
 (703) 873-4165
 (Registrants telephone number, including area code)
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
    
    None
 Securities registered pursuant to Section 12(g) of the Act:
 Title of Each Class:
    
    Common Stock ($0.001 Par Value)
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
   þ o
 Documents incorporated by reference:




---



##### 



FIRST AVENUE NETWORKS, INC.
 INDEX
 PagePART I.Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 4A. Executive Officers of the Registrant
    
    
    19PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    22Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    30Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    47Item 9A. Controls and Procedures
    
    
    47Item 9B. Other Information
    
    
    47PART III.Item 10. Directors and Executive Officers of the Registrant
    
    
    48Item 11. Executive Compensation
    
    
    48Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    48Item 13. Certain Relationships and Related Transactions
    
    
    48Item 14. Principal Accounting Fees and Services
    
    
    48PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    49Signatures
    
    
    50Exhibit Index
    
    
    51
 2




---



##### 



CAUTIONARY STATEMENT
  
 PART I
 
 ITEM 1. BUSINESS
 Overview
      Industry Discussion
  3




---



##### 




    
    establish high-speed data backhaul to accommodate increased mobile device penetration as
well as new applications such as wireless data, streaming video and mobile Internet;
    
    extend the fiber optic network footprint to provide communications services at
fiber-equivalent speed to more buildings and businesses;
    
    engineer access alternatives and redundancy for their existing communications systems;
and,
    
    increase the capacity, quality and transmission capabilities of their existing
communications systems in preparation for voice, video, data information stream convergence.
    High-Capacity.
 Lower Cost.
 Rapid Deployment.
 Reliability.
  Line of sight.
 General acceptance.
 Our Competition Risk Factors
 4




---



##### 



Our Business Strategy
  
    
    Focus on Premier Spectrum. In terms of breadth of geographic coverage, depth in key
markets and complementary technical and propagation characteristics, our 24 GHz and 39 GHz
licenses represent what we believe to be the premier collection of millimeter wave spectrum
in the United States. The range of transmissions over our 24 GHz spectrum is approximately
twice that of the range of 39 GHz transmissions. As a result for point-to-point links, 39
GHz spectrum can be used for shorter distances with 24 GHz providing solutions for longer
links. For point-to-multipoint configurations, the area of the circle covered by 24 GHz
spectrum transmissions is four times that of the area for a 39 GHz point-to-multipoint
transmission. As a result, we can select the best type of spectrum to use to meet the
customers need. Our strategy is to capitalize on the cost and speed of deployment
advantage inherent in our spectrum assets. Between 1995 and 2001, several
telecommunications companies that owned millimeter wave spectrum sought to provide a full
suite of telecommunications services. However, we believe that those companies failed to
focus on their single unique characteristic  millimeter wave spectrum. As a result, they
essentially replicated facilities already bought and paid for by ILECs in order to sell
directly to service the end user. We believe that this strategy of asset deployment
contributed to the significant losses they experienced. Our strategy is to provide fixed
wireless services directly to or by partnering with other telecommunications industry
participants, including mobile carriers, fiber carriers and alternative facilities
carriers.
    
    Increased Acceptance. Wireless-based solutions are increasingly accepted in the market.
Whether it is Wi-Fi for laptops or 1xEVDO/UMTS for mobile device Internet access, wireless
communication has become an accepted and fundamental telecommunications medium. Substantial
progress on standards for cellular and WiFi equipment design should result in these
services being available in homes and businesses in the near future. We believe this will
lead to a greater acceptance of our wireless broadband services for portions of the
telecommunications network for which we believe fixed wireless is the leading
cost/performance choice.
    
    Lower Cost Operations. The costs of installing and maintaining a wireless system have
fallen and we believe will continue to decrease.
 o
    
    Equipment Wireless equipment such as a 100 baseT radio link that once
cost as much as $60,000 now can be purchased for $15,000.o
    
    Convergence Operationally, we intend to develop our physical facilities
in a way that allows them to be used for a variety of high speed connectivity and
communications applications thus reducing the cost for any single application.
Increasing standardization on IP also contributes to this objective.o
    
    Focus on key competencies Generally, we intend to invest only in those
assets and business activities that are essential to our business, and expect to
perform functions such as installation, construction, primary monitoring and some
network operations through outsourcing or joint ventures.o
    
    Wholesale product offerings We intend to serve carrier customers rather
than develop direct to the consumer, or retail, operations, which would require a
greater investment in sales and administrative personnel.
 
    
    Regulatory Environment.In addition to the courts and the FCCs UNE-P actions
discussed above, the FCC ruled in its Secondary Markets Ruling of October 2003 that
companies could lease their spectrum to third parties, enabling us to lease spectrum to
other companies. Since the ruling, we believe that the transaction costs associated with
meeting FCC documentation requirements for any kind of spectrum leasing have decreased from
over $20,000 per lease to practically zero. This reduced transaction cost makes spectrum
leasing a more cost effective way to provide licensed spectrum to enterprises that can use
it to meet their communication needs.
 Network Overview
   5




---



##### 



Target Markets
  Mobile Backhaul
  6




---



##### 



Fiber Extensions
     Government
  amenity necessity
  Rollout strategy
  7




---



##### 



Our License Portfolio
   Our 39 GHz Wireless Broadband Licenses
     Our 24 GHz Wireless Broadband Licenses
   8




---



##### 



Our Licenses by Market
  24 GHz SMSA
    
    39 GHz BEA
    
    TotalLicensed
    
    Licensed
    
    ChannelBEA
    
    Channels(1)
    
    Channels(2)
    
    Pops(millions)New York, NY
    
    5
    
    4
    
    115.9Los Angeles, CA
    
    5
    
    4
    
    115.8Chicago, IL
    
    5
    
    3
    
    71.1Washington, DC/Baltimore, MD
    
    5
    
    3
    
    62.1San Francisco, CA
    
    5
    
    4
    
    55.1Detroit, MI
    
    5
    
    5
    
    54.5Philadelphia, PA
    
    4
    
    4
    
    49.5Dallas, TX
    
    5
    
    3
    
    48.5Houston, TX
    
    5
    
    3
    
    43.1Atlanta, GA
    
    5
    
    3
    
    38.8Boston, MA
    
    5
    
    3
    
    35.4Miami, FL
    
    5
    
    3
    
    29.2Seattle, WA
    
    5
    
    3
    
    26.6Minneapolis, MN
    
    5
    
    2
    
    25.8Phoenix, AZ
    
    5
    
    2
    
    25.3Cleveland, OH
    
    5
    
    4
    
    25.1Pittsburgh, PA
    
    4
    
    5
    
    24.5St. Louis, MO
    
    5
    
    3
    
    23.2San Diego, CA
    
    4
    
    2
    
    22.9Tampa, FL
    
    5
    
    2
    
    18.9Portland, OR
    
    4
    
    4
    
    18.6Indianapolis, IN
    
    4
    
    4
    
    17.9Denver, CO
    
    2
    
    3
    
    17.4San Antonio, TX
    
    4
    
    4
    
    16.4Kansas City, MO
    
    4
    
    4
    
    15.9Orlando, FL
    
    1
    
    4
    
    14.6Puerto Rico
    
    0
    
    1
    
    14.4Sacramento, CA
    
    4
    
    2
    
    13.0Milwaukee, WI
    
    4
    
    3
    
    12.8Columbus, OH
    
    2
    
    4
    
    12.1Cincinnati, OH
    
    3
    
    3
    
    11.9Salt Lake City, UT
    
    1
    
    3
    
    11.5Raleigh, NC
    
    1
    
    6
    
    11.5
 9




---



##### 



24 GHz SMSA
    
    39 GHz BEA
    
    TotalLicensed
    
    Licensed
    
    ChannelBEA
    
    Channels(1)
    
    Channels(2)
    
    Pops(millions)Nashville, TN
    
    1
    
    4
    
    
    10.7New Orleans, LA
    
    1
    
    5
    
    
    9.9Oklahoma City, OK
    
    1
    
    5
    
    
    9.5Greenville, SC
    
    1
    
    3
    
    
    9.1Charlotte, NC
    
    1
    
    4
    
    
    9.0Rochester, NY
    
    1
    
    5
    
    
    8.5Albany, NY
    
    1
    
    5
    
    
    8.4Syracuse, NY
    
    1
    
    4
    
    
    8.3Jacksonville, FL
    
    1
    
    4
    
    
    8.1Austin, TX
    
    1
    
    5
    
    
    7.8Las Vegas, NV
    
    1
    
    2
    
    
    7.5Grand Rapids, MI
    
    0
    
    4
    
    
    7.5Memphis, TN
    
    1
    
    3
    
    
    6.8Louisville, KY
    
    1
    
    4
    
    
    6.7Norfolk, VA
    
    2
    
    3
    
    
    6.7Buffalo, NY
    
    1
    
    4
    
    
    6.6Birmingham, AL
    
    1
    
    3
    
    
    5.7Total top 50 markets
    
    147
    
    177
    
    
    1,236.1Grand total top 50 market and legacy licenses
    
    172
    
    753
    
    
    1,535.0
 
 (1)
    
    SMSA licenses represent those licenses granted by the FCC that encompass Statistical
Metropolitan Service Area.(2)
    
    BEA licenses represent only those licenses granted by the FCC that encompass Economic
Areas. First Avenue Networks holds additional licenses that represent areas that overlap
EAs and have different regulatory characteristics. These licenses are referred to as
legacy licenses. Low Band Point-to-Point Licenses
  Our Competition
    10




---



##### 



Fiber Networks
 Copper Networks of the Local Exchange Carriers
 Coaxial Cable Networks.
 Other Fixed Wireless Networks.
     Mobile Wireless Networks
 11




---



##### 



Government Regulation
  Federal Regulation
 FCC Licensing
   Auctions.
   12




---



##### 



State Regulation
  Employees
  
 ITEM 1A. RISK FACTORS
  Our FCC licenses may be canceled or revoked for violations of the FCCs rules, which
could limit our operations and growth.
    Our FCC licenses may not be renewed upon expiration which could limit the expansion of our
business and harm our operating results.
   13




---



##### 



We are subject to comprehensive and continually evolving regulation that could increase
our costs and adversely affect our ability to successfully implement our business plan.
  Coordination with other licensees in the 39 GHz band could limit our operations in that band.
  The FCC may determine that we are offering common carrier service and, therefore, regulate us
as common carriers which could increase the cost of our operations.
  A key aspect of our business strategy is to provide backhaul services for providers of mobile
wireless telecommunications, and our business will depend to a substantial degree on the widespread
adoption of bandwidth-intensive applications, such as 3G applications. Any delay in the
implementation of these applications could limit our ability to grow our business and generate
additional revenue
  The value of our licenses could decline.
  
    
    increases in supply of spectrum that provides similar
functionality, such as the FCC proposal to allocate and license additional 37-40 GHz
spectrum;
    
    a decrease in the demand for services offered with
these licenses;
    
    values placed on similar licenses in future FCC
auctions;
    
    greater acceptance of unlicensed spectrum, such as WiMax, for carrier class
applications;
    
    regulatory limitations on transfers of these
licenses; and
 14




---



##### 




    
    bankruptcy or liquidation of any other comparable
companies.
  The volatility in the value of our FCC licenses could cause volatility in the trading price of
our stock.
   Future asset impairments or other charges could have an adverse impact on our future financial
results and the trading price of our stock.
   Our services and products incorporate intellectual property rights that may be found to
infringe on the rights of others.
  We may be unable to secure any needed additional capital to operate our business.
  15




---



##### 



We expect to incur negative cash flows and operating losses during at least the next few
years.
  
    
    raise adequate additional capital if required;
    
    attract and retain an adequate customer base;
    
    deploy and commercialize our services;
    
    attract and retain experienced and talented personnel as
needed; and,
    
    establish strategic business relationships.
  Competition may increase which could impact our growth and negatively affect our
operating results.
   We may be unsuccessful in developing a business around our targeted mobile backhaul and fiber
extension strategies. Also, we may be unable to successfully discover and respond to future
business opportunities to utilize our 24 GHz and 39 GHz licenses.
  
    
    the availability, performance and price of viable alternatives;
    
    our inability to create awareness and acceptance of our services; and,
    
    our limited resources to develop or pursue possible opportunities for the
provision of services.
  We may not be able to obtain access to building rooftops, transmission towers, and other
facilities in order to provide our wireless services.
  16




---



##### 



We may be unable to successfully execute on any of our identified business opportunities or
other business opportunities that we determine to pursue.
  
    
    the ability of our equipment, equipment suppliers and service
providers to perform as we expect;
    
    our ability to execute our strategy, which could be affected by our
limited experience in providing high-speed transmission services;
    
    our ability to effectively manage our third party
relationships;
    
    our ability to negotiate acceptable agreements to
secure suitable locations for our radios and antennas;
    
    our ability to manage the expansion of our
operations, which could result in increased costs, high employee turnover or damage
to customer relationships;
    
    our ability to attract and retain qualified
personnel, which may be affected by the significant competition in our industry for
persons experienced in network operations and engineering;
    
    equipment failure or interruption of service, which
could adversely affect our reputation and our relations with our customers;
    
    our ability to accurately predict and respond to the
rapid technological changes in our industry and the evolving demands of the markets
we serve; and,
    
    our ability to raise substantial additional capital to fund our growth,
if required.
  If our services do not achieve market acceptance we may lose or not obtain revenue and
our ability to achieve profitability would suffer.
  
    
    historical perceptions of the unreliability of previous wireless
technologies;
    
    our bankruptcy and the bankruptcies of Teligent, Winstar (currently IDT
Spectrum), XO and other emerging telecommunications companies;
    
    concerns about the security of transmissions over wireless networks or links;
    
    the lack of market history of operational fixed wireless services; and
    
    the possible desire of customers to acquire telecommunications services
from a single provider.
 The telecommunications market is highly competitive and we may be unable to compete
effectively, especially against competitors with greater financial and other resources, which may
affect our ability to attract customers and grow and maintain our sales.
  17




---



##### 



Our spectrum leasing strategy may not be accepted by the telecommunications carriers.
  There are few barriers to entry to spectrum leasing.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  SQUARE FOOTAGE
    
    LOCATION
    
    LEASE EXPIRATION DATE
    
    FACILITIES8,300
    
    McLean, VA
    
    June 15, 2007
    
    Corporate office8,400
    
    Iselin, NJ
    
    June 30, 2011
    
    Sales and executive
office1,200
    
    Charlottesville, VA
    
    January 31, 2007
    
    Corporate office33,400
    
    Herndon , VA
    
    March 30, 2008
    
    Teligents corporate
office which has
been subleased21,000
    
    Dulles, VA
    
    March 1, 2006
    
    Warehouse
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  18




---



##### 



ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
  Name
    
    Age
    
    PositionMichael K. Gallagher
    
    
    46
    
    
    Chief Executive Officer, President and DirectorRobert E. Beran
    
    
    45
    
    
    Senior Vice President, OperationsLouis R. Olsen
    
    
    48
    
    
    Senior Vice President, EngineeringJoseph M. Sandri, Jr.
    
    
    42
    
    
    Senior Vice President and President, First Avenue Networks
Solutions, Inc.Michael P. Casey
    
    
    40
    
    
    Vice President, SalesArthur D. Folker
    
    
    57
    
    
    Vice President, Corporate Development and Product MarketingThomas A. Scott
    
    
    30
    
    
    Vice President, Business Development and FinanceSandra G. Thomas
    
    
    49
    
    
    Vice President, Chief Financial Officer, Secretary and Treasurer
 Michael K. Gallagher
 Robert E. Beran
 Louis R. Olsen
 Joseph M. Sandri, Jr.
 Michael P. Casey
 Arthur D. Folker
 19




---



##### 



Thomas A. Scott
 Sandra G. Thomas
 20




---



##### 



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Common Stock
 PRICE RANGEHigh
    
    LowFiscal year ended December 31, 2005First Quarter
    
    $
    13.50
    
    
    $
    9.55Second Quarter
    
    $
    9.65
    
    
    $
    4.75Third Quarter
    
    $
    6.89
    
    
    $
    5.25Fourth Quarter
    
    $
    6.63
    
    
    $
    4.89Fiscal year ended December 31, 2004First Quarter
    
    $
    3.85
    
    
    $
    2.55Second Quarter
    
    $
    4.45
    
    
    $
    3.01Third Quarter
    
    $
    8.00
    
    
    $
    3.65Fourth Quarter
    
    $
    14.00
    
    
    $
    4.75
   Equity Compensation Plan Information
  Number of securitiesNumber of securities
    
    
    
    
    
    
    remaining available forto be issued upon
    
    
    Weighted-average
    
    
    future issuance underexercise of
    
    
    exercise price of
    
    
    equity compensationoutstanding
    
    
    outstanding
    
    
    plans (excludingoptions, warrants
    
    
    options, warrants
    
    
    securities reflected inand rights
    
    
    and rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity Compensation
Plans Approved by
Security
Holders
    
    
    3,257,683
    
    
    $
    5.91
    
    
    
    3,646,283Equity Compensation
Plans Not Approved
by Security
Holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,257,683
    
    
    $
    5.91
    
    
    
    3,646,283
 21




---



##### 



ITEM 6. SELECTED FINANCIAL DATA
  Years ended December 31,PredecessorSuccessor (1)
    
    
    (1)2005
    
    2004
    
    2003
    
    2002
    
    
    2001(in thousands except per share data)Statement of Operations Data:Revenues
    
    $
    1,325
    
    
    $
    104
    
    
    $
    140
    
    
    $
    295
    
    
    
    $
    629Loss from operations (2)
    
    
    (13,151
    )
    
    
    (11,131
    )
    
    
    (2,736
    )
    
    
    (26,685
    )
    
    
    
    (79,847
    )Net loss (3)
    
    
    (11,326
    )
    
    
    (14,528
    )
    
    
    (4,180
    )
    
    
    (27,725
    )
    
    
    
    (257,077
    )Basic and diluted net loss per share (4)
    
    
    (0.19
    )
    
    
    (0.67
    )
    
    
    (0.21
    )
    
    
    (1.39
    )
    
    
    
    (6.52
    )
 As of December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    50,681
    
    
    $
    80,398
    
    
    $
    3,599
    
    
    $
    5,300
    
    
    $
    5,850Certificates of deposit
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Working capital
    
    
    69,299
    
    
    
    79,781
    
    
    
    3,139
    
    
    
    4,013
    
    
    
    4,595FCC licenses
    
    
    60,662
    
    
    
    21,662
    
    
    
    21,600
    
    
    
    21,600
    
    
    
    46,388Total assets
    
    
    226,922
    
    
    
    103,581
    
    
    
    25,566
    
    
    
    27,429
    
    
    
    53,694Long-term debt
    
    
    
    
    
    
    
    
    
    
    10,694
    
    
    
    8,756
    
    
    
    6,883Total stockholders equity
    
    
    220,154
    
    
    
    98,630
    
    
    
    10,296
    
    
    
    13,126
    
    
    
    40,812
 
 (1)
    
    The Company sought reorganization under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the Court) on April 20, 2001. On
December 20, 2001, the Company emerged from bankruptcy. For financial reporting purposes, the
Company has reflected its emergence from bankruptcy as of December 31, 2001. Effective
December 31, 2001, the Company adopted fresh start financial reporting in accordance with
American Institute of Certified Public Accountants Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7).
Successor refers to activities and balances associated with the Company after December 20,
2001. Predecessor refers to activities and balances associated with the Company on or prior
to December 20, 2001. As a result, period to period comparisons may not be meaningful and are
not indicative of future results of the Company.(2)
    
    Includes expenses of (i) $24.8 million recorded in 2002 for the impairment of FCC licenses;
(ii) $42.6 million recorded for equipment impairment in 2001; and, (iii) $9.3 million recorded
for the impairment of a note receivable in 2001.(3)
    
    In 2001 includes $346.7 million in reorganization expenses and $128.9 million income
from gain on early extinguishments of debt as a result of the emergence from bankruptcy. Gain
on early extinguishment of debt was previously reported as an extraordinary item but has been
reclassified to a reorganization item in accordance with Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections.(4)
    
    Includes $3.27 income per share relating to an extraordinary gain on early
extinguishment of debt in 2001. 22




---



##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Executive Overview
         23




---



##### 



Results of Operations
 Year ended December 31, 2005 compared to year ended December 31, 2004
       24




---



##### 



Year ended December 31, 2004 compared to year ended December 31, 2003
      25




---



##### 



Liquidity and Capital Resources
  
    
    to grow our existing mobile backhaul network and, as we receive new contracts, construct
additional mobile backhaul networks;
    
    to develop facilities for extending fiber optic telecommunications networks in selected
metropolitan markets, as we identify and contract with appropriate customers and partners;
    
    for other working capital purposes; and,
    
    for general corporate purposes.
     26




---



##### 



Contractual Obligations
  Contractual Obligations
    
    
    
    
    
    Payment due by periodTotal
    
    
    Less than 1 year (1)
    
    
    1-3 years (2)
    
    
    3-5 years
    
    
    More than 5 yearsOperating lease obligations
    
    $
    1,658,000
    
    
    $
    738,000
    
    
    $
    764,000
    
    
    $
    156,000
    
    
    $
    Total
    
    $
    1,658,000
    
    
    $
    738,000
    
    
    $
    764,000
    
    
    $
    156,000
    
    
    $
    
 
 (1)
    
    Net of $553,000 due under non-cancellable sublease.(2)
    
    Net of $692,000 due under non-cancellable sublease.  Critical Accounting Matters and Significant Estimates
   
    
    FCC Licenses We account for our FCC licenses in accordance with the provisions of
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142) which require that goodwill and intangible assets with indefinite lives not
be amortized, but be tested annually or more frequently whenever indicators of impairments
arise. Intangible assets that have finite lives continue to be amortized over their
estimated useful lives. We have determined that our FCC licenses have indefinite useful
lives due to the following:
 o
    
    FCC spectrum is a non-depleting asset;o
    
    The licenses are integral to the business and we expect them to contribute to cash flows indefinitely;o
    
    License renewal applications are generally authorized by the FCC subject to certain conditions, without substantial cost under a stable regulatory, legislative and legal environment;o
    
    Maintenance expenditures required to obtain future cash flows are not significant; and,o
    
    We intend to use these assets for the foreseeable future.
    27




---



##### 




    
    Goodwill The excess of the purchase price over the fair value of identifiable net
assets of acquired companies is allocated to goodwill. Under the provisions of SFAS 142,
goodwill is not amortized but is reviewed for impairment annually or more frequently if
impairment indicators arise.
   
    
    Deferred taxes We have recorded a full valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be realized. In the event we were to
determine that we would be able to realize the deferred tax assets in the future in excess
of the net recorded amount, an adjustment to the deferred tax valuation allowance would be
reported as (i) a direct addition to additional paid in capital to the extent that the
adjustment arises from the use of net operating loss carry forwards acquired from our
predecessor and (ii) an increase in income in the period such determination is made to the
extent the adjustment arises for any other reason.
 
    
    Accrued taxes other than income taxes At December 31, 2005, other accrued taxes
included accrued property tax and use tax liabilities of approximately $2.5 million and
$1.6 million, respectively, which were incurred by our predecessor company. Such
liabilities are expected to be released as we reach settlement with the respective tax
jurisdictions or at such time that a basis exists for the reversal of this liability.
While we believe the amounts represent reasonable estimates of the amounts potentially
owed, the amounts ultimately paid to the respective jurisdictions could differ from the
accrued amounts. Payments of any amount due will reduce the recorded liability and cash
accordingly.
 
    
    Fresh start accounting In connection with our emergence from bankruptcy, we reflected
terms of the Plan in our consolidated financial statements by adopting the fresh start
accounting provisions of SOP 90-7 on December 31, 2001. Fresh start accounting creates a
new reporting entity and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values. In adopting fresh start accounting, we utilized the
reorganization value or fair value of the entity. The
 28




---



##### 



reorganization value of a company is the amount of value available and to become available for the satisfaction of post-
petition liabilities and allowed claims, as negotiated between the debtor-in-possession and
the creditors and holders of equity interests. A committee of unsecured creditors together
with management determined a reorganization value of approximately $53.7 million which was
deemed fair value of the assets of the reorganized business, with FCC licenses comprising 86%
of the reorganization value.
 
    
    Early stage business We are subject to all of the risks inherent in an
early-stage business in the telecommunications industry. These risks include, but are not
limited to: limited operating history; management of a changing business; reliance on other
third parties; competitive nature of the industry; development and maintenance of efficient
technologies to support the business; employee turnover; and, operating cash requirements.
In 2004, we had less than $100,000 in revenues from our spectrum leasing business. In
2005, we began generating revenue by providing mobile backhaul services in New York City.
From 2002 through December 2005, we have generated operating losses of $53.7 million and
net losses of $57.8 million. We expect to generate operating and net losses and negative
cash flows for at least the next few years. We are currently focused on developing our
business opportunities. Failure to generate sufficient revenues could have a material
adverse effect on our results of operations, financial condition and cash flows. The
recoverability of our assets is highly dependent on our ability to execute on our business
plan.
 Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  29




---



##### 



ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
  Internal Control  Integrated Framework
    Internal Control  Integrated Framework Internal Control  Integrated Framework
  /s/ KBA GROUP LLP
 30




---



##### 



Report of Independent Registered Public Accounting Firm on Financial Statements
     Internal Control  Integrated Framework
 /s/ KBA GROUP LLP
 31




---



##### 



FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
 December 31,2005
    
    
    2004Current assets:Cash and cash equivalents
    
    $
    50,681
    
    
    $
    80,398Certificates of deposit
    
    
    20,000
    
    
    
    Accounts receivable, net
    
    
    479
    
    
    
    42Prepaid expenses and other current assets
    
    
    442
    
    
    
    282Total current assets
    
    
    71,602
    
    
    
    80,722Property and equipment, net of accumulated depreciation
    
    
    3,225
    
    
    
    298FCC licenses
    
    
    60,662
    
    
    
    21,662Goodwill
    
    
    90,727
    
    
    
    Other assets
    
    
    706
    
    
    
    899Total assets
    
    $
    226,922
    
    
    $
    103,581Current liabilities:Accounts payable
    
    $
    141
    
    
    $
    40Accrued compensation and benefits
    
    
    786
    
    
    
    271Accrued taxes other than income taxes, current portion
    
    
    369
    
    
    
    350Deferred revenue, current portion
    
    
    140
    
    
    
    60Accrued lease liability, current portion
    
    
    269
    
    
    
    Other accrued liabilities
    
    
    598
    
    
    
    220Total current liabilities
    
    
    2,303
    
    
    
    941Deferred revenue, less current portion
    
    
    369
    
    
    
    250Accrued lease liability, less current portion
    
    
    336
    
    
    
    Accrued taxes other than income taxes, less current portion
    
    
    3,760
    
    
    
    3,760Total liabilities
    
    
    6,768
    
    
    
    4,951Commitments and contingenciesStockholders equity:Common stock, $0.001 par value; 100,000,000 shares
authorized and 60,576,484 and 34,158,016 shares
issued and outstanding at December 31, 2005 and 2004,
respectively
    
    
    61
    
    
    
    34Additional paid-in capital
    
    
    277,852
    
    
    
    145,029Accumulated deficit
    
    
    (57,759
    )
    
    
    (46,433
    )Total stockholders equity
    
    
    220,154
    
    
    
    98,630Total liabilities and stockholders equity
    
    $
    226,922
    
    
    $
    103,581
  32




---



##### 



FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
 Years ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    1,325
    
    
    $
    104
    
    
    $
    140Costs and expenses:Technical and network operations
    
    
    3,470
    
    
    
    78
    
    
    
    3Sales and marketing
    
    
    2,528
    
    
    
    1,848
    
    
    
    399General and administrative
    
    
    8,373
    
    
    
    9,303
    
    
    
    2,341Inventory and equipment impairment charge
    
    
    
    
    
    
    
    
    
    
    124Depreciation and amortization
    
    
    105
    
    
    
    6
    
    
    
    9Total costs and expenses
    
    
    14,476
    
    
    
    11,235
    
    
    
    2,876Loss from operations
    
    
    (13,151
    )
    
    
    (11,131
    )
    
    
    (2,736
    )Interest and other:Interest expense to shareholders
    
    
    
    
    
    
    (3,652
    )
    
    
    (1,938
    )Interest income
    
    
    1,825
    
    
    
    127
    
    
    
    46Gain on settlement of bankruptcy claims
    
    
    
    
    
    
    6
    
    
    
    424Other, net
    
    
    
    
    
    
    122
    
    
    
    24Total interest and other
    
    
    1,825
    
    
    
    (3,397
    )
    
    
    (1,444
    )Net loss
    
    $
    (11,326
    )
    
    $
    (14,528
    )
    
    $
    (4,180
    )Basic and diluted net loss per common share
    
    $
    (0.19
    )
    
    $
    (0.67
    )
    
    $
    (0.21
    )Weighted average common shares
    
    
    58,860
    
    
    
    21,745
    
    
    
    20,006
  33




---



##### 



FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders Equity
(in thousands)
 AdditionalCommon stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalances at December 31, 2002
    
    
    20,000
    
    
    $
    20
    
    
    $
    40,831
    
    
    $
    (27,725
    )
    
    $
    13,126Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,343
    
    
    
    
    
    
    
    1,343Stock options exercised
    
    
    49
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,180
    )
    
    
    (4,180
    )Balances at December 31, 2003
    
    
    20,049
    
    
    
    20
    
    
    
    42,181
    
    
    
    (31,905
    )
    
    
    10,296Sale of common stock and warrants, net
    
    
    14,078
    
    
    
    14
    
    
    
    93,331
    
    
    
    
    
    
    
    93,345Issuance of common stock pursuant to terms of reorganization plan
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    9,517
    
    
    
    
    
    
    
    9,517Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,528
    )
    
    
    (14,528
    )Balances at December 31, 2004
    
    
    34,158
    
    
    
    34
    
    
    
    145,029
    
    
    
    (46,433
    )
    
    
    98,630Issuance of common stock for asset acquisition
    
    
    25,195
    
    
    
    25
    
    
    
    130,137
    
    
    
    
    
    
    
    130,162Fees for 2004 common stock offering
    
    
    
    
    
    
    
    
    
    
    (332
    )
    
    
    
    
    
    
    (332
    )Warrants exercised
    
    
    571
    
    
    
    1
    
    
    
    ( 1
    )
    
    
    
    
    
    
    Stock compensation expense
    
    
    6
    
    
    
    
    
    
    
    2,929
    
    
    
    
    
    
    
    2,929Stock options exercised
    
    
    646
    
    
    
    1
    
    
    
    90
    
    
    
    
    
    
    
    91Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,326
    )
    
    
    (11,326
    )Balances at December 31, 2005
    
    
    60,576
    
    
    $
    61
    
    
    $
    277,852
    
    
    $
    (57,759
    )
    
    $
    220,154
  34




---



##### 



FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
 Years ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net loss
    
    $
    (11,326
    )
    
    $
    (14,528
    )
    
    $
    (4,180
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    105
    
    
    
    6
    
    
    
    9Non-cash interest expense to shareholders
    
    
    
    
    
    
    3,364
    
    
    
    1,938Non-cash stock-based compensation expense
    
    
    2,929
    
    
    
    9,517
    
    
    
    1,343Gain on cancellation of liabilities
    
    
    
    
    
    
    
    
    
    
    (365
    )Other non-cash adjustments
    
    
    17
    
    
    
    
    
    
    
    144Changes in operating assets and liabilities, net of
effect of acquisition
    
    
    12
    
    
    
    133
    
    
    
    (595
    )Net cash used by operating activities
    
    
    (8,263
    )
    
    
    (1,508
    )
    
    
    (1,706
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,925
    )
    
    
    (24
    )
    
    
    (2
    )Deposits for equipment purchases
    
    
    (644
    )
    
    
    
    
    
    
    Acquisition costs
    
    
    (179
    )
    
    
    
    
    
    
    Cash from Teligent acquisition
    
    
    1,535
    
    
    
    
    
    
    
    Purchase of certificates of deposit
    
    
    (20,000
    )
    
    
    
    
    
    
    Purchase of FCC Licenses
    
    
    
    
    
    
    (62
    )
    
    
    Deferred acquisition costs
    
    
    
    
    
    
    (894
    )
    
    
    Net cash used in investing activities
    
    
    (21,213
    )
    
    
    (980
    )
    
    
    (2
    )Cash flows from financing activities:Proceeds from the sale of common stock, net of agent fees
    
    
    
    
    
    
    93,345
    
    
    
    Proceeds from exercised stock options
    
    
    91
    
    
    
    
    
    
    
    7Transaction fee for sale of common stock
    
    
    (332
    )
    
    
    
    
    
    
    Payment of senior secured notes to shareholders
    
    
    
    
    
    
    (14,058
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (241
    )
    
    
    79,287
    
    
    
    7Net decrease in cash and cash equivalents
    
    
    (29,717
    )
    
    
    76,799
    
    
    
    (1,701
    )Cash and cash equivalents, beginning of year
    
    
    80,398
    
    
    
    3,599
    
    
    
    5,300Cash and cash equivalents, end of year
    
    $
    50,681
    
    
    $
    80,398
    
    
    $
    3,599Supplemental disclosure of cash flow information:Interest paid to senior note holders
    
    $
    
    
    
    $
    288
    
    
    $
    Supplemental disclosure of non-cash financing and investing
activities:Issuance of senior secured notes to shareholders for
paid-in-kind interest
    
    
    
    
    
    
    908
    
    
    
    1,120Amortization of original issue discount on senior
secured notes issued to
shareholders
    
    
    
    
    
    
    2,456
    
    
    
    818Issuance of common stock and warrants in connection with
the acquisition of certain assets and
assumptions of certain
liabilities of Teligent, Inc
    
    
    130,162
    
    
    
    
    
    
    
    
  35




---



##### 



First Avenue Networks, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Note 1The Company
     Note 2Summary of Significant Accounting Policies
 Consolidation
 Use of estimates
 Reclassifications
 Segment reporting
 Cash and cash equivalents
 36




---



##### 



Note 2Summary of Significant Accounting Policies (continued)
 Certificates of deposit 
 Property and equipment 
 Network assets in service
    
    3-5 yearsComputer systems
    
    2 yearsFurniture and equipment
    
    3 years
  Intangibles
  FCC licenses
  o
    
    FCC spectrum is a non-depleting asset;o
    
    The licenses are integral to the business and the Company expects them to contribute to cash flows indefinitely;o
    
    License renewal applications are generally authorized by the FCC subject to certain conditions, without
substantial cost under a stable regulatory, legislative and legal environment;o
    
    Maintenance expenditures required to obtain future cash flows are not significant; and,o
    
    The Company intends to use these assets for the foreseeable future.
  37




---



##### 



Note 2Summary of Significant Accounting Policies (continued)
 Goodwill
 Transaction costs
 Revenue recognition
 Allowance for doubtful accounts
 Income taxes
 Stock options
  38




---



##### 



Note 2Summary of Significant Accounting Policies (continued)
 Stock options (continued)
 Year EndedDecember 31, 2005Net loss, as reported
    
    $
    (11,326
    )Add: Stock-based compensation determined under
fair value based method included in reported net
loss
    
    
    2,889Plus reversal of excess stock-based compensation
determined in accordance with APB 25
    
    
    2,781Net loss, as adjusted
    
    $
    (5,656
    )Basic and diluted loss per share, as reported
    
    $
    (0.19
    )Basic and diluted loss per share, as adjusted
    
    $
    (0.10
    )
   For the Years EndedDecember 31,2004
    
    
    2003Net loss, as reported
    
    $
    (14,528
    )
    
    $
    (4,180
    )Add: Stock-based compensation included in reported net loss
    
    
    9,517
    
    
    
    1,343Less: Stock-based compensation determined under fair value
based method for all awards
    
    
    (302
    )
    
    
    (358
    )Net loss, as adjusted for fair value method for all stock
based awards
    
    $
    (5,313
    )
    
    $
    (3,195
    )Basic and diluted loss per share, as reported
    
    $
    (0.67
    )
    
    $
    (0.21
    )Basic and diluted loss per share, as adjusted
    
    $
    (0.24
    )
    
    $
    (0.16
    )
 Net loss per share
 Note 3Purchase of Teligent Assets
    39




---



##### 



Note 3Purchase of Teligent Assets (continued)
  Amount
    
    
    LivesCash and cash equivalents
    
    $
    1,535
    
    
    N.A.Accounts receivable
    
    
    82
    
    
    N.A.Undeployed equipment
    
    
    964
    
    
    N.A.Property and equipment
    
    
    124
    
    
    3 yearsFCC licenses
    
    
    39,000
    
    
    IndefiniteGoodwill
    
    
    90,727
    
    
    IndefiniteOther assets
    
    
    56
    
    
    N.A.Current liabilities
    
    
    (388
    )
    
    N.A.Accrued taxes other than income
    
    
    (20
    )
    
    N.A.Other non-current liabilities
    
    
    (850
    )
    
    N.A.Net assets acquired
    
    $
    131,230
   Pro forma
 Note 4FCC Licenses
  Auction 
 Teligent 
 Note 5Property and Equipment
  2005
    
    
    2004Deployable assets
    
    $
    2,805
    
    
    $
    273Network assets in service
    
    
    169
    
    
    
    7Computer systems
    
    
    240
    
    
    
    21Furniture and equipment
    
    
    137
    
    
    
    20Total property and equipment
    
    
    3,351
    
    
    
    321Accumulated depreciation
    
    
    (126
    )
    
    
    (23
    )Property and equipment, net
    
    $
    3,225
    
    
    $
    298
  40




---



##### 



Note 6Accrued Taxes other than Income Taxes
  Note 7Income Taxes
  2005
    
    
    2004
    
    
    2003Federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Non-deductible interest
    
    
    
    
    
    
    (5.9
    %)
    
    
    (6.9
    %)State income tax, net of federal benefit
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %Other
    
    
    (0.1
    %)
    
    
    (0.4
    %)
    
    
    (0.4
    %)Change in valuation allowance
    
    
    (36.9
    %)
    
    
    (30.7
    %)
    
    
    (29.7
    %)Effective income tax rate
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
  2005
    
    
    2004Deferred tax assets:Net operating loss carryforwards
    
    $
    487,784
    
    
    $
    110,415FCC license amortization and impairment
    
    
    10,637
    
    
    
    19,282Equipment depreciation and impairment
    
    
    35,101
    
    
    
    1,571Stock-based compensation
    
    
    3,496
    
    
    
    4,018Other
    
    
    147
    
    
    
    33Accrued liabilities
    
    
    1,785
    
    
    
    1,608Total deferred tax assets
    
    
    538,950
    
    
    
    136,927Valuation allowance
    
    
    (538,950
    )
    
    
    (136,927
    )Net deferred tax assets
    
    $
    
    
    
    $
    
   41




---



##### 



Note 8Senior Notes
    Note 9Capital Stock
 Teligent
 Sale of Common Stock
 th th th th
 Common Stock issued in accordance with the reorganization plan
 Class A Warrants
 42




---



##### 



Note 9Capital Stock (continued)
 Outstanding Options and Warrants
 Options/Warrants
    
    
    Weighted Average
    
    
    Options/Warrants
    
    
    Weighted AverageExercise Price
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercisable
    
    
    Exercise Price$0.01*
    
    
    4,000,000
    
    
    
    1.0
    
    
    
    4,000,000
    
    
    $
    0.01$0.14**
    
    
    137,197
    
    
    
    6.0
    
    
    
    137,197
    
    
    $
    0.14$0.52**
    
    
    555,488
    
    
    
    6.0
    
    
    
    426,981
    
    
    $
    0.52$1.84*
    
    
    1,208,333
    
    
    
    3.0
    
    
    
    1,208,333
    
    
    $
    1.84$2.08*
    
    
    1,519,464
    
    
    
    5.0
    
    
    
    1,519,464
    
    
    $
    2.08$7.00**
    
    
    1,975,000
    
    
    
    5.0
    
    
    
    
    
    
    $
    7.00$7.25*
    
    
    2,574,000
    
    
    
    9.0
    
    
    
    2,574,000
    
    
    $
    7.25$8.70**
    
    
    590,000
    
    
    
    5.9
    
    
    
    140,000
    
    
    $
    8.70Total
    
    
    12,559,482
    
    
    
    
    
    
    
    10,005,975
 
 *
    
    - Warrants**
    
    - Options issued to employees and directors Note 10Stock-Based Compensation
 Stock Compensation Expense
 Stock Option Plan
  For the Years Ended December 31,2005
    
    2004
    
    2003Risk free interest rates
    
    3.88% - 4.38%
    
    N.A.
    
    3.11%Expected life (in years)
    
    3 - 4
    
    N.A.
    
    5Volatility
    
    117% - 126%
    
    N.A.
    
    100%
  43




---



##### 



Note 10Stock-Based Compensation (continued)
  Weighted Average
    
    
    Weighted AverageExercise Price
    
    
    Remaining Contractual
    
    
    Aggregate IntrinsicNumber of Shares
    
    
    per Share
    
    
    Term
    
    
    Value ($000s)Outstanding at January 1, 2003
    
    
    940
    
    
    $
    3.96Options canceled
    
    
    (940
    )
    
    $
    3.96Options issued
    
    
    1,389
    
    
    $
    0.14Options exercised
    
    
    (49
    )
    
    $
    0.14Outstanding at December 31, 2003
    
    
    1,340
    
    
    $
    0.14Option activity
    
    
    
    
    
    
    Outstanding at December 31, 2004
    
    
    1,340
    
    
    $
    0.14Options issued
    
    
    2,565
    
    
    $
    7.40Options exercised
    
    
    (647
    )
    
    $
    0.14Outstanding at December 31, 2005
    
    
    3,258
    
    
    $
    5.91
    
    
    
    5.9
    
    
    $
    3,308Exercisable at December 31, 2005
    
    
    704
    
    
    $
    2.07
    
    
    
    6.5
    
    
    $
    2,704
    Weighted AverageGrant DateNumber of Shares
    
    
    Fair ValueNonvested at January 1, 2005
    
    
    556
    
    
    $
    0.87Options issued
    
    
    2,565
    
    
    $
    4.15Options vested
    
    
    (567
    )
    
    $
    1.51Nonvested at December 31, 2005
    
    
    2,554
    
    
    $
    4.41
  Note 11401(k) Plan
  Note 12Related Party Transactions
   44




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##### 



Note 12Related Party Transactions (continued)
   Note 13Commitments and Contingencies
 Leases and rent expense
 2006
    
    $
    1,291,0002007
    
    
    1,083,0002008
    
    
    373,0002009
    
    
    103,0002010
    
    
    53,000Thereafter
    
    
    Subtotal
    
    
    2,903,000Less sublease income
    
    
    (1,245,000
    )Total minimum lease commitments
    
    $
    1,658,000
  Concentrations 
 Regulatory Matters
  License Renewal
 45




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##### 



Note 14Fair Values of Financial Instruments
  Note 15Subsequent Events
  Note 16Quarterly Financial Data (unaudited)
  Quarter Ended
    
    
    Year Ended3/31/05
    
    
    6/30/05
    
    
    9/30/05
    
    
    12/31/05
    
    
    12/31/05Revenues
    
    $
    265
    
    
    $
    331
    
    
    $
    333
    
    
    $
    396
    
    
    $
    1,325Loss from operations
    
    
    (2,197
    )
    
    
    (2,095
    )
    
    
    (4,895
    )
    
    
    (3,964
    )
    
    
    (13,151
    )Net loss
    
    
    (1,928
    )
    
    
    (1,681
    )
    
    
    (4,388
    )
    
    
    (3,329
    )
    
    
    (11,326
    )Basic and diluted net loss per common share
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.07
    )
    
    
    (0.06
    )
    
    
    (0.19
    )
 Quarter Ended
    
    
    
    
    
    
    Year Ended3/31/04
    
    
    6/30/04
    
    
    9/30/04
    
    
    12/31/04 (1)
    
    
    12/31/04Revenues
    
    $
    25
    
    
    $
    27
    
    
    $
    25
    
    
    $
    27
    
    
    $
    104Loss from operations
    
    
    (619
    )
    
    
    (1,038
    )
    
    
    (656
    )
    
    
    (8,818
    )
    
    
    (11,131
    )Net loss
    
    
    (1,097
    )
    
    
    (1,523
    )
    
    
    (1,158
    )
    
    
    (10,750
    )
    
    
    (14,528
    )Basic and diluted net loss per common share
    
    
    (0.05
    )
    
    
    (0.07
    )
    
    
    (0.06
    )
    
    
    (0.49
    )
    
    
    (0.67
    )
 
 (1)
    
    Net loss for the quarter includes an $8.3 million charge for variable accounting for
employee stock options and $1.8 million in recognition of remaining deferred debt issue cost
as a result of the repayment of Senior Notes on December 23, 2004. 46




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##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
       
 ITEM 9B. OTHER INFORMATION
  47




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##### 



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  48




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##### 



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
  (1) Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
Consolidated Statement of Changes in Stockholders Equity for the years ended December 31, 2005,
2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003(2) Financial Statement Schedule:
 (in thousands)
    
    Balance at
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    BalanceBeginning
    
    
    Charged to Costs
    
    
    Charged
    
    
    
    
    
    
    at End ofDescription
    
    of Period
    
    
    and Expenses
    
    
    to Other
    
    
    Deductions
    
    
    PeriodYear ended December 31, 2005Allowance for doubtful accounts
    
    $
    1
    
    
    $
    9-
    
    
    $
    
    
    
    $
    5
    
    
    $
    5Valuation allowance for deferred tax assets
    
    
    136,927
    
    
    
    
    
    
    
    402,023
    
    
    
    
    
    
    
    538,950Year ended December 31, 2004Allowance for doubtful accounts
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    1Valuation allowance for deferred tax assets
    
    
    116,384
    
    
    
    
    
    
    
    20,543
    
    
    
    
    
    
    
    136,927Year ended December 31, 2003Allowance for doubtful accounts
    
    
    28
    
    
    
    24
    
    
    
    
    
    
    
    (50
    )
    
    
    2Valuation allowance for deferred tax assets
    
    
    115,119
    
    
    
    
    
    
    
    1,265
    
    
    
    
    
    
    
    116,384
   49




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##### 



SIGNATURES
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on this 8th day of
March 2006.
 FIRST AVENUE NETWORKS, INC.By:
    /S/   Michael k. gallagherMichael K. GallagherPresident, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacities and on the
dates indicated:
 Signature
    
    Title
    
    Date/S/ Michael K. Gallagher
    
    President, Chief Executive Officer and
Director
    
    March 8, 2006Michael K. Gallagher
    
    (Principal Executive Officer)/S/ Sandra G. Thomas
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    March 8, 2006Sandra G. Thomas/S/ Dean M. Johnson
    
    Director
    
    March 8, 2006Dean M. Johnson/S/ John Muleta.
    
    Director
    
    March 8, 2006John Muleta/S/ Wharton B. Rivers, Jr.
    
    Director
    
    March 8, 2006Wharton B. Rivers, Jr./S/ Richard L. Shorten, Jr.
    
    Director
    
    March 8, 2006Richard L. Shorten, Jr./S/ Neil Subin
    
    Director
    
    March 8, 2006Neil Subin/S/ Matthew Teplitz
    
    Director
    
    March 8, 2006Matthew Teplitz/S/ R. Ted Weschler
    
    Director
    
    March 8, 2006R. Ted Weschler
 50




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##### 



EXHIBIT INDEX
 ExhibitNo.
    
    Title3.1.
    
    Restated Certificate of Incorporation of the Registrant. (1)3.2.
    
    Amendment to Certificate of Incorporation of the Registrant dated February 14, 2002. (1)3.3
    
    Amended to Certificate of Incorporation of the Registrant dated June 7, 2004. (2)3.4.
    
    Amended and Restated By-Laws of the Registrant. (3)4.1.
    
    Specimen of Common Stock Certificate. (1)4.2.
    
    Senior Secured Note and Class A Warrant Agreement. (4)4.3.
    
    Form of Class A Warrant. (4)4.4.
    
    First Avenue Networks, Inc. Stock Option Plan. (5)4.5
    
    Form Stock Purchase Warrant to subscribe for and purchase Common Stock of First Avenue
Networks, Inc. (6)4.6
    
    Form of 9% Senior Secured Note due December 20, 2008. (6)10.1
    
    First Amendment to Senior Secured Note and Class A Warrant Purchase Agreement, dated
January 26, 2004, among the Company and the Purchasers named in Schedule I thereto. (6)10.2
    
    Common Stock and Warrant Purchase Agreement, dated January 28, 2004, by and between the
Company and the Investors party thereto. (6)10.3
    
    Securities Purchase Agreement dated as of December 14, 2004 by and among First Avenue
Networks, Inc. and the Purchasers listed on Schedule I attached thereto. (3)10.4
    
    Form of Common Stock Purchase Warrant issued by the Company to each of the Purchasers. (3)10.5
    
    Form of Common Stock Purchase Warrant issued to Tejas Securities Group, Inc. (2)10.6
    
    Amended and Restated Asset Purchase Agreement, dated as of January 13, 2005, by and among
First Avenue Networks, Inc., Teligent Services Acquisition, Inc., Teligent, Inc. and
Teligent Services, Inc. (7)10.7
    
    Third Amended and Restated Registration Rights Agreement, dated January 28, 2004, by and
the Company and the parties thereto. (7)10.8
    
    Warrant issued to Dr. Rajendra Singh. (7)10.9
    
    Executive Employment Agreement with Michael Gallagher (8)10.10
    
    Employment and Option Amendment Agreement with Sandra G. Thomas (9)21.1
    
    Subsidiaries of First Avenue Networks, Inc.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
 
 (1)
    
    Previously filed as an exhibit to the Companys Annual Report on Form
10-K for the year ended December 31, 2001 and incorporated by reference herein. 51




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##### 



(2)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the year ended December 31, 2004 and incorporated by reference herein.(3)
    
    Previously filed as an exhibit to the Companys Report on Form 8-K dated December 14,
2004 and incorporated by reference herein.(4)
    
    Previously filed as an exhibit to Exhibit 2.2 of the Companys Periodic Report on Form
8-K, dated January 4, 2002 and incorporated by reference herein.(5)
    
    Previously filed as an exhibit to the Companys Definitive Proxy Statement dated April
21, 2003 and incorporated by reference herein.(6)
    
    Previously filed as an exhibit to the Companys Report on Form 8-K dated January 29,
2004 and incorporated by reference herein.(7)
    
    Previously filed as an exhibit to the Companys Report on Form 8-K dated January 18,
2005 and incorporated by reference herein.(8)
    
    Previously filed as an exhibit to the Companys Report on Form 8-K dated September 7,
2005 and incorporated by reference herein.(9)
    
    Previously filed as an exhibit to the Companys Report on Form 8-K dated September 26,
2005 and incorporated by reference herein. 52