**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        DC 20549**
  **FORM
          10-Q/A**
  (Mark
        One)
  x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(****d****)
                  OF THE SECURITIES EXCHANGE ACT OF
                  1934**
 
 **For
                  the quarterly period ended July 1, 2006****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 000-51958**
 
 **NEXTWAVE
        WIRELESS LLC**
 (Exact
        name of registrant as specified in its charter)
 
 **Delaware**
              
              **14-1926116**(State
                  or other jurisdiction of
              
              (IRS
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)**12670
                  High Bluff Drive, San Diego, California**
              
              **92130**(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 **(858)
                  480-3100**(Registrant’s
                  telephone number, including area
                  code)
 
 **Not
                  Applicable**(Former
                  name, former address and former fiscal year, if changed since last
                  report)
 
 Indicate
        by check mark whether the Registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days. Yes o No ý
 
 Indicate
        by check mark whether the Registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 
 Large
                  accelerated filero
              
              Accelerated
                  filero
              
              Non-accelerated
                  filerý
 
 Indicate
        by check mark whether the Registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act).  Yes o No ý
 
 Indicate
        by check mark whether the registrant has filed all documents and reports
        required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange
        Act
        of 1934 subsequent to the distribution of securities under a plan confirmed
        by a
        court. Yes ý No o
  The
          registrant, a limited liability company, has no common stock outstanding.
          492,042,171 limited liability company interests were issued and outstanding
          on
          August 18, 2006.
  
  
  **TABLE
        OF CONTENTS**
  **PART
                I. Financial Information****Item
                  1.**
              Consolidated
                  Financial Statements (Unaudited)Consolidated
                  Balance SheetsConsolidated
                  Statements of OperationsConsolidated
                  Statements of Cash FlowsNotes
                  to Consolidated Financial Statements**Item
                  2.**
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations**Item
                  3.**
              Quantitative
                  and Qualitative Disclosure About Market Risk**Item
                  4.**
              Controls
                  and Procedures**PART
                  II. Other Information**
  **Item
                  1.**
              Legal
                  Proceedings**Item
                  1A.**
              Risk
                  Factors**Item
                  2.**
              Unregistered
                  Sales of Equity Securities and Use of Proceeds**Item
                  3.**
              Defaults
                  Upon Senior Securities**Item
                  4.**
              Submission
                  of Matters of a Vote of Security Holders**Item
                  5.**
              Other
                  Information**Item
                  6.**
              ExhibitsSignaturesIndex
                  to Exhibits
  2
  **PART
        I.**  **FINANCIAL
        INFORMATION**
  **ITEM
        1.**  **Financial
        Statements**
 
 **NEXTWAVE
        WIRELESS LLC**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(in
        thousands)**
 
 **July
                  1, 2006**
              
              **December
                  31, 2005****(Unaudited)**
              
              **(Audited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              30,643
              
              $
              93,649Short-term
                  investments
              
              
              309,794
              
              
              365,582Accounts
                  receivable, net of allowance for doubtful accounts of $331 and
                  $391,
                  respectively
              
              
              5,206
              
              
              3,712Prepaid
                  expenses and other current assets
              
              
              10,623
              
              
              9,575Total
                  current assets
              
              
              356,266
              
              
              472,518Wireless
                  spectrum licenses, net
              
              
              130,374
              
              
              45,467Goodwill
              
              
              32,936
              
              
              24,782Other
                  intangible assets, net
              
              
              16,846
              
              
              18,100Property
                  and equipment, net
              
              
              14,632
              
              
              11,092Prepaid
                  expenses and other noncurrent assets
              
              
              6,761
              
              
              7,815Total
                  assets
              
              $
              557,815
              
              $
              579,774**LIABILITIES
                  AND MEMBERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              2,274
              
              $
              3,406Accrued
                  expenses
              
              
              12,104
              
              
              5,152Current
                  portion of long-term obligations
              
              
              2,822
              
              
              2,200Deferred
                  revenue
              
              
              3,100
              
              
              4,103Current
                  tax liability
              
              
              —
              
              
              417Other
                  current liabilities and deferred credits
              
              
              1,009
              
              
              822Total
                  current liabilities
              
              
              21,309
              
              
              16,100Long-term
                  deferred credits and reserves
              
              
              8,575
              
              
              8,306Long-term
                  obligations
              
              
              15,661
              
              
              14,934Minority
                  interest in subsidiary
              
              
              1,143
              
              
              1,070Commitments
                  and contingenciesMembers’
                  equity:Membership
                  interests; 490,542 and 488,672 interests issued and outstanding
                  as of July
                  1, 2006 and December 31, 2005, respectively
              
              
              592,389
              
              
              589,354Accumulated
                  other comprehensive loss
              
              
              (1,078
              )
              
              (832
              )Retained
                  deficit
              
              
              (80,184
              )
              
              (49,158
              )Total
                  members’ equity
              
              
              511,127
              
              
              539,364Total
                  liabilities and members’ equity
              
              $
              557,815
              
              $
              579,774
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
  **NEXTWAVE
        WIRELESS LLC**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(in
        thousands) (unaudited)**
  **Three
                  Months Ended July 1, 2006**
              
              **Inception
                  (April 13, 2005) to June 30, 2005**
              
              **Six
                  Months Ended July 1, 2006**Revenues
              
              $
              8,331
              
              $
              148
              
              $
              14,004Operating
                  expenses:Cost
                  of revenues
              
              
              2,957
              
              
              85
              
              
              5,587Engineering,
                  research and development
              
              
              11,650
              
              
              2,913
              
              
              21,633General
                  and administrative
              
              
              13,632
              
              
              3,287
              
              
              22,504Sales
                  and marketing
              
              
              2,239
              
              
              —
              
              
              3,778Purchased
                  in-process research and development
              
              
              1,648
              
              
              —
              
              
              1,648Total
                  operating expenses
              
              
              32,126
              
              
              6,285
              
              
              55,150Loss
                  from operations
              
              
              (23,795
              )
              
              (6,137
              )
              
              (41,146
              )Other
                  income (expense)Interest
                  income
              
              
              3,197
              
              
              3,470
              
              
              6,384Interest
                  expense
              
              
              (366
              )
              
              (304
              )
              
              (674
              )Other
                  income and expense, net
              
              
              216
              
              
              23
              
              
              124Total
                  other income (expense), net
              
              
              3,047
              
              
              3,189
              
              
              5,834Loss
                  before income tax benefit and minority interest
              
              
              (20,748
              )
              
              (2,948
              )
              
              (35,312
              )Income
                  tax benefit
              
              
              —
              
              
              —
              
              
              209Minority
                  interest
              
              
              214
              
              
              —
              
              
              871Net
                  loss
              
              $
              (20,534
              )
              $
              (2,948
              )
              $
              (34,232
              )
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements
  4
 
 **NEXTWAVE
        WIRELESS LLC**
 **CONSOLIDATED
        STATEMENT OF MEMBERS’ EQUITY**
 **(in
        thousands) (unaudited)**
 **Membership
                    Interests**
                
                **Accumulated****Units**
                
                **Amount**
                
                **Other
                    Comprehensive Loss**
                
                **Retained
                    Deficit**
                
                **Total
                    Members’ Equity**
                
                **Comprehensive
                    Loss****Balance
                    at December 31, 2005**
                
                
                488,672
                
                $
                589,354
                
                $
                (832
                )
                $
                (49,158
                )
                $
                539,364Units
                    issued for business acquisition
                
                
                1,558
                
                
                1,558
                
                
                —
                
                
                —
                
                
                1,558Units
                    issued for unit options exercised
                
                
                312
                
                
                312
                
                
                —
                
                
                —
                
                
                312Share-based
                    compensation
                
                
                —
                
                
                2,612
                
                
                —
                
                
                —
                
                
                2,612Accumulated
                    deficit of variable interest entity eliminated upon acquisition
                    by
                    NextWave
                
                
                —
                
                
                —
                
                
                —
                
                
                3,206
                
                
                3,206Distributions
                    to members
                
                
                —
                
                
                (1,447
                )
                
                —
                
                
                —
                
                
                (1,447
                )Unrealized
                    net losses on investments
                
                
                —
                
                
                —
                
                
                (246
                )
                
                —
                
                
                (246
                )
                $
                (246
                )Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                (34,232
                )
                
                (34,232
                )
                
                (34,232
                )**Balance
                    at July 1, 2006**
                
                
                490,542
                
                $
                592,389
                
                $
                (1,078
                )
                $
                (80,184
                )
                $
                511,127
                
                $
                (34,478
                )
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  5
  **NEXTWAVE
        WIRELESS LLC**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(in
        thousands) (unaudited)**
  **Six
                  Months Ended July 1, 2006**
              
              **Inception
                  (April 13, 2005) to June 30, 2005****OPERATING
                  ACTIVITIES**Net
                  loss
              
              $
              (34,232
              )
              $
              (2,948
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
              
              
              2,564
              
              
              27Amortization
                  of intangible assets
              
              
              2,468
              
              
              444Share-based
                  compensation
              
              
              2,612
              
              
              —In-process
                  research and development
              
              
              1,648
              
              
              —Loss
                  on disposal of property and equipment
              
              
              474
              
              
              —Minority
                  interest
              
              
              (871
              )
              
              —Losses
                  incurred by strategic investment
              
              
              661
              
              
              —Accretion
                  of interest expense
              
              
              636
              
              
              282Other
                  non-cash adjustments
              
              
              607
              
              
              (142
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,434
              )
              
              (114
              )Prepaid
                  expenses and other current assets
              
              
              (2,415
              )
              
              142Other
                  assets
              
              
              940
              
              
              (87
              )Accounts
                  payable and accrued liabilities
              
              
              4,329
              
              
              34Deferred
                  credits and reserves
              
              
              (1,193
              )
              
              372Net
                  cash used in operating activities
              
              
              (23,206
              )
              
              (1,990
              )**INVESTING
                  ACTIVITIES**Proceeds
                  frommaturities
                  of available-for-sale securities
              
              
              132,772
              
              
              574,432Proceeds
                  from the sale of available-for-sale securities
              
              
              264,355
              
              
              —Purchases
                  of available-for-sale securities
              
              
              (341,584
              )
              
              (814,229
              )Cash
                  paid for business combination, net of cash acquired
              
              
              (4,875
              )
              
              —Cash
                  paid for wireless spectrum licenses
              
              
              (80,295
              )
              
              —Purchase
                  of property and equipment
              
              
              (7,157
              )
              
              (1,197
              )Other,
                  net
              
              
              (1,755
              )
              
              —Net
                  cash provided by (used in) investing activities
              
              
              (38,539
              )
              
              (240,994
              )**FINANCING
                  ACTIVITIES**Payments
                  on long-term obligations
              
              
              (2,139
              )
              
              —Cash
                  distributions paid to members
              
              
              (1,447
              )
              
              —Proceeds
                  from investment by joint venture partner
              
              
              1,995
              
              
              —Proceeds
                  from the sale of common stock
              
              
              330
              
              
              —Net
                  cash used in financing activities
              
              
              (1,261
              )
              
              —Net
                  increase (decrease) in cash and cash equivalents
              
              
              (63,006
              )
              
              (242,984
              )Cash
                  and cash equivalents, beginning of period
              
              
              93,649
              
              
              555,099Cash
                  and cash equivalents, end of period
              
              $
              30,643
              
              $
              312,115**Supplemental
                  Cash Flow Information:**Cash
                  paid for taxes
              
              $
              55
              
              $
              —Cash
                  paid for interest
              
              
              —
              
              
              —Noncash
                  investing and financing activities:Wireless
                  spectrum licenses acquired with lease obligations
              
              
              2,478
              
              
              —Membership
                  interests issued for business acquisitions
              
              
              1,558
              
              
              —
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  6
  **NEXTWAVE
        WIRELESS LLC**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
  **1.**
            **NextWave,
                Summary of Significant Accounting Policies and Significant
                Accounts**  NextWave
        Wireless LLC (together with its subsidiaries, “NextWave”) is an early-stage
        wireless technology company engaged in the development of next-generation
        mobile
        broadband and wireless multimedia products, technologies and services. We
        are
        developing proprietary chipsets and related network and device products based
        on
        the IEEE 802.16e WiMAX standard that we believe will significantly improve
        the
        performance and economics of fixed and mobile wireless broadband networks.
        A key
        design objective of our products and technologies is to improve the ability
        of
        mobile WiMAX to cost effectively handle the large volume of network traffic
        that
        we believe Voice Over Internet Protocol (“VoIP”) telephony, high speed
        web-surfing and next-generation wireless multimedia applications such as
        high
        resolution mobile TV, high fidelity streaming audio and interactive real-time
        gaming will generate. We intend to market our 802.16e WiMAX compliant products
        and technologies under the WiMAX ***plus*** trademark (“WiMAX ***plus*** TM”)
        to
        network infrastructure and device manufacturers and network operators worldwide.
        To stimulate demand for our WiMAX ***plus*** products, we plan to partner with service providers to build and operate
        802.16e
        WiMAX compliant networks that operate on our licensed spectrum and utilize
        network and device equipment which incorporate our WiMAX ***plus*** products
        and technologies. In addition, through our PacketVideo subsidiary, we are
        a
        global provider of embedded multimedia software for mobile phones. We believe
        our WiMAX ***plus*** enhanced
        network and subscriber solutions, combined with our wireless multimedia software
        products and our spectrum assets, will offer wireless service providers,
        cable
        operators, multimedia content distributors, applications service providers
        and
        Internet service providers a platform to provide advanced wireless broadband
        services to their customers. To facilitate the deployment of our
        WiMAX ***plus*** network
        solutions, we have accumulated a spectrum footprint across the U.S. covering
        a
        population of approximately 206 million people, or POPs, that includes nine
        of
        the top ten and 15 of the top 20 markets in the U.S..
  ***Inception
        of NextWave Wireless LLC***
  NextWave
        Wireless Inc. (“Old NextWave Wireless”) was formed in 1996 as a wholly-owned
        operating subsidiary of NextWave Telecom, Inc. (“NTI”), which sought to develop
        a nationwide CDMA-based personal communication services (“PCS”) network. In
        1998, Old NextWave Wireless, together with NTI and its other subsidiaries
        (the
“NextWave Telecom group”), filed for protection under Chapter 11 of the United
        States Bankruptcy Code. In December 2004, Old NextWave Wireless was converted
        from a corporation to a limited liability company. On March 1, 2005, the
        Bankruptcy Court confirmed the plan of reorganization of the NextWave Telecom
        group. The cornerstone of the plan was the sale of NTI and its subsidiaries,
        excluding Old NextWave Wireless, to Verizon Wireless for approximately $3.0
        billion. With the proceeds of the Verizon sale, as well as the proceeds of
        prior
        PCS spectrum license sales to Cingular Wireless, Verizon Wireless and MetroPCS,
        all creditors of the NextWave Telecom group were paid in full and the NTI
        equity
        holders received an aggregate cash distribution of approximately $2.6 billion.
        In addition, the plan provided for the capitalization and distribution to
        the
        NTI equity holders of a new wireless technology company that would bear the
        NextWave name. Pursuant to the plan, on April 13, 2005, the NextWave Telecom
        group abandoned substantially all of its PCS assets other than the spectrum
        licenses and all remaining non-PCS assets and liabilities were contributed
        to
        Old NextWave Wireless. Immediately thereafter limited liability company
        interests (“LLC Interests”) in NextWave were distributed to the NTI equity
        holders and NextWave was capitalized with $550.0 million in cash. Through
        this
        process, Old NextWave Wireless was reconstituted as a company with a new
        capitalization and a new wireless technology business plan. The significant
        underlying assets contributed to NextWave included NTI’s residual cash referred
        to above, the common stock of NextWave Broadband Inc., the convertible Series
        A
        Preferred Stock and notes receivable from CYGNUS Communications, Inc.
        (“CYGNUS”), and wireless spectrum licenses from the Federal Communications
        Commission (“FCC”) useful to NextWave or its new wireless technology business.
        Pursuant to the plan, the NTI shareholders received undivided interests in
        the
        underlying assets of NextWave as part of their consideration for the redemption
        of their NTI shares, which was followed by the deemed contribution of these
        undivided interests to NextWave in return for unit membership interests in
        NextWave.
  7
  ***Financial
        Statement Preparation***
  The
        unaudited condensed consolidated financial statements have been prepared
        by
        NextWave according to the rules and regulations of the Securities and Exchange
        Commission (SEC), and therefore, certain information and disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States have been condensed or
        omitted.
  In
        the
        opinion of management, the accompanying unaudited condensed consolidated
        financial statements for the periods presented reflect all adjustments, which
        are normal and recurring, necessary to fairly state the financial position,
        results of operations and cash flows. These unaudited condensed consolidated
        financial statements should be read in conjunction with the audited financial
        statements for the period from inception (April 13, 2005) to December 31,
        2005,
        included in NextWave’s Amended Form 10 filed with the United States Securities
        and Exchange Commission on August 10, 2006.
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        the disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reporting period. Actual results could differ from those estimates.
  ***Principles
        of Consolidation and Strategic Investments***
  NextWave’s
        consolidated financial statements include the assets, liabilities and operating
        results of its wholly-owned and majority-owned subsidiaries as of July 1,
        2006.
        NextWave’s operating results through January 2006 also include those of a
        variable interest entity in which NextWave was the primary beneficiary until
        February 2006, when NextWave acquired all of the remaining ownership interests
        of the entity and it became a wholly-owned subsidiary. All significant
        intercompany accounts and transactions have been eliminated in
        consolidation.
  ***Change
        in Fiscal Year End***
  NextWave’s
        Board of Managers approved a change, effective January 1, 2006, in NextWave’s
        fiscal year end and quarterly reporting periods from quarterly calendar periods
        ending on the Saturday nearest to December 31 of the current calendar year
        or
        the following calendar year. Normally, each fiscal year consists of 52 weeks,
        but every five or six years the fiscal year consists of 53 weeks. Fiscal
        year
        2006 will be a 52-week year and the first 53-week year will occur in 2009.
        The
        three and six month periods ended July 1, 2006 include 13 and 26 weeks,
        respectively.
  ***Accumulated
        Other Comprehensive Loss***
  Accumulated
        other comprehensive income includes unrealized gains and loses that are excluded
        from the consolidated statement of operations and are reported as a separate
        component in members’ equity. These unrealized gains and losses represent those
        on marketable securities that are classified as available-for-sale, and totaled
        $1.1 million and $0.8 million in unrealized losses at July 1, 2006 and December
        31, 2005, respectively.
  ***Recent
        Accounting Pronouncements***
  NextWave
        adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
        “Share-Based Payment” (“SFAS 123R”), effective January 1, 2006. SFAS 123R
        requires companies to expense the estimated fair value of employee stock
        options
        and similar awards. NextWave has adopted the provisions of SFAS 123R using
        the
        prospective transition method, whereby it will continue to account for unvested
        equity awards to employees outstanding at December 31, 2005 using Accounting
        Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”), and apply SFAS 123R to all awards granted or modified after that
        date. In accordance with the transition rules of SFAS 123R, NextWave no longer
        provides the pro forma disclosures in reports issued for periods ending after
        December 31, 2005 as SFAS 123R precludes companies that use the minimum value
        method for pro forma disclosure from continuing to provide those pro forma
        disclosures for outstanding awards accounted for under the intrinsic value
        method of APB 25. Refer below to Employee Unit- and Share-Based Compensation
        for
        more discussion of the adoption of SFAS 123R.
  8
  In
        November 2005, the Financial Accounting Standards Board (“FASB”) issued staff
        position 115-1, “The Meaning of Other-Than-Temporary Impairment and its
        Application to Certain Investments” (“FSP 115-1”). FSP 115-1 address the
        determination as to when an investment is considered impaired, whether that
        impairment is other than temporary and the measurement of an impairment loss.
        FSP 115-1 also includes accounting considerations subsequent to the recognition
        of an other-than-temporary impairment and requires certain disclosures about
        unrealized losses that have not been recognized as other-than-temporary
        impairments. The guidance in FSP 115-1 amends FASB Statements No. 115,
        Accounting for Certain Investments in Debt and Equity Securities, and APB
        Opinion No. 18, The Equity Method of Accounting for Investments in Common
        Stock.
  FSP
        115-1
        replaces the impairment evaluation guidance of Emerging Issues Task Force
        Issue
        No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to
        Certain Investments” (“EITF 03-1”), with references to existing
        other-than-temporary impairment guidance. EITF 03-1’s disclosure requirements
        remain in effect, and are applicable for year-end reporting and for interim
        periods if there are significant changes from the previous year-end. FSP
        115-1
        also supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary
        Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value,”
and clarifies that an investor should recognize an impairment loss no later
        than
        when the impairment is deemed other-than-temporary, even if a decision to
        sell
        an impaired security has not been made. FSP 115-1 applies to reporting periods
        beginning after December 15, 2005. FSP 115-1 did not have a material impact
        on
        NextWave’s results of operations, or cash flows for the six months ended July 1,
        2006.
  In
        June
        2006, the FASB Issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), effective
        for NextWave’s fiscal year beginning December 31, 2006, with earlier application
        permitted. FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in financial statements in accordance with FASB Statement No.
        109,
“Accounting for Income Taxes,” and prescribes a recognition threshold and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure, and transition. NextWave’s management
        believes that adoption of this interpretation is not expected to have a material
        impact on its financial statements.
  ***Employee
        Unit- and Share-Based Compensation***
  NextWave
        adopted SFAS 123R on January 1, 2006. SFAS 123R requires the recognition
        of the
        fair value of unit- and share-based compensation in net income. NextWave
        recognizes unit- and share-based compensation expense over the requisite
        service
        period of the individual grants, which generally equals the vesting period.
        Prior to January 1, 2006, NextWave accounted for employee equity awards using
        APB 25 and related interpretations in accounting for unit- and share-based
        compensation.
  NextWave
        has adopted the provisions of FAS 123R using the prospective transition method,
        whereby it will continue to account for nonvested equity awards to employees
        outstanding at December 31, 2005 using APB 25, and apply FAS 123R to all
        awards
        granted or modified after that date. In accordance with the transition rules
        of
        SFAS 123R, NextWave no longer provides the pro forma disclosures in reports
        issued for periods ending after December 31, 2005 as FAS 123R precludes
        companies that used the minimum value method for pro forma disclosure from
        continuing to provide those pro forma disclosures for outstanding awards
        accounted for under the intrinsic value method of APB 25.
  Under
        the
        provisions of SFAS 123R, NextWave recognized $1.7 million of stock compensation
        expense for the three and six months ended July 1, 2006. NextWave utilized
        the
        Black-Scholes valuation model for estimating the fair value of stock awards
        issued during the six months ended July 1, 2006, to employees at the date
        of
        grant, with the following weighted-average assumptions for each of three
        separate option plans administered by NextWave and two of its subsidiaries
        for
        the six months ended July 1, 2006:
  9
  **NextWave
                  Wireless LLC 2005 Units Plan**
              
              **CYGNUS
                  Communications, Inc. 2004 Stock Option Plan**
              
              **PacketVideo
                  Corporation 2005 Equity Incentive Plan**Weighted
                  average risk-free interest rate
              
              
              4.32
              %
              
              4.37
              %
              
              3.43
              %Weighted
                  average expected life (in years)
              
              
              2.9
              
              
              4.1
              
              
              3.6Expected
                  stock price volatility
              
              
              50
              %
              
              50
              %
              
              50
              %Expected
                  dividend yield
              
              
              0
              %
              
              0
              %
              
              0
              %Annualized
                  forfeiture rate
              
              
              10
              %
              
              10
              %
              
              10
              %Weighted
                  average fair value of options granted
              
              $
              0.36
              
              $
              0.13
              
              $
              0.39
 
  The
        risk-free interest rates are based on the implied yield available on U.S.
        Treasury constant maturities in effect at the time of the grant with remaining
        terms equivalent to the respective expected terms of the options. As none
        of the
        plans have sufficient history for estimating the term from grant date to
        full
        exercise of the option, NextWave has considered expected terms applied, in
        part
        by peer companies to determine the expected life of each grant. Expected
        volatility is based on an average of peer companies’ expected volatilities due
        to lack of trading history of NextWave membership units or its subsidiaries’
shares. The dividend yield of zero is based on the fact that NextWave has
        never
        paid cash dividends and has no present intention to pay cash
        dividends.
  NextWave
        has assumed an annualized forfeiture rate of 10% for its options based on
        a
        combined review of industry and employee turnover data, as well as an analytical
        review performed of historical pre-vesting forfeitures occurring over the
        previous year. Under the true-up provisions of SFAS 123R, NextWave will record
        additional expense if the actual forfeiture rate is lower than estimated,
        and
        will record a recovery of prior expense if the actual forfeiture is higher
        than
        estimated.
  The
        Black-Scholes option-pricing model was developed for use in estimating the
        fair
        value of traded options that have no restrictions and are fully transferable
        and
        negotiable in a free trading market. This model does not consider the
        employment, transfer or vesting restrictions that are inherent in NextWave’s
        employee unit and stock options. Use of an option valuation model, as required
        by SFAS 123R, includes highly subjective assumptions based on long-term
        predictions and average life of each unit and stock option grant. Because
        NextWave’s unit- and share-based payments have characteristics significantly
        different from those of freely traded options, and because changes in the
        subjective input assumptions can materially affect NextWave’s estimate of the
        fair values, in NextWave’s opinion, existing valuation models may not be
        reliable single measures of the fair values of NextWave’s unit- and share-based
        payments.
  Total
        compensation cost of options granted since January 1, 2006 but not yet vested,
        as of July 1, 2006, was $4.8 million, which is expected to be recognized
        over a
        weighted average period of 3.7 years.
  Share-based
        compensation expense of $0.2 million was recognized during the six months
        ended
        July 1, 2006 for membership interests issued to employee shareholders of
        one of
        the CYGNUS subsidiaries, stemming from a prior acquisition, for the attainment
        of certain product development milestones. The share based payments were
        recognized as compensation expense in accordance with EITF 95-8, “Accounting for
        Contingent Consideration Paid to the Shareholders of an Acquired Enterprise
        in a
        Purchase Business Combination.”
  **2.**
            **Composition
                of Certain Financial Statement
                Items**  ***Marketable
        Securities***
  Available-for-sale
        marketable securities consist of the following:
  *(in
                  thousands)*
              
              **July
                  1,**
                **2006**
              
              **December
                  31, 2005**Municipal
                  securities
              
              $
              229,376
              
              $
              280,734U.S.
                  Treasury and Agency obligations
              
              
              54,635
              
              
              54,666Corporate
                  notes
              
              
              25,783
              
              
              30,182Total
                  short-term investments
              
              $
              309,794
              
              $
              365,582
  10
  ***Property
        and Equipment***
  Property
        and equipment, net, consist of the following:
  *(in
                  thousands)*
              
              **Estimated**
                **Useful
                  life**
                **(in
                  years)**
              
              **July
                  1,**
                **2006**
              
              **December
                  31, 2005**Furniture
                  and equipment
              
              
              2-10
              
              $
              10,193
              
              $
              7,071Purchased
                  software
              
              
              2-3
              
              
              6,628
              
              
              3,459Leasehold
                  improvements
              
              
              3-5
              
              
              499
              
              
              879Construction
                  in progress
              
              
              N/A
              
              
              513
              
              
              38017,833
              
              
              11,789Less
                  accumulated depreciation
              
              
              
              
              
              (3,201
              )
              
              (697
              )Total
                  property and equipment, net
              
              
              
              
              $
              14,632
              
              $
              11,092
  ***Wireless
        Licenses, Goodwill and Other Intangible Assets***
  Intangible
        assets consist of the following:
  **July
                  1, 2006**
              
              **December
                  31, 2005***(dollars
                  in thousands)*
              
              **Weighted
                  Average**
                **Life**
              
              **Gross
                  Carrying Amount**
              
              **Accumulated
                  Amortization**
              
              **Weighted
                  Average Life**
              
              **Gross
                  Carrying Amount**
              
              **Accumulated
                  Amortization**Amortized
                  intangible assets:Leased
                  wireless spectrum licenses
              
              
              14
                  years
              
              $
              35,137
              
              $
              2,676
              
              
              15
                  years
              
              $
              31,347
              
              $
              1,510Purchased
                  technology
              
              
              7
                  years
              
              
              8,600
              
              
              1,169
              
              
              7
                  years
              
              
              8,600
              
              
              555Purchased
                  customer base
              
              
              8
                  years
              
              
              5,700
              
              
              678
              
              
              8
                  years
              
              
              5,700
              
              
              321Non-compete
                  agreements
              
              
              4
                  years
              
              
              2,800
              
              
              865
              
              
              4
                  years
              
              
              2,800
              
              
              537Other
              
              
              3
                  years
              
              
              63
              
              
              5
              
              
              3
                  years
              
              
              16
              
              
              3$
              52,300
              
              $
              5,393
              
              
              
              
              $
              48,463
              
              $
              2,926Intangible
                  assets not subject to amortization:Wireless
                  spectrum licenses
              
              
              
              
              $
              97,913
              
              
              
              
              
              
              
              $
              15,630Goodwill
              
              
              
              
              
              32,936
              
              
              
              
              
              
              
              
              24,782Purchased
                  tradenames and trademarks
              
              
              
              
              
              2,400
              
              
              
              
              
              
              
              
              2,400$
              133,249
              
              
              
              
              
              
              
              $
              42,812
  The
        $8.2
        million increase in goodwill in the consolidated balance sheets from December
        31, 2005 to July 1, 2006, resulted from current year acquisitions.
  Estimated
        aggregate amortization expense is expected to be $2.6 million for the remainder
        of 2006, and $5.1 million, $5.1 million, $4.8 million, $4.5 million and $24.8
        million for the years ending December 31, 2007, 2008, 2009, 2010 and thereafter,
        respectively.
  **3.**
            **Business
                Combinations**  ***Investment
        in Inquam Broadband Holding, Inc.***
  On
        January 6, 2006, NextWave acquired 51% of the equity securities of newly
        formed
        Inquam Broadband Holding, Ltd. (“INQUAM”) for 1.3 million Euros, or $1.6
        million. NextWave also has the right to designate three of the five members
        of
        the board of directors. The primary reason for the investment is to provide
        NextWave with an entry into the wireless broadband telecommunications market
        in
        Germany. Under the subscription and shareholder agreement, NextWave has agreed
        to provide additional funding up to 1.4 million Euros, or approximately $1.6
        million. NextWave also has the option to acquire a 51% interest in a subsidiary
        of Inquam BMR GP, the holder of the remaining 49% interest in INQUAM, for
        9.7
        million Euros, or approximately $11.7 million, subject to adjustment for
        changes
        in liabilities or subsequent funding provided to the subsidiary by INQUAM.
        The
        option expires six months after the date of a final court decision as to
        the
        validity of a spectrum award made to such subsidiary by the German regulatory
        authority.
  11
  INQUAM
        and its wholly-owned subsidiary are included in NextWave’s consolidated
        financial statements from the date of the acquisition.
  ***Acquisition
        of CYGNUS***
  On
        February 2, 2006, NextWave acquired all of the outstanding shares of common
        stock of CYGNUS and the minority interests of one of its subsidiaries, which
        are
        already included in the consolidated financial statements as NextWave is
        deemed
        to be the primary beneficiary in accordance with FIN 46(R). The total cost
        of
        the acquisition was determined as follows:
  *(in
                  thousands)*Advances
                  to CYGNUS, including interest
              
              $
              18,145Accumulated
                  CYGNUS losses while consolidated in accordance with FIN 46R
              
              
              (8,550
              )Conversion
                  of convertible preferred stock into common stock
              
              
              1,884Membership
                  interests issued
              
              
              1,558Cash
                  paid
              
              
              53Less
                  cash acquired
              
              
              (4,190
              )Total
                  acquisition cost
              
              $
              8,900
  Under
        the
        purchase method of accounting, the purchase price was preliminarily allocated
        to
        the assets acquired and liabilities assumed based upon their estimated fair
        values at the date of acquisition as follows:
  *(in
                  thousands)*Accounts
                  receivable
              
              $
              196Prepaid
                  expenses and other current assets
              
              
              511Property
                  and equipment
              
              
              704Goodwill
              
              
              8,223Deposits
                  and other noncurrent assets
              
              
              658Accounts
                  payable, accrued expenses and other current liabilities
              
              
              (613
              )Unfavorable
                  lease liability
              
              
              (692
              )Long-term
                  obligations
              
              
              (87
              )Total
                  acquisition cost
              
              $
              8,900
  The
        excess of the purchase price over the acquired net tangible assets of $8.2
        million has been preliminarily allocated to goodwil l
        in the
        consolidated balance sheet and will be allocated between
        goodwill and identifiable intangible assets once
        NextWave has completed a
        purchased intangible asset valuation. The related impact from value assigned
        to
        in-process research and dev elopment
        costs or to amortization expense, if any, will be adjusted on a prospective
        basis.
  In
        connection with the acquisition of the minority interests of one of CYGNUS’
subsidiaries, NextWave agreed to issue $0.4 million and $0.5 million in cash,
        and 0.2 million and 0.2 million in membership interests to certain employee
        shareholders in December 2006 and December 2007, respectively, or earlier
        if
        certain product development milestones are attained. These payments are
        amortized as compensation expense over the period earned in accordance with
        EITF
        95-8, “Accounting for Contingent Consideration Paid to the Shareholders of an
        Acquired Enterprise in a Purchase Business Combination.” Compensation expense
        totaled $0.2 million and $0.4 million during the three and six months ended
        July
        1, 2006, respectively. The remaining cash portion of $0.6 million is recorded
        as
        deferred compensation and is included in prepaid and other current assets
        and
        other noncurrent assets in the consolidated balance sheet at July 1, 2006.
        The
        fair value of the membership interests will be remeasured at the end of each
        reporting period until issued, when the final fair value is determined.
        Unamortized estimated stock-based compensation totaled $0.3 million at July
        1,
        2006, and will be charged to the results of operations with an offsetting
        increase to membership interests in the consolidated balance sheet over the
        remaining service periods.
  12
  ***Acquisitions***
  During
        the three months ended July 1, 2006, NextWave completed two acquisitions.
        The
        results of operations have been included in the accompanying condensed
        consolidated financial statements from the respective dates of the
        acquisitions.
  The
        aggregate purchase price of these acquisitions was $6.2 million, consisting
        of
        $4.8 million in cash, including acquisition costs of $0.1 million, future
        earnout and holdback payments totaling $1.0 million and the assumption of
        debt
        totaling $0.3 million. The excess of purchase price over the acquired net
        tangible assets was $6.2 million at July 1, 2006, of which $4.6 million and
        $1.6
        million has been preliminarily allocated to goodwill and expensed as in-process
        research and development costs, respectively, during the three and six months
        ended July 1, 2006. The excess of the purchase price over the acquired net
        tangible assets will be allocated between goodwill and identifiable intangible
        assets once NextWave has completed its purchased intangible asset valuations.
        The related impact from the final value assigned to in-process research and
        development costs or to amortization expense, if any, will be adjusted on
        a
        prospective basis.
  **4.**
            **Long-Term
                Obligations**  Long-term
        obligations consist of the following at July
        1 ,
        2006
        and December 31, 2005:
  *(in
                  thousands)*
              
              **July
                  1,**
                **2006**
              
              **December
                  31, 2005**Wireless
                  spectrum lease, imputed interest at 8%, due 2019, net of unamortized
                  discounts of $8,580 and $9,353, respectively, with three renewal
                  options
                  for 15 years each
              
              $
              15,620
              
              $
              17,047Wireless
                  spectrum lease, imputed interest at 8%, due 2015, net of an unamortized
                  discount of $990, with five renewal options for 10 years
                  each
              
              
              2,402
              
              
              —Research
                  and development funding due to Tekes, the National Technology Agency
                  of
                  Finland, interest at European Central Bank refinancing rate (2.75%
                  at July
                  1, 2006) plus 3%, due annually in December through 2008
              
              
              320
              
              
              —Industrial
                  research assistance contribution from the Canadian government,
                  due
                  2010
              
              
              141
              
              
              8718,483
              
              
              17,134Less
                  current portion
              
              
              (2,822
              )
              
              (2,200
              )$
              15,661
              
              $
              14,934
  Future
        payments due on these obligations at July 1, 2006, are as follows:
  *(in
                  thousands)*Fiscal
                  Years Ending,2006
                  (remaining six months)
              
              $
              4022007
              
              
              2,6802008
              
              
              2,6852009
              
              
              2,1752010
              
              
              2,175Thereafter
              
              
              17,93628,053Less
                  unamortized discount
              
              
              (9,570
              )Less
                  current portion
              
              
              (2,822
              )Total
                  long-term obligations
              
              $
              15,661
  13
  In
        addition to the lease obligations, beginning in 2009, the first lease agreement
        in the table above provides for the payment of royalties based on .25% of
        NextWave’s gross revenues, subject to an annual cap of $1.8 million. The second
        lease agreement in the table above, beginning in 2007 and extending through
        any
        renewal periods, provides for the payment of royalties based on 0.25% of
        gross
        revenues, subject to a cap of 100% of the annual rent for years 2006-2020,
        a cap
        of 150% of the annual rent for years 2021-2035 and no cap during any remaining
        lease years.
  **5.**
            **Commitments
                and Contingencies**  ***Acquisitions
        of Wireless Spectrum***
  On
        May 9,
        2006, NextWave entered into a binding acquisition agreement to purchase all
        of
        the outstanding shares of common stock of WCS Wi reless,
        Inc. (WCS). The
        total cost of the WCS acquisition
        is expected to be approximately $160.5 million in cash .
        The
        assets of WCS are comprised almost entirely of wireless spectrum .
        NextWave obtained FCC approval of the license transfer application and expects
        to consummate this transaction in the third quarter of 2006.
  In
        the
        second quarter of 2006, NextWave entered into a lease agreement for wireless
        spectrum, with an initial period of ten years, with two ten-year extension
        options, for a total initial period lease payment of $16.0 million, payable
        in
        advance. NextWave has paid $1.5 million into an escrow account and will pay
        the
        balance of $14.5 million upon finality of the license transfer application
        by
        the FCC, which is anticipated in September 2006.
  ***Services
        and Other Agreements***
  NextWave
        enters into non-cancelable software license agreements and agreements for
        the
        purchase of software development and engineering services to facilitate and
        expedite the development of software modules and applications required in
        its
        WiMAX development activities. The services agreements contain provisions
        for
        minimum commitments based on the number of team members and their respective
        billing rates. Amounts paid under these contracts, which expire on various
        dates
        through 2008, totaled $0.8 million and $1.4 million during the three and
        six
        months ended July 1, 2006, respectively. Estimated future minimum payments
        due
        under the terms of these agreements at July 1, 2006, are as
        follows:
  *(in
                  thousands)*Fiscal
                  Years Ending,2006
                  (remaining six months)
              
              $
              4,1302007
              
              
              4,9722008
              
              
              7,121Total
              
              $
              16,223
  ***Capital
        Expenditures***
  In
        July
        2005, NextWave entered into a purchase agreement for an office building in
        Henderson, Nevada for $8.2 million, plus related interior construction costs
        of
        approximately $2.5 million. The interior construction costs are payable in
        the
        third quarter of 2006. Construction is estimated to be completed during the
        fourth quarter of 2006, at which time NextWave expects to occupy the facility
        and the total purchase price will be due and payable.
  ***Operating
        Leases***
  NextWave
        leases its office and research facilities, cell sites and certain office
        equipment under noncancellable operating leases expiring on various dates
        through 2011. NextWave recognizes rent expense on a straight-line basis over
        the
        respective lease terms. As a result, any differences between recognized rent
        expense and required upfront rental payments upon execution that reduce future
        rental payments is recorded as unapplied prepaid rent and any difference
        between
        rent expense and rent payments that are reduced by cash or rent abatements
        is
        recognized as deferred rent. At July 1, 2006, unapplied prepaid rent totaled
        $0.4 million and is included in prepaid expenses and other current assets
        in the
        consolidated balance sheet and deferred rent totaled $0.6 million, of which
        $0.1
        million is included in other current liabilities and $0.5 million is included
        in
        long-term deferred credits and reserves in the consolidated balance
        sheet.
  14
  Certain
        commitments have renewal options extending through the year 2013. Rent expense
        under these operating leases was $1.9 million and $3.2 million for the three
        and
        six months ended July 1, 2006. Sublease income totaled $0.4 million and $0.8
        million for the three and six months ended July 1, 2006.
  Future
        minimum lease payments under noncancellable operating leases, net of sublease
        rentals at July 1, 2006, are as follows:
  *(in
                  thousands)*
              
              **Lease
                  Commitments**
              
              **Sublease
                  Rentals**
              
              **Net**Fiscal
                  Years Ending,2006
                  (remaining six months)
              
              $
              2,598
              
              $
              (761
              )
              $
              1,8372007
              
              
              5,947
              
              
              (893
              )
              
              5,0542008
              
              
              5,566
              
              
              -
              
              
              5,5662009
              
              
              4,697
              
              
              -
              
              
              4,6972010
              
              
              2,961
              
              
              -
              
              
              2,961Thereafter
              
              
              49
              
              
              -
              
              
              49$
              21,818
              
              $
              (1,654
              )
              $
              20,164
  ***Indemnification
        of NextWave Telecom Inc. and Verizon Wireless Corp.***
  In
        connection with the sale of NTI and its subsidiaries to Verizon Wireless
        Inc.
        (“Verizon”), NextWave agreed to indemnify NTI and its subsidiaries against all
        pre-closing liabilities of NTI and its subsidiaries and against any violation
        of
        the Bankruptcy Court injunction against persons having claims against NTI
        and
        its subsidiaries, with no limit on the amount of such indemnity. NextWave
        is not
        currently aware of any such liabilities that remain following the plan of
        reorganization and Verizon has not made any indemnity claims.
  A
        total
        of $165.0 million is currently held in escrow (the “Escrow Amount”) in order to
        satisfy any amounts due to Verizon in the event that the consolidated net
        loss
        of the NextWave Telecom group for the taxable year commencing on January
        1,
        2005, and ending on April 13, 2005 is, subject to certain adjustments, less
        than
        $1.362 billion, to cover any tax deficiencies for the pre-closing tax period,
        and to cover other indemnifiable losses relating to NTI and its subsidiaries,
        as
        described above. The Escrow Amount will be released in accordance with the
        escrow agreement upon the expiration of the applicable statute of limitations
        (including extensions thereof) relating to the tax matters addressed above.
        In
        addition, if at any time the Escrow Amount exceeds the amount, in the reasonable
        judgment of Verizon of the potential remaining indemnifiable losses described
        above, or if former equity holders of NTI have a final resolution with the
        IRS
        with respect to certain tax matters, such excess will be released. Verizon
        has a
        first-priority perfected security interest in the Escrow Amount.
  To
        the
        extent that former equity holders of NTI are ultimately entitled to receive
        $80.8 million of the Escrow Amount, the FCC will, in accordance with the
        terms
        of the global settlement agreement entered into in connection with the plan
        of
        reorganization, be entitled to a sharing payment equal to 20% of any additional
        amounts to be released thereafter, up to a total potential sharing payment
        of
        $16.8 million. The first $0.8 million of the sharing payment will be paid
        to the
        FCC from a separate sharing payment escrow previously established for the
        benefit of the FCC. Any Escrow Amount that former equity holders of NTI are
        entitled to receive in excess of amounts payable to the FCC must be applied
        to
        redeem, pro rata, the $149.0 million of Non-Recourse Secured Notes issued
        as
        part of the plan of reorganization and described below. Accordingly, NextWave
        is
        merely a conduit to distribute amounts, if any, to the former equity holders
        of
        NTI and the FCC and will not receive any of the Escrow Amount.
  As
        part
        of the plan of reorganization, NextWave issued $149.0 million of Non-Recourse
        Secured Notes to the former equity holders of NTI. The notes bear no interest
        and mature on April 13, 2055. Any claims under the notes will only be satisfied
        by any released Escrow Amount, net of payments due to the FCC. In the event
        the
        escrow is terminated before the maturity date and all released amounts have
        been
        paid to the note holders, any notes then outstanding will be null, void and
        of
        no effect. No holder of any notes will have any recourse against NextWave
        or its
        assets or its affiliates, except to the extent that NextWave receives any
        portion of the released Escrow Amount or otherwise does not comply with the
        indenture governing the notes or the related agreements.
  15
  NextWave
        has not included in the accompanying financial statements any amounts related to
        the Notes
        and
        the Escrow Amount due to
        their contingent nature and the
        inability to estimate the amount, if any, that will be released from
        escrow or paid to redeem the Notes .
  ***Legal
        Proceedings***
  Finney
        v.
        NextWave
  United
        States ex rel. Finney v. NextWave Telecom Inc. is a qui tam action filed
        in
        federal court in the Southern District of New York, with a corresponding
        administrative claim in bankruptcy court. Finney (the relator) alleges
        principally that NTI and other defendants, including NextWave Wireless, failed
        to disclose the existence of a federal statute - the Federal Credit Reform
        Act -
        to various agencies of the federal government and to the federal courts.
        She
        asserts that decisions issued by the bankruptcy court, the U.S. Court of
        Appeals
        for the D.C. Circuit, and the Supreme Court of the United States in connection
        with the NextWave Telecom group’s reorganization efforts were all flawed because
        they overlooked the relevance of that statute. She alleges that NTI and the
        other defendants should be held liable because it failed to bring the statute
        to
        the attention of these government agencies and courts and seeks damages of
        more
        than $9 billion.
  The
        defendants filed a motion to dismiss on numerous grounds, including that
        the
        government was well aware of the existence of the Act, that it is not a false
        claim to fail to inform the government of the existence of a federal statute,
        that Finney’s claim was effectively a collateral challenge to the decisions of
        the bankruptcy court and the Supreme Court, and that the action is barred
        by
        virtue of the Global Settlement with the FCC and the consummation of the
        Verizon
        acquisition and the bankruptcy reorganization.
  On
        February 24, 2006, the district court issued an order adopting the defendants’
principal arguments and proposing to dismiss the complaint in its entirety.
        Prior to dismissing, the district court asked the United States for its consent,
        and, on March 2, 2006, the United States consented to dismissal. On April
        21,
        2006, the District Court ruled that defendants were entitled to an award
        of
        legal fees. The court has referred the matter to a Magistrate to fix the
        amount
        of the fee award.
  Finney
        has now filed a notice of appeal to the United States Court of Appeals for
        the
        Second Circuit. NextWave expects to join with the other defendants to promptly
        file a motion to have the appeal dismissed or the decision below affirmed.
        NextWave believes that the claims made by Finney are meritless and in fact
        frivolous and expects that it will prevail on appeal.
  Other
        Disputes
  NextWave
        currently is a party to various other legal proceedings that arise in the
        ordinary course of NextWave’s business. While management presently believes that
        the ultimate outcome of these proceedings, individually and in the aggregate,
        will not have a material adverse effect on NextWave’s financial position, cash
        flows or overall trends in results of operations, litigation is subject to
        inherent uncertainties, and unfavorable rulings could occur. For example,
        NextWave is currently engaged in two separate disputes relating to leases
        of EBS
        spectrum covering approximately 1 million POPs in the Tom’s River, New Jersey
        geographic area. In each case, the lessor has claimed that NextWave is in
        breach
        of the terms of the lease and, in one case, has claimed that the lease has
        been
        terminated. While NextWave believes these claims are without merit, any adverse
        resolution would not have a material adverse effect on NextWave’s business,
        results of operations or financial condition.
  16
  **6.**
            **Equity
                Compensation Plans**  ***NextWave
        Wireless LLC 2005 Units Plan***
  NextWave’s
        2005 Units Plan provides for the issuance of nonqualified unit options, or
        restricted, performance-based, bonus, phantom or other unit-based awards
        to
        board managers, employees and consultants to NextWave. Each common unit
        represents one membership interest in NextWave. The prices, terms and conditions
        of the options and awards are established by the compensation committee of
        the
        board of managers at the time of each grant. Outstanding options generally
        vest
        over four years and have a maximum term of 10 years. In June 2006, the NextWave
        board of managers and members holding a majority of NextWave’s membership
        interests approved an amendment to the plan to provide an additional 20 million
        interests for awards under the plan. At July 1, 2006, NextWave may issue
        up to
        74,688,000 membership units under this plan, of which 56,176,000 are granted
        and
        outstanding options and 18,512,000 are available for future grants.
  The
        following table summarizes the status of the NextWave plan at July 1, 2006
        and
        activity during the six months ended July 1, 2006:
  **Options(in
                  thousands)**
              
              **Weighted
                  Average Exercise Price per Unit**
              
              **Weighted
                  Average Remaining Contractual Term (in Years)**
              
              **Aggregate
                  Intrinsic Value(in thousands)**Outstanding
                  at December 31, 2005
              
              
              37,383
              
              $
              1.00Granted
              
              
              20,964
              
              $
              1.00Exercised
              
              
              (312
              )
              $
              1.00Forfeited
              
              
              (1,859
              )
              $
              1.00Outstanding
                  at July 1, 2006
              
              
              56,176
              
              $
              1.00
              
              
              9.1
              
              $
              —Exercisable
                  at July 1, 2006
              
              
              56,176
              
              $
              1.00
              
              
              9.1
              
              $
              —
 
  The
        following table summarizes the status of NextWave’s unvested options as of July
        1, 2006 and changes during the six months ended July 1, 2006:
  **Options(in
                  thousands)**
              
              **Weighted
                  Average Grant Date Fair Value per Unit****(1)**Unvested
                  at December 31, 2005
              
              
              31,310
              
              $
              —Granted
              
              
              20,964
              
              $
              0.37Vested
              
              
              (10,190
              )
              $
              0.15Forfeited
              
              
              (1,839
              )
              $
              0.06Early
                  exercise of unvested options
              
              
              (39
              )
              $
              —Unvested
                  at July 1, 2006
              
              
              40,206
              
              $
              0.15
  
 (1)
              The
                  weighted average grant date fair value per unit includes options
                  granted
                  prior to January 1, 2006 which have no grant date fair value assigned
                  as
                  NextWave has adopted the provisions of FAS 123R using the prospective
                  transition method, whereby it continues to account for unvested
                  equity
                  awards to employees outstanding at December 31, 2005 using APB
                  25, and
                  apply FAS 123R to all awards granted or modified after that
                  date.
  NextWave
        received cash from the exercise of stock options under this plan of $0.3
        million, with no related tax benefits, during the six months ended July 1,
        2006.
        Upon option exercises under this plan, NextWave issues new NextWave Wireless
        LLC
        membership units.
  17
  ***CYGNUS
        Communications, Inc. 2004 Stock Option Plan***
  The
        CYGNUS 2004 stock option plan provides for the granting of stock options
        to
        eligible employees, directors and consultants of CYGNUS. The prices, terms
        and
        conditions of the options are determined by the board of directors of CYGNUS
        at
        the time of each grant. Outstanding options generally vest over four years
        and
        have a maximum term of 10 years. At July 1, 2006, CYGNUS may issue up to
        8,594,000 shares of common stock of CYGNUS under this plan, of which 6,708,000
        are granted and outstanding options and 1,886,000 are available for future
        grants.
  The
        following table summarizes the status of the CYGNUS plan at July 1, 2006
        and
        activity during the six months ended July 1, 2006:
  **Options**
                **(in
                  thousands)**
              
              **Weighted
                  Average Exercise Price per Share**
              
              **Weighted
                  Average Remaining Contractual Term (in Years)**
              
              **Aggregate
                  Intrinsic Value**
                **(in
                  thousands)**Outstanding
                  at December 31, 2005
              
              
              7,465
              
              $
              0.11Granted
              
              
              30
              
              $
              0.31Exercised
              
              
              (186
              )
              $
              0.10Forfeited
              
              
              (601
              )
              $
              0.11Outstanding
                  at July 1, 2006
              
              
              6,708
              
              $
              0.11
              
              
              6.6
              
              $
              759Exercisable
                  at July 1, 2006
              
              
              4,691
              
              $
              0.11
              
              
              7.3
              
              $
              538
  The
        following table summarizes the status of CYGNUS’ unvested options as of July 1,
        2006 and changes during the six months ended July 1, 2006:
  **Options**
                **(in
                  thousands)**
              
              **Weighted
                  Average Grant Date Fair Value per Share****(1)**Unvested
                  at December 31, 2005
              
              
              5,963
              
              $
              —Granted
              
              
              30
              
              $
              0.13Vested
              
              
              (1,036
              )
              $
              —Forfeited
              
              
              (601
              )
              $
              —Unvested
                  at July 1, 2006
              
              
              4,356
              
              $
              —
  
 (1)
              The
                  weighted average grant date fair value per share includes options
                  granted
                  prior to January 1, 2006 which have no grant date fair value assigned
                  as
                  NextWave has adopted the provisions of FAS 123R using the prospective
                  transition method, whereby it continues to account for unvested
                  equity
                  awards to employees outstanding at December 31, 2005 using APB
                  25, and
                  apply FAS 123R to all awards granted or modified after that
                  date.
  NextWave
        received cash from the exercise of stock options under this plan of $19,000,
        with no related tax benefits during the six months ended July 1,
        2006 .
        Upon
        option exercises under this plan, NextWave issues new shares of CYGNUS stock.
        The CYGNUS 2004 Stock Option Plan was amended in February 2006 to provide
        for
        the conversion of each CYGNUS option into .30584 shares of NextWave upon
        the
        occurrence of a conversion event which includes the U.S. Securities and Exchange
        Commission’s declaration of a Form 10 effective in conjunction with an effective
        listing on a public securities exchange, or the sale, public offering or
        liquidation of NextWave ownership interests. At the time of conversion, the
        exchange will be accounted for as a modification under SFAS 123R and could
        result in additional compensation expense.
  ***PacketVideo
        2005 Equity Incentive Plan***
  The
        PacketVideo 2005 Equity Incentive Plan provides for the issuance of stock
        options, stock bonuses or restricted stock to employees, directors and
        consultants of PacketVideo or its affiliates. Outstanding options generally
        vest
        over four years, and have a maximum term of 10 years. At July 1, 2006,
        PacketVideo may issue up to 9,250,000 shares of common stock of PacketVideo
        under this plan, of which 8,879,000 are granted and outstanding options and
        371,000 are available for future grants.
  18
  The
        following table summarizes the status of the PacketVideo plan at July 1,
        2006
        and activity during the six months ended July 1, 2006:
  **Options**
                **(in
                  thousands)**
              
              **Weighted
                  Average Exercise Price per Share**
              
              **Weighted
                  Average Remaining Contractual Term (in Years)**
              
              **Aggregate
                  Intrinsic Value**
                **(in
                  thousands)**Outstanding
                  at December 31, 2005
              
              
              8,225
              
              $
              1.00Granted
              
              
              867
              
              $
              1.00Forfeited
              
              
              (213
              )
              $
              1.00Outstanding
                  at July 1, 2006
              
              
              8,879
              
              $
              1.00
              
              
              6.1
              
              $
              —Exercisable
                  at July 1, 2006
              
              
              —
  The
        following table summarizes the status of PacketVideo’s unvested options as of
        July 1, 2006 and changes during the six months ended July 1, 2006:
  **Options**
                **(in
                  thousands)**
              
              **Weighted
                  Average Grant Date Fair Value per Share****(1)**Unvested
                  at December 31, 2005
              
              
              8,225
              
              $
              —Granted
              
              
              867
              
              $
              0.40Forfeited
              
              
              (213
              )
              $
              —Unvested
                  at July 1, 2006
              
              
              8,879
              
              $
              0.04
  
 (1)
              The
                  weighted average grant date fair value per share includes options
                  granted
                  prior to January 1, 2006 which have no grant date fair value assigned
                  as
                  NextWave has adopted the provisions of FAS 123R using the prospective
                  transition method, whereby it continues to account for unvested
                  equity
                  awards to employees outstanding at December 31, 2005 using APB
                  25, and
                  apply FAS 123R to all awards granted or modified after that
                  date.
  There
        were no exercises of stock options under this plan during the six months
        ended
        July 1, 2006. Upon option exercises under this plan, NextWave issues new
        shares
        of PacketVideo stock. Upon
        consummation of a public offering of common stock by NextWave using a Form
        S-1
        or replacement form registration statement, each outstanding option will
        be
        converted into an equivalent option to purchase shares of common stock to
        be
        issued by NextWave. At the time of conversion, the exchange will be accounted
        for as a modification under SFAS 123R and could result in additional
        compensation expense.
  ***Non-Employee
        Warrants and Other Unit-Based Compensation***
  In
        September 2005, NextWave issued warrants to purchase 3,000,000 membership
        interests of NextWave to Station 4, LLC, a strategic advisor, at an exercise
        price of $1.00 per membership interest. At July 1, 2006, 1,000,000 of the
        warrants were vested and, of the remaining 2,000,000 warrants, 1,000,000
        vests
        each on September 1, 2006 and 2007. No warrants were exercised during the
        six
        months ended July 1, 2006, and all of the warrants expire on September 1,
        2010.
        Under a related advisory services agreement, the advisor earned warrant exercise
        credits of $416,665 on January 15, 2006, and continues to earn $83,333 on
        the
        first day of each month thereafter, through the date of expiration of the
        agreement in September 2008. The warrant exercise credits are earned based
        on
        the passage of time during which the services agreement is in effect. The
        warrant exercise credits are not payable in cash under any circumstances
        and may
        be used only as credits against the exercise price of the warrants when the
        advisor elects to exercise the warrants. If the warrant does not vest because
        the advisory services agreement has been terminated, the advisor will lose
        any
        warrant exercise credits that cannot be applied to exercise vested warrants.
        The
        warrants will be exercisable for shares of common stock of NextWave Wireless
        Inc. following the corporate conversion merger. During the three and six
        months
        ended July 1, 2006, expense related to the warrant exercise credits totaled
        $0.3
        million and $0.5 million, respectively. Unamortized expense totaled $2.2
        million
        at July 1, 2006, and will be charged to the results of operations with an
        offsetting increase to membership interests in the consolidated balance sheet
        over the remaining vesting periods. Under the agreement, in the event that
        the
        advisor makes a significant contribution to a transaction in which NextWave
        acquires the use of a substantial amount of certain types of spectrum as
        specified in the agreement, NextWave would issue to the advisor 5,000,000
        in
        membership interests upon the completion of such transaction.
  19
  Stock-based
        compensation expense related to these warrants was measured using the fair
        value
        method as prescribed by SFAS No. 123, and totaled $0.1 million and $0.2 million
        during the three and six months ended July 1, 2006. The fair value assigned
        to
        the vested increments of this warrant was estimated at the date of vesting
        and,
        for the unvested increments, at July 1, 2006, using the Black-Scholes
        option-pricing model based on the following weighted average assumptions:
        contractual option term of 4.0 years, expected volatility of 50%, expected
        dividend yield of zero and a risk-free rate of 4.73%, resulting in a weighted
        average fair value of $0.44 per warrant unit. The fair value of the unvested
        increments will be remeasured at the end of each reporting period until vested,
        when the final fair value of the vesting increment is determined. Unamortized
        estimated stock-based compensation totaled $0.5 million at July 1, 2006, and
        will be charged to the results of operations with an offsetting increase
        to
        membership interests in the consolidated balance sheet over the remaining
        vesting periods. In accordance with the requirements of SFAS No. 123R, no
        entries were made in NextWave’s financial statements for the unamortized
        stock-based compensation.
  No
        options or warrants were issued to non-employees during the three months
        and six
        months ended July 1, 2006.
  **7.**
            **Subsequent
                Events**  On
          July
          17, 2006, NextWave issued senior secured notes due 2010 in the aggregate
          principal amount of $350.0 million. The notes were issued at a fifteen
          percent
          (15%) original issue discount, resulting in gross proceeds of $297.5 million.
          NextWave will be obligated to pay the secured notes at their full face
          value of
          $350.0 million on July 17, 2010 and interest of 7% per annum, or $24.5
          million,
          is payable semiannually in January and July each year commencing January
          15,
          2007. The original issue discount will provide the note purchasers with
          a yield
          that is in addition to the coupon rate upon repayment of the notes. After
          the
          payment of transaction related expenses, NextWave received net proceeds
          of
          $295.1 million available for the sole purpose of financing spectrum acquisitions
          and leases. After giving effect to NextWave's recent acquisition of WCS
          Wireless, Inc. for $160.5 million and the acquisition of two new EBS leases
          for
          $22.1 million, the remaining net proceeds of the senior secured notes are
          approximately $110.0 million. Concurrently with the notes placement, NextWave
          paid a $142.8 million deposit to the FCC to qualify for the AWS auction,
          of
          which $110.0 million was funded with the remaining proceeds from the notes
          placement. Amounts not used to purchase spectrum in the auction will be
          returned
          to NextWave after the auction is completed.
  The
        purchasers of the senior secured notes were investment funds and other
        institutional investors, including affiliates of Avenue Capital Group, among
        others. Robert T. Symington, a member of NextWave’s Board of Managers, is a
        Portfolio Manager at Avenue Capital Group. Neither Mr. Symington nor Avenue
        Capital Group or its affiliates received any compensation in connection with
        the
        financing. The notes were guaranteed by certain of NextWave’s subsidiaries,
        including NextWave Broadband and PacketVideo. In addition, after our anticipated
        corporate conversion merger with and into a wholly owned limited liability
        company subsidiary of NextWave Wireless Inc., a new corporation formed under
        the
        laws of the State of Delaware, the notes will be guaranteed by NextWave Wireless
        Inc. No scheduled principal payments will be due on the notes before the
        maturity date of July 17, 2010. The notes are pre-payable at NextWave’s option
        at specified premiums to the principal amount that will decline over the
        term of
        the notes from 105% to 100%, plus a make-whole amount applicable until July
        17,
        2008. The obligations under the notes are secured by first priority liens
        on
        certain pledged equity interests, FCC licenses, spectrum leases, securities
        accounts and proceeds of any of the foregoing. NextWave is required to maintain
        $75.0 million in cash or cash equivalents from funds other than the proceeds
        of
        the notes in a restricted collateral account at all times while the notes
        remain
        outstanding. The purchase agreement contains representations and warranties,
        affirmative and negative covenants (including, without limitation, NextWave’s
        obligation to (i) maintain in full force and effect its FCC licenses and
        spectrum leases, (ii) use the note proceeds for the acquisition of spectrum,
        not
        to exceed $0.25 per MHz-POP, (iii) not become liable to any additional
        indebtedness, subject to certain exceptions and (iv) not make restricted
        payments to holders of subordinated debt or equity securities, including
        dividends) that are customary in similar types of transactions. The purchase
        agreement also contains customary events of default and additional events
        of
        default including, (i) NextWave’s failure to consummate the corporate conversion
        merger by December 31, 2006, (ii) NextWave’s failure to file a shelf
        registration statement with the SEC within 30 days of the consummation of
        the
        corporate conversion merger, and (iii) upon the termination, cancellation
        or
        rescission of any FCC license owned or leased by NextWave and necessary for
        its
        operation of a wireless communications system). If NextWave does not complete
        its anticipated corporate conversion merger on or prior to November 14, 2006,
        then the per annum interest rate on the notes shall be equal to 12% during
        the
        period from November 14, 2006 to the date on which the corporate conversion
        merger actually occurs.
  20
  In
        connection with the senior secured notes financing described above, NextWave
        Wireless Inc. entered into a warrant agreement with the purchasers of the
        senior
        secured notes, which will become operative after the corporate conversion
        merger, whereby NextWave Wireless Inc. will issue common stock purchase warrants
        to purchase an aggregate of 5% of NextWave Wireless Inc.’s shares of common
        stock, as of the date of the corporate conversion merger and before giving
        effect to the exercise of any warrant. The warrants will have an exercise
        price
        of $0.01 per share (subject to certain adjustments as set forth in the warrant
        agreement) and are exercisable at any time from the date of issuance until
        July
        15, 2009, and have anti-dilution protection provisions. The shares of NextWave
        Wireless Inc. underlying the warrants are also entitled to registration rights
        that obligate NextWave Wireless Inc. to file a shelf registration statement
        within 30 days following the corporate conversion merger, and use its
        commercially reasonable efforts to have the shelf registration statement
        become
        or declared effective within 60 days from its filing. The holders of warrants
        will be entitled to continuous shelf registration rights for a period of
        two
        years from the date that such shelf registration is declared effective by
        the
        SEC. NextWave Wireless Inc. is required to bear the expenses of the shelf
        registration.
  In
          July
          2006, we entered into a lease agreement for wireless spectrum, covering
          a period
          of 30 years (including renewals), for an upfront royalty payment of $6.1
          million, and monthly payments of $12,600. Upon final approval of the lease
          application by the FCC, we anticipate paying the upfront royalty payment
          of $6.1
          million prior to year end. The upfront royalty payment of $6.1 million
          will be
          funded from our recently completed secured notes financing.
  **ITEM
        2.****Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operation**
  *In
        addition to historical information, the following discussion contains
        forward-looking statements that are subject to risks and uncertainties. Actual
        results may differ substantially from those referred to herein due to a number
        of factors, including but not limited to risks described in the section entitled
        Risk Factors and elsewhere in this quarterly report. Additionally, the following
        discussion and analysis should be read in conjunction with the condensed
        consolidated financial statements and the notes thereto included in Item
        1 of
        Part I of this Quarterly Report and the audited consolidated financial
        statements and notes thereto and Management’s Discussion and Analysis of
        Financial Condition and Results of Operations for the period from inception
        (April 13, 2005) to December 31, 2005 contained in our Amended Form 10, filed
        with the Securities and Exchange Commission on August 10,
        2006.*
  **OVERVIEW**
  **Our
        Inception**
  NextWave
        Wireless Inc. (“Old NextWave Wireless”) was formed in 1996 as a wholly-owned
        subsidiary of NextWave Telecom Inc. (“NTI”) which sought to develop a nationwide
        CDMA-based personal communication services (“PCS”) network. Pursuant to the plan
        of reorganization of NTI and its subsidiaries, NTI and its subsidiaries,
        excluding Old NextWave Wireless, were sold to Verizon Wireless for approximately
        $3.0 billion. Prior to this sale, on April 13, 2005, the NextWave Telecom
        Group
        abandoned substantially all of its PCS assets other than the spectrum licenses
        and all remaining non-PCS assets and liabilities were contributed to Old
        NextWave Wireless. Immediately thereafter, membership interests in NextWave
        Wireless LLC (together with its subsidiaries, “NextWave”) were distributed to
        the NTI equity holders and Old NextWave Wireless was capitalized with $550.0
        million in cash. Through this process, Old NextWave Wireless was reconstituted
        as a company with a new capitalization and a new wireless technology business
        plan.
  21
  **Our
        Business**
  We
        are an
        early stage wireless technology company engaged in the development of
        next-generation mobile broadband and wireless multimedia products, technologies
        and services. At present, nearly all of our revenues are derived from the
        sale
        of device embedded multimedia software solutions by our PacketVideo subsidiary,
        which was acquired in July 2005. While we expect to continue to grow and
        expand
        our multimedia software business, we expect that following the development
        of
        our WiMAX products and technologies the majority of our revenues will ultimately
        be derived from the sale and licensing of our WiMAX compliant chipsets, network
        components and device technologies to network infrastructure and mobile terminal
        manufacturers on a global basis.
  Our
        revenues for the second quarter and first six months of 2006 totaled of $8.3
        million and $14.0 million, respectively, compared to NextWave contract service
        revenue of $0.1 million that was recognized during the period from inception
        (April 13, 2005) to June 30, 2005. Our net losses for the second quarter
        and
        first six months of 2006 totaled $20.5 million and $34.2 million, respectively,
        compared to our net loss for the period from inception (April 13, 2005) to
        June
        30, 2005 which totaled $2.9 million. Our net losses for the second quarter
        and
        first six months of 2006 included $2.1 million and $2.6 million, respectively,
        of stock-based compensation expense related to the adoption of SFAS 123R
        on
        January 1, 2006 and non-employee stock based compensation.
  At
        present, the majority of our employees are directly engaged in the design,
        development, and commercialization of a suite of WiMAX compliant products,
        including 802.16e compliant digital baseband ASICs and multi-band RFICs,
        software defined radio platforms, base station channel card reference designs
        and innovative terminal device reference designs. Our development team is
        also
        focused on developing technologies such as advanced antenna systems and advanced
        cognitive radios that we believe will help stimulate sales of our suite of
        WiMAX
        compliant products. All of our WiMAX semiconductor product and technologies
        are
        in an early stage of development.
  To
        conserve capital we intend to outsource the production of our semiconductors
        to
        third-party chip manufacturers that can rapidly scale production volumes
        to meet
        our future needs. We plan to license our reference designs to third party
        vendors. By adopting this approach, we will be able to continue investing
        in the
        research and development needed over the next several years to fully
        commercialize our WiMAX technologies and semiconductor designs. Although
        we
        expect most of our WiMAX semiconductors and products to incorporate the
        proprietary, performance improving technologies we are currently developing,
        we
        intend our products to be WiMAX Forum certified to ensure full interoperability
        with WiMAX certified products and systems being developed by other
        companies.
  The
        success of our WiMAX semiconductor and product business will be reliant on
        market acceptance of WiMAX as a competitive wireless broadband technology
        and on
        our ability to differentiate our WiMAX products from those offered by
        competitors. To help accelerate global market adoption of WiMAX and to showcase
        the competitive strength of our WiMAX mobile broadband and wireless multimedia
        products, we intend to make our significant spectrum holdings available to
        Internet service providers, cable operators, satellite television companies,
        content developers, existing wireless service providers and other companies
        interested in funding, on a shared network basis, the deployment of WiMAX
        networks that utilize our WiMAX mobile broadband and wireless multimedia
        technologies. We expect these shared networks, which will operate on our
        spectrum, to represent a major opportunity for us to sell our WiMAX certified
        semiconductors and products.
  Our
        PacketVideo subsidiary supplies device embedded multimedia software to many
        of
        the largest manufacturers of high-end mobile phones in the world including
        LGE,
        Motorola, Nokia and Samsung. PacketVideo’s software enables a mobile handset to
        stream, download, and play video and music, receive live TV, or engage in
        two
        way video telephony. PacketVideo’s continued growth will be reliant on its
        ability to continue offering superior software solutions to its customers
        and on
        the continued growth of the global market for high-end mobile phones and
        other
        converged devices. PacketVideo’s revenues are currently generated from royalties
        associated with the licensing of its software products and by providing its
        customers with customized software development services on a contract basis.
        At
        present, approximately 65% of PacketVideo’s revenues are royalty based. We
        expect this percentage to increase over time based on the anticipated growth
        in
        the global market for devices having multimedia capabilities.
  22
  **Change
        in Fiscal Year End**
  Our
        Board
        of Managers approved a change, effective January 1, 2006, in our fiscal year
        end
        and quarterly reporting periods from quarterly calendar periods ending on
        December 31 to a 52-53 week fiscal year ending on the Saturday nearest to
        December 31 of the current calendar year or the following calendar year.
        Normally, each fiscal year consists of 52 weeks, but every five or six years
        the
        fiscal year consists of 53 weeks. Fiscal year 2006 will be a 52-week year
        and
        the first 53-week year will occur in 2009. The three and six month periods
        ended
        July 1, 2006 include 13 and 26 weeks, respectively.
  **Second
        Quarter and First Six Months of Fiscal 2006 Compared to the Period From
        Inception (April 13, 2005) to June 30, 2005**
  **Revenues.** Revenues
        for the second quarter of 2006 of $8.3 million were from $5.8 million and
        $2.5
        million in royalties and contract services, respectively. Revenues for the
        first
        six months of 2006 of $14.0 million were from $9.5 million and $4.5 million
        in
        royalties and contract services, respectively. In general, the financial
        consideration received from wireless carriers and mobile phone and device
        manufacturers is derived from a combination of technology development contracts
        and royalties.
  Revenues
        of $0.1 million that were recognized during the period from inception (April
        13,
        2005) to June 30, 2005 were from NextWave contract services. Since our inception
        in April 2005, substantially all of our revenues have been generated by our
        PacketVideo subsidiary, which we acquired in July 2005. We believe that
        PacketVideo will continue to account for a substantial portion of our revenues
        until we complete the development and commercialization of our WiMAX ***plus*** products
        and technologies by the Advanced Technology Group of NextWave. Following
        the
        development and commercialization of our WiMAX ***plus*** products
        and technologies, we believe that the sale or licensing of our proprietary
        WiMAX ***plus*** chipsets, network components and device technologies will become an additional
        source of recurring revenue for us.
  We
        expect
        that future revenues will be affected by, among other things, new product
        and
        service introductions, competitive conditions, customer marketing budgets
        for
        introduction of new subscriber products, the rate of expansion of our customer
        base, price increases, subscriber device life cycles, demand for wireless
        data
        services and acquisitions or dispositions of businesses or product
        lines.
  **Cost
        of Revenues.** Cost of
        revenues for the second quarter of 2006 totaled $3.0 million from PacketVideo,
        inclusive of $0.4 million of amortization on the purchase of intangible assets
        related to the acquisition of PacketVideo. Cost of revenues for the first
        six
        months of 2006 totaled $5.6 million from PacketVideo, inclusive of $0.8 million
        of amortization on the purchase of intangible assets related to the acquisition
        of PacketVideo. Cost of revenues includes direct engineering labor expenses,
        allocated overhead costs and other direct costs related to the execution
        of
        technology development contracts as well as costs associated with offshore
        development contract costs, amortization of acquired software and other
        costs.
  Cost
        of
        revenues for the period from inception (April 13, 2005) to June 30, 2005
        totaled
        $0.1 million from NextWave. Cost of revenues includes direct engineering
        labor
        expenses, allocated overhead costs and other direct costs related to the
        execution of technology development contracts.
  We
        believe that cost of services as percentage of revenue for future periods
        will
        be affected by, among other things, the integration of acquired businesses
        in
        addition to sales volumes, competitive conditions, royalty payments on licensed
        technologies, changes in average selling prices, and our ability to make
        productivity improvements.
  **Engineering,
        Research and Development.** Engineering, research and development expenses for the second quarter of
        2006
        were $11.7 million and primarily consisted of compensation and associated
        costs
        for the internal and external development of our PacketVideo software of
        $1.2
        million and $10.5 million for our WiMAX ***plus*** products
        and technologies, including our WiMAX ***plus*** chipsets. Share-based compensation for the second quarter of 2006 totaled
        $0.6
        million.
  23
  Engineering,
        research and development expenses for the first six months of 2006 were $21.6
        million and primarily consisted of compensation and associated costs for
        the
        internal and external development of our PacketVideo software of $2.4 million
        and $19.2 million for our WiMAX ***plus*** products
        and technologies, including our WiMAX ***plus*** chipsets. Share-based compensation for the first six months of 2006 totaled
        $0.7
        million.
  Engineering,
        research and development expenses for the period from inception (April 13,
        2005)
        to June 30, 2005 were $2.9 million and primarily consisted of compensation and
        associated costs for the internal and external development of our
        WiMAX ***plus*** products
        and technologies, including our WiMAX ***plus*** chipsets.
  Largely
        due to our planned increase in engineering personnel to further our WiMAX
        technology development initiatives, we expect our engineering, research and
        development expenses to increase over the next twelve months.
  **General
        and Administrative.** General
        and administrative expenses for the second quarter of 2006 were $13.6 million,
        consisting of $11.1 million and $2.5 million from NextWave and PacketVideo,
        respectively. Our general and administrative expenses primarily consist of
        compensation and associated costs of general and administrative personnel
        of
        $10.0 million, professional fees of $1.8 million, share-based compensation
        of
        $0.8 million, spectrum lease amortization of $0.6 million and losses incurred
        by
        our strategic investment of $0.4 million. In addition to our principal executive
        offices in San Diego, California, we maintain significant operating facilities
        in Henderson, Nevada.
  General
        and administrative expenses for the first six months of 2006 were $22.5 million,
        consisting of $18.9 million and $3.6 million from NextWave and PacketVideo,
        respectively. Our general and administrative expenses primarily consisted
        of
        compensation and associated costs of general and administrative personnel
        of
        $16.7 million, professional fees of $2.5 million, spectrum lease amortization
        of
        $1.2 million, share-based compensation of $0.8 million, loss on disposal
        of
        assets of $0.6 million and losses incurred by our strategic investment of
        $0.7
        million.
  General
        and administrative expenses for the period from inception (April 13, 2005)
        to
        June 30, 2005 were $3.3 million and consist primarily of compensation and
        associated costs of general and administrative personnel of $2.3 million,
        professional fees of $0.6 million and spectrum lease amortization expense
        of
        $0.4 million.
  We
        expect
        that general and administrative costs will increase in absolute terms as
        we hire
        additional personnel and incur costs related to the anticipated growth of
        our
        business and our operations as a public company. As our business continues
        to
        grow, we expect to incur increased expenses from the addition of general
        and
        administrative personnel. We also expect an increase in our general and
        administrative expenses to occur as a result of our efforts to develop and
        protect intellectual property rights, including expenses associated with
        the
        identification and documentation of intellectual property, and the preparation
        and prosecution of patent applications. In addition, we expect our general
        and
        administrative expenses to increase as we incur additional expenses associated
        with being a publicly traded company, including expenses associated with
        comprehensively analyzing, documenting and testing our system of internal
        controls and maintaining our disclosure controls and procedures as a result
        of
        the regulatory requirements of the Sarbanes-Oxley Act.
  **Sales
        and Marketing.** Sales
        and marketing expenses for the second quarter of 2006 totaled $2.2 million,
        consisting of $1.5 million and $0.7 million from PacketVideo and NextWave,
        respectively. Sales and marketing expenses during the second quarter of 2006
        consisted of compensation and associated costs for marketing and sales personnel
        of $1.7 million, share-based compensation of $0.2 million, expenses associated
        with marketing and promotional activities of $0.1 million, and amortization
        expenses related to intangible assets of $0.2 million.
  Sales
        and
        marketing expenses for the first six months of 2006 totaled $3.8 million,
        consisting of $3.0 million and $0.8 million from PacketVideo and NextWave,
        respectively. Sales and marketing expenses for the first six months of 2006
        consisted of compensation and associated costs for marketing and sales personnel
        of $3.0 million, share-based compensation of $0.2 million, expenses associated
        with marketing and promotional activities of $0.2 million, and amortization
        expenses related to intangible assets of $0.4 million.
  24
  We
        expect
        sales and marketing expenses to increase in absolute terms with the growth
        of
        our business, primarily from our PacketVideo business, in the upcoming year.
        Additionally, as we achieve full commercial deployment of our WiMAX ***plus*** technologies and products, we will increase sales and marketing expenses
        both in
        absolute terms, and as a percentage of revenues at NextWave
        Broadband.
  **Purchased
        In-Process Research and Development Costs.** In
        conjunction with one of our immaterial acquisitions during the second quarter
        of
        2006, we purchased in-process research and development projects valued at
        $1.6
        million that were expensed upon the date of acquisition.
  **Interest
        Income.** Interest
        income for the second quarter and first six months of 2006 was $3.2 million
        and
        $6.4 million, respectively, and consisted of interest earned on our cash
        and
        investment balances, which totaled $340.4 million at July 1, 2006.
  Interest
        income for the period from inception (April 13, 2005) to June 30, 2005 was
        $3.5
        million and consisted of interest earned on our cash and investment balances,
        which totaled $551.9 million at June 30, 2005.
  Interest
        income in the future will be affected by changes in short-term interest rates
        and changes in our cash and investment balances, which may be materially
        impacted by development plans, acquisitions and other financial
        activities.
  **Interest
        Expense.** Interest
        expense for the second quarter and first six months of 2006 and for the period
        from inception (April 13, 2005) to June 30, 2005 was $0.4 million, $0.7 million
        and $0.3 million, respectively, and consisted primarily of the accretion
        of
        discounted wireless spectrum license lease liabilities.
  **Other
        Expense, Net.** Other
        income, net, for the second quarter and first six months of 2006 totaled
        $0.2
        million and $0.1 million, respectively, and includes $0.1 million in a gain
        on
        disposal of non-operating fixed assets, with the remainder due to net realized
        and unrealized foreign currency exchange gains. Other income, net, for the
        period from inception (April 13, 2005) to June 30, 2005 totaled $0.1 million
        and
        represents net realized and unrealized foreign currency exchange
        gains.
  **Provision
        for Income Taxes.** NextWave
        Wireless LLC is classified as a partnership for U.S. federal and state income
        tax purposes. Therefore, its income is not subject to federal or state income
        tax at the entity level. Its income passes through to its members, where
        it is
        subject to income tax at the member level. Our corporate subsidiaries or
        controlled corporations are subject to federal, state and foreign income
        taxes
        on corporations.
  During
        the first six months of 2006 these corporate subsidiaries and controlled
        corporations all had net losses for tax purposes, and, therefore, no income
        tax
        provision or benefit was recognized during the first six months of 2006.
        Our
        income tax benefit of $0.2 million for the first six months of 2006 is comprised
        primarily a reversal of an accrual for federal personal holding company taxes
        for NextWave Broadband Inc. offset by foreign withholding tax on royalty
        payments received from PacketVideo customers.
  **Minority
        Interest.** Minority
        interest for the second quarter and first six months of 2006 totaled $0.2
        million and $0.9 million, respectively, and primarily represented our minority
        partner’s share of losses in the newly formed INQUAM joint venture formed in
        January 2006.
  **Liquidity
        And Capital Resources**
  Since
        our
        inception (April 13, 2005), we had incurred operating losses and negative
        cash
        flows and had a retained deficit of $49.2 million at December 31, 2005,
        consisting of $34.8 million and $14.4 million from NextWave and PacketVideo,
        respectively. We have funded our operations primarily with the $550.0 million
        in
        cash received in our initial capitalization. Our total cash, cash equivalents
        and short-term investments at December 31, 2005 were $459.2 million. Cash
        and
        cash equivalents were $93.6 million at December 31, 2005, consisting of $92.1
        million and $1.5 million at NextWave and PacketVideo, respectively, a decrease
        of $461.5 million from our inception balance of $555.1 million at April 13,
        2005. Of this decrease, $365.6 million is the result of our investment in
        liquid
        marketable securities that offered a more favorable investment return than
        if
        held in cash. We held short-term investments of $365.6 million at December
        31,
        2005.
  25
  During
        the three and six months ended July 1, 2006, we incurred operating losses
        of
        $20.5 million and $34.2 million, respectively, and our retained deficit at
        July
        1, 2006 totaled $80.2 million, consisting of $63.4 million and $16.8 million,
        from NextWave and PacketVideo, respectively. Our total cash, cash equivalents
        and short-term investments at July 1, 2006 were $340.4 million. The following
        table presents working capital, cash, cash equivalents and short-term
        investments:
  *(in
                  thousands)*
              
              **July
                  1, 2006**
              
              **Increase
                  (Decrease) for the Three Months Ended July 1,
                  2006**
              
              **Increase
                  (Decrease) For the Six Months Ended July 1, 2006**
              
              **April
                  1, 2006**
              
              **December
                  31, 2005**Working
                  capital
              
              $
              334,957
              
              $
              (22,169
              )
              $
              (121,461
              )
              $
              357,126
              
              $
              456,418Cash
                  and cash equivalents
              
              
              30,643
              
              
              (69,228
              )
              
              (63,006
              )
              
              99,871
              
              
              93,649Short-term
                  investments
              
              
              309,794
              
              
              43,078
              
              
              (55,788
              )
              
              266,716
              
              
              365,582Total
                  cash, cash equivalents and short-term investments
              
              $
              340,437
              
              $
              (26,150
              )
              $
              (118,794
              )
              $
              366,587
              
              $
              459,231
  The
        following table presents our utilization of cash, cash equivalents and
        short-term investments for the three and six months ended July 1, 2006 compared
        to the period from inception (April 13, 2005) to June 30, 2005:
  *(in
                  thousands)*
              
              **Three
                  Months Ended July 1, 2006**
              
              **Six
                  Months Ended July 1, 2006**
              
              **From
                  Inception (April 13, 2005) to June 30, 2005**Beginning
                  cash, cash equivalents and short-term investments
              
              $
              366,587
              
              $
              459,231
              
              $
              555,099Cash
                  paid for business combinations, net of cash acquired
              
              
              (4,822
              )
              
              (4,875
              )
              
              —Cash
                  paid for acquisition of wireless spectrum licenses and subsequent
                  lease
                  obligations
              
              
              (2,344
              )
              
              (82,434
              )
              
              —Cash
                  used by Inquam Broadband Ltd joint venture, net of cash investment
                  from
                  joint venture partner
              
              
              (75
              )
              
              (1,329
              )
              
              —Cash
                  used in all other operating activities
              
              
              (16,144
              )
              
              (21,671
              )
              
              (1,990
              )Acquisition
                  of property and equipment
              
              
              (1,562
              )
              
              (7,157
              )
              
              (1,197
              )Other,
                  net
              
              
              (1,203
              )
              
              (1,328
              )
              
              —Ending
                  cash, cash equivalents and short-term investments
              
              $
              340,437
              
              $
              340,437
              
              $
              551,912
  The
        decrease in cash, cash equivalents and short-term investments of $26.2 million
        during the three months ended July 1, 2006, primarily reflects cash used
        in
        operating activities of $16.7 million, consisting of $14.9 million used by
        NextWave and our joint venture and $1.8 million used by PacketVideo, $4.8
        million paid to acquire businesses, $2.3 million paid for wireless spectrum
        licenses and subsequent lease obligations and $1.6 million paid for capital
        expenditures.
  The
        decrease in cash, cash equivalents and short-term investments of $118.8 million
        during the six months ended July 1, 2006, primarily reflects cash used in
        operating activities of $23.2 million, consisting of $22.8 million used by
        NextWave and our joint venture, and $0.4 million used by PacketVideo, $4.9
        million paid to acquire businesses and $82.4 million paid for wireless spectrum
        licenses and subsequent lease obligations and $7.2 million paid for capital
        expenditures.
  The
        decrease in cash, cash equivalents and short-term investments of $3.2 million
        during the period from inception (April 13, 2005) to June 30, 2005, primarily
        reflects cash used in NextWave operating activities of $2.0 million and $1.2
        million paid for capital expenditures.
  In
        July
        2005, we completed our acquisition of PacketVideo for cash of $46.6 million,
        which includes cash of $0.4 million paid for in closing costs, less cash
        acquired of $0.3 million.
  26
  In
        July
        2005, we entered into a purchase agreement for an office building in Henderson,
        Nevada for $8.2 million, plus related interior construction costs of
        approximately $2.5 million, to accommodate our facility requirements and
        to
        consolidate current operations from two leased facilities into one. The interior
        construction costs are payable in the third quarter of 2006. Construction
        is
        expected to be completed during fourth quarter of 2006, at which time we
        expect
        to occupy the facility and the purchase price will be due and
        payable.
  We
        have
        consummated transactions to acquire licensed spectrum rights since our inception
        for amounts totaling $98.9 million, including our acquisition of WCS licenses
        from Bal-Rivgam, LLC (“Bal-Rivgam”) for $56.9 million. The Bal-Rivgam
        acquisition agreement provides that $21.9 million of the proceeds of the
        purchase would be deposited into escrow until January 2008 to cover any
        liabilities stemming from Bal-Rivgam's ownership of the licenses prior to
        closing, claims resulting from breaches of representations or warranties
        and
        certain claims under the spectrum licenses.
  In
          August
          2006, we acquired WCS Wireless Inc., which holds spectrum covering 188.8
          million
          persons, or POPs, in the Central, Western, and Northeastern United States,
          for
          $160.5 million. The acquisition agreement provides that $8.0 million of
          the sale
          proceeds would be deposited into an escrow fund to cover liabilities resulting
          from breaches of representations and warranties, breaches of covenants
          and
          certain pre-closing tax losses. The escrow fund will remain in place until
          February 2007. The entire $160.5 million purchase price for WCS was funded
          with
          a portion of the proceeds from our recently completed secured notes financing.
          Wireless licenses that are purchased from third parties or in spectrum
          auctions
          held by the FCC are initially recorded at fair value, which is the purchase
          price paid for the license at the time of acquisition plus legal costs
          incurred
          to acquire the intangible asset. NextWave has determined that its WCS wireless
          spectrum licenses meet the definition of indefinite-lived intangible assets
          under SFAS No. 142, “Goodwill and Other Intangible Assets,” and, accordingly,
          the licenses will not be amortized to expense, but, rather, reviewed for
          impairment on an annual basis.
  Since
          April 1, 2006, we have entered into two lease agreements for wireless spectrum,
          covering a period of 30 years (including extensions), for aggregate upfront
          lease payments of approximately $22.1 million, plus monthly payments of
          $12,600.
          We have paid $1.5 million into an escrow account, and upon final approval
          of the
          lease applications by the FCC, we anticipate paying the balance of $20.6
          million
          prior to year end. The entire $22.1 million upfront lease payments will
          be
          funded from our recently completed secured notes financing described
          below.
  We
          are
          participating with other WCS band license holders in a waiver process with
          the
          FCC to move the substantial service dates for this license band from July
          2007
          to the later of July 2010 or three years from FCC adoption of certain technical
          rules for the WCS band. If the substantial service dates are not extended,
          in
          order to meet the current substantial service date of July 2007, we estimate
          that an expenditure of approximately $40 million would be required over
          the next
          12 months.
  As
          of
          July 1, 2006, we had $340.4 million of cash, cash equivalents and
          short-term investments, leaving approximately $265.4 million of unrestricted
          funding after giving effect to the $75.0 million cash required to be reserved
          under our senior secured notes financing. These
          amounts do not include remaining net proceeds of $110.0 million available
          solely
          for financing spectrum acquisitions and leases from our senior secured
          notes
          financing (completed on July 17, 2006), after giving effect to our recent
          acquisition of WCS Wireless, Inc. for $160.5 million and the acquisition
          of two
          new EBS leases for $22.1 million. The
          remaining net proceeds of $110.0 million are currently on deposit with
          the FCC
          as part of our total $142.8 million deposit paid to qualify for the AWS
          auction.
          Any amounts not used to purchase spectrum in the auction will be returned
          to us
          after the auction is completed.
  We
          are
          currently unable to project when our WiMAX ***plus*** products
          and technologies will commercially deployed and generate revenue. However,
          we
          believe that our current revenues, cash and short-term investments and
          financing
          activities will be sufficient to fund our operating activities at least
          through
          2007, even if the $40 million expenditure relating to the current WCS
          substantial service date is required over the next 12 months.
  ·
                We
                    plan to fund our WiMAX technology development activities with
                    our $265.4
                    million of unrestricted cash and investments until such point
                    that we
                    begin sales of our WiMAX***plus***chipsets and network component products and enter into licensing
                    arrangements for our WiMAX***plus***technologies. Our WiMAX***plus***products and technologies are in the early stages of development
                    and will
                    require a substantial investment before they may become commercially
                    viable. Our research and development expenses for our WiMAX***plus***products and technologies, including our WiMAX***plus***chipsets were $10.5 million in the second quarter. Largely due
                    to our
                    planned increase in engineering personnel, we expect our WiMAX
                    development
                    expenses to increase by approximately 50% over the next twelve
                    months.
                    Because we are adopting a strategy of licensing our technology
                    and selling
                    chipsets to third party equipment manufacturers, we do not anticipate
                    that
                    the license and sale of our products and technologies will require
                    significant additional capital.
   27
  ·
                Our
                    mobile WiMAX network solutions offerings will involve a service
                    business
                    and are not expected to require significant additional capital
                    expenditures beyond what is necessary to complete our Henderson,
                    Nevada
                    office building and our trial network. With the exception of
                    our trial
                    network in Henderson, Nevada, we will not build-out wireless
                    networks, but
                    will provide our technologies, services and spectrum to our network
                    partners who are engaged in these activities. In 2006, we expect
                    to expend
                    $5.0 million on the deployment of our trial network in Henderson,
                    Nevada.
                    If that trial network is successful, we anticipate that we will
                    seek a
                    network partner to expand the trial network to cover most of
                    the Las Vegas
                    metropolitan region.
  ·
                Our
                    PacketVideo operations are currently operating cash flow positive
                    and we
                    believe that PacketVideo’s operating cash flows will continue to be
                    adequate to cover its operating costs at least through 2007.
                    However,
                    expansions of PacketVideo’s current operations or future acquisitions
                    could require additional
                    funding.
  We
          may
          need to secure significant additional capital in the future to implement
          changes
          to, or expansions of, our business plan and to become cash flow positive.
          We may
          also require additional cash resources for other future developments, including
          any investments or acquisitions we may pursue, including investments or
          acquisitions of other business or technologies. If our existing working
          capital
          resources are insufficient to satisfy our cash requirements, we may seek
          to sell
          debt securities or additional equity securities or to obtain a credit facility.
          Our senior secured notes prohibit our incurrence of additional indebtedness,
          subject to certain exceptions. The sale of equity securities or convertible
          debt
          securities could result in additional dilution to our stockholders. The
          incurrence of indebtedness would result in debt service obligations and
          the
          requirement that we comply with operating and financial covenants that
          would
          restrict our operations. In addition, there can be no assurance that any
          additional financing will be available on acceptable terms, if at
          all.
  In
          July
          2006, we issued senior secured notes due 2010 in the aggregate principal
          amount
          of $350.0 million. The notes were issued at a fifteen percent (15%) original
          issue discount, resulting in gross proceeds of $297.5 million. We will
          be
          obligated to pay the secured notes at their full face value of $350.0 million
          on
          July 17, 2010 and interest of 7% per annum, or $24.5 million, is payable
          semiannually in January and July each year commencing January 15, 2007.
          The
          original issue discount will provide the note purchasers with a yield that
          is in
          addition to the coupon rate upon repayment of the notes. After the payment
          of
          transaction related expenses, we received net proceeds of $295.1 million
          available for the sole purpose of financing spectrum acquisitions and leases.
          As
          noted above, after giving effect to our recent acquisition of WCS Wireless,
          Inc.
          for $160.5 million and the acquisition of two new EBS leases for $22.1
          million,
          the remaining net proceeds of the senior secured notes are approximately
          $110.0
          million. Concurrently with the notes placement, we paid a $142.8 million
          deposit
          to the FCC to qualify for the AWS auction, of which $110.0 million was
          funded
          with the remaining proceeds from the notes placement. Amounts not used
          to
          purchase spectrum in the auction will be returned to us after the auction
          is
          completed.
  The
          purchasers of the senior secured notes were investment funds and other
          institutional investors, including affiliates of Avenue Capital Group,
          among
          others. Robert T. Symington, a member of our Board of Managers, is a Portfolio
          Manager at Avenue Capital Group. Neither Mr. Symington nor Avenue Capital
          Group
          or its affiliates received any compensation in connection with the financing.
          The notes were guaranteed by certain of our subsidiaries, including NextWave
          Broadband and PacketVideo. In addition, after our anticipated corporate
          conversion merger with and into a wholly owned limited liability company
          subsidiary of NextWave Wireless Inc., a new corporation formed under the
          laws of
          the State of Delaware, the notes will be guaranteed by NextWave Wireless
          Inc. No
          scheduled principal payments will be due on the notes before the maturity
          date
          of July 15, 2010. The notes are pre-payable at our option at specified
          premiums
          to the principal amount that will decline over the term of the notes from
          105%
          to 100%, plus a make-whole amount applicable until July 17, 2008. The
          obligations under the notes are secured by first priority liens on certain
          pledged equity interests, FCC licenses, spectrum leases, securities accounts
          and
          proceeds of any of the foregoing. We are required to maintain $75.0 million
          in
          cash or cash equivalents from funds other than the proceeds of the notes
          in a
          restricted collateral account at all times while the notes remain outstanding.
          The purchase agreement contains representations and warranties, affirmative
          and
          negative covenants (including, without limitation, (i) our obligation to
          maintain in full force and effect our FCC licenses and spectrum leases,
          (ii) our
          obligation to use the note proceeds for the acquisition of spectrum, not
          to
          exceed $0.25 per MHz-POP, (iii) our obligation not to become liable to
          any
          additional indebtedness, subject to certain exceptions including the ability
          to
          enter into spectrum leases or to incur $25.0 million of acquired company
          debt or
          purchase money indebtedness and (iv) our obligation not to make restricted
          payments to holders of subordinated debt or equity securities, including
          dividends) that are customary in similar types of transactions. The purchase
          agreement also contains customary events of default and additional events
          of
          default including, (i) our failure to consummate the corporate conversion
          merger
          by December 31, 2006, (ii) our failure to file a shelf registration statement
          with the SEC within 30 days of the consummation of the corporate conversion
          merger, and (iii) upon the termination, cancellation or rescission of any
          FCC
          license owned or leased by us and necessary for our operation of a wireless
          communications system). If we do not complete our anticipated corporate
          conversion merger on or prior to November 14, 2006, then the per annum
          interest
          rate on the notes shall be equal to 12% during the period from November
          14, 2006
          to the date on which the corporate conversion merger actually
          occurs.
  28
  In
        connection with the senior secured notes financing described above, NextWave
        Wireless Inc. entered into a warrant agreement with the purchasers of the
        senior
        secured notes, which will become operative after the corporate conversion
        merger, whereby NextWave Wireless Inc. will issue common stock purchase warrants
        to purchase an aggregate of 5% of NextWave Wireless Inc.’s shares of common
        stock, as of the date of the corporate conversion merger and before giving
        effect to the exercise of any warrant. The warrants will have an exercise
        price
        of $0.01 per share (subject to certain adjustments as set forth in the warrant
        agreement) and are exercisable at any time from the date of issuance until
        July
        15, 2009, and have anti-dilution protection provisions. The shares of NextWave
        Wireless Inc. underlying the warrants are also entitled to registration rights
        that obligate NextWave Wireless Inc. to file a shelf registration statement
        within 30 days following the corporate conversion merger, and use its
        commercially reasonable efforts to have the shelf registration statement
        become
        or declared effective within 60 days from its filing. The holders of warrants
        will be entitled to continuous shelf registration rights for a period of
        two
        years from the date that such shelf registration is declared effective by
        the
        SEC. NextWave Wireless Inc. is required to bear the expenses of the shelf
        registration.
  **Critical
        Accounting Policies and Estimates**
  Our
        discussion and analysis of our results of operations and liquidity and capital
        resources are based on our consolidated financial statements which have been
        prepared in accordance with accounting principles generally accepted in the
        United States. The preparation of these financial statements requires us
        to make
        estimates and judgments that affect the reported amounts of assets, liabilities,
        revenues and expenses, and disclosure of contingent assets and liabilities.
        On
        an ongoing basis, we evaluate our estimates and judgments, including those
        related to revenue recognition, valuation of intangible assets and investments,
        and litigation. We base our estimates on historical and anticipated results
        and
        trends and on various other assumptions that we believe are reasonable under
        the
        circumstances, including assumptions as to future events. These estimates
        form
        the basis for making judgments about the carrying values of assets and
        liabilities that are not readily apparent from other sources. By their nature,
        estimates are subject to an inherent degree of uncertainty. Actual results
        that
        differ from our estimates could have a significant adverse effect on our
        operating results and financial position. We believe that the following
        significant accounting policies and assumptions may involve a higher degree
        of
        judgment and complexity than others.
  ***Revenue
        Recognition.*** We
        derive revenue principally from contracts to provide embedded multimedia
        software products for mobile phones and related license fees. The timing
        of
        revenue recognition and the amount of revenue actually recognized in each
        case
        depends upon a variety of factors, including the specific terms of each
        arrangement and the nature of our deliverables and obligations. Determination
        of
        the appropriate amount of revenue recognized involves judgments and estimates
        that we believe are reasonable, but it is possible that actual results may
        differ from our estimates.
  For
        software arrangements with multiple elements, such as those that include
        rights
        to software products, customer support, and training services, we allocate
        revenue to each component of the arrangement based on objective evidence
        of its
        fair value, which is specific to us. The objective evidence for each element
        is
        based on the sale price of each element when sold or offered for sale
        separately.
  29
  Revenues
        from software products are generally recognized when the products are delivered.
        Revenues from customer support and training services are recognized on a
        straight-line basis over the life of the contract. For engineering design
        contracts, we recognize revenue pursuant to the American Institute of Certified
        Public Accountants Statement of Position 81-1, “Accounting for Performance of
        Construction-Type and Certain Production-Type Contracts” and specifically follow
        guidance under Percentage of Completion (“POC”). Under the POC method, revenues
        are recognized on the basis of contract completion to-date or using actual
        costs
        incurred to total expected costs under the contract, resulting in the
        recognition of unbilled receivables or the deferral of costs or profit on
        these
        contracts. Deferred costs include all direct material and labor costs and
        those
        indirect costs related to contract performance and are reported as deferred
        contract costs in the consolidated balance sheet. We regularly review project
        profitability and underlying estimates. Revisions to the estimates at completion
        are reflected in results of operations as a change in accounting estimate
        in the
        period in which the facts that give rise to the revision become known by
        us.
        Provisions for estimated losses, if any, are recognized in the period in
        which
        the loss is determined. Amounts received from customers in excess of revenues
        earned under the POC method are recorded as advance payments from customers
        and
        reported as unearned revenue in the consolidated balance sheet.
  Revenues
        from time and material contracts are recorded at agreed-upon billing rates
        at
        the time services are provided.
  We
        earn
        royalties on licensed embedded multimedia software incorporated into products
        sold worldwide by our licensees at the time that the licensees’ sales occur. Our
        licensees, however, do not report and pay royalties owed for sales in any
        given
        quarter until after the conclusion of that quarter. Royalty revenues are
        recognized when reported by licensees to us and totaled $5.8 million and
        $9.5
        million during the three and six months ended July 1, 2006,
        respectively.
  ***Valuation
          of Goodwill and Intangible Assets.*** In
          accordance with Statement of Financial Accounting Standards No. 142, or
          SFAS No.
          142, “Goodwill and Other Intangible Assets,” we do not amortize goodwill and
          certain spectrum licenses. In lieu of amortization, we are required to
          perform
          an annual review for impairment or more frequently if impairment indicators
          arise. Goodwill and intangible assets not subject to amortization are considered
          to be impaired if we determine that the carrying value of the asset exceeds
          its
          fair value.
  We
          will test goodwill for impairment at a reporting unit level using a
          two-step process. As of December 31, 2005, we had two reporting units as
          defined
          by SFAS 142, NextWave and PacketVideo. The first step of the impairment
          test
          involves comparing the fair values of the applicable reporting units with
          their
          aggregate carrying values, including goodwill. If the carrying amount of
          a
          reporting unit exceeds the reporting unit’s fair value, we then perform the
          second step of the goodwill impairment test to determine the amount of
          the
          impairment loss. The second step of the goodwill impairment test involves
          comparing the implied fair value of the affected reporting unit’s goodwill with
          the carrying value of that goodwill. If the carrying amount of goodwill
          exceeds
          the implied fair value of that goodwill, an impairment loss is recognized
          in an
          amount equal to that excess.
  We
          also
          evaluate the remaining useful life of our intangible assets that are not
          subject
          to amortization on an annual basis to determine whether events and circumstances
          continue to support an indefinite useful life. If an intangible asset that
          is
          not being amortized is subsequently determined to have a finite useful
          life,
          that asset is tested for impairment and then amortized prospectively over
          its
          estimated remaining useful life and accounted for in the same manner as
          other
          intangible assets that are subject to amortization. Additionally, if the
          carrying amount of the intangible asset exceeds its fair value, an impairment
          loss is recognized in an amount equal to that excess.
  At
          October 1, 2005, our goodwill and intangible assets not subject to amortization
          were evaluated for impairment and we determined that no impairment existed
          at
          that date.
  At
          December 31, 2005, intangible assets subject to amortization were evaluated
          for
          impairment as required by SFAS No. 144, “Accounting for Impairment or Disposal
          of Long-Lived Assets,” which requires the recognition of an impairment loss when
          the carrying amount of an intangible asset is not recoverable and its carrying
          amount exceeds its fair value, and we determined that no impairment existed
          at
          that date.
  Any
          required impairment loss would be recorded as a reduction in the carrying
          value
          of the related asset and charged to results of operations.
  30
  The
          determination of the fair value of certain acquired assets and liabilities
          is
          subjective in nature and often involves the use of significant estimates
          and
          assumptions. Determining the fair values and useful lives of intangible
          assets
          requires the exercise of judgment. Upon initially recording intangible
          assets
          that are acquired through business combinations we may use an independent
          valuation firm to assist us in determining the appropriate values for those
          assets. While there are a number of different generally accepted valuation
          methods to estimate the value of intangible assets acquired, we primarily
          use
          the undiscounted cash flows expected to result from the use of the assets.
          This
          method requires significant management judgment to forecast the future
          operating
          results used in the analysis. In addition, other significant estimates
          are
          required such as residual growth rates and discount factors. The estimates
          we
          use are consistent with the plans and estimates that we use to manage our
          business and are based on available historical information and industry
          averages.
  The
          recorded value of goodwill and other intangible assets may become impaired
          in
          the future. As of April 1, 2006, our goodwill and intangible assets, net
          of
          accumulated amortization, were $27.0 million and $148.3 million,
          respectively. If the estimates of fair values or their related assumptions
          change in the future, we may be required to record an impairment charge
          on all
          or a portion of our goodwill and intangible assets. We also cannot predict
          the
          occurrence of future impairment-triggering events nor the impact such events
          might have on our reported asset values. Future events could cause us to
          conclude that impairment indicators exist and that goodwill or other intangible
          assets associated with our acquired businesses is impaired. Any resulting
          impairment loss could have an adverse impact on our results of
          operations.
  ***Share-Based
        Payments and Pro forma Stock Based Compensation.*** We grant
        options and warrants to purchase our membership interests and common stock
        of
        our PacketVideo and CYGNUS subsidiaries to our employees, directors and
        consultants under our unit and stock option plans. The benefits provided
        by
        these plans qualify as share-based compensation under the provisions of
        Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
        Payment” (“SFAS 123R”), which requires us to recognize compensation expense
        based on the estimated fair values of the share-based awards determined on
        the
        date of grant for all awards granted, modified or cancelled as of January
        1,
        2006 (the effective date).
  Prior
        to
        the effective date, we did not recognize any compensation cost in our income
        statements for share-based awards granted with an option price equal to the
        fair
        market value of respective units or common stock on the date of grant as
        we
        accounted for them under the recognition and measurement principles of
        Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees” (“APB 25”), and its related interpretations and adopted the
        disclosure only provisions of Statement of Financial Accounting Standards
        No.
        123, “Stock-Based Compensation” (“SFAS 123”). We provided pro forma net income
        in accordance with the disclosure only provision of SFAS 123. The stock based
        compensation expense used in these pro forma amounts is based on the minimum
        value method option-pricing model. This method required us to use several
        assumptions to estimate the fair value including the expected life of the
        option.
  We
        adopted the provisions of SFAS 123R using the prospective transition method,
        whereby we will continue to account for nonvested equity awards to employees
        outstanding at December 31, 2005 using APB 25, and apply SFAS 123R to all
        awards
        granted or modified after that date. In accordance with the transition rules
        of
        SFAS 123R, we no longer provide the pro forma disclosures in reports issued
        for
        periods ending after December 31, 2005 as SFAS 123R precludes companies that
        use
        the minimum value method for pro forma disclosure from continuing to provide
        those pro forma disclosures for outstanding awards accounted for under the
        intrinsic value method of APB 25. For the three and six months ended July
        1,
        2006, we recognized $1.7 million, in compensation expense for employee stock
        options. At July 1, 2006, there was $4.8 million remaining in unrecognized
        compensation cost related to employee stock options which is expected to
        be
        recognized over a weighted average period of 3.7 years.
  We
        believe it is important for investors to be aware of the high degree of
        subjectivity involved when using option pricing models to estimate share-based
        compensation under SFAS 123R and SFAS 123. Option-pricing models were developed
        for use in estimating the value of traded options that have no vesting or
        hedging restrictions, are fully transferable and do not cause dilution. Because
        our share-based payments have characteristics significantly different from
        those
        of freely traded options, and because changes in the subjective input
        assumptions can materially affect our estimates of fair values, in our opinion,
        existing valuation models, including the Black-Scholes, may not provide reliable
        measures of the fair values of our share-based compensation. Consequently,
        there
        is a risk that our estimates of the fair values of our share-based compensation
        awards on the grant dates may bear little resemblance to the actual values
        realized upon the exercise, expiration, early termination or forfeiture of
        those
        share-based payments in the future. Certain share-based payments, such as
        employee stock options, may expire worthless or otherwise result in zero
        intrinsic value as compared to the fair values originally estimated on the
        grant
        date and reported in our financial statements. Alternatively, value may be
        realized from these instruments that is significantly in excess of the fair
        values originally estimated on the grant date and reported in our financial
        statements. There is currently no market-based mechanism or other practical
        application to verify the reliability and accuracy of the estimates stemming
        from these valuation models, nor is there a means to compare and adjust the
        estimates to actual values. Although the fair value of employee share-based
        awards is determined in accordance with SFAS 123R and the Securities and
        Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107) using an
        option-pricing model, that value may not be indicative of the fair value
        observed in a willing buyer and willing seller market transaction. If factors
        change and we employ different assumptions in the application of SFAS 123R
        in
        future periods than those currently applied under SFAS 123R and those previously
        applied under SFAS 123 in determining our pro forma amounts, the compensation
        expense that we record in the future under SFAS 123R may differ significantly
        from what we have reported during the first quarter of 2006 and what we have
        reported as our pro forma expense during the period from inception (April
        13,
        2005) to December 31, 2005 under SFAS 123.
  31
  ***Litigation.*** We are
        currently involved in certain legal proceedings. Although there can be no
        assurance that unfavorable outcomes in any of these matters would not have
        a
        material adverse effect on our operating results, liquidity or financial
        position, we believe the claims are without merit and intend to vigorously
        defend the actions. We estimate the range of liability related to pending
        litigation where the amount and range of loss can be estimated. We record
        our
        best estimate of a loss when the loss is considered probable. Where a liability
        is probable and there is a range of estimated loss with no best estimate
        in the
        range, we record the minimum estimated liability related to the claim. As
        additional information becomes available, we assess the potential liability
        related to our pending litigation and revise our estimates. We have not recorded
        any accrual for contingent liability associated with our legal proceedings
        based
        on our belief that a liability, while possible, is not probable. Further,
        any
        possible range of loss cannot be estimated at this time. Revisions in our
        estimates of the potential liability could materially impact our results
        of
        operations.
  **Recent
        Accounting Pronouncements**
  We
        adopted SFAS 123R effective January 1, 2006, which requires us to expense
        the
        estimated fair value of employee stock options and similar awards. As a
        nonpublic entity, we have adopted the provisions of SFAS 123R using the
        prospective transition method, whereby we will continue to account for nonvested
        equity awards to employees outstanding at December 31, 2005 using APB 25,
        and
        apply SFAS 123R to all awards granted or modified after that date. We will
        no
        longer provide the pro forma disclosures in reports issued for periods ending
        after December 31, 2005 as SFAS 123R also precludes nonpublic companies that
        use
        the minimum value method for pro forma disclosure from continuing to provide
        those pro forma disclosures for outstanding awards accounted for under the
        intrinsic value method of APB 25. We use the Black-Scholes valuation model
        as
        the method for determining the fair value of our equity awards that are issued
        after January 1, 2006 and will incur expense during 2006 and future years
        for
        new awards granted during those periods that cannot yet be quantified. For
        the
        three and six months ended July 1, 2006, we recognized $1.7 million in
        compensation expense for employee stock options. At July 1, 2006, there was
        $4.8
        million remaining in unrecognized compensation cost related to employee stock
        options which is expected to be recognized over a weighted average period
        of 3.7
        years.
  In
        November 2005, the Financial Accounting Standards Board (“FASB”) issued staff
        position 115-1, “The Meaning of Other-Than-Temporary Impairment and its
        Application to Certain Investments” (“FSP 115-1”). FSP 115-1 address the
        determination as to when an investment is considered impaired, whether that
        impairment is other than temporary and the measurement of an impairment loss.
        FSP 115-1 also includes accounting considerations subsequent to the recognition
        of an other-than-temporary impairment and requires certain disclosures about
        unrealized losses that have not been recognized as other-than-temporary
        impairments. The guidance in FSP 115-1 amends FASB Statements No. 115,
        Accounting for Certain Investments in Debt and Equity Securities, and APB
        Opinion No. 18, “The Equity Method of Accounting for Investments in Common
        Stock.”
  FSP
        115-1
        replaces the impairment evaluation guidance of Emerging Issues Task Force
        (“EITF”) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its
        Application to Certain Investments” (“EITF 03-1”), with references to existing
        other-than-temporary impairment guidance. EITF 03-1’s disclosure requirements
        remain in effect, and are applicable for year-end reporting and for interim
        periods if there are significant changes from the previous year-end. FSP
        115-1
        also supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary
        Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value,”
and clarifies that an investor should recognize an impairment loss no later
        than
        when the impairment is deemed other-than-temporary, even if a decision to
        sell
        an impaired security has not been made. FSP 115-1 applies to reporting periods
        beginning after December 15, 2005. FSP 115-1 did not have a material impact
        on
        our results of operations, or cash flows for the three or six months ended
        July
        1, 2006.
  32
  In
        May
        2005, the FASB issued Statement of Financial Accounting Standard No. 154,
        “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 replaces
        Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB 20”), and
        Statement of Financial Accounting Standard No. 3, “Reporting Accounting Changes
        in Interim Financial Statements.” SFAS 154 requires retrospective application to
        prior periods’ financial statements for reporting a voluntary change in
        accounting principle, unless impracticable. APB 20 previously required that
        most
        voluntary changes in accounting principle be recognized by including in net
        income of the period of the change the cumulative effect of changing to the
        new
        accounting principle. This standard also distinguishes between retrospective
        application and restatement. It redefines restatement as the revising of
        previously issued financial statements to reflect the correction of an error.
        The provisions of SFAS 154 are effective for accounting changes and corrections
        of errors made in fiscal years beginning after December 15, 2005. Adoption
        of
        SFAS No. 154 did not have a significant effect on our consolidated financial
        statements.
  In
        June
        2006, the FASB Issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), effective
        for our fiscal year beginning December 31, 2006, with earlier application
        permitted. FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in financial statements in accordance with FASB Statement No.
        109,
“Accounting for Income Taxes,” and prescribes a recognition threshold and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure, and transition. We believe that
        adoption of this interpretation is not expected to have a material impact
        on our
        financial statements.
  **Contractual
        Obligations**
  The
        following table summarizes our contractual obligations at July 1, 2006, and
        the
        effect such obligations are expected to have on our liquidity and cash flows
        in
        future periods.
  **Payments
                  Due by Period****(1)***(in
                  thousands)*
              
              **Total**
              
              **Remainder
                  of 2006**
              
              **Years
                  2007-2008**
              
              **Years
                  2009-2010**
              
              **Years
                  2011 and Thereafter**Long-term
                  obligations
              
              $
              28,053
              
              $
              402
              
              $
              5,365
              
              $
              4,350
              
              $
              17,936Operating
                  leases
              
              
              21,818
              
              
              2,598
              
              
              11,513
              
              
              7,658
              
              
              49Services
                  and other purchase agreements
              
              
              16,223
              
              
              4,130
              
              
              12,093
              
              
              —
              
              
              —Capital
                  expenditures
              
              
              10,675
              
              
              10,675
              
              
              —
              
              
              —
              
              
              —Total
              
              $
              76,769
              
              $
              17,805
              
              $
              28,971
              
              $
              12,008
              
              $
              17,985Contractual
                  Obligations entered into subsequent to July 1, 2006:7%
                  Senior Secured Notes
              
              $
              350,000
              
              $
              —
              
              $
              —
              
              $
              350,000
              
              $
              —Spectrum
                  purchase and lease
              
              
              176,500
              
              
              176,500
              
              
              —
              
              
              —
              
              
              —Spectrum
                  bid deposit
              
              
              142,800
              
              
              142,800
              
              
              —
              
              
              —
              
              
              —
  
 (1)
                    In
                        August 2006, we acquired WCS Wireless Inc., which holds spectrum
                        covering
                        188.8 million persons, or POPs, in the Central, Western,
                        and Northeastern
                        United States, for $160.5 million. The acquisition agreement
                        provides that
                        $8.0 million of the sale proceeds would be deposited into
                        an escrow fund
                        to cover liabilities resulting from breaches of representations
                        and
                        warranties, breaches of covenants and certain pre-closing
                        tax losses. The
                        escrow fund will remain in place until February
                        2007.
  33
  In
        the
        second quarter of 2006, we entered into a lease agreement for wireless spectrum,
        covering a period of 30 years (including extensions), for a total lease payment
        of $16.0 million, payable in advance. We have paid $1.5 million into an escrow
        account, and upon approval of the license transfer application by the FCC,
        we
        anticipate paying the balance of $14.5 million in the third quarter of 2006.
        The
        entire $16.0 million lease payment will be funded from our recently completed
        secured notes financing.
  In
          July
          2006, we issued senior secured notes due 2010 in the aggregate principal
          amount
          of $350.0 million. The notes were issued at a fifteen percent (15%) original
          issue discount, resulting in gross proceeds of $297.5 million. We will
          be
          obligated to pay the secured notes at their full face value of $350.0 million
          on
          July 17, 2010, and interest of 7% per annum, or $24.5 million, is payable
          semiannually in January and July each year commencing January 15, 2007.
          The
          original issue discount will provide the note purchasers with a yield that
          is in
          addition to the coupon rate upon repayment of the notes. In connection
          with the
          notes placement, NextWave Wireless Inc. agreed to issue warrants, at an
          exercise
          price of $0.01, to purchase an aggregate of 5% of the outstanding shares
          of
          common stock of NextWave Wireless Inc. as of the date of the corporate
          conversion merger and before giving effect to the exercise of any warrant.
          The
          notes placement provided us with net cash proceeds of $295.1 million available
          for the sole purpose of financing spectrum acquisitions and leases. As
          noted
          above, after giving effect to our recent acquisition of WCS Wireless Inc.
          for
          $160.5 million and the acquisition of two new EBS leases for $22.1 million,
          the
          remaining net proceeds of the senior secured notes are approximately $110.0
          million. Concurrently with the notes placement, we paid a $142.8 million
          deposit
          to the FCC to qualify for the AWS auction, of which $110.0 million was
          funded
          with the remaining proceeds of the notes placement. Amounts not used to
          purchase
          spectrum in the auction will be returned to us after the auction is
          completed.
  We
        are
        participating with other WCS band license holders in a waiver process with
        the
        FCC to move the substantial service dates for this license band from July
        2007
        to the later of July 2010 or three years from FCC adoption of certain technical
        rules for the WCS band. If the substantial service dates are not extended,
        in
        order to meet the current substantial service date of July 2007, we estimate
        that an expenditure of approximately $40 million would be required over the
        next
        12 months.
  **ITEM
        3.****Quantitative
        and Qualitative Disclosures About Market Risk**
  At
        July
        1, 2006, our investment portfolio included short-term investment securities
        with
        a fair value of $309.8 million. These securities are subject to interest
        rate
        risk and will decline in value if interest rates increase. Interest income
        earned on our investments is affected by changes in the general level of
        U.S.
        interest rates. These income streams are generally not hedged.
  Due
        to
        the relatively short duration of our investment portfolio, an immediate ten
        percent change in interest rates (e.g. 3.00% to 3.30%) would have no material
        impact on our financial condition or results of operations.
 
 **ITEM
        4.**  **Controls
        and Procedures**
 
 The
          Company's management evaluated, with the participation of the Company's
          principal executive officer and principal financial officer, the effectiveness
          of the Company's disclosure controls and procedures (as defined in Rules
          13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
          (the “Exchange Act”)), as of July 1, 2006. Based on their evaluation, the
          Company's principal executive officer and principal financial officer concluded
          that the Company's disclosure controls and procedures were effective as
          of July
          1, 2006.
  In
          order
          to achieve compliance with Section 404 within the prescribed period, management
          has commenced a Section 404 compliance project under which management has
          engaged outside consultants and adopted a detailed project work plan to
          assess
          the adequacy of our internal control over financial reporting, remediate
          any
          control deficiencies that may be identified, validate through testing that
          controls are functioning as documented and implement a continuous reporting
          and
          improvement process for internal control over financial
          reporting.
  Except
          as
          described above, during the fiscal quarter ended July 1, 2006, there have
          been
          no changes in our internal control over financial reporting that have materially
          affected, or are reasonably likely to materially affect, our internal control
          over financial reporting.
  34
  **PART
        II.**  **OTHER
        INFORMATION**
  **ITEM
        1.****Legal
        Proceedings**
  There
        have been no material developments during the quarterly period ended July
        1,
        2006 in the legal proceedings previously reported in our amended Form 10
        as
        filed with the Securities Exchange Commission on August 10, 2006.
  We
        are
        engaged in various legal actions arising in the ordinary course of our business
        and believe that the ultimate outcome of these actions will not have a material
        adverse effect on our results of operations, liquidity or financial position.
 
 **ITEM
        1A.****Risk
        Factors**
  In
        addition to the other information set forth in this Form 10-Q, you should
        carefully consider the factors discussed under “Risk Factors” in our amended
        Form 10 as filed with the Securities Exchange Commission on August 10, 2006.
        These risks could materially and adversely affect our business, financial
        condition and results of operations. The risks described in our Form 10 are
        not
        the only risks we face. Our operations could also be affected by additional
        factors that are not presently known to us or by factors that we currently
        consider immaterial to our business.
  **Item
        2.**  **Unregistered
        Sales of Equity Securities and Use of Proceeds**
  During
        the quarterly period ended July 1, 2006, we granted stock options to purchase
        an
        aggregate of 11,310,728 units of our limited liability company interests
        (the
“LLC Interests”) to employees and directors under our 2005 Units Plan (the
“Plan”), at an exercise price of $1.00 per unit. Options generally vest over
        four years and have a term of not more than ten years. In addition, during
        the
        quarterly period ended July 1, 2006, we issued and sold an aggregate of 278,058
        LLC Interests to employees and former employees pursuant to exercises of
        options
        for an aggregate purchase price of $278,058. The securities issued in these
        transactions were offered and sold in reliance on an exemption from registration
        under Rule 701 promulgated under the Securities Act. No underwriters or
        placement agents were involved in these transactions.
 
 **ITEM
        3.**  **Defaults
        Upon Senior Securities**
  Not
        applicable.
  **ITEM
        4.****Submission
        of Matters to a Vote of Security Holders**
  On
        June
        28, 2006, we requested and received the written consent of holders representing
        in excess of 50% of the aggregate number of the Company’s then outstanding LLC
        Interests to (1) convert from a Delaware limited liability company to a Delaware
        corporation through the merger of the Company with a wholly owned Delaware
        limited liability company subsidiary of NextWave Wireless Inc., a new
        corporation formed under the laws of the State of Delaware and (2) amend
        the
        Plan to provide an additional 20 million LLC Interests for awards under the
        Plan.
  **ITEM
        5.**  **Other
        Information**
  Not
        Applicable.
  **ITEM
        6.****Exhibits**
  4.1
              Purchase
                  Agreement, dated as of July 17, 2006, among NextWave Wireless LLC,
                  as
                  issuer, NextWave Broadband Inc., NW Spectrum Co., AWS Wireless Inc., and
                  PacketVideo Corporation, as subsidiary guarantors, the note purchasers
                  party thereto and The Bank of New York, as collateral agent.
                  (2)
  35
 
 4.2
                Warrant
                    Agreement, dated as of July 17, 2006, among NextWave Wireless
                    Inc. and the
                    Holders listed on Schedule I thereto. (3)4.3
                Registration
                    Rights Agreement, dated as of July 17, 2006, among NextWave Wireless
                    Inc.
                    and the Purchasers listed on Schedule I thereto. (3)10.1
                Acquisition
                    Agreement, dated as of May 9, 2006, by and among (i) NextWave
                    Wireless
                    LLC, (ii) NW Spectrum Co., (iii) WCS Wireless, Inc., (iv) Columbia
                    WCS
                    III, Inc., (v) TKH Corp., (vi) Columbia Capital Equity Partners
                    III
                    (Cayman), L.P., the sole stockholder of Columbia WCS III, Inc.,
                    (vii) each
                    of the stockholders of TKH Corp., namely, Aspen Partners Series
                    A, Series
                    of Aspen Capital Partners, L.P., Oak Foundation USA, Inc., Enteraspen
                    Limited, and The Reed Institute dba Reed College and (viii) Columbia
                    Capital, LLC, as the Stockholder Representative. (1)10.2
                Guaranty,
                    dated as of July 17, 2006, by and among NextWave Broadband, Inc.,
                    NW
                    Spectrum Co., AWS Wireless Inc., PacketVideo Corporation and
                    The Bank of
                    New York, as Collateral Agent. (3)10.3
                Parent
                    Guaranty, dated as of July 17, 2006, between NextWave Wireless
                    Inc. and
                    The Bank of New York, as Collateral Agent. (3)10.4
                Pledge
                    and Security Agreement, dated as of July 17, 2006, by and among
                    NextWave
                    Wireless LLC, the undersigned direct and indirect subsidiaries
                    of NextWave
                    Wireless LLC, each additional Grantor that may become a party
                    thereto and
                    The Bank of New York, as Collateral Agent. (3)31.1
                Certification
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Allen
                    Salmasi.31.2
                Certification
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for George
                    C. Alex.32.1
                Certification
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002 for Allen
                    Salmasi.32.2
                Certification
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002 for George C.
                    Alex.
 
 (1)
        Filed
        as an exhibit to the Registrant’s Registration of Securities on Form 10 filed on
        July 25, 2006.
 
 (2)
          Filed
          as an exhibit to the Registrant’s Current Report on Form 8-K/A filed on
          September 8, 2006.
  (3)
          Filed as an exhibit to the Registrant's Current
          Report on Form 8-K filed on July 21, 2006.
  36
  **SIGNATURES**
  Pursuant
        to the requirements 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.
  **NEXTWAVE
                    WIRELESS LLC**
                  (Registrant)September
                    8, 2006
                By:
                /s/
                    George C. Alex(Date)
                George
                    C. Alex
                  Executive
                      Vice President and
                    Chief
                        Financial
                        Officer
  37
  Index
        to
        Exhibits
  Exhibit
                    No.
                
                Description4.1
                
                Purchase
                    Agreement, dated as of July 17, 2006, among NextWave Wireless
                    LLC, as
                    issuer, NextWave Broadband Inc., NW Spectrum Co., AWS Wireless
                    Inc., and
                    PacketVideo Corporation, as subsidiary guarantors, the note purchasers
                    party thereto and The Bank of New York, as collateral agent.
                    (2)4.2
                
                Warrant
                    Agreement, dated as of July 17, 2006, among NextWave Wireless
                    Inc. and the
                    Holders listed on Schedule I thereto. (3)4.3
                
                Registration
                    Rights Agreement, dated as of July 17, 2006, among NextWave Wireless
                    Inc.
                    and the Purchasers listed on Schedule I thereto. (3)10.1
                
                Acquisition
                    Agreement, dated as of May 9, 2006, by and among (i) NextWave
                    Wireless
                    LLC, (ii) NW Spectrum Co., (iii) WCS Wireless, Inc., (iv) Columbia
                    WCS
                    III, Inc., (v) TKH Corp., (vi) Columbia Capital Equity Partners
                    III
                    (Cayman), L.P., the sole stockholder of Columbia WCS III, Inc.,
                    (vii) each
                    of the stockholders of TKH Corp., namely, Aspen Partners Series
                    A, Series
                    of Aspen Capital Partners, L.P., Oak Foundation USA, Inc., Enteraspen
                    Limited, and The Reed Institute dba Reed College and (viii) Columbia
                    Capital, LLC, as the Stockholder Representative. (1)10.2
                
                Guaranty,
                    dated as of July 17, 2006, by and among NextWave Broadband, Inc.,
                    NW
                    Spectrum Co., AWS Wireless Inc., PacketVideo Corporation and
                    The Bank of
                    New York, as Collateral Agent. (3)10.3
                
                Parent
                    Guaranty, dated as of July 17, 2006, between NextWave Wireless
                    Inc. and
                    The Bank of New York, as Collateral Agent. (3)10.4
                
                Pledge
                    and Security Agreement, dated as of July 17, 2006, by and among
                    NextWave
                    Wireless LLC, the undersigned direct and indirect subsidiaries
                    of NextWave
                    Wireless LLC, each additional Grantor that may become a party
                    thereto and
                    The Bank of New York, as Collateral Agent. (3)31.1
                
                Certification
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Allen
                    Salmasi.31.2
                
                Certification
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for George
                    C. Alex.32.1
                
                Certification
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002 for Allen
                    Salmasi.32.2
                
                Certification
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002 for George C.
                    Alex.
  
 (1)
        Filed
        as an exhibit to the Registrant’s Registration of Securities on Form 10 filed on
        July 25, 2006.
 
 (2)
          Filed
          as an exhibit to the Registrant’s Current Report on Form 8-K/A filed on
          September 8, 2006.
  (3)
          Filed as an exhibit to the Registrant's Current
          Report on Form 8-K filed on July 21, 2006.
  38