UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended March 31, 2007
|
|
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 INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-5361360
|
(State
or other jurisdiction of
|
|
(IRS
Employer
|
incorporation
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)
|
(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 ý No o
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 filer o
|
|
Accelerated
filer o
|
|
Non-accelerated
filer ý
|
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
As
of May
4, 2007, there were 84,470,000 shares of the Registrant’s Common Stock
outstanding.
TABLE
OF CONTENTS
|
Pages
|
|
|
PART
I. Financial Information
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
2 |
|
|
|
|
Consolidated
Balance Sheets
|
2 |
|
|
|
|
Consolidated
Statements of Operations
|
3 |
|
|
|
|
Consolidated
Statement of Redeemable Convertible Preferred Stock and Stockholders’
Equity
|
4 |
|
|
|
|
Consolidated
Statements of Cash Flows
|
5 |
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
6 |
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18 |
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
27 |
|
|
|
Item
4.
|
Controls
and Procedures
|
27 |
|
|
|
PART
II. Other Information
|
|
|
|
Item
1.
|
Legal
Proceedings
|
29 |
|
|
|
Item
1A.
|
Risk
Factors
|
29 |
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
29 |
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
31 |
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
31 |
|
|
|
Item
5.
|
Other
Information
|
31 |
|
|
|
Item
6.
|
Exhibits
|
31 |
|
|
|
Signatures |
|
32 |
|
|
|
Index
to
Exhibits |
33 |
PART
I.
FINANCIAL
INFORMATION
ITEM
1. Financial
Statements
NEXTWAVE
WIRELESS INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except par value data)
|
|
March
31,
2007
|
|
December
30,
2006
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
72,946
|
|
$
|
32,980
|
|
Short-term
investments
|
|
|
380,952
|
|
|
167,705
|
|
Accounts
receivable, net of allowance for doubtful accounts of $141 and
$321,
respectively
|
|
|
5,697
|
|
|
5,056
|
|
Deferred
contract costs
|
|
|
2,662
|
|
|
2,397
|
|
Prepaid
expenses and other current assets
|
|
|
13,973
|
|
|
7,837
|
|
Total
current assets
|
|
|
476,230
|
|
|
215,975
|
|
Restricted
cash
|
|
|
75,000
|
|
|
75,000
|
|
Wireless
spectrum licenses, net
|
|
|
567,303
|
|
|
527,998
|
|
Goodwill
|
|
|
62,601
|
|
|
32,184
|
|
Other
intangible assets, net
|
|
|
25,111
|
|
|
18,570
|
|
Property
and equipment, net
|
|
|
18,388
|
|
|
17,529
|
|
Other
noncurrent assets
|
|
|
8,552
|
|
|
9,823
|
|
Total
assets
|
|
$
|
1,233,185
|
|
$
|
897,079
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,320
|
|
$
|
1,630
|
|
Accrued
expenses
|
|
|
43,605
|
|
|
33,537
|
|
Current
portion of long-term obligations
|
|
|
5,945
|
|
|
3,065
|
|
Deferred
revenue
|
|
|
11,381
|
|
|
10,253
|
|
Other
current liabilities and deferred credits
|
|
|
1,160
|
|
|
1,240
|
|
Total
current liabilities
|
|
|
64,411
|
|
|
49,725
|
|
Deferred
income tax liabilities
|
|
|
83,362
|
|
|
75,774
|
|
Long-term
deferred credits and reserves
|
|
|
5,374
|
|
|
3,324
|
|
Long-term
obligations, net of current portion
|
|
|
306,684
|
|
|
298,030
|
|
Total
liabilities
|
|
|
459,831
|
|
|
426,853
|
|
Minority
interest in subsidiary
|
|
|
139
|
|
|
1,048
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Redeemable
Series A Senior Convertible Preferred Stock, $0.001 par value;
355 shares
authorized; 355 shares issued and outstanding, liquidation preference
of
$355,222 at March 31, 2007
|
|
|
351,370
|
|
|
—
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 25,000 shares authorized; 355 shares designated
as Series A Senior Convertible Preferred Stock; no other shares
issued or
outstanding
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.001 par value; 400,000 shares authorized; 84,471 and
84,470
issued and outstanding, respectively, at March 31, 2007 and 83,716
and
83,715 issued and outstanding, respectively, at December 30,
2006
|
|
|
84
|
|
|
84
|
|
Additional
paid-in-capital
|
|
|
622,336
|
|
|
620,430
|
|
Common
stock in treasury, at cost, 1 share
|
|
|
(10
|
)
|
|
(7
|
)
|
Accumulated
other comprehensive loss
|
|
|
(198
|
)
|
|
(357
|
)
|
Accumulated
deficit
|
|
|
(200,367
|
)
|
|
(150,972
|
)
|
Total
stockholders’ equity
|
|
|
421,845
|
|
|
469,178
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
1,233,185
|
|
$
|
897,079
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEXTWAVE
WIRELESS INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data) (unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Revenues
|
|
$
|
7,746
|
|
$
|
3,905
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
3,665
|
|
|
1,807
|
|
Engineering,
research and development
|
|
|
23,047
|
|
|
11,089
|
|
General
and administrative
|
|
|
17,567
|
|
|
8,492
|
|
Sales
and marketing
|
|
|
3,673
|
|
|
1,613
|
|
Purchased
in-process research and development costs
|
|
|
860
|
|
|
—
|
|
Total
operating expenses
|
|
|
48,812
|
|
|
23,001
|
|
Loss
from operations
|
|
|
(41,066
|
)
|
|
(19,096
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,073
|
|
|
3,187
|
|
Interest
expense
|
|
|
(11,139
|
)
|
|
(308
|
)
|
Other
income and expense, net
|
|
|
4
|
|
|
(92
|
)
|
Total
other income (expense), net
|
|
|
(9,062
|
)
|
|
2,787
|
|
Loss
before provision for income taxes and minority interest
|
|
|
(50,128
|
)
|
|
(16,309
|
)
|
Income
tax benefit (provision)
|
|
|
(177
|
)
|
|
209
|
|
Minority
interest
|
|
|
910
|
|
|
657
|
|
Net
loss
|
|
|
(49,395
|
)
|
|
(15,443
|
)
|
Less:
Preferred stock dividends
|
|
|
(222
|
)
|
|
—
|
|
Accretion
of issuance costs on preferred stock
|
|
|
(2
|
)
|
|
—
|
|
Net
loss applicable to common shares
|
|
$
|
(49,619
|
)
|
$
|
(15,443
|
)
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.59
|
)
|
$
|
(0.19
|
)
|
Weighted
average shares used in per share calculation
|
|
|
83,996
|
|
|
81,611
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEXTWAVE
WIRELESS INC.
CONSOLIDATED
STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
(in
thousands)
(unaudited)
|
|
Redeemable Series
A Senior Convertible Preferred Stock
|
|
Common
Stock
|
|
Additional Paid-In
|
|
Treasury
Stock
|
|
Accumulated
Other Compre-hensive
|
|
|
Accumulated
|
|
|
Stockholders’ |
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
|
|
Capital
|
|
Shares
|
|
|
Amount
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 30, 2006
|
|
|
—
|
|
$
|
—
|
|
|
83,716
|
|
$
|
84
|
|
$
|
620,430
|
|
|
(1
|
)
|
|
$
|
(7
|
)
|
$
|
(357
|
)
|
|
$
|
(150,972
|
)
|
|
$
|
469,178
|
|
Shares
issued for stock options and warrants exercised, net of
repurchases
|
|
|
—
|
|
|
—
|
|
|
754
|
|
|
—
|
|
|
479
|
|
|
—
|
|
|
|
(3
|
)
|
|
—
|
|
|
|
—
|
|
|
|
476
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,651
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
1,651
|
|
Issuance
of redeemable Series A Senior Convertible Preferred Stock at $1.00
per
share for cash in March 2007, net of issuance costs of
$3,854
|
|
|
355
|
|
|
351,146
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Imputed
dividends on Series A Senior Convertible Preferred Stock
|
|
|
—
|
|
|
222
|
|
|
—
|
|
|
—
|
|
|
(222
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(222
|
)
|
Accretion
of issuance costs on Series A Senior Convertible Preferred
Stock
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
Unrealized
net gains on investments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
159
|
|
|
|
—
|
|
|
|
159
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
(49,395
|
)
|
|
|
(49,395
|
)
|
Balance
at March 31, 2007
|
|
|
355
|
|
$
|
351,370
|
|
|
84,470
|
|
$
|
84
|
|
$
|
622,336
|
|
|
(1
|
)
|
|
$
|
(10
|
)
|
$
|
(198
|
)
|
|
$
|
(200,367
|
)
|
|
$
|
421,845
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEXTWAVE
WIRELESS INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands) (unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
April
1,
2006
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(49,395
|
)
|
$
|
(15,443
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,118
|
|
|
1,092
|
|
Amortization
of intangible assets
|
|
|
2,395
|
|
|
1,184
|
|
Non-cash
share-based compensation
|
|
|
1,651
|
|
|
506
|
|
In-process
research and development
|
|
|
860
|
|
|
—
|
|
Accretion
of interest expense
|
|
|
4,977
|
|
|
288
|
|
Minority
interest
|
|
|
(910
|
)
|
|
(657
|
)
|
Other
non-cash adjustments
|
|
|
109
|
|
|
1,412
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
204
|
|
|
1,537
|
|
Deferred
contract costs
|
|
|
(265
|
)
|
|
(578
|
)
|
Prepaid
expenses and other current assets
|
|
|
465
|
|
|
(305
|
)
|
Other
assets
|
|
|
981
|
|
|
350
|
|
Accounts
payable and accrued liabilities
|
|
|
(2,047
|
)
|
|
2,563
|
|
Deferred
revenue
|
|
|
3,301
|
|
|
1,684
|
|
Other
current liabilities and deferred credits
|
|
|
(101
|
)
|
|
(171
|
)
|
Net
cash used in operating activities
|
|
|
(35,657
|
)
|
|
(6,538
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
—
|
|
|
117,987
|
|
Proceeds
from the sale of available-for-sale securities
|
|
|
229,732
|
|
|
63,535
|
|
Purchases
of available-for-sale securities
|
|
|
(442,820
|
)
|
|
(82,816
|
)
|
Payments
for wireless spectrum licenses
|
|
|
(28,208
|
)
|
|
(78,077
|
)
|
Cash
paid for business combinations, net of cash acquired
|
|
|
(30,240
|
)
|
|
(53
|
)
|
Purchase
of property and equipment
|
|
|
(1,814
|
)
|
|
(5,595
|
)
|
Other,
net
|
|
|
(39
|
)
|
|
(1,788
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(273,389
|
)
|
|
13,193
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from the sale of Series A Senior Convertible Preferred Stock, net
of costs
to issue
|
|
|
351,146
|
|
|
—
|
|
Payments
on long-term obligations
|
|
|
(2,610
|
)
|
|
(2,013
|
)
|
Proceeds
from the sale of common equity interests
|
|
|
476
|
|
|
34
|
|
Proceeds
from investment by joint venture partner
|
|
|
—
|
|
|
1,546
|
|
Net
cash provided by (used in) financing activities
|
|
|
349,012
|
|
|
(433
|
)
|
Net
increase in cash and cash equivalents
|
|
|
39,966
|
|
|
6,222
|
|
Cash
and cash equivalents, beginning of period
|
|
|
32,980
|
|
|
93,649
|
|
Cash
and cash equivalents, end of period
|
|
$
|
72,946
|
|
$
|
99,871
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEXTWAVE
WIRELESS INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis
of Presentation
Financial
Statement Preparation
The
unaudited consolidated financial statements have been prepared by NextWave
Wireless Inc. (“Nextwave”) according to the rules and regulations of the 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 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 consolidated financial statements
should be read in conjunction with the audited financial statements for the
year
ended December 30, 2006, included in NextWave’s Annual Report on Form 10-K filed
with the United States Securities and Exchange Commission on March 30,
2007.
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.
Change
in Fiscal Year End
NextWave
operates on 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 2007 will be a 52-week year ending on December
29, 2007 and the first 53-week year will occur in 2009. The three month periods
ended March 31, 2007 and April 1, 2006 include 13 weeks each.
Accumulated
Other Comprehensive Loss
Accumulated
other comprehensive loss totaled $49.2 million and $15.6 million for the three
months ended March 31, 2007 and April 1, 2006, respectively, and includes
unrealized gains and losses that are excluded from the consolidated statement
of
operations and reported as a separate component in stockholders’ equity. These
unrealized gains and losses represent those on marketable securities that are
classified as available-for-sale, and totaled $0.2 million in unrealized net
gains and $0.2 million in unrealized net losses for the three months ended
March
31, 2007 and April 1, 2006, respectively.
Net
Loss Per Common Share
Basic
net
loss per common share for the three months ended March 31, 2007 is computed
by
dividing net loss applicable to common shares for the period by the weighted
average number of common shares outstanding during the period. Basic net loss
per common share for the three months ended April 1, 2006 is computed by
dividing net loss applicable to common shares for the period by the weighted
average number of membership units outstanding during the period, on a converted
basis as if NextWave’s Corporate Conversion Merger occurred on January 1, 2006.
Diluted loss per share assumes that outstanding common shares were increased
by
shares issuable upon exercise of stock options and warrants for which market
price exceeds the exercise price, less shares which could have been purchased
by
NextWave with the related proceeds, unless antidilutive. Diluted loss per share
also considers the impact of the conversion of the redeemable Series A Senior
Convertible Preferred Stock, unless antidilutive. Contingently issuable stock,
such as restricted stock or merger consideration, is also included in the
diluted loss per share calculations, unless antidilutive. For the three months
ended March 31, 2007 and April 1, 2006, diluted loss per common share is
computed on the same basis as basic loss per common share as the inclusion
of
potential shares outstanding would be antidilutive.
Following
are securities that could potentially dilute earnings per share in the future
that are not included in the determination of diluted loss per share as they
are
antidilutive. The share amounts are determined using a weighted average of
the
shares outstanding during the respective periods and assume that March 31,
2007
was the end of the contingency period for any contingently issuable shares
in
accordance with SFAS 128, “Earnings per Share.”
|
|
Three
Months Ended
|
|
(in
thousands)
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Outstanding
stock options
|
|
|
12,702
|
|
|
7,272
|
|
Common
stock warrants
|
|
|
2,693
|
|
|
500
|
|
Contingently
issuable shares under advisory contract
|
|
|
833
|
|
|
833
|
|
Restricted
stock
|
|
|
220
|
|
|
52
|
|
Contingent
merger consideration for GO Networks, Inc., and related contingent
stock
bonus plan shares
|
|
|
1,218
|
|
|
—
|
|
Series
A Senior Convertible Preferred Stock
|
|
|
1,412
|
|
|
—
|
|
Redeemable
Series A Senior Convertible Preferred Stock
Costs
incurred to issue the Series A Preferred Stock are deferred and recorded as
a
reduction to the reported balance of the preferred stock in the consolidated
balance sheet. The costs are accreted using the effective interest method over
the period from the date of issuance through March 28, 2017, the stated
redemption date. In accordance with Emerging Issues Task Force D-98, the
resulting increases from the accretion of the issue costs and accrued dividends
on the preferred stock are effected by charges against retained earnings or,
in
the absence of retained earnings, by charges against paid-in capital. These
increases reduce income applicable to common stockholders in the calculation
of
loss per common share.
Recent
Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (“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. 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. Adoption of this
interpretation did not have a material impact on NextWave’s financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions market participants
would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
Under the standard, fair value measurements would be separately disclosed by
level within the fair value hierarchy. SFAS 157 is effective for NextWave’s
fiscal year that begins on December 30, 2007, with early adoption permitted.
NextWave’s management is in the process of evaluating the impact of the adoption
of SFAS No. 157.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure certain financial assets and liabilities and
other
eligible items at fair value, which are not otherwise currently required to
be
measured at fair value. Under SFAS 159, the decision to measure items at fair
value is made at specified election dates on an irrevocable
instrument-by-instrument basis. Entities electing the fair value option would
be
required to recognize changes in fair value in earnings and to expense upfront
cost and fees associated with the item for which the fair value option is
elected. Entities electing the fair value option are required to distinguish
on
the face of the statement of financial position, the fair value of assets and
liabilities for which the fair value option has been elected and similar assets
and liabilities measured using another measurement attribute. If elected, SFAS
159 is effective for NextWave’s fiscal year that begins on December 30, 2007,
with earlier adoption permitted provided that the entity also early adopts
all
of the requirements of SFAS 159. NextWave’s management is currently evaluating
whether or not to elect the option provided for in this standard.
2. Composition
of Certain Financial Statement Items
Short-Term
Investments and Restricted Cash
Short-term
investments and restricted cash consist of the following:
(in
thousands)
|
|
March
31,
2007
|
|
December
30,
2006
|
|
Municipal
securities
|
|
$
|
361,518
|
|
$
|
177,436
|
|
Commercial
paper
|
|
|
40,882
|
|
|
—
|
|
U.S.
Treasury and Agency obligations
|
|
|
35,272
|
|
|
39,051
|
|
Corporate
notes
|
|
|
15,250
|
|
|
25,694
|
|
Money
market funds
|
|
|
3,030
|
|
|
500
|
|
Cash
|
|
|
—
|
|
|
24
|
|
Total
portfolio
|
|
|
455,952
|
|
|
242,705
|
|
Less
restricted portion
|
|
|
(75,000
|
)
|
|
(75,000
|
)
|
Total
unrestricted short-term investments
|
|
$
|
380,952
|
|
$
|
167,705
|
|
Wireless
Licenses, Goodwill and Other Intangible Assets
Intangible
assets consist of the following:
|
|
March
31, 2007
|
|
December
30, 2006
|
|
(dollars
in thousands)
|
|
Weighted
Average Life
(in
Years)
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Weighted
Average Life
(in
Years)
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
wireless spectrum licenses
|
|
|
16.3
|
|
$
|
89,251
|
|
$
|
5,786
|
|
|
14.1
|
|
$
|
82,385
|
|
$
|
4,438
|
|
Purchased
technology
|
|
|
7.0
|
|
|
15,264
|
|
|
2,365
|
|
|
7.0
|
|
|
9,614
|
|
|
1,821
|
|
Purchased
customer base
|
|
|
7.7
|
|
|
7,000
|
|
|
1,274
|
|
|
8.0
|
|
|
5,960
|
|
|
1,044
|
|
Non-compete
agreements
|
|
|
3.9
|
|
|
2,900
|
|
|
1,370
|
|
|
4.0
|
|
|
2,800
|
|
|
1,193
|
|
Other
|
|
|
8.3
|
|
|
2,902
|
|
|
346
|
|
|
7.4
|
|
|
2,002
|
|
|
252
|
|
|
|
|
|
|
$
|
117,317
|
|
$
|
11,141
|
|
|
|
|
$
|
102,761
|
|
$
|
8,748
|
|
Intangible
assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless
spectrum licenses
|
|
|
|
|
$
|
483,838
|
|
|
|
|
|
|
|
$
|
450,051
|
|
|
|
|
Goodwill
|
|
|
|
|
|
62,601
|
|
|
|
|
|
|
|
|
32,184
|
|
|
|
|
Purchased
tradenames and trademarks
|
|
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
2,504
|
|
|
|
|
|
|
|
|
|
$
|
548,839
|
|
|
|
|
|
|
|
$
|
484,739
|
|
|
|
|
In
March
2007, NextWave acquired all of the outstanding shares of common stock of 4253311
Canada Inc., a Canadian company, which resulted in the addition of $33.8 million
of wireless spectrum licenses not subject to amortization. The assets of the
company are comprised almost entirely of wireless spectrum. The acquisition
of
4253311 Canada Inc. was accounted for as an acquisition of assets rather than
as
an acquisition of a business based on guidance under EITF 98-3, “Determining
Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or
of a
Business.” The value assigned to the wireless spectrum includes the cash
purchase price of $26.0 million, closing costs of $0.2 million, and $7.6 million
in associated deferred tax liabilities as determined in accordance with EITF
98-11, “Accounting for Acquired Temporary Differences in Certain Purchase
Transactions That Are Not Accounted for as Business Combinations,” (“EITF
98-11”). During the three months ended March 31, 2007, NextWave acquired other
licensed spectrum rights for $2.7 million in cash and $4.2 million through
the
assumption of lease liabilities.
The
$30.4
million increase in goodwill in the consolidated balance sheets from December
30, 2006 to March 31, 2007, resulted from $31.2 million from current year
business acquisitions, reduced by $0.8 million for reductions to accrued
liabilities related to 2005 and 2006 acquisitions.
The
estimated aggregate amortization expense for amortized intangible assets owned
as of March 31, 2007, is expected to be $7.5 million during the remainder of
2007 and $10.3 million, $9.8 million, $9.6 million, $9.4 million and $59.6
million during fiscal years 2008, 2009, 2010, 2011 and thereafter,
respectively.
Property
and Equipment
Property
and equipment, net, consists of the following:
(in
thousands)
|
|
March
31,
2007
|
|
December
30,
2006
|
|
Furniture
and equipment
|
|
$
|
15,611
|
|
$
|
13,626
|
|
Purchased
software
|
|
|
7,724
|
|
|
7,296
|
|
Leasehold
improvements
|
|
|
2,439
|
|
|
2,358
|
|
Construction
in progress
|
|
|
1,328
|
|
|
846
|
|
|
|
|
27,102
|
|
|
24,126
|
|
Less:
Accumulated depreciation
|
|
|
(8,714
|
)
|
|
(6,597
|
)
|
Total
property and equipment, net
|
|
$
|
18,388
|
|
$
|
17,529
|
|
Accrued
Expenses
Accrued
expenses consist of the following:
(in
thousands)
|
|
March
31,
2007
|
|
December
30,
2006
|
|
Accrued
business acquisition related payables
|
|
$
|
15,616
|
|
$
|
1,251
|
|
Accrued
payroll and related expenses
|
|
|
11,130
|
|
|
9,417
|
|
Accrued
expenses
|
|
|
5,538
|
|
|
4,870
|
|
Accrued
interest
|
|
|
5,172
|
|
|
11,178
|
|
Accrued
professional fees
|
|
|
3,754
|
|
|
3,746
|
|
Accrued
equity distributions payable
|
|
|
2,034
|
|
|
2,034
|
|
Other
|
|
|
361
|
|
|
1,041
|
|
Total
accrued liabilities
|
|
$
|
43,605
|
|
$
|
33,537
|
|
3. Business
Combinations
Acquisition
of GO Networks
In
February 2007, NextWave acquired all of the outstanding common stock and
warrants of GO Networks, Inc., a privately-held company headquartered in
Mountain View, CA with research and development facilities in Tel Aviv, Israel.
GO Networks develops advanced mobile Wi-Fi network solutions for service
providers. The primary reason for the acquisition is to complement NextWave’s
WiMAX product line with wide-area and local-area wireless broadband services
using stand-alone or integrated Wi-Fi/WiMAX solutions that utilize both licensed
and license-exempt spectrum.
The
total
cost of the acquisition of $16.7 million includes cash paid for the common
stock
and warrants of $13.2 million, interim funding of $1.9 million, closing costs
of
$0.7 million, the assumption of $1.3 million in debt which was paid at closing,
less cash acquired of $0.4 million. 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 in accordance with SFAS No. 141 as follows:
(in
thousands)
|
|
|
|
Prepaid
and other current assets
|
|
$
|
693
|
|
Property
and equipment
|
|
|
1,109
|
|
Other
noncurrent assets
|
|
|
26
|
|
Goodwill
|
|
|
22,026
|
|
Accounts
payable and accrued liabilities
|
|
|
(2,028
|
)
|
Long-term
obligations
|
|
|
(5,111
|
)
|
Total
acquisition cost
|
|
$
|
16,715
|
|
The
excess of the purchase price over the acquired net tangible assets of $22.0
million has been preliminarily allocated to goodwill in the consolidated balance
sheet and is expected to be allocated between goodwill and identifiable
intangible assets during the second quarter of 2007 once NextWave has completed
a purchased intangible asset valuation. The related impact from value assigned
to in-process research and development costs or to amortization expense, if
any,
will be adjusted on a prospective basis.
The
results of GO Networks’ operations have been included in the accompanying
consolidated financial statements from the date of acquisition.
Additional
purchase consideration of up to $25.6 million and $0.1 million may be paid
in
shares of NextWave common stock and cash, respectively, subject to the
achievement of specified operational milestones in February and August 2008,
which include customer acceptance of certain product units and the continued
employment of key employees. In accordance with SFAS No. 141, “Business
Combinations,” the contingent consideration, if any, paid to non-employee
stockholders and to employee stockholders whose consideration is not contingent
upon continuing employment will be recorded as additional purchase price when
the contingency is resolved and the consideration is determinable and becomes
issuable. In accordance with EITF 95-8, “Accounting for Contingent Consideration
Paid to the Shareholders of an Acquired Enterprise in a Purchase Business
Combination,” contingent consideration, if any, paid to employee stockholders
that is contingent upon continuing employment will be expensed over any
remaining earnout period as compensation when the payment becomes probable.
The
probability of achievement of the performance conditions will be reassessed
at
each reporting date.
NextWave
also adopted the GO Networks Employee Stock Bonus Plan, whereby a select group
of employees may receive up to an aggregate of $5.0 million in shares of
NextWave common stock, valued at the time of issuance, upon the achievement
of
specified operational milestones in February and August 2008, which include
customer acceptance of certain product units and the continued employment of
the
employee in addition to key employees. In accordance with SFAS 123(R),
“Share-Based Payment,” the fair value of the stock bonuses will be determined on
the date of grant and amortized to compensation expense over the estimated
service period once the achievement of the milestones becomes probable. The
probability of achievement of the performance conditions will be reassessed
at
each reporting date.
Pro
Forma Results
The
following unaudited pro forma information assumes that the acquisition of GO
Networks occurred on December 31, 2006 and January 1, 2006, respectively. These
unaudited pro forma results have been prepared for comparative purposes only
and
do not purport to be indicative of the results of operations that would have
actually resulted had the acquisition occurred on these dates, or of future
results of operations. The unaudited pro forma results for the three months
ended March 31, 2007 and April 1, 2006, are as follows:
|
|
Three
Months Ended
|
|
(in
thousands)(unaudited)
|
|
March
31,
2007
|
|
|
April
1,
2006
|
|
Revenues
|
|
$
|
7,746
|
|
|
$
|
3,905
|
|
Net
loss
|
|
|
(51,153
|
)
|
|
|
(18,376
|
)
|
Net
loss applicable to common shares
|
|
|
(51,377
|
)
|
|
|
(18,376
|
)
|
Net
loss per common shares - basic and diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.23
|
)
|
The
pro
forma amounts above include interest expense on debt assumed that is calculated
using NextWave’s effective borrowing rate at the date of
acquisition.
Acquisition
of SDC Secure Digital Container
In
January 2007, NextWave, through its wholly-owned subsidiary, PacketVideo
Corporation, acquired all of the shares of SDC Secure Digital Container AG,
a
privately held company headquartered in Basel, Switzerland that develops Java
music clients for mobile phones. The primary reason for the acquisition is
to
complement PacketVideo's software for native operating systems, such as Symbian
and Linux, with a solution that can address the large number of handsets that
support Java applications, expanding the number of mobile operators and music
services supported by PacketVideo. The total cost of the acquisition of $17.9
million includes cash paid for the registered voting shares of $19.0 million,
closing costs of $0.2 million, less cash acquired of $1.3 million. Under the
purchase method of accounting, the total purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition in accordance with SFAS No. 141 as follows:
(in
thousands)
|
|
|
|
Accounts
receivable
|
|
$
|
665
|
|
Prepaid
and other current assets
|
|
|
212
|
|
Property
and equipment
|
|
|
56
|
|
Intangible
assets
|
|
|
8,410
|
|
Goodwill
|
|
|
9,213
|
|
Accounts
payable and accrued liabilities
|
|
|
(612
|
)
|
Deferred
revenue
|
|
|
(90
|
)
|
Total
acquisition cost
|
|
$
|
17,854
|
|
The
purchase price allocation included values assigned to certain specific
identifiable intangible assets aggregating $8.4 million. The fair value assigned
to purchased technology was determined by estimating the future discounted
cash
flows to be derived from the currently existing technologies. The fair value
assigned to the purchased customer base existing on the acquisition date was
determined using the income approach, using the excess earnings methodology
based upon estimated future discounted cash flows attributable to the sale
of
future technology to those customers. The fair value of the in-process research
and development was determined using the income approach, using the excess
earnings methodology, based upon estimated future discounted cash flows from
the
in-process technology. The purchased trade names and trademarks were valued
using the income approach using the relief from royalty method, which assumes
value to the extent that SDC is relieved of the obligation to pay royalties
for
the benefits received from them. The non-compete agreements were valued using
the with-and-without method, based on the present value of cash flows associated
with the savings due to having the agreements in place. A value of $9.2 million,
representing the difference between the total purchase price and the aggregate
fair values assigned to the net tangible assets acquired and liabilities assumed
and the identifiable intangible assets acquired, was assigned to goodwill.
The
amount allocated to intangible assets and their respective amortizable lives
is
attributed to the following categories:
(dollars
in thousands)
|
|
Life
(in
Years)
|
|
Amount
|
|
Purchased
technology
|
|
|
7
|
|
$
|
5,650
|
|
Purchased
customer base
|
|
|
6
|
|
|
1,040
|
|
In-process
research and development
|
|
|
—
|
|
|
860
|
|
Purchased
trade names and trademarks
|
|
|
10
|
|
|
760
|
|
Non-compete
agreements
|
|
|
2
|
|
|
100
|
|
|
|
|
|
|
$
|
8,410
|
|
Purchased
in-process research and development costs relate to development projects which
had not yet reached technological feasibility and had no alternative future
uses
at the date of acquisition. These costs were expensed in the consolidated
statement of operations at the date of acquisition. An experienced technological
employee base and operations in a specialized niche in the wireless industry
were among the factors that contributed to a purchase price resulting in the
recognition of goodwill.
The
results of SDC’s operations have been included in the accompanying consolidated
financial statements from the date of acquisition.
4. Related
Party Transactions
On
March 28, 2007, NextWave issued and sold 355,000 shares of its Series A Senior
Convertible Preferred Stock at a price of $1,000 per share. In addition to
other
investment funds and institutional investors, 14%, 14% and 28% of the Series
A
Senior Convertible Preferred Stock was sold respectively to Navation, Inc.,
an
entity owned by Allen Salmasi, NextWave’s Chairman and Chief Executive Officer,
Manchester Financial Group, L.P., an entity indirectly owned and controlled
by
Douglas F. Manchester, a member of NextWave’s Board of Directors, and affiliates
of Avenue Capital, of which a member of NextWave’s Board of Directors, Robert
Symington, is a portfolio manager. Kevin Finn, NextWave’s Chief Compliance
Officer, also purchased less than 1% of the Series A Senior Convertible
Preferred Stock.
5. Long-Term
Obligations
Long-term
obligations consist of the following:
(dollars
in thousands)
|
|
March
31,
2007
|
|
December
30,
2006
|
|
7%
Senior Secured Notes, $350,000 due 2010, net of unamortized discount
and
fair value of warrants of $64,951 and $69,325 at March 31, 2007
and
December 30, 2006, respectively, interest payable semiannually
in January
and July each year, secured by $544,497 in FCC licenses and spectrum
leases and $75,000 in restricted cash
|
|
$
|
285,049
|
|
$
|
280,675
|
|
Wireless
spectrum leases, weighted average imputed interest rates of 9.4%
and
8.43%, respectively, scheduled maturities ranging from 2011 through
2021,
net of unamortized discounts of $15,360 and $9,758, respectively,
with
three to five renewal options ranging from 10 to 15 years each,
secured by
$45,104 in wireless spectrum licenses
|
|
|
22,311
|
|
|
20,091
|
|
9.08%
note, due June 1, 2009, principal and interest of $214 payable
monthly,
net of unamortized discount of $257, secured by $25.2 million in
assets
held by GO Networks
|
|
|
4,936
|
|
|
—
|
|
Other
|
|
|
333
|
|
|
329
|
|
Total
long-term obligations
|
|
|
312,629
|
|
|
301,095
|
|
Less
current portion
|
|
|
(5,945
|
)
|
|
(3,065
|
)
|
Long-term
portion
|
|
$
|
306,684 |
|
$
|
298,030 |
|
Payments
due on these obligations during each of the five years subsequent to March
31,
2007 are as follows:
(in
thousands)
|
|
|
|
Fiscal
Years:
|
|
|
|
2007
(remaining nine months)
|
|
$
|
2,104
|
|
2008
|
|
|
6,104
|
|
2009
|
|
|
5,026
|
|
2010
|
|
|
353,330
|
|
2011
|
|
|
3,114
|
|
Thereafter
|
|
|
23,519
|
|
|
|
|
393,197
|
|
Less
unamortized discount
|
|
|
(80,568
|
)
|
Less
current portion
|
|
|
(5,945
|
)
|
Total
long-term obligations
|
|
$
|
306,684
|
|
In
connection with the issuance of the 7% Senior Secured Notes, NextWave issued
warrants to the purchasers of the Notes to purchase common stock at an exercise
price of $0.01 per share. During the three months ended March 31, 2007, warrants
to purchase 670,000 shares of common stock were exercised and at March 31,
2007,
1.9 million shares of common stock remained subject to issuance upon exercise
of
outstanding and exercisable warrants.
6. Income
Taxes
The
provision for income taxes during interim quarterly reporting periods is based
on NextWave’s estimate of the annual effective tax rate for the full fiscal
year. NextWave determines the annual effective tax rate based upon its estimated
ordinary loss, which is its annual loss from continuing operations before tax,
excluding unusual or infrequently occurring items. Significant judgment by
NextWave’s management is required in projecting NextWave’s annual loss and
determining its annual effective tax rate. NextWave provides for income taxes
in
each of the jurisdictions in which it operates. This process involves estimating
the actual current tax expense and any deferred income tax expense resulting
from temporary differences arising from differing treatments of items for tax
and accounting purposes. These temporary differences result in deferred tax
assets and liabilities. Deferred tax assets are also established for the
expected future tax benefits to be derived from net operating loss and tax
credit carryforwards.
NextWave
must then assess the likelihood that its deferred tax assets will be recovered
from future taxable income. To the extent that NextWave believes it is more
likely than not that its deferred tax assets will not be recovered, it must
establish a valuation allowance. NextWave considers all available evidence,
both
positive and negative, to determine the need for a valuation allowance,
including its historical operating losses. NextWave has recorded a full
valuation allowance on its net deferred tax asset balances for all periods
presented because of uncertainties related to utilization of the deferred tax
assets. Deferred tax liabilities associated with certain wireless licenses
held
in the U.S. and Canada cannot be considered a source of taxable income to
support the realization of deferred tax assets, because these deferred tax
liabilities will not reverse until some indefinite future period. The deferred
tax liability and the related assigned value of certain wireless license assets
were determined in accordance with EITF 98-11.
For
the
three months ended March 31, 2007, NextWave’s effective tax rate was 0.35%.
NextWave recorded a provision for income taxes of $0.2 million for the three
months ended March 31, 2007.
NextWave
adopted Financial Interpretation Number 48, “Accounting for Uncertainty in
Income Taxes,” (“FIN 48”) on December 31, 2006. The adoption of FIN 48 did not
have an effect on NextWave’s effective income tax rate for the three months
ended March 31, 2007.
At
December 31, 2006, NextWave did not have any unrecognized tax benefits or
related accrued interest or penalties and no cumulative effect adjustment to
retained earnings was recorded as a result of adopting FIN 48. Should any
unrecognized benefits arise in future, NextWave will determine its policy for
recording interest and penalties on such unrecognized tax benefits at that
time.
NextWave
did not generate any unrecognized tax benefits during the three months ended
March 31, 2007, and does not believe any material adjustments will be made
related to unrecognized tax benefits for the remainder of 2007 or within the
next twelve months.
At
March
31, 2007, NextWave is not subject to any income tax examinations by U.S.
federal, state, local, or foreign tax authorities for any current or prior
reporting periods.
7. Commitments
and Contingencies
Wireless
Licenses
During
the three months ended March 31, 2006, NextWave paid a $5.8 million deposit
to
the Swiss Confederated Communications Commission to qualify its majority-owned
joint venture for the auction of spectrum in Switzerland. In February 2007,
the
joint venture was declared the winning bidder for an aggregate bid of $4.7
million and received final concession granting the licenses in May 2007.
NextWave expects to receive a refund for the difference between the deposit
and
the final bid in the second quarter of 2007. NextWave has also entered into
a
definitive agreement, contingent on approval of license transfer from the FCC,
to lease spectrum with annual payments of $0.1 million from 2007 to 2036,
aggregating $6.1 million.
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. Estimated future minimum payments due under the terms of these
agreements, which expire on various dates through 2011, at March 31, 2007,
are
as follows:
(in
thousands)
|
|
|
|
Fiscal
Years:
|
|
|
|
2007
(remaining nine months)
|
|
$
|
3,871
|
|
2008
|
|
|
4,884
|
|
2009
|
|
|
2,190
|
|
2010
|
|
|
2,700
|
|
2011
|
|
|
4,361
|
|
Total
|
|
$
|
18,006
|
|
Capital
Expenditures
In
order
to consolidate current operations from two leased facilities into one building,
NextWave entered into purchase agreement in 2005 to acquire a build-to-suit
office building in Henderson, Nevada for $6.9 million, which subsequently closed
in May 2007. A separate agreement was entered into in March 2007 for the
construction of the interior improvements in the amount of $2.6 million.
Interior construction is expected to be completed during the second quarter
of
2007, at which time NextWave expects to occupy the facility and pay the
remaining costs associated with occupancy.
Operating
Leases
NextWave
leases its office and research facilities, cell sites and certain office
equipment under noncancellable operating leases expiring on various dates
through 2015. Certain commitments have renewal options extending through the
year 2031. Future minimum lease payments under noncancellable operating leases,
net of sublease rentals at March 31, 2007, are as follows:
(in
thousands)
|
|
Lease
Commitments
|
|
Sublease
Rentals
|
|
Net
|
|
Fiscal
Years:
|
|
|
|
|
|
|
|
2007
(remaining nine months)
|
|
$
|
6,260
|
|
$
|
(171
|
)
|
$
|
6,089
|
|
2008
|
|
|
8,415
|
|
|
(198
|
)
|
|
8,217
|
|
2009
|
|
|
7,060
|
|
|
-
|
|
|
7,060
|
|
2010
|
|
|
6,182
|
|
|
-
|
|
|
6,182
|
|
2011
|
|
|
4,322
|
|
|
-
|
|
|
4,322
|
|
Thereafter
|
|
|
1,736
|
|
|
-
|
|
|
1,736
|
|
|
|
$
|
33,975
|
|
$
|
(369
|
)
|
$
|
33,606
|
|
Legal
Proceedings
From
time
to time, NextWave is a party to various legal proceedings that arise in the
ordinary course of its business. While management presently believes that the
ultimate outcome of any such 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 a dispute relating to a lease of EBS spectrum
covering the Toms River, New Jersey geographic area. The lessor has claimed
that
NextWave is in breach of the terms of the lease and that the lease has been
terminated. The interested parties in the case have reached a settlement under
which NextWave has agreed to the termination of the lease of the Toms River
spectrum in exchange for the assignment of a lease of EBS spectrum covering
the
Mobile, Alabama geographic area. The parties are in the process of finalizing
definitive agreements to implement the settlement. Under the terms of the
settlement, all litigation proceedings relating to the lease termination shall
cease and will be dismissed with prejudice.
Proceedings
under Chapter 11 of the Bankruptcy Code. On
June
8, 1998, NextWave Personal Communications Inc., NextWave Power Partners Inc.
and
the predecessor to NextWave Wireless Inc., all direct and indirect wholly owned
subsidiaries of NextWave Telecom Inc., filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United Sates Bankruptcy Court
for
the southern District of New York. On December 23, 1998, NextWave Telecom Inc.
filed its voluntary petition, in order to implement an overall corporate
restructuring. On March 1, 2005, the Bankruptcy Court confirmed the Third Joint
Plan of Reorganization, dated January 21, 2005. The cornerstone of the Plan
of
Reorganization was the sale of NextWave Telecom and its subsidiaries, excluding
the predecessor to NextWave Wireless inc., to Verizon Wireless for approximately
$3.0 billion. Pursuant to the Plan of Reorganization, on April 13, 2005, all
non-PCS assets and liabilities of the NextWave Telecom group were contributed
to
the predecessor to NextWave Wireless Inc., and the predecessor to NextWave
Wireless Inc. was capitalized with $550.0 million in cash. Through this process,
the predecessor to NextWave Wireless Inc. was reconstituted as a company with
a
new capitalization and a new wireless technology business plan. All claims
made
in connection with the Chapter 11 case have been resolved and NextWave has
filed
a motion for a decree of final judgment in the case.
8.
Series A Senior Convertible Preferred Stock and Stockholders’
Equity
Preferred
and Common Stock
NextWave
has authorized 25 million shares of preferred stock, of which 355,000 shares
have been designated as Series A Senior Convertible Preferred Stock at March
31,
2007. Shares of the preferred stock may be issued in any number of series as
determined by the board of directors. The board of directors is also authorized
to define the terms of the preferred shares, including voting rights,
liquidation preferences, conversion and redemption provisions and dividend
rates.
NextWave
has authorized 400 million shares of common stock, of which 84.5 million were
issued and outstanding at March 31, 2007, including 179,000 restricted shares
and 1,000 shares held in treasury. At March 31, 2007, NextWave had the following
common shares reserved for future issuance upon the exercise or issuance of
the
respective equity instruments:
(in
thousands)
|
|
|
|
Series
A Senior Convertible Preferred Stock
|
|
|
32,147
|
|
Stock
options:
|
|
|
|
|
Granted
and outstanding
|
|
|
14,264
|
|
Available
for future grants
|
|
|
2,666
|
|
Warrants
|
|
|
2,436
|
|
Contingently
issuable shares under advisory contract
|
|
|
833
|
|
|
|
|
52,346
|
|
Additionally,
NextWave may issue up to $25.6 million and $5.0 million in shares of NextWave
common stock, valued at the time of issuance, under the GO Merger Agreement
and
the GO Networks Employee Stock Bonus Plan, respectively, upon the achievement
of
specified operational milestones in February and August 2008.
Series
A Senior Convertible Preferred Stock
On
March
28, 2007, NextWave issued and sold 355,000 shares of its Series A Senior
Convertible Preferred Stock (the “Series A Preferred Stock”) at a price of
$1,000 per share. The Series A Preferred Stock was issued in a private placement
transaction exempt from the registration requirements of the Securities Act
of
1933. NextWave received $351.1 million in net proceeds from the sale of the
Series A Preferred Stock. Costs incurred to issue the shares totaled $3.9
million. The net proceeds will be used to fund operations, accelerate the
development of new wireless technologies, expand NextWave’s business and enable
future strategic acquisitions.
Dividend
Rights. The
Series A Preferred Stock is entitled to receive quarterly dividends on the
liquidation preference at a rate of 7.5% per annum. Until March 2011, NextWave
can elect whether to declare dividends in cash or to not declare and pay
dividends, in which case the per share dividend amount will be added to the
liquidation preference. From and after March 2011, NextWave must declare
dividends in cash each quarter, subject to applicable law. The dividend rate
is
subject to adjustment to 10% per annum if NextWave defaults on its dividend
payment obligations, fails to file a shelf registration statement with the
Securities and Exchange Commission on or prior to July 31, 2007, or fails to
cause the shelf registration statement to be declared effective on or prior
to
November 30, 2007. The dividend rate is also subject to adjustment to 15% per
annum if NextWave fails to comply with the protective covenants of the Series
A
Preferred Stock described below and to 18% per annum if NextWave fails to
convert or redeem the Series A Preferred Stock when required to do so, as
described below. NextWave’s obligation to pay contingent cash dividends on the
preferred shares constitutes an embedded derivative, the initial value of which
will be determined during the second quarter of 2007. To the extent that this
obligation has fair value, it will be recorded as a liability in the
consolidated balance sheet, reducing the reported value of the Series A
Preferred Stock in the consolidated balance sheet. Any subsequent material
changes in the estimated fair value of the embedded derivative will be reflected
in future income statements as interest expense in accordance with SFAS No.
133,
“Accounting for Derivative Instruments and Hedging Activities.” NextWave accrued
for $0.2 million in undeclared dividends during the three months ended March
31,
2007.
Voting
Rights.
Pursuant
to the terms of the Series A Preferred Stock, so long as at least 25% of the
issued shares of Series A Preferred Stock remain outstanding, and until the
date
on which NextWave elects to redeem all shares of Series A Preferred Stock in
connection with an asset sale, as described below, NextWave must receive the
approval of the holders of shares representing at least 75% of the Series A
Preferred Stock then outstanding to (i) incur indebtedness in excess of $500
million, subject to certain adjustments and exceptions, (ii) create any capital
stock that is senior to or on a parity with the Series A Preferred Stock in
terms of dividends, distributions or other rights, or (iii) consummate asset
sales involving the receipt of gross proceeds of, or the disposition of assets
worth, $500 million or more based on their fair market value. In addition,
so
long as at least 25% of the issued shares of Series A Preferred Stock remain
outstanding, NextWave may not distribute rights or warrants to all holders
of
its common stock entitling them to purchase shares of its common stock, or
consummate any sale of its common stock, for an amount less than the fair market
value on the date of issuance, with certain exceptions. With respect to other
matters requiring stockholder approval, the shares of Series A Preferred Stock
will be entitled to vote as one class with the common stock on an as-converted
basis.
Conversion
Rights and Redemption Rights.
Each
share of Series A Preferred Stock is convertible into a number of shares of
NextWave’s common stock equal to the liquidation preference then in effect
divided by $11.05. The Series A Preferred Stock is convertible at any time
at
the option of the holder, or at NextWave’s election after September 28, 2008,
subject to the trading price of its common stock reaching $22.10 for a specified
period of time, except that such threshold price will be reduced to $16.575
on
the earlier of March 28, 2010, or NextWave’s consummation of a qualified public
offering. NextWave will not be entitled to convert the Series A Preferred Stock
at its election unless a shelf registration statement covering the shares of
common stock to be issued upon conversion is then effective or the shares are
no
longer considered restricted securities under the Securities Act. At March
31,
2007, the liquidation preference totaled $355.2 million. If all shares of Series
A Preferred Stock were converted at March 31, 2007, NextWave would be obligated
to issue 32,147,000 shares of its common stock.
NextWave
will be required to redeem all outstanding shares of Series A Preferred Stock,
if any, on March 28, 2017, at a price equal to the liquidation preference plus
unpaid dividends. If NextWave elects to convert the Series A Preferred Stock
after its common stock price has reached the qualifying threshold, NextWave
must
redeem the shares of holders of Series A Preferred Stock who elect not to
convert into common stock at a price equal to 130% of the liquidation
preference. However, NextWave is not required to redeem more than 50% of the
shares of Series A Preferred Stock subject to any particular conversion notice.
In the event that NextWave fails to obtain approval of the holders of Series
A
Preferred Stock to an asset sale transaction, NextWave must either not
consummate such asset sale or elect to redeem all shares of Series A Preferred
Stock at a redemption price equal to 120% of the liquidation preference. Holders
will be entitled to opt-out of such a redemption. NextWave’s obligation to pay
contingent cash premiums upon redemption of the preferred shares constitutes
an
embedded derivative, the initial value of which will be determined during the
second quarter of 2007. To the extent that this obligation has fair value,
it
will be recorded as a liability in the consolidated balance sheet, reducing
the
reported value of the Series A Preferred Stock in the consolidated balance
sheet. Any subsequent material changes in the estimated fair value of the
embedded derivative will be reflected in future income statements as interest
expense.
Right
to Receive Liquidation Distributions.
The
Series A Preferred Stock has an initial liquidation preference of $1,000 per
share, subject to increase for accrued dividends as described above. The
liquidation preference would become payable upon redemption, as described above,
upon a liquidation or dissolution of our company, or upon deemed liquidation
events including a change in control, merger or sale of all or substantially
all
of NextWave’s assets, unless the holders of Series A Preferred Stock provide a
75% vote to not treat a covered event as a deemed liquidation. Upon a deemed
liquidation event, the Series A Preferred Stock will be entitled to receive
an
amount per share equal to the greater of 120% of the liquidation preference
or
the amount that would have been received if such share had converted into common
stock in connection with such event. NextWave’s obligation to pay contingent
cash premiums upon liquidation of the preferred shares constitutes an embedded
derivative, the initial value of which will be determined during the second
quarter of 2007. To the extent that this obligation has fair value, it will
be
recorded as a liability in the consolidated balance sheet, reducing the reported
value of the Series A Preferred Stock in the consolidated balance sheet. Any
subsequent material changes in the estimated fair value of the embedded
derivative will be reflected in future income statements as interest
expense.
9. Equity
Compensation Plans
During
the three months ended March 31, 2007, NextWave added three share-based
compensation plans that provide for awards to acquire shares of NextWave’s
common stock, increasing the total number of plans from two to five: the
PacketVideo 2005 Equity Incentive Plan, the NextWave 2007 New Employee Stock
Incentive Plan and the GO Incentive Stock Bonus Plan.
On
January 3, 2007, concurrent with the listing of NextWave’s common stock on
Nasdaq, an option to purchase one share of common stock of NextWave for $6.00
per share was issued for every six options to purchase shares of common stock
of
PacketVideo under the PacketVideo 2005 Equity Incentive Plan. The exchange
of
1,566,000 options was accounted for as a modification under SFAS 123(R) in
which
the fair value of the new options at the date of exchange was less than the
fair
value of the options exchanged immediately before the exchange, resulting in
no
incremental share-based compensation expense.
In
February 2007, the board of directors for NextWave adopted the NextWave 2007
New
Employee Stock Incentive Plan. The plan provides for an aggregate 2.5 million
common shares to be available for future grants of nonqualified stock options,
or restricted, performance-based, bonus, phantom or other share-based awards
to
employees or directors of NextWave.
In
February 2007, concurrent with NextWave’s acquisition of GO Networks Inc.,
NextWave established the GO Incentive Stock Bonus Plan whereby a select group
of
employees may receive up to an aggregate of $5.0 million in shares of NextWave
common stock, valued at the time of issuance, upon the achievement of specified
operational milestones in February and August 2008.
At
March
31, 2007, NextWave may issue up to $5.0 million in shares of NextWave common
stock under the GO plan and an aggregate of 16,930,000 shares of common stock
under the remaining plans, of which 14,264,000 are granted and outstanding
options and 2,666,000 are available for future grants.
The
following table summarizes the status of these plans at March 31, 2007, and
activity during the three months ended March 31, 2007:
|
|
Options
(in
thousands)
|
|
Weighted
Average Exercise Price per Share
|
|
Outstanding
at December 30, 2006
|
|
|
10,934
|
|
$
|
6.20
|
|
Granted
|
|
|
1,944
|
|
$
|
10.31
|
|
Exercised
|
|
|
(84
|
)
|
$
|
5.61
|
|
PacketVideo
options exchanged
|
|
|
1,566
|
|
$
|
6.00
|
|
Canceled
|
|
|
(96
|
)
|
$
|
6.39
|
|
Outstanding
at March 31, 2007
|
|
|
14,264
|
|
$
|
6.74
|
|
Exercisable
at March 31, 2007
|
|
|
10,573
|
|
$
|
5.93
|
|
Employee
Share-Based Compensation
NextWave
recognized $0.9 million and $0.1 million in employee share-based compensation
expense for the three months ended March 31, 2007 and April 1, 2006,
respectively, under the provisions of SFAS 123(R).
NextWave
utilized the Black-Scholes valuation model for estimating the fair value of
stock awards to employees at the date of grant or modification, with the
following assumptions:
|
|
Three
Months Ended
|
|
|
|
March
31,
2007
|
|
|
April
1,
2006
|
|
Risk-free
interest rate
|
|
|
4.54%-4.95
|
%
|
|
|
4.36%-4.75
|
%
|
Expected
term (in years)
|
|
|
3.5-5.5
|
|
|
|
0.3-5.5
|
|
Expected
and weighted average stock price volatility
|
|
|
50
|
%
|
|
|
50
|
%
|
Expected
dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted
average grant-date fair value of options granted
|
|
$
|
4.19
|
|
|
$
|
2.47
|
|
Total
compensation cost of options granted to employees that were not yet vested
as of
March 31, 2007, was $14.2 million, which is expected to be recognized over
a
weighted average period of 3.3 years.
Non-Employee
Share-Based Compensation
Share-based
compensation expense for non-employee options, warrants and restricted shares
totaled $0.7 million and $0.9 million during the three months ended March 31,
2007 and April 1, 2006, respectively. The fair value assigned to the vested
increments of these awards was estimated at the date of vesting and, for the
unvested increments, at March 31, 2007, using the Black-Scholes option-pricing
model based on the following weighted average assumptions applied during the
three months ended March 31, 2007 and April 1, 2006:
|
|
Options
|
|
Warrants
|
|
Restricted
Common Shares
|
|
Three
months ended March 31, 2007:
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.50%-4.88
|
%
|
|
4.51
|
%
|
|
4.51%-4.89
|
%
|
Expected
life (in years)
|
|
|
9.3-9.9
|
|
|
3.0
|
|
|
0.5-0.7
|
|
Expected
stock price volatility
|
|
|
50
|
%
|
|
50
|
%
|
|
50
|
%
|
Expected
dividend
yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Weighted
average fair value of awards
|
|
$
|
7.87
|
|
$
|
5.55
|
|
$
|
5.30
|
|
Three
months ended April
1, 2006:
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
not
applicable
|
|
|
4.73
|
%
|
|
not
applicable
|
|
Expected
life (in years)
|
|
|
not
applicable
|
|
|
4.0
|
|
|
not
applicable
|
|
Expected
stock price volatility
|
|
|
not
applicable
|
|
|
51
|
%
|
|
not
applicable
|
|
Expected
dividend
yield
|
|
|
not
applicable
|
|
|
0
|
%
|
|
not
applicable
|
|
Weighted
average fair value of awards
|
|
|
not
applicable
|
|
$
|
2.67
|
|
|
not
applicable
|
|
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 share-based compensation totaled $4.4 million
at March 31, 2007, and will be charged to results of operations with an
offsetting increase to additional paid in capital in the consolidated balance
sheet over a weighted average period of 2.1 years.
10. Supplemental
Cash Flow Information
Supplemental
disclosure of cash flow information is as follows:
|
|
Three
Months Ended
|
|
(in
thousands)
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Cash
paid for income taxes
|
|
$
|
44
|
|
$
|
55
|
|
Cash
paid for interest
|
|
|
12,288
|
|
|
—
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
Wireless
spectrum licenses acquired with lease obligations
|
|
|
4,210
|
|
|
2,478
|
|
Equity
interests issued for business acquisition
|
|
|
—
|
|
|
1,558
|
|
11. Subsequent
Events
Business
Acquisitions
In
May
2007, NextWave acquired all of the equity interests in IPWireless, Inc., a
privately-held company headquartered in California that supplies TD-CDMA
network equipment and subscriber terminals, for $25.0 million in cash plus
7.7
million in shares of NextWave’s common stock, valued at $75.0 million.
Additional consideration of up to $135.0 million will be paid based upon the
achievement of certain revenue milestones between 2007 and 2009, as specified
in
the agreement, with potential payments of up to $50.0 million in late 2007
or
2008, up to $7.5 million in 2008, up to $24.2 million in 2009 and up to $53.3
million in 2010. If earned, up to $114.0 million of such additional
consideration will be payable in cash or shares of common stock at NextWave’s
election and up to $21.0 million of such amounts will be payable in cash or
shares of common stock at the election of representatives of IPWireless
shareholders. NextWave has also adopted the IPWireless, Inc. Employee Stock
Bonus Plan which provides IPWireless employees with shares of NextWave common
stock having an aggregate value of up to $7.0 million, valued at the time of
issuance, contingent upon the achievement of certain revenue milestones relating
to IPWireless’ public safety business and TDtv business. The acquisition will be
accounted for in the second quarter of 2007 using the purchase method of
accounting whereby the total purchase price, including any transaction related
expenses, will be allocated to tangible and intangible assets and liabilities
acquired based upon their respective fair values.
In
April
2007, Inquam-BMR GP, the holder of the remaining 49% interest in NextWave’s
joint venture, Inquam Broadband, exercised its right to require NextWave to
purchase all Inquam Broadband shares held by Inquam-BMR GP for 1,000 Euros
per
share, or approximately $1.8 million. Inquam Broadband will be wholly-owned
by
NextWave after completion of the purchase.
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 year ended December 30,
2006, contained in our Annual Report on Form 10-K filed with the Securities
and
Exchange Commission on March 30, 2007.
OVERVIEW
First
Quarter 2007 Highlights
|
·
|
Our
revenues for the first quarter of 2007 totaled $7.7 million compared
to
the first quarter of 2006 of $3.9 million. Our net loss and net loss
applicable to common shares for the first quarter of 2007 totaled
$49.4
million and $49.6 million, or $0.59 per share, respectively, compared
to
our net loss for the first quarter of 2006 of $15.4 million, or $0.19
per
share.
|
|
·
|
In
March 2007, we issued 355,000 shares of our redeemable Series A Senior
Convertible Preferred Stock, receiving net cash proceeds of $351.1
million
|
|
·
|
During
the first quarter of 2007, we acquired wireless spectrum in Canada
and
Texas, and paid deposits to acquire wireless spectrum in Switzerland
for
cash of $28.2 million and future lease commitments of $4.2
million
|
|
·
|
In
February 2007, we acquired all of the outstanding common stock and
warrants of GO Networks, Inc., for cash totaling $16.7 million which
includes cash paid to the shareholders of $13.2 million, interim
funding
of $1.9 million, closing costs of $0.7 million, the assumption of
$1.3
million in debt which was paid at closing, less cash acquired of
$0.4
million
|
|
·
|
In
January 2007, our PacketVideo subsidiary completed its acquisition
of SDC
Secure Digital Container AG for cash totaling $17.9 million which
includes
cash paid for the registered voting shares of $19.0 million, closing
costs
of $0.2 million, less cash acquired of $1.3
million
|
Our
Business
We
are a
wireless technology company that develops and markets next-generation mobile
broadband and wireless multimedia products and technologies. Our products and
technologies are designed to make wireless broadband faster, more reliable,
more
accessible and more affordable. During 2006 substantially all of our revenues
were derived from the sale of device-embedded multimedia software solutions
by
our PacketVideo subsidiary. While we expect to continue to grow and expand
our
multimedia software business, we expect that the majority of our revenues will
ultimately be derived from the sale and licensing of chipsets, network
components and system solutions based on WiMAX, Wi-Fi, TD-CDMA, and other mobile
broadband wireless technologies.
We
believe that mobile broadband represents the next logical step in the evolution
of the Internet and that consumer demand for fully-mobile, wireless broadband
service will transform the global wireless communications industry from one
driven primarily by circuit-switched voice to one driven by IP-based broadband
connectivity. In addition, we believe that wireless will play a major role
in
facilitating digital media convergence and provide people the ability to easily
access and share multimedia content across multiple types of mobile device
and
consumer electronics platforms. Our business activities are focused on
developing products, technologies and network solutions to enable affordable,
fully-mobile broadband access and seamless digital media convergence solutions
that will allow individuals to access the information and multimedia content
they want, where they want, when they want, on virtually any type of digital
communications device.
Our
wireless broadband products and technologies are developed and marketed through
our operating subsidiaries, each of which is focused on specific aspects of
the
mobile broadband ecosystem:
|
·
|
NextWave
Broadband Inc. - Mobile broadband semiconductors and network components
based on WiMAX and Wi-Fi technologies, terminal device reference
designs,
and network implementation
services;
|
|
·
|
PacketVideo
Corporation - Multimedia software applications for wireless handsets
and
digital media convergence software solutions;
|
|
·
|
GO
Networks, Inc. - Carrier-class, wide-area, mobile Wi-Fi systems;
and
|
|
·
|
IPWireless
- Commercial and public service mobile broadband systems, access
devices,
and mobile broadcast systems based on TD-CDMA
technology.
|
NextWave
Broadband Inc.
Our
Advanced Technology Group, a division of NextWave Broadband Inc., is developing
a family of mobile broadband semiconductor products based on WiMAX and Wi-Fi
technologies including multi-band RF chips and high-performance, digital
baseband WiMAX chips. In addition, the Advanced Technology Group is developing
wireless network components and a family of handset and media player reference
designs to highlight the features of the subscriber station semiconductor
products that we are developing. The primary design objectives of the Advanced
Technology Group’s products and technologies, which are intended to be sold or
licensed to network infrastructure vendors, device manufacturers and service
providers worldwide, are to:
|
· |
Improve
the performance and economics of WiMAX and Wi-Fi networks and enhance
their ability to cost-effectively handle the large volume of network
traffic associated with bandwidth-intensive, multimedia applications
such
as mobile television, video-on-demand, streaming audio, two-way video
telephony and real-time gaming;
|
· Improve
the performance, power consumption and cost characteristics of mobile broadband
enabled subscriber terminals;
|
· |
Improve
the degree of interoperability and integration between Wi-Fi and
WiMAX
systems in both Local Area Network (LAN) and Wide Area Network
(WAN);
|
· Improve
the efficiency, cost, and performance of video and audio broadcast applications
over WiMAX networks; and
|
· |
Improve
service provider economics and roaming capabilities by enabling WiMAX
networks and WiMAX enabled devices to seamlessly operate across multiple
frequency bands including certain unlicensed
bands.
|
Through
our Network Solutions Group, also a division of NextWave Broadband Inc., we
intend to offer service provider customers a full array of network services,
including RF and core network design services, network implementation and
management services, and back-office service solutions. To demonstrate the
capabilities of our network service capabilities and our wireless broadband
products, the Network Solutions Group is implementing a mobile WiMAX/Wi-Fi
test
site in Henderson, Nevada.
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 technologies and semiconductor designs.
The
success of our WiMAX and Wi-Fi semiconductor and network component business
will
be reliant on market acceptance of WiMAX and Wi-Fi as competitive wide-area,
wireless broadband technologies and on our ability to differentiate our products
from those offered by competitors. To help accelerate global market adoption
of
our mobile broadband 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 deploying, on an individual or
joint basis, networks that utilize our mobile broadband and wireless
multimedia technologies. Our spectrum footprint in the U.S. covers over
248 million people and includes many of the largest metropolitan areas in the
country. In addition, through joint ventures and international subsidiaries,
we
have also acquired nationwide spectrum in Germany, Switzerland, and
Canada.
PacketVideo
Corporation.
Through
our PacketVideo subsidiary, we supply device-embedded multimedia software to
many large wireless carriers and wireless handset manufacturers, who use it
to
transform a mobile phone into a feature-rich multimedia device that provides
people with the ability to stream, download and play video and music, receive
live TV broadcasts, and engage in two-way video telephony. PacketVideo’s
software is compatible with virtually all network technologies, including CDMA,
WCDMA, and GSM. PacketVideo has been contracted by some of the world’s largest
carriers, such as Verizon Wireless, Vodafone, NTT DoCoMo, Orange and T-Mobile
to
design and implement the embedded multimedia software capabilities contained
in
their handsets.
PacketVideo
has made investments in developing and acquiring a wide range of capabilities
to
provide its customers with solutions to support and accelerate digital media
convergence in the home and office via mobile devices and consumer electronics
that utilize PacketVideo’s device-embedded software and communication protocols
standardized by the Digital Living Network Alliance™ (DLNA™). An example is
PacketVideo’s network-based PacketVideo Experience™ platform that provides for
content search, discovery, organization and content delivery/sharing between
devices connected to an IP-based network. PacketVideo’s patented Digital Rights
Management (DRM) capability, already serving many carriers globally, further
provides for a flexible solution that protects the multimedia content used
or
shared by PacketVideo-enabled devices. We believe that the continued growth
in
global shipments of high-end handsets with multimedia capabilities, increasing
demand for home/office digital media convergence, and the acceleration of global
deployments of mobile broadband enabled networks will substantially expand
the
opportunity for PacketVideo to license its suite of multimedia software
solutions to service providers and to handset and consumer electronic device
manufacturers.
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 by providing its customers with customized
software development services on a contract basis and from royalties associated
with the licensing of its software products.
GO
Networks, Inc.
Through
our GO Networks subsidiary, which we acquired in February 2007, we offer
carrier-class mobile Wi-Fi network systems to commercial and municipal service
providers worldwide. By utilizing advanced xRF™ adaptive-beamforming,
smart-antenna technology and a cellular-mesh Wi-Fi architecture, the GO Networks
system is designed to deliver superior Wi-Fi coverage, performance, and
economics and provide service providers with a cost-effective solution to
support bandwidth-intensive mobile broadband services such as video streaming,
real-time gaming, web browsing, and other types of multimedia applications
on a
wide-area basis.
IPWireless.
IPWireless, which was acquired in May 2007, played a leading role in the
development of 3GPP TDD Universal Mobile Telecommunications Systems (UMTS)
standards and currently provides customers with an assortment of TD-CDMA mobile
broadband products and technologies. Mobile broadband networks that utilize
IPWireless’ TD-CDMA technology, one of the first standards-based mobile
broadband technologies in the world, have been commercially deployed in more
than a dozen countries, including the Czech Republic, New Zealand, Germany,
South Africa, Sweden, and the United Kingdom.
The
IPWireless TDtv solution, based on 3GPP Multimedia Broadcast Multicast Service
(MBMS), allows UMTS operators to deliver mobile television and other multimedia
services using their existing 3G spectrum and networks, with little impact
on
their current voice and data services. A trial of TDtv technology, recently
conducted in the UK by several of the largest mobile operators in Europe,
successfully demonstrated its ability to deliver high-quality, multi-channel
broadcast services using the trial participants’ existing spectrum. TDtv
supports key consumer requirements including fast channel change times,
operation at high travel speeds, and seamless integration into small profile
handsets.
In
September 2006, IPWireless’ TD-CDMA mobile broadband wireless technology was
selected by New York City’s Department of Information Technology and
Telecommunications as part of a five-year contract awarded to Northrop Grumman
for the deployment of a citywide, public safety, mobile wireless network.
IPWireless has received an initial purchase order for approximately $36 million
to deliver network equipment through November 2007 in connection with this
network deployment. We believe that IPWireless’ technology, as optimized for
public safety applications, can be utilized to deliver cost-effective and
reliable public safety network solutions in the 700MHz spectrum band plan
currently under consideration by the FCC for public safety
purposes.
We
believe the breadth of products, technologies, spectrum assets and services
offered by our various subsidiaries represents a unique platform to provide
advanced wireless broadband solutions to the market. While our subsidiaries
are
intended to be operated as stand-alone businesses, we also believe that they
will provide synergistic value to each other and collectively drive accelerated
market penetration and share of the wireless broadband market for
us.
First
Quarter of 2007 Compared to the First Quarter of 2006
Effect
of Restatement.
On March 23, 2007, we announced that our unaudited financial statements
for the
quarterly periods ended April 1, 2006, July 1, 2006 and September 30, 2006
should no longer be relied upon as a result of required corrections in
revenue
recognition under certain software contracts of our PacketVideo subsidiary
and
in the deferral of certain engineering costs at PacketVideo. More specifically,
we determined that we were incorrectly deferring engineering design, maintenance
and support and royalty revenues on contracts where post-contract customer
support ("PCS") was required and no separate objective evidence of its
fair
value, specific to PacketVideo, existed for the PCS. We also determined
that we
had incorrectly deferred certain technology costs prior to achieving
technological feasibility. The change has been made to defer revenue and
related
costs determined to the PCS portion of the contract and to expense previously
capitalized engineering costs. Subsequently, the Company amended its quarterly
report filed on Form 10-Q for the quarterly period ended on September 30,
2006,
and included corrected interim unaudited condensed consolidated financial
statements for the first three quarters of 2006, together with restatement
adjustments, in the Company’s Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on March 30, 2007. In connection with
the
restatement of our previously issued unaudited quarterly financial statements
for the year ended December 30, 2006, management identified certain control
deficiencies that represent a material weakness in our internal control
over
financial reporting, as more fully described in Item 4 of this Form 10-Q.
Because all material information relating to the restatement was provided
in our
2006 Form 10-K, and because our predecessor NextWave Wireless LLC has terminated
its SEC reporting obligations, the Form 10-Qs filed by NextWave Wireless
LLC for
the fiscal quarters ended April 1, 2006 and July 1, 2006 have not been
amended
to reflect the restatement and accordingly should not be relied on. The
fiscal
2006 comparative periods presented in this Form 10-Q reflect the previously
announced restatement adjustments as reflected in our Form 10-K for the
year
ended December 30, 2006.
Revenues.
Revenues
for the first quarter of 2007 were $7.7 million compared to $3.9 million for
first quarter of 2006, an increase of $3.8 million. The increase in revenue
resulted primarily from unit sales growth and market penetration of mobile
subscriber services by PacketVideo’s customer base, which includes wireless
operators and device manufacturers, and from higher contract revenues from
our
PacketVideo subsidiary, which resulted from growth in technology development
contracts, addressing an increasing number of wireless devices in which
PacketVideo technology is embedded.
In
general, the financial consideration received from wireless carriers and mobile
phone and wireless device manufacturers is derived from a combination of
technology development contracts and royalties.
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
in 2007 in addition to our newly acquired GO Networks, Inc. Following the
development and commercialization of our wireless broadband products and
technologies by the Advanced Technology Group of NextWave, we believe that
the
sale or licensing of our proprietary chipsets, network components and device
technologies will become an additional source of recurring
revenue.
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, the build out rate of networks that utilize our Wi-Fi and WiMAX
technologies, services and products and price increases, subscriber device
life
cycles, demand for wireless data services and acquisitions or dispositions
of
businesses or product lines.
Operating
Expenses.
|
|
Three
Months Ended
|
|
(in
millions)
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Increase
(Decrease)
|
|
Cost
of revenues
|
|
$
|
3.7
|
|
$
|
1.8
|
|
$
|
1.9
|
|
Engineering,
research and development
|
|
|
23.0
|
|
|
11.1
|
|
|
11.9
|
|
General
and administrative
|
|
|
17.5
|
|
|
8.5
|
|
|
9.0
|
|
Sales
and marketing
|
|
|
3.7
|
|
|
1.6
|
|
|
2.1
|
|
Purchased
in-process research and development
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Total
operating expenses
|
|
$
|
48.8
|
|
$
|
23.0
|
|
$
|
25.8
|
|
Cost
of Revenues.
The
increase in cost of revenues for our PacketVideo subsidiary during the first
quarter of 2007 includes higher amortization expenses of $0.2 million for the
purchase of intangible assets related to our 2006 business acquisitions. Cost
of
revenues includes direct engineering labor expenses, allocated overhead costs,
costs associated with offshore contract labor costs, other direct costs related
to the execution of technology development contracts as well as amortization
of
acquired software and other costs.
We
believe that cost of revenues as a 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 by us on
licensed technologies, changes in average selling prices, and our ability to
make productivity improvements.
Engineering,
Research and Development.
Costs
for the internal and external development of our wireless broadband products
and
technologies, including our chipsets, for the first quarter of 2007 were $18.4
million compared to $8.7 million for the first quarter of 2006, an increase
of
$9.7 million which is due primarily to the expansion of the engineering
development organization and our acquisition of GO Networks in February
2007.
Costs
for
the internal and external development of our PacketVideo software for the first
quarter of 2007 were $4.6 million compared to $2.4 million for the first quarter
of 2006, an increase of $2.2 million, which is due primarily to 2006 and 2007
acquisitions by PacketVideo and an increase in headcount in the engineering
development organization.
Share-based
compensation expense for the first quarters of 2007 and 2006 totaled $0.8
million and $0.2 million, respectively.
Largely
due to our planned increase in engineering personnel coupled with our business
acquisitions to further our WiMAX related and other technology development
initiatives, we expect our engineering, research and development expenses to
increase over the next twelve months.
General
and Administrative.
NextWave
and PacketVideo accounted for $7.7 million and $1.3 million of the increase
in
general and administrative expenses during the first quarter of 2007,
respectively. These increases are comprised primarily of increased spending
for
compensation and associated costs of general and administrative personnel of
$5.9 million, professional fees of $1.8 million, amortization of intangible
assets of $0.9 million, and share-based compensation of $0.4
million.
We
expect
that general and administrative costs will increase in absolute terms due to
our
business acquisitions and as we hire additional personnel and incur costs
related to the anticipated growth of our business and our global operations.
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, the preparation and prosecution of patent applications
and 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.
NextWave
and PacketVideo accounted for $1.2 million and $0.9 million of the increase
during the first quarter of 2006, respectively. The increases are comprised
primarily of increased spending for compensation and associated costs for
marketing and sales personnel of $1.9 million, expenses associated with
marketing and promotional activities of $0.1 million and share-based
compensation of $0.1 million.
We
expect
sales and marketing expenses to increase in absolute terms with the growth
of
our business in the upcoming year, primarily from our corporate marketing,
PacketVideo subsidiary and from our GO Networks subsidiary which
was acquired in February 2007.
Purchased
In-Process Research and Development Costs.
In
conjunction with our acquisition of SDC Secure Digital Container in January
2007, we purchased in-process research and development projects valued at $0.9
million which were expensed upon the date of acquisition as the acquired
technology had not yet reached technological feasibility and had no future
alternative uses.
Interest
Income.
Interest
income for the first quarter of 2007 was $2.1 million compared to $3.2 million
for the first quarter of 2006, a decrease of $1.1 million, and consisted of
interest earned during the respective periods on our unrestricted and restricted
cash and investment balances, which totaled $528.9 million and $366.6 million
at
March 31, 2007 and April 1, 2006, respectively.
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 or equity
activities.
Interest
Expense.
Interest
expense for the first quarter of 2007 was $11.1 million compared to $0.3 million
for the first quarter of 2006, an increase of $10.8 million. Our issuance of
$350.0 million in principal amount of 7% Senior Secured Notes in July 2006
accounted for $10.6 million of the increase. The remainder of the increase
of
$0.2 million consists primarily of the accretion of discounted wireless spectrum
license lease liabilities acquired during 2006.
Our
interest expense will increase during 2007 due to the accrual of interest for
a
full year on our 7% Senior Secured Notes, amortization of the discount and
debt
issue costs related to our 7% Senior Secured Notes and interest accreted on
our
newly acquired spectrum lease liabilities. Interest expense will also increase
during 2007 from the assumption of a loan in connection with the acquisition
of
GO Networks, Inc.
Provision
for Income Taxes.
During
the first quarter of 2007 substantially all of our U.S. subsidiaries had net
losses for tax purposes and, therefore, no material income tax provision or
benefit was recognized for these subsidiaries. An income tax provision of $0.1
million was recorded during the first quarter of 2007 for these controlled
foreign corporations. An income tax provision of $0.1 million was recorded
for
foreign withholding tax on accrued interest on intercompany debt between one
of
our U.S. subsidiaries and a German subsidiary and for royalty payments received
from our PacketVideo customers.
Minority
Interest.
Minority
interest for the first quarter of 2007 was $0.9 million compared to $0.7 million
for first quarter of 2006. Minority interest represents our minority partner’s
share of losses in our Inquam Broadband joint venture formed in January
2006.
Liquidity
And Capital Resources
Since
our
inception (April 13, 2005), we have incurred operating losses and negative
cash
flows and had an accumulated deficit of $200.4 million at March 31, 2007,
consisting of $166.4 million and $34.0 million from NextWave and PacketVideo,
respectively. We have funded our operations, strategic investments and wireless
license acquisitions primarily with the $550.0 million in cash received in
our
initial capitalization in April 2005, the net proceeds of $295.0 million from
the issuance of our 7% Senior Secured Notes in July 2006 and the net proceeds
of
$351.1 million from our issuance of Series A Senior Convertible Preferred Stock
in March 2007. Our total cash, cash equivalents and short-term investments
at
March 31, 2007 totaled $453.9 million.
The
following table presents working capital, cash, cash equivalents and
investments:
(in
millions)
|
|
March
31,
2007
|
|
December
30, 2006
|
|
Increase
for the Three Months Ended March 31,
2007
|
|
Working
capital
|
|
$
|
411.8
|
|
$
|
166.3
|
|
$
|
245.5
|
|
Cash
and cash equivalents
|
|
|
72.9
|
|
|
33.0
|
|
|
39.9
|
|
Short-term
investments
|
|
|
381.0
|
|
|
167.7
|
|
|
213.3
|
|
Total
cash, cash equivalents and investments
|
|
$
|
453.9
|
|
$
|
200.7
|
|
$
|
253.2
|
|
The
following table presents our utilization of cash, cash equivalents and
short-term investments for the three months ended March 31, 2007, compared
to
the three months ended April 1, 2006:
|
|
Three
Months Ended
|
|
(in
millions)
|
|
March
31,
2007
|
|
April
1,
2006
|
|
Beginning
cash, cash equivalents and investments
|
|
$
|
200.7
|
|
$
|
459.2
|
|
Proceeds
from the issuance of Series A Senior Convertible Preferred Stock,
net of
costs to issue
|
|
|
351.1
|
|
|
—
|
|
Cash
paid for acquisition of wireless spectrum licenses and subsequent
lease
obligations
|
|
|
(30.6
|
)
|
|
(80.1
|
)
|
Cash
paid for business combinations, net of cash acquired
|
|
|
(30.2
|
)
|
|
(0.1
|
)
|
Cash
used by operating activities
|
|
|
(35.7
|
)
|
|
(6.5
|
)
|
Cash
paid for property and equipment
|
|
|
(1.8
|
)
|
|
(5.6
|
)
|
Other,
net
|
|
|
0.4
|
|
|
(0.3
|
)
|
Ending
cash, cash equivalents and investments
|
|
$
|
453.9
|
|
$
|
366.6
|
|
The
increase in cash, cash equivalents and investments of $253.2 million during
the
first quarter of 2007 is due to the net proceeds of $351.1 million from the
issuance of 355,000 shares of our Series A Senior Convertible Preferred Stock
in
March 2007, offset by $30.6 million paid for wireless spectrum licenses and
subsequent lease obligations, $30.2 million paid for business combinations,
cash
used in operating activities of $35.7 million, consisting of $31.6 million
and $4.1 million used by NextWave and PacketVideo operations, respectively,
and
$1.8 million in cash paid for capital expenditures.
Investing
Activities
During
the first quarter of 2007, we consummated transactions to acquire licensed
spectrum rights totaling $28.2 million, which includes the acquisition of all
of
the outstanding shares of common stock of 4253311 Canada Inc., a Canadian
company whose assets are comprised almost entirely of wireless spectrum, for
$19.7 million in cash. We also paid a $5.8 million deposit to qualify for the
auction of spectrum in Switzerland. In February 2007, NextWave was declared
the
winning bidder for an aggregate bid of $4.7 million and received final
concession from the Swiss Confederated Communications Commission granting the
licenses to us in May 2007. We also acquired wireless spectrum in Texas for
$2.7
million in cash and $4.2 million in future lease obligations.
In
January 2007, our PacketVideo subsidiary acquired all of the shares of SDC
Secure Digital Container AG, a Swiss company, for net cash of $17.9 million
which includes cash paid for the registered voting shares of $19.0 million,
closing costs of $0.2 million, less cash acquired of $1.3
million.
In
February 2007, we acquired all of the outstanding common stock and warrants
of
GO Networks, Inc., for net cash of $16.7 million which includes cash paid to
the
shareholders of $13.2 million, interim funding of $1.9 million, closing costs
of
$0.7 million, the assumption of $1.3 million in debt which was paid at closing,
less cash acquired of $0.4 million. Additional purchase consideration of up
to
$25.6 million and $0.1 million may be paid in shares of our common stock and
cash, respectively, subject to the achievement of certain operational milestones
in February and August 2008. We also adopted the GO Networks Employee Stock
Bonus Plan, whereby certain employees may receive up to an aggregate of $5.0
million in shares of our common stock, valued at the time of issuance, upon
the
achievement of certain operational milestones in February and August 2008.
In
order
to consolidate current operations from two leased facilities into one building,
we acquired a build-to-suit office building in Henderson, Nevada in May 2007
for
$6.9 million plus costs of approximately $2.6 million for the construction
of
interior improvements. Interior construction is expected to be completed during
the second quarter of 2007, at which time we expect to occupy the facility
and
pay the remaining costs associated with occupancy.
In
May
2007, we acquired IPWireless, Inc. for $25.0 million in cash plus
7.7
million
in shares of our common stock, valued at $75.0 million.
Additional consideration of up to $135.0 million will be paid based upon the
achievement of certain revenue milestones between 2007 and 2009, as specified
in
the agreement, with potential payments of up to $50.0 million in late 2007
or
2008, up to $7.5 million in 2008, up to $24.2 million in 2009 and up to $53.3
million in 2010. If earned, up to $114.0 million of such additional
consideration will be payable in cash or shares of common stock at our election
and up to $21.0 million of such amounts will be payable in cash or shares of
common stock at the election of representatives of IPWireless shareholders.
We
also adopted the IPWireless, Inc. Employee Stock Bonus Plan which provides
IPWireless employees with shares of our common stock having an aggregate value
of up to $7.0 million, valued
at
the time of issuance,
contingent upon the achievement of certain revenue milestones relating to
IPWireless’ public safety business and TDtv business.
In
April
2007, Inquam-BMR GP, the holder of the remaining 49% interest in our Inquam
Broadband joint venture, exercised its right to require us to purchase all
Inquam Broadband shares held by Inquam-BMR GP for 1,000 Euros per share or
approximately $1.8 million.
Financing
Activities
On
March
28, 2007, we issued and sold 355,000 shares of our Series A Senior Convertible
Preferred Stock (the “Series A Preferred Stock”) at a price of $1,000 per share.
We received $351.1 million in net proceeds from the sale of the Series A
Preferred Stock. Costs incurred to issue the shares totaled $3.9 million. The
net proceeds will be used to fund operations, accelerate the development of
new
wireless technologies, expand the company’s business, and enable future
strategic acquisitions. In addition to other investment funds and
institutional investors, we sold 14%, 14% and 28% of the Series A Senior
Convertible Preferred Stock respectively to Navation, Inc., an entity owned
by
Allen Salmasi, NextWave’s Chairman and Chief Executive Officer, Manchester
Financial Group, L.P., an entity indirectly owned and controlled by Douglas
F.
Manchester, a member of NextWave’s Board of Directors, and affiliates of Avenue
Capital, of which a member of NextWave’s Board of Directors, Robert Symington,
is a portfolio manager. Kevin Finn, NextWave’s Chief Compliance Officer, also
purchased less than 1% of the Series A Senior Convertible Preferred
Stock.
Dividend
Rights.
The
Series A Preferred Stock is entitled to receive quarterly dividends on the
liquidation preference at a rate of 7.5% per annum. Until March 2011, we can
elect whether to declare dividends in cash or to not declare and pay dividends,
in which case the per share dividend amount will be added to the liquidation
preference. From and after March 2011, we must declare dividends in cash each
quarter, subject to applicable law. The dividend rate is subject to adjustment
to 10% per annum if we default in our dividend payment obligations, fail to
file
a shelf registration statement with the Securities and Exchange Commission
on or
prior to July 31, 2007, or fail to cause the shelf registration statement to
be
declared effective on or prior to November 30, 2007. The dividend rate is also
subject to adjustment to 15% per annum if we fail to comply with the protective
covenants of the Series A Preferred Stock described below and to 18% per annum
if we fail to convert or redeem the Series A Preferred Stock when required
to do
so, as described below. We accrued for $0.2 million in undeclared dividends
during the three months ended March 31, 2007.
Voting
Rights.
Pursuant
to the terms of the Series A Preferred Stock, so long as at least 25% of the
issued shares of Series A Preferred Stock remain outstanding, and until the
date
on which we elect to redeem all shares of Series A Preferred Stock in connection
with an asset sale, as described below, we must receive the approval of the
holders of shares representing at least 75% of the Series A Preferred Stock
then
outstanding to (i) incur indebtedness in excess of $500 million, subject to
certain adjustments and exceptions, (ii) create any capital stock that is senior
to or on a parity with the Series A Preferred Stock in terms of dividends,
distributions or other rights, or (iii) consummate asset sales involving the
receipt of gross proceeds of, or the disposition of assets worth, $500 million
or more based on their fair market value. In addition, so long as at least
25%
of the issued shares of Series A Preferred Stock remain outstanding, we may
not
distribute rights or warrants to all holders of our common stock entitling
them
to purchase shares of our common stock, or consummate any sale of our common
stock, for an amount less than the fair market value on the date of issuance,
with certain exceptions. With respect to other matters requiring stockholder
approval, the shares of Series A Preferred Stock will be entitled to vote as
one
class with the common stock on an as-converted basis.
Conversion
Rights and Redemption Rights. Each
share of Series A Preferred Stock is convertible into a number of shares of
our
common stock equal to the liquidation preference then in effect divided by
$11.05. The Series A Preferred Stock is convertible at any time at the option
of
the holder, or at our election after September 28, 2008, subject to the trading
price of our common stock reaching $22.10 for a specified period of time, except
that such threshold price will be reduced to $16.575 on the earlier of March
28,
2010, or our consummation of a qualified public offering. We will not be
entitled to convert the Series A Preferred Stock at our election unless a shelf
registration statement covering the shares of common stock issued upon
conversion is then effective or the shares are no longer considered restricted
securities under the Securities Act. At March 31, 2007, the liquidation
preference totaled $355.2 million. If all shares of Series A Preferred Stock
were converted at March 31, 2007, we would be obligated to issue 32,147,000
shares of our common stock.
We
will
be required to redeem all outstanding shares of Series A Preferred Stock, if
any, on March 28, 2017, at a price equal to the liquidation preference plus
unpaid dividends. If we elect to convert the Series A Preferred Stock after
our
common stock price has reached the qualifying threshold, we must redeem the
shares of holders of Series A Preferred Stock who elect not to convert into
common stock at a price equal to 130% of the liquidation preference. However,
we
are not required to redeem more than 50% of the shares of Series A Preferred
Stock subject to any particular conversion notice. In the event that we fail
to
obtain approval of the holders of Series A Preferred Stock to an asset sale
transaction, we must either not consummate such asset sale or elect to redeem
all shares of Series A Preferred Stock at a redemption price equal to 120%
of
the liquidation preference. Holders will be entitled to opt-out of such a
redemption.
Right
to Receive Liquidation Distributions.
The
Series A Preferred Stock has an initial liquidation preference of $1,000 per
share, subject to increase for accrued dividends as described above. The
liquidation preference would become payable upon redemption, as described above,
upon a liquidation or dissolution of our company, or upon deemed liquidation
events including a change in control, merger or sale of all or substantially
all
our assets, unless the holders of Series A Preferred Stock provide a 75% vote
to
not treat a covered event as a deemed liquidation. Upon a deemed liquidation
event, the Series A Preferred Stock will be entitled to receive an amount per
share equal to the greater of 120% of the liquidation preference or the amount
that would have been received if such share had converted into common stock
in
connection with such event.
During
the first three months of 2007, we paid $12.3 million in interest on our 7%
Senior Secured Notes due 2010, principal amount of $350.0 million. We are
obligated to pay interest of 7% per annum semiannually in January and July
each
year, or $24.5 million per year.
Looking
Forward
As
of
March 31, 2007, we had $453.9 million of unrestricted cash, cash equivalents
and
short-term investments, and $75.0 million in restricted investments required
to
be reserved under our Notes financing.
Since
our
emergence as a wireless technology company, we have consummated transactions
to
acquire licensed spectrum rights, including subsequent lease obligations, for
amounts totaling $452.1 million.
We
believe that our current revenues, cash and short-term investments and financing
activities will be sufficient to fund our operating activities and contractual
commitments at least through 2008.
|
·
|
We
plan to fund our wireless broadband technology development
activities with our unrestricted cash and investments until such
point
that we begin sales of our chipsets and network component products
and
enter into licensing arrangements for our wireless broadband technologies.
Our wireless broadband products, services and technologies are in
the
early stages of development and will require a substantial investment
before they may become commercially viable. We are currently unable
to
project when our chipsets and network components based on WiMAX and
Wi-Fi
technologies will be commercially deployed and generate revenue.
|
|
·
|
We
do not expect that our PacketVideo subsidiary will require substantial
working capital funding in 2007.
|
|
·
|
GO
Networks, Inc., acquired in February 2007, develops high-performance
mobile Wi-Fi systems for commercial and municipal service providers.
In
2007, we expect GO Networks will require working capital funding
to invest
in establishing worldwide sales and distribution channels, along
with high
volume manufacturing capabilities and related administrative and
information technology systems to support anticipated unit volume
growth.
|
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, such as 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 Notes and our Series A Senior Convertible Preferred Stock 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 additional indebtedness would result in additional 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.
Critical
Accounting Policies and Estimates
Other
than the adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109,” there were no
significant changes in our critical accounting policies or estimates from those
at December 30, 2006. See our discussion below for additional information on
the
recent accounting pronouncements impacting our business.
Recent
Accounting Pronouncements
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. 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. Adoption of this interpretation did not have a material impact
on
our financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“SFAS 157”). This Standard defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 is effective for our fiscal year that begins on December 30, 2007.
We
are in the process of evaluating the impact of the adoption of SFAS No.
157.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure certain financial assets and liabilities and
other
eligible items at fair value, which are not otherwise currently required to
be
measured at fair value. Under SFAS 159, the decision to measure items at fair
value is made at specified election dates on an irrevocable
instrument-by-instrument basis. Entities electing the fair value option would
be
required to recognize changes in fair value in earnings and to expense upfront
cost and fees associated with the item for which the fair value option is
elected. Entities electing the fair value option are required to distinguish
on
the face of the statement of financial position, the fair value of assets and
liabilities for which the fair value option has been elected and similar assets
and liabilities measured using another measurement attribute. If elected, SFAS
159 is effective for our fiscal year that begins on December 30, 2007, with
earlier adoption permitted provided that the entity also early adopts all of
the
requirements of SFAS 159. We are currently evaluating whether or not to elect
the option provided for in this standard.
Contractual
Obligations
The
following table summarizes our contractual obligations at March 31, 2007, and
significant contractual obligations entered into subsequent to that date, 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
2007
|
|
Years
2008- 2009
|
|
Years
2010- 2011
|
|
Years
2012 and Thereafter
|
|
Long-term
obligations
|
|
$
|
393,197
|
|
$
|
2,104
|
|
$
|
11,130
|
|
$
|
356,444
|
|
$
|
23,519
|
|
Spectrum
lease pending FCC approval
|
|
|
6,084
|
|
|
96
|
|
|
192
|
|
|
228
|
|
|
5,568
|
|
Services
and other purchase agreements
|
|
|
18,006
|
|
|
3,871
|
|
|
7,074
|
|
|
7,061
|
|
|
—
|
|
Capital
expenditures
|
|
|
9,543
|
|
|
9,543
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating
leases
|
|
|
33,975
|
|
|
6,260
|
|
|
15,475
|
|
|
10,504
|
|
|
1,736
|
|
Series
A Senior Convertible Preferred Stock
(2)
|
|
|
355,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
355,000
|
|
Total
|
|
$
|
815,805
|
|
$
|
21,874
|
|
$
|
33,871
|
|
$
|
374,237
|
|
$
|
385,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
contractual obligation entered into subsequent to March 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pending
business acquisition(3)
|
|
|
25,000
|
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
____________________________________________________________________________
|
(1) |
Totals
presented do not include interest or dividend payments. Please refer
to
the Notes to Consolidated Financials Statements for information on
respective interest rates, interest and dividend payment
dates.
|
|
(2) |
We
will be required to redeem all outstanding shares of Series A Preferred
Stock, if any, on March 28, 2017, at a price equal to the liquidation
preference plus unpaid dividends. Each share of Series A Preferred
Stock
is convertible into a number of shares of our common stock equal
to the
liquidation preference then in effect divided by $11.05 and is convertible
at any time at the option of the holder, or at our election after
September 28, 2008, subject to the trading price of our common stock
reaching $22.10 for a specified period of time, subject to adjustment.
The
Series A Preferred Stock is entitled to receive quarterly dividends
on the
liquidation preference at a rate of 7.5% per annum. Until March 28,
2011,
we can elect whether to declare dividends in cash or to not declare
and
pay dividends, in which case the per share dividend amount will be
added
to the liquidation preference. At March 31, 2007, the liquidation
preference totaled $355.2 million. If all shares of Series A Preferred
Stock were converted at March 31, 2007, we would be obligated to
issue
32.1 million shares of our common stock.
|
|
(3) |
In May 2007, we acquired IPWireless
Inc. for
$25.0 million in cash plus 7.7
million in
shares of our common stock, valued at $75.0 million.
Additional consideration of up to $135.0 million will be paid based
upon
the achievement of certain revenue milestones between 2007 and 2009,
as
specified in the agreement, with potential payments of up to $50.0
million
in late 2007 or 2008, up to $7.5 million in 2008, up to $24.2 million
in
2009 and up to $53.3 million in 2010. If earned, up to $114.0 million
of
such additional consideration is payable in cash or shares of common
stock
at our election and up to $21.0 million of such amounts are payable
in
cash or shares of common stock at the election of representatives of
IPWireless shareholders. |
ITEM
3. Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
At
March
31, 2007, our investment portfolios included unrestricted and restricted
investment securities with fair values of $381.0 million and $75.0 million,
respectively. 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.
Foreign
Currency Risk
We
conduct our business through subsidiaries in Europe, Israel, Asia-Pacific and
North America. Substantially all of our sales to customers located in foreign
countries are denominated in U.S. dollars, minimizing foreign currency risks
related to those transactions. Our foreign subsidiaries use the U.S. dollar
as
their functional currency. Accordingly, monetary assets and liabilities are
translated into U.S. dollars at the exchange rate in effect at the balance
sheet
date. Revenues, expenses, gains and losses associated with monetary assets
and
liabilities are translated at the rates of exchange that approximate the rates
in effect at the transaction date. Non-monetary assets and liabilities and
related elements of revenues, expenses, gains and losses are translated at
historical rates. Resulting exchange gains or losses of these foreign investees
are recognized in the consolidated statements of operations. Changes in currency
exchange rates have affected, and will continue to affect our operating costs
and net loss.
ITEM
4. Controls
and Procedures
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), that are designed to provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms, and that such information
is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required financial disclosures. Because of inherent
limitations, our disclosure controls and procedures, no matter how well designed
and operated, can provide only reasonable, and not absolute, assurance that
the
objectives of such disclosure controls and procedures are met.
In
connection with the preparation of our year end financial statements, our
principal executive officer and principal financial officer concluded that
our
disclosure controls and procedures were not effective as of December 30, 2006.
In particular, in connection with the restatement of our previously issued
unaudited quarterly financial statements for the year ended December 30, 2006,
management identified certain control deficiencies that represent a material
weakness in our internal control over financial reporting, as more fully
described below. Subsequently, the Company amended its quarterly report filed
on
Form 10-Q for the quarterly period ended on September 30, 2006, and included
corrected interim unaudited condensed consolidated financial statements for
the
first three quarters of 2006, together with restatement adjustments, in the
Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission on March 30, 2007. Because
all material information relating to the restatement was provided in our 2006
Form 10-K, and because our predecessor NextWave Wireless LLC has terminated
its
SEC reporting obligations, the Form 10-Qs filed by our predecessor
NextWave Wireless LLC for the fiscal quarters ended April 1, 2006 and July
1,
2006 have not been amended to reflect the restatement and accordingly should
not
be relied upon.
The
Company's principal executive officer and principal financial officer concluded
that disclosure controls and procedures were not effective as of March 31,
2007,
solely because of the material weakness in the Company's internal control over
financial reporting relating to revenue recognition pursuant to software
contracts of PacketVideo, as described below. As
a
result of the restatement of our previously issued unaudited quarterly financial
statements and notwithstanding the material weakness described below, management
believes that the consolidated financial statements included in this Quarterly
Report fairly present, in all material respects, our financial position, results
of operations and cash flows for the periods presented.
The
Company has determined that there was a material weakness in its internal
control over financial reporting relating to revenue recognition pursuant to
software contracts of PacketVideo. The Company’s failure to properly apply
software revenue recognition principles resulted from a lack of a sufficient
number of employees with appropriate levels of knowledge, expertise and training
in the application of generally accepted accounting principles relevant to
software revenue recognition. The Company will be required to provide an
assessment of the effectiveness of the Company’s internal control structure and
procedures for financial reporting when it files its Annual Report on Form
10-K
for the fiscal year ended December 29, 2007. Management has commenced action
to
remediate the material weakness described above, including an evaluation of
the
accounting management staff, systems and policies relating to revenue
recognition at PacketVideo and has initiated a management review of sales
contracts.
In
order
to provide our assessment of the effectiveness of our internal control structure
and procedures for financial reporting within the prescribed period, management
has commenced a Sarbanes-Oxley 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 (aside from the
deficiency relating to our PacketVideo subsidiary described herein), 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 March 31, 2007, 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.
PART
II. OTHER
INFORMATION
ITEM
1. Legal
Proceedings
From
time
to time, we are a party to various legal proceedings that arise in the ordinary
course of our business. While we presently believe that the ultimate outcome
of
any such proceedings, individually and in the aggregate, will not have a
material adverse effect on our financial position, cash flows or overall trends
in results of operations, litigation is subject to inherent uncertainties,
and
unfavorable rulings could occur. For example, we are currently engaged in a
dispute relating to a lease of EBS spectrum covering the Toms River, New Jersey
geographic area. The lessor has claimed that we are in breach of the terms
of
the lease and that the lease has been terminated. The interested parties in
the
case have reached a settlement under which we have agreed to the termination
of
the lease of the Toms River spectrum in exchange for the assignment of a lease
of EBS spectrum covering the Mobile, Alabama geographic area. The parties are
in
the process of finalizing definitive agreements to implement the settlement.
Under the terms of the settlement, all litigation proceedings relating to the
lease termination shall cease and will be dismissed with prejudice.
Proceedings
under Chapter 11 of the Bankruptcy Code. On
June
8, 1998, NextWave Personal Communications Inc., NextWave Power Partners Inc.
and
the predecessor to NextWave Wireless Inc., all direct and indirect wholly owned
subsidiaries of NextWave Telecom Inc., filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the United Sates Bankruptcy Court
for
the southern District of New York. On December 23, 1998, NextWave Telecom Inc.
filed its voluntary petition, in order to implement an overall corporate
restructuring. On March 1, 2005, the Bankruptcy Court confirmed the Third Joint
Plan of Reorganization, dated January 21, 2005. The cornerstone of the Plan
of
Reorganization was the sale of NextWave Telecom and its subsidiaries, excluding
the predecessor to NextWave Wireless inc., to Verizon Wireless for approximately
$3.0 billion. Pursuant to the Plan of Reorganization, on April 13, 2005, all
non-PCS assets and liabilities of the NextWave Telecom group were contributed
to
the predecessor to NextWave Wireless Inc., and the predecessor to NextWave
Wireless Inc. was capitalized with $550.0 million in cash. Through this process,
the predecessor to NextWave Wireless Inc. was reconstituted as a company with
a
new capitalization and a new wireless technology business plan. All claims
made
in connection with the Chapter 11 case have been resolved and NextWave has
filed
a motion for a decree of final judgment in the case.
ITEM
1A. Risk
Factors
In
addition to the other information set forth in this Quarterly Report on Form
10-Q, you should carefully consider the factors discussed under “Risk Factors”
in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 30, 2007. There have been no material changes from the
risk
factors previously disclosed in the Company’s Annual Report on Form 10-K for the
year ended December 30, 2006 in response to Item 1A to Part 1 of Form 10-K.
These risks could materially and adversely affect our business, financial
condition and results of operations. The risks described in our Annual Report
on
Form 10-K 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
Issuance
of Series A Senior Convertible Preferred Stock
As
previously reported in our Annual Report on Form 10-K filed with the SEC on
March 30, 2007, on March 28, 2007, we issued and sold 355,000 shares of our
Series A Senior Convertible Preferred Stock (the “Series A Preferred Stock”) at
a price of $1,000 per share. We received $355.0 million in gross funds from
the
sale of the Series A Preferred Stock, which after reduction for financial
advisor and other fees of $3.9 million resulted in $351.1 million in net
proceeds. The net proceeds will be used to fund operations, accelerate the
development of new wireless technologies, expand the company’s business, and
enable future strategic acquisitions. The purchasers of the Series A Preferred
Stock include, in addition to other investment funds and institutional
investors, Navation, Inc., an entity owned by Allen Salmasi, our Chairman and
Chief Executive Officer, Manchester Financial Group, L.P., an entity indirectly
owned and controlled by Douglas F. Manchester, a member of our Board of
Directors, and affiliates of Avenue Capital, of which a member of our Board
of
Directors, Robert Symington, is a portfolio manager. None of the affiliated
purchasers received any compensation in connection with the financing and all
investors were subject to the same terms and conditions in connection with
the
investment. An independent committee of our Board of Directors reviewed and
approved the Series A Preferred Stock issuance and the participation of the
affiliated investors.
Dividend
Rights.
The
Series A Preferred Stock is entitled to receive quarterly dividends on the
liquidation preference at a rate of 7.5% per annum. Until March 28, 2011, we
can
elect whether to declare dividends in cash or to not declare and pay dividends,
in which case the per share dividend amount will be added to the liquidation
preference. From and after March 28, 2011, we must declare dividends in cash
each quarter, subject to applicable law. The dividend rate is subject to
adjustment to 10% per annum if we default in our dividend payment obligations,
fail to file a shelf registration statement with the Securities and Exchange
Commission on or prior to July 31, 2007, or fail to cause the shelf registration
statement to be declared effective on or prior to November 30, 2007. The
dividend rate is also subject to adjustment to 15% per annum if we fail to
comply with the protective covenants of the Series A Preferred Stock described
below and to 18% per annum if we fail to convert or redeem the Series A
Preferred Stock when required to do so, as described below.
Voting
Rights.
Pursuant
to the terms of the Series A Preferred Stock, so long as at least 25% of the
issued shares of Series A Preferred Stock remain outstanding, and until the
date
on which we elect to redeem all shares of Series A Preferred Stock in connection
with an asset sale, as described below, we must receive the approval of the
holders of shares representing at least 75% of the Series A Preferred Stock
then
outstanding to (i) incur indebtedness in excess of $500 million, subject to
certain adjustments and exceptions, (ii) create any capital stock that is senior
to or on a parity with the Series A Preferred Stock in terms of dividends,
distributions or other rights, or (iii) consummate asset sales involving the
receipt of gross proceeds of, or the disposition of assets worth, $500 million
or more based on their fair market value. In addition, so long as at least
25%
of the issued shares of Series A Preferred Stock remain outstanding, we may
not
distribute rights or warrants to all holders of our common stock entitling
them
to purchase shares of our common stock, or consummate any sale of our common
stock, for an amount less than the fair market value on the date of issuance,
with certain exceptions. With respect to other matters requiring stockholder
approval, the shares of Series A Preferred Stock will be entitled to vote as
one
class with the common stock on an as-converted basis.
Conversion
Rights and Redemption Rights. Each
share of Series A Preferred Stock is convertible into a number of shares of
our
common stock equal to the liquidation preference then in effect divided by
$11.05. The Series A Preferred Stock is convertible at any time at the option
of
the holder, or at our election after September 28, 2008, subject to the trading
price of our common stock reaching $22.10 for a specified period of time, except
that such threshold price will be reduced to $16.575 on the earlier of March
28,
2010, or our consummation of a qualified public offering. We will not be
entitled to convert the Series A Preferred Stock at our election unless a shelf
registration statement covering the shares of common stock issued upon
conversion is then effective or the shares are no longer considered restricted
securities under the Securities Act. At March 31, 2007, the liquidation
preference totaled $355.2 million. If all shares of Series A Preferred Stock
were converted at March 31, 2007, we would be obligated to issue 32,146,776
shares of our common stock.
We
will
be required to redeem all outstanding shares of Series A Preferred Stock, if
any, on March 28, 2017, at a price equal to the liquidation preference plus
unpaid dividends. If we elect to convert the Series A Preferred Stock after
our
common stock price has reached the qualifying threshold, we must redeem the
shares of holders of Series A Preferred Stock who elect not to convert into
common stock at a price equal to 130% of the liquidation preference. However,
we
are not required to redeem more than 50% of the shares of Series A Preferred
Stock subject to any particular conversion notice. In the event that we fail
to
obtain approval of the holders of Series A Preferred Stock to an asset sale
transaction, we must either not consummate such asset sale or elect to redeem
all shares of Series A Preferred Stock at a redemption price equal to 120%
of
the liquidation preference. Holders will be entitled to opt-out of such a
redemption.
Right
to Receive Liquidation Distributions.
The
Series A Preferred Stock has an initial liquidation preference of $1,000 per
share, subject to increase for accrued dividends as described above. The
liquidation preference would become payable upon redemption, as described above,
upon a liquidation or dissolution of our company, or upon deemed liquidation
events including a change in control, merger or sale of all or substantially
all
our assets, unless the holders of Series A Preferred Stock provide a 75% vote
to
not treat a covered event as a deemed liquidation. Upon a deemed liquidation
event, the Series A Preferred Stock will be entitled to receive an amount per
share equal to the greater of 120% of the liquidation preference or the amount
that would have been received if such share had converted into common stock
in
connection with such event.
The
Series A Preferred Stock was issued in a private placement transaction exempt
from the registration requirements of the Securities Act of 1933 pursuant to
Regulation D thereof, and the shares of Series A Preferred Stock and common
stock issuable upon conversion may not be transferred absent an exemption from
registration or pursuant to an effective registration statement. To establish
the Regulation D exemption, we obtained certifications from each investor to
the
effect that such investor qualified as an “accredited investor” under Regulation
D, and did not engage in any general solicitation in connection with the
placement. In connection with the issuance of the Series A Preferred Stock,
we
entered into a registration rights agreement pursuant to which we agreed to
file
a shelf registration statement for the resale of the Series A Preferred Stock
and common stock issuable upon conversion with the Securities and Exchange
Commission by no later than July 31, 2007.
During
the three months ended March 31, 2007, we acquired 274 shares of our common
stock that were tendered in lieu of cash of $3,177 by holders exercising their
warrants.
ITEM
3. Defaults
Upon Senior Securities
Not
applicable.
ITEM
4. Submission
of Matters to a Vote of Security Holders
Not
applicable.
ITEM
5. Other
Information
Not
Applicable.
ITEM
6. Exhibits
10.1
|
Agreement
and Plan of Merger, dated as of December 31, 2006, by and among NextWave
Wireless Inc., GO Acquisition Corp., GO Networks, Inc. and Nechemia
J.
Peres as Stockholder Representative (incorporated by reference to
Exhibit
2.1 to the Current Report on Form 8-K of NextWave Wireless Inc. filed
January 3, 2007).
|
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. |
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.
SIGNATURES
|
|
NEXTWAVE
WIRELESS INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
May
11, 2007
|
|
By:
/s/ George
C. Alex
|
(Date)
|
|
George
C. Alex
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
Index
to
Exhibits
Exhibit
No.
|
|
Description
|
10.1
|
|
Agreement
and Plan of Merger, dated as of December 31, 2006, by and among NextWave
Wireless Inc., GO Acquisition Corp., GO Networks, Inc. and Nechemia
J.
Peres as Stockholder Representative (incorporated by reference to
Exhibit
2.1 to the Current Report on Form 8-K of NextWave Wireless Inc. filed
January 3, 2007).
|
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.
|
|
|