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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number 000–21091

FIRST AVENUE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

230 Court Square, Suite 202, Charlottesville, VA 22902

(Address of principal executive offices )

(434) 220-4988

(Registrant’s telephone number, including area code)

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 x No ¨.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court: Yes x No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934): Yes ¨ No x.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: Pursuant to its plan of reorganization, the registrant has 20,000,000 shares of its common stock outstanding as of July 18, 2003. As of such date, 18,512,064 shares have been distributed pursuant to the plan of reorganization.

FIRST AVENUE NETWORKS, INC.

INDEX

PART I. FINANCIAL INFORMATION

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ITEM 1.    Financial Statements

FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST AVENUE NETWORKS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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First Avenue Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1—The Company and Basis of Presentation

First Avenue Networks, Inc. (collectively with its subsidiaries, the “Company”) owns over 750 wireless telecommunication licenses granted by the Federal Communications Commission (“FCC”) that provide coverage of substantially all of the continental United States with 39 GHz spectrum. This license portfolio represents over 980 million channel pops, calculated as number of channels in a given area multiplied by the population covered by these channels.

The Company was previously known as Advanced Radio Telecom Corp. (“ART”). In February 2002, the shareholders approved amendments to the Certificate of Incorporation to change the Company’s name to First Avenue Networks, Inc. ART, with its subsidiaries, filed a voluntary petition with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) for protection under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) on April 20, 2001 (the “Petition Date”).

On October 31, 2001, the Bankruptcy Court approved the Company’s Plan of Reorganization filed with the Bankruptcy Court on September 27, 2001 (the “Plan”). On December 20, 2001 (the “Effective Date”), the Company met all of the Conditions Precedent to the Effective Date (as defined), the Plan was effective and the Company emerged from proceedings under Chapter 11 of the Bankruptcy Code. For financial reporting purposes, the Company reflected its emergence from bankruptcy as of the close of business on December 31, 2001.

The Company is subject to all of the risks inherent in an early-stage business in the telecommunication industry. These risks include, but are not limited to: limited operating history; management of a changing business; reliance on other third parties; competitive nature of the industry; development and maintenance of efficient technologies to support the business; employee turnover; and, operating cash requirements. Management expects operating losses and negative cash flows to continue for the foreseeable future. Failure to generate sufficient revenues could have a material adverse effect on the Company’s results of operations, financial condition and cash flows. The recoverability of assets is highly dependent on the ability of management to execute its business plan.

Interim financial statements – Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. The accompanying interim condensed consolidated financial statements are unaudited. In the opinion of Company management, these financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods presented. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2002 audited consolidated financial statements and notes thereto contained in the Company’s 2002 Annual Report on Form 10-K.

Use of estimates – Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from those estimates. The more significant estimates made by management include fair values of assets and liabilities, accrued property and use taxes and realization of deferred tax assets.

FCC licenses – FCC licenses are granted for initial ten-year terms with renewal dates ranging from 2006 to 2011. Under the provisions of Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), FCC licenses are deemed to have an indefinite useful life and are not amortized.

Impairment of long-lived assets – The Company evaluates its long-lived assets for impairment and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In cases where undiscounted expected cash flows associated with such assets are less than their carrying value, an impairment provision is recognized in an amount by which the carrying value exceeds the estimated fair value of such assets. Recoverability of the carrying value of FCC licenses is dependent on successful deployment of networks and radio links or sales of such assets to a third party. The Company considers the FCC licenses to have an indefinite useful life under the provisions of SFAS No. 142. The Company performs an annual impairment test on this asset. If events and circumstances indicate the assets might be impaired, the Company will perform such a test on an interim basis. The impairment test compares the fair value of the FCC licenses with the carrying value of the asset. If the fair value is less than the carrying values an impairment loss will be recorded.

Net loss per share – Calculation of loss per share for the three months and six months ended June 30, 2003 and 2002 excludes the effect of warrants and options to purchase 4.0 million and 940,000, respectively, shares of common stock since inclusion in such calculation would have been antidilutive.

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Stock options – The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, including Financial Accounting Standards Board Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation”, for its stock-based compensation plan. Accordingly, compensation cost for stock options granted to employees and directors is measured as the excess, if any, of fair value of company stock over exercise price at the measurement date, except when the plan is determined to be variable in nature. The Company accounts for equity stock options granted to non-employees at fair value.

The following table summarizes relevant information as to reported results under the Company’s intrinsic value method of accounting for stock awards, with supplemental information as if the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation,” (SFAS 123) as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” (SFAS 148) had been applied (in thousands, except per share data):

Note 2—Related Party Transactions

Holders of approximately 59% of the Company’s common stock own approximately 93% of the outstanding senior notes and Class A Warrants. Representatives from two entities holding approximately 45% of the Company’s common stock serve on the Company’s Board of Directors.

Note 3—Commitments and Contingencies

Contingencies – The Company is subject to certain claims and assessments and makes routine filings with the FCC and state regulatory authorities. Management believes that resolution of any such claims or matters arising from such filings, if any, will not have a material adverse impact on the Company’s consolidated financial position or results of operations.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement—This report includes “forward-looking” information, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases, regarding, among other things, our financial and business prospects, the deployment of our services, capital requirements and financing prospects. The Company cautions investors that any such statements are based on currently available operational, financial and competitive information, and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors. Those factors include, among others, those matters disclosed as Risk Factors at the end of the business section of the Company’s most recently filed Annual Report on Form 10-K.

Overview

The Company holds over 750 licenses granted by the Federal Communications Commission (“FCC”) and provides wireless, high-speed, point-to-point telecommunications services to 13 customer links. The Company engineered these telecommunication links, purchased and installed radios and tested the links for proper operation and reliability. Its customers incorporate these fixed wireless transmission links into their telecommunication networks and utilize wireless links to provide a primary telecommunication link or, in other cases, redundancy, back up or diversity to other telecommunication services.

The Company’s recoverability of its investment in FCC licenses is dependent on its successful execution of its business plan.

The Company’s strategy is to utilize its FCC licenses to provide telecommunications services in a capital efficient manner. In the short-term, the Company will seek to identify, contact and serve existing telecommunications carriers in a manner that does not require significant sales and marketing, operating and capital expenditures. Its long-term objective is to develop its business plan in response to carrier, business and other end-user customer demands for wireless, high-speed services.

From its inception in 1993 through the first quarter of 2001, the Company acquired airwave capacity, or spectrum rights, through FCC auctions and purchase transactions, raised capital through public and private offerings of securities, acquired equipment and roof rights, and developed operating and support systems and networks. In 1998, it began to sell a variety of Internet services to end-users in Seattle, WA, Portland, OR, and Phoenix, AZ. In late 1999, the Company’s strategy evolved to providing high-speed transmission services, including Internet access to businesses. During 2000, it launched these services in ten markets. In the first quarter of 2001, the Company was unable to secure additional funding sources to continue to finance operations and service debt.

Reorganization

The Company sought reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (“Court”) on April 20, 2001 (the “Petition Date”). It terminated nearly all of its employees, terminated operation of its networks and eliminated customer support. A Joint Plan of Reorganization (“Plan”) was developed and was approved by the Court on October 31, 2001. On December 20, 2001 (“Effective Date”), the Plan was effective and the Company emerged from the proceedings under Chapter 11 of the United States Bankruptcy Code pursuant to the terms of the Plan.

Under the Plan, the Company issued 20 million shares of new post-Chapter 11 common stock (“New Common Stock”) to unsecured creditors and holders of Series A Preferred Stock (“Old Preferred Stock”). Each holder of an unsecured claim received its pro rata share of 19 million shares of New Common Stock. Each holder of Old Preferred Stock received its pro rata share of 1 million shares of New Common Stock. Holders of pre-chapter 11 common stock (“Old Common Stock”) and holders of any other equity interest received no distributions under the Plan. All Old Common Stock, Old Preferred Stock and all other equity interests such as employee stock options and warrants were cancelled on the Effective Date. As of July 18, 2003, the Company has distributed 18,512,064 shares to unsecured creditors and holders of Old Preferred Stock. The remaining 1,487,936 shares will be distributed once all bankruptcy claims have been resolved. (See Liquidity and Capital Resources for further discussion.)

Prior to the Company’s reorganization, it incurred significant operating costs and interest expense. While pursuing its short-term strategy, the Company expects significantly less costs in these areas. The Company also expects its general and administrative and sales and marketing costs to be less than those incurred prior to its reorganization.

Results of Operations

Six months ended June 30, 2003 compared to six months ended June 30, 2002

Revenues for the six months ended June 30, 2003, decreased 40% to $90,000 from $149,000—for the six months ended June 30, 2002 as a result of the number of dedicated wireless links decreasing from 21 at June 30, 2002 to 13 at June 30, 2003.

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Technical and network operations costs and expenses are comprised primarily of roof-top rent and backhaul. Technical and network operations costs and expenses decreased 92% to $2,000 for the six months ended June 30, 2003, compared to $25,000 for the six months ended June 30, 2003. This decrease resulted from the decrease in the number of facilities rented to provide service to 13 dedicated links. Technical and network operations costs and expenses were 2% and 17% of revenues for the six months ended June 30, 2003 and 2002, respectively.

Sales and marketing costs and expenses are comprised primarily of compensation and related costs. These costs decreased 13% to $100,000 for the six months ended June 30, 2003, compared to $115,000 for the six months ended June 30, 2002. Sales and marketing costs and expenses were 111% and 77% of revenues for the six months ended June 30, 2003 and 2002, respectively.

General and administrative costs and expenses decreased 50% to $589,000 for the six months ended June 30, 2003 from $1.2 million for the six months ended June 30, 2002. This decrease resulted from the absence of expenses in the three month period ended June 30, 2003 that were incurred during the six months ended June 30, 2002 to finalize the bankruptcy process. During the six months ended June 30, 2002, the Company employed three of the predecessor company’s employees to finalize bankruptcy matters. Additionally, the Company incurred significant legal fees as a result of finalizing the bankruptcy process. General and administrative costs and expenses for the six months ended June 30, 2003 primarily consist of compensation, occupancy expenses, professional fees and insurance. General and administrative costs and expenses were 654% and 787% of revenues for the six months ended June 30, 2003 and 2002, respectively.

Depreciation and amortization expense of $4,000 for the six months ended June 30, 2003 decreased 73% from $15,000 for the six months ended June 30, 2002. This decrease was due to the closure of the predecessor’s Kent, WA facility and sale of assets in the six months ended June 30, 2002. Depreciation and amortization expense was 4% and 10% of revenues for the six months ended June 30, 2003 and 2002, respectively.

Interest and other expenses decreased to $494,000 for the six months ended June 30, 2003 from $872,000 for the six months ended June 30, 2002. This change primarily is attributable to (i) a $173,000 decrease in interest expense as a result of the Company ceasing in 2003 to record interest on pre-petition amounts due to various state and local governments for use and personal property taxes reported as other non-current liabilities and (ii) $377,000 in other income recorded during the six months ended June 30, 2003 as a result of settling disputed bankruptcy claims for amounts less than the recorded liability.

During the six months ended June 30, 2003, the Company increased its deferred tax valuation allowance to equal its deferred tax asset based upon management’s determination that the recognition criteria for realization had not been met.

Three months ended June 30, 2003 compared to three months ended June 30, 2002

Revenues for the three months ended June 30, 2003, decreased 50% to $37,000 from $74,000 for the three months ended June 30, 2002 as a result of the number of dedicated wireless links decreasing from 21 at June 30, 2002 to 13 at June 30, 2003.

Technical and network operations costs and expenses are comprised primarily of roof-top rent and backhaul. Technical and network operations costs and expenses decreased 86% to $1,000 for the three months ended June 30, 2003, compared to $7,000 for the three months ended June 30, 2002. This decrease resulted from the decrease in the number of facilities rented to provide service to 13 dedicated links. Technical and network operations costs and expenses were 3% and 9% of revenues for the three months ended June 30, 2003 and 2002, respectively.

Sales and marketing costs and expenses are comprised primarily of compensation and related costs. These costs decreased 14% to $50,000 for the three months ended June 30, 2003, compared to $58,000 for the three months ended June 30, 2002. Sales and marketing costs and expenses were 135% and 78% of revenues for the three months ended June 30, 2003 and 2002, respectively.

General and administrative costs and expenses decreased 37% to $269,000 for the three months ended June 30, 2003 from $430,000 for the three months ended June 30, 2002. This decrease resulted from the absence of (i) professional expenses incurred during the six months ended June 30, 2002 to finalize the bankruptcy process and (ii) expenses incurred in the three months ended June 30, 2002 to liquidate the Company’s international subsidiaries. General and administrative costs and expenses for the three months ended June 30, 2003 primarily consist of compensation, occupancy expenses, professional fees and insurance. General and administrative costs and expenses were 727% and 581% of revenues for the three months ended June 30, 2003 and 2002, respectively.

Depreciation and amortization expense of $2,000 for the three months ended June 30, 2003 are unchanged from $2,000 for the three months ended June 30, 2002. Depreciation and amortization expense was 5% and 3% of revenues for the three months ended June 30, 2003 and 2002, respectively.

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Interest and other expenses increased to $453,000 for the three months ended June 30, 2003 from $385,000 for the three months ended June 30, 2002. This change is attributable to (i) a $71,000 decrease in interest expense as a result of the Company ceasing in 2003 to record interest on pre-petition amounts due to various state and local governments for use and personal property taxes reported as other non-current liabilities and (ii) a $130,000 decrease in other income. Other income for the three months ended June 30, 2002 included amounts realized by the Company for disposing of assets held for sale.

During the three month period ended June 30, 2003, the Company increased its deferred tax valuation allowance to equal its deferred tax asset based upon management’s determination that the recognition criteria for realization had not been met.

Liquidity and Capital Resources

On April 20, 2001, the Company filed a voluntary petition with the Court for protection under Chapter 11 of the Bankruptcy Code. As a result of the Chapter 11 filing, the Company was prohibited from paying, and creditors were prohibited from attempting to collect, claims or debts arising prior to the Petition Date. On October 31, 2001, the Court approved the Plan. On December 20, 2001, after the Company met all of the Conditions Precedent to the Effective Date (as defined), the Plan was effective and the Company emerged from proceedings under Chapter 11 of the Bankruptcy Code. On the Effective Date of the Plan, the Company:

In February 2002, the Company verified approximately 90% of the holders of unsecured claims and 100% of the holders of Old Preferred Stock and distributed stock certificates of New Common Stock. The Company estimates that it will complete the verification of the remaining holders of unsecured claims by December 31, 2003 and make another distribution of stock certificates of New Common Stock. The Company will not make any additional distributions to holders of Old Preferred Stock.

The Company distributed 17,512,064 and 1,000,000 shares of New Common Stock to holders of unsecured claims and holders of Old Preferred Stock, respectively, in February 2002. Once the Company completes the verification process it will distribute 1,487,936 New Common Shares to settle the remaining unsecured claims. If the verification process results in fewer than 1,487,936 New Common Shares being allocated to settle these claims, the difference between 1,487,936 and the number of shares required to settle the claims will be allocated to the New Common Stock holders who received the stock in settlement of unsecured claims on a pro rata basis relative to their current holdings.

During the six months ended June 30, 2003, operating activities used cash of approximately $862,000 million as compared to $1.3 million during the six months ended June 30, 2002. Cash used by operating activities during the six months ended June 30, 2003 and 2002 resulted primarily from the Company’s net loss reduced by non-cash interest expense and depreciation and amortization.

During the six months ended June 30, 2002 investing activities provided cash of $904,000 primarily due to proceeds of $925,000, net of selling costs, from the sale of its network and other equipment.

Senior Secured Notes are due on December 20, 2006 and are collateralized by all assets of the Company. They bear interest at the rate of 9% per annum that is payable quarterly through the issuance of additional Senior Secured Notes at the Company’s option. Only if an event of default has occurred and is continuing is interest mandatorily payable in cash. During the six months ended June 30, 2003 the Company issued $547,000 of additional Senior Secured Notes for interest. The Senior Note and Class A Warrant Purchase Agreement contains covenants which limit the Company’s ability to incur additional debt, pay dividends or make other distributions, incur liens, merge or sell assets and enter into certain transactions with related parties.

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The Company recorded the issuance of the Senior Secured Notes net of the estimated fair value of the New Class A Warrants at the issuance date. Amortization of debt discount of $409,000 has been determined utilizing the effective interest rate method and is a component of interest expense for the six months ended June 30, 2003.

The Company had cash and cash equivalents of $4.4 million at June 30, 2003. Since its inception, the Company has incurred losses from operations and expects to continue to incur losses in the foreseeable future. The Company has altered its business plan to minimize expenditures and the amount of future capital required. At June 30, 2003, it had three employees and non-cancelable financial commitments of less than $22,000 due in 2003. The Company believes that the cash balance at June 30, 2003 is sufficient to cover its operations and capital requirements through and including 2004.

Critical Accounting Matters and Significant Estimates

The preparation of consolidated financial statements requires management to make judgments based upon estimates and assumptions that are inherently uncertain. Such judgments affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management continuously evaluates its estimates and assumptions, including those related to long-lived assets, inventories, income taxes, contingencies and litigation, and the carrying values of assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

A summary of our most critical accounting policies and significant estimates used in the preparation of our consolidated financial statements is as follows:

Several key assumptions were included in the valuation model: (i) the value of the FCC licenses directly correlates with the public trading value of the Company’s stock and that of other public companies in the telecommunication industry; (ii) certain private purchases of similar licenses are reflective of the fair value of the underlying assets; (iii) the relative weights assigned to each factor represents the level of the factor’s relevancy to the estimation of the fair value of the FCC licenses; and, (iv) the model captures relevant information impacting the fair value of these licenses. Any change in the above assumptions could lead to a different result. The Company will continue to evaluate the fair value of its FCC licenses for impairment as events or changes in circumstances indicate that the carrying value of these assets may not be fully recoverable.

The Company faces various contingencies including the renewal of its FCC licenses in 2006 to 2011 and changing FCC regulations. The loss of some or all of the FCC licenses or the imposition of FCC usage restrictions could adversely affect the Company’s future business prospects and operations and result in an impairment to the carrying value of these intangible assets.

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discount is determined utilizing the effective interest rate method and is included as a component of interest expense. New Senior Notes are reported as of the balance sheet date at their face value less unamortized debt discount.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s existing long-term debt has a fixed interest rate; however, future borrowings may bear interest at variable rates and accordingly, the Company’s exposure to market risk for changes in interest rates may change in the future.

At June 30, 2003, the Company had cash and cash equivalents of $4.4 million that were held in bank accounts and in certificates of deposits with an average interest rate of 1.2% and have an original maturity of less than three months. The Company’s investment policy provides that funds in excess of current operating needs may be invested in cash equivalents, marketable securities issued by the U.S. Government, its agencies and commercial paper of domestic corporations. Its policy prohibits investing in instruments with maturities that exceed 35 days. The Company’s investment priorities are to minimize short-term risk and preserve capital. The Company has had no holdings of derivative financial or commodity instruments in the past and has no current plans to do so in the future. The Company has not conducted business in foreign currencies in the past and has no current plans to do so in the future.

The Company’s long-term debt has a face value of $12.6 million and bears interest at a fixed rate of 9%. The debt is due in full in 2006.

ITEM 4.    CONTROLS AND PROCEDURES

Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the three months ended June 30, 2003, each of the chief executive officer and the chief financial officer of the Company have concluded that the Company’s disclosure controls and procedures are effective in connection with the Company’s filing of this quarterly report on Form 10-Q for the period ended June 30, 2003.

There were no significant changes in the Company’s internal controls or in any other factors which could significantly affect those controls, subsequent to the date of the most recent evaluation of the Company’s internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses.

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PART II — OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Shareholders

The Company held its annual meeting of stockholders (the “Annual Meeting”) on June 2, 2003. Matters submitted to a vote of Company stockholders and voting results were as follows:

Item 6.    Exhibits and Reports on Form 8-K

(a) Exhibits:

(b) Reports on Form 8-K:

A current report on Form 8-K announcing the change in the Company’s certifying accountants from PricewaterhouseCoopers, LLP to KBA Group, LLP was filed with the Securities and Exchange Commission on June 12, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the securities and exchange act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated:

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EXHIBIT INDEX

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