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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended MARCH 31, 2000
OR
[ ] 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: 000-27707
AETHER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 52-2186634
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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11460 CRONRIDGE DR.
OWINGS MILLS, MD
(Address of principal executive offices)
21117
(Zip Code)
(410) 654-6400
(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. (X) Yes ( ) NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, 38,069,596 shares outstanding at May 11, 2000
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AETHER SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
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PAGE
NUMBER
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PART I: FINANCIAL INFORMATION
------------------------------
ITEM 1: FINANCIAL STATEMENTS
Condensed consolidated statements of operations and other comprehensive
loss for the three month periods ended March 31, 2000 and 1999. 3
Condensed consolidated balance sheets as of March 31, 2000 and December
31, 1999 4
Condensed consolidated statements of cash flows for the three months ended
March 31, 2000 and 1999 5
Notes to the condensed consolidated financial statements 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings 19
ITEM 2: Changes in Securities 19
ITEM 3: Defaults Upon Senior Securities 19
ITEM 4: Submission of Matters to a Vote of Security Holders 19
ITEM 5: Other Information 20
ITEM 6: Exhibits and Reports on Form 8-K 20
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
-------- --------
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Subscriber revenue $ 2,929 $ 268
Engineering services revenue 1,403 72
Software and related services revenue 1,069 -
-------- --------
Total revenue 5,401 340
Cost of subscriber revenue 1,732 245
Cost of engineering services revenue 614 36
Cost of software and related services
revenue 678 -
-------- --------
Total cost of revenue 3,024 281
-------- --------
Gross profit 2,377 59
-------- --------
Operating expenses:
Research and development (exclusive
of option and warrant expense of
$998 and $0, respectively) 1,683 470
General and administrative (exclusive
of option and warrant expense of
$1,108 and $23, respectively) 5,362 711
Selling and marketing (exclusive of
option and warrant expense of $339
and $0, respectively) 5,728 257
In process research and development 2,100 -
Depreciation and amortization 17,410 83
Option and warrant expense 2,445 23
-------- --------
34,729 1,544
-------- --------
Operating loss (32,352) (1,485)
Other income (expense):
Interest income (expense), net 2,189 83
Equity in losses of investments (3,107) -
-------- --------
Net loss $(33,270) $ (1,402)
-------- --------
Other comprehensive loss-unrealized
holding gain (loss) on investments
available for sale 60,743 (90)
-------- --------
Comprehensive income (loss) $ 27,473 $ (1,492)
======== ========
Pro forma statement of operations data
Loss before income taxes, as
reported $ (1,402)
Pro forma income tax provision
(benefit) -
--------
Pro forma net loss $ (1,402)
========
Net loss per share-basic
and diluted $ (1.13)
========
Weighted average shares
outstanding-basic and diluted 29,451
========
Pro forma net loss per share-basic
and diluted $ (0.07)
========
Pro forma weighted average shares
outstanding-basic and diluted 19,878
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AETHER SYSTEMS, L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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ASSETS
MARCH 31, DECEMBER 31,
2000 1999
---------------- ---------
(UNAUDITED)
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Current assets:
Cash and cash equivalents $ 1,352,443 $ 78,542
Restricted cash 13,600 -
Short-term investments 3,592 2,092
Trade accounts receivable, net of allowance for doubtful accounts of $92 and
$56 at March 31, 2000 (unaudited) and December 31,1999, respectively 4,005 1,003
Inventory, net of allowance for obsolescence of $115 at March 31, 2000
(unaudited) and December 31,1999 493 688
Prepaid expenses and other current assets 12,629 4,995
----------- ----------
Total current assets 1,386,762 87,320
Property and equipment, net 5,858 2,796
Investments 91,422 75
Intangibles, net 1,162,552 12,209
Other assets 9,818 134
-------------- ----------
$ 2,656,412 $ 102,534
============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,519 $ 1,425
Accrued expenses 3,770 1,620
Accrued employee compensation and benefits 640 971
Deferred revenue 2,580 176
Notes payable 13,600 -
-------------- ------------
Total current liabilities 22,109 4,192
Long term liabilities - convertible subordinated notes payable and other notes
payable 310,721 -
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; 0 shares
issued and outstanding at March 31, 2000 (unaudited) and December 31, 1999 - -
Common stock, $0.01 par value; 75,000,000 shares authorized; 37,900,350 and
27,154,398 shares issued and outstanding at March 31, 2000 (unaudited)
and December 31, 1999, respectively 379 272
Additional paid-in capital 2,318,414 120,892
Accumulated deficit (55,884) (22,614)
Notes receivable from stockholder - (138)
Unrealized gain (loss) on investments available for sale 60,673 (70)
----------- -----------
Total stockholders' equity 2,323,582 98,342
----------- ----------
Commitments and contingencies
$2,656,412 $102,534
========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
-------------------------------
2000 1999
------------ ------------
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Cash flows from operating activities:
Net loss $ (33,270) $ (1,402)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 17,410 83
Equity in losses of investments 3,107 -
Option and warrant expense 2,445 23
In-process research and development charge 2,100 -
Changes in assets and liabilities:
(Increase) decrease in trade accounts
receivable (3,114) 7
Decrease in inventory 195 10
Increase in prepaid expenses and
other current assets (6,620) (20)
Decrease in other noncurrent assets 51 -
Increase (decrease) in accounts payable (295) 43
Increase in accrued expenses and
compensation and benefits 688 14
Increase in deferred revenue 1,874 -
----- ------
Net cash used in operating activities (15,429) (1,242)
------- ------
Cash flows used in investing activities:
Sales of short-term investments 33,425 8,988
Purchases of short-term investments (32,544) 2,707
Purchases of property and equipment (2,294) (285)
Cost of investments (33,138) -
Costs of acquisitions, net of cash acquired (22,523) -
Increase in restricted cash (13,600) -
-------- -----
Net cash provided by (used in)
investing activities (70,674) 5,996
------- -----
Cash flows provided by financing activities:
Net proceeds from issuance of common stock 1,058,565 -
Net proceeds from issuance of convertible debt 300,765 -
Proceeds from exercise of options 674 -
--- -----
Net cash provided by financing
activities 1,360,004 -
--------- -----
Net increase in cash and cash 1,273,901 4,754
equivalents
Cash and cash equivalents, at beginning of
period 78,542 1,755
------ -----
Cash and cash equivalents, at end of period 1,352,443 6,509
--------- -----
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $- $-
== ==
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AETHER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental disclosure of non-cash investing and financing activities:
In January 2000, approximately $600,000 of trade receivables owed to the Company
by OmniSky, Inc. were offset by the Company's additional investment made in
OmniSky, Inc.
In March, 2000, the Company acquired Riverbed Technologies, Inc. for 4,537,281
shares of the Company's common stock and converted existing options held by
Riverbed employees into options to acquire 862,480 shares of the Company's
common stock. The value of the common stock and replacement options of $1.136
billion has been allocated to the fair value of the assets purchased and
liabilities assumed with a corresponding increase in stockholders' equity.
For the three months ended March 31, 2000 and 1999 (unaudited), the Company
incurred an unrealized net holding gain (loss) associated with its
investments available for sale totaling $60.7 million and ($90,000),
respectively. These amounts have been reported as an increase (decrease) in
stockholders' equity.
See accompanying notes to condensed consolidated financial statements.
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AETHER SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Aether
Systems, Inc. and its subsidiaries. The condensed consolidated balance sheet as
of March 31, 2000, the condensed consolidated statements of operations and other
comprehensive loss for the three months ended March 31, 2000 and 1999, and the
condensed consolidated statements of cash flows for the three months ended March
31, 2000 and 1999 have been prepared by the Company, without audit. In the
opinion of management, all adjustments have been made, which include normal
recurring adjustments necessary to present fairly the condensed consolidated
financial statements. Operating results for the three months ended March 31,
2000 are not necessarily indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
provided are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the audited consolidated
financial statements and related notes included in the Company's Annual Report
for the year ended December 31, 1999 on Form 10-K.
(2) SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company derives subscriber revenue primarily from the provision of
real-time access to information from selected financial markets integrated into
existing wireless communication platforms. Subscriber revenue consists of
monthly fixed charges for usage and equipment and is recognized as the service
is provided on a monthly basis and a one-time non-refundable activation fee,
which is recognized upon service activation. Direct activation costs are
expensed as incurred. Certain of the Company's customers are billed in advance
with revenue deferred and recognized on a monthly basis over the term of the
agreement. Also included in subscriber revenue are market exchange fees for
access to financial information from the securities exchanges and markets, which
are recognized as the service is provided. The Company also recognizes fees for
managing data through its network operations center. Engineering services
revenue is derived from the provision of wireless integration consulting under
time-and-materials and fixed-fee contracts. Revenue on time-and-materials
contracts is recognized as services are performed. Revenue on fixed-fee
contracts is recognized on the percentage-of-completion method based on costs
incurred in relation to total estimated costs. Anticipated contract losses are
recognized as soon as they become known and estimable. Software and related
services revenues are generated from licensing software and providing services,
including maintenance and technical support, training and consulting. Software
revenue consists of fees for licenses of the Company's software products. The
Company recognizes the revenue when the license agreement is signed, the license
fee is fixed and determinable, delivery of the software has occurred, and
collectibility of the fees is considered probable. Revenue from software
licensing and related wireless engineering consulting services for which the
software requires significant customization and modification is recognized using
the percentage of completion method in accordance with SOP 97-2, based on the
hours incurred in relation to the total estimated hours. Services revenue
consists of maintenance and technical support, which consists of unspecified
when-and-if available product updates and customer telephone support services,
are recognized ratably over the term of the service period. Other services
revenues are recognized as the related services are provided.
(b) Cost of Revenues
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs, and securities and market exchange
fees. Since the Company's service agreements are generally for a one-year period
and subject to cancellation, non-payment and non-return risk, the Company
expenses the cost of wireless handheld devices upon shipment to the customer.
Cost of engineering services revenue consists of cash compensation and related
costs for engineering personnel and materials. The cost of software license
revenue consists primarily of third party royalties. The cost of maintenance,
consulting and support revenue consists primarily of personnel-related costs.
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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, CONTINUED
(c) Pro Forma Condensed Consolidated Statements of Operations Data and Net Loss
Per Share
Prior to the closing of the Company's initial public offering on October 26,
1999, each member of Aether Systems, L.L.C. contributed its membership units in
Aether Systems, L.L.C. to Aether Systems, Inc. in exchange for two and one-half
shares of common stock of Aether Systems, Inc. Following such contribution,
Aether Systems, L.L.C. was merged with and into Aether Systems, Inc., as a
result of which all assets and liabilities of Aether Systems, L.L.C. were
transferred to Aether Systems, Inc. Aether Systems, Inc. is subject to Federal
and state taxes at prevailing corporate rates. Accordingly, pro forma condensed
consolidated statements of operations data is based on the assumption that
Aether Systems, L.L.C.'s merger with and into Aether Systems, Inc., had occurred
at the beginning of each period. The Company has provided no income taxes on a
pro forma basis due to the losses incurred in all periods.
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net income (loss) per
share is computed by dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Pro forma basic and diluted net loss per share has been calculated assuming that
the capital structure established at the date of the initial public offering was
in effect during the periods presented. As the Company had a net loss in each of
the periods presented, basic and diluted net loss per share are the same.
(d) Income Taxes
The Company recognizes income taxes using the asset and liability method, in
accordance with Statement of Financial Accouting Standards ("SFAS") No. 109.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a tax rate change on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date.
Prior to October 26, 1999, Aether had elected limited liability status and,
as such, was not directly subject to Federal and state income taxes. Rather, the
members were responsible for income taxed on their proportionate share of
taxable income and entitled to their proportionate share of tax deductions and
tax credits.
(e) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(f) Other Comprehensive Loss
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which established standards for reporting and displaying
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes changes in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. Other comprehensive income refers to revenue, expenses, gains and
losses that under generally accepted accounting principles are included in
comprehensive income, but excluded from net income.
As of March 31, 2000 and 1999, other comprehensive income (loss) consists of
unrealized gains (losses) on investments available for sale.
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(3) INITIAL PUBLIC OFFERING
On October 26, 1999, the Company completed an initial public offering of
6,900,000 shares, including 900,000 shares from the exercise of the
underwriters' over-allotment option, at a price of $16.00 per share, and
received net proceeds (after expenses of the offering) of approximately $100.8
million. Immediately prior to the closing of this offering, members of Aether
Systems, L.L.C. contributed their units in the limited liability company to
Aether Systems, Inc., a newly formed Delaware corporation in exchange for two
and one-half shares of common stock. Following this contribution, Aether
Systems, L.L.C. was merged with and into Aether Systems, Inc.
(4) SECONDARY OFFERING
On March 17, 2000, the Company completed a secondary offering for the sale
of 5,411,949 shares of common stock, including the sale of 825,000 shares from
the exercise of the underwriters' over-allotment option, at $205.00 per share.
The net proceeds after deduction of underwriting discounts and offering expenses
were approximately $1.06 billion. Concurrently with this offering, the Company
completed an offering for the sale of an aggregate $310.5 million of 6%
convertible subordinated notes (the "Notes") due in 2005, including $40.5
million in principal amounts from the exercise of the underwriters'
over-allotment. The net proceeds after deduction of underwriting discounts and
offering expenses were approximately $300.7 million. The underwriting discounts
and expenses of the Notes offering of $9.8 million have been included in other
assets as deferred financing fees. The Notes are convertible, at the option of
the holder, at any time prior to maturity into shares of common stock of Aether
at a conversion price of $243.95 per share, which is equal to a conversion rate
of 4.0992 shares per $1,000 principal amount of notes, subject to adjustment.
(5) 3COM WARRANTS
In connection with the sale of membership units to 3Com, the Company granted
a conditional warrant to 3Com to purchase 357,466 member units (893,665 shares)
at an exercise price of $0.01 per unit. 3Com vested in 57,466 units (143,665
shares) in June 1999 upon completion of a joint sales and marketing plan. As a
result, the Company recorded unit option and warrant expense of approximately
$862,000. 3Com vests in the remaining 300,000 warrants (750,000 shares) as
follows: 150,000 warrants (375,000 shares) upon the occurrence of the Company
obtaining $6 million in engineering services revenue from opportunities
introduced by 3Com and 150,000 warrants (375,000 shares) upon the Company
obtaining 6,000 wireless service subscribers, all from opportunities introduced
by 3Com. If and when it becomes probable that 3Com will attain the specified
milestones necessary for the warrants to vest, the Company will begin to record
an expense reflecting the fair value of the warrant, which will be determined in
part based on the market price of the common stock. The Company would begin to
recognize this expense based on the probability that the milestones would be
achieved, continuing through the actual vesting date. The Company would
initially estimate the amount of the expense at the time of the determination
that achievement is probable, based in part on the market price of the common
stock at that time. At the time of the actual vesting, the fair value of the
warrant would be remeasured and, if different from the value used in initially
estimating the expense, the difference would be reflected as an additional
charge or credit at that time. As of March 31, 2000, the Company believes that
it is not yet probable that 3Com will attain the specified milestones relating
to the remaining 300,000 warrants (750,000 shares) and, accordingly, no expense
relating to these warrants has been recorded.
(6) INVESTMENT IN OMNISKY, INC.
On August 9, 1999, the Company entered into a new venture with 3Com, forming
a new Company called OpenSky, which was later renamed OmniSky. OmniSky was
formed to develop wireless Internet access, e-mail and electronic commerce
services that address opportunities in the emerging consumer and business mass
markets. The Company contributed a perpetual, non-exclusive, non-assignable,
worldwide license to certain proprietary software in exchange for a 26% equity
interest in OmniSky in the form of 7,000,000 shares of Series A Preferred Stock
and an option to purchase an additional 3,000,000 shares of Series A Preferred
Stock for an additional $2.5 million. On November 9, 1999, the Company exercised
its option to acquire these additional shares, increasing its ownership in
OmniSky to 33% on a fully diluted basis. The Chief Executive Officer of the
Company serves as a member of OmniSky's board of directors. The Company also
provides engineering services under a letter of agreement with OmniSky through
June 2000. The agreement also provides for OmniSky to pay $1.50 per month per
subscriber for the use of the Company's network operations center. The Company
has the right to offer OmniSky's services to its subscribers for a monthly fee
of $3.00 per subscriber. For the three months ended March 31, 2000, the Company
recognized approximately $1.1 million in revenue under the OmniSky agreement.
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In October 1999, the Company agreed to purchase 25,000 Minstrel V modems
from OmniSky for $230 per modem. OmniSky has an exclusive buying arrangement
with Novatel for Minstrel V modems. In 1999, the Company purchased 20,000 of the
25,000 for cash of $3.5 million and cancellation of $1.1 million of trade
receivables owed to the Company by OmniSky. An additional $1.2 million will be
paid to OmniSky for the remaining 5,000 modems after the delivery of the initial
20,000 modems, which began in November 1999. As of March 31, 2000, the Company
has recorded prepaid expenses of approximately $4.5 million associated with this
agreement. As of March 31, 2000, the Company has received 500 modems, or
approximately $115,000 of modems.
On January 18, 2000, the Company entered into a Series B Preferred Stock
Purchase Agreement, whereby the Company purchased 1,439,809 shares of Series B
preferred stock of OmniSky for an aggregate purchase price of approximately $6.7
million, consisting of cash of approximately $6.1 million and the forgiveness of
approximately $600,000 of indebtedness owed to the Company by OmniSky for
engineering services. The investment was made to maintain the Company's 33
percent ownership in OmniSky. The Company's per share purchase price was the
same as the other Series B Preferred Stock investors.
The Company accounts for its investment in OmniSky under the equity method
of accounting. The Company recorded approximately $3.1 million in expenses for
the three month period ended March 31, 2000, to reflect its proportionate share
of the losses in OmniSky based upon preliminary unaudited financial information
provided by OmniSky.
In May 2000, News Corporation and PSINet, Inc. invested a total of $75.0
million in OmniSky. As a result of this transaction, the Company ownership in
OmniSky decreased to approximately 27%.
(7) INVESTMENT IN INCISCENT AND METROCALL
On February 8, 2000, the Company entered into a joint venture agreement
with Metrocall, Inc. ("Metrocall"), PSINet, Inc. and Hicks, Muse, Tate and
Furst, Inc. to form a new joint venture called Inciscent. Inciscent was formed
to develop wireless e-mail, Internet access and other applications for the small
and medium-sized businesses and home office customers. The Company acquired a
27.5% percent interest in Inciscent in the form of 4,950,000 shares of Series A
Preferred Stock for $9.9 million, or $2 per share, and has the right to appoint
two of the seven members of the Board of Directors of Inciscent. The Company
granted a perpetual AIM license for $1 million to Inciscent and will be
performing engineering services under a contract totaling approximately $4.0
million. The Company also plans to sign a network operations agreement and a
help desk agreement. The Company will recognize the license revenue over the
term of the network operations agreement which is expected to be two years.
The Company recognized approximately $60,000 in revenue under the engineering
services agreement for the quarter ended March 31, 2000. As part of the
Inciscent joint venture, the Company also acquired 7,766,769 shares of Metrocall
common stock at $2.19 per share, or a 9.9% interest, for $17 million. The
Company has obtained the right to appoint one of the thirteen members of
Metrocall, Inc.'s Board of Directors.
The Company accounts for its investment in Inciscent under the equity
method of accounting. The Company has recorded approximately $35,000 in expense
for the three months ended March 31, 2000 to reflect its proportionate share of
the losses in Inciscent based upon preliminary unaudited financial information
provided by Inciscent.
The Company accounts for its investment in Metrocall in accordance with
SFAS 115. Under the provisions of SFAS 115, the Company has classified its
investment in Metrocall as available-for-sale and the investment is being
carried at fair value. Fair value is determined based upon quoted market prices.
Unrealized gains (losses) are excluded from earnings and are reported as a
separate component of other comprehensive income until realized. As of March 31,
2000, the Company has recorded an unrealized gain of approximately $60.7 million
on its investment in Metrocall.
(8) ACQUISITIONS
On August 19, 1999, the Company entered into a purchase agreement to
acquire all the outstanding common stock of Mobeo, Inc. ("Mobeo") for an
aggregate purchase price consisting of cash of approximately $11.5 million,
including acquisition costs of approximately $112,000, and 18,442 unit options
(46,105 shares) with an exercise price of $12.00 per unit ($4.80 per share)
valued at approximately $374,000. The acquisition was completed on September 28,
1999. Mobeo provides employees and customers at major banks and financial
institutions with continuous pricing information and news headlines for foreign
exchange, government securities, and commodity markets on wireless handheld
devices. Additionally, the Company entered into two-year advisory service
agreements with two former owners of Mobeo which provided for the grant of an
aggregate 125,000 unit options (312,500 shares) with an exercise price of $15.00
per unit ($6.00 per share). The Company also issued 22,000 options (55,000
shares) at an exercise price of $6.00 per unit ($2.40 per share) and 30,000
options (75,000 shares) at an exercise price of $12.00 per unit ($4.80 per
share) to employees of Mobeo. The Company has recorded option and warrant
expense of approximately $409,000 for the three months ended
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March 31, 2000 associated with these options and expects to record an additional
$2.4 million in option and warrant expense over the remaining service and
vesting periods.
On February 3, 2000, the Company acquired all of the capital stock of
LocusOne Communications, Inc. ("LocusOne") for a purchase price of $40
million. LocusOne provides wireless data systems to companies that distribute
goods and services using their own delivery fleets. At the closing of the
acquisition, the Company paid approximately $21 million in cash and issued
notes payable of $19 million to the former LocusOne shareholders. The Company
also granted options to acquire 308,500 shares of the Company's common stock
to existing LocusOne employees on the closing date at exercise prices below
the fair market value of the Company's stock. As of March 31, 2000, the
Company has recorded approximately $1.4 million in option and warrant expense
related to these options and expects to record approximately $25.4 million in
option and warrant expense related to these options over the remaining service
and vesting period through March 2003. At the closing of the Secondary
Offering (see Note 4), the Company paid the former LocusOne holders $5.4
million in settlement of a note payable and placed $13.6 million in escrow to
pay all remaining obligations, which will be paid on December 31, 2000. In
connection with this acquisition, the two principal stockholders of LocusOne
have entered into non-compete agreements with the Company expiring on the
later of February 2, 2002 or ten months after their termination with LocusOne.
On March 6, 2000, the Company acquired Riverbed Technologies, Inc.
("Riverbed") for 4,537,281 shares of the Company's common stock and converted
existing options held by Riverbed employees into options to acquire 862,480
shares of the Company's common stock. Riverbed develops products to extend the
accessibility of applications and information from corporate networks and
databases to handheld devices. As part of closing this transaction, the Company
is holding 270,000 of the shares payable to Riverbed shareholders for 12 months
to secure their post-closing indemnification obligations to the Company and the
Company has agreed to indemnify up to $40.5 million of damages the sellers may
incur.
The Company has valued the 4,537,281 shares of its common stock issued to
Riverbed based on the market price of the Company's common stock over the period
two days before and two days after the acquisition was agreed to and announced,
in accordance with Financial Accounting Standards Board ("FASB") Emerging Issues
Task Force ("EITF") Issue 95-19. The Company has valued the 862,480 shares of
common stock issued as replacement options to Riverbed employees using the
Black-Scholes option pricing model with the following assumptions: expected
dividend yield 0 percent, risk-free interest rate of 6.7 percent, expected life
of five years and volatility of 70 percent. The total value of common stock and
replacement options issued as consideration for the acquisition was
approximately $1.1 billion.
These acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at their estimated fair value as of the acquisition date. The
preliminary allocation of the total purchase price for the LocusOne and Riverbed
acquisitions is summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
<S> <C>
Current assets $ 7,850
Property and equipment 1,213
Current liabilities (2,271)
In-process research and development 2,100
Identifiable intangibles 30,810
Goodwill 1,136,497
-------------------
Total consideration paid $ 1,176,199
===================
</TABLE>
The Company is in the process of completing a full valuation of the acquired
assets and liabilities. Therefore, the purchase price allocation will be
finalized upon completion of this valuation. The identifiable intangibles are
being amortized between four and five years and the goodwill is being amortized
over 5 years.
11
<PAGE> 12
The following summary, prepared on a pro forma basis, presents the results of
operations of the Company as if the Mobeo, LocusOne and Riverbed acquisitions
had been completed as of January 1, 1999:
<TABLE>
<CAPTION>
(Unaudited)
MARCH 31, 2000 March 31, 1999
-------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenue $ 5,655 $ 3,336
Net loss $ (78,278) $ (61,850)
Net loss per share - basic and diluted $ (2.40) $ (2.53)
</TABLE>
The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if Mobeo, LocusOne and Riverbed
had been owned for the entire periods presented or a projection of the Company's
results of operations for any future period.
(9) SEGMENT INFORMATION
The company's operating segments include Financial Services, Software and
Logistics. The Financial Services segment provides wireless data services and
engineering services to develop applications for the financial services
industry. The Software segment develops, licenses and supports software products
to extend the accessibility of applications and information from corporate
networks and databases to handheld devices. The Logistics segment develops and
sells wireless data systems to companies that distribute goods and services
using their own delivery fleets.
Segment detail is summarized as follows:
<TABLE>
<CAPTION>
Financial Software
Services Products Logistics Corporate Total
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 1999
Revenues $ 268 $ - $ 72 $ - $ 340
Gross profit $ 23 $ - $ 36 $ - $ 59
Total assets $ 112 $ - $ - $ (9) $ 103
Three Months Ended
March 31, 2000
Revenues $ 3,056 $ 682 $ 666 $ 997 $ 5,401
Gross profit $ 1,284 $ 209 $ 261 $ 623 $ 2,377
Total assets $ 13,681 $ 1,119,710 $ 39,699 $ 1,483,322 $ 2,656,412
</TABLE>
A reconciliation of net income reported for the operating segments to the amount
in the condensed consolidated financial statements as follows:
<TABLE>
<CAPTION>
Unallocated
Segment Corporate Consolidated
Total Expenses Eliminations Total
---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1999
Net income (loss) $ 59 $ (1,461) $ - $ (1,402)
2000
Net income (loss) $ 1,754 $ (35,021) $ (3) $ (33,270)
</TABLE>
12
<PAGE> 13
(10) RESERVED SHARE PROGRAM
Prior to October 20, 1999, the effectiveness of the Company's registration
statement for its initial public offering, the Company sent a letter to
approximately 90 employees, officers and directors of the Company whom it had
designated as potential offerees of up to 390,000 shares of common stock in a
directed share program in connection with its initial public offering. These
materials were not accompanied by a preliminary prospectus and may have
constituted a prospectus that does not meet the requirements of the Securities
Act of 1933. If the mailing of these original materials did constitute a
violation of the Securities Act of 1933, the recipients of the letter who
purchased common stock in the initial public offering could have the right, for
a period of one year from the date of their purchase of common stock, to obtain
recovery of the consideration paid in connection with their purchase of common
stock or, if they have already sold the stock, sue the Company for damages
resulting from their purchase of common stock. These refunds or damages could
total up to approximately $6.2 million, based on the initial public offering
price of $16.00 per share, in the event that investors suffer a total loss of
their investment during this period and seek refunds or damages.
(11) SUBSEQUENT EVENTS
(a) Acquisition of IFX Group plc
On April 6, 2000, the Company acquired IFX Group Plc ("IFX"), a European
provider of mobile financial data, for a purchase price of approximately $85
million in cash, excluding estimated related expenses of $3.0 million. IFX
develops leading-edge technologies to optimize the delivery of data over the
next generation of digital networks currently being deployed across Western
Europe. The acquisition will be accounted for under the purchase method of
accounting.
(b) Acquisition of Net Search
On April 20, 2000, the Company acquired NetSearch, LLC ("NetSearch"), a
Scottsdale, AZ company, for a purchase price of approximately $25 million in
cash at the closing of the acquisition, plus up to an additional $65 million
earn-out payable over the next 13 months for reaching specified revenue targets.
NetSearch develops and markets a high-end, wireless notification and response
system designed to increase sales productivity for companies engaged in
electronic commerce on the Internet by bridging the gap between website
consumers and retailers. The acquisition will be accounted for under the
purchase method of accounting.
(c) Sila Communications - Strategic Alliance with Reuters Plc
On February 8, 2000, the Company entered into a non-binding letter of intent
with Reuters PLC to establish a new company focused on financial markets in
Europe. The Company committed to acquire a 60% interest in this new Company for
$100 million. On May 4, 2000, Sila Communications ("Sila") was formed as the new
company and the Company contributed its subsidiary, IFX to the joint venture
plus cash of $12 million in satisfaction of the Company's commitment. Reuters
contributed cash of approximately $22 million and a paging company for the
remaining 40% interest. Sila will be a consolidated subsidiary of the Company.
(d) Research in Motion Limited - Preliminary Marketing Agreement
On April 11, 2000 the Company entered into a preliminary marketing agreement
with Research in Motion Limited (RIM). Under the agreement the Company committed
to the following terms to be further defined in future agreements:
- Purchase up to 140,000 RIM handheld devices over the next three years.
The total commitment is dependent on certain conditions being met over
the period of the agreement.
- License the RIM BlackBerry wireless e-mail service for $3.0 million.
- Provide the technology for the Company to build the BlackBerry service
infrastructure in its network operations center for payments by the
Company totaling $1.2 million over 15 months plus two annual maintenance
payments of $375,000 each.
The agreement also provided for joint marketing expenditures up to $1.0 million
each and joint research and development expenditures up to $1.5 million each.
The Company will be appointed a reseller and distributor of RIM products and
will receive favorable pricing on RIM handheld devices.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with the Company's Condensed Financial
Statements and Notes thereto included herewith, and with the Company's
Management's Discussion and Analysis of Financial Condition and Results of
Operations and audited financial statements and notes thereto for the years
ended December 31, 1997, 1998 and 1999, included in the Company's Annual Report
on Form 10-K filed on March 24, 2000.
OVERVIEW
Aether Systems, Inc. was originally formed as Aeros, L.L.C. in January 1996.
We changed our name to Aether Technologies International, L.L.C. effective
August 1996 and to Aether Systems L.L.C effective September 1999. Immediately
prior to the completion of our initial public offering of common stock on
October 26, 1999, the limited liability company was converted into a Delaware
corporation called Aether Systems, Inc.
Development of our business. From our inception until March 1997, we
primarily provided wireless engineering services, including the development of
wireless software applications for customers. In March 1997, we began offering
services that provide the users of wireless handheld devices access to real-time
financial information. During 1997, we made a strategic decision to focus a
significant portion of our engineering resources on the development of these and
other wireless data services and systems, including our AIM (Aether Intelligent
Messaging) package of wireless messaging software and software development
tools. This resulted in a decrease in engineering services revenue as a
percentage of total revenue and an increase in subscriber revenue as a
percentage of total revenue. We expect this trend to continue in the foreseeable
future. We also expect to derive revenue from the licensing our software
platform.
In August 1999, we formed a new company with 3Com called OpenSky, which was
renamed OmniSky in October 1999. We formed OmniSky with 3Com to pursue
opportunities in the emerging consumer and business mass markets for wireless
e-mail, Internet access and other electronic transactions applications. As of
March 31, 2000, we owned 33% of OmniSky. OmniSky is obligated to pay us $1.50
per month per subscriber for use of our network operations center. We have the
right to offer OmniSky's services to our subscribers in exchange for a monthly
fee to OmniSky of $3 per subscriber. On November 15, 1999, OmniSky launched its
service in a limited test phase of 5,000 subscribers and in January 2000
expanded the program to up to 7,000 subscribers. As of March 31, 2000, OmniSky
had enrolled approximately 7,500 subscribers. We provide engineering services to
OmniSky under a $3 million agreement that extends through June 2000. In May
2000, News Corporation and PSINet, Inc. invested a total of $75.0 million in
OmniSky. As a result of this transaction, the Company ownership in OmniSky
decreased to approximately 27%.
On September 28, 1999, we acquired Mobeo, which provides employees and
customers of major banks and financial institutions with real-time price quotes
and news for foreign exchange, government securities and commodities markets on
wireless handheld devices.
On February 3, 2000, we acquired LocusOne, which provides wireless data
systems to companies that distribute goods and services using their own delivery
fleets.
On March 6, 2000, we acquired Riverbed, which develops software that extends
the accessibility of applications and information from corporate networks and
databases to handheld devices.
On March 17, 2000, we invested $10 million to acquire a 27.5% interest in
Inciscent, a new company we formed with Metrocall, PSINet, Hicks, Muse, Tate &
Furst and other investors through which we plan to develop wireless e-mail,
Internet access and other applications for the small office and home office
market segments. As part of the investment, we also agreed to acquire
approximately 9.9% of the outstanding capital stock of Metrocall for
approximately $17 million, which was invested on March 17, 2000. Under the
agreement, we granted a perpetual AIM license for $1 million to Inciscent and
will be performing engineering services under a contract totaling approximately
$4.0 million. We also plan to sign a network operations agreement and a help
desk agreement. We will recognize the license revenue over the term of the
network operations agreement which is expected to be two years.
On April 6, 2000, we acquired IFX Group Plc ("IFX"), a European provider of
mobile financial data, for $85 million plus estimated related expenses of $3
million.
14
<PAGE> 15
On April 20, 2000, we acquired NetSearch, LLC, a provider of wireless
notification and response systems for electronic commerce for a purchase price
of $25 million plus up to an additional $65 million earn-out payable over the
next 13 months for reaching specified reserve targets.
On May 4, 2000, Sila Communications was formed and we contributed our IFX
subsidiary plus $12 million in cash to acquire a 60% interest. Reuters
contributed cash of approximately $22 million and a European paging company for
the remaining 40% interest.
Our subscriber and revenue information. Our subscriber base has historically
been derived from financial data and online trading services. With the
acquisition of LocusOne, we also began recognizing subscriber revenue from the
hosting of wireless transactions through our network operations center. The
following table shows the number of subscribers to our services as of March 31
of each of the years shown.
2000 1999
---- ----
Financial data services 4,837 830
Network services - logistics 1,147 -
---------- ----------
Total subscribers 5,984 830
The growth in subscribers over these periods was primarily the result of the
attraction of new subscribers to our services, the introduction of new services
and subscribers added through our acquisition of Mobeo and LocusOne. In October
1999, we introduced Morgan Stanley Dean Witter Online TradeRunner. TradeRunner
provides real-time wireless financial data and enables subscribers to trade
stocks using wireless handheld devices. The introduction of online trading
service subscribers was due to the launch of TradeRunner.
The majority of the growth in financial data services subscribers is
attributable to the acquisition of Mobeo in 1999, which had 3,283 subscribers as
of March 31, 2000. Mobeo's subscriber base is primarily attributable to its
foreign exchange products. Mobeo had 3,210 subscribers as of March 31, 1999. We
plan to increase sales and marketing efforts with respect to our foreign
exchange services and to bundle the services with additional applications. We
expect that growth from online trading services will exceed growth from
financial data services as we introduce new services.
The subscribers to our logistics services were added through the acquisition
of LocusOne plus subsequent subscribers added during the quarter. Our network
manages the flow of data between handheld devices used by delivery people and
the enterprise customer.
Our cost to acquire subscribers depends upon a variety of factors
including the allocation of intangible expenses and general sales and marketing
efforts to the acquisition of subscribers as opposed to other areas of our
business. When our business involved fewer elements and these costs could be
allocated more clearly, the overall cost to acquire subscribers exceeded the
revenue expected during the one-year terms of the associated contracts, and that
may continue to be true depending on how costs are allocated to subscriber
contracts. In any event, we expect that revenue from new customres will begin to
exceed subscriber acquisition costs when the number of subscribers increases to
cover our fixed costs. This will depend on the rate at which subscriber levels
increase, and we cannot determine when this will occcur will assure you that it
will ever occur.
Starting in the quarter ended March 31, 2000, we also derive revenue from
the licensing of our AIM software platform and from licensing the ScoutWare
software suite that we acquired with Riverbed.
Operating losses. Since our inception, we have invested significant capital
to build our customer service and network operations center. Additionally, we
have incurred significant operating costs to develop our AIM software platform
and other software applications and to grow our business. As a result, we have
incurred operating losses since our inception. Part of our strategy is to
continue to invest in business development, research and development and
marketing and advertising. In addition, our acquisitions of Mobeo, LocusOne,
Riverbed and NetSearch as well as future acquisitions will result in option and
warrant expense and significant amortization of intangible assets. As a result,
we expect to continue to incur operating losses for the foreseeable future.
RESULTS OF OPERATIONS
We currently derive our revenue from the sale of wireless data services, the
provision of wireless engineering services and the sale of software licenses and
related services. Revenue from wireless data services consists of:
- a one time non-refundable activation fee, which we recognize upon service
activation;
- monthly per-subscriber service fees, which we recognize as services are
provided;
15
<PAGE> 16
- monthly per-subscriber exchange fees for access to financial information
from the securities exchanges and markets, which we recognize as services
are provided; and
- monthly fees for providing access to our network operations center.
We also derive revenue from providing our subscribers with the option to
purchase wireless handheld devices from us at cost, which we bill over the
initial term of the contract. Contracts with our wireless data subscribers are
generally for a one-year period and include a termination penalty if cancelled
by the subscriber before the one-year term expires. These contracts are
generally renewable at the option of the subscriber for additional one-year
periods or otherwise continue on a monthly basis until cancelled by the
subscriber. Revenue from wireless engineering services consists of amounts
billed to our customers for engineering time on an hourly basis or on a fixed
fee per project basis. This revenue is recognized as the work is performed.
Revenue from software and related services consists of amounts billed to our
customers for software licensing, including licensing fees, training fees,
maintenance fees and support fees.
Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs and securities exchange and market
fees. Our airtime costs are determined by agreements we have with several
wireless carriers. Typically, we have one-year contracts to buy data network
capacity either for an agreed amount of kilobytes at a flat fee or on a
cents-per-kilobyte basis. Cost of engineering services revenue consists of cash
compensation and related costs for engineers and other project-related costs.
Cost of software and related services revenue consists of costs relative to
software licensing, including royalty payments and personnel costs.
Research and development expenses consist primarily of cash compensation and
related costs for engineers engaged in research and development activities and,
to a lesser extent, costs of materials relating to these activities. We expense
research and development costs as we incur them. General and administrative
expenses consist primarily of cash compensation and related costs for general
corporate and business development personnel, along with rent and other costs.
Selling and marketing expenses consist primarily of advertising and promotions,
sales and marketing personnel, travel and entertainment and other costs.
Depreciation and amortization expenses consist primarily of the amortization
of intangible assets acquired in the Mobeo, LocusOne and Riverbed acquisitions
and depreciation expenses arising from equipment purchased for our network
operations center and other property and equipment purchases.
Option and warrant expense consists of expenses recorded to account for the
difference, on the date of grant, between the fair market value and the exercise
price of unit options issued to employees and the fair value of equity-based
awards to non-employees. With the acquisitions of Mobeo, LocusOne and Riverbed,
we expect to have substantial additional option and warrant expense.
Other income (expense) consists primarily of interest income, interest
expense and realized losses on our investments.
Equity in losses of investments consists of our proportionate share of the
net losses of OmniSky and Inciscent recorded under the equity method of
accounting.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Subscriber revenue. Subscriber revenue increased to $2.9 million for the
three months ended March 31, 2000 from $268,000 for the three months ended March
31, 1999. The increase was primarily due to an increase in MarketClip
subscribers, the recent introduction of TradeRunner, and the acquisition of
Mobeo in September 1999. Services acquired from Mobeo contributed revenue of
$2.4 million for the three months ended March 31, 2000.
Engineering services revenue. Engineering services revenue increased to $1.4
million for the three months ended March 31, 2000 from $72,000 for the three
months ended March 31, 1999. This increase was primarily due to the contract
with OmniSky. We recognized $1.1 million under this contract for the three
months ended March 31, 2000.
Software and related services revenue. Software and related services revenue
was $1.1 million for the three months ended March 31, 2000 relating to licenses
and services of the ScoutWare services platform and e-Mobile Delivery platform
following our acquisition of LocusOne on February 3, 2000 and Riverbed on March
6, 2000. We did not have any software and related services revenue for the three
months ended March 31, 1999.
16
<PAGE> 17
Cost of subscriber revenue. Cost of subscriber revenue increased to $1.7
million for the three months ended March 31, 2000 from $245,000 for the three
months ended March 31, 1999. The increase was a result of an increase in
MarketClip subscribers, the recent introduction of TradeRunner and the
acquisition of Mobeo in September 1999. Cost of subscriber revenue from services
acquired from Mobeo totaled $1.4 million for the three months ended March 31,
2000. We expect the number of subscribers for financial services and online
services to increase resulting in an increase in the cost of subscriber revenue.
Mobeo entered into a new airtime supply agreement with a paging company, and in
the first quarter of 2000, Mobeo provided a new pager to each of its subscribers
at no cost as the previous pagers were not compatible with the new supplier's
network. As a result, the Company recorded approximately $354,000 of expense in
the first quarter of 2000 relating to supplying these pagers. The cost of
subscriber revenue as a percent of subscriber revenue decreased for the three
months ended March 31, 2000 as compared to the same period of the prior year in
part because we met minimum airtime usage requirements with various wireless
networks.
Cost of engineering services revenue. Cost of engineering services revenue
increased to $614,000 for the three months ended March 31, 2000 from $36,000 for
the three months ended March 31, 1999. This increase was primarily due to the
contract with OmniSky.
Cost of software and related services revenue. Cost of software and related
services revenue was $678,000 for the three months ended March 31, 2000 relating
to royalty fees and personnel costs. Substantially all of these costs were
derived from the operations of LocusOne, which we acquired on February 3, 2000
and Riverbed, which we acquired on March 6, 2000. We did not have any costs of
software and related services revenue for the three months ended March 31, 1999.
Research and development expenses. Research and development expenses
increased to $1.7 million for the three months ended March 31, 2000 from
$470,000 for the three months ended March 31, 1999. This increase was primarily
due to the hiring of additional engineers for increased research and development
activities associated with the development of our AIM software platform and
wireless data services. In addition to these costs, we incurred a one-time $2.1
million in-process research and development charge recorded in connection with
our acquisition of Riverbed.
General and administrative expenses. General and administrative expenses
increased to $5.4 million for the three months ended March 31, 2000 from
$711,000 for the three months ended March 31, 1999. This increase was primarily
due to the addition of personnel performing general corporate and business
development activities and the acquisition of Mobeo, LocusOne and Riverbed.
Selling and marketing expenses. Selling and marketing expenses increased to
$5.7 million for the three months ended March 31, 2000 from $257,000 for the
three months ended March 31, 1999. The increase was primarily due to an increase
in advertising and promotion costs as well as increases in the number of sales
and marketing personnel. We expect selling and marketing expenses to continue to
increase as we incur additional expenses to increase brand awareness and add
personnel.
Depreciation and amortization. Depreciation and amortization expenses
increased to $17.4 million for the three months ended March 31, 2000 from
$83,000 for the three months ended March 31, 1999. This increase was primarily
due to amortization of intangibles relating to the purchases of Mobeo, LocusOne,
and Riverbed as well as additional capital expenditures.
Option and warrant expense. Option and warrant expense increased to $2.4
million for the three months ended March 31, 2000 from $23,000 for the three
months ended March 31, 1999. The increase was primarily due to expenses
associated with options granted to employees of LocusOne and to the selling
stockholders of Mobeo for consulting and employee services. The increase was
also due to an increase in the number of options that vested during the period
with exercise prices less than the fair value on the date of grant.
Interest income, net. Net interest income increased to $2.2 million for the
three months ended March 31, 2000 from $83,000 for the three months ended March
31, 1999. The increase was primarily due to an increase in interest earned on
cash and cash equivalents following the completion of our offering on March 17,
2000.
Equity in losses of investments. Equity in losses of investments was $3.1
million for the three months ended March 31, 2000 relating to our proportionate
share of losses from OmniSky and Inciscent, which are both accounted for under
the equity method of accounting. We expect to continue to record an increasing
amount of equity in losses of investments, as OmniSky and Inciscent ramp up
their operating costs.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private placements of our equity securities, our initial public offering, and
our secondary offering, which in the aggregate have resulted in net proceeds of
approximately $1.5 billion through March 31, 2000. On March 17, 2000, we
completed our secondary offering and raised net proceeds (after expenses of the
offering) of approximately $1.4 billion. As of March 31, 2000, we had
approximately $1.370 billion in cash and short-term investments and working
capital of $1.364 billion.
Net cash used in operating activities was $15.4 million and $1.2 million for
the three months ended March 31, 2000 and 1999, respectively. The principal use
of cash in each of these periods was to fund our losses from operations.
Net cash used in investing activities was $57.1 million for the three months
ended March 31, 2000. Net cash provided by investing activities was $6.0 million
for the three months ended March 31, 1999. For the three months ended March 31,
2000, we used cash for the purchase of property and equipment, investments in
Metrocall, OmniSky, and Inciscent, and to acquire LocusOne Communications. Cash
provided by investing activities for the three months ended March 31, 1999 was
primarily from the sale of short-term investments, partially offset by the
purchase of property and equipment.
Net cash provided by financing activities was $1.4 billion and $0 for the
three months ended March 31, 2000 and 1999, respectively. For the three months
ended March 31, 2000, cash provided by financing activities was primarily
attributable to proceeds received from our secondary offering of common stock
and convertible subordinated notes.
For the remainder of 2000, we expect to have the following expenditures and
requirements:
- We invested approximately $88.0 million to acquire IFX, including
estimated expenses.
- We invested approximately $25 million in NetSearch.
- We invested approximately $12.0 million in Sila, the European joint
venture with Reuters.
- We estimate we will spend $2.5 million for further expansion of our
network operations center.
- We estimate we will pay in excess of $20.0 million to enhance our sales
and marketing activities, including a nationwide broadcast and print
branding and advertising campaign.
- We are committed to purchase 15,360 RIM handheld devices. Depending on
the mix of products ordered, we estimate the cost will be between $4.6
and $7.1 million.
- We will pay an earn-out of up to $65 million on NetSearch if certain
revenue targets are met over the next twelve months.
- Other potential acquisitions, investments and agreements we may identify.
- As part of our LocusOne acquisition, we issued a note in the amount of
$13.6 million that is due and payable at December 31, 2000.
We currently estimate that our available cash resources will be sufficient
to fund our operating needs for at least the next twelve months. We expect that
our available cash resources will also support our current acquisition strategy
during this period.
QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2000, we had cash and cash equivalents of $1.35
billion and short-term investments of approximately $3.6 million. Cash and cash
equivalents consisted of demand deposits, money market accounts and
investment-grade commercial paper. Short-term investments consisted of highly
liquid investments in debt obligations of the U.S. Government and other highly
rated entities with maturities of up to 30 years. These investments are
classified as available-for-sale and are considered short-term, because we
expect to sell them within 12 months. These investments are subject to interest
rate risk and will fall in value if market interest rates increase. At March 31,
2000, the value of our short-term investments was approximately $27,000 less
than our cost. If market interest rates continue to rise, the value of our
short-
18
<PAGE> 19
term investments will continue to decrease. We expect to sell these investments
prior to maturity, and therefore we may not realize the full value of these
investments. We currently hold no derivative instruments and do not earn
foreign-source income. However with the acquisition of IFX and the formation of
Sila, we will be exposed to foreign currency exchange risk. We expect to invest
only in short-term, investment grade, interest-bearing instruments and thus do
not expect future interest rate risk to be significant.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This report includes forward-looking statements relating to, among other things,
future results of operations, our plans and expectations regarding our future
services and operations and our investments in OmniSky and Inciscent, and
general industry and business conditions applicable to us. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about us that could cause actual results to
differ materially from those in such forward-looking statements. Such risks,
uncertainties and assumptions include, but not limited to our limited operating
history with subscriber based services, our historical losses and potential
larger future losses, the infancy of the wireless data industry where there is
no established market for our products and services, our ability to adapt to
rapid technological change, our dependence on wireless networks owned and
controlled by others, our reliance on a small number of customers and the other
factors that we describe in the section entitled "Risk Factors" in the
prospectus that we filed with the SEC on March 17, 2000, pursuant to Rule
424(b).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See disclosure in the section entitled "Qualitative and Quantitative Disclosure
About Market Risk" in Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 18.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 26, 1999 we completed our initial public offering and received net
proceeds after expenses of the offering of approximately $100.8 million. During
the period ended March 31, 2000, we used $6.1 million of the remaining proceeds
from the initial public offering to purchase additional shares of OmniSky to
maintain our ownership percentage during the second round of OmniSky financing.
We also invested approximately $20.0 million to acquire LocusOne. On March 17,
2000, we completed a secondary offering for the sale of 5,411,949 shares of
common stock, including the sale of 825,000 shares from the exercise of the
underwriters' over-allotment option, at $205 per share, less underwriting
discounts and commissions, offering expenses and received net proceeds of $1.06
billion. Concurrently with this offering, we completed an offering for the sale
of an aggregate $310.5 million of 6% convertible subordinated notes due in 2005,
which included $40.5 million in principal amounts from the exercise of the
underwriters' over-allotment, less underwriting discounts and commissions and
received net proceeds of $300.7 million. We intend to use or have used $100
million of the proceeds of these offerings to fund our European strategic
alliance with Reuters, which includes our recent acquisition of IFX Group Plc
for $85 million, $13.6 million to repay indebtedness incurred in connection with
the LocusOne acquisition, $17 million to acquire 9.9% of the stock of Metrocall,
$10 million to acquire our 27.5% interest in Inciscent and in excess of $25
million to fund sales and marketing activities. We have not determined the use
of the remaining proceeds of these offerings, but we expect to use some portion
of these proceeds to provide the cash portion of acquisitions and strategic
investments we may identify in the future that advance our strategy.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
19
<PAGE> 20
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. *Exhibit 2.1 - Stock Purchase Agreement by and among Aether Systems,
Inc., LocusOne Communications, Inc. and the stockholders named therein
dated as of January 25, 2000.
**Exhibit 2.2 - Agreement and Plan of Merger dated as of February 9,
2000 by and among Aether Systems, Inc., RT Acquisition, Inc. and
Riverbed Technologies, Inc.
**Exhibit 4.1 Form of Index for Convertible Debt
**Exhibit 10.1 - Amended and Restated Registration Rights Agreement
dated as of February 2000.
**Exhibit 10.2 - Series B Preferred Stock Purchase Agreement dated as
of January 18, 2000.
**Exhibit 10.3 - Inciscent, Inc. Series A Stock Purchase Agreement.
**Exhibit 10.4 - Development Agreement between Response Services, LLC
and Aether Systems, Inc., dated as of January 12, 2000.
Exhibit 10.5 - Employment Agreement between Riverbed Technologies, Inc.
and E. Wayne Jackson, III dated January 22, 1999 and First Amendment to
Employment Agreement between Aether Systems, Inc., Riverbed
Technologies, Inc. and E. Wayne Jackson, III dated March 3, 2000.
Exhibit 11 Earning Per Share Calculation
Exhibit 27 - Financial Data Schedule
* Incorporated by reference to the Form 8-K filed with the Commission on
February 15, 2000.
** Previously filed.
b. Reports on Form 8-K
Current Report on Form 8-K dated February 3, 2000 was filed on February
15, 2000 pursuant to Item 2 (Acquisition or Disposition of Assets) and
Item 7 (Financial Statements, Pro Forma Financial Information and
Exhibits).
Current Report on Form 8-K dated March 6, 2000 was filed on March 16,
2000 pursuant to Item 2 (Acquisition or Disposition of Assets) and Item
7 (Financial Statements, Pro Forma Financial Information and Exhibits)
20
<PAGE> 21
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.
Dated: May 15, 2000
Aether Systems, Inc.
By: /s/ DAVID C. REYMANN
--------------------
David C. Reymann
Chief Financial Officer
(Principal Financial and Accounting
Officer)
21
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective for all
purposes and in all respects as of the 22nd day of January, l999, by and between
(i) RIVERBED TECHNOLOGIES, INC., a Delaware corporation (the "Employer"), and
(ii) E. Wayne Jackson, III (the "Executive").
WHEREAS, Employer desires to employ Executive as Chief Executive Officer
of Employer;
WHEREAS, Executive desires to be employed by Employer in the aforesaid
capacity; and
WHEREAS, Employer and Executive desire to set forth in writing the terms
and conditions of their agreements and understandings,
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows.
1. Duties of Executive.
A. Description of Duties. During the term of Executive's employment
hereunder, Executive shall serve as Chief Executive Officer of Employer and
shall, among other things, undertake and assume the responsibility of performing
for and on behalf of Employer such duties as shall be assigned to Executive by
Employer's Board of Directors at any time and from time to time. It is
understood and agreed that Executive's principal duties on behalf of Employer as
of the date hereof are and shall be to further develop the business of Employer.
It is further understood and agreed that any modification in or expansion of
Executive's duties hereunder shall not, unless specifically agreed by Employer
in a duly-executed amendment of this Agreement, result in any modification of or
increase or decrease in Executive's compensation referred to in paragraph 3
hereof.
B. Performance of Duties. Executive covenants and agrees, at all times
during his employment hereunder, to devote his full-time efforts energies and
skills to his duties as an Executive of Employer, to serve Employer diligently,
and to the best of Executive's ability and at all times to act in compliance
with Employer's rules, regulations, policies and procedures as shall be in
effect from time to time. Executive further covenants and agrees that he will
not, directly or indirectly, engage or participate in any activities at any
time during such employment which conflict with the interests of Employer.
2. Term of Employment.
A. Term. The term of Executive's employment with Employer hereunder
shall be one (1) year commencing as of the date hereof, unless sooner terminated
in accordance with the provisions of paragraph 2B or 2C hereof; provided,
however, that the term of Executive's employment with Employer shall be
automatically extended for one (1) year on the first anniversary hereof and on
each subsequent anniversary unless Executive or Employer shall have
<PAGE> 2
given written notice to the other at least thirty (30) days prior thereto that
the term of Executive's employment shall be not be so extended.
B. Termination for Cause. Notwithstanding any other provision of this
Agreement, Employer may terminate Executive's employment under this Agreement
without any further obligation or liability at any time for Cause (as such term
is defined herein). Such termination shall be evidenced by a Notice of
Termination to the Executive.
C. Termination Without Cause. Notwithstanding anything herein to the
contrary, either party hereof may terminate this Agreement, without Cause, by
delivery to the other party a Notice of Termination at least thirty (30) days
prior to the effective date of such termination.
3. Compensation. In consideration of the services to be rendered by
Executive to Employer under this Agreement, Executive shall be compensated as
follows:
A. Base Salary. Executive shall be paid an annual base salary (a "Base
Salary") of One Hundred Ninety-Four Thousand Dollars ($194,000), payable in
accordance with Employer's normal payroll practices and subject to an annual
review commencing in 2001 and adjustment thereafter based on Executive's
performance hereunder. All payments hereunder shall be subject to the deduction
of payroll taxes and similar assessments as required by law.
B. Bonus. Executive shall be eligible for periodic bonuses, the
existence and amount of which to be determined in the discretion of the Board of
Directors of Employer.
C. Incentive Compensation. During the term hereof, Executive shall be
eligible to receive, from time to time and in the sole discretion of Employer,
options to purchase capital stock of Employer under Employer's then current
stock option plan. All option grants shall be subject to Executive's compliance
in all respects with all of the terms and provisions of this Agreement.
D. Benefits and Expenses. Executive shall receive such other benefits
as may be granted to senior management of Employer generally. Employer shall
reimburse Executive for all reasonable travel, entertainment and other expenses
which Executive may incur in regard to the business of Employer, in accordance
with and subject to the limitations of Employer's standard practices and
policies and Executive's presentation of such documents and records as Employer
shall from time to time require to substantiate such expenses.
E. Severance. In the event that Executive is terminated by Employer
without Cause or the Executive terminates his employment for Good Reason,
Employer shall promptly pay to Executive in twelve equal installments an amount
equal to Employer's Base Salary in effect at the time of such termination, less
all applicable withholding taxes.
4. Definitions
A. For purposes of this Agreement, the term "Cause" shall mean,
without limitation: (i) the inability of Executive, through sickness or other
incapacity, to perform the essential functions of his position for a period in
excess of ninety (90) substantially consecutive
2
<PAGE> 3
days; (ii) dishonesty; (iii) theft; (iv) conviction of, or the pleading of nolo
contendere to, a felony; (v) a material breach of this Agreement or that certain
Agreement Regarding Terms and Conditions of Employment between Employer and
Executive of even date herewith (the "Agreement Regarding Terms"); (vi) the
failure of Executive for any reason, within ten (10) days after receipt by
Executive of written notice thereof from Employer, to correct, cease or
otherwise alter any failure to comply with instructions or other action or
omission to act which Employer believes does or may materially or adversely
affect its business or operations; (vii) misconduct by Executive which is of
such a serious and substantial nature that a reasonable likelihood exists that
such misconduct will materially injure the reputation of Employer if Executive
was to remain employed by Employer; and (viii) gross negligence.
B. For purposes of this Agreement, a "Change of Control" shall be
deemed to be occasioned by, or to include, (A) the acquisition of the Company by
another entity by means of any transaction or series of transactions (including
without limitation, any reorganization, merger or consolidation but, excluding
any merger effected exclusively for the purpose of changing the domicile of the
Company), unless the Company's stockholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition (by
virtue of securities issued as consideration for the Company's acquisition) hold
at least 5O% of the voting power of the surviving or acquiring entity; or (B)
sale of all or substantially all of the assets of the Company.
C. For purposes of this Agreement, "Good Reason" shall mean (A) a
decrease in the total amount of the Executive's Base Salary below its level in
effect on the date hereof, (B) a material reduction in Executive's job
responsibilities without the Executive's consent or (C) a geographical
relocation of the Executive more than twenty-five (25) miles from the Company's
current location without his consent.
D. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
5. No Breach of Agreement. Executive represents and warrants that as of
the date hereof Executive is not a party to any other agreement of employment or
any other form of engagement other than the Agreement Regarding Terms,
including, without limitation, a consulting agreement, whether written or oral,
and that none of the terms and provisions set forth herein or Executive's
performance hereunder will cause Executive to breach any other agreement,
understanding, covenant or representation with or made to a third-party, whether
oral or in writing.
6. Governing Law. In view of the fact that the principal office of
Employer is located in the Commonwealth of Virginia, it is understood and agreed
that the construction and interpretation of this Agreement shall at all times
and in all respects be governed by the laws of the Commonwealth of Virginia
without regard to its rules of conflicts of laws.
7. Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and sent by courier service (with proof of service), facsimile
transmission, hand delivery
3
<PAGE> 4
or certified or registered mail (return receipt requested and first-class
postage prepaid), to his residence, in the case of Executive, as shown on the
records of Employer, and to its principal office, in the case of Employer.
8. Burden and Benefit. This Agreement shall be binding upon, and shall
inure to the benefit of, Employer and Executive, and their respective heirs,
personal and legal representatives, successors and assigns. This Agreement may
not be assigned by Executive without the prior written consent of Employer.
9. Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity or enforceability of the other
provisions of this Agreement
10. Employer. As used herein the term "Employer" shall include any
corporation or other entity which is at any time the parent, a subsidiary or
affiliate of Employer.
11. Entire Agreement. This Agreement contains the entire agreement and
understanding by and between Employer end Executive with respect to the subject
matter hereof, and no representations, promises, agreements or understandings,
written or oral, not contained herein shall be of any force or effect. No
change or modification hereof shall be valid or binding unless the same is in
writing and signed by the party against whom such waiver is sought to be
enforced; moreover, no valid waiver of any provision of this Agreement at any
time shall be deemed a waiver of any other provision of this Agreement at such
time or will be deemed a valid waiver of such provision at any other time.
12. Headings. Headings of the paragraphs and subparagraphs of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective for all purposes and in all respects as of the day and years first
above written.
EMPLOYER:
RIVERBED TECHNOLOGIES, INC., a Delaware
corporation
By:[sig]
------------------------------
EXECUTIVE:
/s/ E. Wayne Jackson
---------------------------------
E. Wayne Jackson, III
5
<PAGE> 6
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT is made as of the 3rd
day of March, 2000, by and among Aether Systems, Inc., a Delaware corporation
("Aether" or "Employer"), Riverbed Technologies, Inc., a Delaware corporation
("Riverbed"), and E. Wayne Jackson III (the "Executive") to that certain
Employment Agreement dated as of January 22, 1999, (as amended, the
"Agreement").
WHEREAS, Riverbed and Aether entered into an Agreement and Plan of
Merger dated as of February 9, 2000 (the "Merger Agreement"), pursuant to which
Riverbed will become a wholly-owned subsidiary of Aether;
WHEREAS, it is a condition to closing of the Merger Agreement that
Executive enter into this Agreement;
WHEREAS, Aether and Riverbed desire to employ Executive, and
Executive desires to be employed, as President, Software Products Group;
WHEREAS, Aether, Riverbed and Executive desire to set forth in
writing the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. The foregoing recitals are incorporated by reference as part of
this Agreement.
2. All capitalized terms used herein shall have the meanings
assigned to them in the Agreement unless expressly defined otherwise in this
Amendment.
3. Except as otherwise specifically provided herein, all terms and
conditions of the Agreement shall apply to the interpretation and enforcement of
this Amendment as if explicitly set forth herein.
4. To induce Riverbed and Aether to execute this Agreement and in
consideration of Aether's and Riverbed's agreements herein, Executive agrees
that the transactions and changes in job status, position, or authority
contemplated under the Merger Agreement and this Amendment do not constitute or
give rise to Executive's right of termination for "Good Reason" under the
Agreement or for "Constructive Termination" under any option agreement.
5. Amendments to Agreement
5.1 Section 1 is amended by deleting Section 1.A. and
replacing it with the following:
<PAGE> 7
"A. Description of Duties. During the terms of Executive's employment
hereunder, Executive shall serve as President, Software Products Group of
Aether, and shall perform whatever duties Aether's Board of Directors (the
"Board") or person the Board or Aether's Chief Executive Officer specifies as
his direct report ("Direct Report") may assign him from time to time, which are
not inconsistent with the duties of a senior executive."
5.2 Section 3 is amended by deleting Section 3.A. and replacing it
with the following:
"A. Base Salary. Executive shall be paid an annual base salary (a "Base
Salary") of One Hundred Ninety Four Thousand Dollars ($194,000), payable in
accordance with Aether's normal payroll practices. Executive's Direct Report
will review Executive's Base Salary annually and consider Executive for
increases. All payments hereunder shall be subject to the deduction of payroll
taxes and similar assessments as required by law."
6. Except as expressly amended hereby, the Agreement and the Agreement
Regarding Terms and Conditions of Employment dated as of January 22, 1999 remain
in full force and effect. Any references to the Agreement shall refer to the
Agreement as amended hereby. Except with respect to the foregoing, this
Amendment supersedes all prior or contemporaneous negotiations, commitments,
agreements, and writings with respect to the subject matter of this Amendment.
All such other negotiations, commitments, agreements, and writings will have no
further force or effect; and the parties to any such other negotiation,
commitment, agreement, or writing will have no further rights or obligations
thereunder.
[signature page follows]
2
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
AETHER SYSTEMS, INC.
By:/s/ Brian W. Keane
--------------------------------
Name: BRIAN W. KEANE
Title: SVP, BUSINESS AFFAIRS
RIVERBED TECHNOLOGIES, INC.
By:
--------------------------------
Name:
Title:
--------------------------------
E. Wayne Jackson, III
3
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
AETHER SYSTEMS, INC.
By:
--------------------------------
Name:
Title:
RIVERBED TECHNOLOGIES, INC.
By: [SIG]
--------------------------------
Name:
Title:
/s/ E. Wayne Jackson, III
--------------------------------
E. Wayne Jackson, III
3
<PAGE> 1
EX-11.1
2
STATEMENT RE: COMPUTATION PER SHARE EARNINGS
1
AETHER SYSTEMS, INC.
COMPOSITION OF EARNINGS PER COMMON SHARE
EXHIBIT 11.1
<TABLE>
<CAPTION>
Computation of Earning
per Common Share
--------------------------------------
( in thousands, per shares)
Quarter Ended March 31, 1999
--------------------------------------
Net Loss Shares Per Share
<S> <C> <C> <C>
BASIC EPS
Pro forma net loss available to
common shareholders (1,297) 19,878 (0.07)
EFFECTS OF DILUTIVE SHARES
Stock options - - -
------ ------ -----
DILUTIVE EPS
Pro forma net loss available to
common shareholders (1,297) 19,878 (0.07)
------ ------ -----
Quarter Ended March 31, 2000
--------------------------------------
Pro forma net loss available to
common shareholders (33,270) 29,541 (1.13)
EFFECTS OF DILUTIVE SHARES
Stock options - - -
------ ------ -----
DILUTIVE EPS
Pro forma net loss available to
common shareholders (33,270) 29,541 (1.13)
------ ------ -----
</TABLE>
1. Options and warrants to purchase approximately 1.000 million, 1,559 million,
4.077 million shares of common stock were outstanding during 1997, 1998, and
1999 respectively and were not included in the computation of pro forma diluted
earnings per share because the effect would have been antidilutive.
Additionally, effective March 22, 2000, the Company issued $310.5 million of 6%
Convertible Subordinated Notes due 2005, which are convertible at a price of
$243.95 (or 4.0992 shares per $1,000 principal amount of notes, subject to
adjustment. These notes were not considered in the calculation of the pro forma
diluted earnings per share because the effect it would have been antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000
AND THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001093434
<NAME> AETHER SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,366,043
<SECURITIES> 3,592
<RECEIVABLES> 4,097
<ALLOWANCES> 92
<INVENTORY> 493
<CURRENT-ASSETS> 1,386,762
<PP&E> 7,073
<DEPRECIATION> 1,215
<TOTAL-ASSETS> 2,656,412
<CURRENT-LIABILITIES> 22,109
<BONDS> 0
0
0
<COMMON> 379
<OTHER-SE> 2,656,033
<TOTAL-LIABILITY-AND-EQUITY> 2,656,412
<SALES> 5,401
<TOTAL-REVENUES> 5,401
<CGS> 0
<TOTAL-COSTS> 3,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> (33,270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,270)
<EPS-BASIC> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
