Edgar Filing: AETHER SYSTEMS INC

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE PERIOD ENDED MARCH 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 000-27707
AETHER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 52-2186634
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

11460 CRONRIDGE DR. OWINGS MILLS, MD 21117
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code): (410) 654-6400

Securities registered Pursuant to Section 12(b) of the Act: NONE.

Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
CONVERTIBLE SUBORDINATED NOTES DUE 2005

---------------

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

As of May 10, 2001, 40,562,069 shares of the Registrant's common stock, $.01 par
value per share, were outstanding.

================================================================================

1
2

AETHER SYSTEMS, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001

INDEX

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,
2001 AND 2000 - UNAUDITED

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 -
UNAUDITED AND DECEMBER 31, 2000.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED MARCH 31, 2001 AND 2000 -- UNAUDITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3: DEFAULT UPON SENIOR SECURITIES

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5: OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS

2
3

PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS

AETHER SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

MARCH 31, DECEMBER 31,
2001 2000
-------------- ---------------
ASSETS (unaudited)
Current assets:

Cash and cash equivalents............................................ $ 727,289 $ 856,391
Restricted cash...................................................... 2,121 16,356
Short-term investments............................................... 2,618 2,648
Trade accounts receivable, net of allowance for doubtful
accounts of $10,606 and $5,695 at March 31, 2001 and
December 31, 2000, respectively..................................... 32,087 30,263
Inventory, net of allowance for obsolescence of $2,032 and
$137 at March 31, 2001 and December 31, 2000, respectively........ 32,331 19,130
Prepaid expenses and other current assets............................ 20,588 17,081
------------ --------------
Total current assets......................................... 817,034 941,869
Property and equipment, net............................................ 64,546 53,223
Investments............................................................ 81,055 182,444
Intangibles, net....................................................... 434,838 1,478,485
Other assets, net...................................................... 18,812 21,354
------------ --------------
$ 1,416,285 $ 2,677,375
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 13,921 $ 9,747
Accrued expenses..................................................... 35,078 66,949
Accrued employee compensation and benefits........................... 16,702 12,566
Deferred revenue..................................................... 16,631 14,170
Accrued interest payable............................................. -- 5,072
Current portion of notes payable..................................... 112 13,741
------------ --------------
Total current liabilities.................................... 82,444 122,245
Convertible subordinated notes payable and other notes
payable, less current portion........................................ 320,690 321,201
Deferred tax liability................................................. 10,259 10,694
Minority interest in net assets of a subsidiary........................ 51,873 55,537
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000
shares authorized; 0 shares issued and
outstanding at March 31, 2001 and December 31, 2000 -- --
Common stock, $0.01 par value;
1,000,000,000 shares authorized; 40,482,767 and
40,415,722 shares issued and outstanding at March 31, 2001
and December 31, 2000, respectively............................... 405 404
Additional paid-in capital........................................... 2,557,082 2,552,016
Accumulated deficit.................................................. (1,585,614) (385,314)
Foreign currency translation adjustment.............................. (467) (113)
Unrealized gain (loss) on investments available for
sale.............................................................. (20,387) 705
------------ --------------
Total stockholders' equity................................... 951,019 2,167,698
------------ --------------
Commitments and contingencies..........................................
$ 1,416,285 $ 2,677,375
============ ==============

See accompanying notes to condensed consolidated financial statements.

3
4

AETHER SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
2001 2000
-------------- --------------

Subscriber revenue...................................................... $ 10,400 $ 2,794
Engineering services revenue............................................ 2,363 1,403
Software and related services revenue................................... 11,797 1,069
Device sales............................................................ 6,099 135
-------------- --------------
Total revenue................................................. 30,659 5,401
Cost of subscriber revenue.............................................. 6,234 1,059
Cost of engineering services revenue.................................... 1,300 614
Cost of software and related services revenue........................... 4,082 678
Cost of device sales.................................................... 8,217 673
------------- -------------
Total cost of revenue......................................... 19,833 3,024
-------------- --------------
Gross profit.................................................. 10,826 2,377
-------------- --------------
Operating expenses:
Research and development (exclusive of option and warrant
expense)........................................................... 17,171 2,031
General and administrative (exclusive of option and
warrant expense)................................................... 25,804 4,931
Selling and marketing (exclusive of option and warrant
expense)........................................................... 20,216 5,812
In-process research and development related to
acquisitions....................................................... - 2,100
Depreciation and amortization......................................... 91,795 17,410
Option and warrant expense, research and development.................. 2,475 998
Option and warrant expense, general and administrative................ 972 1,108
Option and warrant expense, selling and marketing..................... 1,133 339
Impairment of goodwill associated with acquisitions................... 959,369 --
-------------- --------------

1,118,935 34,729
-------------- --------------
Operating loss................................................ (1,108,109) (32,352)
Other income (expense):
Interest income (expense), net..................................... 6,406 2,189
Equity in losses of investments.................................... (14,516) (3,107)
Investment losses including impairments............................ (94,744) --
Minority interest.................................................. 3,664 --
------------- -------------
Loss before income taxes and cumulative effect of change
in accounting principle.................................. (1,207,299) (33,270)
Income tax benefit...................................................... 435 --
------------- -------------

Loss before cumulative effect of change in accounting principle......... (1,206,864) (33,270)

Cumulative effect of change in accounting principle relating to
adoption of SFAS 133, Accounting for Derivatives........................ 6,564 --
------------- -------------
Net loss................................................................ $(1,200,300) $ (33,270)

Other comprehensive loss:
Unrealized holding gain (loss) on investments available
for sale......................................................... (21,091) 60,743
Foreign currency translation adjustment............................ (354) --
----------- -------------
Comprehensive loss...................................................... $ (1,221,745) $ 27,473
============= =============

Loss per share - basic and diluted - before cumulative effect
of change in accounting principle.................................... $ (29.83) $ (1.13)
Cumulative effect of change in accounting principle related to
adoption of SFAS 133, Accounting for Derivatives................ $ 0.16 $ --
-------------- -------------
Net loss per share-basic and diluted.................................... $ (29.67) $ (1.13)
============= =============

Weighted average shares outstanding--basic and
diluted.......................................................... 40,452 29,451
============= =============

See accompanying notes to condensed consolidated financial statements.

4
5

AETHER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31,
2001 2000
----------- -----------

Cash flows from operating activities:
Net loss..................................................... $(1,200,300) $ (33,270)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.............................. 91,795 17,410
Provision for doubtful accounts............................ 3,949 15
Provision for inventory obsolescence....................... 1,895 --
Equity in losses of investments............................ 14,516 3,107
Option and warrant expense................................. 4,580 2,445
Minority interest.......................................... (3,664) --
Income tax benefit......................................... (435) --
In process research and development related to
acquisitions............................................ -- 2,100
Cumulative effect of change in accounting principle........ (6,564) --
Impairment charges related to goodwill from acquisitions... 959,369 --
Realized loss on long-term investments, including
impairments............................................. 94,744 --
Changes in assets and liabilities, net of acquired
assets and liabilities:
Increase in trade accounts receivable................... (5,773) (3,129)
Increase in inventory................................... (15,096) 195
Increase in prepaid expenses and other assets........... (3,784) (6,620)
Increase (decrease) in accounts payable................. 4,174 (295)
Increase (decrease) in accrued expenses, accrued
employee compensation and benefits, interest payable
and acquisition payables............................. (4,026) 688
Increase in deferred revenue............................ 2,461 1,874
----------- -----------
Net cash used by operating activities................. (62,159) (15,480)
----------- -----------
Cash flows used by investing activities:
Sales and maturities of short-term investments............... 3,286 33,425
Purchases of short-term investments.......................... (3,411) (32,544)
Purchases of property and equipment.......................... (15,366) (2,294)
Cost of investments.......................................... (22,243) (33,138)
Costs of acquisitions, net of cash acquired.................. (31,041) (22,523)
Increase in other intangible assets.......................... (704) --
Decrease in other assets..................................... 2,032 51
----------- -----------
Net cash used in investing activities................. (67,447) (57,023)
----------- -----------
Cash flows provided by financing activities:
Proceeds from issuance of common stock....................... -- 1,058,565
Proceeds from issuance of convertible debt................... -- 300,765
Repayment of notes payable................................... (540) --
Decrease (increase) in restricted cash....................... 635 (13,600)
Exercise of options and warrants............................. 409 674
----------- -----------
Net cash provided by financing activities............. 504 1,346,404
----------- -----------
Net increase (decrease) in cash and cash equivalents.. (129,102) 1,273,901
Cash and cash equivalents, at beginning of period.............. 856,391 78,542
----------- -----------
Cash and cash equivalents, at end of period.................... $ 727,289 $ 1,352,443
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest....................... $ 9,315 $ --
=========== ===========

Supplemental disclosure of non-cash investing and financing activities:

For the three months ended March 31, 2001 and 2000 (unaudited), the Company
incurred an unrealized net holding gain (loss) associated with its investments
available for sale totaling ($21,091) and $60,743, respectively. These amounts
have been reported as reductions in stockholders' equity.

In January 2000, approximately $600 of trade receivables owed to the Company by
OmniSky, Corp. were offset by the Company's additional investment made in
OmniSky, Corp.

5
6

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
$1,136,083 has been allocated to the fair value of the assets purchased and
liabilities assumed with a corresponding increase in stockholders' equity.

See accompanying notes to condensed consolidated financial statements.

6
7

AETHER SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

ORGANIZATION AND DESCRIPTION OF BUSINESS

Aether Systems, Inc. and its subsidiaries (the "Company") provide
technologies that enable businesses to extend their data and commercial
transactions to wireless and mobile handheld devices. From its inception until
March 1997, the Company primarily provided wireless engineering services,
including the development of wireless software applications for customers. In
March 1997, the Company began offering services that provide the users of
wireless handheld devices access to real-time financial information. During
1997, the Company made a strategic decision to focus a significant portion of
its engineering resources on the development of these and other wireless data
services and systems, including the Aether Intelligent Messaging(TM) ("AIM")
package of wireless messaging software and software development tools.

In 1998 and 1999, the Company continued to develop financial information
services -- as well as financial transaction services -- internally and through
the acquisition of Mobeo, Inc. ("Mobeo"). In 1999, the Company also completed
its initial initial public offering and began to expand its service offerings to
areas other than financial information and transactions.

In 2000, the Company continued its expansion into other vertical markets,
including: the transportation and logistics vertical market through the
acquisitions of LocusOne Communications, Inc. ("LocusOne") and Motient
Corporation's ("Motient") retail transportation business unit, the mobile
government vertical market through the acquisitions of Cerulean Technology, Inc.
("Cerulean") and SunPro, Inc. ("SunPro"); and the healthcare vertical market
through investments and the Company's own service offerings. The Company
broadened its software offerings through the purchase of Riverbed Technologies,
Inc. ("Riverbed") and RTS Wireless, Inc. ("RTS"). Also in 2000, the Company
moved into the European marketplace with the acquisition of IFX Group Plc
("IFX") and the related formation of Sila Communications Limited ("Sila"). The
Company entered the general wireless and Internet messaging services market
through strategic relationships with Research in Motion Limited ("RIM") and
others and through the Company's own service offerings.

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, 2001, the condensed consolidated statements of operations
and other comprehensive loss for the three months ended March 31, 2001 and 2000,
and the condensed consolidated statements of cash flows for the three months
ended March 31, 2001 and 2000 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, 2001 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 accounting principles generally
accepted in the United States of America have been condensed or omitted. The
Company believes that the disclosures provided are adequate to make the
information presented not misleading. These condensed consolidated 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, 2000 on Form 10-K.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

7
8

(a) Revenue Recognition

The Company derives subscriber revenue from the provision of real-time
access to business information integrated into existing wireless communication
platforms. Subscriber revenue consists of fixed charges for usage recognized as
the service is provided, and one-time non-refundable activation fees recognized
ratably over the expected life of the customer relationship. For certain of the
Company's products, the subscribers' monthly fee includes the use of a wireless
handheld device. Revenue for such devices is recognized as the related service
is provided. 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. Such fees are recognized ratably over the contract period.

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 Statement of Position (SOP) 97-2, Software Revenue Recognition,
based on the hours incurred in relation to the total estimated hours. Service
revenues consists of maintenance and technical support, which consists of
unspecified when-and-if available product updates and customer telephone support
services and are recognized ratably over the term of the service period. Other
service revenues are recognized as the related services are provided. In
situations where the Company hosts the software and the customer has the option
to take possession of the software at any time during the hosting period without
significant penalty and it is feasible for the customer to either run the
software on its own hardware or contract with another party unrelated to the
Company to host the software, the software element is accounted for in
accordance with SOP 97-2.

Device sales are derived from the sales of wireless handheld devices at or
near our cost. Revenues on these device sales are recognized upon shipment of
the devices.

(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. The cost of wireless handheld devices is recognized on delivery when sold.
When the subscribers' monthly fee includes the use of a wireless handheld
device, the Company depreciates the cost of the device over its expected useful
life. Cost of subscriber revenue excludes depreciation related to the Company's
network operations centers and certain customer fulfillment costs. 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. Cost of
device sales consists of the cost of the hardware from the manufacturer or
wholesaler.

The carrying amounts of the Company's financial instruments, which include
cash equivalents, short-term investments, accounts receivable, accounts payable,
accrued expenses and notes payable (excluding the convertible subordinated
notes), approximate their fair values due to the relatively short duration of
the instruments.

The fair value of the convertible subordinated notes at March 31, 2001 was
$151 million based on their quoted market price.

8
9

(d) Credit Risk

Financial instruments which potentially subject the Company to credit risk
consist primarily of cash, cash equivalents and trade receivables.

The Company invests cash not immediately needed for operations in money
market securities of various financial institutions, commercial paper and
certificates of deposit. The money market securities represent underlying
investments in commercial paper issued by financial institutions and other
companies with high credit ratings and securities issued by or backed by the
U.S. Government. The amounts invested in some cases exceed the F.D.I.C. limits.
The Company has not experienced any losses in its cash and cash equivalents and
believes it is not exposed to any significant credit risk on these amounts.

Trade accounts receivable subject the Company to the potential for credit
risk. The Company extends credit to customers on an unsecured basis in the
normal course of business. Some of these customers have a limited operating
history and have reported significant losses since inception. They are subject
to many of the same risks and uncertainties as the Company, including rapid
changes in technology, no established markets for their products, and intense
competition, among others. In addition, some of these companies will require
significant infusions of capital to continue operations. The availability of
such capital has been curtailed and some of these companies may not be able to
raise sufficient funds to continue to operate, which could limit our ability to
generate further revenues from these companies as well as to collect the
outstanding receivables.

The Company's policy is to perform an analysis of the recoverability of its
trade accounts receivable at the end of each reporting period and to establish
allowances for those accounts considered uncollectible. If market conditions for
these companies continue to deteriorate, the Company may be required to record
additional allowances for doubtful accounts in the future.

(e) Inventory

Inventory, net of allowance for obsolete and slow-moving inventory,
consists of finished goods such as handheld and laptop computers, pagers,
wireless modems, and accessories and is stated at the lower of cost of market.
Cost is determined using a standard costing method, which approximates the
first-in, first-out method. The Company's inventory is subject to rapid
technological changes that could have an adverse impact on its realization in
future periods. In addition, there are a limited number of suppliers of the
Company inventory. During the quarter ended March 31, 2001, the Company recorded
an inventory reserve of approximately $1.9 million due to obsolescence.

(f) Investments

The Company accounts for those investments in which the Company exercises
significant influence or has an ownership interest greater than twenty percent
under the equity method. For equity method investments, the Company records its
proportionate share of the investee's net income or loss. Generally, the Company
accounts for its investments in which the Company has an ownership interest less
than twenty percent under the cost method for its private investments.
Investments in marketable equity securities, if not considered equity method
investments, are considered available-for-sale securities.

Investments carried at cost are written down if circumstances indicate the
carrying amount of the investment may not be recoverable, and such losses are
considered other than temporary. Investments available for sale are carried at
fair value based on quoted market prices. Net unrealized holding gains and
losses are excluded from income and are reported as a separate component of
stockholders' equity, unless such losses are considered other than temporary.
Realized gains and losses are included in income.

(g) Intangibles and Recovery of Long-Lived Assets

Cost in excess of the fair value of tangible and identifiable intangible
net assets acquired is amortized on a straight-line basis over three to seven
years. Identifiable intangible net assets consist of completed technology,
assembled workforce, trademarks, and acquired subscribers. Identifiable
intangible net assets are amortized on a

9
10

straight-line basis over two to seven years.

The Company's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Company may recognize an impairment when the sum of
the expected future undiscounted cash flows is less than the carrying amount of
the asset. The measurement of the impairment losses to be recognized is based
upon the difference between the fair value and the carrying amount of the
assets.

(h) Use of Estimates

The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America 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 condensed consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used in
accounting for, among other things, long-term contracts, allowances for
uncollectible receivables, inventory obsolescence, recoverability of long-lived
assets and investments, depreciation and amortization, employee benefits, taxes
and contingencies. Estimates and assumptions are reviewed periodically and the
effects of revisions are reflected in the condensed consolidated financial
statements in the period they are determined to be necessary.

(i) Recent Accounting Pronouncements

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS
No. 137 and further amended by SFAS No. 138, established accounting and
reporting standards for derivative financial instruments and associated hedging
activities as well as hedging activities in general. The adoption of SFAS No.
133, as amended, created a benefit of $6.6 million on the adoption date of
January 1, 2001, as reflected in the condensed consolidated statement of
operations. The benefit was derived from the valuation, as of January 1, 2001,
of certain warrants to purchase stock of two of our investee companies. The
warrants include net settlement provisions and are, therefore, considered
derivatives. These warrants were revalued at March 31, 2001 which caused a
reduction of $6.0 million of the investment balance and is included in realized
loss on investment in the condensed consolidated statement of operations for the
three months ended March 31, 2001.

(3) ACQUISITIONS

The Company has made the following acquisitions.

Purchase Price
-----------------------------------------------------------------------------
CASH
INCLUDING
RELATED
NAME ACQUISITION DATE EXPENSE EQUITY ISSUED
---- ---------------- -------- --------------------------------------------------------------

Mobeo, Inc. August 19, 1999 $11.5 million $374,000, consisting of 46,105 options

LocusOne Communications, Inc. February 3, 2000 $40.2 million --

Riverbed Technologies, Inc. March 6, 2000 $16.9 million $1.136 billion, consisting of 4,537,281 shares of common
stock and 862,480 options

IFX Group Plc April 6, 2000 $85.0 million --

NetSearch, LLC April 20, 2000 $35.4 million --

Cerulean Technology, Inc. September 14, 2000 $79.8 million $69.9 million, consisting of 462,412 shares of common stock
and 94,952 options

SunPro, Inc. September 18, 2000 $10.8 million --

Sinope, Inc. September 25, 2000 $2.8 million --

Portion of Motient Corp. November 30, 2000 $49.2 million --

10
11

RTS Wireless, Inc. December 20, 2000 $34.2 million $78.0 million consisting of 1,259,752 shares of common
------------- ------------- stock and 90,248 options

Total $365.8 million $1.284 billion Consisting of 6,259,445 shares of common
============== ============== stock and 1,093,785 options.

The following summary, prepared on a pro forma basis, presents the results
of the Company's operations (unaudited) as if all of the acquisitions occurring
after January 1, 2000 had been completed as of January 1, 2000:

(UNAUDITED)
----------------------------
MARCH 31, 2000
----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenue....................................... $ 24,327
Net loss...................................... $ (109,145)

Net loss per share -- basic and diluted....... $ (3.17)

The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if the acquisitions had taken
place as of January 1, 2000, nor are they a projection of the Company's results
of operations for any future period. Additionally, the unaudited proforma
results of operations exclude the impairment charges related to goodwill and
investments.

During 2000 and 1999, the Company recorded approximately $1.7 billion in
goodwill and other intangibles related to its acquisitions. The Company recorded
$2.5 million in goodwill and other intangibles related to acquisition of RTS
Wireless, Inc. for the three months ended March 31, 2001.

A number of factors indicated that impairments may have arisen in
the period ended March 31, 2001. Consideration for some of the Company's
acquisitions was partially or fully funded through the issuance of shares of the
Company's common stock at a time when its stock price was at historically high
prices. The Company's stock price ranged from $40.81 to $266.00 at the time of
these acquisitions. At March 31, 2001, the Company's stock price was $13.00.
Most of the companies that the Company acquired or invested in are start-up or
newly formed entities. Most of these companies were privately-held and their
fair values are highly subjective and not readily determinable. At the time of
these acquisitions and investments, market valuations and the availability of
capital for such companies were at historically high levels. Since the end of
2000, stock prices and market valuations in the Company's industry and similar
industries have fallen substantially in response to a variety of factors,
including a general downturn in the economy, a curtailment in the availability
of capital and a general reduction in technology expenditures.

Based on the factors described above, the Company determined that
the goodwill in its acquisitions and investments may have become impaired. In
accordance with SFAS No. 121, the Company performed an undiscounted cash flow
analysis of its acquisitions to determine whether an impairment existed. When
the undiscounted cash flows for an acquired company was less than the carrying
value of the net assets, management determined a range of fair values using a
combination of valuation methodologies. The methodologies included:

- Discounted cash flow analysis, which is based upon converting expected
future cash flows to present value.
- Changes in market value since the date of acquisition relative to the
following:
- the Company's stock price;
- comparable companies;
- the NASDAQ composite index; and
- a composite of companies that operate with in the
Company's industry.
- Market price multiples of comparable companies.
- Contribution to the Company's market valuation.

11
12

The methodologies used were consistent with the specific valuation methods used
when the original purchase price was determined. The Company's best estimate of
the fair value was determined from the range of possible values after
considering the relative performance, future prospects and risk profile of the
acquired company.

In connection with the valuation of the Riverbed Technologies, Inc.
acquisition, the Company engaged an independent third party to determine the
fair value of the acquired business because of the magnitude of the acquisition
and the associated potential impairment.

As a result of its review, management determined that the carrying
value of goodwill and certain other intangible assets related to its
acquisitions were not fully recoverable. At March 31, 2001, the Company recorded
an impairment charge of approximately $959 million, which represents the
difference between the carrying value and fair value of its goodwill and other
intangible assets. The impairment of goodwill and other intangible assets from
the acquisition of Riverbed Technologies, Inc. amounts to approximately $775
million, or 81% of the total impairment charge. The Company also recorded
impairment charges to goodwill and other intangibles related to the acquisitions
of LocusOne Communications, Inc., NetSearch, LLC, Cerulean Technology, Inc.,
Sunpro and RTS Wireless, Inc. of approximately $184 million. As of March 31,
2001, the adjusted book value of goodwill and other intangibles was reduced to
approximately $435 million.

Because the factors the Company uses to evaluate its acquisitions change from
time to time, the Company could determine that it is necessary to take
additional material impairment charges in future periods.

(4) INVESTMENTS

(a) Investments under the equity method of accounting

The Company has four investments that are recorded using the equity method of
accounting: Omnisky (25.7% interest as of March 31, 2001), Inciscent (27.5%
interest as of March 31, 2001), VeriStar (25.3% interest as of March 31, 2001)
and MindSurf (36.5% interest as of March 31, 2001). The Company recorded
approximately $14.6 million and $3.1 million in expenses for the three months
ended March 31, 2001 and 2000, respectively, to reflect its proportionate share
of the losses in these companies based upon preliminary unaudited financial
information. At March 31, 2001, the carrying value of these investments was
$37.3 million, net of proportionate

12
13
share of losses and impairment charges. For the three months ended March 31,
2001 and 2000, the Company generated $3.4 million and $1.1 million in revenue,
respectively, from products or services provided to these companies. In
addition, the Company had $4.5 million and approximately $2.7 million in
accounts receivable at March 31, 2001 and December 31, 2000, respectively, due
from these companies.

(b) Other Investments

In 2000, the Company has also invested $59.0 million in five
publicly-traded companies including $17 million in Metrocall, Inc.
("Metrocall"), $10 million in Data Critical Corp. ("Data Critical"), and $20
million in Novatel Wireless, Inc. ("Novatel").

The Company has also invested $83.3 million in eleven private companies,
including $25.0 million in Strategy.com, Inc. ("Strategy.com"), $11.0 million in
ePhones, $14.9 million in Parkstone, and $10.0 million in Juniper Financial
Corp. ("Juniper"). The Company accounts for these investments at cost unless
circumstances indicate the carrying amount of the investment may not be
recoverable. For the three months ended March 31, 2001, the Company generated
approximately $202,000 in revenue from products or services provided to these
investees. In addition, the Company has approximately $177,000 in accounts
receivable, net of reserves, at March 31, 2001 due from these investees.

The Company adjusts the carrying value of its available-for-sale investments in
public companies to market and records the change in market value to other
comprehensive income. In accordance with SAB 59, Accounting for Noncurrent
Marketable Equity Securities, the Company assessed the decline in market value
in certain of its public company investments as other than temporary after
reviewing the following factors: length of time and extent to which the market
value of the investment has been below cost, the financial position and the
near-term prospects of the issuer, and the intent and ability of the Company to
retain its investment in the investee for a period of time sufficient to allow
for any anticipated recovery in market value. As of March 31, 2001, in
accordance with SAB 59, the Company recorded a realized loss of $27.0 million
related to these other than temporary declines.

With respect to investments in non-public companies, the Company's
management performs on-going reviews based on quantitative and qualitative
measures. In evaluating its non-public company investments, management
determined a range of market values based on a combination of the following
valuation methods where applicable:

- Recent funding rounds.
- Changes in market value since the date of investment relative to the
following:
- the Company's stock price;
- comparable companies;
- the NASDAQ composite index; and
- a composite of companies that operate with in the Company's
industry.
- Market price multiples of comparable companies.

The fair value was determined from the range of possible values, after
considering the strength of the investee's financial position, future prospects
and risk profile of the invested company. During the first quarter of fiscal
2001, the Company recorded an impairment charge of approximately $61.8 million
related to these non-public company investments. Because the factors the Company
uses to evaluate its investments change from time to time, the Company could
determine that it is necessary to take additional material impairment charges in
future periods.

13
14

(5) STOCK OPTIONS AND WARRANTS

(a) Options

In January 2001, the Company's employees were given the right to exchange
existing options for shares of restricted stock. 567 employees agreed to have
their options canceled in exchange for approximately 756,000 shares of
restricted stock. The Company expects to record $26.6 million of expense over
the next five years associated with the issuance of the restricted stock. The
Company recorded approximately $1.6 million of expense associated with the
issuance of the restricted stock for the three months ended March 31, 2001.

(b) 3COM Warrants

In connection with the sale of equity interest in the Company to 3Com, the
Company granted a conditional warrant to 3Com to purchase 893,665 shares at an
exercise price of $0.01 per share. 3Com vests in the warrants upon performance
of certain services and achievement of specific criteria. As of March 31, 2001,
warrants to purchase 750,000 shares had not been earned by 3Com. As of March 31,
2001, the Company believes that it is not yet probable that 3Com will attain the
specified milestones relating to the remaining 750,000 shares and, accordingly,
no expense relating to these warrants has been recorded. 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 warrants. 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.

(6) COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. Consequently, the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at March 31, 2001, cannot be ascertained. While these matters could
affect the operating results of any one quarter when resolved in future periods,
management believes that any ultimate monetary liability or financial impact to
the Company beyond that provided for at March 31, 2001 would not be material to
the Company's financial position.

Purchase Commitments

a) On April 11, 2000, the Company entered into a marketing agreement with
Research in Motion Limited (RIM). This agreement includes joint commitments
between Aether and RIM concerning sales and marketing and development efforts
and allows Aether to license the Blackberry wireless messaging software for use
in the Aether NOC. The agreement includes a commitment to purchase up to 140,000
RIM handheld devices over the following three years. The total commitment is
dependent upon certain conditions being met over the period of the agreement. As
of March 31, 2001, the Company has met its obligation for purchases over the
next 12 months.

b) The Company is committed to take delivery of 10,420 Novatel wireless
modems. These modems have already been paid for.

c) In connection with the acquisition of Motient's retail transportation
segment, the Company signed airtime purchase commitments with Motient in the
amount of $15 million over three years.

Acquisitions and Investments

14
15

The Company is committed to make the following payments in the remainder of
2001 relating to its acquisitions and investments:

(a) Motient -- In connection with the acquisition of Motient's retail
transportation business, the Company is committed to pay up to an
additional $22.5 million if certain revenue and other incentive targets are
met in 2001. As of March 31, 2001, these targets have not been met, and as
such the Company has not made any payments pursuant to this commitment.

(b) Sila Communications -- The Company has committed to provide
additional funding of up to $7.2 million in 2001 to its majority-owned
subsidiary, Sila Communications, Limited.

(7) SEGMENT INFORMATION

The Company's operating segments include Vertical Markets, Software
Products, Wireless Services and European Operations. Each of these segments has
distinct management teams. The Vertical Markets segment provides wireless data
services software and engineering services to develop applications for the
financial services, health care, mobile government, transportation and
logistics, m-commerce, and merchant notification services industries. The
Software Products segment develops, licenses and supports software products to
extend the accessibility of applications and information from corporate networks
and databases to handheld devices. The Wireless Services segment develops and
provides wireless data services through our Enterprise ISP, BlackBerry(TM) by
Aether(TM) and AirLoom(TM) offerings. Our European Operations segment consists
of Sila which is the Company's European joint venture with Reuters, which has
the majority of its customers in the European financial services industry.
Corporate and Other consists mainly of corporate assets and SG&A expenses.

During 2000, the Company's reportable segments have changed -- and the
Company expects them to continue to change -- as its operating structure,
business and the markets in which it operates evolve. Each of the Company's
segments has distinct management teams.

Segment detail is summarized as follows:

VERTICAL SOFTWARE WIRELESS EUROPEAN CORPORATE AND
MARKETS PRODUCTS SERVICES OPERATIONS OTHER TOTAL
------- -------- -------- ---------- --------------- ----------

Three months ended March 31, 2000
Revenue........................ $ 4,719 $ 682 $ - $ - $ - $ 5,401
Gross profit................... $ 2,168 $ 209 $ - $ - $ - $ 2,377
Total assets................... $2,648,850 $ 7,562 $ - $ - $ - $2,656,412
Three months ended March 31, 2001
Revenue........................ $ 18,017 $ 4,976 $ 3,685 $ 3,981 $ - $ 30,659
Gross profit................... $ 7,578 $ 3,488 $ 227 $ 1,417 $ (1,884) $ 10,826
Total assets................... $ 180,090 $ 170,339 $ - $ 169,760 $ 896,096 $1,416,285

The Company derives revenue primarily from the U.S. and Europe. Information
regarding our revenues and

15
16

long lived assets in different geographic regions is as follows (in thousands):

THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 2001
-------------- ---------------
Revenue:

U.S.................... $ 5,401 $ 24,968
Aggregate Foreign...... -- 5,691
----------- --------------
$ 5,401 $ 30,659
=========== ==============
Long Lived Assets........
U.S.................... $ 1,269,650 $ 432,080
Aggregate Foreign...... -- 167,170
----------- --------------
$ 1,269,650 $ 599,250
=========== ==============

16
17

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 our Condensed Consolidated Financial
Statements and Notes thereto and other financial data appearing elsewhere in
this Form 10-Q.

This report includes forward-looking statements that involve risks and
uncertainties. When used herein, the words "anticipate," "believe," "estimate,"
"intend," "may," "will," and "expect" and similar expressions as they relate to
Aether Systems, Inc. ("Aether" or "Company") or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Business." in the section entitled "Factors Affecting Operating Results" in
Item 7 of our annual report on Form 10-K filed with the SEC on April 2, 2001.
Aether undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

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 and our name was changed to Aether Systems, Inc.

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 Aether Intelligent Messaging
(AIM) package of wireless messaging software and software development tools.

In 1998 and 1999, we continued to develop financial information services --
as well as financial transaction services -- internally and through our
acquisition of Mobeo, Inc. In 1999, we also completed our initial public
offering and began to expand our service offerings to areas other than financial
information and transactions.

In 2000, we continued our expansion into other vertical markets, including:
the transportation and logistics vertical market through our acquisitions of
LocusOne and Motient's retail transportation business unit, the mobile
government vertical market through the acquisitions of Cerulean and SunPro; and
the healthcare vertical market through investments and our own service
offerings. We broadened our software offerings through our purchase of Riverbed
and RTS Wireless. Also in 2000, we moved into the European marketplace with our
acquisition of IFX, and the related formation of Sila. We entered the general
wireless and Internet messaging services market through strategic relationships
with RIM and others and through our own service offerings.

On April 17, 2001 we introduced Aether Fusion(TM), a comprehensive wireless
technology foundation designed to provide customers and partners with a
sigle-source solution for accessing essential data and applications wirelessly.

Our current segments are vertical markets, software products, wireless
services and European operations. During 2000, our reportable segments changed
-- and we expect them to continue to change -- as our operating structure,
business and the market in which we operate evolve. Each of our segments has
distinct management teams.

FACTORS AFFECTING COMPARABILITY

Our results of operations in 2001 and 2000 have been affected by
acquisitions, investments, impairment charges and the formation of Sila. In
addition, a combination of factors has resulted in operating losses that we
expect will continue for some time. The factors identified below have had a
significant impact on our operations and should be considered in comparing our
results of operations in 2001 to those in 2000.

17
18

Acquisitions

We have acquired companies to expand our product offerings and geographic
markets and to acquire additional engineering resources to develop products.
From September 1999 through December 31, 2000, we have acquired 10 businesses
(or parts of businesses) for an aggregate consideration (not including
contingent payments that had not yet been earned) of $365.8 million and equity
valued at the time of acquisition of $1.284 billion, consisting of 6,259,445
shares of our common stock and 1,093,785 replacement options. These acquisitions
included the following:

- During 1999, we acquired Mobeo for a purchase price and related
expenses of $11.5 million in cash and 46,105 options valued at
$374,000.

- In early 2000, we acquired LocusOne, NetSearch, and IFX for purchase
prices aggregating approximately $160.6 million.

- On March 6, 2000, we acquired Riverbed for 4,537,281 shares of our
common stock and 862,480 options with an aggregate value of $1.136
billion. In connection with our acquisition of Riverbed, we incurred
costs totaling approximately $16.9 million.

- In September 2000, we acquired Cerulean, SunPro and Sinope for
purchase prices and related expenses aggregating approximately $93.4
million and 462,412 shares of our common stock and 94,952 options with
an aggregate value of $69.9 million.

- On November 30, 2000, we acquired Motient's retail transportation
business unit for $49.2 million in cash and related expenses plus an
additional sum of up to $22.5 million depending on whether certain
revenue and other incentive targets are met in 2001.

- On December 22, 2000, we acquired RTS for a purchase price of $34.2
million in cash and related expenses plus 1,259,752 shares of our
common stock and 90,248 options with an aggregate value of $78.0
million.

Our acquisitions increase our operating revenues and expenses from the date
of acquisition. In the discussion of results below, we quantify the effects of
acquisitions on our revenues and expenses. Acquisitions also increase
depreciation and amortization significantly as we amortize the value of
acquisition intangibles. Amortization related to acquisition intangibles was
$87.9 million for the three months ended March 31, 2001 and $17.0 million for
the three months ended March 31, 2000. Finally, acquisitions affect non-cash
compensation when we issue options to employees at the time of an acquisition.

Formation of Sila

On May 4, 2000, we formed Sila with Reuters to extend our operations to the
European market. We contributed our IFX subsidiary (which we purchased for $85.0
million shortly before forming Sila), plus $13.5 million in cash to acquire a
60.0% interest in Sila. Reuters contributed cash of approximately $20.8 million
and Futures Pager Limited, a European paging company, for the remaining 40.0%
interest. The results of Sila are consolidated in our financial statements.

Investments

We have made investments through Aether Capital, L.L.C., our wholly-owned
subsidiary, to promote the development of new technologies that are compatible
with the services we offer or that we may wish to integrate into our services.
Since August 1999, we have invested $176.4 million in 20 companies. These
investments include:

18
19

- In August 1999, we formed a new company called OpenSky, which was
renamed OmniSky in October 1999. We have invested a total of $9.2
million in OmniSky. 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, 2001, we owned approximately 25.7% of
OmniSky after completion of OmniSky's initial public offering. We
account for our investment in OmniSky under the equity method of
accounting.

- In March 2000, we acquired a 27.5% interest in Inciscent in the form
of preferred stock for a purchase price of $9.9 million. We formed
Inciscent with Metrocall, PSINet, and Hicks, Muse, Tate & Furst and
other investors to develop wireless e-mail, Internet access and other
applications for the small office and home office markets. We account
for our investment in Inciscent under the equity method of accounting.

- In July 2000, we entered into an agreement with Sylvan to establish
Mindsurf, a new company focused on educational services. We have
committed to acquire a 47% interest in Mindsurf for $32.9 million in
cash. Sylvan has also committed to acquire a 47% interest for $32.9
million in cash while the remaining 6% will be owned by other minority
investors. As of March 31, 2001, we have funded $9.4 million of our
commitment to Mindsurf. We account for our investment in Mindsurf
under the equity method of accounting.

- In July 2000, we acquired a 25.3% interest in Veristar for $5.6
million in cash. Veristar enables access to accounts and content
through Internet and wireless technology. We account for our
investment in Veristar under the equity method of accounting.

We also invested $59.0 million in five publicly-traded companies including
Metrocall, DataCritical Corporation, and Novatel. We account for these five
investments at fair value based on quoted market prices. Net unrealized holding
gains and losses on these available-for-sale securities are excluded from income
and recorded as a separate component of stockholders' equity unless the decline
is deemed to be other than temporary. Subsequent to our investment, the market
values of these investments have decreased significantly. In some cases we have
determined the decline in market value of our investments in publicly-traded
companies to be other than temporary, and as such have recorded realized losses
on these investments, which are included in net income.

Finally, we also invested $83.3 million in eleven private companies
including $25.0 million in Strategy.com, $11.0 million in ePhones, $14.9 million
in Parkstone Medical Information Systems, Inc., and $10.0 million in Juniper
Financial Corp. We account for these investments at cost unless circumstances
indicate the carrying amount of the investment may not be recoverable.

IMPAIRMENT CHARGES

From 1999 through March 31, 2001, the Company has recorded approximately
$1.7 billion in goodwill and other intangibles related to its acquisitions. In
addition, the Company has made investments in other businesses totaling
approximately $185.0 million during this period. The Company's management
performs an on-going analysis of the recoverability of its goodwill and other
intangibles and the value of its investments in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
be Disposed Of. Based on quantitative and qualitative measures, the Company
assesses the need to record impairment losses on long-lived assets used in
operations when impairment indicators are present. The impairment conditions
evaluated by management may change from period to period, given that the Company
operates in a volatile business environment.

19
20

entities. Most of these companies were privately-held and their fair
values are highly subjective and not readily determinable. At the time of these
acquisitions and investments, market valuations and the availability of capital
for such companies were at historically high levels. Since the end of 2000,
stock prices and market valuations in the Company's industry and similar
industries have fallen substantially in response to a variety of factors,
including a general downturn in the economy, a curtailment in the availability
of capital and a general reduction in technology expenditures.

- Discounted cash flow analysis, which is based upon converting expected
future cash flows to present value.
- Changes in market value since the date of acquisition relative to the
following:
- the Company's stock price;
- comparable companies;
- the NASDAQ composite index; and
- a composite of companies that operate with in the Company's
industry.
- Market price multiples of comparable companies.
- Contribution to the Company's market valuation.

In connection with the valuation of the Riverbed Technologies, Inc.
acquisition, the Company engaged an independent third party to determine the
fair value of the acquired business, because of the magnitude of the acquisition
and the associated potential impairment.

As a result of its review, management determined that the carrying
value of goodwill and certain other intangible assets related to its
acquisitions were not fully recoverable.

At March 31, 2001, we recorded an impairment charge of approximately
$959 million, which represents the difference between the carrying value and
fair value of its goodwill and other intangible assets. The impairment of
goodwill and other intangible assets from the acquisition of Riverbed
Technologies, Inc. amounts to approximately $775 million, or 81% of the total
impairment charge. We also recorded impairment charges to goodwill and other
intangibles related to the acquisitions of LocusOne Communications, Inc.,
NetSearch, LLC, Cerulean Technology, Inc., Sunpro and RTS Wireless, Inc. of
approximately $184 million. As of March 31, 2001, the adjusted book value of
goodwill and other intangibles was reduced to approximately $435 million.

20
21
The Company adjusts the carrying value of its available-for-sale
investments in public companies to market and records the change in market value
to other comprehensive income. In accordance with SAB 59, Accounting for
Noncurrent Marketable Equity Securities, the Company assessed the decline in
market value in certain of its public company investments as other than
temporary after reviewing the following factors: length of time and extent to
which the market value of the investment has been below cost, the financial
position and the near-term prospects of the issuer, and the intent and ability
of the Company to retain its investment in the investee for a period of time
sufficient to allow for any anticipated recovery in market value. As of March
31, 2001, in accordance with SAB 59, the Company recorded a realized loss of
$27.0 million related to these other than temporary declines.

- Recent funding rounds.

- Changes in market value since the date of investment relative to the
following:
- the Company's stock price;
- comparable companies;
- the NASDAQ composite index
- a composite of companies that operate with in the Company's
industry.
- Market price multiples of comparable companies.

Because the factors the Company uses to evaluate its acquisitions
and investments changes from time to time, the Company could determine that it
is necessary to take additional material impairment charges in future periods.

21
22

OPERATING REVENUES AND EXPENSES

We describe below the components of our operating revenues and expenses.

Subscriber revenue and expenses

We derive recurring revenue from subscribers in the vertical markets,
wireless services, software products and European operations segments.
Subscriber revenue may consist of:

- a one-time non-refundable activation fee, which we recognize ratably
over the expected life of the customer relationship;

- monthly per-subscriber service fees, which we recognize as services
are provided;

- 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,
which we recognize as services are provided, ratably over the contract
period.

For certain of our products, our subscribers' monthly fee includes the use
of a wireless handheld device. 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 period 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.

Cost of subscriber revenue consists primarily of airtime costs, financial
data 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 subscriber
revenue excludes depreciation on our network operations center and certain costs
of customer fulfillment, which is included in sales and marketing expense.

The subscription products we offer fall into three distinct categories:

- Enterprise ASP/ISP services. These services wirelessly connect
critical functions of a business to end users within the business or
to third parties such as customers. Through our Enterprise ASP/ ISP
services, we provide a full wireless solution to the end user,
including product development, fulfillment, network hosting, customer
service and carrier connections between the business and wireless
carriers. For this type of product, we typically receive revenue from
a monthly recurring fee for the full range of services between $40 and
$70 per month per subscriber.

- Premium information and commerce services. These services provide the
end user with information critical to their business, such as market
information or sales inquiries. Premium information products are
packaged with fulfillment, customer service and carrier connections
between the business and wireless carriers. For this type of product,
we typically receive revenues such as activation fees and a monthly
recurring fee for the full range of services between $70 and $200 per
month per subscriber.

- Network hosting services. These services connect businesses and
wireless carriers. Hosting services may be charged per subscriber or
on a usage basis. Average revenue per subscriber typically ranges
between $5

22
23

and $25 per month per subscriber.

The nature of revenue and costs for these product categories is similar,
regardless of the segment in which we offer them. Accordingly, we believe it is
valuable to analyze our subscribers on the basis of these product categories.

The following table sets forth the number of subscribers for each of our
product types as of March 31, 2000 and 2001.

AS OF MARCH 31,
--------------------
2000 2001
-------- ---------

Enterprise ASP/ISP services......................... 427 36,794
Premium information & commerce services............. 4,410 19,054
Network hosting services............................ 1,147 76
----- ------
Total subscribers........................... 5,984 55,924
===== ======

A substantial portion of the growth in subscribers over this period is
attributable to service offerings obtained through recent acquisitions and the
remainder is due to the attraction of new subscribers to our services and the
introduction of new services. We acquired approximately 6,200 subscribers on the
Blackberry by Aether service from RIM in the first quarter. These new
subscribers will allow us to satisfy all of these customers wireless messaging
needs under one account and allow us to upsell other Aether products to these
customers on all of their RIM devices.

Engineering services revenue and expenses

Revenue from wireless engineering services consists of amounts billed to
our customers for engineering time on an hourly basis or fixed fees on a per
project basis. This revenue is recognized as the work is performed. Cost of
engineering services revenue consists of cash compensation and related costs for
engineers and other project-related costs.

Software and related services revenue and expenses

We derive revenue from the licensing of software products, including the
AIM platform, the ScoutWare software suite, the e-Mobile software suite, the
PacketCluster software suite, the FireRMS software suite and the Advantage
software suite. Cost of software and related services revenue consists of costs
of licensing, including royalty payments and personnel costs.

Device sales and expenses

We generate revenue by providing our subscribers the option to purchase
wireless handheld devices from us at or near cost, which we recognize as revenue
upon shipment. Cost of device sales consists of the cost of the hardware from
the hardware manufacturer or wholesaler.

Research and development expenses

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 and selling and marketing expenses

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, certain customer fulfillment and other costs.

Depreciation and amortization expenses

23
24

Depreciation and amortization expenses consist primarily of the
amortization of intangible assets obtained in connection with our acquisitions.
Depreciation and amortization expenses also include depreciation expenses
arising from equipment purchased for our network operations centers and other
property and equipment purchases.

Option and warrant expenses

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 stock options issued to employees, restricted stock granted to
employees and the fair value of equity-based awards to non-employees. We
commonly issue options and/or warrants at prices below market value in
connection with our acquisitions. Given our numerous acquisitions since our
inception and our restricted stock plan, we expect to continue to have
substantial option and warrant expense.

Impairment of goodwill associated with acquisitions

Impairment of goodwill associated with acquisitions expense consists of the
amount of goodwill and other intangibles, written down in accordance with SFAS
121, Accounting for the Impairment of Long-Lived Assets and for Assets to Be
Disposed Of. The impaired goodwill related to our acquisitions of Riverbed
Technologies, Inc., LocusOne Communications, Inc., NetSearch, Inc. Cerulean
Technology, Inc. SunPro, Inc., and RTS Wireless, Inc.

Interest income (expense), net

Interest income (expense), net consists primarily of interest income from
cash equivalents and short-term investments, interest expense and realized gains
(losses) on sale of our investments.

Equity in losses of investments

Equity in losses of investments consists of our proportionate share of the
net losses of OmniSky, Inciscent, MindSurf and VeriStar Corporation, which are
recorded under the equity method of accounting.

Minority interest

Minority interest consists wholly of Reuters' ownership interest in Sila.

Investment losses, including impairments

Investment losses, including impairments, consists of the loss taken on
investments where the decline in market value was deemed to be other than
temporary. Investment losses also include amounts related to the decline in the
fair value of derivative instruments.

Income tax benefit

Income tax benefit consists of a foreign deferred tax benefit associated
with the losses generated by Sila.

Cumulative effect of change in accounting principle

Cumulative effect of change in accounting principle consists entirely of the
cumulative benefit of the implementation of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities.

COMPARISON OF RESULTS FOR THREE MONTHS ENDED MARCH 31, 2001AND 2000

Subscriber revenue. Subscriber revenue increased to $10.4 million for the
three months ended March 31, 2001 from $2.8 million for the three months ended
March 31, 2000. Approximately $7.1 million of the revenue for the three months
ended March 31, 2001 was due to continued sales of product and service offerings
obtained in connection with acquisitions. Additionally, $1.6 million of the
revenue resulted from the

24
25

increased number of subscribers that signed on to our existing and new product
and service offerings such as wireless messaging and online trading products.
Our subscriber product and service offerings fell primarily into our Enterprise
ASP/ISP services and premium information and commerce services subscriber
categories.

Cost of subscriber revenue. Cost of subscriber revenue increased to $6.2
million for the three months ended March 31, 2001 from $1.1 million for the
three months ended March 31, 2000. We generally expect the cost of subscriber
revenue to increase proportionately with any increase in subscriber revenue.
Approximately $4.2 million of the increase for the three months ended March 31,
2001 was from product and service offerings obtained in connection with our
acquisitions and subsequent growth of those acquisitions. An additional
approximately $900,000 of the increase in the three months ended March 31, 2001
was from the growth in subscribers resulting from new offerings such as wireless
messaging and online trading products primarily in our Enterprise ASP/ ISP
services and premium information and commerce services. The cost of subscriber
revenue was also negatively impacted by several factors. These factors included
a sharp increase in the cost of airtime in Germany related to Sila. We have been
incurring incremental costs associated with providing services to non-paying
customers obtained in connection with our acquisition of Motient's retail
transportation business unit. We have been successful in converting some of
these non-paying customers into paying subscribers by repairing their
non-working equipment and intend to continue seeking to do so with others. We
expect the conditions that have negatively affected margins in the quarter ended
March 31, 2001 to be temporary. We expect gross margins relating to subscriber
revenue to improve over time.

Engineering services revenue. Engineering services revenue increased to
$2.4 million for three months ended March 31, 2001 from $1.4 million for the
three months ended March 31, 2000. The increase between the three months ended
March 31, 2001 and the three months ended March 31, 2000 was due to our
engineering services contracts with Inciscent. We recognized approximately
$679,000 and $60,000 under this contract for the three months ended March 31,
2001, and 2000 respectively.

Cost of engineering services revenue. Cost of engineering services revenue
increased to $1.3 million for the three months ended March 31, 2001 from
$600,000 for the three months ended March 31, 2000. The increase the three
months ended March 31, 2001 and the three months ended March 31, 2000 was due to
the cost of our engineering services contract with Inciscent. We recognized
costs of approximately $310,000 and $26,000 under this contract for the three
months ended March 31, 2001, and 2000, respectively. The remainder of the
increase between periods was due to several new customers gained.

Software and related services revenue. Software and related services
revenue was $11.8 million for the three months ended March 31, 2001 and $1.1
million for the three months ended March 31, 2000. Approximately $11.5 million
of software and related services revenue for the three months ended March 31,
2001 was generated from the sale of licenses and services of the ScoutWare
software platform, e-Mobile Delivery platform, PacketCluster software suite,
FireRMS software suite and the Advantage software suite all of which were
obtained in conjunction with acquisitions and their subsequent growth occurring
in 2000. The remaining software and related services revenue was generated
primarily from our licensing of AIM.

Cost of software and related services revenue. Cost of software and
related services revenue was $4.1 million for the three months ended March 31,
2001 and $700,000 for the three months ended March 31, 2000, relating to royalty
fees for third-party intellectual property used in the software that we sell and
personnel costs.

Device Sales. Revenue from device sales were $6.1 million for the three
months ended March 31, 2001 and approximately $135,000 for the three months
ended March 31, 2000. The increase in device sales between periods relates
primarily to the increase in subscribers between periods. In addition, $2.2
million of the device sales for the three months ended March 31, 2001 was
generated from continued sales of product offerings obtained in connection with
acquisitions.

Cost of device sales. Cost of device sales was $8.2 million for the three
months ended March 31, 2001 and approximately $673,000 for the three months
ended March 31, 2001. The increase in the cost of device sales between periods
relates primarily to the increase in device sales between periods. Approximately
$1.9 million of the cost of device sales related to an increase in the inventory
reserve due to obsolescence. We sometimes sell hardware at or below cost in
order to obtain other revenue streams. In addition, $2.4 million of the cost of
device sales for the three months ended March 31, 2001 was from continued sales
of product offerings obtained in connection with acquisitions.

Research and development expenses. Research and development expenses,
including in-process research and development related to acquisitions, increased
to $17.2 million for the three months ended March 31, 2001 from

25
26
$2.0 million for the three months ended March 31, 2000. The increase in the
three months ended March 31, 2001 from the three months ended March 31, 2000 was
primarily due to the hiring of additional engineers and consultants for
increased research and development activities associated with the development of
our software products, mobile computing platforms, including Aether Fusion (TM),
and wireless data services. We expect research and development expenses to
continue to increase as we expand our product offerings.

General and administrative expenses. General and administrative expenses
increased to $25.8 million for the three months ended March 31, 2001 from $4.9
million for the three months ended March 31, 2000. The increase in the three
months ended March 31, 2001 was primarily due to additional personnel and
consultants performing general corporate activities, additional facilities and
our acquisitions since the prior year. The increased scope of our business has
required additional personnel and other expenses, such as consulting and
facilities, in all areas including: customer service, network operations,
project management, legal and accounting. We anticipate continued increases in
our general and administrative expenses as we expand our operations.

Selling and marketing expenses. Selling and marketing expenses increased to
$20.2 million for the three months ended March 31, 2001 from $5.8 million for
the three months ended March 31, 2000. The increase in 2001 was primarily due to
increases in the number of sales and marketing personnel primarily obtained
through acquisitions.

Depreciation and amortization. Depreciation and amortization increased to
$91.8 million for the three months ended March 31, 2001 from $17.4 million for
the three months ended March 31, 2000. This increase in 2001 was primarily due
to the amortization of intangibles and goodwill relating to the acquisition of
Riverbed, which accounted for $58.5 million of the expense in the three months
ended March 31, 2001, while $28.4 million related to our other acquisitions. We
expect this expense to decrease in future quarters as a result of the impairment
charge recorded in the first quarter of 2001.

Option and warrant expense. Option and warrant expense increased to $4.6
million for the three months ended March 31, 2001 from $2.5 million for the
three months ended March 31, 2000. The decrease between the three months ended
March 31, 2001 and 2000 was due to our general policy subsequent to our initial
public offering of granting shares to employees at their fair value, partially
offset by options granted in connection with acquisitions at exercise prices
less than fair value on the date of grant. In January 2001, we canceled 2.5
million options granted to our employees and issued approximately 756,000 shares
of restricted stock to a number of employees holding options with exercise
prices higher than our then-current market value. We expect to record $26.6
million of expense over the vesting period of the restricted stock grants.

Impairment of goodwill associated with acquisitions. Impairment of goodwill
associated with acquisitions was $959.4 million for the three months ended March
31, 2001. There was no such impairment in the first quarter of 2000. Over 80% of
this impairment charge was associated with the write down of goodwill obtained
in connection with our acquisition of Riverbed, while the remaining almost 20%
related to our other acquisitions.

Interest income, net. Net interest income increased to $6.4 million for the
three months ended March 31, 2001 from an expense of $2.2 for the three months
ended March 31, 2000. The increase between 2001 and 2000 was primarily due to an
increase in interest earned on cash and cash equivalents following the
completion of our secondary offering on March 17, 2000.

Equity in losses of investments. Equity in losses of investments was $14.5
million for the three months ended March 31, 2001 and $3.1 million for the three
months ended March 31, 2000. The increase related to our proportionate share of
losses from OmniSky, Inciscent, MindSurf, and VeriStar, which are all accounted
for under the equity method of accounting. We expect to continue to record
equity losses in investments as these companies continue to develop their
operations.

Investment losses, including impairments. Investment loss, including
impairments was $94.7 million for the three months ended March 31, 2001. There
was no such loss for the three months ended March 31, 2000. The increase between
periods was due primarily to the loss taken on investments where the decline in
market value was deemed to be other than temporary. The Company also recorded a
loss of $6.0 million relating to the decline in the fair value of derivative
instruments.

26
27

Minority interest. Minority interest was $3.7 million for the three months
ended March 31, 2001 relating to Reuters' proportional share of losses in Sila,
which was formed in May 2000 and is consolidated into our financial statements.
We expect that Sila will continue to incur losses as it develops its operations.

Income tax benefit. Income tax benefit was approximately $435,000 for the
three months ended March 31, 2001. This increase was due to a foreign deferred
tax benefit associated with the losses generated by Sila, which was formed in
May 2000.

Cumulative effect of change in accounting principle. Cumulative effect of
change in accounting principle was $6.6 million for the three months ended March
31, 2001 and was due entirely to the adoption of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 provides that
derivatives should be carried as an asset on the balance sheet at fair value,
and that changes in fair value between periods should be included in net income.
Our derivatives include warrants obtained in connections with several of our
investments. Such warrants are considered derivatives as they include provisions
which allow for net settlement.

SEGMENT RESULTS

VERTICAL SOFTWARE WIRELESS EUROPEAN CORPORATE AND
MARKETS PRODUCTS SERVICES OPERATIONS OTHER TOTAL
------- -------- -------- ---------- ------------- -----

The type of revenue we earn in each of our segments varies from segment to
segment.

Vertical markets segment. We operate in a wide variety of vertical markets,
our vertical markets segment can have subscriber revenue, engineering services
revenue, device sales and software and related services revenue depending on the
needs of the customer. Revenue in the vertical markets segment increased to
$18.0 million in the three months ended March 31, 2001 from $4.7 million in the
three months ended March 31, 2000 and gross profit in that segment increased to
$7.6 million in the three months ended March 31, 2001 from $2.2 million in the
three months ended March 31, 2000. The increase in this segment was primarily
the result of sales of product and service offerings obtained in connection with
acquisitions made in 2000 and their subsequent growth, which contributed $12.5
million and $5.5 million to revenue and gross profits, respectively. The
remaining growth related to increases in subscribers to existing services, which
contributed in the amount of $5.5 million and $2.1 million to revenue and gross
profit, respectively.

Software products segment. The software products segment typically has
software products maintenance and related services revenue. Revenue in the
software products segment increased to $4.9 million in the three months ended
March 31, 2001 from $682,000 in the three months ended March 31, 2000 and gross
profit in that segment increased to $3.5 million in the three months ended March
31, 2001 from $209,000 in the three months ended March 31, 2000. The sales of
software application and product offerings obtained in connection with the
acquisitions of Riverbed and RTS contributed approximately $4.8 million of the
revenues and $3.3 million of the gross profits to the software products segment
in the three months ended March 31, 2001. The increase of $4.3 million and $3.3
million in revenue and gross margin, respectively, from the three months ended
March 31, 2000 is primarily related to the growth in sales from the Scoutware
and AIM product lines.

Wireless services segment. Our wireless services segment can derive revenue
from subscribers and from engineering services related to setting up and
servicing these subscribers. All of the increase in revenue and gross profit in
the wireless services segment was a result of new product and service offerings,
including our Blackberry by Aether and wireless Enterprise ISP services.

27
28

European operations segment. Our European operations segment consists of
Sila and generates revenue from subscribers, engineering services and from the
sale of software and related services. Sila was formed in May 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations primarily through
private and public placements of our equity securities. Through March 31, 2001,
we have raised aggregate net proceeds of approximately $1.5 billion including
the issuance of $310.5 million of 6% convertible subordinated notes. As of March
31, 2001, we had approximately $732 million in cash and short-term investments
(including restricted cash of $2.1 million) and working capital of approximately
$735 million.

Net cash used in operating activities was $62.2 million and $15.4 million
for the three months ended March 31, 2001 and 2000, 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 $67.4 million and $70.7 million
for the three months ended March 31, 2001 and 2000, respectively. For the three
months ended March 31, 2001, we used $15.3 million for the purchase of property
and equipment, $22.4 million for investments in companies and $31.0 for payments
on 2000 acquisitions. Cash used by investing activities for the three months
ended March 31, 2000 was primarily for the purchase of property and equipment
and the acquisition of Mobeo partially offset by the sale of short-term
investments.

Net cash provided by financing activities was approximately $504,000 and
$1.4 billion for the three months ended March 31, 2001 and 2000 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.

While not a measure under generally accepted accounting principles, EBITDA
is a standard measure of financial performance in our industry. EBITDA means
earnings before interest, taxes, depreciation and amortization, option and
warrant expense, impairment charges, realized losses and cumulative effect of
change in accounting principle. EBITDA should not be considered in isolation or
as an alternative to net income (loss), income (loss) from operations, cash
flows from operating activities, or any other measure of performance under
generally accepted accounting principles. Cash expenditures for various
long-term assets, interest expense and income taxes have been, and will be,
incurred which are not reflected in the EBITDA presentations. EBITDA losses
increased to $52.4 million in the three months ended March 31, 2001 from $10.4
million in the three months ended March 31, 2000. The increases from quarter to
quarter were due to increases in operating expenses as a result of acquisitions
and our continued growth.

We expect to continue to use cash to fund operations as we continue to
develop our products and markets. The time at which our operating revenues will
exceed operating expenses, if ever, depends on a wide variety of factors
including general business trends, development of our markets, the progress of
and changes in our research and development activities and the effect of
potential future acquisitions. Given our current cash resources and our ability
to control some of the factors that will affect when operating revenues may
exceed operating expenses, we believe we have substantial flexibility to
continue operations and still have funds available for our operating and capital
requirements for at least the next twelve months.

For the remainder of fiscal year 2001, we expect to have the following
expenditures:

- $9.3 million for debt service on our convertible subordinated notes.

- We may be required to pay $23.0 million for purchase earn-outs related
to certain acquisition related activities.

- In accordance with our agreement with MindSurf, we have committed to
invest an additional $23.5 million in MindSurf in 2001.

28
29

- We are committed to provide additional funding of up to $7.2 million
to Sila in 2001.

In addition to the specific expenditures identified above, we expect to
continue to invest cash on other capital expenditures, including acquisitions
and other strategic opportunities, additional leasehold improvements, network
operations centers and associated furniture and equipment.

QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK

We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2001, we had cash and cash equivalents of $729.4
million and short-term investments of approximately $2.6 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,
2001, the value of our short-term investments was approximately $175,000 more
than our cost. If market interest rates rise, the value of our short-term
investments will decrease. We expect to sell these investments prior to
maturity, and therefore we may not realize the full value of these investments.

Since the acquisition of Sinope, IFX, the formation of Sila and the
commencement of US sales to foreign countries, we have been exposed to foreign
currency exchange risk. All US sales to foreign countries have been denominated
in USD. Sila has been able to fund its ongoing operations from internally
generated cash and as such has not required funding from the Company, moreover
the offices of Sila located in various European countries require minimal
funding from Sila. Therefore, due to the insignificant amount of currency being
exchanged, the Company has not hedged, or otherwise attempted to mitigate its
foreign currency exchange risk.

29
30

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is party to legal proceedings in the normal course of business.
Based on evaluation of these matters and discussions with counsel, management
believes that liabilities arising from these matters will not have a material
adverse effect on the consolidated results of operations or financial position
of the Company.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits

None

b. Reports on Form 8-K

Current Report on Form 8-K dated February 3, 2001 was filed on April 16, 2001
pursuant to Item 7 (Financial Statements, Pro Forma Financial Information and
Exhibits.)

Current Report on Form 8-K dated May 8, 2001 was filed May 11, 2001 pursuant to
Item 5 (Other Events)

30
31

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, 2001
Aether Systems, Inc.

By: /s/ David C. Reymann
------------------------------------
David C. Reymann
Chief Financial Officer
(Principal Financial and Accounting
Officer)