What changed in this filing

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Item 1. Financial Statements

2008-08-12 compared with 2004-02-12 · 409 added, 252 removed, 19 unchanged (97% of the section changed)

FINANCIAL STATEMENTS

SEMOTUS SOLUTIONS, INC.

SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

and cash equivalents

receivables (net of allowance for doubtful accounts of $7,035 at June 30,

2008 and March 31, 2008)

expenses and other current assets

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

current assets

Cash and cash equivalents

Trade receivables (net of allowance for doubtful accounts of $0.00 at December 31, 2003 and $6,090 at March 31, 2003)

Prepaid expenses and other current assets

Current assets held for sale

Current assets from discontinued operations

Total current assets

Property and equipment, net

Goodwill, net

Non-current assets held for sale

LIABILITIES and SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

Accrued vacation

Other accrued liabilities

Notes payable

Current portion of capital lease obligations

Deferred revenue

Current liabilities related to assets held for sale

Current liabilities from discontinued operations

Total current liabilities

Capital lease obligation, net of current portion

Non-current liabilities related to assets held for sale

Total liabilities

Commitments and contingencies (Note 8)

from Stockgroup asset sale (Note 7)

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

& SHAREHOLDERS’ EQUITY

Common stock:

$0.01 par value;

50,000,000 shares;

issued and outstanding:

20,435,496 at December 31, 2003 and 19,275,211 at March 31, 2003

Additional paid-in capital

Accumulated other comprehensive loss

Notes receivable -- related parties

Accumulated deficit

Total shareholders' equity

Total liabilities and shareholders' equity

See accompanying notes to consolidated financial statements.

SEMOTUS SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Cost of revenue:

Operating expenses:

Research and development

Sales and marketing

General and administrative

Depreciation and amortization

Stock, option and warrant expense

Total operating expenses

Operating loss from continuing operations

Loss from continuing operations

Income from discontinued operations

Other comprehensive income (loss)

-- Translation adjustment

Comprehensive loss

Net loss per common share:

Weighted average shares used in per share calculation, basic and diluted

See accompanying notes to consolidated financial statements.

SEMOTUS SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Income from discontinued operations

Loss from continuing operations

Foreign currency translation adjustment

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities from continuing operations:

Depreciation and amortization

Compensation expense related to stock and stock options issued for services

Amortization of advances on technology sales

Amortization of notes receivable

Net loss (gain) from disposition of assets

Non-cash settlement of liabilities

Non-cash legal settlement

Changes in assets and liabilities:

Accounts and other receivables

Prepaid expenses and other assets

Accounts payable

accrued liabilities

Deferred revenue

Advances on technology sales

Net cash used in operating activities

Cash flows from investing activities:

Acquisition of property & equipment

Cash proceeds from sale of fixed assets

Net cash used in investing activities

Cash flows from financing activities:

Repayments of notes payable

Repayments of capital lease obligations

Proceeds from exercise of options and warrants

Repurchase of preferred stock

Net cash provided by (used in) financing activities

Net cash provided by (used in) discontinued operations

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

See accompanying notes to consolidated financial statements.

SEMOTUS SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

SUPPLEMENTAL CASH FLOW DISCLOSURE:

Cash paid for interest

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

current liabilities

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

Cash paid for income taxes

LIABILITIES :

promissory note (Note 6)

interest on convertible promissory note

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

SUPPLEMENTAL SCHEDULE OF NONCASH

INVESTING AND FINANCING ACTIVITIES:

Additional non-cash purchase consideration paid to shareholders of WizShop.com, Inc.

pursuant to the Merger Agreement

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

SHAREHOLDERS’

$0.01 par value;

50,000,000 shares;

2,249,164 issued

and outstanding at June 30, 2008 and March 31, 2008

paid-in capital

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

Non-cash compensation expense due to variable accounting for repriced stock options

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

Common stock issued for services

shareholders’ equity

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

Common stock issued for liabilities

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

liabilities and shareholders’ equity

accompanying notes to condensed consolidated financial

SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

of stock, option and warrant expense)

and development

and marketing

and administrative

option and warrant expense:

and development

and marketing

and administrative

operating expenses

income (expense)

income (loss)

income (loss) per common share:

average shares outstanding:

accompanying notes to condensed consolidated financial

SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

flows from operating activities:

income (loss)

to reconcile loss from continuing operations to net cash used in operating

expense related to stock, stock options and warrants issued for

of debt discount and accrued interest on Notes Payable

loss on Stockgroup asset sale (Note 7)

in assets and liabilities:

and other receivables

from Stockgroup for transitional services (Note 7)

expenses and other assets

expenses and other current liabilities

cash used in operating activities

flows from investing activities:

from Stockgroup asset sale (Note 7)

on receivable from Stockgroup asset sale (Note 7)

cash provided by investing activities

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

Warrant issued as partial consideration for repurchase of preferred stock

See accompanying notes to consolidated financial statements.

SEMOTUS SOLUTIONS, INC.

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

flows from financing activities:

proceeds from Flint note payable

cash provided by (used in) financing activities

increase in cash and cash equivalents

and cash equivalents, beginning of period

and cash equivalents, end of period

See accompanying notes to condensed consolidated financial

SOLUTIONS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS OF THE COMPANY:

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

CASH FLOW DISCLOSURE:

paid for interest

paid for income taxes

SCHEDULE OF NONCASH ACTIVITIES:

tax asset related to stock option grants

cash settlement of liabilities

assumed from Stockgroup asset sale (Note 7)

accompanying notes to condensed consolidated financial statements.

SOLUTIONS, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FORMATION AND BUSINESS OF THE COMPANY:

Solutions, Inc.

("We" or “Our”), changed our name from Datalink.net, Inc.

January 11, 2001.

We were originally named Datalink Systems Corporation, and we

were formed under the laws of the State of Nevada on June 18, 1996.

1996, we went public through an acquisition of a public corporation, Datalink

Communications Corporation ("DCC"), which was previously Lord Abbott, Inc., a

Colorado corporation formed in 1986.

In the June 27, 1996 acquisition of DCC, we

issued 3,293,064 shares of our $0.01 par value Common Stock to the holders of

100% of the outstanding Common Stock of DCC, and DCC became our wholly owned

As a part of the transaction, we acquired a Canadian corporation,

DSC Datalink Systems Corporation, incorporated in Vancouver, British Columbia,

which changed its name to Semotus Systems Corporation.

leading provider of enterprise application software connecting individuals

wirelessly to critical business systems, urgent information and key processes.

We help mobile employees make better and faster decisions, increase customer

satisfaction, and improve efficiencies in business processes for shorter sales

and service cycles.

Our wireless software products and professional

services are all included in the HipLink family of software, which provide

immediate mobile access and control of business-critical software applications,

databases, networks and servers.

In the year ended March 31, 2008 we

substantially scaled back the operations of Clickmarks and sold our Global

Market Pro wireless financial data software and services to Stockgroup Systems

In the year ended March 31, 2007, we closed the operations of

Expand Beyond and transferred our research and development activities from

Vancouver, Canada to Pakistan.

BASIS OF PRESENTATION AND FUTURE PROSPECTS

accompanying condensed consolidated financial statements include the accounts of

Semotus Solutions, Inc.

("We"

or "Our") is a leading provider of enterprise application software connecting employees to critical business systems, information, and processes.

We help mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in their business processes for shorter sales and service cycles.

Our products serve such vertical markets as workforce automation and financial services.

Our enterprise application software provides mobility, convenience and efficiency and improves profitability.

For more information please go to our website at http://www.semotus.com.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Semotus Solutions, Inc.

and our subsidiaries.

The consolidated balance sheet as of December 31, 2003, the consolidated statements of operations and comprehensive loss for the three and nine month periods ended December 31, 2003 and 2002, and the consolidated statements of cash flows for the nine months ended December 31, 2003 and 2002 have been prepared by us, without audit and in accordance with the instructions to Form 10-Q and Regulation S-K.

In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and nine month periods ended December 31, 2003 are not necessarily indicative of the results that may be expected for the year ending March 31, 2004.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.

We believe that the disclosures provided are adequate to make the information presented not misleading.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2003.

The consolidated financial statements include our accounts and our wholly owned subsidiaries:

Semotus Systems Corporation (Canadian subsidiary) and Simkin, Inc., and our discontinued entities:

Five Star Advantage, Inc.

(Five Star), Wares on the Web, Inc.

(Wares), Application Design Associates, Inc.

(ADA) and WizShop.com, Inc.

All significant intercompany transactions and balances have been eliminated in consolidation.

Operations of the Canadian subsidiary consist mainly of research and development and engineering on our behalf.

Five Star's and Wares' operations have been discontinued as of June 28, 2002 and August 19, 2002, respectively.

ADA has been sold as of May 6, 2003.

WizShop's operations have also been discontinued as of September 30, 2003.

Cross Communications, Inc.

was merged with and into Semotus as of October 21, 2003.

Simkin continues to generate some revenues from the sales of products and services.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting period.

and its subsidiaries.

The condensed consolidated balance

sheet as of June 30, 2008, the condensed consolidated statements of operations

for the three months ended June 30, 2008 and 2007, and the condensed

consolidated statements of cash flows for the three months ended June 30, 2008

and 2007 have been prepared by us, without audit and in accordance with the

instructions to Form 10-Q and Regulation S-K.

In the opinion of our management,

all adjustments (including normal recurring accruals) considered necessary for a

fair presentation have been included.

Operating results for the three months

ended June 30, 2008 are not necessarily indicative of the results that may be

expected for the year ending March 31, 2009.

Certain information and footnote

disclosures normally included in financial statements prepared in accordance

with generally accepted accounting principles have been condensed or omitted.

believe that the disclosures provided are adequate to make the information

presented not misleading.

These consolidated financial statements should be read

in conjunction with the audited consolidated financial statements and related

notes included in our Annual Report on Form 10-KSB for the year ended March 31,

preparation of condensed consolidated financial statements in conformity with

generally accepted accounting principles requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the dates of the financial

statements and the reported amounts of revenue and expense during the reporting

Actual results could differ from those estimates.

RECENT PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force issued its final consensus on Revenue Arrangements with Multiple Deliverables.

This guidance is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 or alternatively, entities may elect to report the change in accounting as a cumulative-effect adjustment.

EITF 00-21 discusses criteria necessary to determine when an arrangement may be viewed to have separate units of accounting (and thus revenue) and when an arrangement should be viewed as a single unit of accounting.

Adoption of EITF 00-21 did not have a material impact on our financial position or results of operations.

In January 2003, the FASB issued Interpretation No.

46, "Consolidation of Variable Interest Entities, an interpretation of ARB No.

51." This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation.

The interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003.

The interpretation is applied to the enterprise no later than the end of the first reporting period beginning after June 15, 2003.

The application of this interpretation has not had a material effect on our financial statements.

The interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the interpretation becomes effective.

As of December 31, 2003, we do not have any variable interest entities.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities".

This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities".

The Statement clarifies and creates more consistent reporting of contracts as either derivatives or hybrid financial instruments.

The Statement is effective for contracts entered into or modified after June 30, 2003.

We historically have not used derivatives or hedging instruments.

Currently, we do have a small exposure to the Canadian

dollar exchange rate, but we have not deemed it necessary to hedge this exposure.

In May 2003, the FASB issued SFAS No.

150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity."

150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective as of the beginning of the first interim period beginning after June 15, 2003.

We adopted SFAS No.

150 on June 1, 2003.

As of December 31, 2003, the adoption of SFAS No.

150 has not had a material impact on our results of operations or financial condition.

For the three and nine months ended December 31, 2003, other income and expense is primarily the net of interest income and interest expense and the realization of a small one-time gain from the sale of old expiring patents.

In the three and nine months ended December 31, 2002, other income was substantially comprised of interest income and expense as well as amortization of advances from technology sales received in previous periods, and the owner's fees and offsetting interest income recognized, related to the technology sales.

See the Consolidated Statement of Operations and Comprehensive Loss and Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2003.

STOCK-BASED COMPENSATION EXPENSE

We account for employee stock-based compensation plans using the intrinsic value method of recognition and measurement principles as delineated in APB Opinion 25, "Accounting for Stock Issued to Employees"

and related interpretations.

No stock-based employee compensation cost is reflected in the statement of operations upon granting of stock options, as all options granted under our Stock Option Plan had an exercise price equal to or greater than the market value of the underlying common stock on the day of grant.

However, since certain employee stock options were repriced in October 2002, we accounted for those options under the variable accounting requirements of APB Opinion 25 and FIN 44, "Accounting for Certain Transactions Involving Stock Compensation", and accordingly, compensation expense was recorded in the three and nine months ended December 31, 2003, since the current market price of the underlying stock exceeded the exercise price on the date the grant was repriced.

At December 31, 2003, our closing stock price was $0.70 per share, a decline of $0.21 per share from the closing stock price at September 30, 2003.

In accordance with FIN 44, we reduced our previous estimate of stock compensation expense by the reduction in stock price, multiplied by the number of outstanding vested repriced options at December 31, 2003.

This produced a net reduction of $314,712 in the intrinsic value based method of expense as shown in the following table.

The following is a summary of the effect on net loss and net loss per share if we had applied a fair value method prescribed by SFAS No.

123, "Accounting for Stock-Based Compensation"

to account for stock-based compensation for the periods indicated:

Net loss, as reported

$ (1,900,295)

$ (2,835,651)

Total stock-based employee compensation expense determined under intrinsic value based method for all awards and variable accounting for repriced options

Total stock-based employee compensation expense determined under fair value based method for all awards

Pro forma net loss

Net loss per share:

Basic - as reported

Basic -- pro forma

Diluted -- as reported

Diluted -- pro forma

These pro forma amounts may not be representative of the effects for future years as options vest over several years and additional awards are generally made each year.

condensed consolidated financial statements include the accounts of Semotus

Solutions, Inc.

and our wholly owned subsidiary, Clickmarks.

All significant

intercompany transactions and balances have been eliminated in

consolidation.

management believes, after discontinuing all operations that were unprofitable,

that the remaining continuing operations are sustainable and that we will have

enough cash to maintain our operations over the next twelve months.

those operations range from slightly cash positive to cash negative on a monthly

basis, the overall trend toward positive cash flow is continuing.

Further, with

the trend toward increased acceptance of the need for wireless solutions, our

operations should be augmented in the current fiscal year.

Our continued

operation is dependant on increasing sales and achieving profitability and/or

obtaining sufficient long-term financing.

ACCOUNTING PRONOUNCEMENTS

2006, the FASB issued FASB Interpretation No.

48, “Accounting for

Uncertainty in Income Taxes — an interpretation of FASB Statement

109” (FIN 48).

FIN 48 prescribes a recognition threshold and

measurement attribute for financial statement recognition and measurement of a

tax position taken or expected to be taken in a tax return, and also provides

guidance on derecognition, classification,

interest and penalties, accounting in interim periods, disclosure, and

FIN 48 is effective for fiscal years beginning after

December 15, 2006.

We do not believe that the adoption of FIN 48

currently has a material impact on our financial statements.

September 2006, the FASB issued FASB Statement No.

157, Fair Value

Measurements (SFAS 157).

The standard provides guidance for using fair

value to measure assets and liabilities.

The standard also responds to

investors’ requests for expanded information about the extent to which companies

measure assets and liabilities at fair value, the information used to measure

fair value, and the effect of fair value measurements on earnings.

applies whenever other standards require or permit assets or liabilities to be

measured at fair value.

The standard does not expand the use of fair value in

any new circumstances.

SFAS 157 must be adopted prospectively as of the

beginning of the year it is initially applied.

SFAS 157 is effective for

financial statements issued for fiscal years beginning after November 15,

2007, and interim periods within those fiscal years.

We do not believe that the

adoption of SFAS 157 currently has a material impact on our financial

1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No.

123 (revised 2004), “Share-Based Payment,” requiring us to recognize expense

related to the fair value of its employee stock option awards.

We recognize the

cost of all share-based awards on a straight line vesting basis over the vesting

period of the award.

Total stock compensation expense recognized by us during

the three months ended June 30, 2008 and 2007 was $15,372 and $57,602,

respectively.

estimated the fair value of our option awards granted after April 1, 2006 using

the Black-Scholes option valuation model that uses the assumptions noted in the

following table.

Expected volatilities are based on the historical volatility of

We use actual data to estimate option exercises, forfeitures and

cancellations within the valuation model.

The expected term of options granted

represents the period of time that options granted are expected to be

The risk-free rate for periods within the contractual life of the

option is based on the U.S.

Treasury yield curve in effect at the time of

Months Ended June 30,

Black-Scholes -Based Option Valuation

value of options granted during the period

term (in years)

average volatility

dividend yield

following table summarizes the stock option transactions for the quarter ended

June 30, 2008 based upon a closing stock price of $0.65 per share as of June 30,

Exercise Price ($)

at April 1, 2008

at June 30, 2008

aggregate intrinsic value of options is calculated as the difference between the

exercise price of the underlying options and the market price of our common

stock for the shares that had exercise prices that were lower than the $0.65

market price of our common stock at June 30, 2008.

options were exercised during the three months ended June 30, 2008.

EARNINGS PER SHARE (EPS) DISCLOSURES

In accordance with SFAS No.

128 "Earnings Per Share " (EPS), we report Basic and Diluted EPS as follows:

Basic EPS is computed as net loss divided by the weighted average number of common shares outstanding for the period.

Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities.

Common equivalent shares are excluded from the computation of net loss per share if their effect is anti-dilutive.

For the three and nine months ended December 31, 2003 and 2002, 4,349,738 potential shares and 6,569,039 potential shares, respectively, were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive.

DISCONTINUED OPERATIONS

As part of our Centralization and Consolidation Plan, which is further described in our March 31, 2003 Form 10-K, we reduced our e-commerce and m-commerce presence with the elimination of unprofitable products and services in that segment.

FiveStar was not expected to make a significant contribution to our future profitability as its operations were unprofitable.

Therefore, we decided to close the facilities and cease the operations as of the end of June 2002.

Furthermore, Five Star filed for liquidation under Chapter 7 of the U.S.

Bankruptcy Code on June 28, 2002.

In continuing with the reduced e-commerce and m-commerce presence and the elimination of unprofitable products and services, we decided to discontinue the operations of Wares on the Web in August 2002.

The Wares on the Web operations were unprofitable, and consequently, Wares on the Web filed for liquidation under Chapter 7 of the U.S.

Bankruptcy Code on August 19, 2002.

WizShop's operations were also discontinued as of September 30, 2003, as it was not expected to make a significant contribution to our future profitability.

WizShop does not have any additional contracts for its online software marketing business, the last of which was completed as of March 31, 2003.

On January 18, 2002, the Global Beverage Group, "GBG", a Canadian-based direct store delivery consortium, completed a strategic investment in Semotus' ADA subsidiary by acquiring a 49% share in ADA.

For its 49% stock purchase, GBG paid us $250,000 in cash and agreed to invest $1 million in ADA over the next 15 months in order to help with the development of the next generation of ADA asset tracking and management software.

In May 2003, GBG purchased the remaining 51% of ADA for the return of 500,000 shares of our common stock originally issued in May of 2001 and 2002 as part of our acquisition of ADA.

This event resulted in the discontinuation of ADA's operations in fiscal year 2003.

In accordance with FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the operations of FiveStar, Wares, ADA

and WizShop have been recorded as discontinued operations in the three and nine month periods ended December 31, 2003 and 2002, respectively.

In the three months ended December 31, 2003, there was not any income or loss from discontinued operations.

In the nine months ended December 31, 2003, the net income from discontinued operations of $105,834 is comprised solely of the operations of WizShop.

Substantially all of the income was from a legal settlement.

The net income from discontinued operations of $31,728 and $205,110 for the three and nine months ended December 31, 2002, respectively, consisted of a net loss from operations in the nine months ended December 31, 2002 of $127,770 at Five Star, and net income (loss) from operations of $(315) and $6,689, respectively, at Wares, a net loss from operations of $3,862 and $26,237 respectively at ADA and net income of $35,905 and $352,428, respectively, at WizShop.

A net gain upon disposition of the assets and liabilities of Five Star and Wares of $128,582 was recognized at March 31, 2003.

COMMITMENTS AND CONTINGENCIES

Effective October 23, 2002 our Board of Directors approved the repricing of most of the options under our 1996 Stock Option Plan, as amended, with exercise prices ranging from $0.22 to $0.84 per share held by most of the employees (including executive officers) and Board members.

In light of the reductions in work force and salary reductions, our Board of Directors deemed it advisable to reprice the options to provide a retention incentive for the remaining employees.

The option grants were repriced to an exercise price of $0.15 per share (the current fair market value of our common stock as of the reprice date) and an exercise price of $0.17 per share (110% of the fair market value at the date of reprice) for those persons owning more than 10% of the voting power of all classes of stock.

All grants maintained their existing vesting schedule.

This is deemed to be a repricing under FIN 44 and resulted in variable plan accounting.

A decrease in the closing stock price on December 31, 2003 from the closing stock price on September 30, 2003 resulted in an offset of $314,712 to the compensation expense to be recognized in the three months ended December 31, 2003;

however, a compensation expense in the amount of $947,850 was required to be recognized to reflect the net increase in stock price over the repriced amount for the nine months ended December 31, 2003.

Increases or decreases in our stock price will continue to be recognized in the future for outstanding vested repriced options if the stock price continues to be above the revised exercise price of the options.

SEGMENT INFORMATION

After the Consolidation and Centralization Plan was largely completed by March 31, 2003, we determined that our ongoing operations were in one segment, wireless and mobile enterprise software.

Our products consist mainly of the Global Market Pro family of products and the Hiplink family of products.

Utilizing the definitions described in SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the nature of the products and services are all similar.

Accordingly, starting in the current fiscal year, we will report the single line of business of wireless and mobile enterprise software and will no longer report operations from three prior segments:

Enterprise and Commerce Sales, Professional and Related Services and Logistics.

Further, per SFAS 131, the corresponding information for the earlier period presented has been restated to conform to the single segment.

accordance with SFAS No.

128 "Earnings per Share" (EPS), we report Basic and

Diluted EPS as follows:

Basic EPS is computed as net income (loss) divided by

the weighted average number of common shares outstanding for the period.

EPS reflects the potential dilution that could occur from common shares issuable

through stock options, warrants and other convertible securities.

equivalent shares are excluded from the computation of net loss per share if

their effect is anti-dilutive.

three months ended June 30, 2008, 2,136,398 potential shares were not included

in the shares used to calculate diluted EPS, as no potential shares currently

have the effect of being dilutive.

three months ended June 30, 2007, 290,353 potential shares were included in the

shares used to calculate diluted EPS, as their effect is dilutive, and 522,671

potential shares were not included in the shares used to calculate diluted EPS,

as their effect is not dilutive due to the fact that the exercise prices of all

of our options and warrants were greater than the average market price of our

stock over the three months ended June 30, 2007.

INVESTMENT, CONVERTIBLE PROMISSORY NOTE AND POTENTIAL ACQUISITION

an investment agreement dated April 23, 2008 with Flint Telecom Limited (the

“Flint Parent”), relating to an investment of $200,000 into Semotus (the

“Investment Agreement”).

The investment was taken in the form of a

convertible promissory note (the “Note”) which may be converted by Flint Parent

at its discretion at any time into restricted common shares of Semotus at a

conversion price of $0.275 per share, for an aggregate of 727,272 shares

(subject to adjustment for any accrued interest, and subject to adjustment for

anti-dilution).

The unpaid principal shall accrue interest at 8% per

annum and all unconverted principal and interest is due and payable on April 23,

We did not incur any placement agent fees or expenses for this

$200,000 investment.

These funds will be used to increase our sales and

marketing efforts and for other general working capital purposes.

Simultaneously,

we entered into a contribution agreement with Flint Telecom, Inc.

(“Flint”) and

the Flint Parent, pursuant to which we will acquire the majority of Flint’s

assets and liabilities in exchange for shares of our restricted common stock,

subject to certain closing conditions, including the completion by Flint of a

financing transaction and the completion of an audit of Flint (the

“Transaction”).

Upon the closing of this transaction (the “Close”), we expect to

issue approximately 28.5 million common shares of Semotus to Flint and

approximately 2 million common shares to Mr.

On a fully diluted basis,

taking into consideration our outstanding stock, the stock issuance to Mr.

LaPine, and assuming the exercise of Flint’s convertible promissory notes (which

will result in the issuance of a maximum potential total of approximately

14,000,000 additional shares) and our outstanding stock options and warrants,

there will be a total of approximately 49,000,000 shares outstanding, which will

result in Flint owning approximately 90% of the common stock of the Company, Mr.

LaPine owning 5% of the Company and the existing Semotus shareholders owning

However, there are still some outstanding closing conditions that

have not yet been met as of the date of this filing.

STOCKGROUP ASSET SALE

entered into a definitive Asset Purchase Agreement and Transition Services

Agreement on May 8, 2007 with Stockgroup Systems, Ltd.

(“Stockgroup”), relating

to the sale of our wireless financial information assets (the

“Agreement”).

As part of the Agreement, we agreed to sell our

financial data wireless distribution technology and intellectual property, and

the related wireless financial data services, including the Global Market Pro

family of software and services.

The purchase price for this asset

sale consists of up to $350,000;

$150,000 was paid on the closing date, May 9,

2007, and the remaining $200,000 is be paid through a monthly revenue share of

30%, until $200,000 has been paid to us or two years have passed from the date

of Closing or gross revenue falls below $15,000 per month, whichever occurs

first In accordance with the Transition Services Agreement, we

continue to provide certain transition services to Stockgroup, including certain

accounting, administrative and technical services related to the financial data

As of June 30, 2008, Stockgroup owed us a total of

$118,525, comprising the unpaid balance of $101,400 from the original $200,000

purchase price, and $17,125 for transitional services provided by Semotus to

RELATED PARTY TRANSACTIONS

May 1, 1996, we entered into a three year employment agreement with our Chief

Executive Officer.

This agreement was extended to May 1, 2007 and automatically

renewed for one-year terms unless notice is provided by either

Effective July 15, 2007, the Compensation Committee agreed

that we should terminate the existing employment agreement with Mr.

enter into a new employment agreement with Mr.

LaPine for a term of three

Under this new employment agreement, Mr.

LaPine is entitled to

a base salary of $240,000 per year, plus discretionary increases in accordance

with our standard review procedure.

LaPine’s previous voluntary

decrease of $24,000 annually in compensation will continue with the same

voluntary decrease in his annual salary under the new employment agreement so

LaPine will continue to be compensated at an annual salary of

LaPine also receives a car allowance in the amount of

$1,000 per month.

LaPine is eligible for an annual bonus, with the actual

amount of bonus paid to be determined by the Committee in its sole discretion,

based upon such factors and performance goals as the Committee deems

LaPine’s employment is terminated by the Company without

cause or by Mr.

LaPine for good reason as provided in the Agreement, or if the

Company is acquired or dissolves and a new employment agreement satisfactory to

LaPine cannot be reached, all stock and stock options of the Company then

LaPine which are unvested shall become immediately fully vested,

and the Company shall pay to Mr.

LaPine severance pay equal to the remaining

years and/or months of his then current base salary that are due, based on a

three year agreement term .

CONCENTRATIONS

OF CREDIT RISK:

customers accounted for a total of 28% of our revenue in the three months ended

June 30, 2008, representing 5%, 8% and 15% each.

Four customers

accounted for 46% of our accounts receivable at June 30, 2008, representing 17%,

11%, 9% and 9% each.

customers accounted for a total of 37% of our revenue in the three months ended

June 30, 2007, representing 22% and 15%, respectively.

Two customers

accounted for 20% each of our accounts receivable at June 30, 2007, and one

customer accounted for 30% of our accounts receivable at June 30, 2007, for a

combined total of three customers accounting for 70% of our accounts receivable

at June 30, 2007.

INNOFONE TRANSACTION

On July 23, 2007, we entered into a Software

License Agreement and Stock Issuance and Registration Rights Agreement with

Innofone.com Incorporated (“Innofone”), relating to a royalty free license of

our HipLinkXS and Clickmarks software applications (the

“Agreement”).

The consideration for this software license consisted

of $3.75 million worth of Innofone’s restricted common stock at a price we

calculated as $0.19 per share, which equals 19,736,842 shares, with demand and

piggyback registration rights.

We also granted Innofone an option to

buy certain assets, including the Hiplinkxs and Clickmarks software application

products, the complete terms and conditions of which were not fully defined or

agreed upon (“Asset Sale”).

At a minimum, this Asset Sale would require a

payment by Innofone of $250,000 and a convertible note due from Innofone in

favor of us for $500,000.

Additionally, there was a post-closing purchase price

adjustment on the Innofone stock, should the stock fall below $3.75 million in

aggregate value, in order for Stockgroup to retain its option to purchase

certain assets of Semotus.

to the post-closing purchase price adjustment provision in the Agreement,

Innofone issued to us 26,888,158 additional shares of Innofone restricted common

stock during the second quarter ended September 30, 2007, for a total of

46,625,000 shares of Innofone’s restricted common stock.

September 30, 2007 we owned approximately 35% of Innofone, and, accordingly, the

investment was accounted for on the equity method.

currently delinquent in its SEC filings and working with its auditors to find a

cost effective

way to become current.

Innofone’s last quarterly report was filed

with the SEC on May 21, 2007 for the three and nine months ended March 31, 2007,

in which it reported total assets of $53,523,822, total liabilities of

$39,256,222 and a net loss for the three and nine months ended March 31, 2007 of

$17,156,434 and $33,601,375, respectively.

Since September 30, 2007, Innofone’s

common stock has declined.

initially generated $3.75 million of other income from the sale of a software

license to Innofone.

However, due to the continuing operating losses and the

uncertainty of Innofone’s business, as of March 31, 2008, Semotus reduced the

value of its investment to $0 and thereby recorded a $366,250 loss for the

fourth quarter and a $3,730,000 loss for the year ended March 31,

contractual deadline of October 22, 2007, Innofone had not paid us $250,000, and

therefore its option to buy certain assets expired.

Innofone’s right

of first refusal to merge with us has also therefore expired.

On April 30, 2008

we entered into a Termination Agreement with Innofone, whereby we returned all

of the shares of Innofone common stock received under the License Agreement in

exchange for the complete termination of the software license granted to

Innofone thereunder.

SUBSEQUENT EVENTS

On January 23, 2004, we closed an equity private placement of US$1,028,750.

Under the terms of the private placement, we sold an aggregate of 1,959,524 shares at $0.525 per share and 489,881 share purchase warrants.

Each warrant entitles the holder to purchase an additional share of common stock at a price of $0.8625 per share for a period of five years.

In connection with the private placement, we paid a placement fee of $85,000, of which $51,216 was paid in cash and the balance was paid by the issuance of 64,350 shares of common stock and 40,476 share purchase warrants.

After payment of expenses and placement fees, we received net proceeds of $972,534.

These funds will be used to finance the ongoing operations of the business and to augment its sales and marketing efforts.

As part of the private placement, we have agreed to file a registration statement with the Securities and Exchange Commission to qualify the resale of the 2,023,874 shares of common stock and the 530,357 shares of common stock issuable upon the exercise of the share purchase warrants issued in the private placement.

We are required to file this registration by March 3, 2004 and have the registration statement declared effective by the Securities and Exchange Commission by May 2, 2004.

Should we fail to file the registration statement or have it declared effective within the time requirements, we will be required to pay a penalty of 1% of the purchase price per month, or $10,287.50 per month, for the first 3 months of noncompliance and 2% per month, or $20,575 per month, thereafter.

At this time, we believe that we will meet the time requirements for filing the registration statement and having it declared effective;

however, having the registration statement declared effective is subject to the review and approval of the Securities and Exchange Commission.

The securities issued in this private placement have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of the Securities Act of 1933.

22, 2008, Flint Telecom, Ltd.

(“Flint”) converted 100% of its convertible

promissory note issued on April 23, 2008, which included the entire outstanding

principal amount of $200,000 and all accrued interest up to and including

July 22, 2008, which comes to a total of $204,000, into restricted common shares

of Semotus Solutions, Inc.

at a conversion price equal to $0.275 per share,

which equals a total of 741,818 shares of our restricted common stock.

6 for more details on the convertible promissory note.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements