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Item 1. Financial Statements

2003-02-13 compared with 2002-11-14 · 212 added, 178 removed, 336 unchanged (54% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, March 31,

DECEMBER 31 MARCH 31

ASSETS 2002 2002

1 unchanged sentence

CURRENT ASSETS:

Cash and cash equivalents (including restricted

cash of $693,286 at March 31, 2002) $ 2,807,419 $ 4,797,589

Trade receivables (net of allowance for

doubtful accounts of $77,000 at September 30,

2002 and $67,000 at March 31, 2002) 275,184 266,220

Cash and cash equivalents (including restricted cash of

$693,286 at March 31, 2002) $ 2,505,467 $ 4,797,589

Trade receivables (net of allowance for doubtful accounts of

$82,590 at December 31, 2002 and $67,000 at March 31, 2002) 400,813 266,220

Income and GST tax receivable 250 3,823

34 unchanged sentences

5,000,000 shares;

issued and outstanding:

469,231 at September 30, 2002 and

March 31, 2002 469 469

none at December 31, 2002 and 469,231 at March

31, 2002 (Note 6) -- 469

Additional paid-in capital -- 5,681,987

5 unchanged sentences

$0.01 par value;

50,000,000 shares;

issued and outstanding:

18,106,997 at

September 30, 2002 and 17,200,784 at March 31, 2002 181,071 172,008

18,121,365 at December 31, 2002 and

17,200,784 at March 31, 2002 181,214 172,008

Additional paid-in capital 66,135,178 60,396,089

3 unchanged sentences

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

Total common shareholders' equity (deficit) (1,361,571) 294,481

Total common shareholders' equity 3,788,528 294,481

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

6 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended Six Months Ended

September 30, September 30,

THREE MONTHS ENDED NINE MONTHS ENDED

DECEMBER 31, DECEMBER 31,

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

2002 2001 2002 2001

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

Wireless Services $ 338,970 $ 346,421 $ 962,773 $ 1,017,190

11 unchanged sentences

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

Total cost of revenue 399,891 626,902 737,211 1,314,706

Total cost of sales 308,516 407,361 1,045,727 1,722,067

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

30 unchanged sentences

Net Loss (571,944) (1,970,399) (2,835,651) (8,577,130)

Other comprehensive income loss - Translation

adjustment (11,944) (16,402) 2,287 (30,520)

Other comprehensive income loss -

Translation adjustment (2,080) (6,744) 207 (37,264)

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

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

September 30,

NINE MONTHS ENDED

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

3 unchanged sentences

Foreign currency translation adjustment 207 (37,264)

Adjustments to reconcile net loss to net cash used

in operating activities:

Adjustments to reconcile net loss to net cash used in

operating activities:

Depreciation and amortization 1,015,745 2,661,010

Compensation expense related to stock issued

for services 22,921 242,928

Compensation expense related to stock issued for services 24,283 386,275

Net amortization of contract income (317,565) (500,731)

Amortization of technology advances (140,244) (157,614)

Amortization of advances on technology sales (206,724) (233,345)

Amortization of Notes Receivable 574,647 255,982

Impairment of goodwill -- 650,000

Loss from Sale of Assets 1,220 --

Non-cash settlement of liabilities 165,215 --

Loss from discontinued operations 125,860 971,392

Changes in assets and liabilities net of acquired

assets and liabilities due to acquisitions:

Changes in assets and liabilities net of acquired assets and

liabilities due to acquisitions:

Accounts and other receivables (116,828) 69,737

Inventory -- (7,065)

Prepaid expenses and other assets 60,277 (943)

9 unchanged sentences

Cash received from FY2002 acquisitions, net -- 1,096,472

Sale of Fixed Assets 560 --

Sale of Kinetidex technology -- 350,000

1 unchanged sentence

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

Net cash (used in) provided by investing activities (20,019) 1,429,937

Net cash provided by investing activities 188,856 1,425,765

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

3 unchanged sentences

Proceeds from exercise of options and warrants -- 11,668

Repurchase of Preferred Stock (Note 6) (100,000) --

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

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months Ended

September 30,

NINE MONTHS ENDED

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

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

SUPPLEMENTAL CASH FLOW DISCLOSURE:

5 unchanged sentences

INVESTING AND FINANCING ACTIVITIES:

Non-cash purchase consideration for the acquisition

of Wizshop.com, Inc.

and Application Design

Associates, Inc.

Non-cash purchase consideration for the acquisition of

Wizshop.com, Inc.

and Application Design Associates,

through the issuance of common stock $ -- $ 4,666,000

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

Additional non-cash purchase consideration paid to

shareholder of Cross Communications, Inc.

pursuant to the

first year performance criteria of the Merger Agreement $ -- $ 18,086

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

Additional non-cash purchase consideration paid to shareholders

of WizShop.com, Inc.

pursuant to the Merger Agreement $ 122,681 $ --

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

Common stock issued for services $ 24,283 $ 386,275

2 unchanged sentences

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

Property and equipment purchased through the

issuance of capital leases $ -- $ 90,340

Property and equipment purchased through the issuance

of capital leases $ -- $ 122,971

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

Warrants issued as part of the consideration for repurchase

of preferred stock $ 90,497 $ --

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

See accompanying notes to consolidated financial statements.

30 unchanged sentences

The consolidated balance sheet as

of September 30, 2002, the consolidated statements of operations and

comprehensive loss for the three and six month periods ended September 30,, 2002

and 2001, and the consolidated statements of cash flows for the three and six

month periods ended September 30 2002 and 2001 have been prepared by the

Company, without audit and with the instructions to Form 10-Q and Regulation

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-month and six month periods ended September 30,

2002 are not necessarily indicative of the results that may be expected for the

year ending March 31, 2003.

Certain information and footnote disclosures

normally included in financial statements prepared in accordance with generally

accepted accounting principles have been condensed or omitted.

believes 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 the Company's Annual Report on Form 10-K for the year ended

March 31, 2002.

of December 31, 2002, the consolidated statements of operations and

comprehensive loss for the three and nine month periods ended December 31, 2002

and 2001, and the consolidated statements of cash flows for the nine month

periods ended December 31, 2002 and 2001 have been prepared by the Company,

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

Operating results for the three-month and nine month periods ended

December 31, 2002 are not necessarily indicative of the results that may be

expected for the year ending March 31, 2003.

Certain information and footnote

disclosures normally included in financial statements prepared in accordance

with generally accepted accounting principles have been condensed or omitted.

The Company believes that the disclosures provided are adequate to make the

information presented not misleading.

These consolidated financial statements

should be read in conjunction with the audited consolidated financial statements

and related notes included in the Company's Annual Report on Form 10-K for the

year ended March 31, 2002.

The consolidated financial statements include the accounts of the Company and

its wholly owned subsidiaries:, DSC Datalink Systems Corporation (Canadian

subsidiary), Cross Communications, Inc., Simkin, Inc., ISS, Inc.

(dba Wares on

the Web) FiveStar Advantage, Inc., WizShop, Inc.

and Application Design

Associates, 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 behalf of the parent.

its wholly owned subsidiaries:

Semotus Systems Corporation (Canadian

subsidiary), Cross Communications, Inc., Simkin, Inc., Wares on the Web, Inc.,

FiveStar Advantage, Inc., WizShop.com, Inc.

and Application Design Associates,

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 behalf of the parent company.

FiveStar's and Wares on the Web's operations have been discontinued as of June

9 unchanged sentences

RECENT PRONOUNCEMENTS

In June 2001, the FASB issued FASB Statements No.

141, "Business Combinations"

(SFAS 141), and No.

142, "Goodwill and Other Intangible Assets" (SFAS 142).

141 requires the use of the purchase method of accounting and prohibits the use

of the pooling-of-interests method of accounting for business combinations

initiated after June 30, 2001.

SFAS 141 also requires that the Company recognize

acquired intangible assets apart from goodwill if the acquired intangible assets

meet certain criteria.

SFAS 141 applies to all business combinations initiated

after June 30, 2001 and for purchase business combinations completed on or after

July 1, 2001.

It also requires, upon adoption of SFAS 142, that the Company

reclassify the carrying amounts of intangible assets and goodwill based on the

criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize

goodwill, but instead test goodwill for impairment at least annually.

addition, SFAS 142 requires that the Company identify reporting units for the

purposes of assessing potential future impairments of goodwill, reassess the

useful lives of other existing recognized intangible assets, and cease

amortization of intangible assets with an indefinite useful life.

An intangible

asset with an indefinite useful life should be tested for impairment in

accordance with the guidance in SFAS 142.

SFAS 142 is required to be applied in

fiscal years beginning after December 15, 2001 to all goodwill and other

intangible assets recognized at that date, regardless of when those assets were

initially recognized.

SFAS 142 requires the Company to complete a transitional

goodwill impairment test six months from the date of adoption.

The Company is

also required to

reassess the useful lives of other intangible assets within the first interim

quarter after adoption of SFAS 142.

The Company adopted SFAS 141 and 142 as of

April 1, 2002 and is no longer amortizing goodwill.

The effect of the adoption

of these Statements resulted in the net loss for the three months ended June 30,

2002 being smaller by $179,735 due to not amortizing goodwill.

In August 2001, the FASB issued SFAS No.

143 (SFAS 143) "Accounting for

Obligations Associated with the Retirement of Long-Lived Assets".

addresses financial accounting and reporting for the retirement obligation of an

SFAS 143 states that companies should recognize the asset retirement

cost, at its fair value, as part of the cost of the asset and classify the

accrued amount as a liability in the balance sheet.

The asset retirement

liability is then accreted to the ultimate payout as interest expense.

initial measurement of the liability would be subsequently updated for revised

estimates of the discounted cash outflows.

SFAS 143 will be effective for fiscal

years beginning after June 15, 2002.

The Company does not expect that the

implementation of SFAS 143 will have any material impact on its financial

position, results of operations, or cash flows.

In October 2001, the FASB issued SFAS No.

144 (SFAS 144) "Accounting for the

Impairment or Disposal of Long-Lived Assets".

SFAS 144 supersedes SFAS No.

by requiring that one accounting model be used for long-lived assets to be

disposed of by sale, whether previously held and used or newly acquired, and by

broadening the presentation of discontinued operations to include more disposal

transactions.

SFAS 144 was adopted effective April 1, 2002.

In accordance with

the adoption, the Company has classified the operations of FiveStar and Wares on

the Web as discontinued operations, see Note 5, "Discontinued Operations".

In June 2002, the FASB issued SFAS No.

146, "Accounting for Exit or Disposal

Activities" ("SFAS 146").

SFAS 146 addresses significant issues regarding the

recognition, measurement, and reporting of costs that are associated with exit

and disposal activities, including restructuring activities that are currently

accconted for under EITF No.

94-3, "Liability Recognition for Certain Employee

Termination Benefits and Other Costs to Exit and Activity (including Certain

Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs

related to terminating a contract that is not a capital lease and termination

benefits that employees who are involuntarily terminated receive under the terms

of a one-time benefit arrangement that is not an ongoing benefit arrangement or

an individual deferred-compensation contract.

SFAS 146 is effective for exit or

disposal activities that are initiated after December 31, 2002 and early

application is encouraged.

The Company's adoption of SFAS 146 on January 1, 2003

had no impact on the Company's financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation NO.

45 ("FIN 45"),

"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING

INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, AN INTERPRETATION OF FASB

STATEMENTS NO.

5, 57, AND 107 AND RESCISSION OF FASB INTERPRETATION NO.

45 clarifies the requirements of FASB Statement No.

5, "ACCOUNTING FOR

CONTINGENCIES" relating to the guarantor's accounting for, and disclosure of the

issuance of certain types of guarantees.

The disclosure provisions of the

Interpretation are effective for financial statements of interim or annual

reports that end after December 15, 2002, irrespective of the guarantor's

The Company's adoption of FIN 45 did not have a material impact in the

Company's financial position or results of operations.

In December 2002, the FASB issued SFAS No.

148, "Accounting for Stock-Based

Compensation, Transition and Disclosure." SFAS No.

148 amends SFAS No.

requires prominent disclosures in both annual and interim financial statements

about the method of accounting for stock-based employee compensation and the

effect of the method used on reported results.

148 is effective for

fiscal years ending after December 15, 2002 and is effective for interim periods

beginning after December 15, 2002.

The Company's adoption of SFAS NO.

January 1, 2003 did not have a material effect on the Company's financial

position or results of operations.

EARNINGS PER SHARE (EPS) DISCLOSURES:

8 unchanged sentences

computation of net loss per share if their effect is anti-dilutive.

For the six months ended September 30, 2002 and 2001, 7,174,563 potential shares

For the nine months ended December 31, 2002 and 2001, 6,569,039 potential shares

and 7,319,276 potential shares, respectively, were excluded from the shares used

23 unchanged sentences

Long-Lived Assets", the operations of FiveStar Advantage, Inc.

recorded as discontinued operations in the three month and six month periods

ended September 30, 2002.

FiveStar was part of the Enterprise and Commerce Sales

The disposal of the assets and liabilities is now under the control of

Bankruptcy Court and a gain or loss on disposal will be recognized at

the time of the final disposition by the Court, which is not expected to be

In the same manner, Wares on the Web's operations have been recorded

as discontinued in the three months ended September 30, 2002.

It also was part

of the Enterprise and Commerce Sales segment.

recorded as discontinued operations in the nine month period ended December 31,

FiveStar was part of the Enterprise and Commerce Sales segment.

disposal of the assets and liabilities is now under the control of the U.S.

Bankruptcy Court and a gain or loss on disposal will be recognized at the time

of the final disposition by the Court, which is not expected to be material.

the same manner, Wares on the Web's operations have been recorded as

discontinued in the nine months ended December 31, 2002.

It also was part of the

Enterprise and Commerce Sales segment.

The disposal of the assets and

5 unchanged sentences

operations are as follows:

at September 30, 2002 and March 31, 2002

respectively, inventory of $134,563 and $178,171 and payables of $207,668 and

At March 31, 2002 there was also $71,989 in cash and $54,346 in

accounts receivable.

At September 30, 2002, both cash and receivables were

Revenue from FiveStar recorded in the six months ended September 30,

2002 was $ 152,992 and for the three and six month periods ended September 30,

2001 was $400,398 and $774,627.

There was no revenue from the Fivestar

operations in the three months ended September 30, 2002.

Revenue for Wares on

the Web recorded in the three months ended September 30, 2002 and 2001 was

at December 31, 2002 and March 31, 2002 respectively,

inventory of $134,563 and $178,171 and payables of $208,249 and $166,394.

March 31, 2002 there was also $71,989 in cash and $54,346 in accounts

At December 31, 2002, both cash and receivables were immaterial.

Revenue from FiveStar recorded in the nine months ended December 31, 2002 was

$152,992 and for the three and nine-month periods ended December 31, 2001 was

$329,902 and $1,104,529.

There was no revenue from the Fivestar operations in

the three months ended December 31, 2002.

Revenue from Wares recorded in the

nine months ended December 31, 2002 was $26,570, and for the three month and

nine month periods ended December 31, 2001 was $157,716 and $599,652,

respectively.

There was no revenue from the Wares operations in the three months

ended December 31, 2002.

REPURCHASE OF PREFERRED STOCK:

On December 31, 2002, Semotus Solutions, Inc.

and Brown Simpson Partners I, Ltd.

(successors-in-interest to Brown Simpson Strategic Growth Fund, Ltd.

Simpson Strategic Growth Fund, L.P.) entered into a Preferred Stock Buy Back and

Mutual Release Agreement.

As part of the Agreement, Semotus repurchased from

Brown Simpson all of the outstanding shares of the Company's Series B

Convertible Preferred Stock.

The Series B Convertible Preferred Stock was

reflected on Semotus' balance sheet as $5.7 million in Preferred Shareholder

In consideration of the aforesaid purchase of the Shares, Semotus paid

one hundred thousand dollars ($100,000.00) and issued to Brown Simpson 846,154

warrants to purchase shares of Common Stock of Semotus, exercisable at $0.01 per

In addition, in consideration for Brown Simpson agreeing to enter into a

settlement and mutual release related to its anti-dilution claim, the Company is

revising Brown Simpson's existing 1,153,846 (post-split) warrants to provide for

an exercise price of $0.01 per share.

On January 24, 2003, Brown Simpson

exercised 1,153,846 warrants by remitting $11,538.46 to Semotus, and Brown

Simpson was issued 1,153,846 shares of common stock.

COMMITMENTS AND CONTINGENCIES:

Effective October 23, 2002 the Board of Directors of the Company approved the

repricing of most of the options under the Company's 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 of the

The Board of Directors determined such a reprice to be appropriate in

order to sustain the incentivization of its employees.

The option grants were

repriced to an exercise price of $0.15 per share (the current fair market value

of the Company's 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.

grants maintained their existing vesting schedule.

This is deemed to be a

repricing under FIN 44 and will result in variable plan accounting.

compensation expense was required to be recognized in the three months and nine

months ended December 31, 2002, expense will be recognized in the future if the

stock price increases above the revised exercise price of the options.

On April 1, 2003, Global Beverage Group ("GBG"), the 49% owner of ADA, has the

option to purchase Semotus' 51% ownership of ADA for either (i) $2.5 million in

cash, or (ii) the return of 500,000 shares of Semotus common stock originally

issued to John Hibben, the President of ADA, as part of the Merger Agreement

between Semotus and ADA, and subsequently transferred from John Hibben to GBG as

part of GBG's 49% stock purchase of ADA.

The Company continues to be a party to certain commitments and contingencies, as

1 unchanged sentence

the year ended March 31, 2002.

Please also refer to Park II, Item 1 of this

Please also refer to Part II, Item 1 of this

report for additional litigation contingencies.

SEGMENT INFORMATION

33 unchanged sentences

All segment financial information presented is unaudited.

Enterprise Professional Logistic

Wireless and commerce and related system Corporate

Services sales services sales and other Total

WIRELESS ENTERPRISE AND PROFESSIONAL AND LOGISTIC CORPORATE

SERVICES COMMERCE SALES RELATED SERVICES SYSTEM SALES AND OTHER TOTAL

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

AS OF AND FOR THE THREE MONTHS

Ended September 30, 2002

ENDED DECEMBER 31, 2002

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

Revenue $ 338,970 $ 250,212 $ 11,475 $ 274,512 $ -- $ 875,169

3 unchanged sentences

Capital expenditures 2,567 -- -- -- -- 2,567

Total assets, September 30, 2002* 3,364,652 952,262 266,920 126,526 2,330,243 7,040,602

Six Months Ended September 30, 2002

Total assets, December 31, 2002* 3,614,285 713,951 263,530 134,168 1,628,812 6,354,746

NINE MONTHS ENDED DECEMBER 31, 2002

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

Revenue $ 962,773 $ 766,775 $ 51,744 $ 866,898 $ -- $ 2,648,190

3 unchanged sentences

Capital expenditures 22,083 -- -- -- -- 22,083

Total assets, September 30, 2002* 3,364,652 952,262 266,920 126,526 2,330,243 7,040,602

Total assets, December 31, 2002* 3,614,285 713,951 263,530 134,168 1,628,812 6,354,746

AS OF AND FOR THE THREE MONTHS

Ended September 30, 2001

ENDED DECEMBER 31, 2001

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

Revenue $ 346,421 $ 255,380 $ 17,512 $ 316,662 $ -- $ 935,975

3 unchanged sentences

Capital expenditures 4,172 -- -- -- -- 4,172

Total assets, September 30, 2001* 9,556,918 5,344,748 963,818 1,348,642 4,653,379 21,867,505

Six Months Ended September 30, 2001

Total assets, December 31, 2001* 8,797,980 4,802,917 828,350 1,417,831 4,153,816 20,000,894

NINE MONTHS ENDED DECEMBER 31, 2001

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

Revenue $ 1,017,190 $ 921,334 $ 334,274 $ 1,186,303 $ -- $ 3,459,101

3 unchanged sentences

Capital expenditures 14,992 -- -- 5,715 -- 20,707

Total assets, September 30, 2001* 9,556,918 5,344,748 963,818 1,348,642 4,653,379 21,867,505

Total assets, December 31, 2001* 8,797,980 4,802,917 828,350 1,417,831 4,153,816 20,000,894

* Certain corporate marketing, research and development and general and

1 unchanged sentence

included in "Corporate and other".

The $2,330,243 of assets at September 30,

2002 under "Corporate and other" is substantially comprised of the GMP

Intellectual Property asset and goodwill.

The $4,653,379 of assets under

"Corporate and other" at September 30, 2001 is substantially all comprised of

the GMP Intellectual Property asset.

Further, the selected profit and loss items in the three and six month periods

ended September 30, 2002 and 2001 and total assets at September 30, 2002 and

2001 respectively, have been adjusted for the discontinued operations of

FiveStar and Wares on the Web, which are categorized in the Enterprise and

Commerce Sales segment.

Further, the selected profit and loss items in the three and nine month periods

ended December 31, 2002 and 2001 and total assets at December 31, 2002 and 2001

respectively, have been adjusted for the discontinued operations of FiveStar and

Wares on the Web, which are categorized in the Enterprise and Commerce Sales

See Note 5, "Discontinued Operations".

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