Ealixir, Inc. 10-Q

ITEM 1. LEGAL PROCEEDINGS The Brown Simpson lawsuit previously reported in Registrant's Form 10K for the year ended March 31, 2002 was settled on December 31, 2002. Please see Note 6, "Repurchase of Preferred Stock", Item 2, "Changes in Securities and Use of Proceeds" and Registrant's Form 8-K filed on January 13, 2003 for more details of the settlement transaction. The Earthlink lawsuit previously reported in Registrant's Form 10K for the year ended March 31, 2002 is proceeding on schedule. A mediation date has been scheduled for March 27, 2003; however, the litigation will not be suspended pending any mediation. Additionally, Semotus and WizShop have been named as two of seventeen corporate defendants, ten individual defendants and one accountant defendant in a class action lawsuit brought by the California Teachers' Retirement System. The lawsuit was filed on November 15, 2002 in the United States District Court for the Central District of California, Western Division. The suit alleges two causes of action for violating Section 10(b), 15 U.S.C. Sect. 78j(b) and SEC Rule 10b-5, 17 C.F.R. Sect. 240.10b-5, and for violating Section 20(a), 15 U.S.C. Sect. 78t(a). The California Teachers' Retirement System seeks general and compensatory damages according to proof, special damages according to proof, reasonable attorney's fees, cost and expenses of the proceedings, prejudgment interest at the maximum legal rate, and such other and further relief as the Court deems proper. We believe the suit is without merit as to WizShop and Semotus, and are in the process of getting dismissed from this lawsuit. If we are not dismissed, we will contest the lawsuit vigorously. We are also a party to other legal proceedings in the normal course of business. Based on evaluation of these matters and discussions with counsel, we believe that liabilities arising from these matters will not have a material adverse effect on our consolidated results of operations or financial position. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company issued securities, which were not registered under the Securities Act of 1933, as amended, as follows: During the Quarter ended December 31, 2002, the Company did not issue any shares of its common stock to suppliers of services to the Company. However, the Company did issue 14,368 shares of common stock to a supplier of services as part of a settlement arrangement. On December 31, 2002, as part of the Preferred Stock Buy Back and Mutual Release Agreement with Brown Simpson Partners I, Ltd, Semotus repurchased from Brown Simpson all of the outstanding shares of the Company's Series B Convertible Preferred Stock. 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 share. In addition, in consideration for Brown Simpson agreeing to enter into a settlement and mutual release related to its anti-dilution claim, the Company revised 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. 16 With respect to these transactions, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The investors were given complete information concerning the Company. The appropriate restrictive legend was placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.