What changed in this filing

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Item 7. Management’s Discussion and Analysis

2003-06-30 compared with 2002-07-01 · 470 added, 558 removed, 292 unchanged (78% of the section changed)

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and uncertainties discussed below.

At the end of this fiscal year 2002, Semotus determined that the economy would

continue in a weak recovery and that the market for technology products would

Accordingly, the Company has centralized and consolidated its

organization and its operations.

The headcount has been reduced 51% since March

31, 2001 and as a result, engineering, sales and marketing and administrative

costs have been reduced and centralized.

The overall Semotus organization has

eliminated redundant positions and functions while improving the sales effort

through utilizing existing customer relationships to shorten the sales cycle.

At the end of the fiscal year 2002 and continuing through fiscal year 2003,

Semotus determined that the economy would continue in a weak recovery and that

the market for technology products would stay anemic.

Accordingly, the Company

has continued to centralize and consolidate its organization and its operations.

The headcount has been reduced 50% since March 31, 2002 and as a result,

engineering, sales and marketing and administrative costs have been reduced and

The overall Semotus organization has eliminated redundant positions

and functions while improving the sales effort through utilizing existing

customer relationships to shorten the sales cycle.

Semotus has organized its operations around two core lines of businesses, while

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available in the software.

Logistic systems, largely ADA's products and services, continue as part of

Semotus' wireless and mobile strategy.

ADA develops and licenses proprietary

software that gives enterprises a total solution for automation of customer call

centers, dispatching, equipment deployment, servicing and invoicing while

interfacing with existing corporate business functions and ERP solutions.

field force automation software provides Semotus with a unique platform for its

wireless productivity enhancement tools such as Hiplink.

In January 2002, Global

Beverage Group, a Canadian-based direct store delivery consortium, completed a

strategic investment in ADA and is now a 49% shareholder in ADA (see Note 25 to

the Financial Statements, "Strategic Investment in ADA").

Logistic systems, comprised largely of ADA's products and services, has been

sold as of May 6, 2003 and is presented in discontinued operations.

to Global Beverage Group (GBG), a Canadian-based direct store delivery

consortium and a 49% shareholder in ADA, exercising its option to purchase the

remaining 51% of ADA from Semotus.

In January 2002, GBG completed a strategic

investment in ADA and became a 49% shareholder in ADA (see "Significant Events"

and see Note 26 to the Financial Statements, "Strategic Investment in ADA").

develops and licenses proprietary software that gives enterprises a total

solution for automation

of customer call centers, dispatching, equipment deployment, servicing and

invoicing while interfacing with existing corporate business functions and ERP

Certain professional services have been de-emphasized.

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Other unprofitable professional service contracts at Wares On the Web

have been reduced.

have been eliminated and Wares was closed in August 2002.

M-commerce initiatives have been reduced.

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Consequently, Semotus has reduced its e-commerce and

m-commerce presence with the elimination of unprofitable products and services

in that segment.

At Wares on the Web, one e-commerce customer remains and at

WizShop, while there is still some small monthly sponsorship and advertising

revenue, the operations have been largely consolidated into Semotus' other

divisions and subsidiaries.

At the end of June, FiveStar's operations will be

closed as the market for e-fulfillment is currently unprofitable.

"Significant Events".)

m-commerce presence with the closure of the Wares' and Five Star businesses, and

elimination of unprofitable products and services in that segment.

the operations have been largely consolidated into Semotus' other divisions and

subsidiaries.

At the end of June, FiveStar's operations were closed as the

market for e-fulfillment is currently unprofitable, and in August, Wares'

operations were closed.

(See "Significant Events".)

FACTORS AFFECTING COMPARABILITY

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As part of the transition, Semotus acquired six

Further, as the technology economy has declined since January 2001,

Semotus has centralized and consolidated its operations.

Subsequently, as the technology economy has declined since January

2001, Semotus has centralized and consolidated its operations and has closed

Five Star and Wares, sold ADA, and consolidated Simkin and WizShop.

STRATEGIC REPOSITIONING

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provides additional service through wirelessly enabling those customers.

As part of the Company's growth strategy, Semotus has acquired six companies:

As part of the Company's previous growth strategy, Semotus acquired six

Cross, Simkin, Wares, Five Star, WizShop and ADA.

Each provides revenues and a

significant customer base to allow the Company to add to its technology, expand

its product offerings and penetrate targeted vertical markets.

Semotus intends to continue to acquire companies that provide strategic growth

for the Company through their technology, customer base or industry or vertical

market presence.

For specific information concerning the acquired companies see

Note 3 to the Financial Statements, "Acquisitions".

information concerning the acquired companies see Note 4 to the Financial

Statements, "Acquisitions".

Each provided revenues and a significant customer

base to allow the Company to add to its technology, expand its product offerings

and penetrate targeted vertical markets.

However, due to the continued economic

recession and limited capital spending, the Company began and is currently

continuing with its Centralization and Consolidation Plan.

As part of that

effort, Semotus decided to reduce its e-commerce operations, to close the

FiveStar business as of the end of June 2002 and to close the Wares' business as

of August 2002.

Both Simkin's and WizShop's operations have been consolidated,

and as of May 6, 2003, ADA has been sold.

CENTRALIZATION AND CONSOLIDATION PLAN

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has decided to reduce its e-commerce operations and to close the FiveStar

business as of the end of June 2002.

While maintaining a reduced m-commerce and

e-commerce presence, Semotus has de-emphasized the e-fulfillment portion of that

business as the e-fulfillment markets have declined dramatically over the past

year and are not expected to recover significantly in the near future.

Accordingly, Semotus is redirecting its human and capital resources towards more

profitable products and services.

business as of the end of June 2002 and to close the Wares' business as of

While maintaining a reduced m-commerce and e-commerce presence,

Semotus has de-emphasized the e-fulfillment portion of that business as the

e-fulfillment markets have declined dramatically over the past year and are not

expected to recover significantly in the near future.

Additionally, the

remaining 51% of ADA was purchased by GBG on May 6, 2003.

Accordingly, Semotus

is redirecting its human and capital resources towards more profitable products

and services.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

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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.

with SFAS 142, "Goodwill and Other Intangible Assets".

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.

A number of factors indicated that impairment may have arisen in the period

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intangible assets which include goodwill, GMP intellectual property and acquired

Those charges total approximately $8.3 million for the fiscal year

ended March 31, 2002.

See Notes 4 and 5 to the Financial Statements, "Impairment

of Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of

Those charges total approximately $7 million for the fiscal year ended

March 31, 2002.

See Notes 6 and 7 to the Financial Statements, "Impairment of

Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of

Goodwill" respectively.

No further impairment charges in continuing operations

have been taken in fiscal year ended March 31, 2003, although a net loss from

discontinued operations of $799,090 was taken for the operations of Five Star,

Wares and ADA, mostly comprised of an impairment to goodwill of $635,724 at ADA.

Management has determined that the remaining goodwill of $1,430,141 (net of

accumulated amortization of $727,058) is fairly valued using the impairment

tests as described in SFAS 144 and SFAS 142, which includes discounted cash flow

analysis and comparable company analysis.

This remaining amount of goodwill

consists entirely of one of the Company's wireless enterprise application

software product lines, the HipLink family of software products, which is

generating current revenue and cash flow.

CRITICAL ACCOUNTING POLICIES

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accordance with the contract.

Logistic systems sales:

revenue is generated from logistic software sales,

computer equipment sales and system installation and consulting services.

Revenue is recognized when the system installation is completed and/or

consulting work has been performed in accordance with the contract.

period contracts, usually for maintenance or licensing, revenue is recognized

ratably over these service periods.

COST OF REVENUE

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costs for engineering, training and consulting.

The cost of revenue for the logistic system sales segment is the cost of the

production of the software, purchased equipment costs and the cost of the

personnel for engineering, installation and consulting.

VALUATION OF LONG-LIVED ASSETS

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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.

144 and SFAS 142.

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.

In accordance with SFAS No.

121, the Company performs an undiscounted cash flow

analysis of its acquisition to determine whether an impairment existed.

undiscounted cash flows are less than the carrying value of the net assets,

management determins a range of fair values using a combination of valuation

methodologies.

144 and SFAS 142, the Company performs an

undiscounted cash flow analysis of its acquisition to determine whether an

impairment existed.

When the undiscounted cash flows are less than the carrying

value of the net assets, management determines a range of fair values using a

combination of valuation methodologies.

The methodologies include:

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Intangible Assets" as of April 1, 2002.

Accordingly, Semotus will no longer

amortize intangible assets with an indefinite useful life and will begin

assessing potential future impairments of such intangible assets.

Semotus capitalizes the fair value of contracts acquired in business

combinations as required by APB 16 "Business Combinations".

Fair value is

determined by estimating the cost expected to be incurred in order to perform

the obligations under the contract plus adding a reasonable profit associated

with the performance effort.

The capitalized cost is amortized into cost of

revenue as revenues are recognized.

Accordingly, Semotus no longer amortizes

intangible assets with an indefinite useful life and will begin assessing

potential future impairments of such intangible assets, but performs impairments

tests on a quarterly basis to analyze the current fair market value of the

intangible assets in relation to the carrying value of the assets.

In prior years, Semotus had capitalized the fair value of contracts acquired in

business combinations as required by APB 16 "Business Combinations".

was determined by estimating the cost expected to be incurred in order to

perform the obligations under the contract plus adding a reasonable profit

associated with the performance effort.

The capitalized cost was amortized into

cost of revenue as revenues were recognized.

For other accounting policies see Note 3 to the Financial Statements, "Summary

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RESULTS OF OPERATIONS

All financial results for the fiscal year ended March 31, 2000 have been

restated for the acquisition of FiveStar under the pooling of interests method

of accounting.

The acquisition was completed in December 2000.

"Acquisitions - FiveStar Advantage, Inc.

and Tech-ni-comm, Inc." and see the

Datalink.net, Inc.

Form 10-KSB for the fiscal year ended March 31, 2000 for

information concerning the prior filing.

All financial results for the fiscal years ended March 31, 2003, 2002 and 2001

have been restated for the discontinued operations of Five Star, Wares and ADA.

Revenues for the years ended March 31, 2003, 2002 and 2001 were $2,344,251,

$2,531,418 and $1,910,194, respectively.

The 10% increase in overall revenues for the fiscal year ended March 31, 2002

versus 2001 was due to two factors:

the addition of system integration sales at

ADA and increased sales in the enterprise application software business.

has occurred notwithstanding the decline in economic activity and the weakening

of capital and consumer spending for technology products and services.

increase in sales has been somewhat offset by the decline in sales of financial

consumer products and the decline in sales in the e-commerce segment.

The overall decrease in revenues at March 31, 2001 from March 31, 2000 is due to

the decline in sales at one of Semotus' subsidiaries, Five Star Advantage.

FiveStar's revenue decline is due to the loss of one major customer and the

large drop in sales from another customer who had decided to fulfill its on-line

sales in-house.

This has been offset somewhat by the increase in revenues in the

enterprise application software business.

These two customers accounted for 30% and 25% of the revenues of the enterprise

and commerce segment in the fiscal year ended March 31, 2000.

These disruptions

in customer sales occurred concurrently and extended the overall length of time

that Five Star has experienced declining revenues.

The 7% decrease in overall revenues for the fiscal year ended March 31, 2003

versus 2002 was due to the continuation of the technology recession as the

enterprise and commerce sales and the professional services segments had

declines with fewer new customers and contracts.

Wireless Services generally

maintained its level of revenues.

The overall increase in revenues at March 31, 2002 from March 31, 2001 is due to

the revenues associated with a significant contract at the WizShop subsidiary in

the enterprise and commerce segment, which was started in April 2002.

there was some small growth in the professional services business.

offset somewhat by the decline in sales in the wireless segment as corporations

reduced their capital spending at the onset of the recession.

WIRELESS SERVICES

The revenues in this segment were essentially the same in the years ended March

31, 2003 versus 2002.

While there has been some variability in the number of

customers, the overall revenue level has not changed as corporate capital

spending has stabilized although it is at a modest level of spending.

The 25% decline in revenues from March 31, 2001 to 2002 is the result of two

opposite trends that have continued from the year ended March 31, 2000.

there has been an approximated 14% increase in revenues in the enterprise

application software business from the sales of HiplinkXS and GMP and EMP

financial products.

This has been more than offset by the 66% decline in the

Company's financial consumer software products.

For the short term future, these

trends will continue.

The Company has emphasized its enterprise products which

continue to sell well in the economic recession.

The 19% increase in revenues from March 31, 2000 to March 31, 2001 in this

segment is the result of two distinct trends:

(i) the addition of new enterprise

application software products and services and (ii) the planned decline in the

legacy consumer software products business.

Semotus has added significant new

customers and new products in the enterprise market, which has generated new

This has been somewhat offset by the 43% decline in the consumer

revenues for which the Company had planned as it transitioned into the

enterprise marketplace.

there was an approximate 14% increase in revenues in the enterprise application

software business from the sales of HiplinkXS and GMP and EMP financial

This has been more than offset by the 66% decline in the Company's

financial consumer software products.

The Company has emphasized its enterprise

products, which continue to sell well in the economic recession.

ENTERPRISE AND COMMERCE SALES

The 10% decline in revenues from March 31, 2002 to March 31, 2003 is due to the

declining sales in all areas of the m-commerce and e-commerce business.

FiveStar's revenues continued to decline as the e-commerce economy has stagnated

and has been slow to rebound.

In May 2002, Semotus determined that the Company

needed to focus its operations on its core enterprise software products, (see

"Centralization and Consolidation Plan").

As part of that effort, Semotus has

decided to reduce its e-commerce operations and to close the FiveStar business

as of the end of June 2002.

The 48% decline in revenues in this segment from March 31, 2000 to March 31,

2001 is due to the above mentioned customer losses at FiveStar.

Wares business, its e-commerce business, is included in this category, which

helped offset the overall decline in this segment's revenues.

smaller amortization into revenue of the WizShop customer loyalty contract.

contract is completely amortized as of March 31, 2003.

The increase in revenues from March 31, 2001 to March 31, 2002 is due to the

revenues associated with the WizShop customer loyalty contract, which began in

PROFESSIONAL AND RELATED SERVICES

The 10% decline in revenues from March 31, 2001 to 2002 is largely the result of

completing professional service contracts at Wares and not signing new contracts

with existing customers or with new customers.

During this economic recession,

most companies have been determined to keep engineering and consulting projects

A second factor in the decline is the reduced business presence of

Simkin after the sale of its Kinetidex 2.0 product in June 2001.

medical software products have been slow to penetrate the market and therefore

have been eliminated by Semotus.

Other unprofitable professional service

contracts at Wares have also been eliminated.

In the fiscal year ended March 31, 2001, this was a new business segment for

Semotus and therefore there is no comparison to the fiscal year ended March 31,

Logistic System Sales

This is a new segment for Semotus in the fiscal year ended March 31, 2002, which

is made up of the revenue from ADA and focuses on the sales of system

integration contracts which include proprietary software and hardware systems

that manage the logistics and tracking of assets.

The 59% decrease in revenues from March 31, 2002 to March 31, 2003 is due to the

decline in new professional services contracts, mainly from the Simkin

Wireless medical software products have been slow to penetrate the

market and therefore have been eliminated by Semotus.

Other unprofitable

professional service contracts have also been eliminated.

The 37% decrease in revenues from March 31, 2001 to 2002 is largely the result

of the decline in new professional services contracts, mainly from the Simkin

COST OF REVENUES AND GROSS MARGIN

The overall gross profit margin increased to a more historical level of 39% in

the fiscal year ended March 31, 2002.

The gross profit margin improved due to

the addition of the logistics system business that had a gross profit margin of

As well, the wireless services business gross profit margin improved to 60%

The overall gross profit margin increased by 7% in March 31, 2003 to 60%, due

largely to the higher margin wireless services segment which is a larger

component of the overall revenue mix and from the improved margins with the

Centralization and Consolidation Plan implementation.

The overall gross profit margin increased by 7% to 53% in the fiscal year ended

March 31, 2002.

The wireless services business gross profit margin improved to

60% as more of the enterprise application software was sold versus the consumer

financial software, which has a lower margin.

Finally, the enterprise and

commerce segment did have the large inventory write-downs that occurred in the

fiscal year ended March 31, 2001.

The overall gross profit margin declined to 26% in March 31, 2001 from 38% in

March 31, 2000 and accordingly, the cost of revenue as a percentage of overall

revenue increased in percentage terms, but not in absolute dollar amount, due to

the decline in revenues at Five Star and a $251,400 inventory expense for the

slow sales of certain products and a price adjustment at Five Star.

was caused by the loss of one major customer and a large drop in sales from

another customer.

The lost Five Star product sales carried significant gross

profit margins and consequently the remaining revenue had lower gross profit

margins and a higher cost of revenue.

Further , the addition of the

WizShop contract, in the enterprise and commerce segment, with a higher margin

added to the increase in the overall company gross profit margin.

WIRELESS SERVICES

The 73% gross profit margin for the wireless segment for the fiscal year ended

March 31, 2003 is the result of Semotus is selling more of the enterprise

application software, which carries higher gross margins than the consumer

financial software.

Further, through the Centralization and Consolidation Plan,

Semotus has become more efficient in all of its business which has improved

gross and operating margins.

The 60% gross profit margin for the wireless segment for the fiscal year ended

March 31, 2002 is the result of the continuing trends in this business.

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individuals maintain their subscriptions.

The 43% gross profit margin for this segment for the fiscal year ended March 31,

2001 as compared to 47% in the prior year, is comprised of an enterprise

application software business gross margin of 50% and a legacy business gross

margin of 36%.

The consumer business margin has declined from 47% in fiscal year

2000 to 36% in fiscal year 2001.

This is a direct result of the decline in

revenues since many of the direct costs for wireless products, mostly data feeds

and transmission costs, have minimum charges.

As the enterprise products

continue to increase their percentage of the segment's services and products,

the gross profit margin should increase and be maintained at higher levels than

in past fiscal years.

Cost of revenues in this segment principally includes costs to obtain data feeds

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ENTERPRISE AND COMMERCE SALES

The gross profit margin in this segment rebounded somewhat to 21% in the fiscal

year ended March 31, 2002 as inventory write-downs declined and software

products and services from WizShop were included which have higher gross

WizShop's largest contract is for customer loyalty and tracking

software, which has gross profit margins of approximately 50%.

The gross profit margin for this segment declined from 36% in fiscal year 2000

to 11% in fiscal year 2001, substantially due to the decline in revenues and the

inventory expense at FiveStar.

The gross profit margin in this segment increased to 43% in the fiscal year

ended March 31, 2003 as the initial costs associated with the WizShop contract

were absorbed in fiscal year 2002;

the contract began in April 2001.

The gross profit margin in this segment was 41% in the fiscal year ended March

PROFESSIONAL AND RELATED SERVICES

The gross profit margin declined minimally to 51% in the fiscal year ended March

31, 2002, which is largely due to the mix of contracts serviced in the year.

Further, the reduction in Simkin's business from the sale of the Kinetidex

product also contributed to a lower margin.

The gross profit margin for this segment was 55% for the fiscal year ended March

The cost of revenue was principally personnel costs related to

providing consulting and training services.

Logistic System Sales

The gross profit margin for this segment was 50% for the fiscal year ended March

The cost of revenue is principally personnel costs related to software

programming, consultation and installation of the systems.

Also included in the

cost of revenue is the computer hardware costs related to each system

installation.

The gross profit margin increased to 89% in the fiscal year ended March 31, 2003

due to the elimination of unprofitable contracts and services.

professional services business has declined, the remaining contracts have the

highest margins.

The gross profit margin slightly increased by 2% to 74% in the fiscal year ended

March 31, 2002, which is largely due to the mix of contracts serviced in the

Many of the unprofitable contracts with lower margins in this segment were

eliminated through the Centralization and Consolidation Plan.

OPERATING EXPENSES

Operating expenses decreased in the fiscal year ended March 31, 2003, due to the

continued reduction in overall expenses through the Centralization and

Consolidation Plan.

Further, there were not any impairment charges taken in the

fiscal year ended March 31, 2003.

Although operating expenses increased in the fiscal year ended March 31, 2002,

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management program, which has significantly reduced these expenses.

Operating expenses increased during the year ended March 31, 2001 from the year

ended March 31, 2000 as part of the growth plan of Semotus, which was in place

through December 2000.

This plan included expansion of personnel in the key

categories of engineering, sales and marketing.

Further, some overhead expenses

increased in order to integrate and manage the four acquisitions completed in

fiscal year 2001.

The Company categorizes operating expenses into five major categories:

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and amortization and stock, option and warrant expense.

Additionally, for the

fiscal year ended March 31, 2002, there are two categories of impairment

goodwill and intangible assets.

The table below summarizes the changes

in these categories of operating expenses:

For the fiscal year

ended March 31, 2002, there are two categories of impairment charges:

and intangible assets.

For the fiscal year ended March 31, 2003, there were not

any impairment charges from continuing operations.

The table below summarizes

the changes in these categories of operating expenses:

YEAR ENDED MARCH 31,

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

DESCRIPTION 2003 2002 2001

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

development $1,475,063 $1,228,139 $ 600,957

marketing 2,281,316 4,630,355 1,849,597

administrative 4,902,982 5,330,211 4,291,085

Research and development $ 719,965 $ 1,010,720 $ 1,187,348

Sales and marketing 1,027,366 1,849,582 4,098,228

General and administrative 2,238,825 3,203,131 4,218,224

Impairment of goodwill -- 3,617,283 --

Impairment of intangible

Assets 3,541,017 -- --

Depreciation and

amortization 3,975,001 2,010,395 264,427

Stock, option and

warrant expense 496,181 601,932 1,060,487

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

Impairment of intangible assets -- 3,420,000 --

Depreciation and amortization 1,313,596 3,080,063 1,786,514

Stock, option and warrant expense 52,455 496,181 601,932

Totals $ 5,352,207 $ 16,676,960 $ 11,892,246

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

Research and development expenses are expenses incurred in developing new

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charged to expense as incurred.

The increase in these costs is due principally

to hiring engineering personnel, for the development of updates to existing

products and new products, such as the Equity Market Pro, Global Market Pro(TM),

and the new release of the Company's enterprise application product, HiplinkXS.

These costs are due principally for the

development of updates to existing products and new products, such as Futures

Market Pro, Equity Market Pro, Global Market Pro, and the new release of the

Company's enterprise application products, HiplinkXS, OpenLink, IQLink, RemLink.

Much of the development work for these products has been completed and

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the expenses of hiring sales personnel and maintaining a customer support call

In the fiscal year ended March 31, 2002, these costs have declined principally

due to the reduction in general advertising and non-sales supported marketing.

There has been a reduction in marketing personnel as the Company has shifted to

emphasizing marketing and sales support for its existing products.

These costs increased in the fiscal year ended March 31, 2001 due principally to

the addition of new salespeople and new marketing personnel, in addition to

increased participation in wireless data forums and trade shows.

New marketing

programs have also been developed and are in the process of being implemented

for new wireless products such as the Global Market Pro and Mobile Reach.

Semotus is also updating existing marketing materials for existing products such

as HipLink and Dose Assist.

These costs have declined principally due to the reduction in general

advertising and non-sales supported marketing.

There has been a reduction in

marketing personnel as the Company has shifted to emphasizing marketing and

sales support for its existing products.

General and administrative expenses include senior management, accounting, legal

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overhead related costs.

These costs declined during the fiscal year ended March 31, 2002 as personnel

and offices were reduced and operating functions were consolidated.

should continue as Semotus implements its Centralization and Consolidation Plan.

These costs increased in the fiscal year ended March 31, 2001 due to increases

in administrative personnel, costs associated with providing investor

information, as well as an expansion of office space in San Jose, Ca., Vancouver

B.C., Woodbury, N.J.

and Downers Grove, Ill.

Additional unusual general and

administrative cost increases have resulted from the acquisitions of Cross,

Simkin, Wares and Five Star.

Semotus' 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.

As a result of Semotus' review, management determined that the carrying value of

goodwill and recorded asset value were not fully recoverable and an impairment

charge of $4,773,870 was taken comprised of an impairment charge to Simkin's

goodwill of $909,272 (of which $650,000 was recorded in the quarter ended June

30, 2001, see Note 5 "Sale of Technology and Net Impairment of Goodwill"),

$1,156,587 for Wares' goodwill and $2,708,011 for WizShop's goodwill.

Furthermore, Semotus took an impairment charge of $3,420,000 for GMP in the

quarter ended March 31, 2002 and a $121,017 impairment charge for software

development costs at Wares.

See Notes 4 and 5, "Impairment of Goodwill and

Long-Lived Assets" and "Sale of Technology and Net Impairment of Goodwill"

respectively, to the Financial Statements in this 10K.

These costs declined during the fiscal year ended March 31, 2002 and March 31,

2003 as personnel and offices were reduced and operating functions were

consolidated.

This trend should continue as Semotus continues to implement its

Centralization and Consolidation Plan.

In the prior year, Semotus' management performed 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," and in

accordance with SFAS 142, goodwill and other intangible assets.

quantitative and qualitative measures, the Company assessed the need to record

impairment losses on long-lived assets used in operations when impairment

indicators were present.

As a result of Semotus' review, management determined

that the carrying value of goodwill and recorded asset value were not fully

recoverable and an impairment charge of $3,617,283 was taken comprised of an

impairment charge to Simkin's goodwill of $909,272 and $2,708,011 for WizShop's

goodwill in fiscal year 2002.

Furthermore, Semotus took an impairment charge of

$3,420,000 for GMP in the quarter ended March 31, 2002.

See Notes 6 and 7,

"Impairment of Long-Lived Assets and Goodwill" and "Sale of Technology and Net

Impairment of Goodwill" respectively, to the Financial Statements in this 10K.

There were no impairment charges from continuing operations in the fiscal year

ended March 31, 2003, although an impairment

charge of $635,724 was taken in the discontinued operations of ADA.

has determined that the remaining goodwill of $1,430,141 (net of accumulated

amortization of $727,058) is fairly valued using the impairment tests as

described in SFAS 144 and SFAS 142, which includes discounted cash flow analysis

and comparable company analysis.

This remaining amount of goodwill consists

entirely of one of the Company's wireless enterprise application software

product lines, the HipLink family of software products, which is generating

current revenue and cash flow.

In accordance with SFAS 144, Semotus has presented the operations of FiveStar,

Wares and ADA as discontinued operations.

In the net loss from discontinued

operations for 2002 and 2003, impairment charges were taken against the goodwill

of both Wares (fiscal year 2002) and ADA (fiscal year2003).

As discussed in Note

6, "Impairment of Long-Lived Assets and Goodwill," Semotus performed the

impairment tests and determined that impairment charges were required.

impairment expense for the Wares goodwill was $1,156,587 and for the ADA

goodwill was $635,724.

Depreciation and amortization expense includes depreciation of computers and

2 unchanged sentences

costs and certain intellectual property costs.

The increase in this expense is

primarily the result of the amortization of goodwill from the Company's

acquisitions and the amortization associated with the warrants awarded to Chase

in connection with Global Market Pro (GMP).

The increase in this expense from

March 31, 2001 to 2002 is primarily the result of the amortization of goodwill

from the Company's acquisitions and the amortization associated with the

warrants awarded to Chase in connection with Global Market Pro (GMP).

decline in this expense through fiscal 2003 is as a result of the impairment

charges in fiscal 2002 which reduced the asset balances to be amortized and from

the decline in capital spending at Semotus.

The non-cash charges for compensation consists mainly of grants of stock,

20 unchanged sentences

NON-OPERATING INCOME AND EXPENSES

Non-operating income and expenses are primarily made up of interest income

from invested cash, interest expense from a note payable and retired bank lines

of credit, amortization of advances from technology sales received in previous

Non-operating income and expenses are primarily made up of interest income from

invested cash, interest expense from a note payable and retired bank lines of

credit, amortization of advances from technology sales received in previous

periods, and the owner's fees and offsetting interest income recognized, related

3 unchanged sentences

YEAR ENDED MARCH 31,

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

DESCRIPTION 2003 2002 2001

1 unchanged sentence

Net interest income $ 52,301 $ 269,210 $ 671,915

Owners fee sales

of technology (1,569,000) (1,569,000) (1,570,000)

Interest on note from

sales of technology 1,569,000 1,569,000 1,570,000

Amortization of

technology advances 306,908 371,052 432,021

Other Interest income 50,207 132,792 129,290

Miscellaneous

Expense (77,070) (88,064) (267,107)

Owners fee sales of technology (1,176,750) (1,569,000) (1,569,000)

Interest on note from sales of technology 1,176,750 1,569,000 1,569,000

Amortization of technology advances 206,723 306,908 371,052

Gain from cancellation of sales of 628,927 -- --

technology contracts

Miscellaneous income (expenses) 287,406 (17,223) 60,473

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

Total non-operating

income $ 544,105 $1,055,773 $ 435,461

$ 1,175,357 $ 558,895 $ 1,103,440

Non-operating income, net of expenses declined in the fiscal year ended March

31, 2002, as less cash was available for investment during the year resulting

from the operating losses.

Amortization of technology advances decreased

somewhat due to the application of the effective interest method of amortization

on the balances.

Non-operating income, net of expenses, increased in the year ended March 31,

2001 from the prior year, due primarily to an increase in interest income

resulting from more cash during the year that was available for investment.

two major sources of cash were the private placement of Series B Convertible

Preferred Stock completed in February 2000 and the exercise of common stock

Amortization of technology advances decreased somewhat, due to the

application of the effective interest method of amortization on the balances.

Miscellaneous expenses declined due to a write-off of an investment in two new

products at Five Star, which was incurred in fiscal year 2000.

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

Non-operating income, net of expenses, increased in the fiscal year ended March

31, 2003 versus 2002, due to the cancellation of the technology sales contracts,

of which the remaining deferred balances were recognized as income.

offset somewhat due to less cash available for investment during the year

resulting from the operating losses and the amortization of technology advances.

decreased somewhat due to the application of the effective interest method of

amortization on the balances.

Non-operating income, net of expenses, decreased in the year ended March 31,

2002 from the year ended March 31, 2001, due primarily to a decline in interest

income resulting from less cash during the year that was available for

The two major sources of cash in fiscal year 2001 were the private

placement of Series B Convertible Preferred Stock completed in February 2000 and

the exercise of common stock warrants.

Amortization of technology advances

decreased somewhat, due to the application of the effective interest method of

amortization on the balances.

COMPREHENSIVE LOSS

The decrease in the comprehensive loss for the fiscal year ended March 31, 2003

to $3,383,296 or $(0.19) per share was due to an improvement in the overall

operating efficiency of the Company as the consolidation and Centralization Plan

has been implemented.

The gross profit margin improved and the operating costs

were reduced.

Further, there were no impairment charges in the year ended March

The Company also disposed of the operations of Five Star, Wares and

The increase in the comprehensive loss for the fiscal year ended March 31, 2002

to $18,484,302 or $(1.09) per share was due principally to a 511% increase in

non-cash charges to income from impairments of goodwill and intangible assets

to $18,484,302 or $(1.09) per share compared to $11,314,517 or $(0.74) per share

for the fiscal year ended March 31, 2001 was due principally to a 511% increase

in non-cash charges to income from impairments of goodwill and intangible assets

and the amortization of intangible assets.

Additionally, research and

development expense increased 20% with the upgrading and launch of new and

improved products.

These costs were offset somewhat with a 66% increase in gross

profit dollars and reductions in sales and marketing expenses and general and

administrative expenses.

The comprehensive loss of $11,314,517 or $(0.74) per share for the fiscal year

ended March 31, 2001 compared to $4,756,324 or $(0.61) per share for the fiscal

year ended March 31, 2000 was due principally to three factors:

increase in non-cash charges from acquisitions and amortization of intellectual

property, (ii) a substantial decline in the revenues and gross margin of

Semotus' FiveStar subsidiary, and (iii) an increase in engineering, sales and

marketing and administrative personnel for the growth of Semotus.

These costs were offset somewhat with

a 53% increase in gross profit dollars and reductions in sales and marketing

expenses and general and administrative expenses.

SEGMENT RESULTS

Due to additional businesses resulting from the acquisitions, Semotus began

reporting segment information in the fourth quarter of the fiscal year ended

March 31, 2001.

The Company has restated the fiscal year ended March 31, 2000

for comparison purposes, although Semotus did not have separate segments at that

Semotus' business has evolved into four segments:

Semotus' business has evolved into three segments:

wireless services, enterprise

and commerce sales, professional and related services and logistic system sales.

See "Business Description - Services and Products" for further information about

each of the segments.

and commerce sales, and professional and related services.

See "Business

Description - Services and Products" for further information about each of the

As Semotus continues to centralize and consolidate its business, the

nature and structure of the business segments may change.

The Company intends to

consolidate all of its segments beginning in the first quarter of fiscal year

Specific results of the segments are discussed under "Revenues" and "Cost of

1 unchanged sentence

Analysis of Financial Condition and Results of Operations".

Professional Logistic

Wireless Enterprise and and related system Corporate

Services commerce sales services sales and other Total

and Professional

Wireless commerce and related Corporate and

Services sales services other Total

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

As of and for the

Year Ended March 31,

Revenue $ 1,305,347 2,630,368 559,956 1,611,424 -- $ 6,107,095

Gross Profit $ 784,513 541,488 282,882 802,780 -- $ 2,411,663

Operating loss* $ (837,442) (1,005,843) (563,100) (149,766) (16,477,615) $(19,033,767)

Depreciation and

Amortization $ 340,482 113,899 265,661 29,613 3,225,346 $ 3,975,001

As of and for the Year Ended March 31, 2003:

Revenue from continuing operations $ 1,293,801 $ 1,005,060 $ 45,390 -- $ 2,344,251

Gross profit from continuing operations $ 946,489 $ 428,101 $ 40,418 -- $ 1,415,008

Operating loss from continuing operations* $ (1,254,049) $ 308,775 $ 21,846 $ (3,013,771) $ (3,937,199)

Net loss from discontinued operations -- -- -- $ (799,090) $ (799,090)

Depreciation and amortization from continuing $ 251,262 $ 60,454 $ 1,880 $ 1,000,000 $ 1,313,596

Capital expenditures $ 16,949 -- -- -- $ 16,949

Total assets from discontinued operations -- -- -- $ 706,932 $ 706,932

Total assets, March 31, 2003 $ 3,027,947 $ 482,237 $ 265,613 $ 872,759 $ 4,648,556

31, 2002* $ 7,133,204 1,616,479 282,808 1,056,540 248,032 $ 10,337,063

As of and for the

Year Ended March

Revenue $ 1,731,948 3,193,433 622,582 -- -- $ 5,547,963

Gross Profit $ 746,643 363,791 341,444 -- -- $ 1,451,878

Operating loss* $(1,113,291) (974,759) (171,367) -- (10,089,737) $(12,349,154)

Depreciation and

Amortization $ (223,149) (37,535) (77,812) -- (1,671,899) $ (2,010,395)

As of and for the Year Ended March 31, 2002:

Revenue from continuing operations $ 1,305,347 $ 1,114,481 $ 111,590 -- $ 2,531,418

Gross profit from continuing operations $ 793,510 $ 459,595 $ 83,035 -- $ 1,336,140

Operating loss from continuing operations* $ (837,442) $ (75,944) $ (113,520) $(14,313,914) $(15,340,820)

Net loss from discontinued operations $ -- -- -- $ (3,662,553) $ (3,662,553)

Depreciation and amortization from continuing

operations $ 340,482 $ 42,291 $ 25,005 $ 2,672,285 $ 3,080,063

Capital expenditures $ 24,588 -- -- -- $ 24,588

Total assets from discontinued operations -- -- -- $ 1,600,341 $ 1,600,341

Total assets, March 31, 2002 $ 7,133,204 $ 1,272,567 $ 246,597 $ 1,684,695 $ 10,337,063

31, 2001* $13,127,832 1,302,984 2,578,399 -- 4,760,746 $ 21,769,961

As of and for the

Year Ended March

Revenues $ 1,459,920 6,151,238 -- -- -- $ 7,611,158

Gross Profit $ 684,596 2,189,570 -- -- -- $ 2,874,166

Operating loss* $ (923,460) (189,531) -- -- (4,079,396) $ (5,192,387)

Depreciation and

Amortization $ 244,077 20,350 -- -- -- $ 264,427

Capital Expenditure $ 96,723 1,135 -- -- 24,437 $ 122,295

As of and for the Year Ended March 31, 2001:

Revenue from continuing operations $ 1,731,948 -- $ 178,246 -- $ 1,910,194

Gross profit from continuing operations $ 746,643 -- $ 128,948 -- $ 875,591

Operating loss from continuing operations* $ (3,016,513) -- $ (265,616) $ (7,734,526) $(11,016,655)

Net loss from discontinued operations -- -- -- $ (1,380,166) $ (1,380,166)

Depreciation and amortization from continuing $ 282,832 -- $ 9,208 $ 1,494,474 $ 1,786,514

Capital expenditures $ 223,231 -- -- $ 203,208 $ 426,439

Total assets from discontinued operations -- -- -- $ 2,419,982 $ 2,419,982

Total assets, March 31, 2001 $ 8,894,324 -- $ 1,461,401 $ 11,414,236 $ 21,769,961

31, 2000* $16,597,406 1,893,074 -- -- -- $ 18,490,480

* Certain corporate marketing, research and development and general and

1 unchanged sentence

included in "Corporate and other".

The $248,032 and the $4,760,476 of assets at

March 31, 2002 and 2001 respectively under "Corporate and other" is comprised of

the GMP Intellectual Property, Semotus' Global Market Pro wireless financial

product and all allocations of certain corporate assets and liabilities not

appropriately categorized in any segment.

LIQUIDITY AND CAPITAL RESOURCES

Although the cash position of Semotus has decreased at March 31, 2003 due to the

continued operating losses at the Company, this cash loss has been reduced

through the Company's Centralization and Consolidation Plan.

Semotus believes

the cash loss will continue to be reduced through its Centralization and

Consolidation Plan.

The overall decrease in the cash position of Semotus at March 31, 2002 is due to

3 unchanged sentences

and cost reduction program has been implemented and has reduced the overall cash

Semotus believes the cash loss will continue to be reduced through

its Centralization and Consolidation Plan.

The overall decrease in the cash position of Semotus at March 31, 2001 is due to

the expansion of the Company to grow both internally through its new and

upgraded products and services and externally through acquisitions.

spent on operating resources, especially personnel, and computer and

telecommunications equipment.

Further, four acquisitions produced unusual

In the fiscal year ended March 31, 2001 warrants and options were

converted to common stock, which provided some cash.

In the fiscal year ended

March 31, 2000, Semotus completed a private placement of Series B Convertible

Preferred Stock which contributed $9,315,501 to cash, in addition to the

conversion of warrant and options to common stock which produced $7,089,852 of

The sources and uses of cash are summarized as follows:

2 unchanged sentences

2003 2002 2001

operating activities $(5,141,459) $(9,219,730) $(4,271,193)

Cash provided by (used in)

investing activities 1,669,791 (576,766) (84,077)

Cash provided by (used in)

financing activities (196,082) 1,279,762 16,213,158

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

Net increase (decrease) in

cash and cash equivalents $(3,667,750) $(8,516,734) $11,857,888

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

Net cash used in operating activities of continuing operations $(2,021,665) $(4,332,467) $(8,507,433)

Net cash provided by (used in) investing activities (15,889) 1,388,983 (558,941)

Net cash provided by (used in) financing activities (210,941) (195,450) 1,279,762

Net cash provided by (used in) discontinued operations 166,749 (134,007) (1,243,415)

Net increase (decrease) in cash and cash equivalents (2,081,746) (3,272,941) (9,030,027)

Cash used in operating activities at March 31, 2003 consisted principally of a

net loss of $3,432,350 offset somewhat by non-cash charges of $1,313,596 for

depreciation and amortization, $593,259 for the amortization of a note

receivable, and $119,862 for a non-cash legal settlement.

Further there was a

non-cash charge for the net loss from discontinued operations of $799,090 and a

gain on the cancellation of technology contracts of $628,927.

Other operating

activities that used cash were reductions in accounts payable and accrued

liabilities of $190,008 and $130,361, respectively.

Cash used in operating activities at March 31, 2002 consisted principally of a

net loss of $18,444,478 offset somewhat by non-cash charges of $7,037,283 of

1 unchanged sentence

compensation of $471,181.

Other operating activities that provided cash were

reductions in accounts receivable and inventory of $532,953 and $209,376

respectively, and increases in accrued liabilities and deferred revenue of

$181,242 and $168,091, respectively.

Cash used in operating activities at March 31, 2001 consisted principally of a

net loss of $11,293,381 offset somewhat by non-cash charges of $2,010,395 of

depreciation and amortization and $601,932 of stock, option and warrant based

compensation.

Other operating activities that contributed to the use of cash

were $237,625 in the net change of current assets and current liabilities.

largely resulted from reductions in accounts payable offset by reductions in

inventory and accounts receivable.

Cash provided from investing activities of $1,669,791 at March 31, 2002 resulted

principally from $1,096,472 of cash received, net of assets acquired from the

two companies acquired in the fiscal year, $350,000 from the sale of the

Kinetidex technology and $247,907 net cash received from a minority investment

in the Company's ADA subsidiary.

Cash used in investing activities of $576,766 at March 31, 2001 resulted

principally from $538,436 of purchased equipment, mainly computers and wireless

Cash flows from financing activities produced a net decrease in cash of $196,082

which resulted from $207,752 of repayments on notes payable and capital leases

offset slightly by $11,670 in cash received from the exercise of stock options.

Cash flows provided by financing activities of $1,279,762 at March 31, 2001

resulted from $2,040,438 of proceeds from the exercise of options and warrants

offset slightly by payments of $15,624 on capital leases and $50,830 on notes

Additionally, the Company has $694,222 in a certificate of deposit that

has been used to secure a note payable.

Other operating activities that provided cash were a

reduction in accounts receivable of $358,073, and an increase in deferred

revenue of $162,651 offset by a reduction in accounts payable of $86,816.

Cash used in the investing activities of $15,889 at March 31, 2003 resulted

principally from $16,949 of capital expenditures offset somewhat by $1,060 from

the sale of assets.

Cash provided from investing activities in 2003 of $1,388,983 at March 31, 2002

resulted principally from $1,063,571 of cash received, net of assets acquired

from the two companies acquired in the fiscal year, and $350,000 from the sale

of the Kinetidex technology.

Cash flows from financing activities produce a net decrease in cash of $210,941.

This resulted from the repurchase of preferred stock for $100,000 and from the

$122,479 of repayments of notes payable and capital leases offset slightly by

$11,538 in cash received from the exercise of warrants.

Cash flows provided by financing activities at March 31, 2002 produced a net

decrease in cash of $195,450 which resulted from $207,118 of repayments on notes

payable and capital leases offset slightly by $11,668 in cash received from the

exercise of stock options.

As of March 31, 2003, the Company had cash and cash equivalents of $1,976,062 a

2 unchanged sentences

$1,464,645 from the fiscal year ended March 31, 2002.

As of March 31, 2001, the Company had cash and cash equivalents amounting to

$7,844,042, a decrease of $8,516,734 from the balance at March 31,2000.

capital decreased to $7,780,783 from $15,753,980 at the prior year-end.

As of March 31, 2002, the Company had cash and cash equivalents of $4,057,808

(exclusive of restricted cash of $693,286), a decrease of $3,272,941 from the

Working capital decreased to $2,064,396 from the fiscal year ended

March 31, 2001.

The continued decrease in working capital is from the resources used in the

7 unchanged sentences

expenditures at March 31, 2003.

Primary commitments in FY2003 are repayment of

notes payable ($693,286), capital lease obligations ($93,922) and operating

lease obligation ($441,176).

Primary commitments in FY2004 are

repayment of notes payable ($56,224), capital lease obligations ($23,731) and

operating lease obligation ($87,697).

At March 31, 2003 and 2002, the Company had a deferred tax asset of

approximately $11,753,500 and $9,592,500, principally arising from net operating

loss carryforwards available to offset future taxable income.

As management

cannot determine that it is more likely than not that the Company will realize

the benefit of this asset, a 100% valuation allowance has been established.

approximately $13,862,275 and $11,753,500, respectively, principally arising

from net operating loss carryforwards available to offset future taxable income.

As management cannot determine that it is more likely than not that the Company

will realize the benefit of this asset, a 100% valuation allowance has been

The following table discloses the Company's contractual commitments for future

Long term commitments are comprised solely of operating leases and

capital leases (See Notes 12 and 20).

YEAR ENDING MARCH 31,

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

2004 $ 103,948

Management believes that it has adequate working capital for the next 12 months.

RECENT PRONOUNCEMENTS:

In April 2002, the FASB issued SFAS No.

145, " Rescission of FASB Statements No.

4, 44, and 64, Amendment of FASB Statement No.

13, and Technical Corrections."

145 rescinded FASB No.

4 and 64 in relation to reporting gains and

losses from extinguishment of debt.

The Statement amended SFAS No.

requires gains and losses from extinguishment of debt to be classified as

extraordinary items only if they meet the criteria in Opinion 30.

provisions of Opinion 30 differentiates between normal recurring operations of a

company and transactions that are unusual or infrequent in nature.

also amended Statement No.

13, to the effect that sale-leaseback accounting for

certain lease modifications should be accounted for in the same manner as

sale-leaseback transactions.

In June 2002, the FASB issued SFAS No.

133, "Accounting for Derivative

Instruments and Hedging Activities", which establishes accounting and reporting

standards for derivative instruments and for hedging activities.

does not currently or intend to engage in any derivative or hedging activities.

As such, the accounting and disclosure prescribed by SFAS No.

expected to have a material impact on the Company.

In December 1999, the SEC staff released Staff Accounting Bulletin No.

"Revenue Recognition in Financial Statements" ("SAB 101").

SAB 101 provides

interpretive guidance on the recognition, presentation and disclosure of revenue

in the financial statements.

SAB 101 must be applied to the financial statements

no later than the quarter ending September 30, 2000.

The adoption of SAB 101 did

not have a material effect on the Company's financial results in the fiscal year

ended March 31, 2001.

In March 2000, the Financial Accounting Standards Board issued Interpretation

44 ("FIN 44") Accounting for Certain Transactions Involving Stock

Compensation, an Interpretation of APB Opinion No.

FIN 44 clarifies the

application of Opinion No.

25 for (a) the definition of employee for purposes of

applying Opinion No.

25, (b) the criteria for determining whether a plan

qualifies as a non-compensatory plan, (c) the accounting consequences of various

modifications to the terms of a previously fixed stock option or award, and (d)

the accounting for an exchange of stock compensation awards in a business

FIN 44 is effective July 2, 2000, but certain conclusions cover

specific events that occur after either December 15, 1998, or January 12, 2000.

Due to the repricing of options in December 2000, Fin 44 may have a material

effect on the Company's financial position and results of operations in the

For the fiscal years ended March 31, 2002, 2001 and 2000, the effect was

In June 2001, the FASB finalized FASB Statements No.

141, "Business

Combinations" (SFAS 141), and No.

142, "Goodwill and Other Intangible Assets"

SFAS 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's previous business combinations were accounted for using both the

pooling-of-interests and purchase methods.

The pooling-of-interests method does

not result in the recognition of acquired goodwill or other intangible assets.

As a result, the adoption of SFAS 141 and 142 will not affect the results of

past transactions accounted for under the pooling-of-interests method.

all future business combinations will be accounted for under the purchase

method, which may result in the recognition of goodwill and other intangible

assets, some of which will be recognized through operations, either by

amortization or impairment charges, in the future.

For purchase business

combinations completed prior to March 31, 2002, the net carrying amount of

goodwill is $2,474,597 and other intangible assets is $576,958.

expense for goodwill fiscal year ended March 31, 2002 was $1,855,407.

the Company determined that goodwill had been impaired as of March 31, 2002, and

charged against income $4,773,870 of goodwill.

The Company intends to complete

the transitional goodwill impairment test within six months from the date of

The impact of the adoption of SFAS 141 and SFAS 142 on the Company's

financial position and results of operations could be material.

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.

At this time, 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 the SFAS No.

121 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 will be effective for fiscal years beginning after

December 15, 2001.

The impact of adopting SFAS 144 on the Company's financial

position and result of operations could be material.

146, "Accounting for Costs Associated

with 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 accounted 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.

effective for exit or disposal activities that are initiated after December 31,

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.

In January 2003, the FASB issued Interpretation No.

46, "Consolidation of

Variable Interest Entities, an interpretation of ARB No.

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,

The application of this interpretation is not expected to have a material

effect on the Company's financial statements.

The interpretation requires

certain disclosures in financial statements issued after January 31, 2003 if it

is reasonably possible that the

Company will consolidate or disclose information about variable interest

entities when the interpretation becomes effective.

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

The Company is currently reviewing how this might affect revenue

recognition for arrangements the Company could enter into that have multiple

deliverables.

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-K

Item 7. Management’s Discussion and Analysis