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Item 8. Financial Statements and Supplementary Data

2003-06-30 compared with 2002-07-01 · 1363 added, 1132 removed, 1197 unchanged (68% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements are set forth on pages F-1 through F-39 hereto.

The financial statements and supplementary data of the Company and the report of

independent auditors thereon are listed in Item 16 of this Report and are

incorporated herein by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

No response required.

BDO Seidman, LLP served as our independent auditors from September 3, 1998 to

July 15, 2002.

We had determined to change our independent auditors for fiscal

year 2003, and we dismissed BDO Seidman LLP on July 5, 2002.

The decision to

change independent auditors was recommended by the Company's Management and the

Audit Committee of the Board of Directors, and approved by a unanimous vote of

the full Board of Directors.

Our decision to change our independent auditors did not occur due to any

existing or previous accounting disagreements with BDO Seidman LLP, and BDO

Seidman LLP has expressed no disclaimer of opinion, adverse opinion,

qualification or limitation as to uncertainty, audit scope, or accounting

principles regarding our financial statements or the audit process, for the

fiscal years ended March 31, 2002 or 2001.

Neither have there been any

accounting disagreements or reportable events within the meaning of Item

304(a)(1)(iv) and Item 304(a)(1)(v) of SEC Regulation S-K for those periods or

for the interim period from April 1, 2002 up to and including July 15, 2002.

Seidman LLP had stated in its letter addressed to the SEC its concurrence with

the foregoing statements in this paragraph.

On July 15, 2002, we engaged Burr, Pilger & Mayer LLP to serve as our

independent auditors for the fiscal year ending March 31, 2003.

The decision to

engage Burr, Pilger & Mayer LLP was recommended by the Company's management team

and the Audit Committee of the Board of Directors, and unanimously approved by

the full Board of Directors.

We did not seek the advice of Burr, Pilger & Mayer

LLP on specific audit issues relating to the application of accounting

principles to a specified transaction, either completed or proposed, the type of

audit opinion that might be rendered on our financial statements, or any matter

that was a reportable event prior to engagement of this firm.

We have omitted certain information from this Report that is required by Part

We intend to file a definitive proxy statement pursuant to Regulation 14A

with the Securities and Exchange Commission relating to our annual meeting of

stockholders not later than 120 days after the end of the fiscal year covered by

this Report, and such information is incorporated by reference herein.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item will be included in the Company's Proxy

Statement for the Annual Meeting of Shareholders to be held on September 17,

2002 under the caption "Directors and Executive Officers" which will be filed

with the Securities and Exchange Commission no later than 120 days after the

close of the fiscal year ended March 31, 2002, and is incorporated herein by

Statement for the 2003 Annual Meeting of Shareholders under the caption

"Directors and Executive Officers" which will be filed with the Securities and

Exchange Commission no later than 120 days after the close of the fiscal year

ended March 31, 2003, and is incorporated by reference into this Item.

EXECUTIVE COMPENSATION

The information required by this Item will be included in the Company's Proxy

Statement for the Annual Meeting of Shareholders to be held on September 17,

2002 under the caption "Executive Compensation" which will be filed with the

Securities and Exchange Commission no later than 120 days after the close of the

fiscal year ended March 31, 2002, and is incorporated herein by reference.

Statement for the 2003 Annual Meeting of Shareholders under the caption

"Executive Compensation" which will be filed with the Securities and Exchange

Commission no later than 120 days after the close of the fiscal year ended March

31, 2003, and is incorporated by reference into this Item.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item will be included in the Company's Proxy

Statement for the Annual Meeting of Shareholders to be held on September 17,

2002 under the caption "Security Ownership of Certain Beneficial Owners and

Management" which will be filed with the Securities and Exchange Commission no

later than 120 days after the close of the fiscal year ended March 31, 2002, and

is incorporated herein by reference.

Statement for the 2003 Annual Meeting of Shareholders under the caption

"Security Ownership of Certain Beneficial Owners and Management" which will be

filed with the Securities and Exchange Commission no later than 120 days after

the close of the fiscal year ended March 31, 2003, and is incorporated by

reference into this Item.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item will be included in the Company's Proxy

Statement for the Annual Meeting of Shareholders to be held on September 17,

2002 under the caption "Certain Relationships and Related Transactions" which

will be filed with the Securities and Exchange Commission no later than 120 days

after the close of the fiscal year ended March 31, 2002, and is incorporated

herein by reference.

Statement for the 2003 Annual Meeting of Shareholders under the caption "Certain

Relationships and Related Transactions" which will be filed with the Securities

and Exchange Commission no later than 120 days after the close of the fiscal

year ended March 31, 2003, and is incorporated by reference into this Item.

CONTROLS AND PROCEDURES.

Within 90 days prior to the date of this report, we carried out an evaluation,

under the supervision of our Chief Executive Officer and Chief Financial

Officer, of the effectiveness of the design and operation of our disclosure

controls and procedures.

First, it should be noted that the design of any system

of controls is based in part upon certain assumptions, and there can be no

assurance that any design will succeed in achieving its stated goals.

in designing and evaluating the disclosure controls and procedures, Semotus and

its management recognized that any controls and procedures, no matter how well

designed and operated, can provide only reasonable assurance of achieving the

desired control objectives.

Based upon our evaluation, our CEO and CFO concluded

that our disclosure controls and procedures are effective in bringing to their

attention on a timely basis, information required to be disclosed in the reports

the Company files under the Exchange Act.

The CEO and CFO note that, since our last evaluation of internal controls, there

have been no significant changes in internal controls or in other factors that

could significantly affect internal controls, including any corrective actions

with regard to significant deficiencies and material weaknesses.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item will be included in the Company's Proxy

Statement for the 2003 Annual Meeting of Shareholders under the caption

"Principal Accountant Fees and Services" which will be filed with the Securities

and Exchange Commission no later than 120 days after the close of the fiscal

year ended March 31, 2003, and is incorporated by reference into this Item.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) FINANCIAL STATEMENTS

The financial statements required by this item are submitted in a separate

section beginning on page F-1 of this report.

The following financial statements required by this item are submitted in a

separate section beginning on page 35 of this report.

Independent Auditors Reports

Consolidated Balance Sheets for the years ended March 31, 2003 and 2002

Consolidated Statements of Operations and Comprehensive Loss for the years ended

March 31, 2003, 2002 and 2001

Consolidated Statements of Common Shareholders' Equity for the years ended March

31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the years ended March 31, 2003, 2002

Notes to Consolidated Financial Statements

(a)(2) FINANCIAL STATEMENT SCHEDULES

74 unchanged sentences

February 15, 2002.

2.13 Joint Venture Agreement by and Filed electronically herewith.

2.13 Preferred Buy Back and Mutual Incorporated by reference to

Release Agreement by and Exhibit 2.1 to the Registrant's

among Semotus Solutions, Inc.

and Outercurve Technologies,

dated February 20, 2002.

Form 8-K filed January 13, 2003.

and Brown Simpson Partners

dated December 31, 2002.

3.1 Articles of Incorporation.

27 unchanged sentences

Exhibit 4.1 to the Registrant's

Form 8-A-12B filed on

December 21,1999.

Form 8-A-12B filed on December

4.2 Certificate of Designation Incorporated by reference to

26 unchanged sentences

Dated January 18, 2002.

4.8 Warrant to purchase up to 846,154 Incorporated by reference to

shares of common stock issued to Exhibit 4.1 to the Registrant's

Brown Simpson Partners, I, Ltd.

Form 8-K filed January 13, 2003.

dated December 31, 2002.

10.1 Agreement Concerning the Incorporated by reference to

49 unchanged sentences

dated May 31, 2001.

10.13 Loan Forgiveness Agreement with Filed electronically herewith.

Anthony LaPine dated March 29,

*10.13 Loan Forgiveness Agreement with Incorporated by reference to

Anthony LaPine dated March 29, Exhibit 10.13 to the Registrant's

Form 10K filed July 1, 2002.

16.1 Letter from BDO Seidman, LLP Incorporated by reference to

dated July 17, 2002.

Exhibit 16.1 to the Registrant's

Form 8-K filed on July 22, 2002.

16.2 Letter from BDO Seidman, LLP Incorporated by reference to

dated August 26, 2002.

Exhibit 16.1 to the Registrant's

Form 8-K filed August 26, 2002.

21 Subsidiaries of the Registrant.

Filed electronically herewith.

23.1 Consent of Burr, Pilger & Mayer, Filed electronically herewith.

23.2 Consent of BDO Seidman, LLP.

16 unchanged sentences

Form 8-K filed May 30, 2001.

99.4 Consent of Anthony LaPine Filed electronically herewith.

pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

99.5 Consent of Charles, K.

Dargan, II Filed electronically herewith.

pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

* Management contract or compensatory plan or arrangement.

2 unchanged sentences

(b) REPORTS ON FORM 8-K.

The Company filed a Current Report on Form 8-K on

February 28, 2002 with respect to the amendment entered into by and among

Application Design Associates, Semotus Solutions, Inc., and 2007978 Ontario,

that canceled, ab initio, the Warrant to purchase 150,000 shares of

Registrant's common stock dated January 18, 2002.

The Company filed two Current Reports on Form 8-K

during the fourth quarter ended March 31, 2003.

An 8-K was filed on January 13, 2003 with respect to the repurchase by Semotus

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

Convertible Preferred Stock and the settlement and mutual release related to

Brown Simpson's anti-dilution claim.

An 8-K was filed on February 14, 2003 with respect to its financial results for

the third quarter ended December 31, 2002.

4 unchanged sentences

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants .

Reports of Independent Certified Public Accountants ......................

Consolidated Financial Statements:

9 unchanged sentences

The Board of Directors and Shareholders of Semotus Solutions, Inc.:

We have audited the accompanying consolidated balance sheets of Semotus

We have audited the accompanying consolidated balance sheet of Semotus

Solutions, Inc., and subsidiaries as of March 31, 2003, and the related

consolidated statements of operations and comprehensive loss, shareholders'

equity and cash flows for the year then ended.

These consolidated financial

statements are the responsibility of the Company's management.

responsibility is to express an opinion on these financial statements based on

We conducted our audit in accordance with auditing standards generally

accepted in the United States of America.

Those standards require that we plan

and perform our audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement.

An audit includes examining, on a

test basis, evidence supporting the amounts and disclosures in the financial

An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall

financial statement presentation.

We believe that our audit provides a

reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above

present fairly, in all material respects, the consolidated financial position of

Semotus Solutions, Inc.

and subsidiaries as of March 31, 2003 and the

consolidated results of their operations and their cash flows for the year then

ended in conformity with accounting principles generally accepted in the United

States of America.

As discussed in Note 3 to the consolidated financial statements,

effective April 1, 2002, the Company changed its method of accounting for

goodwill in accordance with Statement of Financial Accounting Standards, No.

142, "Goodwill and Other Intangible Assets."

/s/ Burr, Pilger & Mayer LLP

Burr, Pilger & Mayer LLP

Palo Alto, California

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SEMOTUS SOLUTIONS, INC.:

We have audited the accompanying consolidated balance sheet of Semotus

Solutions, Inc.

and subsidiaries as of March 31, 2002 and 2001, and the related

and subsidiaries as of March 31, 2002, and the related

consolidated statements of operations and comprehensive loss, common

shareholders' equity and cash flows for each of the three years in the period

shareholders' equity and cash flows for each of the years in the two-year period

ended March 31, 2002.

These consolidated financial statements are the

responsibility of the Company's management.

Our responsibility is to express an

opinion on these financial statements based on our audits.

These financial statements are the responsibility of the

Company's management.

Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted

11 unchanged sentences

In our opinion, the consolidated financial statements referred to above present

fairly, in all material respects, the consolidated financial position of Semotus

Solutions, Inc.

and subsidiaries as of March 31, 2002 and 2001, and the results

of their operations and their cash flows for each of the three years in the

period ended March 31, 2002, in conformity with accounting principles generally

accepted in the United States of America.

fairly, in all material respects, the financial position of Semotus Solutions,

and subsidiaries as of March 3l, 2002, and the results of their operations

and their cash flows for each of the years in the two-year period ended March

31, 2002, in conformity with accounting principles generally accepted in the

United States of America.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

San Jose, California

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

ASSETS March 31 March 31

CURRENT ASSETS:

March 31 March 31

ASSETS 2003 2002

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

Cash and cash equivalents (including restricted cash of

$693,286 in 2002 and $694,222 in 2001) (Note 9) $ 4,869,578 $ 8,538,264

Trade receivables (net of allowance for doubtful accounts

of $67,000 in 2002, $62,887 in 2001) 320,566 462,368

CURRENT ASSETS:

Cash and cash equivalents (including restricted cash of $693,286 at

March 31, 2002) $ 1,976,062 $ 4,751,094

Trade receivables (net of allowance for doubtful accounts of

$77,090 at March 31, 2003 and $66,000 at March 31, 2002) 140,646 159,018

Income and GST tax receivable -- 3,823

Other receivables -- 60,395

Inventory, (net of reserve of $40,900 in 2002

and $188,500 in 2001) (Note 2) 178,171 387,547

Prepaid expenses 52,161 132,622

Current assets of discontinued operations -- 345,755

Current assets held for sale 298,200 150,340

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

Total current assets 2,467,069 5,603,047

Property and equipment, net (Note 7) 682,461 977,678

Capitalized contract, net (Note 2) 576,958

Investments -- 151,000

GMP intellectual property, net (Notes 4 and 6) 1,000,000 5,780,000

Goodwill, net (Notes 3,4 and 5) 2,474,597 4,760,746

Other assets -- 313,417

Property and equipment, net 342,614 622,671

Capitalized contract, net -- 576,958

GMP intellectual property, net -- 1,000,000

Goodwill, net 1,430,141 1,430,141

Non-current assets of discontinued operations -- 34,383

Non-current assets held for sale 408,732 1,069,863

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

3 unchanged sentences

Accounts payable $ 392,826 $ 582,834

Accrued expenses and other current liabilities 359,091 228,340

Note payable (Note 9) 693,286 694,222

Current portion of capital lease obligation (Note 10) 93,922 38,222

Current portion of advances on technology sales (Note 8) 269,109 307,390

Deferred revenue 1,323,858 111,333

Accrued vacation 69,808 91,768

Other accrued liabilities 79,999 188,771

Notes payable 56,224 693,286

Current portion of capital lease obligations 23,731 53,428

Current portion of advances on technology sales -- 269,109

Current portion of deferred revenue 79,119 1,105,597

Current liabilities of discontinued operations -- 300,977

Current liabilities related to assets held for sale 300,717 252,881

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

Total current liabilities 1,002,424 3,538,651

Capital lease obligation, net of current portion (Note 10) 52,405 63,447

Advances on technology sales, net of current portion (Note 8) 566,542 835,170

Capital lease obligation, net of current portion 15,189 40,310

Advances on technology sales, net of current portion -- 566,542

Non-current liabilities related to assets held for sale 321,216 214,623

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

1 unchanged sentence

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

Minority Interest (Note 25) 202,528 --

Commitments and contingencies (Notes 20 and 22)

PREFERRED SHAREHOLDERS' EQUITY (Note 11):

PREFERRED SHAREHOLDERS' EQUITY:

Convertible preferred stock, Series B:

2 unchanged sentences

5,000,000 shares;

outstanding:469,231 in 2002 and 2001 469 469

issued and outstanding:

none at March 31, 2003 and

469,231 at March 31, 2002 (Note 13) -- 469

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

2 unchanged sentences

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

COMMON SHAREHOLDERS' EQUITY (Note 12):

COMMON SHAREHOLDERS' EQUITY

Common stock:

1 unchanged sentence

50,000,000 shares;

issued and outstanding:

17,200,784 in 2002 and

15,903,368 in 2001 172,008 159,034

19,275,211 at March 31, 2003 and 17,200,784 at March 31, 2002

192,752 172,008

Additional paid-in capital 66,163,351 60,396,089

5 unchanged sentences

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

Total liabilities, minority interest,

preferred and common shareholders' equity $10,337,063 $21,769,961

Total liabilities, preferred and common shareholders' equity $ 4,648,556 $ 10,337,063

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

6 unchanged sentences

2003 2002 2001

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

Wireless services $ 1,293,801 $ 1,305,347 $ 1,731,948

1 unchanged sentence

Professional and related services 45,390 111,590 178,246

Logistics 1,611,424 -- --

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

Total Revenue 6,107,095 5,547,963 7,611,158

Total revenues 2,344,251 2,531,418 1,910,194

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

Cost of sales:

2 unchanged sentences

Professional and related services 4,972 28,556 49,298

Logistics 808,644 -- --

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

Total Cost of revenue 3,695,432 4,096,085 4,736,992

Total cost of sales 929,243 1,195,278 1,034,603

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

18 unchanged sentences

52,455 496,181 601,932

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

Total operating expenses 5,352,207 16,676,960 11,892,246

Operating loss (19,033,767) (12,349,154) (5,192,387)

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

Operating loss from continuing operations (3,937,199) (15,340,820) (11,016,655)

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

Other income (Note 12) 280,045 415,780 294,204

Other income 1,123,056 289,685 431,525

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

1 unchanged sentence

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

Net loss before minority interest (18,489,662) (11,293,381) (4,756,926)

Minority interest (45,184) -- --

Net loss from continuing operations (2,761,842) (14,781,925) (9,913,215)

Net loss from discontinued operations (Note 5) (799,090) (3,662,553) (1,380,166)

Gain from disposal of discontinued operations 128,582 -- --

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

Net loss (3,432,350) (18,444,478) (11,293,381)

Other comprehensive income

(loss) - Translation adjustment (39,824) (21,136) 602

Other comprehensive income (loss) - Translation adjustment

49,054 (39,824) (21,136)

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

Comprehensive loss $ (3,383,296) $(18,484,302) $(11,314,517)

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

Net loss per share:

Net loss per common share from continuing operations:

Basic $ (0.15) $ (0.87) $ (0.65)

Diluted $ (0.15) $ (0.87) $ (0.65)

Weighted average shares used in per

Share calculation, basic and diluted 16,975,660 15,199,895 7,763,715

Net loss per common share from discontinued operations:

Basic $ (0.04) $ (0.22) $ (0.09)

Diluted $ (0.04) $ (0.22) $ (0.09)

Net loss per common share:

Basic $ (0.19) $ (1.09) $ (0.74)

Diluted $ (0.19) $ (1.09) $ (0.74)

Weighted average shares used in per share calculation, basic

and diluted 18,039,262 16,975,660 15,199,895

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

11 unchanged sentences

Services rendered 128,808 1,288 207,367

Exercise of warrants for cash and notes

receivable 2,955,664 29,556 6,881,231

Cashless exercise of warrants 282,278 2,822 (2,822)

Compensation associated with stock options

And warrants granted for services -- -- 834,000

Conversion of preferred, series A to

common stock 4,731,080 47,312 (47,312)

Translation adjustment -- -- --

Amortization of notes receivable, net

of accrued interest due -- -- --

Net loss -- -- --

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

Balances at March 31, 2000 13,685,788 136,858 36,789,337

Common stock issued for:

Options exercised 133,788 1,338 187,754

Services rendered 128,808 1,288 207,367

Exercise of warrants for cash 903,282 9,033 1,842,313

Cashless exercise of warrants 39,204 392 (392)

Conversion of series B preferred to

common stock 600,000 6,000 3,627,045

Conversion of series B preferred to common stock 600,000 6,000 3,627,045

Issuance of stock for acquisitions 412,498 4,125 5,153,925

Warrants issued for jointly developed

technology-GMP -- -- 6,800,000

Warrants issued for option to repurchase

technology -- -- 217,000

Compensation associated with stock options

and warrants granted for services -- -- 393,277

Warrants issued for jointly developed technology - GMP -- -- 6,800,000

Warrants issued for option to repurchase technology -- -- 217,000

Compensation associated with stock options and warrants

granted for services -- -- 393,277

Amortization of notes receivable, net -- -- --

5 unchanged sentences

Issuance of stock for services rendered 473,936 4,739 391,288

Issuance of stock due to exercise of

options 8,540 86 11,584

Compensation associated with stock options

and warrants granted for services -- -- 100,154

Redeemed stock due to contract

cancellations (150,000) (1,500) 1,500

Issuance of stock due to exercise of options 8,540 86 11,584

Compensation associated with stock options and warrants

granted for services -- -- 100,154

Redeemed stock due to contract cancellations (150,000) (1,500) 1,500

Amortization of note receivable, net -- -- --

3 unchanged sentences

Balances at March 31, 2002 17,200,784 172,008 60,396,089

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

Issuance of stock for price guarantee under merger

agreement 863,403 8,634 (8,634)

Issuance of stock for liability settlement 57,178 572 21,124

Issuance of stock due to exercise of warrants 1,153,846 11,538 --

Repurchase of series B preferred stock -- -- 5,582,456

Reprice of warrants due to lawsuit settlement -- -- 119,862

Amortization and forgiveness of note receivable -- -- --

Foreign currency translation adjustment -- -- --

Amortization of deferred compensation -- -- 52,454

Net loss -- -- --

Balances at March 31, 2003 19,275,211 $ 192,752 $ 66,163,351

See accompanying notes to consolidated financial statements.

SEMOTUS SOLUTIONS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (CONTINUED)

6 unchanged sentences

Services rendered -- -- -- 208,655

Exercise of warrants for cash and

notes receivable -- (100,000) -- 6,810,787

Cashless exercise of warrants -- -- -- 0

Compensation associated with stock

options and warrants granted for

services -- -- -- 834,000

Conversion of preferred, Series A to

common stock -- -- -- 0

Translation adjustment 602 -- -- 602

Amortization of note receivable net

of accrued interest due -- 12,928 -- 12,928

Net loss -- -- (4,756,926) (4,756,926)

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

Balances at March 31, 2000 (81,400) (1,348,747) (29,691,580) 5,804,468

Common stock issued for:

Options exercised -- -- -- 189,092

Services rendered -- -- -- 208,655

Exercise of warrants for cash -- -- -- 1,851,346

Cashless exercise of warrants -- -- -- --

Conversion of series B preferred to

common stock -- -- -- 3,633,045

Conversion of series B preferred to common

stock -- -- -- 3,633,045

Issuance of stock for acquisitions -- -- -- 5,158,050

12 unchanged sentences

Issuance of stock for services rendered -- -- -- 396,027

Issuance of stock due to exercise of

options -- -- -- 11,670

Issuance of stock due to exercise of options -- -- -- 11,670

Compensation associated with stock options

and warrants granted for services -- -- -- 100,154

Redeemed stock due to contract

cancellations -- -- -- --

Redeemed stock due to contract cancellations -- -- -- --

Amortization of note receivable, net -- 404,795 -- 404,795

3 unchanged sentences

Balances at March 31, 2002 (142,360) (701,817) (59,429,439) 294,481

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

Issuance of stock for price guarantee under

merger agreement -- -- -- --

Issuance of stock for liability settlement -- -- -- 21,696

Issuance of stock due to exercise of warrants -- -- -- 11,538

Repurchase of series B preferred stock -- -- -- 5,582,456

Reprice of warrant due to lawsuit settlement -- -- -- 119,862

Amortization and forgiveness of note receivable -- 610,536 -- 610,536

Foreign currency translation adjustment 49,054 -- -- 49,054

Amortization of deferred compensation -- -- -- 52,454

Net loss -- -- (3,432,350) (3,432,350)

Balances at March 31, 2003 $ (93,306) $ (91,281) $(62,861,789) $ 3,309,727

See accompanying notes to consolidated financial statements.

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended March 31,

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

2003 2002 2001

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

Cash flows from operating activities:

Net loss $ (3,432,350) $(18,444,478) $(11,293,381)

Loss from discontinued operations 799,090 3,662,553 1,380,166

Gain from disposition of discontinued operations (128,582) -- --

Net loss from continuing operations (2,761,842) (14,781,925) (9,913,215)

Foreign currency translation adjustment 49,054 (39,824) (21,136)

Adjustments to reconcile net loss to

net cash used in operating activities:

Adjustments to reconcile net loss from continuing operations

to net cash used in operating activities of continuing

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

Compensation expense related to stock

issued for services 396,027 208,655 226,487

Compensation for expenses relating to

options/warrants issued for services 100,154 393,277 834,000

Compensation expense related to stock issued for services

-- 371,027 208,655

Compensation expense related to options/warrants issued

for services 52,455 100,154 393,277

Net amortization of contract income (423,414) (606,586) --

Amortization of technology advances (306,908) (371,050) (432,022)

Amortization of notes receivable 315,799 242,135 12,928

Amortization of advances on technology sales (206,723) (306,908) (371,052)

Gain on disposition of technology advances (628,927) -- --

Amortization and forgiveness of notes receivable, net 593,259 315,799 242,135

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

Impairment of intangible assets 3,541,017 -- --

Non-cash compensation received for service -- (151,000) --

Non-cash settlements of liabilities 26,230 -- --

Net loss on asset sales 29,910 -- --

Changes in assets and liabilities net of acquired

assets and liabilities due to acquisitions:

Impairment of GMP & software -- 3,420,000

Net loss from sale of assets 719 29,010 --

Non-cash settlement of liabilities 173,669 14,642 --

Non-cash compensation for services -- -- (151,000)

Changes in assets and liabilities net of acquired assets

and liabilities due to acquisitions:

Accounts and other receivables 82,500 358,073 (75,423)

Inventory 209,376 223,728 (63,513)

Prepaid expenses and other assets 80,462 2,634 61,512

Accounts payable (190,008) (86,816) (489,764)

Accrued liabilities 181,242 (85,032) (26,916)

Advances on technology sales 50,681 -- --

Accrued expenses and other current liabilities (130,361) (32,425) (87,199)

Deferred revenue (26,104) 162,651 (90,737)

Advances on technology sales -- 50,681 --

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

Net cash used in operating activities (5,141,459) (9,219,730) (4,271,193)

Net cash used in operating activities of continuing

operations (2,021,665) (4,332,467) (8,507,433)

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

1 unchanged sentence

Acquisition of property and equipment (16,949) (24,588) (426,439)

Investments -- (232,789)

Cash received from FY 2002 acquisitions, net 1,096,472 -- --

Cost of FY 2001 acquisitions, net of cash

acquired (132,502) --

Cost of the applicable fiscal year's acquisitions, net of

cash acquired -- (132,502)

Sale of property and equipment 1,060 -- --

Cash received from applicable fiscal year's acquisitions,

net -- 1,063,571 --

Sale of Kinetidex technology -- 350,000 --

Minority investment in subsidiary 247,907 -- --

Other assets -- 94,172 271,007

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

Net cash provided by (used in) investing

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

Net cash provided by (used in) investing activities of

continuing operations (15,889) 1,388,983 (558,941)

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

Cash flows from financing activities:

Proceeds from note payable to bank -- -- 1,000,000

Repayments of note payable to bank (154,400) (50,830) (1,000,000)

Repayments of notes payable (78,869) (154,398) (50,830)

Repayments of capital lease obligations (43,610) (52,720) (15,624)

Proceeds from line of credit -- -- 264,049

Redemption of capital stock -- -- (441,043)

Proceeds from issuance of preferred stock -- -- 9,315,501

Proceeds from exercise of options and warrants 11,538 11,668 2,040,438

Repurchase of preferred stock (Note 13) (100,000) -- --

Restricted cash for note payable -- -- (694,222)

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

Net cash (used in) provided by financing

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

Net cash provided by (used in) financing activities of

continuing operations (210,941) (195,450) 1,279,762

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

Net (decrease) increase in cash and cash

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

Net cash provided by (used in) discontinued operations

166,749 (134,007) (1,243,415)

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

Cash and cash equivalents, beginning of year 4,057,808 7,330,749 16,360,776

9 unchanged sentences

2003 2002 2001

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

SUPPLEMENTAL CASH FLOW DISCLOSURE:

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INVESTING AND FINANCING ACTIVITIES:

Non-cash purchase consideration from

acquisition of ISS, Inc.

issuance of common stock $ -- $1,671,750 $ --

Non-cash purchase consideration for the acquisition of

through the issuance of common stock $ -- $ -- $ 1,671,750

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

Non-cash purchase consideration from

acquisition of Cross Communications, Inc.

Non-cash purchase consideration for the acquisition of

Cross Communications, Inc.

and Simkin, Inc.

through the issuance

of common stock $ -- $2,753,900 $ --

the issuance of common stock $ -- $ -- $ 2,753,900

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

Non-cash purchase consideration for the

acquisition of Wizshop, Inc.

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 $ -- $ 4,665,500 $ --

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

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 $ -- $ --

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

Common stock issued for services $ 396,027 $ 208,655 $ 226,487

Additional non-cash purchase consideration paid to

shareholder of Cross Communications, Inc.

the first year performance criteria of the Merger

Agreement $ -- $ 18,086 $ --

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

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

Preferred stock converted to common

stock $ -- $3,633,045 $ 2,366

Preferred stock converted to common stock $ -- $ -- $ 3,633,045

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

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

Consideration in connection with

40,000 common stock warrants to

obtain option to repurchase license

technology $ -- $ 217,000 $ --

Consideration in connection with 40,000 common stock

warrants to obtain option to repurchase technology $ -- $ -- $ 217,000

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

Issuance of 800,000 common stock warrants

to obtain GMP Intellectual Property $ -- $6,800,000 $ --

Issuance of 800,000 common stock warrants to obtain GMP

intellectual property $ -- $ -- $ 6,800,000

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

Property and equipment purchased through

the issuance of capital leases $ 110,119 $ 43,539 $ --

Property and equipment purchased through the issuance

of capital leases $ -- $ 110,119 $ 43,539

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

Warrants issued as part of the consideration for

repurchase of series B preferred stock $ 90,497 $ -- $ --

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

Reclassification of accounts payable to notes payable $ 135,093 $ -- $ --

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

See accompanying notes to consolidated financial statements.

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Systems Corporation, was formed under the laws of the State of Nevada on June

18, On June 27, 1996, the Company went public through an acquisition of a public

corporation, Datalink Communications Corporation ("DCC"), which was previously

Lord Abbott, Inc., a Colorado corporation formed in 1986.

In the June 27, 1996

acquisition of DCC, the Company issued 3,293,064 shares of its $0.01 par value

Common Stock (as adjusted for the 1 for 10 reverse split effective on February

9, 1998 and a 2 for 1 forward split effective April 27, 2000) to the holders of

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

subsidiary of the Company.

As a part of the transaction, the Company acquired a

Canadian corporation, DSC Datalink Systems Corporation, incorporated in

Vancouver, British Columbia, now named Semotus Systems, Corp.

On June 27, 1996, the Company went public through an acquisition of a

public corporation, Datalink Communications Corporation ("DCC"), which was

previously Lord Abbott, Inc., a Colorado corporation formed in 1986.

27, 1996 acquisition of DCC, the Company issued 3,293,064 shares of its $0.01

par value Common Stock to the holders of 100% of the outstanding Common Stock of

DCC, and DCC became a wholly owned subsidiary of the Company.

As a part of the

transaction, the Company acquired a Canadian corporation, DSC Datalink Systems

Corporation, incorporated in Vancouver, British Columbia, now named Semotus

Systems, Corp.

Semotus is a leading provider of enterprise application software connecting

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Semotus' enterprise application

software provides mobility, convenience, efficiency and improves profitability.

software provides mobility, convenience, and efficiency and improves

profitability.

BASIS OF PRESENTATION AND FUTURE PROSPECTS:

The accompanying consolidated financial statements include the accounts of

Semotus Solutions, Inc.

and its subsidiaries.

The consolidated balance sheets as

of March 31, 2003 and 2002, the consolidated statements of operations and

comprehensive loss for the years ended March 31, 2003, 2002 and 2001, the

consolidated statements of common shareholders' equity for the years ended March

31, 2003, 2002 and 2001, and the consolidated statements of cash flows for the

years ended March 31, 2003, 2002 and 2001, have been prepared by the Company,

with an audit and in accordance with the instructions to Form 10-K and

Regulation S-K.

In the opinion of management, all adjustments (including normal

recurring accruals) considered necessary for a fair presentation have been

The Company believes that the disclosures provided are adequate to

make the information presented not misleading.

Management believes, after discontinuing all operations that were unprofitable,

that the remaining continuing operations are sustainable and that the Company

will have enough cash to maintain its operations over the next twelve months.

Although those operations range from slightly cash positive to cash negative on

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

Further, with the trend toward an economic recovery, the Company's operations

should be augmented in the current fiscal year.

The continued operation of the

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

obtaining sufficient long-term financing.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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The consolidated financial statements include the accounts of the Company and

its wholly owned subsidiaries:, Semotus Systems Corporation (Canadian

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

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.

All other subsidiaries

its wholly owned subsidiaries:

Semotus Systems Corporation (Canadian

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

and WizShop, Inc.

other subsidiaries have been closed or sold and are now in discontinued

Wares on the Web, Inc.

(Wares), Five Star Advantage, Inc.

Star) 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.

All other operating subsidiaries

generate revenues from the sales of products and services.

USE OF ESTIMATES:

The preparation of the financial statements in conformity with generally

accepted accounting principles requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and

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

statements and the reported amounts of revenues and expenses during the

reporting period.

Actual results could differ from those estimates.

The preparation of the financial statements in conformity with accounting

principles generally accepted in the United States of America requires

management to make estimates and assumptions that affect the reported amounts of

assets and liabilities and disclosure of contingent assets and liabilities at

the date of the financial statements and the reported amounts of revenues and

expenses during the reporting period.

Actual results could differ from those

CASH AND CASH EQUIVALENTS:

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extends credit to its customers in the ordinary course of business and

periodically reviews the credit levels extended to customers.

periodically reviews the credit levels extended to customers, estimates the

collectibility and creates an allowance for doubtful accounts.

The Company does

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Provision is made for estimated losses on uncollectible accounts.

Inventory is stated at the lower of cost (using the weighted-average method) or

market and consisted only of finished goods.

We estimate our allowance for doubtful accounts by applying estimated loss

percentages against our aging of accounts receivable balances.

The estimated

loss percentages are updated periodically and are based on our historical

write-off experience, net of recoveries.

Changes to allowances may be required

if the financial condition of our customers improves or deteriorates or if we

adjust our credit standards for new customers, thereby resulting in write-off

patterns that differ from historical experience.

Historically, changes to our

estimated loss percentages have not been material.

PROPERTY AND EQUIPMENT:

3 unchanged sentences

estimated useful lives of the related assets, generally three to seven years.

Amortization on capital leases is over two years and is incorporated in

depreciation and amortization expense in the statement of operations.

The carrying value of property and equipment is assessed annually or when

factors indicating an impairment are present.

The Company determines such

impairment by measuring undiscounted future cash flows.

If an impairment is

present, the assets are reported at fair value.

LONG-TERM ASSETS

Long-term assets, such as intellectual property rights and goodwill are

amortized on a straight-line basis over the economic life of the assets.

expected useful life of those assets is currently five years.

adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other

Intangible Assets" as of April 1, 2002.

Accordingly, Semotus will no longer

amortize goodwill and intangible assets with an indefinite useful life and will

begin assessing potential future impairments of such intangible assets.

In accordance with SFAS No.

we review our property, plant, and equipment for impairment whenever events or

circumstances indicate that their carrying amount may not be recoverable.

Impairment reviews require a comparison of the estimated future undiscounted

cash flows to the carrying value of the asset.

If the total of the undiscounted

cash flows is less than the carrying value, an impairment charge is recorded for

the difference between the estimated fair value and the carrying value of the

LONG-TERM ASSETS / GOODWILL

Historically, long-term assets, such as intellectual property rights and

goodwill were amortized on a straight-line basis over the expected economic life

of the assets.

The expected useful life of those assets was five years, and was

adjusted to one year as of April 1, 2002.

The Company has adopted Statement of

Financial Accounting Standards (SFAS) 141 "Business Combinations" and SFAS 142

"Goodwill and Other Intangible Assets" as of April 1, 2002.

Accordingly, Semotus

no longer amortizes goodwill and intangible assets with an indefinite useful

life and instead assesses potential impairments of such intangible assets and

The effect of the adoption of SFAS 142 resulted in the net loss for

the fiscal year ended March 31, 2003 being smaller by $432,541 due to not

amortizing goodwill.

Management has determined that the remaining goodwill of

$1,430,141 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

The following table presents the impact of SFAS 142 on net loss and net loss per

share had SFAS 142 been applicable for the fiscal years ended March 31, 2002 and

FISCAL YEARS ENDED

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

2003 2002 2001

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

Reported net loss $ (3,432,350) $(18,444,478) $(11,293,381)

Amortization of goodwill -- 1,855,407 591,326

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

Adjusted net loss (3,432,350) (16,589,071) (10,702,055)

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

Reported net loss per share - basic and diluted $ (0.19) $ (1.09) $ (0.74)

Adjusted net loss per share - basic and diluted $ (0.19) $ (0.98) $ (0.70)

Acquisitions which have been accounted for under the purchase method of

accounting include the results of operations of the acquired business from the

date of acquisition.

Net assets of the companies acquired are recorded at their

fair value to the Company at the date of acquisition.

CAPITALIZED CONTRACT

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 over the length of the contract.

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

business combinations as required by Accounting Principles Board Opinion (APB)

16 "Business Combinations".

Fair value 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.

capitalized cost was amortized into cost of revenue as revenues were recognized

over the length of the contract, two years, and was fully amortized at March 31,

FOREIGN CURRENCY TRANSLATION:

6 unchanged sentences

STOCK BASED COMPENSATION:

The Company has adopted the provisions of Statement of Financial Accounting

Standards (SFAS) No.

123, "Accounting for Stock-Based Compensation." Under this

standard, companies are encouraged, but not required, to adopt the fair value

method of accounting for employee stock-based transactions.

The fair value

method is required for all stock-based compensation issued to non-employees,

including consultants and advisors.

Under the fair value method, compensation

cost relating to issuances of stock options, warrants and appreciation rights is

measured at the grant date based on the fair value of the award and is

recognized over the service period, which is usually the vesting period.

Companies are permitted to continue to account for employee stock-based

transactions under Accounting Principles Board Opinion (APB) No.

25, "Accounting

for Stock Issued to Employees," but are required to disclose pro forma net

income and earnings per share as if the fair value method has been adopted.

Company has elected to continue to account for stock based compensation under

Certain options, which have been repriced, are subject to the

variable plan requirements of APB No.

25, that requires the Company to record

compensation expense for changes in the fair value of the Company's common

The Company has adopted the provisions of SFAS No.

123, "Accounting for

Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based

Compensation, Transition and Disclosure." Under this standard, companies are

encouraged, but not required, to adopt the fair value method of accounting for

employee stock-based transactions.

The fair value method is required for all

stock-based compensation issued to non-employees, including consultants and

Under the fair value method, compensation cost relating to issuances

of stock options, warrants and appreciation rights is measured at the grant date

based on the fair value of the award and is recognized over the service period,

which is usually the vesting period.

Companies are permitted to continue to

account for employee stock-based transactions under APB No.

25, "Accounting for

Stock Issued to Employees," but are required to disclose pro forma net loss,

stock compensation cost and earnings per share as if the fair value method has

been adopted.

The Company has elected to continue to account for stock based

compensation under APB No.

Certain options, which have been repriced, are

subject to the variable plan requirements of APB No.

25, that requires the

Company to record compensation expense for changes in the fair value of the

Company's common stock.

The Company has adopted the disclosure only provisions of Statement of Financial

Accounting Standards No.

123 ("SFAS 123"), Accounting for Stock Based

Compensation.

Accordingly, no compensation expense has been recognized for these

Had compensation expense been determined based on the fair value at the

grant dates for awards under these plans consistent with the method of SFAS 123,

the Company's net loss in fiscal years ended March 31, 2003, 2002 and 2001 would

have been adjusted to the pro forma amounts indicated below:

2003 2002 2001

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

Net loss as reported $ (3,432,350) $(18,444,478) $(11,293,381)

Compensation Expense (48,253) (1,649,416) (522,296)

Net loss Pro forma (3,480,603) (20,093,894) (11,815,677)

Net loss per share

As reported, basic and diluted (0.19) (1.09) (0.74)

Pro forma net loss, basic and diluted (0.19) (1.18) (0.78)

The fair value of each option is estimated on the date of grant using the

Black-Scholes option-pricing model with the following assumptions used for

grants under the Plan in 2003, 2002 and 2001:

2003 2002 2001

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

Expected dividend $ -- $ -- $ --

Expected life of option 4 years 4 years 4 years

Risk-free interest rate 3.46% 3.71% - 4.63% 5.0% - 6.5%

Expected volatility 102% - 204% 87% - 108% 70% - 295%

The above pro forma disclosures are not likely to be representative of the

effects on reported net income (loss) for future years.

INCOME TAXES:

37 unchanged sentences

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.

multi-period contracts, usually for maintenance or licensing, revenue is

recognized ratably over these service periods.

COST OF REVENUE:

6 unchanged sentences

The cost of revenue for the enterprise and commerce sales and service line of

business includes the purchase cost of the products, advertising, costs of

servicing and hosting and shipping.

Any engineering costs directly related to

the products offered are also included as a cost of revenue.

business includes the purchase cost of the products, and costs of servicing and

Any engineering costs directly related to the products offered are also

included as a cost of revenue.

The cost of revenue for professional and related services is primarily personnel

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

7 unchanged sentences

available for general release to customers.

At March 31, 2002 there were no

capitalized software development costs as the Company expensed the remaining

amounts at year end.

At March 31, 2001, there were capitalized software

development costs of $313,417 relating to the development of Wares on the Web's

B2Bware and B2Cware.

At March 31, 2000 there were no capitalized software

development costs since the period between technological feasibility and

availability had coincided and products under development had not yet achieved

technological feasibility.

ADVERTISING EXPENDITURES:

Advertising expenditures including production costs of certain marketing

materials, of $258,562, $960,480 and $1,571,964 in 2002, 2001 and 2000

respectively, were charged to operations as incurred.

At March 31, 2002 and 2003 there

were no capitalized software development costs as the Company expensed the

remaining amounts at fiscal year end 2002.

DISCONTINUED OPERATIONS

In April 2002, Semotus adopted SFAS 144, "Accounting for the Impairment or

Disposal of Long-Lived Assets", which requires 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.

This statement requires that

those long-lived assets be measured at the lower of carrying amount or fair

value less cost to sell, whether reported in continuing operations or in

discontinued operations.

The Company evaluates long-lived assets,

excluding goodwill and identifiable intangible assets with indefinite useful

lives, for impairment in accordance with SFAS 144 whenever events or changes in

circumstances indicate that the carrying value of an asset my not be

Accordingly, for the fiscal year ended March 31, 2003, the

operations of Five Star, Wares and ADA have been recorded in discontinued

Five Star and Wares were part of the Enterprise and Commerce Sales

ADA was the logistics segment.

The amount of any impairment is measured

as the difference between the carrying value and the fair value of the impaired

Fair value is determined generally based on discounted cash flows.

to be disposed of are reported at the lower of the carrying amount or fair

value, less costs to sell.

The assets from the discontinued operations including

those assets held for sale have been recorded at their fair market value prior

to disposition.

BASIC AND DILUTED NET LOSS PER SHARE:

2 unchanged sentences

Diluted net loss per share is computed

using the weighted average number of common and common equivalent shares

outstanding during the period.

using the weighted average number of common and common equivalent shares, if

dilutive, outstanding during the period.

Common equivalent shares consist of the

1 unchanged sentence

stock (using the if-converted method) and shares issuable upon the exercise of

stock options and warrants (using the treasury stock method).

stock options and warrants (using the treasury stock method) (See Note 19,

"Earnings Per Share (EPS) Disclosures").

Outstanding common shares and per share amounts have been adjusted for a 2 for 1

3 unchanged sentences

to conform to the current year presentation.

PURCHASE ACQUISITIONS:

Acquisitions which have been accounted for under the purchase method of

accounting include the results of operations of the acquired business from the

date of acquisition.

Net assets of the companies acquired are recorded at their

fair value to the Company at the date of acquisition.

Goodwill is amortized over

the economic life of the asset.

The expected useful life is currently five

The Company adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and

Other 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.

POOLING RESTATEMENT:

On December 28, 2000, Semotus acquired all of the issued and outstanding stock

of FiveStar Advantage, Inc.

which was accounted for using the pooling of

interest method.

Consequently, the financial statements for the year ended March

31, 2000 are restated for the inclusion of the operations of FiveStar.

3, "Acquisitions" for the separate financial information of FiveStar for the

year ended March 31, 2000).

COMPREHENSIVE INCOME (LOSS):

In June 1997, the FASB issued SFAS No.

130, "Reporting Comprehensive Income",

which was adopted by the Company in the third quarter of fiscal 1999.

establishes standards for reporting comprehensive income and its components in a

financial statement.

Comprehensive income as defined includes all changes in

equity (net assets) during a period from non-owner sources.

included, which are excluded from net income (loss) include foreign currency

translation adjustments.

The Company's policy in reporting comprehensive income is as defined in SFAS

130, "Reporting Comprehensive Income" and includes all changes in equity (net

assets) during a period from non-owner sources.

The Company excludes from net

income (loss) foreign currency translation adjustments, which are included in

comprehensive income.

For the periods presented in this Form 10K, foreign

currency translation adjustments is the only item which affects the Company's

comprehensive income.

RECENT ACCOUNTING PRONOUNCEMENTS:

In March 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting

Standards Board (FASB) published their consensus on EITF Issue No 00-3,

Application of AICPA Statement of Position (SOP) 97-2, Software Revenue

Recognition, to Arrangements that Include the Right to Use Software Stored on

Another's Entity's Hardware.

The EITF consensus gives guidance on accounting for

hosting arrangements.

The Company does not expect the adoption of EITF Issue No.

00-3 to have a material effect on its consolidated results of operations or

financial position.

In March 2000, the FASB issued Interpretation No.

44 (FIN 44), Accounting for

Certain Transactions involving Stock Compensation, an interpretation of APB

Interpretation No.

44 clarifies the application of Opinion 25

for the following issues:

(1) the definition of employee for purposes of

applying Opinion 25, (2) the criteria for determining whether a plan qualifies

as a noncompensatory plan, (3) the accounting consequence of various

modifications to the terms of a previously fixed stock option or award, and (4)

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

This Interpretation is effective July 1, 2000.

Due to the repricing

of employee stock options in December 2000, the adoption of Interpretation No.

44 may have a material effect on the Company's financial position and results of

operations in the future.

For the fiscal years ended March 31, 2002, 2001 and

2000, the effect was immaterial.

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 during the fiscal year ended March 31, 2002 was $1,855,407.

Further, 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 adoption.

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 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 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.

All acquisitions accounted for under the purchase method of accounting have

their results of operations included in the financial statements as of the date

of acquisition.

Goodwill is amortized on a straight line basis over the economic

life of the asset.

The current estimated life is five years.

The Company adopted

SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other 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.

See Note 2, "Summary of

Significant Accounting Policies".

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.

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 Emerging Issues Task Force issued its final consensus on

EITF 00-21, "Revenue Arrangements with Multiple Deliverables".

This guidance is

effective for revenue arrangements entered into in fiscal periods beginning

after June 15, 2003 or alternatively, entities may elect to report the change in

accounting as a cumulative-effect adjustment.

EITF 00-21 discusses criteria

necessary to determine when an arrangement may be viewed to have separate units

of accounting (and thus revenue) and when an arrangement should be viewed as a

single unit of accounting.

The Company is currently reviewing how this might

affect revenue recognition for arrangements the Company could enter into that

have multiple deliverables.

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.

34." FIN 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 year-end.

The Company's adoption of FIN 45 did

not have a material impact in the Company's financial position or results of

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.

of March 31, 2003, the Company does not have any variable interest entities.

The Company adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and

Other Intangible Assets" as of April 1, 2002.

Accordingly, Semotus no longer

amortizes intangible assets with an indefinite useful life or goodwill and

instead assesses potential impairments of such intangible assets and goodwill.

See Note 3, "Summary of Significant Accounting Policies".

Acquisitions in the fiscal year ended March 31, 2002:

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

WIZSHOP.COM, INC.

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Semotus issued 699,993 shares of common stock and may issue up to

another 750,000 shares over the next two years if certain revenue targets are

Semotus has also agreed to issue additional shares if Semotus' common stock

does not trade at or above $10.00 per share by the end of each year after such

shares are issued.

The maximum number of additional shares that can be issued is

twice the initial shares and earnout shares that have not been sold by the

original WizShop stockholders.

The first of the measurement dates is August

At that time, if the Company's common stock has not closed at $10.00 per

share or above, additional shares will be issued to the original WizShop

stockholders still holding the Semotus common stock.

another 750,000 shares over the next year if certain revenue targets are met.

Semotus has also agreed to issue additional shares if Semotus' common stock does

not trade at or above $10.00 per share by the end of each year after such shares

The maximum number of additional shares that can be issued is twice

the initial shares and earnout shares that have not been sold by the original

WizShop stockholders.

The first of the measurement dates was August 2002.

that time, the Company's common stock had not closed at $10.00 per share or

therefore, 613,403 additional shares were issued to the original WizShop

stockholders still holding the original shares issued.

The effect of issuing any additional shares if certain revenue targets are met

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has been accounted for in the Company's financial statements at the date of

acquisition in accordance with EITF 97-15.

acquisition in accordance with EITF 97-15, "Accounting for Contingency

Arrangements based on Security Prices in a Purchase Business Combination".

WizShop builds and maintains outsourced e-commerce environments for Internet

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its clients through merchandizing and marketing initiatives.

(See Note 24,

"WizShop.com", for further information concerning WizShop.)

APPLICATION DESIGN ASSOCIATES, INC.

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stock and may issue up to another 750,000 shares of common stock over the next

three years if certain revenue targets are met.

Semotus has also agreed to issue

two years if certain revenue targets are met.

Semotus had also agreed to issue

additional shares if Semotus' common stock does not trade at or above $5.00 per

share by the end of each year after such shares are issued.

The maximum number

of additional shares that could be issued would be twice the initial shares and

earn out shares, or 2 million shares.

The effect of issuing any additional shares if certain revenue targets are met

will be accounted for as additional purchase price consideration.

The effect of

issuing any additional shares if certain per share trading prices are not met

has been accounted for in the Company's financial statements at the date of

acquisition in accordance with EITF 97-15.

share by the end of

each year after such shares are issued.

The maximum number of additional shares

that could be issued would be twice the initial shares and earn out shares, or 2

million shares.

On April 30, 2002 Semotus' common stock had not traded at or

above $5.00 per share;

therefore, Semotus issued 250,000 additional shares.

However, in May of 2003, GBG, currently a 49% shareholder in ADA, exercised its

option to purchase the remaining 51% of ADA.

See Note 5, "Discontinued

As consideration for this option to purchase, GBG returned the

500,000 total Semotus restricted common shares issued as part of the ADA

acquisition to Semotus.

Any remaining obligations under the merger agreement

were terminated upon GBG's exercise of its purchase option.

ADA creates proprietary software that is a complete logistical solution for

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Acquisitions in the fiscal year ended March 31, 2001

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

CROSS COMMUNICATIONS, INC.

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upon operating performance for which an additional 187,500 shares of Semotus

common stock may be issued over the next three years should revenue targets be

As of March 31, 2002, Semotus had issued an additional 14,947 shares of

additional purchase consideration.

Further, up to a maximum of 250,000 shares

may be issued if by the end of the third year, the Semotus common stock price

has not reached $20 per share.

common stock may be issued over the next year should revenue targets be met.

of March 31, 2002, Semotus had issued an additional 64,947 shares of additional

purchase consideration.

Further, up to a maximum of 250,000 shares may be issued

if by the end of the third year, the Semotus common stock price has not reached

$20 per share.

In May of 2003, the parties entered a settlement agreement in

which a total of 187,500 additional shares were issued in lieu of any additional

earn out or price guarantee obligations, and each party released the other from

all remaining obligations (see Note 28, "Subsequent Events").

Cross, established in 1995, is a wireless communications company that provides a

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based upon operating performance for which an additional 212,500 shares of

Semotus common stock may be issued over the next three years should revenue

targets be met.

Semotus common stock may be issued over the next year should revenue targets be

As of March 31, 2003, no additional shares have been issued.

Simkin, established in 1982, is a producer of pharmaceutical and medical

12 unchanged sentences

Goodwill was approximately $1.6 million.

shareholders of Wares have a right to contingent purchase consideration based

shareholders of Wares had a right to contingent purchase consideration based

upon operating performance for which an additional 2,250,000 shares of Semotus

common stock may be issued over the next three years should revenue targets be

The contingent consideration requires a substantial growth in revenues.

Wares is an established turnkey provider of e-commerce solutions to leading

common stock would be issued over the next two years if revenue targets had been

The contingent consideration required a substantial growth in revenues,

which was not achieved.

In August, 2002, Wares filed for bankruptcy and its operations were

discontinued.

See Note 5, "Discontinued Operations".

Wares was an established turnkey provider of e-commerce solutions to leading

retailers, distributors and manufacturers.

Wares solutions enable customers to

rapidly create highly functional commerce based internet/intranet and/or

extranet solutions that integrate seamlessly with legacy and ERP systems.

Pro forma results

The following summary, prepared on a pro forma basis, presents the results of

the Company's operations (unaudited) as if the acquisitions of ADA and Wizshop

had been completed as of April 1, 2000:

Fiscal Year Ended

March 31, 2002 March 31, 2001

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

$ 6,245,944 $ 8,169,631

$(18,433,624) $(14,920,350)

share- basic and

diluted $ (1.03) $ (0.92)

The unaudited pro forma results of operations are not necessarily indicative of

what actually would have occurred if the acquisitions had taken place as of

April 1, 2000, nor is it a projection of the Company's results of operations for

any future period.

FIVE STAR ADVANTAGE, INC.

6 unchanged sentences

transaction using the pooling of interest method.

Five Star is an e-marketing and e-fulfillment company that provides a start to

Five Star was an e-marketing and e-fulfillment company that provided a start to

finish turnkey operation for online sales, marketing, logistics, fulfillment and

customer service for its clients.

Revenue, net loss, and net loss per share of the combining companies, after

giving retroactive effect to the pooling of interest transaction, are as

Fiscal Year Ended

Description March 31, 2000

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

Semotus, as previously reported $ 1,459,920

Five Star $ 6,151,238

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

Semotus, as restated $ 7,611,158

Semotus, as previously reported $(4,246,949)

Five Star $ (509,977)

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

Semotus, as restated $(4,756,926)

Net loss per share:

As previously reported*

Basic and diluted $ (0.59)

Basic and diluted $ (0.61)

*Per share loss is adjusted for the two for one stock split that occurred on

April 27, 2000.

In June, 2002, Five Star filed for bankruptcy and its operations were

discontinued.

See Note 5, "Discontinued Operations".

DISCONTINUED OPERATIONS.

As part of Semotus' Centralization and Consolidation Plan, Semotus reduced its

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

and services from that segment.

Five Star was not expected to make a significant

contribution to the Company's future profitability as its operations were

unprofitable.

Therefore, Semotus decided to close the facilities and cease the

operations as of the end of June 2002.

Furthermore, Five Star filed for

liquidation under Chapter 7 of the U.S.

Bankruptcy Code on June 28, 2002.

continuing with the reduced e-commerce and m-commerce presence and the

elimination of unprofitable products and services, Semotus decided to

discontinue the operations of Wares on the Web in August, 2002.

The Wares on the

Web operations were unprofitable.

Furthermore, Wares on the Web filed for

liquidation under Chapter 7 of the U.S.

Bankruptcy Code on August 19, 2002.

In accordance with SFAS 144, "Accounting for the Impairment or Disposal of

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

recorded as discontinued operations in the year ended March 31, 2003.

was part of the Enterprise and Commerce Sales segment.

The disposal of the

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

Bankruptcy Court.

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

discontinued in the year ended March 31, 2003.

It also was part of the

Enterprise and Commerce Sales segment.

The disposal of the assets and

liabilities is now under the control of the U.S.

Bankruptcy Court.

from discontinued operations for Five Star and Wares of $122,021 was recorded at

March 31, 2003.

Further, a net gain upon disposition of the assets and

liabilities of Five Star and Wares of $128,582 was recognized at March 31, 2003.

On January 18, 2002 the Global Beverage Group, "GBG", a Canadian-based direct

store delivery consortium, completed a strategic investment in Semotus' ADA

subsidiary by acquiring a 49% share in ADA.

For its 49% stock purchase, GBG paid

Semotus $250,000 in cash and agreed to invest $1 million in ADA over the next 15

months in order to help with the development of the next generation of ADA asset

tracking and management software.

Additionally, as part of the transaction, GBG

assumed a personal loan of the President of ADA and received the 250,000 shares

of Semotus stock securing the loan.

GBG had also received common stock options

exercisable into 150,000 shares of Semotus stock at $0.75 per share.

of 15 months, GBG had the option to purchase Semotus' 51% ownership of ADA for

either (i) $2.5 million in cash or (ii) return of the 250,000 shares of common

stock received for assuming the personal loan.

The purchase agreement also

carried a price guaranty, for which Semotus issued an additional 250,000 shares

(see Note 4, "Acquisitions - Application Design Associates, Inc.").

2003, GBG purchased the remaining 51% of ADA for the return of 500,000 shares of

Semotus' common stock.

This decision resulted in the discontinuation of ADA's

operations in fiscal year 2003.

In accordance with SFAS 144, ADA's assets and

liabilities are classified as held for sale in the accompanying balance sheet as

of March 31, 2003.

ADA's operations have also been recorded as discontinued in

the year ended March 31, 2003.

ADA was the logistic systems segment.

from discontinued operations of $677,069 was recorded as of March 31, 2003,

mostly comprised of an impairment to goodwill of $635,724 (which is included in

the Statement of operations and comprehensive loss in the line "net loss from

discontinued operations").

Management performed the impairment tests as

described in Note 6, "Impairment of Long Lived Assets and Goodwill" and as

defined in SFAS 144 and SFAS 142 to determine the impairment expense.

The major classes of assets and liabilities included as part of the disposal

group of assets held for sale are as follows:

at March 31, 2003, cash of

$62,965, accounts receivable of $147,649, inventory of $41,069, goodwill of

$408,000, accounts payable of $44,432 and deferred revenue of $199,700.

Semotus classified the $321,216 of minority interest in ADA as a long-term

liability from discontinued operations.

At March 31, 2003, there was inventory

of $178,171 and payables of $166,394, as well as $71,989 in cash and $54,346 in

accounts receivable related to the other discontinued operations.

Five Star recorded in the year ended March 31, 2003, 2002 and 2001 was

$$152,992, $1,427,482 and $3,088,980, respectively.

Revenue from Wares recorded

in the year ended March 31, 2003, 2002 and 2001 was $26,570, $536,771 and

$548,789, respectively.

Revenue from ADA recorded for the years ended March 31,

2003 and 2002 was $1,137,339 and $1,611,424 respectively.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

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".

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 SFAS 142,

"Goodwill and Other Intangible Assets".

Based on quantitative and qualitative

measures, the Company assesses the need to record impairment losses on

measures, the Company assessed the need to record impairment losses on

long-lived assets used in operations when impairment indicators are present.

1 unchanged sentence

ended March 31, 2002 for certain amounts of goodwill related to the acquisitions

of Simkin, Wares and WizShop.

Also, an impairment may have arisen with the

recorded asset value of the Company's Global Market Pro intellectual property.

of Simkin and WizShop.

Also, an impairment may have arisen with the recorded

asset value of the Company's Global Market Pro intellectual property.

For Simkin, the analysis was to determine if a further reduction in goodwill was

3 unchanged sentences

of Goodwill".

For Wares and WizShop, Semotus analyzed the current carrying value

of the goodwill related to both acquisitions.

For WizShop, Semotus analyzed the current carrying value of the

goodwill related to the acquisition.

The analysis focused on the future prospects for the businesses given the

2 unchanged sentences

factor was that the consideration paid by Semotus for those companies in the

form of the issuance of shares of the Company's common stock at a time when its

stock price was much higher than at March 31, 2002.

The Company's stock price

was approximately $14.375 at the time of the acquisition of Simkin,

approximately $8.938 at the time of the acquisition of Wares and approximately

$2.15 at the time of the acquisition of WizShop.

At March 31, 2002, the

Company's stock price was $0.67.

Finally, all of these companies were privately

held at the time of the acquisition and their fair value was and is subjective

and not readily determinable.

At the time of the acquisition, market valuations

for such companies were at substantially higher levels.

Since the end of the

calendar year 2001, stock prices and market valuations in Simkin's, Wares' and

form of the issuance of shares of the Company's common stock was at a time when

its stock price was much higher than at March 31, 2002.

The Company's stock

price was approximately $14.375 at the time of the acquisition of Simkin and

approximately $2.15 at the time of the acquisition of WizShop.

2002, the Company's stock price was $0.67.

Finally, all of these companies were

privately held at the time of the acquisition and their fair value was and is

subjective and not readily determinable.

At the time of the acquisition, market

valuations for such companies were at substantially higher levels.

Since the end

of the calendar year 2001, stock prices and market valuations in Simkin's and

WizShop's industry and similar industries have fallen substantially in response

5 unchanged sentences

Market Pro products and the financial services division was examined.

the analysis focused on the consideration paid for the intellectual property in

the form of 800,000 warrants of Semotus common stock.

The exercise price of

those warrants, $30.00 per common share, is significantly higher than the market

price of the stock, $0.67, at March 31, 2002.

See Note 6, "GMP Intellectual

Property and J.P.

analysis focused on the consideration paid for the intellectual property in the

form of 800,000 warrants of Semotus common stock.

The exercise price of those

warrants, $30.00 per common share, is significantly higher than the market price

of the stock, $0.67, at March 31, 2002.

See Note 8, "GMP Intellectual Property

Morgan Chase Manhattan Warrants".

Further, the financial

services industry has declined dramatically in response to the general economic

recession and to the terrorist events of September 11, 2001.

Further, the financial services

industry has declined dramatically in response to the general economic recession

and to the terrorist events of September 11, 2001.

Based on the factors described above, the Company determined that the goodwill

in its Simkin, Wares and WizShop subsidiaries and the asset value of the GMP

in its Simkin and WizShop subsidiaries and the asset value of the GMP

Intellectual Property may have become impaired.

6 unchanged sentences

The methodologies

- Discounted cash flow analysis, which is based upon converting expected future

cash flows to present value.

- Changes in market value since the date of acquisition relative to the

- the Company's stock price;

- comparable companies;

- Contribution to the Company's market valuation and overall business prospects.

o Discounted cash flow analysis, which is based upon converting expected

future cash flows to present value.

o Changes in market value since the date of acquisition relative to the

o The Company's stock price;

o Comparable companies;

o Contribution to the Company's market valuation and overall business

The methodologies used were consistent with the specific valuation methods used

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The Company's

best estimate of the fair value of Simkin, Wares, WizShop and the GMP

Intellectual Property was determined from the range of possible values after

considering the relative performance, future prospects and risk profile of those

companies and GMP.

best estimate of the fair value of Simkin, WizShop and the GMP Intellectual

Property was determined from the range of possible values after considering the

relative performance, future prospects and risk profile of those companies and

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

3 unchanged sentences

ended June 30, 2001, see Note 7 "Sale of Technology and Net Impairment of

Goodwill"), $1,156,587 for Wares' goodwill and $2,708,011 for WizShop's

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

solftware development costs at Wares.

Goodwill") and $2,708,011 for WizShop's goodwill.

Furthermore, Semotus took an

impairment charge of $3,420,000 for the GMP intellectual property asset in the

quarter ended March 31, 2002.

This year, 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).

discussed in this Note 6, Semotus performed the impairment tests and determined

that impairment charges were required.

The impairment expense for the Wares

goodwill was $1,156,587 and for the ADA goodwill was $635,724.

At March 31, 2003, the Company determined that the carrying value of its

remaining goodwill and other intangibles are recoverable.

The Company will

continue to analyze the recoverability of its long-lived assets and assess the

need to record impairment losses when impairment indicators are present.

remaining goodwill and other intangibles from continuing operations are

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 121, SFAS 142 and SFAS 144, 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.

The Company will continue to

analyze the recoverability of its long-lived assets and assess the need to

record impairment losses when impairment indicators are present.

SALE OF TECHNOLOGY AND NET IMPAIRMENT OF GOODWILL

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Kinetidex replaced, Capcil.

Semotus' management performs an on-going analysis of

the recoverability of its goodwill and other intangibles and the value of its

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.

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Long-Lived Assets and For Long-Lived Assets to be Disposed Of".

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

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

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

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methodologies included:

- Discounted cash flow analysis, which is based upon converting expected future

cash flows to present value.

- Changes in market value since the date of acquisition relative to the

- the Company's stock price;

- comparable companies;

- Contribution to the Company's market valuation and overall business prospects.

o Discounted cash flow analysis, which is based upon converting expected

future cash flows to present value.

o Changes in market value since the date of acquisition relative to the

o the Company's stock price;

o comparable companies;

o Contribution to the Company's market valuation and overall business

The methodologies used were consistent with the specific valuation methods used

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calculated on the date of grant using the Black-Scholes pricing model amounted

to $6,800,000 and is being amortized to expense over a five year period.

amount was recorded in intellectual property with a corresponding increase to

additional paid-in capital.

For the fiscal years ended March 31, 2002 and 2001,

amortization amounted to $1,360,000 and $1,020,000.

Further, Semotus determined that an impairment charge to GMP was necessary as of

March 31, 2002, which amounted to $3,420,000 and has brought the current

recorded value to $1,000,000.

to $6,800,000 and was originally being amortized to expense over a five year

This amount was recorded in intellectual property with a corresponding

increase to additional paid-in capital.

For the fiscal years ended March 31,

2003, 2002 and 2001, amortization amounted to $1,000,000, $1,360,000 and

$1,020,000, respectively.

Further, Semotus determined that an impairment charge to the GMP intellectual

property asset, as well as an adjustment to its useful life, was necessary as of

March 31, 2002, which amounted to $3,420,000 and brought the recorded value to

$1,000,000 at March 31, 2002.

This value has since been completely amortized as

of March 31, 2003.

PROPERTY AND EQUIPMENT

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Furniture and fixtures ....................................

Computers, and other

office equipment 1,296,104 1,176,246

$ 308,777 $ 308,676

Computers, and other office equipment .....................

1,083,960 1,090,226

Capitalized equipment leases ..............................

74,370 77,149

Leasehold improvements ....................................

120,059 95,920

Purchased software ........................................

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

Less accumulated depreciation

And amortization (1,543,226) (1,053,331)

1,908,908 1,930,676

Less accumulated depreciation and amortization ............

(1,566,294) (1,308,005)

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

ADVANCES ON TECHNOLOGY SALES:

$ 342,614 $ 622,671

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

ADVANCES ON TECHNOLOGY SALE:

During fiscal year 1997, the Company entered into two separate transactions

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The cash payments received up front, amounting to $2,190,000 and $2,900,000

respectively, have been accounted for under the provisions of the "Emerging

respectively, had been accounted for under the provisions of the "Emerging

Issues Task Force 88-18:

Sales of Future Revenues" (EITF 88-18) and as such,

were deferred and are reflected under the balance sheet caption "Advances on

technology sales", and are being amortized to income using the interest method

were deferred and were reflected under the balance sheet caption "Advances on

technology sales", andwere being amortized to income using the interest method

over the terms of the agreements.

The notes receivable due to the Company

resulting from the sales have not been recorded, as it is expected that any fees

resulting from the sales had not been recorded, as it was expected that any fees

or revenue share that otherwise might accrue to the buyers of the technologies

as a result of the management and marketing agreements would not be sufficient

to service the note receivable principle and interest payments due Semotus.

the notes receivable due to the Company are not repaid, as presently projected,

to service the note receivable principal and interest payments due Semotus.

the notes receivable due to the Company were not repaid, as presently projected,

the ownership of the intellectual properties will revert back to the Company at

5 unchanged sentences

issued to the buyers for another two years, until June 2002 and issued 10,000

new options with an exercise price of $11.50 which expire in June 2002.

new options with an exercise price of $11.50 which expired in June 2002.

Company recorded the value of these warrants as a reduction of the technology

3 unchanged sentences

with the amortization of the technology advances.

The products related to these agreements are obsolete and are not generating any

The Company has fulfilled all obligations under these agreements and

therefore the Company has amortized the remaining balance of the advances on

technology sales liability into income as of March 31, 2003.

During the fiscal year ended March 31, 2003, the Company entered into three

notes payable to settle certain existing contractual obligations to third

parties amounting to a total of $135,093 in notes payable.

$78,869 was paid on

these notes in fiscal year 2003.

The total future payments on these notes is

$56,224, which will be fully paid off in the fiscal year ending March 31, 2004.

Semotus entered into a one-year note payable with its primary banking

1 unchanged sentence

The note was extended for six months in March 2002

and becomes due September 2002.

The note replaced three notes payable at Simkin,

Wares and FiveStar.

The transaction occurred as part of the acquisition

agreements to remove the Presidents of those subsidiaries from personal

There is not any net additional debt incurred.

The note payable has

an interest rate of 7.2% currently, which is the same as in the past year.

interest is payable monthly, with the principal due and payable at maturity in

September 2002.

The note is secured by cash in the form of a certificate of

deposit in the amount of $693,286 and $694,222 for the fiscal years ended March

31, 2002 and 2001 respectively.

The certificate of deposit mirrors the note

payable in term and carries a current interest rate of 2.0% and 5.2% in the past

and became due September 2002.

The Company repaid the note in full in September

The note payable had an interest rate of 7.2% in fiscal year 2003, which

was the same as in the previous year.

The interest was payable monthly, with the

principal due and payable at maturity in September 2002.

The note was secured by

cash in the form of a certificate of deposit in the amount of $693,286 for the

fiscal year ended March 31, 2002.

The certificate of deposit mirrored the note

payable in term and carried an interest rate of 2.0% in the past year.

CAPITAL LEASE:

In the fiscal year ended March 31, 2003, the Company did not sign or settle any

capital leases.

In the fiscal year ended March 31, 2002, the Company and its subsidiaries signed

leases amounting to $110,119.

Also, in the fiscal year ended March 31, 2002, Semotus settled 4 leases at its

Wares and WizShop subsidiaries for $9,625.

In the fiscal year ended March 31, 2001, Semotus through its Cross

Communications and Wares subsidiaries, signed three new capital leases for

equipment in fiscal year 2001.

Two of the assets will be amortized over

approximately three years and the principal of the leases totals $32,043.

other asset is amortized over five years and the lease principal totals $11,496.

For the fiscal year ended March 31, 2001, the amortization is immaterial since

these leases were signed in February and March of 2001.

The Company assumed

computer leases amounting to $21,357, as part of its acquisition of Wares.

leases are being amortized over two years.

Accumulated depreciation on capitalized lease assets was $45,222 and $22,265 at

March 31, 2002 and at March 31, 2001 respectively.

Effective October 1997, the Company entered into a leasing agreement for certain

equipment used in the operation of the Company.

The lease has been classified as

a capital lease, and is for a five year term, with payments due monthly with

interest at 10.45% per annum.

Payments, in the initial three years of the lease

are approximately $2,000 per month.

During the last two years of the lease the

payments are reduced to approximately $1,300 per month.

collateralized by the underlying equipment included in property and equipment

with an original capitalized value of $81,640.

The combined principal and interest portions being recognized under the capital

lease for the next five years are as follows:

March 31, 2003 and 2002 respectively.

The combined principal and interest portions due under our capital leases for

the next five years are as follows:

YEAR ENDED MARCH 31,

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

2004 .........................................

2005 .........................................

2006 .........................................

2007 .........................................

2008 .........................................

Less imputed interest .........................

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Company is authorized to issue 5,000,000 shares of preferred stock.

has been designated as Series A preferred stock, of which, no shares are

outstanding, and 769,231 has been designated as Series B preferred stock, of

which 469,231 shares are outstanding.

As of February 14, 2000, Semotus consummated a private placement to two

investment funds of (i) 769,231 shares of Series B Convertible preferred

stock (post split each share of Series B preferred stock is convertible into two

shares of common stock) and (ii) five-year warrants to purchase up to an

aggregate of 1,153,846 shares of common stock at an exercise price of $8.75 per

The Company also issued to H.C.

Wainwright & Co., Inc.

purchase up to 153,846 shares of common stock, at an exercise price of $6.50 per

share, for its services as placement agent with respect to the private

For further information on the warrants, see Note 12, "Common

Shareholders' Equity".

The Company received $9,315,501 in cash, net of expenses

and commissions of $684,499.

On April 26, 2000, 300,000 shares of Series B convertible preferred stock were

converted into 600,000 shares of common stock.

As of March 31, 2002, 469,231

shares of Series B convertible preferred remain outstanding.

Series B Convertible Preferred Stock Provisions

The holders of shares of Series B preferred stock shall be entitled

to receive dividends, out of any assets legally available therefor, ratably with

any declaration or payment of any dividend with holders of the common stock or

other junior securities of this Corporation, when as and if declared by the

Board of Directors, based on the number of shares of common stock into which

each share of its Series B Convertible preferred stock is then convertible.

of March 31, 2002, no dividends have been declared.

In the event of any liquidation, dissolution or winding up of the

Company, whether voluntary or involuntary, the holders of record of the shares

of the Series B preferred stock shall be entitled to receive, before and in

preference to any distribution or payment of assets of the Company or the

proceeds thereof may be made or set apart for the holders of common stock or any

other security junior to the Series B preferred stock in respect of

distributions upon liquidation out of the assets of the Corporation legally

available for distribution to its stockholders, in an amount in cash equal to

$13.00 per share.

If, upon such liquidation, the assets of the Corporation

available for distribution to the holders of the Series B preferred stock and

any other series of preferred stock then outstanding ranking on parity with the

Series B preferred stock upon liquidation ("Parity stock") shall be insufficient

to permit payment in full to the holders of the Series B preferred stock and

parity stock, then the entire assets and funds of the Company legally available

for distribution to such holders and the holders of the parity stock then

outstanding shall be distributed ratably among the holders of the Series B

preferred stock and parity stock based upon the proportion which the total

amount distributable on each share upon liquidation bears to the aggregate

amount available for distribution on all shares of the Series B preferred stock

and such parity stock, if any.

CHANGE IN OWNERSHIP:

In the event of a sale, conveyance, lease, transfer or

disposition of all or substantially all of the assets of the Company, or the

consummation by the Company of a transaction or series of related transactions

in which more than 50% of the voting power of the Company is disposed of, or a

consolidation or merger of the Company with or into any other company or

companies, the holders of record of the shares of the Series B preferred stock

shall have the right to convert the shares of Series B Preferred for shares of

stock and other securities, cash and property following such Event, and the

Holders shall be entitled upon such Event to receive such amount of shares of

stock and other securities, cash or property as the shares of the Common Stock

of the Company into which the shares of Series B Preferred could have been

converted immediately prior to such Event would have been entitled;

event may be deemed to be a Liquidation of the Company entitling such Holder to

receive the Liquidation Value with respect to such Holder's shares of Series B

Each share of preferred stock, at the option of the holder, is

convertible into two fully paid and non-assessable shares of common stock.

The Series B preferred stock is not redeemable, unless there is a

change in ownership, see Note 11, "Change in Ownership".

VOTING RIGHTS:

The holders of Series B preferred stock are not entitled to

voting rights.

ANTI-DILUTION:

The holders of shares of Series B preferred stock have certain

anti-dilution protection upon the happening of certain events.

shares have been designated as Series A preferred stock, of which no shares are

outstanding as of March 31, 2003, and 769,231 has been designated as Series B

preferred stock, of which no shares are outstanding as of March 31, 2003.

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

share, such price was a negotiated price.

In addition, in consideration for

Brown Simpson agreeing to enter into a settlement and mutual release related to

dilution claim, the Company repriced Brown Simpson's existing 1,153,846 warrants

to provide for an exercise price of $0.01 per share.

The value of the warrants

repriced as determined by the Black-Scholes method, has been charged to

operations, while the value of the additional warrants issued has been charged

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.

On May 1, 2003, Brown Simpson exercised 846,154 warrants

exercisable at $0.01 per share by remitting $8,461.54 to Semotus, and Brown

Simpson was issued 846,154 shares of common stock.

COMMON SHAREHOLDERS' EQUITY:

3 unchanged sentences

respectively.

During the fiscal year ended March 31, 2003, in August, 2002, in connection with

the fiscal year 2002 acquisition of WizShop, the Company issued 613,403 common

shares as additional purchase consideration (see Note 4, "Acquisitions -

WizShop.com, Inc.").

In April of 2002, in connection with the fiscal year 2002

acquisition of Application Design Associates, the Company issued 250,000 common

shares as additional purchase consideration.

However, on May 6, 2003 these

250,000 shares, as well as the original 250,000 shares issued to ADA, were

returned to the Company as part of GBG's option to purchase ADA, which was

closed on May 6, 2003.

(See Note 4, "Acquisitions - Application Design

Associates, Inc.").

Additionally, during the fiscal year ended March 31, 2003,

the Company issued 57,178 shares to settle certain liabilities of the Company or

the Company's subsidiaries.

During the fiscal year ended March 31, 2002, in connection with the acquisition

4 unchanged sentences

2001, in connection with the acquisition of ADA, the Company issued 250,000

common shares (see Note 3, "Acquisitions -

Application Design Associates, Inc.").

In addition, during the fiscal year ended

March 31, 2002, the Company issued a total of 198,093 shares to various

suppliers of services, and a total of 75,073 shares to settle certain

liabilities of the Company or the Company's subsidiaries.

common shares (see Note 4, "Acquisitions - Application Design Associates,

In addition, during the fiscal year ended March 31, 2002, the Company

issued a total of 198,093 shares to various suppliers of services, and a total

of 75,073 shares to settle certain liabilities of the Company or the Company's

subsidiaries.

In December 2000, in connection with the acquisition of Five Star, the Company

17 unchanged sentences

100,000 shares of common stock (see Note 4, "Acquisitions - Simkin, Inc.") On

August 15, 2000, 54,342 H.C.

Wainwright warrants were cashless exercised and

33,865 shares of common stock were issued.

As of March 31, 2002, 99,504 H.C.

Wainwright warrants to purchase up to 99,504 shares of common stock remain

In July, 2000, the Company issued a warrant to purchase 800,000

shares of common stock at an exercise price of $30.00 per share to an affiliate

August 15, 2000, 54,342 warrants were cashless exercised and 33,865 shares of

common stock were issued.

In July, 2000, the Company issued a warrant to

purchase 800,000 shares of common stock at an exercise price of $30.00 per share

to an affiliate of J.P.

Morgan Chase & Co.

in exchange for all royalty and intellectual property

rights associated with the GMP product (see Note 6, "GMP Intellectual Property

in exchange for all royalty and

intellectual property rights associated with the GMP product (see Note 8, "GMP

Intellectual Property and J.P.

Morgan Chase Warrants").

In July, 2000 the Company also issued 62,500

shares of common stock in connection with the acquisition of Cross (See Note 3,

"Acquisitions - Cross Communications, Inc.").

In addition, during the fiscal

year ended March 31, 2000, the Company issued a total of 9,484 shares of common

stock to various suppliers of services.

In July, 2000 the

Company also issued 62,500 shares of common stock in connection with the

acquisition of Cross (See Note 4, "Acquisitions - Cross Communications, Inc.").

On March 13, 2000 the Board of Directors of the Company approved a 2 for 1 stock

6 unchanged sentences

give retroactive effect to this split, unless otherwise indicated.

As of March 1, 2000, the remaining 772,060 Series A convertible preferred shares

were automatically converted into 1,544,120 shares of common stock.

2000, the holders of the remaining $2.50 common stock purchase warrants issued

in conjunction with the Series A convertible preferred shares were provided a

notice of redemption.

Of the 1,059,946 warrants outstanding on March 2, 2000,

894,600 had been exercised by March 31, 2000, and the remaining 165,346 were

exercised by April 3, 2000.

As of February 14, 2000, Semotus consummated a private placement to two

3 unchanged sentences

aggregate of 1,153,846 shares of common stock at an exercise price of $8.75 per

The Company also issued to H.C.

Wainwright & Co., Inc.

purchase up to 153,846 shares of common stock, at an exercise price of $6.50 per

share, for its services as placement agent with respect to the private

The Company received $9,315,501 in cash, net of expenses and

commissions of $684,499.

On April 26, 2000, 300,000 shares of Series B

convertible preferred stock were converted into 600,000 shares of common stock.

As of March 31, 2002, 469,231 shares of Series B convertible preferred remain

(See Note 11, "Convertible Preferred Stock").

The Company also issued a warrant to purchase up to 153,846 shares of

common stock, at an exercise price of $6.50 per share, to its placement agent

with respect to the private placement.

The Company received $9,315,501 in cash,

net of expenses and commissions of $684,499.

On April 26, 2000, 300,000 shares

of Series B convertible preferred stock were converted into 600,000 shares of

common stock.

As of March 31, 2002, 469,231 shares of Series B convertible

preferred were outstanding, and as of March 31, 2003, no shares of Series B

convertible preferred are outstanding.

(See Note 13, "Convertible Preferred

As of March 31, 2003, a total of 2,225,658 warrants to purchase shares of

Semotus' common stock remain outstanding.

846,154 of those were exercisable at

$0.01 per share, and were subsequently exercised on May 1, 2003 (See Note 28

"Subsequent Events").

800,000 are currently exercisable at $30.00 per share and

expire on July 7, 2005.

300,000 are currently exercisable at $2.375 per share

and expire on December 1, 2004.

99,504 are currently exercisable at $6.5 per

share and expire on February 8, 2005.

150,000 are currently exercisable at $1.01

per share and expire on December 27, 2003.

30,000 are currently exercisable at

$18.00 per share and expire on August 2, 2005.

STOCK OPTION PLAN:

4 unchanged sentences

of common stock after the grant date.

The Company is currently authorized to

issue up to 4,345,000 shares of common stock under the Plan, and intends to seek

Shareholder approval to issue additional shares.

On September 17, 2002 the Company's

shareholders approved an increase in the number of shares of Common Stock

issuable under the Plan from 4,345,000 to 5,200,000.

The Plan expires ten years

17 unchanged sentences

been granted under the Plan.

Effective November 6, 2001 the Board of Directors of the Company approved the

repricing of most of the options with exercise prices ranging from $0.78 to

$20.00 per share held by most of the employees (including executive officers) of

The Board of Directors determined such a reprice to be appropriate

On May 1, 2002, all employees with a fifty thousand dollar annual salary or

greater took a ten percent salary reduction.

In exchange, on May 16, 2002, the

Board of Directors approved the repricing of all of those employees' outstanding

stock options under the Company's 1996 Stock Option Plan to $0.43 per share, and

$0.47 per share for Anthony LaPine and Pamela LaPine (which equals 110% of the

amended exercise price).

Exercise prices ranged from $0.76 to $0.84 per share.

Additionally, these employees received an additional grant equal to 10% of their

total options granted under the Stock Option Plan to date.

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

repricing of all of the options held by almost all of the employees (including

executive officers) of the Company.

Exercise prices ranged from $0.22 to $0.47

The Board of Directors determined such a repricing to be appropriate

in order to sustain the incentivization of its employees.

Employees' existing

option grants were repriced to an exercise price of $0.76 per share (the current

fair market value of the Company's common stock as of the reprice date) and an

exercise price of $0.84 per share (110% of the fair market value at the date of

reprice) for those persons owning more than 10% of the voting power of all

classes of stock.

All grants maintained their existing vesting schedule.

deemed to be a repricing under FIN 44 and will result in variable plan

Due to the decrease in the Company's stock price there has been no

additional compensation expense in fiscal year ended March 31, 2002.

option grants were repriced on October 23, 2002 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 (Anthony LaPine and Pamela LaPine).

grants maintained their existing vesting schedules.

These are deemed to be a

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

compensation expense was required to be recognized in the fiscal year ended

March 31, 2003, expense will be recognized in the future if the stock price

increases above the revised exercise price of the options.

Activity for stock options under the 1996 Stock Option Incentive Plan through

March 31, 2003 is as follows:

SHARES NUMBER AVERAGE

AVAILABLE OF PRICE PER EXERCISE

FOR GRANT OPTIONS SHARE PRICE

Shares Weighted

Available for Average

Grant Number of Options Price Per Share Exercise Price

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

March 31, 1999 392 951,060 $ 0.38-$10.00 $ 1.61

Balances, March 31, 2000* (852,342) 1,579,938 $0.50 - $20.00 $ 4.64

Authorized ..............

2,500,000 -- -- --

Granted .................

(3,529,000) 3,529,000 $0.50 - 28.77 $ 5.74

Canceled ................

1,933,933 (1,933,933) $0.50 - $28.77 $ 9.42

Exercised ...............

-- (131,288) $0.50 - $2.53 $ 1.33

March 31, 2000 (869,134) 1,596,730 $ 0.50-$20.00 $ 4.61

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

Balances, March 31, 2001* 52,591 3,043,717 $0.56 - $20.00 $ 3.02

Authorized ..............

845,000 -- -- --

Granted .................

(4,543,680) 4,543,680 $0.67 - $7.00 $ 1.02

Canceled ................

4,016,441 (4,016,441) $0.56 - $20.00 $ 2.68

Exercised ...............

-- (8,302) $1.28 - $1.63 $ 1.40

March 31, 2001* 47,591 3,048,717 $ 0.56-$20.00 $ 3.02

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

Balances, March 31, 2002* 370,352 3,562,654 $0.67 - $5.44 $ 0.86

Authorized ..............

855,000 -- -- --

Granted .................

(4,957,530) 4,957,530 $0.14 - $0.66 $ 0.25

Canceled ................

5,397,941 (5,397,941) $0.15 - $5.44 $ 0.55

Exercised ...............

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

March 31, 2002 348,892 3,584,114 $ 0.67-$ 2.01 $ 0.88

*The Balances as of March 31, 2001 reported in this 10K differ slightly from the

Balances as of March 31, 2001 as reported in the Company's 10KSB filed last

this is due to a small number of stock option activities, such as grants,

cancellations and exercises, not having been reported by the time this table was

drafted last year.

We do not feel that these numbers are significant, as the

difference between these numbers is only approximately 25,000 shares, or less

than 1% of the total outstanding.

On September 13, 2001 the Company's shareholders approved an increase in the

number of shares of Common Stock issuable upon the exercise of options, from

3,500,000 to 4,345,000.

The Company plans to request shareholder approval for an increase in the number

of shares of Common Stock issuable upon the exercise of options at its next

meeting of shareholders to be held during the second quarter of FY 2003.

Balances, March 31, 2003 1,665,763 3,122,243 $0.14 - $2.01 $ 0.31

*The balances as of March 31, 2002, 2001 and 2000 reported in this Form 10K

differ slightly from the balances as of March 31, 2002, 2001 and 2000 as

reported in the Company's Form 10K filed last year;

this is due to a small

number of stock option activities, such as grants, cancellations and exercises,

not having been reported by the time this table was drafted for the current Form

10K filing year.

Management does not feel that these numbers are significant, as

the difference between these numbers is only approximately 25,000 shares, or

less than 1% of the total outstanding.

The weighted average fair value of those options granted during the years ended

March 31, 2003, 2002 and 2001 was $0.29, $1.09 and $1.98, respectively.

weighted average fair value of those options that were repriced on November 6,

weighted average fair value of those options that were repriced on October 23,

2002 was $0.08.

2 unchanged sentences

March 31, 2003, 2002 and 2001, respectively.

PRO FORMA STOCK-BASED COMPENSATION:

The Company has adopted the disclosure only provisions of Statement of Financial

Accounting Standards No.

123 ("SFAS 123"), Accounting for Stock Based

Compensation.

Accordingly, no compensation expense has been recognized for these

Had compensation expense been determined on the fair value at the grant

dates for awards under these plans consistent with the method of SFAS 123, the

Company's net loss in 2002, 2001 and 2000 would have been adjusted to the pro

forma amounts indicated below:

2002 2001 2000

Net loss available to ------------- ------------- ------------

common shareholders

As reported $(18,444,478) $(11,293,381) $(4,756,926)

Pro forma (20,093,894) (11,815,677) (5,375,583)

Net loss per share

As reported, basic

and diluted (1.09) (0.74) (0.61)

Pro forma net loss,

basic and diluted (1.18) (0.78) (0.69)

The fair value of each option is estimated on the date of grant using the

Black-Scholes option-pricing model with the following weighted-average

assumptions used for grants under the Plan in 2002, 2001 and 2000:

2002 2001 2000

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

Expected dividend $ -- $ -- $ --

Expected life of option 4 years 4 years 1-4 years

Risk-free interest rate 3.71%-4.63% 5.0%-6.5% 4.61%-5.75%

Expected volatility 87%-108% 70%-295% 244.3%

The above pro forma disclosures are not likely to be representative of the

effects on reported net income for future years.

The following table summarizes the stock options outstanding at March 31, 2003:

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

AVERAGE WEIGHTED WEIGHTED

RANGE OF REMAINING AVERAGE AVERAGE

EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE

PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE

NUMBER AVERAGE

OUTSTANDING REMAINING WEIGHTED NUMBER WEIGHTED

RANGE OF AT MARCH 31, CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE

EXERCISE PRICE 2003 LIFE EXERCISE PRICE MARCH 31, 2003 EXERCISE PRICE

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

MARCH 31, 2002

$0.00 - $0.15 1,404,638 7.5 $0.15 695,357 $0.15

4 unchanged sentences

3,122,243 7.4 $0.31 1,962,864 $0.30

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

The Company derives revenue from its customers as discussed in Note 3, "Summary

2 unchanged sentences

From Semotus' wireless

services segment, one customer accounted for 6% of the Company's revenues for

services segment, two customers accounted for 23% of the Company's revenues for

the fiscal year ended March 31, 2003.

From the enterprise and commerce segment

one customer accounted for 17% of the Company's revenues in the fiscal year

ended March 31, 2002.

From the logistic systems segment, one customer accounted

for 8% of the Company's revenue for the fiscal year ended March 31, 2002.

of these customers accounts for significant accounts receivable at March 31,

From Semotus' enterprise and commerce segment revenues, one customer accounted

for approximately 28% of the Company's revenues for the fiscal year ended March

For Semotus' enterprise and commerce segment subsidiary revenues in

the fiscal year ended March 31, 2000, two customers accounted for approximately

30% and 25% of the Company's revenues.

Since then, both customers' contribution

as a percentage of total revenues has declined in actual contribution and as

more enterprise customers have been added.

One customer in the wireless services

segment accounted for 17% of revenues, and a second customer in the wireless

services segment accounted for 6% of revenues.

None of these customers account

for any significant accounts receivable at March 31, 2003.

From Semotus' wireless services segment, one customer accounted for 6% of the

Company's revenues for the fiscal year ended March 31, 2002.

STOCK, OPTION AND WARRANT EXPENSE

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For the fiscal year ended March 31, 2003, interest rates used are

the appropriate Treasury rates ranging from 3.71% to 4.63%.

volatility ranged from 87% to 108%.

(See Note 12, "Common Shareholders Equity").

The expense has been recognized over the term of the agreement or when the

the appropriate Treasury rate of 3.46%.

The expected volatility ranged from 102%

The expense is recognized over the term of the agreement or when the

services have been performed.

1 unchanged sentence

Other income (expense) consists of the following items:

YEAR ENDED MARCH 31,

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

DESCRIPTION 2003 2002 2001

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

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 (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

Cancellation of sales of technology contracts 628,927 -- --

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

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

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Net operating loss carryforwards available for the Company for U.S.

are as follows:

are as follows as of March 31, 2003:

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

FEDERAL STATE

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

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

At March 31, 2003, the Company has approximately $2,168,853 in Canadian net

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established a valuation allowance to the extent of its deferred tax assets since

it is more likely than not that the benefit cannot be realized in the future.

it is more likely than not that the benefit will not be realized.

valuation allowance changed during this fiscal year by $2,108,775 and by

$2,161,000 in fiscal year 2002, and $3,592,500 in fiscal year 2001.

EARNINGS PER SHARE (EPS) DISCLOSURES:

NET LOSS PER SHARE:

The Company has adopted Financial Accounting Standards Board No.

128 "Earnings

Per Share " (EPS) and accordingly all prior periods have been restated.

EPS is computed as net income (loss) divided by the weighted average number of

common shares outstanding for the period.

Diluted EPS reflects the potential

dilution that could occur from common shares issuable through stock options,

warrants and other convertible securities.

Common equivalent shares are excluded

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

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

number of common shares outstanding for the period.

Diluted EPS reflects the

potential dilution that could occur from common shares issuable through stock

options, warrants and other convertible securities.

Common equivalent shares are

excluded from the computation of net loss per share if their effect is

anti-dilutive.

The following is a reconciliation of the numerator (net loss) and denominator

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2003 2002 2001

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

Net loss $ (3,432,350) $(18,444,478) $(11,293,381)

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

Average common shares

Weighted average common shares

outstanding 18,039,262 16,975,660 15,199,895

4 unchanged sentences

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

Average common shares

Weighted average common shares

outstanding 18,039,262 16,975,660 15,199,895

2 unchanged sentences

Stock options -- -- --

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

Total shares 18,039,262 16,975,660 15,199,895

6 unchanged sentences

OPERATING LEASES:

In the fiscal year ended March 31, 2002, Semotus closed offices in Downer's

Grove, Illinois, Gainesville, Florida and Woodbury, N.J.

Semotus also subleased

its office space in Sherman Oaks, California, where WizShop resided and those

operations have been absorbed into the rest of the Company.

Semotus added one

new office in Englewood, Colorado with its acquisition of ADA.

The terms and

conditions of this lease are normal and customary.

In the fiscal year ended March 31, 2003, Semotus moved at the end of its lease

from its office in San Jose, California to an office in Los Gatos, California.

Semotus closed down its office for its Five Star operation in Valencia,

California, concurrent with the closing of the Five Star operations.

continued to sublease its office space in Sherman Oaks, California, where

WizShop resided, as those operations have been absorbed into the rest of the

this sublease ended in April of 2003.

Semotus continues to rent office

space in Vancouver, Canada for its R&D facilities.

Rental expense for all of

these facilities was $548,354 in fiscal 2002.

The Company leases space for its operations in San Jose and Valencia,

Vancouver, British Columbia;

Downer's Grove, Illinois;

Florida, and Woodbury, N.J.

The leases expire starting in March 2002 through

October 2005.

these facilities was $187,388 in fiscal 2003, $548,354 in 2002 and $613,456 in

The Company currently leases space for its operations in Los Gatos, California

and Vancouver, British Columbia.

The lease for the California office expires in

September 2004, with an option to terminate one year earlier without penalty,

and the lease for the office located in British Columbia expires in June 2007.

The terms and conditions of the leases are normal and customary.

Rental expense for these leases totaled approximately $613,456 in 2001 and

$279,909 in 2000.

In fiscal 2000, the Company leased office space only in San

Jose, California and Vancouver, British Columbia.

Future minimum lease payments due under these agreements are as follows for the

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2004 .....................

2005 .....................

2006 .....................

2007 .....................

2008 .....................

RELATED PARTY TRANSACTIONS:

Effective May 1, 1996, the Company entered into a three year employment

agreement with the Company's Chief Executive Officer.

This agreement was

extended to May 1, 2004.

The agreement automatically renews for one year terms

unless notice is provided by either party.

On December 1, 1999, the Board of

Directors granted the Chief Executive Officer a warrant to purchase 150,000

shares of common stock at $4.75 per share (300,000 @ $2.375 post split), as part

of his compensation package.

agreement with the Company's Chief Executive

This agreement was extended to May 1, 2004.

The agreement automatically

renews for one year terms unless notice is provided by either party.

1, 1999, the Board of Directors granted the Chief Executive Officer a warrant to

purchase 300,000 shares of common stock at $2.375 per share, as part of his

compensation package.

In conjunction with the private placement dated November 5, 1997 the Chief

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cash income related to this transaction.

Additionally, the warrants to purchase

280,000 shares at $2.50 per share have terminated.

On January 15, 2000, the Company entered into a Loan Forgiveness Agreement with

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recorded as employment compensation.

On February 29, 2000, the Company entered into a secured recourse promissory

note with the Chief Executive Officer, in the amount of $100,000 to cover the

cost of the Chief Executive Officer's exercise of 40,000 warrants, that would

otherwise be redeemed by the corporation on April 3, 2000, pursuant to the

Company's automatic redemption rights against all holders of the Company's $2.50

On March 29, 2002, the Company entered into a Loan Forgiveness

Agreement with the Chief Executive Officer, which provided that the $100,000

promissory note be forgiven as of March 29, 2002.

This note was for the purchase

of stock and did not result in the Company lending cash to Mr.

LaPine has not sold any of the stock purchased with this note and has not

received any cash income related to this transaction.

In 2001, the Company's subsidiaries, Wares on the Web, Wizshop, and ADA entered

into employment agreements with Stephen J.

Casey, Steve McAllister and John

Hibben, respectively, providing, among other things, an annual salary of

$150,000 each, as well as annual bonuses from $37,500 to $75,000, contingent

upon the applicable subsidiary companies reaching certain revenue targets.

June 19, 2001, Mr.

Casey resigned and the employment agreement by and among Mr.

Casey and Wares on the Web was terminated.

On January 18, 2002, the employment

agreement by and among ADA and John Hibben was terminated and a new but

substantially similar agreement was signed by and among ADA, John Hibben and

2007978 Ontario, Inc.

On July 26, 2002, the Board of Directors approved the reduction in the purchase

price of the 560,000 shares of this corporation's Common Stock from $3.75 per

share to $0.25 per share (representing the current fair market value of the

consequently, $480,049 was forgiven, and the $1,050,000 promissory note

was canceled in exchange for a new promissory note in the principal amount of

$140,200 and otherwise containing the same terms and conditions as the

surrendered promissory note.

Consequently, the loan amortization schedule was

accelerated in the amount of $480,049 due to the re-valuation of the loan amount

from $1,050,000 to $140,200.

In 2001, WizShop.com, Inc., one of the Company's subsidiaries, entered into an

employment agreement with Steve McAllister, providing, among other things, an

annual salary of $150,000.

As of March 27, 2003, Mr.

McAllister resigned and the

employment agreement by and among Mr.

McAllister and WizShop was terminated.

COMMITMENTS AND CONTINGENCIES:

Semotus is the defendant in one pending legal proceeding and one of Semotus'

wholly owned subsidiaries, Wizshop.com, Inc., is the plaintiff in one pending

legal proceeding.

The suit in which Semotus is the defendant was filed by Brown

Simpson Partners I, Ltd.

on March 7, 2002 in the Supreme Court of the State of

This suit alleges four causes of action for breach of contract.

Complaint claims that Semotus triggered the anti-dilution provisions in Brown

Simpson's Warrants and Series B Preferred Stock, thus obligating Semotus to

issue substantial numbers of additional shares upon conversion of the Preferred

Stock and exercise of the Warrants.

Brown Simpson seeks an order granting

specific performance, money damages in excess of $25,000, and recovery of costs

and prejudgment interest.

We believe the suit is without merit and intend to

vigorously contest the suit.

Wizshop.com, Inc., one of our wholly-owned subsidiaries, filed a lawsuit against

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damages for the above matter.

On May 19, 2003, the parties reached a settlement

and signed a settlement and mutual general release agreement, in which Earthlink

agreed to pay to WizShop a total sum of $210,000.

Semotus and WizShop were dismissed with prejudice on March 7, 2003 from a class

action lawsuit brought by the California Teachers' Retirement System in November

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.

that any potential liabilities arising from these matters will not have a

material adverse effect on our consolidated results of operations or financial

EMPLOYEE BENEFIT PLAN:

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SEGMENT INFORMATION

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.

and commerce sales, and professional and related services.

Semotus' wireless services segment focuses in three areas:

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retention programs and services, logistics, distribution, and tracking and

Semotus uses the enterprise and commerce business to add-on wireless products

such as alerts to wireless devices, comparative data information and real time

Semotus uses the enterprise and commerce business to add-on wireless

products such as alerts to wireless devices, comparative data information and

real time messaging.

Semotus' professional service line of business provides customers with online

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wireless requirements that can be met with Semotus' wireless solutions.

The logistic system sales line of business provides proprietary software with

complementary hardware and consulting to satisfy a customer's complete

logistical needs.

These system installations provide automated logistical

solutions for equipment deployment, call centers, dispatching and servicing.

As Semotus continues to acquire companies, the nature and structure of the

business segments may change.

Professional Logistic

Wireless Enterprise and and related system Corporate

services commerce sales services sales and other Total

As Semotus continues to centralize and consolidate its business, the nature and

structure of the business segments may change.

Enterprise and

Wireless commerce Professional and Corporate and

Services sales related 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 income (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 $ 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

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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 allocations of certain corporate assets and liabilities not

appropriately categorized in any segment.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED YEAR ENDED

JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,

QUARTER QUARTER

QUARTER ENDED ENDED QUARTER YEAR ENDED

ENDED JUNE SEPTEMBER 30, DECEMBER 31, ENDED MARCH MARCH 31,

30, 2002 2002 2002 31, 2003 2003

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

Revenue $ 1,594,285 $ 1,851,045 $ 1,423,593 $ 1,238,172 $ 6,107,095

(loss) 591,897 661,550 689,801 468,415 2,411,663

Revenue from continuing

operations $ 614,094 $ 545,937 $ 600,657 $ 583,563 $ 2,344,251

Gross profit (loss) from

continuing operations 394,308 288,412 385,670 346,618 1,415,008

Net loss (1,034,557) (1,229,151) (571,944) (596,698) (3,432,350)

diluted (0.24) (0.16) (0.11) (0.58) (1.09)

QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED YEAR ENDED

JUNE 30, SEPTEMBER 30, DECEMBER 31, March 31, MARCH 31,

Net loss per common share

basic and diluted $ (0.06) $ (0.07) $ (0.03) $ (0.03) $ (0.19)

QUARTER QUARTER

QUARTER ENDED ENDED QUARTER YEAR ENDED

ENDED JUNE SEPTEMBER 30, DECEMBER 31, ENDED MARCH MARCH 31,

30, 2001 2001 2001 31, 2001 2001

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

Revenue $ 1,217,273 $ 1,747,085 $ 1,374,693 $ 1,208,912 $ 5,547,963

Gross profit 364,034 723,633 652,318 (288,107) 1,451,878

Revenue from continuing

operations $ 436,620 $ 922,506 $ 619,313 $ 552,979 $ 2,531,418

Gross profit (loss) from

continuing operations 202,410 472,550 353,519 307,661 1,336,140

Net loss (3,929,818) (2,676,913) (1,970,399) (9,867,348) (18,444,478)

common share--

diluted (0.13) (0.16) (0.22) (0.23) (0.74)

The WizShop relationship started in June 2000 with the negotiation and execution

of an agreement for Semotus to build and host an m-commerce wireless platform

for WizShop's proprietary online shopping mall.

The wireless platform's

functionality included wireless alerts, comparison pricing and transaction

The contract was valued at $1 million.

In November 2000, as the

web-based, online business market weakened, WizShop discontinued the online

shopping mall project and refocused its efforts on its core business;

and private labeling online shopping malls for large portals.

Semotus recognized $350,000 of revenues for the engineering work performed in

the quarter ended September 30, 2000.

The Company also recognized $200,000 in

cost of goods sold, and $150,000 in gross profit.

Semotus was compensated as

(i) 1% of WizShop's equity in the form of common stock, valued at

$150,000 and (ii) engineering services, including a shopping website for

Semotus' B2C wireless products, which is linked to Semotus' website and to

WizShop's large portal customer's shopping websites, valued at the standard

engineering costs for WizShop portal customers.

Semotus will not recognize the

balance of the contract since the project has been discontinued.

maintains the rights to the wireless applications developed for WizShop.

In February 2001, with the continued decline in online shopping and the decline

in the economy, the board of directors of WizShop decided to sell the company.

In late February, WizShop contacted Semotus, among others, to inquire about

acquiring WizShop.

A definitive purchase agreement was signed March 13, 2001 and

the transaction was approved by WizShop shareholders on April 6, 2001.

Net loss per common share

basic and diluted $ (0.24) $ (0.16) $ (0.11) $ (0.58) $ (1.09)

Due to the discontinuation of ADA in the fourth quarter of fiscal year 2003, the

amounts listed above will differ from the amounts previously reported in the

Company's Form 10-Qs.

(See Note 5, "Discontinued Operations".)

STRATEGIC INVESTMENT IN ADA

1 unchanged sentence

store delivery consortium, completed a strategic investment in Semotus' ADA

GBG is now a 49% shareholder in ADA.

subsidiary by acquiring a 49% share in ADA.

For its 49% stock purchase, GBG paid Semotus $250,000 in cash and agreed to

6 unchanged sentences

150,000 shares of Semotus stock at $0.75 per share.

At the end of 15 months, GBG has the option to purchase Semotus' 51% ownership

At the end of 15 months, GBG had the option to purchase Semotus' 51% ownership

of ADA for either (i) $2.5 million in cash or (ii) return of the 250,000 shares

of common stock received for assuming the personal loan.

These shares also carry

a price guaranty, for which Semotus could issue up to an additional 250,000

The purchase agreement

also carried a price guaranty, for which Semotus issued an additional 250,000

shares (see Note 4, "Acquisitions - Application Design Associates, Inc.").

Global Beverage Group's suite of products are designed to streamline the entire

order-to-cash cycle for wholesalers that provide direct delivery of products to

stores, offices and homes.

The company's solutions are designed to handle

complex order management, customer service and distribution logistics such as

direct-store-delivery, direct-home-delivery, mobile workforces and vendor

managed inventory.

May 6, 2003, GBG purchased the remaining 51% of ADA for the return of 500,000

shares of Semotus' common stock.

This decision resulted in the discontinuation

of ADA's operations in fiscal year 2003.

VALUATION AND QUALIFYING ACCOUNTS

Charged to Against

Balance at Acquired Charged to cost Operating Balance Balance at

March 31, 2000 Balances of Goods Sold Expenses Sheet Account March 31, 2001

BALANCE AT CHARGED TO CHARGED TO BALANCE BALANCE AT

MARCH 31, ACQUIRED COST OF OPERATING SHEET MARCH 31,

2000 BALANCES GOODS SOLD EXPENSES ACCOUNT 2001

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

Allowance for

Allowance for doubtful

accounts $ 337 $ 1,059 $ -- $ 76,385 $ (41,814) $ 35,967

Allowance for

reserve -- -- 251,400 -- (62,900) 188,500

Charged to Against

Balance at Acquired Charged to cost Operating Balance Balance at

March 31, 2001 Balances of Goods Sold Expenses Sheet Account March 31, 2002

BALANCE AT CHARGED TO CHARGED TO BALANCE BALANCE AT

MARCH 31, ACQUIRED COST OF OPERATING SHEET MARCH 31,

2001 BALANCES GOODS SOLD EXPENSES ACCOUNT 2002

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

Allowance for

Allowance for doubtful

accounts $ 35,967 $ -- $ -- $ 169,852 $(139,819) $ 66,000

Allowance for

reserve 188,500 -- 194,180 -- (341,780) 40,900

BALANCE AT CHARGED TO CHARGED TO BALANCE BALANCE AT

MARCH 31, ACQUIRED COST OF OPERATING SHEET MARCH 31,

2003 BALANCES GOODS SOLD EXPENSES ACCOUNT 2003

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

Allowance for doubtful

accounts $ 66,000 -- -- $ 15,590 $ (4,500) $ 77,090

SUBSEQUENT EVENTS

On May 1, 2002, all employees with a fifty thousand dollar annual salary or

greater took a ten percent salary reduction.

In exchange, on May 16, 2002, the

Board of Directors approved the repricing of all of these employees' outstanding

stock options under the Company's 1996 Stock Option Plan to $0.43 per share, and

$0.47 per share for Tony and Pamela LaPine (which equals 110% of the amended

exercise price).

Additionally, each employee received an additional grant equal

to 10% of their total options granted under the Stock Option Plan to date.

In May 2002, the Board of Directors of Semotus determined that the Company

needed to focus its operations on its core enterprise software products.

"Centralization and Consolidation Plan").

Given the continued economic recession

and limited capital spending, as well as the reduced access to capital, the

Company must economically utilize its limited resources towards those products

with the best margins and cash flow generation.

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.

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.

Management has not quantified the effect of

these actions on the financial results of the Company for the first quarter of

However, management does not expect that the effect of these

actions will be material.

On May 1, 2003, Brown Simpson exercised 846,154 warrants by remitting $8,461.54

to Semotus, and Brown Simpson was issued 846,154 shares of common stock.

On May 6, 2003, GBG exercised its option to purchase the remaining 51% of ADA

from Semotus.

(See Note 26 - "Strategic Investment in ADA").

As a result, the

ADA operations have been discontinued in fiscal year 2003.

On May 15, 2003, Semotus, Cross Communications, Inc.

and Kathleen Wold executed

an Amendment to the Agreement of Merger dated July 10, 2000, whereby Semotus

agreed to issue 187,500 restricted common shares in exchange for the termination

and full settlement of all remaining obligations under the Merger Agreement.

On May 19, 2003, WizShop, Semotus and Earthlink entered into a settlement and

mutual general release agreement, whereby Earthlink shall pay to WizShop a sum

(See Part I, Item 3, "Legal Proceedings")

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange

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------------------------ CHIEF FINANCIAL OFFICER, JUNE 30, 2003

Dargan II Treasurer and Director

/S/ FREDERICK M.

DARGAN II TREASURER

/S/ MARK WILLIAMS

------------------------ DIRECTOR JUNE 30, 2003

/S/ JASON PAVONA

MARK WILLIAMS

/S/ LAURENCE MURRAY

------------------------ DIRECTOR JUNE 30, 2003

LAURENCE MURRAY

/S/ ROBERT LANZ

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ROBERT LANZ OF THE AUDIT COMMITTEE

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration

Statement on Form S-8 (Sec File No.

333-15399) and the Registration Statements

on Form S-3 (SEC File Nos.

333-67490, 333-63938, and 333-57772) of our report

dated June 3, 2002, relating to the consolidated financial statements of

Semotus Solutions, Inc.

and Subsidiaries, which appears in this Annual Report on

/S/ BDO Seidman, LLP

BDO Seidman, LLP

San Jose, California

CERTIFICATIONS

I, Anthony N.

LaPine, President and Chief Executive Officer of the Company,

certify that:

I have reviewed this annual report on Form 10K of Semotus Solutions, Inc.;

Based on my knowledge, this annual report does not contain any untrue

statement of a material fact or omit to state a material fact necessary to make

the statements made, in light of the circumstances under which such statements

were made, not misleading with respect to the period covered by this annual

Based on my knowledge, the financial statements, and other financial

information included in this annual report, fairly present in all material

respects the financial condition, results of operations and cash flows of the

registrant as of, and for, the periods presented in this annual report;

The registrant's other certifying officers and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material

information relating to the registrant, including its consolidated subsidiaries,

is made known to us by others within those entities, particularly during the

period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and

procedures as of a date within 90 days prior to the filing date of this annual

report (the "Evaluation Date");

c) presented in this annual report our conclusions about the effectiveness of

the disclosure controls and procedures based on our evaluation as of the

Evaluation Date;

The registrant's other certifying officers and I have disclosed, based on our

most recent evaluation, to the registrant's auditors and the audit committee of

registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls

which could adversely affect the registrant's ability to record, process,

summarize and report financial data and have identified for the registrant's

auditors any material weaknesses in internal controls;

b) any fraud, whether or not material, that involves management or other

employees who have a significant role in the registrant's internal controls;

The registrant's other certifying officers and I have indicated in this

annual report whether or not there were significant changes in internal controls

or in other factors that could significantly affect internal controls subsequent

to the date of our most recent evaluation, including any corrective actions with

regard to significant deficiencies and material weaknesses.

June 30, 2003

/S/ ANTHONY N.

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

PRESIDENT AND CHIEF EXECUTIVE OFFICER

I, Charles K.

Dargan, II, Chief Financial Officer of the Company, certify that: