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Item 1. Financial Statements

2003-08-14 compared with 2003-02-13 · 242 added, 323 removed, 225 unchanged (72% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

DECEMBER 31 MARCH 31

ASSETS 2002 2002

June 30 March 31

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

CURRENT ASSETS:

Cash and cash equivalents (including restricted cash of

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

Cash and cash equivalents $ 1,745,302 $ 1,976,062

Trade receivables (net of allowance for doubtful accounts of

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

Income and GST tax receivable 250 3,823

Other receivables 46,203 60,395

Prepaid expenses 107,721 167,998

Net current assets from discontinued operations -- 113,343

$6,090 at June 30, 2003 and $77,090 at March 31, 2003) 186,155 140,646

Prepaid expenses and other current assets 39,772 52,161

Current assets held for sale -- 298,200

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

1 unchanged sentence

Property and equipment, net 292,081 342,614

Capitalized contract, net 144,238 576,958

GMP intellectual property, net 250,000 1,000,000

Goodwill 2,474,597 2,474,597

Net noncurrent assets from discontinued operations 16,630 21,804

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

Non-current assets held for sale -- 408,732

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

3 unchanged sentences

Accounts payable $ 387,526 $ 392,826

Accrued expenses and other current liabilities 150,746 339,787

Accrued vacation 64,889 69,808

Other accrued liabilities 52,690 79,999

Notes payable 37,925 56,224

Current portion of capital lease obligations 20,977 23,731

Current portion of advances on technology sales 283,074 269,109

Deferred revenue 108,748 79,119

Net current liabilities from discontinued operations 142,490 --

Current liabilities related to assets held for sale -- 300,717

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

1 unchanged sentence

Capital lease obligation, net of current portion 3,829 15,189

Advances on technology sales, net of current portion 345,853 566,542

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

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

1 unchanged sentence

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

Minority Interest 391,928 202,528

Commitments and contingencies (Note 8)

PREFERRED SHAREHOLDERS' EQUITY:

Convertible preferred stock, Series B:

$0.001 par value;

liquidation value;

5,000,000 shares;

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

31, 2002 (Note 6) -- 469

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

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

Total preferred shareholders' equity -- 5,682,456

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

COMMON SHAREHOLDERS' EQUITY

2 unchanged sentences

50,000,000 shares;

issued and outstanding:

18,121,365 at December 31, 2002 and

and outstanding:

20,100,997 at June 30, 2003 and 19,275,211

at March 31, 2003 201,010 192,752

6 unchanged sentences

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

Total liabilities, minority interest, preferred and

common shareholders' equity $ 6,354,746 $ 10,135,179

Total liabilities and common shareholders' equity $ 3,693,451 $ 4,648,556

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

3 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

THREE MONTHS ENDED NINE MONTHS ENDED

DECEMBER 31, DECEMBER 31,

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

2002 2001 2002 2001

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

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

Enterprise and commerce sales 250,212 255,380 766,775 921,334

Professional and related services 11,475 17,512 51,744 334,274

Logistics 274,512 316,662 866,898 1,186,303

Three Months Ended

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

Total Revenue 875,169 935,975 2,648,190 3,459,101

$ 353,662 $ 614,094

Cost of sales:

Wireless Services 68,160 108,785 246,130 420,031

Enterprise and commerce sales 144,240 155,137 433,895 543,249

Professional and related services 2,587 1,872 5,858 161,538

Logistics 93,529 141,567 359,844 597,249

82,388 215,951

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

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

Gross Profit 271,274 398,143

Operating Expenses from continuing operations:

(Exclusive of depreciation and amortization

and stock, option and warrant expense)

Operating expenses:

Research and development 161,676 224,854

1 unchanged sentence

General and administrative 367,041 541,523

Impairment of goodwill -- -- -- 650,000

Depreciation and amortization 54,958 333,275

Research and development 982 22,605 118,810 72,013

General and administrative 328,942 807,959 896,935 2,588,997

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

Stock, option and warrant expense 378,650 21,054

Sales and marketing -- 21,000 -- 63,000

General and administrative 1,362 74,847 24,283 323,275

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

2 unchanged sentences

Operating loss from continuing operations (879,049) (999,512)

Net interest income 9,756 68,402 45,001 220,305

Other income 206,345 104,841

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

Total interest and other income 110,414 137,181 480,456 428,699

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

Net loss before minority interest (575,340) (1,734,720) (2,747,772) (7,605,738)

Minority Interest 3,711 -- 37,981 --

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

Net loss from continuing operations (672,704) (894,671)

Loss from discontinued operations (315) (235,679) (125,860) (971,392)

Net loss from discontinued operations -- (139,887)

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

Net loss (672,704) (1,034,558)

Other comprehensive income loss -

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

Other comprehensive income - Translation adjustment 14,973 14,231

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

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

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

Three Months Ended

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

1 unchanged sentence

Net loss $ (672,704) $(1,034,558)

Loss from discontinued operations -- 139,887

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

Net loss from continuing operations (672,704) (894,671)

Foreign currency translation adjustment 14,973 14,231

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

from continuing operations:

Depreciation and amortization 54,958 333,275

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

Compensation expense related to stock and stock

options issued for services 378,650 21,054

Net amortization of contract income -- (105,855)

1 unchanged sentence

Amortization of notes receivable 18,940 (82,230)

Impairment of goodwill -- 650,000

Loss from Sale of Assets 1,220 --

Net gain from disposition of assets (3,618) --

Non-cash settlement of liabilities (5,543) 30,152

Loss from discontinued operations 125,860 971,392

Changes in assets and liabilities net of acquired assets and

liabilities due to acquisitions:

Changes in assets and liabilities net of acquired

assets and liabilities due to acquisitions:

Accounts and other receivables (45,509) (35,356)

Inventory -- (7,065)

Prepaid expenses and other assets 12,388 19,616

2 unchanged sentences

Deferred revenue 29,629 (37,385)

Advances on Technology Sales 11,704 --

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

2 unchanged sentences

Cash flows from investing activities:

Acquisition of property and equipment (22,083) (20,707)

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

Sale of Fixed Assets 560 --

Sale of Kinetidex technology -- 350,000

Minority investment in subsidiary 210,379 --

Acquisition of property & equipment -- (17,937)

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

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

Net cash used in investing activities -- (17,937)

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

3 unchanged sentences

Proceeds from exercise of options and warrants 52,281 --

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

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

Net cash used in financing activities (161,809) (188,625)

Net cash provided by (used in) financing activities 24,604 (22,119)

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

9 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

NINE MONTHS ENDED

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

Three Months Ended

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

6 unchanged sentences

INVESTING AND FINANCING ACTIVITIES:

Non-cash purchase consideration for the acquisition of

Wizshop.com, Inc.

and Application Design Associates,

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

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

Additional non-cash purchase consideration paid to

shareholder of Cross Communications, Inc.

pursuant to the

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

to the third year share price guarantee and settlement

of the Merger Agreement $ 30,815 $ --

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

Additional non-cash purchase consideration paid to shareholders

of WizShop.com, Inc.

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

Non-cash compensation expense due to variable accounting

for repriced stock options $ 347,835 $ --

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

3 unchanged sentences

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

Property and equipment purchased through the issuance

of capital leases $ -- $ 122,971

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

Warrants issued as part of the consideration for repurchase

of preferred stock $ 90,497 $ --

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

See accompanying notes to consolidated financial statements.

30 unchanged sentences

The consolidated balance sheet as

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

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

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

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

without audit and in accordance with the instructions to Form 10-Q and

Regulation S-K.

In the opinion of management, all adjustments (including normal

recurring accruals) considered necessary for a fair presentation have been

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

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

expected for the year ending March 31, 2003.

Certain information and footnote

disclosures normally included in financial statements prepared in accordance

with generally accepted accounting principles have been condensed or omitted.

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

information presented not misleading.

These consolidated financial statements

should be read in conjunction with the audited consolidated financial statements

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

year ended March 31, 2002.

of June 30, 2003, the consolidated statements of operations and comprehensive

loss for the three-month periods ended June 30, 2003 and 2002, and the

consolidated statements of cash flows for the three months ended June 30, 2003

and 2002 have been prepared by the Company, without audit and in accordance with

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

In the opinion of management,

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

fair presentation have been included.

Operating results for the three-month

period ended June 30, 2003 are not necessarily indicative of the results that

may be expected for the year ending March 31, 2004.

Certain information and

footnote disclosures normally included in financial statements prepared in

accordance with generally accepted accounting principles have been condensed or

The Company believes that the disclosures provided are adequate to make

the information presented not misleading.

These consolidated financial

statements should be read in conjunction with the audited consolidated financial

statements and related notes included in the Company's Annual Report on Form

10-K for the year ended March 31, 2003.

The consolidated financial statements include the accounts of the Company and

2 unchanged sentences

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

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

Five Star Advantage, Inc., WizShop.com, Inc.

and Application Design Associates,

All significant intercompany transactions and balances have been eliminated

in consolidation.

Operations of the Canadian subsidiary consist mainly of

research and development and engineering on behalf of the parent company.

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

28, 2002 and August 19, 2002, respectively.

All other subsidiaries generate

revenues from the sales of products and services.

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

Five Star's and Wares on the Web's operations have been discontinued as

of June 28, 2002 and August 19, 2002, respectively.

ADA has been sold as of May

WizShop's remaining contract for customer loyalty software expired on

March 31, 2003 and currently the subsidiary has no further contracts in process.

All other subsidiaries generate revenues from the sales of products and

The preparation of consolidated financial statements in conformity with

5 unchanged sentences

RECENT PRONOUNCEMENTS

In June 2002, the FASB issued SFAS No.

146, "Accounting for Exit or Disposal

Activities" ("SFAS 146").

SFAS 146 addresses significant issues regarding the

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

and disposal activities, including restructuring activities that are currently

accconted for under EITF No.

94-3, "Liability Recognition for Certain Employee

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

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

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

benefits that employees who are involuntarily terminated receive under the terms

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

an individual deferred-compensation contract.

SFAS 146 is effective for exit or

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

application is encouraged.

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

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

In November 2002, the FASB issued FASB Interpretation NO.

45 ("FIN 45"),

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

INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, AN INTERPRETATION OF FASB

STATEMENTS NO.

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

45 clarifies the requirements of FASB Statement No.

5, "ACCOUNTING FOR

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

issuance of certain types of guarantees.

The disclosure provisions of the

Interpretation are effective for financial statements of interim or annual

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

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

Company's financial position or results of operations.

In December 2002, the FASB issued SFAS No.

11 unchanged sentences

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 June 30, 2003, the Company does not have any variable interest entities.

In November 2002, the Emerging Issues Task Force issued its final consensus on

Revenue Arrangements with Multiple Deliverables.

This guidance is effective for

revenue arrangements entered into in fiscal periods beginning after June 15,

2003 or alternatively, entities may elect to report the change in accounting as

a cumulative-effect adjustment.

EITF 00-21 discusses criteria necessary to

determine when an arrangement

may be viewed to have separate units of accounting (and thus revenue) and when

an arrangement should be viewed as a single unit of accounting.

The Company is

currently reviewing how this might affect revenue recognition for arrangements

the Company could enter into that have multiple deliverables.

At June 30, 2003,

Semotus does not have any contracts with multiple deliverables.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on

Derivative Instruments and Hedging Activities".

This Statement amends and

clarifies financial accounting and reporting for derivative instruments,

including certain derivative instrument embedded in other contracts, and for

hedging activities under SFAS 133, "Accounting for Derivative Instruments and

Hedging Activities".

The Statement clarifies and creates more consistent

reporting of contracts as either derivatives or hybrid financial instruments.

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

The Company historically has not used derivatives or hedging instruments.

Currently, the Company does have a small exposure to the Canadian - U.S.

exchange rate, but has not deemed it necessary to hedge this exposure.

In May 2003, the FASB issued SFAS No.

150 "Accounting for Certain Financial

Instruments with Characteristics of both Liabilities and Equity." SFAS No.

establishes standards for how an issuer classifies and measures certain

financial instruments with characteristics of both liabilities and equity and is

effective for financial instruments entered into or modified after May 31, 2003.

The Company adopted SFAS No.

150 on June 1, 2003 and does not expect the

adoption to have a material impact on the Company's results of operations or

financial condition

Other income is substantially comprised of the $210,194 litigation settlement

with Earthlink offset somewhat by miscellaneous expenses.

Wizshop.com, Inc., one

of our wholly-owned subsidiaries, filed a lawsuit against Earthlink Network,

and Earthlink Operations, Inc.

(collectively "Earthlink") on April 15, 2002

in the California Superior Court.

This suit alleged eight causes of action

against Earthlink, including breach of written agreement, promissory fraud,

fraudulent concealment, breach of fiduciary duty, constructive fraud, unfair

business practices, accounting and constructive trust.

The suit arose out of

Earthlink's breach of the written agreement with Wizshop, and Earthlink's

apparent acts of fraud in connection with Earthlink's failure and refusal to

accurately account for and pay to Wizshop revenues to which Wizshop was entitled

to under the agreement..

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.

STOCK-BASED COMPENSATION EXPENSE

The Company accounts for employee stock-based compensation plans using the

intrinsic value method of recognition and measurement principles as delineated

in APB Opinion 25, "Accounting for Stock Issued to Employees" and related

interpretations.

No stock based employee compensation cost is reflected in the

statement of operations upon granting of stock options, as all options granted

under the Company's Stock Option Plan had an exercise price equal to the market

value of the underlying common stock on the day of grant.

However, since certain

employee stock options were repriced in October 2002, the Company accounted for

those options under the variable accounting requirements of APB Opinion 25 and

FIN 44, and accordingly, compensation expense was recorded since the current

market price of the underlying stock exceeded the exercise price on the date the

grant was repriced.

The following is a summary of the effect on net income (loss) and per share

impacts if the Company had applied a fair value method prescribed by SFAS No.

123, "Accounting for Stock-Based Compensation" to account for stock-based

compensation for the periods indicated:

THREE MONTHS ENDED

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

Net loss, as reported $ (672,704) $(1,034,558)

Total stock-based employee compensation expense

determined under intrinsic value based method for all awards 347,835 --

Total stock-based employee compensation expense

determined under fair value based method for all awards (31,139) (5,964)

Pro forma net loss (356,008) (1,040,522)

Net income (loss) per share:

Basic - as reported $ (0.03) $ (0.06)

Basic - pro forma $ (0.02) $ (0.06)

Diluted - as reported $ (0.03) $ (0.06)

Diluted - pro forma $ (0.02) $ (0.06)

These pro forma amounts may not be representative of the effects for future

years as options vest over several years and additional awards are generally

made each year.

EARNINGS PER SHARE (EPS) DISCLOSURES:

The Company has adopted SFAS No.

128 "Earnings Per Share " (EPS).

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.

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

In accordance with SFAS No.

128 "Earnings Per Share " (EPS), the Company reports

Basic and Diluted EPS as follows:

Basic EPS is computed as net income (loss)

divided by the weighted average number of common shares outstanding for the

Diluted EPS reflects the potential dilution that could occur from common

shares issuable through stock options, warrants and other convertible

Common equivalent shares are excluded from the computation of net

loss per share if their effect is anti-dilutive.

For the three months ended June 30, 2003 and 2002, 4,456,157 potential shares

and 7,517,303 potential shares, respectively, were excluded from the shares used

2 unchanged sentences

As part of Semotus' Centralization and Consolidation Plan, which is further

described in the Company's March 31, 2002 10-K, Semotus reduced its e-commerce

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

services in that segment.

described in the Company's March 31, 2003 Form 10-K, Semotus reduced its

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

and services in that segment.

FiveStar was not expected to make a significant

3 unchanged sentences

operations as of the end of June 2002.

Furthermore, FiveStar filed for

Furthermore, Five Star filed for

liquidation under Chapter 7 of the U.S.

8 unchanged sentences

Bankruptcy Code on August 19, 2002.

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.

In May, 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 FAS 144, "Accounting for the Impairment or Disposal of

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

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

FiveStar was part of the Enterprise and Commerce Sales segment.

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

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

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

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

discontinued in the nine months ended December 31, 2002.

It also was part of the

Enterprise and Commerce Sales segment.

The disposal of the assets and

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

Bankruptcy Court and a gain or

loss on disposal will be recognized at the time of the final disposition by the

Court, which is not expected to be material.

The major classes of assets and liabilities included in the discontinued

operations are as follows:

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

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

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

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

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

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

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

There was no revenue from the Fivestar operations in

the three months ended December 31, 2002.

Revenue from Wares recorded in the

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

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

respectively.

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

ended December 31, 2002.

REPURCHASE OF PREFERRED STOCK:

On December 31, 2002, Semotus Solutions, Inc.

and Brown Simpson Partners I, Ltd.

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

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

Mutual Release Agreement.

As part of the Agreement, Semotus repurchased from

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

Convertible Preferred Stock.

The Series B Convertible Preferred Stock was

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

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

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

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

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

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

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

an exercise price of $0.01 per share.

On January 24, 2003, Brown Simpson

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

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

Long-Lived Assets", the operations of FiveStar, Wares and ADA

have been recorded as discontinued operations in the three month period ended

June 30, 2002.

The net loss from discontinued operations of $139,887 consisted

of a net loss from operations of $122,835 at Five Star, net income from

operations of $4,779 at Wares and a net loss from operations of $21,831 at ADA

for the three months ended June 30, 2002.

A net gain upon disposition of the

assets and liabilities of Five Star and Wares of $128,582 was recognized at

March 31, 2003.

No gain or loss was recorded upon the disposition of the assets

and liabilities of ADA, however, a net loss from discontinued operations of

$677,069 was recorded as of March 31, 2003, mostly comprised of an impairment to

goodwill of $635,724.

COMMITMENTS AND CONTINGENCIES:

13 unchanged sentences

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

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

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

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

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

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

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

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

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

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

compensation expense in the amount of $347,835 was required to be recognized in

the three months ended June 30, 2003, and expense will be recognized in the

future if the stock price continues to be above the revised exercise price of

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

previously reported in Note 20 and Part II, Item 3 of Registrant's Form 10K for

previously reported in Note 22 and Part I, Item 3 of Registrant's Form 10K for

the year ended March 31, 2003.

Please also refer to Part II, Item 1 of this

report for additional litigation contingencies.

report for any additional litigation contingencies.

SEGMENT INFORMATION

Semotus' business has evolved into four segments:

wireless services, enterprise

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

Semotus' wireless services segment focuses in three areas:

Company hosted

solutions, client hosted (premise-based) solutions, and financial consumer

The Company creates wireless information products by customizing and

delivering actionable and time sensitive information whenever that information

is most valuable to the customer.

Services and applications are device agnostic

and protocol independent, integrating seamlessly into every enterprise

infrastructure and working with every wireless carrier and all text messaging

Semotus provides two different wireless solutions:

(i) Company-hosted

where Semotus hosts and manages the information on its servers and (ii) premise

based where Semotus installs and engineers the software and information on the

customer's servers.

Semotus' enterprise and commerce sales line of business provides online

transactional information..

The online services include website development and

maintenance, sales, marketing, and customer retention programs and services.

Semotus' professional services line of business provides customers with online

and wireless information and operations consulting, software engineering and

This line of business provides the software tools and management to

install and efficiently run online and wireless operations.

The professional and

related services business provides Semotus with access to customers who have

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.

All segment financial information presented is unaudited.

WIRELESS ENTERPRISE AND PROFESSIONAL AND LOGISTIC CORPORATE

SERVICES COMMERCE SALES RELATED SERVICES SYSTEM SALES AND OTHER TOTAL

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

AS OF AND FOR THE THREE MONTHS

ENDED DECEMBER 31, 2002

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

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

Gross Profit 270,810 105,972 8,888 180,983 -- 566,653

Operating loss* (16,330) 89,950 (496) 6,188 (765,066) (685,754)

Depreciation and amortization 28,922 43,471 -- 7,531 250,000 329,924

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

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

NINE MONTHS ENDED DECEMBER 31, 2002

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

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

Gross Profit 716,643 332,880 45,886 507,054 -- 1,602,463

Operating Loss* (830,801) 255,358 22,830 (41,772) (2,633,843) (3,228,228)

Depreciation and amortization 193,951 45,964 1,880 23,950 750,000 1,015,745

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

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

AS OF AND FOR THE THREE MONTHS

ENDED DECEMBER 31, 2001

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

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

Gross Profit 237,636 100,243 15,640 175,095 -- 528,614

Operating loss* (122,550) 45,551 4,148 (119,979) (1,679,071) (1,871,901)

Depreciation and amortization 73,742 21,744 7,486 8,393 719,199 830,564

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

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

NINE MONTHS ENDED DECEMBER 31, 2001

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

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

Gross Profit 597,159 378,085 172,736 589,054 -- 1,737,034

Operating Loss* (638,934) (177,929) (443,143) (133,640) (6,640,791) (8,034,437)

Depreciation and amortization 233,873 66,842 71,354 21,402 2,267,539 2,661,010

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

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

* Certain corporate marketing, research and development and general and

administrative costs have not been allocated to the segments and have been

included in "Corporate and other".

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

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

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

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

See Note 5, "Discontinued Operations".

After the Consolidation and Centralization Plan was largely completed by March

31, 2003, the Company determined that its ongoing operations were in one

segment, wireless and mobile enterprise software.

The Company's products consist

mainly of the Global Market Pro family of products and the Hiplink family of

Utilizing the definitions described in SFAS 131, "Disclosures about

Segments of an Enterprise and Related Information", the nature of the products

and services are all similar.

Accordingly, starting in the current fiscal year,

Semotus will report the single line of business of wireless and mobile

enterprise software and will no longer report operations from three prior

Enterprise and Commerce Sales, Professional and Related Services and

Further, per SFAS 131, the corresponding information for the earlier

period presented has been restated to conform to the single segment.

In the last fiscal year, WizShop did have revenue and expenses from its customer

loyalty contract, which have been included in the restated single segment.

the three months ended June 30, 2002,WizShop's revenue was $ 254,114 and the

operating expenses were $174,892, including $144,240 in cost of sales.

prior year this financial information was part of the Enterprise and Commerce

Sales segment.

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

What changed 10-Q

Item 1. Financial Statements