What changed in this filing

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Item 1. Financial Statements

2003-11-14 compared with 2003-08-14 · 175 added, 190 removed, 277 unchanged (57% of the section changed)

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CONSOLIDATED BALANCE SHEETS

June 30 March 31

September 30 March 31

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Trade receivables (net of allowance for doubtful accounts of $6,090

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

at September 30, 2003 and $6,090 at March 31, 2003) 185,869 140,646

Prepaid expenses and other current assets 40,312 35,284

Current assets held for sale -- 298,200

Current assets from discontinued operations -- 23,029

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LIABILITIES and SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

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

Current liabilities from discontinued operations -- 52,714

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COMMON SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

Common stock:

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and outstanding:

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

at March 31, 2003 201,010 192,752

20,390,256 at September 30, 2003 and 19,275,211 at

March 31, 2003 203,903 192,752

Additional paid-in capital 67,535,476 66,163,351

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Total common shareholders' equity 3,016,867 3,309,727

Total shareholders' equity 2,917,705 3,309,727

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

Total liabilities and shareholders' equity $ 3,440,199 $ 4,648,556

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended

Three Months Ended Six Months Ended

September 30, September 30,

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

2003 2002 2003 2002

Cost of sales:

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

$ 373,172 $ 295,188 $ 726,834 $ 655,167

Cost of revenue:

63,124 108,644 145,512 180,354

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

Gross profit 310,048 186,544 581,322 474,813

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

Other income 206,345 104,841

Operating loss from continuing

operations (1,168,267) (1,555,568) (1,933,172) (2,634,843)

Other income (expense) 2,082 92,370 (1,447) 197,754

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

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

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

Loss from continuing operations (1,166,185) (1,463,198) (1,934,619) (2,437,089)

Income from discontinued operations 10,108 234,047 105,834 173,381

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Net loss (1,156,077) (1,229,151) (1,828,785) (2,263,708)

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

Other comprehensive income (loss) -

Translation adjustment 294 (11,944) 15,267 2,287

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Diluted $ (0.06) $ (0.07) $ (0.09) $ (0.13)

Weighted average shares used in per share

calculation, basic and diluted 19,730,808 17,382,241

Weighted average shares used in per

share calculation, basic and diluted 20,225,139 17,802,122 19,980,964 17,591,807

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

September 30,

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

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Cash flows from operating activities:

Net loss $ (1,828,785) $ (2,263,708)

Loss from discontinued operations -- 139,887

(Income) from discontinued operations (105,834) (173,381)

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

Loss from continuing operations (1,934,619) (2,437,089)

Foreign currency translation adjustment 15,267 2,287

Adjustments to reconcile net loss from continuing

operations to net cash used in operating activities

from continuing operations:

Adjustments to reconcile net loss from continuing operations to

net cash used in operating activities from continuing operations:

Depreciation and amortization 108,266 665,029

Compensation expense related to stock and stock

options issued for services 378,650 21,054

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

Compensation expense related to stock and stock options issued

for services 1,293,377 22,921

Amortization of advances on technology sales -- (140,244)

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Non-cash settlement of liabilities 44,580 41,780

Changes in assets and liabilities net of acquired

assets and liabilities due to acquisitions:

Changes in assets and liabilities:

Accounts and other receivables (45,223) 5,474

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Deferred revenue 29,947 (49,606)

Advances on technology sales -- 6,882

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Net cash provided by discontinued operations -- 223,908

Net cash provided by (used in) discontinued operations 77,572 (41,515)

Net decrease in cash and cash equivalents (424,272) (1,293,133)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Three Months Ended

Six Months Ended

September 30,

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

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SUPPLEMENTAL CASH FLOW DISCLOSURE:

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INVESTING AND FINANCING ACTIVITIES:

Additional non-cash purchase consideration paid to

shareholder of Cross Communications, Inc.

to the third year share price guarantee and settlement

of the Merger Agreement $ 30,815 $ --

Additional non-cash purchase consideration paid to shareholder

of Cross Communications, Inc.

pursuant to the third year

share price guarantee and settlement of the Merger Agreement $ 30,815 $ --

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

Non-cash compensation expense due to variable accounting

for repriced stock options $ 347,835 $ --

Non-cash compensation expense due to variable accounting for

repriced stock options $ 1,262,562 $ --

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FORMATION AND BUSINESS OF THE COMPANY:

Semotus(TM) Solutions, Inc.

("Semotus" or the "Company"), changed its name from

Datalink.net, Inc.

as of January 11, 2001.

The Company, originally Datalink

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

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.

of the transaction, the Company also acquired a Canadian corporation, DSC

Datalink Systems Corporation, incorporated in Vancouver, British Columbia, now

named Semotus Systems Corp.

BUSINESS OF THE COMPANY:

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.

For more information please go to our website at http://www.semotus.com.

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The consolidated balance sheet as

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.

of September 30, 2003, the consolidated statements of operations and

comprehensive loss for the three and six month periods ended September 30, 2003

and 2002, and the consolidated statements of cash flows for the six months ended

September 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.

opinion of management, all adjustments (including normal recurring accruals)

considered necessary for a fair presentation have been included.

results for the three and six month periods ended September 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 omitted.

The Company believes that

the disclosures provided are adequate to make the information presented not

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

The consolidated financial statements include the accounts of the Company and

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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.

WizShop's operations have also been discontinued as of September 30,

All other subsidiaries generate revenues from the sales of products and

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RECENT PRONOUNCEMENTS

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 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.Adoption of EITF 00-21 did not have a material impact on the

Company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No.

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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

The application of this interpretation has not had 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.

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

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

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clarifies financial accounting and reporting for derivative instruments,

including certain derivative instrument embedded in other contracts, and for

including certain derivative instruments embedded in other contracts, and for

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

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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.

Instruments with Characteristics of both Liabilities and

Equity." SFAS No.

150 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 and otherwise is effective as of the beginning of the first

interim period beginning after June 15, 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.

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.

As of September 30,

2003, the adoption of SFAS No.

150 has not had a material impact on the

Company's results of operations or financial condition.

In the three and six months ended September 30, 2002 Other income is

substantially comprised of interest income and expense as well as amortization

of advances from technology sales received in previous periods, and the owner's

fees and offsetting interest income recognized, related to the technology sales.

See the Consolidated Statement of Operations and Comprehensive Loss and Notes to

the Financial Statements in our Annual Report on Form 10-K for the year ended

March 31, 2003.

For the three and six months ended September 30, 2003, other

income and expense is primarily the net of interest income and interest expense.

STOCK-BASED COMPENSATION EXPENSE

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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

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

than 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, "Accounting for Certain Transactions Involving

Stock Compensation", and accordingly, compensation expense was recorded in the

three and six months ended September 30, 2003, since the current market price of

the underlying stock exceeded the exercise price on the date the grant was

The following is a summary of the effect on net loss and per share 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 SIX MONTHS ENDED

SEPTEMBER 30, SEPTEMBER 30,

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

2003 2002 2003 2002

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Net loss, as reported $ (1,156,077) $ (1,229,151) $ (1,828,785) $ (2,263,708)

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Total stock-based employee compensation expense

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

determined under intrinsic value based method for all

awards and variable accounting for repriced options 914,727 -- 1,262,562 --

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Total stock-based employee compensation expense

determined under fair value based method for all awards (95,103) (7,700) (126,242) (13,664)

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Pro forma net loss (336,453) (1,236,850) (692,465) (2,277,372)

Net income (loss) per share:

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Net loss per share:

Basic - as reported $ (0.06) $ (0.07) $ (0.09) $ (0.13)

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Basic - pro forma $ (0.02) $ (0.07) $ (0.03) $ (0.13)

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Diluted - as reported $ (0.06) $ (0.07) $ (0.09) $ (0.13)

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Diluted - pro forma $ (0.02) $ (0.07) $ (0.03) $ (0.13)

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

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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

to calculate diluted EPS as their effect is anti-dilutive.

Basic EPS is computed as net loss divided by

the weighted average number of common shares outstanding for the period.

EPS reflects the potential dilution that could occur from common shares issuable

through stock options, warrants and other convertible securities.

equivalent shares are excluded from the computation of net loss per share if

their effect is anti-dilutive.

For the three and six months ended September 30, 2003 and 2002, 4,357,479

potential shares and 7,174,563 potential shares, respectively, were excluded

from the shares used to calculate diluted EPS as their effect is anti-dilutive.

DISCONTINUED OPERATIONS.

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Bankruptcy Code on August 19, 2002.

WizShop's operations were also discontinued as of September 30, 2003, as it was

not expected to make a significant contribution to the Company's future

profitability since WizShop does not have any additional contracts for its

online software marketing business, the last of which was completed as of March

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

7 unchanged sentences

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, 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.

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

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

September 30, 2003 and 2002.

In the 2003 fiscal year, the net income from

discontinued operations of $10,108 and $105,834 in the three and six months

ended September 30, 2003 is comprised solely of the operations of WizShop.

Substantially all of the income was from a legal settlement.

The net income from

discontinued operations of $234,047 and $173,381 for the three and six months

ended September 30, 2002 consisted of a net loss from operations in the three

and six months ended September 30, 2002 of $4,935 and $127,770 respectively at

Five Star, net income from operations of $ 2,225 and $7,004 respectively at

Wares, a net loss from operations of $543 and $22,375 respectively at ADA and

net income of $237,300 and $316,522 respectively at WizShop.

A net gain upon

disposition of the assets and liabilities of Five Star and Wares of $128,582 was

recognized at March 31, 2003.

COMMITMENTS AND CONTINGENCIES:

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of the employees (including executive officers) and Board members of the

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

order to sustain the incentivization of its employees.

The option grants were

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

of the Company's common stock as of the reprice date) and an exercise price of

In light of the reductions in work force and salary reductions, the

Board of Directors deemed it advisable to reprice the options to provide a

retention incentive for the remaining employees.

The option grants were repriced

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

Company's common stock as of the reprice date) and an exercise price of $0.17

per share (110% of the fair market value at the date of reprice) for those

3 unchanged sentences

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

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 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 any additional litigation contingencies.

compensation expense in the amount of $914,727 and $1,262,562 was required to be

recognized in the three months and six months ended September 30, 2003

respectively, and expense will be recognized in the future if the stock price

continues to be above the revised exercise price of the options.

SEGMENT INFORMATION

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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