Ealixir, Inc. 10-K

ITEM 9A. 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. Further, 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. PART III We have omitted certain information from this Report that is required by Part III. 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. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item will be included in our Proxy Statement for the 2004 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, 2004, and is incorporated by reference into this Item. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item will be included in our Proxy Statement for the 2004 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, 2004, and is incorporated by reference into this Item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item will be included in our Proxy Statement for the 2004 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, 2004, and is incorporated by reference into this Item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item will be included in our Proxy Statement for the 2004 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, 2004, and is incorporated by reference into this Item. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required by this Item will be included in our Proxy Statement for the 2004 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, 2004, and is incorporated by reference into this Item. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) FINANCIAL STATEMENTS The following financial statements required by this item are submitted in a separate section beginning on page 278 of this report. Reports of Independent Registered Public Accounting Firms Consolidated Balance Sheets as of March 31, 2004 and 2003 Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2004, 2003 and 2002 Consolidated Statements of Common Shareholders' Equity for the years ended March 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements (a)(2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the notes thereto. (a)(3) EXHIBITS. Exhibit Number Description Location 2.1 Agreement of Merger by and among Datalink.net, Inc., Acquisition Wireless, Inc., Cross Communications, Inc., and Kathleen M. Wold made effective as of July 20, 2000. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 10QSB filed September 30, 2000. 2.2 Agreement of Merger by and among Datalink.net, Inc., Medical Acquisition Wireless, Inc. Simkin Inc. and J. Daniel Robinson made effective as of September 12, 2000. Incorporated by reference to Exhibit 2.2 to the Registrant's Form 10QSB filed September 30, 2000. 2.3 Agreement of Merger by and among Datalink.net, Inc., Wares Acquisition, Inc., ISS, Inc. and Stephen J. Casey made effective as of October 10, 2000. Incorporated by reference to Exhibit 2.3 to the Registrant's Form 10QSB filed September 30, 2000 2.4 Agreement of Merger by and among Datalink.net, Inc., Five Star Advantage, Inc., Five Acquisition Inc. and Jeff Gleckman dated December 8, 2000. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed January 12, 2001 2.5 First Amendment to Merger Agreement by and among Datalink.net, Inc. Five Acquisition, Inc., Five Star Advantage, Inc. and Jeff Gleckman, dated as of December 28, 2000. Incorporated by reference to Exhibit 2.2 to the Registrant's Form 10QSB filed January 12, 2001. 2.6 Merger Agreement by and among Datalink.net, Inc., Five Acquisition, Inc., Tech-ni-comm, Inc., and Jeff Gleckman, dated as of December 8, 2000. Incorporated by reference to Exhibit 2.3 to the Registrant's Form 10QSB filed January 12, 2001. 2.7 First Amendment to Merger Agreement by and among Datalink.net, Inc., Five Acquisition, Inc., Tech-ni-comm, Inc., and Jeff Gleckman, dated as of December 28, 2000. Incorporated by reference to Exhibit 2.4 to the Registrant's Form 10QSB filed January 12, 2001. 2.8 Merger Agreement by and among Semotus Solutions, Inc., WizShop.com, Inc. and Wiz Acquisition, Inc. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed May 17, 2001. 2.9 Merger Agreement by and among Semotus Solutions, Inc., ADA Acquisition, Inc. Application Design Associates, Inc. and John Hibben. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed May 30, 2001. 2.10 Common Stock Purchase Agreement by and among Application Design Associates, Inc., John Hibben and 2007978 Ontario, Inc. dated January 18, 2002. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 10Q filed February 14, 2002. 2.11 Agreement to Amend the Merger Agreement and Employment Agreement by and among Semotus Solutions, Inc., Application Design Associates, Inc. and John Hibben dated January 18, 2002. Incorporated by reference to Exhibit 2.2 to the Registrant's Form 10Q filed February 14, 2002. **2.12 Agreement to Amend the Stock Purchase Agreement and terminate the Warrant by and among Application Design Associates, Inc., Semotus Solutions, Inc. and 2007978 Ontario, Inc. dated February 15, 2002. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed February 28, 2002. 2.13 Preferred Buy Back and Mutual Release Agreement by and among Semotus Solutions, Inc. and Brown Simpson Partners I, Ltd. dated December 31, 2002. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed January 13, 2003. 2.14 Notice of Exercise of Option pursuant to the Stock Purchase Agreement dated April 24, 2003. Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8-K filed May 7, 2004. 2.15 Settlement Agreement and Mutual General Release Agreement by and among Semotus Solutions, Inc., WizShop.com, Inc., Earthlink, Inc. (as successor-in-interest to Earthlink Network, Inc. and Earthlink Operations, Inc.) and Howard Lefkowitz dated May 14, 2003. Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed May 28, 2004. 3.1 Articles of Incorporation. Incorporated by reference to Exhibit No. 2 to the Rregistrant's Form 8-A filed on July 22, 1996 (No. 0-21069). 3.2 Bylaws of the Company. Incorporated by reference to Exhibit No. 3 to the Registrant's Form 8-A filed on July 22, 1996 (No. 0-21069). 3.3 Amended and Restated Bylaws of the Company dated January 24, 2000. Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K Filed on February 17, 2000. 3.4 Certificate of Amendment to the Articles of Incorporation dated February 17, 1998. Incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-KSB for the year ended March 31, 1998. 3.5 Certificate of Amendment to Articles of Incorporation dated July 6, 1999. Incorporated by reference to Exhibit 3.4 to the Registrant's Form 8-A12B filed on December 21, 1999. 3.6 Certificate of Amendment to Articles of Incorporation Dated January 12, 2001. Incorporated by reference to Exhibit 3.5 to the Registrant's Form 10-KSB for the year ended March 31, 2001. 4.1 Specimen Stock Certificate. Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A-12B filed on December 21, 1999. 4.2 Certificate of Designation of the Series B Convertible Preferred Stock. Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed February 17, 2000. 4.3 Warrant to purchase up to 375,000 shares of common stock issued to Brown Simpson Strategic Fund, Ltd., dated February 9, 2000. Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K filed February 17, 2000. 4.4 Warrant to purchase up to 201,923 shares of common stock issued to Brown Simpson Strategic Fund, L.P., dated February 9, 2000. Incorporated by reference to Exhibit 4.3 to the Registrant's Form 8-K filed February 17, 2000. 4.5 Warrant to purchase up to 76,923 shares of common stock issued to H.C. Wainwright & Co., Inc., dated February 14, 2000. Incorporated by reference to Exhibit 4.4 to the Registrant's Form 8-K filed February 17, 2000. *4.6 Warrant to purchase up to 150,000 shares of common stock issued to Anthony N. LaPine, dated December 1, 1999. Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K filed April 21, 2000. **4.7 Warrant to Purchase 150,000 shares of Semotus' common stock issued to 2007978 Ontario, Inc. Dated January 18, 2002. Incorporated by reference to Exhibit 4.1 to the Registrant's Form 10Q filed February 14, 2002. 4.8 Warrant to purchase up to 846,154 shares of common stock issued to Brown Simpson Partners, I, Ltd. dated December 31, 2002. Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed January 13, 2003. 10.1 Agreement Concerning the Exchange of Common Stock Between Datalink Systems Corporation and Datalink Communications Corporation. Incorporated by reference to Exhibit No. 10 to the Registrant's Form 8-K dated June 27, 1996. 10.2 Application Software Purchase Agreement between Datalink Systems Corporation and Shalcor Investments. Incorporated by reference to Exhibit No. 10.1 to the Registrant's Form 8-K dated August 26, 1996. 10.3 Management and Marketing Agreement between Datalink Systems Corporation and Shalcor Investments. Incorporated by reference to Exhibit No. 10.2 to the Registrant's Form 8-K dated August 26, 1996. 10.4 8% Secured Term Note. Incorporated by reference to Exhibit No. 10.3 to the Registrant's Form 8-K dated August 26, 1996. *10.5 Employment Agreement with Anthony LaPine dated May 1, 1996. Incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended March 31, 1997. 10.6 Application Software Purchase Agreement between Datalink Systems Corporation and 605285 Ontario Inc. Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K dated May 6, 1997. 10.7 Management and Marketing Agreement between Datalink Systems Corporation and 605285 Ontario. 1997. Incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K dated May 6, 1997. 10.8 6% Secured Term Note. Incorporated by reference to Exhibit 10.3 to the Registrant's Form 8-K dated May 6, 1997. *10.9 Loan Forgiveness Agreement with Anthony LaPine dated January 19, 2000. Incorporated by reference to Exhibit 10.20 to the Registrant's Form 10KSB dated June 29, 2000. *10.10 Secured Promissory Note with Anthony LaPine dated February 29, 2000. Incorporated by reference to Exhibit 10.19 to the Registrant's Form 10KSB dated June 29, 2000. 10.11 Option to Repurchase Technology Agreement with 605285 Ontario Inc. dated June 14, 2000. Incorporated by reference to Exhibit 10.21 to the Registrant's Form 10KSB dated June 29, 2000. 10.12 Termination and Sale Agreement by and among Micromedix, Inc. Semotus Solutions, Inc. and Simkin, Inc. dated May 31, 2001. Incorporated by reference to Exhibit 99.1 to the Registrant's Form 10Q filed August 15, 2001. *10.13 Loan Forgiveness Agreement with Anthony LaPine dated March 29, 2002. Incorporated by reference to Exhibit 10.13 to the Registrant's Form 10K filed July 1, 2002. 10.14 Form of Common Stock and Warrant Purchase Agreement by and among Semotus Solutions, Inc. and each of Redwood Capital Partners, Inc., Bara Limited, Southshore Capital Fund Limited, James M. Totaro and Enable Growth Partners, LP dated January 14, 2004. Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10Q filed on February 12, 2004. 10.15 Form of Warrant dated January 14, 2004 by and among Semotus Solutions, Inc. and each of Redwood Capital Partners, Inc., Bara Limited, Southshore Capital Fund Limited, James M. Totaro, Enable Growth Partners, LP., Richard Rosenblum, David Stefansky, vFinance Investments, Inc. and Arend Verweij. Incorporated by reference to Exhibit 10.2 to the Registrant's Form 10Q filed on February 12, 2004. 16.1 Letter from BDO Seidman, LLP dated July 17, 2002. Incorporated by reference to Exhibit 16.1 to the Registrant's Form 8-K filed on July 22, 2002. 16.2 Letter from BDO Seidman, LLP dated August 26, 2002. Incorporated by reference to Exhibit 16.1 to the Registrant's Form 8-K filed on August 26, 2002. 21 Subsidiaries of the Registrant. Filed electronically herewith. 23.1 Consent of Burr, Pilger & Mayer, LLP. Filed electronically herewith. 23.2 Consent of BDO Seidman, LLP. Filed electronically herewith. 99.1 Securities Purchase Agreement, dated as of February 9, 2000, by and among the Company, Brown Simpson Strategic Growth Fund, Ltd. and Brown Simpson Strategic Growth Fund. Incorporated by reference to Exhibit 99.1 to the Registrant's 8-K Filed on February 17, 2000. 99.2 Registration Rights Agreement, dated as of February 9, 2000, by and among the Company, Brown Simpson Strategic Growth Fund, Ltd. and Brown Simpson Strategic Growth Fund, L.P. Incorporated by reference to Exhibit 99.2 to the Registrant's 8-K Filed on February 17, 2000. 99.3 Registration Rights and Lock-Up Agreement by and among Semotus Solutions, Inc. and John Hibben. Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8-K filed May 30, 2001. 99.4 Form of Registration Rights Agreement by and among Semotus Solutions, Inc., vFinance Investments, Inc. and each of Redwood Capital Partners, Inc., Bara Limited, Southshore Capital Fund Limited, James M. Totaro and Enable Growth Partners, LP dated January 14, 2004. Incorporated by reference to Exhibit 4.1 to the Registrant's Form 10Q filed on February 12, 2004. 99.5 Consent of Anthony LaPine Filed electronically herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.6 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. ** This Warrant was cancelled, ab initio, and effectively replaced with 150,000 common stock options under the Company's 1996 Stock Option Plan. (b) REPORTS ON FORM 8-K. We filed three Current Reports on Form 8-K during the fourth quarter ended March 31, 2004. Two 8-Ks were filed on January 26, 2004 with respect to a private placement of $1,028,750. An 8-K was filed on February 13, 2004 with respect to our financial results for the third quarter ended December 31, 2003. (c) EXHIBITS. The exhibits required by this Item are listed under Item 15(a)(3). (d) FINANCIAL STATEMENTS SCHEDULES. The financial statement schedules required by this Item are listed under Item 15(a)(2). INDEX TO FINANCIAL STATEMENTS PAGE(S) Reports of Independent Registered Public Accounting Firms .............................................. 27 Consolidated Financial Statements: Consolidated Balance Sheets, March 31, 2004 and 2003 ..................................... 28 Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2004, 2003 and 2002 .................................. 29 Consolidated Statements of Common Shareholders' Equity for the years ended March 31, 2004, 2003 and 2002 ......................................... 30 Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002 ............................................................. 32 Notes to Consolidated Financial Statements ................................................... 34 REPORT OF BURR, PILGER & MAYER LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SEMOTUS SOLUTIONS, INC.: We have audited the accompanying consolidated balance sheets of Semotus Solutions, Inc., and subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive loss, shareholders' equity and cash flows for the years ended March 31, 2004 and 2003. 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. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 statements. 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 audits provide 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, 2004 and 2003 and the consolidated results of their operations and their cash flows for the years ended March 31, 2004 and 2003 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 May 28, 2004 REPORT OF BDO SEIDMAN, LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SEMOTUS SOLUTIONS, INC.: We have audited the accompanying consolidated statements of operations and comprehensive loss, common shareholders' equity and cash flows of Semotus Solutions, Inc. and subsidiaries for the year ended March 31, 2002. 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 audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform our audits 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 statements. 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 results of operations and cash flows of Semotus Solutions, lnc. and subsidiaries for the year 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 June 3, 2002 SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, 2004 March 31, 2003 CURRENT ASSETS: Cash and cash equivalents $ 1,717,052 $ 1,969,910 Trade receivables (net of allowance for doubtful accounts of $0.00 at March 31, 2004 and $6,090 at March 31, 2003) 191,945 140,646 Prepaid expenses and other current assets 63,972 35,284 Current assets of discontinued operations -- 23,029 Current assets held for sale -- 298,200 ------------ ------------ Total current assets 1,972,969 2,467,069 Property and equipment, net 148,820 342,614 Goodwill, net 1,430,141 1,430,141 Non-current assets held for sale -- 408,732 ------------ ------------ Total assets $ 3,551,930 $ 4,648,556 LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 75,413 $ 372,391 Accrued vacation 57,663 60,528 Other accrued liabilities 25,642 63,122 Notes payable -- 56,224 Current portion of capital lease obligations -- 17,609 Deferred revenue 131,756 79,119 Current liabilities from discontinued operations -- 52,714 Current liabilities related to assets held for sale -- 300,717 ------------ ------------ Total current liabilities 290,474 1,002,424 Capital lease obligation, net of current portion -- 15,189 Non-current liabilities related to assets held for sale -- 321,216 ------------ ------------ Total liabilities 290,474 1,338,829 ------------ ------------ Commitments and contingencies (Notes 20 and 22) ------------ ------------ SHAREHOLDERS' EQUITY: Stock: $0.01 par value; authorized: 50,000,000 shares; issued and outstanding: 22,687,469 at March 31, 2004 and 19,275,211 at March 31, 2003 226,875 192,752 Additional paid-in capital 68,235,881 66,163,351 Accumulated other comprehensive loss (74,328) (93,306) Notes receivable -- related parties (13,498) (91,281) Accumulated deficit (65,113,474) (62,861,789) ------------ ------------ Total shareholders' equity 3,261,456 3,309,727 ------------ ------------ Total liabilities and shareholders' equity $ 3,551,930 $ 4,648,556 See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Year Ended March 31, 2004 2003 2002 Revenues $ 1,338,373 $ 1,339,190 $ 1,416,940 Cost of revenues 323,848 352,285 539,692 ------------ ------------ ------------ Gross profit 1,014,525 986,905 877,248 Operating expenses: (Exclusive of depreciation and amortization and stock, option and warrant expense) Research and development 563,602 719,965 999,589 Sales and marketing 725,114 959,191 1,718,190 General and administrative 963,790 2,159,498 2,781,714 Impairment of goodwill -- -- 909,272 Impairment of intangible assets -- -- 3,420,000 Depreciation and amortization: Research and development 84,577 75,516 127,975 General and administrative 116,604 1,180,119 2,232,796 ------------ ------------ ------------ 201,181 1,255,635 2,360,771 Stock, option and warrant expense: Sales and marketing -- -- 88,000 General and administrative 952,473 52,455 408,181 ------------ ------------ ------------ 952,473 52,455 496,181 Total operating expenses 3,406,160 5,146,744 12,685,717 ------------ ------------ ------------ Operating loss from continuing operations (2,391,635) (4,159,839) (11,808,469) Net interest income 22,666 54,532 260,152 Other income 11,450 948,073 299,263 ------------ ------------ ------------ Total interest and other income 34,116 1,002,605 559,415 ------------ ------------ ------------ Loss from continuing operations (2,357,519) (3,157,234) (11,249,054) Income (loss) from discontinued operations (Note 5) 105,834 (403,698) (7,195,424) Gain from disposal of discontinued operations -- 128,582 -- ------------ ------------ ------------ Net loss (2,251,685) (3,432,350) (18,444,478) Other comprehensive income (loss) -- Translation adjustment 18,978 49,054 (39,824) ------------ ------------ ------------ Comprehensive loss $(2,232,707) $(3,383,296) $(18,484,302) ============ ============ ============ Loss per common share from continuing operations: Basic $ (0.11) $ (0.17) $ (0.66) Diluted $ (0.11) $ (0.17) $ (0.66) Income (loss) per common share from discontinued operations: Basic $ 0.00 $ (0.02) $ (0.43) Diluted $ 0.00 $ (0.02) $ (0.43) Net loss per common share: Basic $ (0.11) $ (0.19) $ (1.09) Diluted $ (0.11) $ (0.19) $ (1.09) Weighted average shares used in per share calculation, basic and diluted 20,604,458 18,039,262 16,975,660 ============ ============ ============ See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Additional Paid-In Capital Shares Amount Balances at March 31, 2001 15,903,368 $ 159,034 $ 55,217,626 Issuance of stock for acquisitions 964,940 9,649 4,673,937 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 Amortization of note receivable, net -- -- -- Foreign currency translation adjustment -- -- -- Net loss -- -- -- ----------- ------------ ------------- 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 Issuance of stock due to exercise of options and warrants 1,574,103 15,741 195,842 Issuance of stock options to consultants -- -- 35,619 Issuance of stock for services rendered 37,500 375 28,538 Issuance of stock for liability settlements 276,782 2,768 78,168 Issuance of stock and warrants in private placement financing, net of expenses of $106,221 2,023,873 20,239 957,235 Repurchase of stock through ADA sale (500,000) (5,000) (80,000) Compensation expense due to stock option repricing -- -- 857,128 Amortization of note receivable -- -- -- Foreign currency translation adjustment -- -- -- Net loss -- -- -- ----------- ------------ ------------- Balances at March 31, 2004 22,687,469 $ 226,875 $ 68,235,881 See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) Accumulated Other Comprehensive Loss Notes Receivable Accumulated Deficit Total Balances at March 31, 2001 $ (102,536) $(1,106,612) $(40,984,961) $ 13,182,551 Issuance of stock for acquisitions -- -- -- 4,683,586 Issuance of stock for services rendered -- -- -- 396,027 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 -- -- -- -- Amortization of note receivable, net -- 404,795 -- 404,795 Foreign currency translation adjustment (39,824) -- -- (39,824) Net loss -- -- (18,444,478) (18,444,478) ----------- ------------ ------------- ------------ 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 warrants 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 Issuance of stock due to exercise of options and warrants -- -- -- 211,583 Issuance of stock options to consultants -- -- -- 35,619 Issuance of stock for services rendered -- -- -- 28,913 Issuance of stock for liability settlements -- -- -- 80,936 Issuance of stock and warrants in private placement financing, net of expenses of $106,221 -- -- -- 977,474 Repurchase of stock through ADA sale -- -- -- (85,000) Compensation expense due to stock option repricing -- -- -- 857,128 Amortization of note receivable -- 77,783 -- 77,783 Foreign currency translation adjustment 18,978 -- -- 18,978 Net loss -- -- (2,251,685) (2,251,685) ----------- ------------ ------------- ------------ Balances at March 31, 2004 $ (74,328) $ (13,498) $(65,113,474) $ 3,261,456 See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 2004 2003 2002 Cash flows from operating activities: Net loss $ (2,251,685) $(3,432,350) $(18,444,478) (Income) loss from discontinued operations (105,834) 403,698 7,195,424 Gain from disposition of discontinued operations -- (128,582) -- Loss from continuing operations (2,357,519) (3,157,234) (11,249,054) Adjustments to reconcile loss from continuing operations to net cash used in operating activities of continuing operations: Liability settlement -- discontinued operations -- 176,346 14,642 (Gain) loss on asset sale -- discontinued operations 970 (500) 29,010 Net amortization of contract income -- discontinued operations -- (423,414) (606,586) Depreciation and amortization 201,181 1,255,635 2,360,771 Compensation expense related to stock issued for services -- -- 371,027 Compensation expense related to options/warrants issued for services and repriced options 952,473 52,455 100,154 Amortization of advances on technology sales -- (206,724) (306,908) Gain on disposition of technology advances -- (628,927) -- Amortization and forgiveness of notes receivable, net 77,783 593,258 315,799 Impairment of goodwill -- -- 909,272 Impairment of GMP & software -- -- 3,420,000 Net (gain) loss from sale of assets (3,615) 1,220 -- Non-cash settlement of liabilities 44,578 173,669 -- Changes in assets and liabilities net of acquired assets and liabilities due to acquisitions: Accounts and other receivables (51,299) 82,500 250,365 Prepaid expenses and other assets (28,688) 71,671 2,743 Accounts payable (296,978) 1,141 (104,559) Accrued expenses and other current liabilities (40,345) (116,603) (29,670) Deferred revenue 52,637 (26,104) 162,651 Advances on technology sales -- -- 50,681 Net working capital provided by (used in) discontinued operations 64,443 228,653 (104,154) -------------- ------------ ------------ Net cash used in operating activities of continuing operations (1,384,379) (1,922,956) (4,413,816) -------------- ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment -- (16,949) (24,588) Sale of property and equipment -- 560 -- Cash provided by discontinued operations -- 500 1,063,571 Sale of Kinetidex technology -- -- 350,000 -------------- ----------- ----------- Net cash (used in) provided by investing activities of continuing operations -- (15,889) 1,388,983 -------------- ----------- ----------- Cash flows from financing activities: Repayments of notes payable (56,224) (78,869) (154,398) Repayments of capital lease obligations (20,291) (33,792) (40,423) Proceeds from exercise of options and warrants 211,584 11,538 11,668 Repurchase of preferred stock (Note 13) -- (100,000) -- Cash used in discontinued operations -- (9,818) (12,297) Net proceeds from private placement of $0.01 par value restricted common stock and warrants 977,474 -- -- -------------- ----------- ----------- Net cash provided by (used in) financing activities of continuing operations 1,112,543 (210,941) (195,450) -------------- ----------- ----------- Effect of exchange rate changes on cash 18,978 49,054 (39,824) -------------- ------------- ------------- Net decrease in cash and cash equivalents (252,858) (2,100,732) (3,260,107) Cash and cash equivalents, beginning of year 1,969,910 4,070,642 7,330,749 -------------- ---------- ----------- Cash and cash equivalents, end of year $ 1,717,052 $ 1,969,910 $ 4,070,642 ============== =========== ============ See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended March 31, 2004 2003 2002 SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ 2,444 $ 25,809 $ 68,130 =========== =========== =========== Cash paid for income taxes $ 94 $ 4,341 $ 9,015 =========== =========== =========== Gross proceeds as part of the private placement financing $ 1,028,750 $ -- $ -- =========== =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Non-cash purchase consideration for the acquisition of Wizshop.com, Inc. and Application Design Associates, Inc. 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 earn-out of the Merger Agreement $ -- $ -- $ 18,086 =========== =========== =========== Common stock issued for liabilities $ 80,936 $ 21,696 $ -- =========== =========== =========== Property and equipment purchased through the issuance of capital leases $ -- $ -- $ 110,119 =========== =========== =========== Warrants issued as part of the consideration for repurchase of series B preferred stock $ -- $ 90,497 $ -- =========== =========== =========== Non-cash value of warrants issued as part of the private placement financing $ 277,270 $ -- $ -- See accompanying notes to consolidated financial statements. SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. FORMATION AND BUSINESS OF THE COMPANY: Semotus® Solutions, Inc. ("We" or "Our"), changed its named from Datalink.net, Inc. as of January 11, 2001. We were originally named Datalink Systems Corporation, and we were formed under the laws of the State of Nevada on June 18, 1996. On June 27, 1996, we 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, we issued 3,293,064 shares of our $0.01 par value Common Stock to the holders of 100% of the outstanding Common Stock of DCC, and DCC became our wholly owned subsidiary. As a part of the transaction, we acquired a Canadian corporation, DSC Datalink Systems Corporation, incorporated in Vancouver, British Columbia, now named Semotus Systems Corporation. We are a leading provider of enterprise application software connecting employees to critical business systems, information, and processes. We help mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in their business processes for shorter sales and service cycles. We have two core product lines: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) enterprise wireless messaging and communications with the HiplinkXS family of products and services. Our enterprise application software provides mobility, convenience, and efficiency and improves profitability. 2. BASIS OF PRESENTATION AND FUTURE PROSPECTS: The accompanying consolidated financial statements include the accounts of Semotus Solutions, Inc. and our subsidiaries. The consolidated balance sheets as of March 31, 2004 and 2003, the consolidated statements of operations and comprehensive loss for the years ended March 31, 2004, 2003 and 2002, the consolidated statements of common shareholders' equity for the years ended March 31, 2004, 2003 and 2002, and the consolidated statements of cash flows for the years ended March 31, 2004, 2003 and 2002, have been prepared by us, with an audit and in accordance with the instructions to Form 10-K and Regulation S-K. In the opinion of our management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. We believe that the disclosures provided are adequate to make the information presented not misleading. Our management believes, after discontinuing all operations that were unprofitable, that the remaining continuing operations are sustainable and that we will have enough cash to maintain our 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, our operations should be augmented in the current fiscal year. Our continued operation is dependant on increasing sales and achieving profitability and/or obtaining sufficient long-term financing. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following summary of significant accounting policies is presented to assist the reader in understanding and evaluating the consolidated financial statements. These policies are in conformity with generally accepted accounting principles and have been applied consistently in all material respects. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Semotus Solutions, Inc. and our wholly owned subsidiaries: Semotus Systems Corporation (Canadian subsidiary) and Simkin, Inc. The other following subsidiaries have been closed or sold and are now in discontinued operations: Wares on the Web, Inc. (Wares), Five Star Advantage, Inc. (Five Star), WizShop.com, Inc. (WizShop) and Application Design Associates, Inc. (ADA). One subsidiary, Cross Communications, Inc. was merged with and into Semotus Solutions, 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 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 estimates. CASH AND CASH EQUIVALENTS: We consider all highly liquid investments with original maturities of three months or less or money market funds from substantial financial institutions to be cash equivalents. We place substantially all of our cash and cash equivalents in interest bearing demand deposit accounts with one financial institution. CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject us to concentrations of risk consist principally of trade and other receivables. In the ordinary course of business trade receivables are with a large number of customers, dispersed across a wide North American geographic base. We extend credit to our customers in the ordinary course of business and periodically review the credit levels extended to customers, estimate the collectibility and create an allowance for doubtful accounts, as needed. We do not require cash collateral or other security to support customer receivables. Provision is made for estimated losses on uncollectible accounts. 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: Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets, generally three to seven years. Amortization on capital leases is over the lesser of the estimated useful life or term of the lease if shorter, and is included in depreciation and amortization expense in the statement of operations. Ordinary course repairs and maintenance on fixed assets are expensed as incurred. The carrying value of property and equipment is assessed annually or when factors indicating an impairment are present. In accordance with SFAS No. 144, 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 asset. 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. We have adopted Statement of Financial Accounting Standards (SFAS) 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets" as of April 1, 2002. Accordingly, we no longer amortize goodwill and intangible assets with an indefinite useful life and instead assess potential impairments of such intangible assets and goodwill. The effect of the adoption of SFAS 142 resulted in the net loss for the fiscal years ended March 31, 2004 and 2003 being smaller by $432,541 and $432,541, respectively, due to not amortizing goodwill. Our 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 our wireless enterprise application software product lines, the HipLink family of software products, which is generating current revenue and cash flow. 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 year ended March 31, 2004, 2003 and 2002. Fiscal Years Ended 2004 2003 2002 Reported net loss $ (2,251,685) $ (3,432,350) $ (18,444,478) Amortization of goodwill -- -- 1,855,407 Adjusted net loss (2,251,685) (3,432,350) (16,589,071) Reported net loss per share -- basic and diluted $ (0.11) $ (0.19) $ (1.09) Adjusted net loss per share -- basic and diluted $ (0.11) $ (0.19) $ (0.98) 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 us at the date of acquisition. FOREIGN CURRENCY TRANSLATION: Exchange adjustments resulting from foreign currency transactions are generally recognized in operations. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity. Net foreign currency transaction gains or losses are not material in any of the years presented. STOCK BASED COMPENSATION: We have adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." Under these standards, companies are encouraged, but not required, to adopt the fair value method of accounting for employee stock-based compensation. 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 compensation 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. We have elected to continue to account for stock based compensation under APB No. 25. Certain options, which have been repriced, are subject to the variable plan requirements of APB No. 25 and FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44"), that requires we record compensation expense for changes in the fair value of our common stock when it exceeds the repriced amount. We have adopted the disclosure only provisions of SFAS 123. Accordingly, no compensation expense has been recognized for employee fixed awards options. 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, 2004, 2003 and 2002 would have been adjusted to the pro forma amounts indicated below: Fiscal Years Ended 2004 2003 2002 Net loss as reported $ (2,251,685) $ (3,432,350) $ (18,444,478) Add: Total stock-based employee compensation expense determined under intrinsic value based method for all awards and variable accounting for repriced options 857,128 -- -- Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (210,903) (48,253) (1,649,416) ------------------------- -------------------------- -------------------------- Pro forma net loss $ (1,605,460) $ (3,480,603) $ (20,093,894) =============== ================ ================ Net loss per share: Basic - as reported $ (0.11) $ (0.19) $ (1.09) Basic - pro forma (0.08) (0.19) (1.18) Diluted -- as reported (0.11) (0.19) (1.09) Diluted -- pro forma (0.08) (0.19) (1.18) 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 2004, 2003 and 2002: Fiscal Years Ended 2004 2003 2002 Expected dividend $ -- $ -- $ -- Expected life of option 4 years 4 years 4 years Risk-free interest rate 2.51% 3.46% 3.71% - 4.63% Expected volatility 89% -- 173% 102% - 204% 87% - 108% The above pro forma disclosures are not expected to be representative of the effects on reported net income (loss) for future years. INCOME TAXES: Deferred income taxes have been recorded for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts using enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A 100% valuation allowance has been provided as management is unable to determine that it is more likely than not that the deferred tax assets will be realized. REVENUE RECOGNITION: We recognize revenues based upon contract terms and completion of the sales process. Revenue is generated from one-time software licensing fees, annual maintenance fees and monthly wireless services fees provided to enterprises and consumers. We also receive a small revenue stream from pager rentals and from professional or related services. Revenues are recognized over the service period and any revenue that relates to more than one service period is recognized ratably over those service periods. In the Hiplink family of products, wireless software is delivered to the customer and revenue is recognized upon shipment, assuming no significant obligations remain. The revenue for the maintenance fees received through the Hiplink contracts are recognized ratably over the life of the maintenance contract. In the financial services, the monthly wireless services are billed in arrears and are recognized upon invoicing. For any professional or related services, revenue is generated from software engineering, training and consultation services; revenue is recognized when the engineering, training or consultation work has been performed in accordance with the contract. For consumer wireless services and pager rentals, revenue is recognized monthly upon credit card billing as the monthly service is delivered. COST OF REVENUE: The cost of revenue principally includes costs to obtain data feeds from various exchanges, costs of engineering development directed to specifically identified products, costs of servicing and hosting customer products, costs for pager rental or depreciation and pager airtime for those customers without their own pagers, and certain telephone, computer and other direct operational costs. The cost of revenue for professional and related services is primarily personnel costs for engineering, training and consultation work. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents, receivables and payables are reasonable estimates of their fair value due to their short-term nature. RESEARCH AND DEVELOPMENT EXPENDITURES: Expenditures related to research, design and development of products and services are charged to product development and engineering expenses as incurred. Software development costs are capitalized beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. At March 31, 2004, 2003 and 2002 there were no capitalized software development costs as we expensed the remaining amounts at fiscal year end 2002. DISCONTINUED OPERATIONS In April 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), 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. We evaluate 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 may not be recoverable. Accordingly, for the fiscal year ended March 31, 2004, the operations of Five Star, Wares, ADA and WizShop have been recorded in discontinued operations, and for fiscal years ended March 31, 2003 and 2002, reclassified accordingly. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Fair value is determined generally based on discounted cash flows. Assets 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 net realizable fair market value prior to disposition. BASIC AND DILUTED NET LOSS PER SHARE: Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common and common equivalent shares, if dilutive, outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon conversion of convertible preferred stock (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the treasury stock method). RECLASSIFICATIONS: Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. COMPREHENSIVE INCOME (LOSS): Our policy in reporting comprehensive income (loss) is as defined in SFAS No. 130, "Reporting Comprehensive Income" and includes all changes in equity (net assets) during a period from non-owner sources. We exclude from net income (loss) foreign currency translation adjustments, which are included in comprehensive income (loss). For the periods presented in this Form 10K, foreign currency translation adjustments is the only item which affects our comprehensive income (loss). RECENT ACCOUNTING PRONOUNCEMENTS: 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. As of March 31, 2004, we have not entered into any arrangements with multiple deliverables, nor do we currently foresee doing so. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." This 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, 2003. The application of this interpretation is not expected to have a material effect on our financial statements. The interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the interpretation becomes effective. As of March 31, 2004, we did not have any variable interest entities. 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 instruments 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, 2003. We historically have not used derivatives or hedging instruments. Currently, we do have a small exposure to the Canadian -- U.S. dollar exchange rate, but we have 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. 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. We adopted SFAS No. 150 on June 1, 2003. The adoption of SFAS No. 150 has not had a material impact on our results of operations or financial condition. 4. ACQUISITIONS We adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets" as of April 1, 2002. Accordingly, we no longer amortize intangible assets with an indefinite useful life or goodwill and instead assess potential impairments of such intangible assets and goodwill. See Note 3, "Summary of Significant Accounting Policies". We made no acquisitions in the fiscal years ended March 31, 2004 or 2003. In the fiscal year ended March 31, 2002, we acquired WizShop. We issued 699,993 shares of our common stock to the stockholders of WizShop at the close of the acquisition, May 7, 2001, and an additional 613,403 shares of our common stock were issued in August 2002 as part of a first year stock price guarantee. The effect of issuing these additional shares because certain per share trading prices were not met was accounted for in our financial statements at the date of acquisition in accordance with EITF 97-15, "Accounting for Contingency Arrangements based on Security Prices in a Purchase Business Combination". WizShop's operations were discontinued as of September 30, 2003, as it was not expected to make a significant contribution to our future profitability. In the fiscal year ended March 31, 2002, we also acquired ADA. We issued 250,000 shares of our common stock to the stockholder of ADA at the close of the acquisition, May 15, 2001, and an additional 250,000 shares in April, 2002. On January 18, 2002, the Global Beverage Group, "GBG", a Canadian-based direct store delivery consortium, completed a strategic investment in ADA by acquiring a 49% share in ADA. For its 49% stock purchase, GBG paid us $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. Global Beverage provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, and in accordance with the provisions of SFAS 144, we therefore reflected ADA as a discontinued operation as of March 31, 2003. In May 2003, GBG purchased the remaining 51% of ADA for the return of all 500,000 shares of our common stock originally issued in May of 2001 and April of 2002 as part of our acquisition of ADA. In the fiscal year ended March 31, 2001, we acquired Cross for $100,000 in cash and 62,500 shares of our common stock. As of March 31, 2002, we had issued an additional 64,947 shares as additional purchase consideration. On May 15, 2003, the parties entered into a settlement agreement in which a total of 187,500 additional shares were issued in exchange for the termination and full settlement of all remaining obligations under the Merger Agreement. In October of 2003, Cross was officially merged with and into Semotus; consequently, Cross is no longer a separate wholly owned subsidiary. 5. DISCONTINUED OPERATIONS As part of our Centralization and Consolidation Plan, which was largely completed by March 31, 2003, we reduced our e-commerce and m-commerce presence with the elimination of unprofitable products and services. One of our subsidiaries, Five Star, was not expected to make a significant contribution to our future profitability as its operations were unprofitable. Therefore, we 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, which was closed on April 29, 2004. In continuing with the reduced e-commerce and m-commerce presence and the elimination of unprofitable products and services, we decided to discontinue the operations of Wares on the Web in August 2002. The Wares on the Web operations were unprofitable, and consequently, Wares on the Web filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on August 19, 2002, which was closed on March 24, 2003. WizShop's operations were also discontinued as of September 30, 2003, as it was not expected to make a significant contribution to our future profitability. WizShop does not have any additional contracts for its online software marketing business, the last of which was completed as of March 31, 2003. In accordance with FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the operations of FiveStar, Wares and ADA were recorded as discontinued operations in the fiscal year ended March 31, 2003. In the second quarter of fiscal year ended March 31, 2004, the WizShop operation was recorded as a discontinued operation, and in the fiscal year ended March 31, 2004, the net income from discontinued operations of $105,834 is comprised solely of the operations of WizShop. Substantially all of the income was from a legal settlement. The net loss from discontinued operations of $403,698 for fiscal year ended March 31, 2003, consisted of a net loss from operations in the fiscal year ended March 31, 2003 of $122,021 at Five Star and Wares, a net loss from operations of $677,069, at ADA and net income of $395,392 at WizShop. A net gain upon disposition of the assets and liabilities of Five Star and Wares of $128,582 was recognized in the fiscal year ended 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 thus received the 250,000 shares of Semotus stock securing his loan. GBG had also received common stock options exercisable into 150,000 shares of Semotus stock at $0.75 per share. 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. 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 provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, and, in accordance with the provisions of SFAS 144, we therefore reflected ADA as a discontinued operation as of March 31, 2003. On May 6, 2003, GBG purchased the remaining 51% of ADA for the return of 500,000 shares of Semotus' common stock. 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. 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 (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. Further, we classified the $321,216 of minority interest in ADA as a long-term liability related to assets held for sale. At March 31, 2003, there was inventory of $178,171 and payables of $186,829, as well as $78,141 in cash and $54,346 in accounts receivable related to the other discontinued operations. Revenue from Five Star recorded in the fiscal years ended March 31, 2003 and 2002 was $152,992 and $1,427,482, respectively. Revenue from WizShop recorded in the fiscal years ended March 31, 2004, 2003 and 2002 was $0, $1,005,061 and $1,114,479. Revenue from Wares recorded in the fiscal years ended March 31, 2003 and 2002 was $26,570 and $536,771, respectively. Revenue from ADA recorded for the years ended March 31, 2003 and 2002 was $1,137,339 and $1,611,424 respectively. 6. IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL In fiscal year ended March 31, 2002, our 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". Based on quantitative and qualitative measures, we assessed the need to record impairment losses on long-lived assets used in operations when impairment indicators were present. A number of factors indicated that impairment may have arisen in the period ended March 31, 2002 for certain amounts of goodwill related to the acquisitions of Simkin and WizShop. Also, an impairment may have arisen with the recorded asset value of the Global Market Pro intellectual property. For Simkin, the analysis was to determine if a further reduction in goodwill was necessary. We had previously taken a $650,000 net impairment charge in the quarter ended June 30, 2001. See Note 7, "Sale of Technology and Net Impairment of Goodwill". For WizShop, we analyzed the current carrying value of the goodwill related to the acquisition. The analysis focused on the future prospects for the businesses given the current state of the economy and the technology market. Additionally, a critical factor was that the consideration paid by us for those companies in the form of the issuance of shares of our common stock was at a time when our stock price was much higher than at March 31, 2002. Our 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. At March 31, 2002, our 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 2000, stock prices and market valuations in Simkin's and WizShop's industry and similar industries have fallen substantially in response to a variety of factors, including a general downturn in the economy, a curtailment in the availability of capital and a general reduction in technology expenditures. For the asset value related to the Global Market Pro ("GMP") intellectual property, the future prospects for the business derived from the Global Market Pro and Equity 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 to purchase shares of our 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 and J.P. 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. Based on the factors described above, we determined that the goodwill in our Simkin and WizShop subsidiaries and the asset value of the GMP Intellectual Property may have become impaired. In accordance with SFAS No. 121, we performed an undiscounted cash flow analysis of the acquired net assets to determine whether an impairment existed. When the undiscounted cash flows were less than the carrying value of the net assets, management determined a range of fair values using a combination of valuation methodologies. The 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 following: Our stock price; Comparable companies; Contribution to our market valuation and overall business prospects. The methodologies used were consistent with the specific valuation methods used when the original purchase price and asset value were determined. Our 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 GMP. As a result of our review, our management determined that the carrying value of goodwill and recorded asset value were not fully recoverable and an impairment charge of $3,617,283 was taken for goodwill comprised of an impairment charge to Simkin's goodwill of $909,272 (of which $650,000 was recorded in the quarter ended June 30, 2001, see Note 7 "Sale of Technology and Net Impairment of Goodwill") and $2,708,011 for WizShop's goodwill. Furthermore, we took an impairment charge of $3,420,000 for the GMP intellectual property asset in the quarter ended March 31, 2002. In the fiscal years ended March 31, 2003 and 2002, in accordance with SFAS 144, we presented the operations of FiveStar, Wares and ADA as discontinued operations. In the net loss from discontinued operations for 2003 and 2002, impairment charges were taken against the goodwill of both Wares (fiscal year 2002) and ADA (fiscal year2003). As discussed in this Note 6, we 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, 2004 and 2003, we determined that the carrying value of our remaining goodwill and other intangibles from continuing operations are recoverable. Our management 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 our wireless enterprise application software product lines, the HipLink family of software products, which is generating current revenue and cash flow. We will continue to analyze the recoverability of our long-lived assets and goodwill, and assess the need to record impairment losses when impairment indicators are present. At March 31, 2004 and 2003 we determined that there was no need to record impairment losses. 7. SALE OF TECHNOLOGY AND NET IMPAIRMENT OF GOODWILL The reduction in goodwill for Simkin in June 2001 of $1,000,000 is comprised of two components: (i) the sale of Simkin's Kinetidex technology for $350,000 and (ii) an impairment charge to goodwill related to Simkin for $650,000. In June 2001, we announced the sale by Simkin of a software program called Kinetidex 2.0 to Micromedex, Inc., the joint developer and exclusive distributor of the product. Kinetidex is a drug dosing software program that was jointly developed by our Simkin subsidiary and Micromedex. We received $350,000 from Micromedex for the sale of the product and all future royalty rights. Additionally, Simkin agreed to discontinue the sale of the product Kinetidex replaced, Capcil. Our 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". Based on quantitative and qualitative measures, we assessed the need to record impairment losses on long-lived assets used in operations when impairment indicators were present. A number of factors indicated that impairment may have arisen in the period ended June 30, 2001, specifically for our Simkin subsidiary. The above-mentioned sale of the Kinetidex technology for $350,000 was one factor considered. Future prospects for the business was another factor considered. Additionally, a third critical factor was that the consideration paid for Simkin was in the form of the issuance of shares of our common stock at a time when our stock price was much higher than at June 30, 2001. Our stock price was approximately $14.375 at the time of the acquisition. At June 30, 2001, our stock price was $1.59. Finally, Simkin was privately held at the time of the acquisition and its fair value was and is subjective and not readily determinable. At the time of the acquisition, market valuations for such a company were at historically high levels. Since the end of the calendar year 2000, stock prices and market valuations in Simkin's industry and similar industries have fallen substantially in response to a variety of factors, including a general downturn in the economy, a curtailment in the availability of capital and a general reduction in technology expenditures. Based on the factors described above, we determined that the goodwill in our Simkin subsidiary may have become impaired. In accordance with SFAS No. 121, we performed an undiscounted cash flow analysis of the acquired net assets to determine whether an impairment existed. When the undiscounted cash flows were less than the carrying value of the net assets, management determined a range of fair values using a combination of valuation methodologies. The 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 following: Our stock price; Comparable companies; Contribution to our market valuation and overall business prospects. The methodologies used were consistent with the specific valuation methods used when the original purchase price was determined. Our best estimate of the fair value of Simkin was determined from the range of possible values after considering the relative performance, future prospects and risk profile of Simkin. As a result of our review, management determined that the carrying value of goodwill was not fully recoverable and an impairment charge of $650,000 was taken in the quarter ended June 30, 2001. 8. GMP INTELLECTUAL PROPERTY AND J.P. MORGAN CHASE MANHATTAN WARRANTS On July 7, 2000 we granted an affiliate of J.P. Morgan Chase & Co. common stock warrants to purchase up to 800,000 shares of our common stock at a price of $30.00 per common share. These warrants have a five year life, are non-callable, and were granted in exchange for all royalty and intellectual property rights associated with the Global Market Pro ("GMP") product, including all copyrights, patents and trade secrets. The value of these warrants as calculated on the date of grant using the Black-Scholes pricing model amounted to $6,800,000 and was originally being amortized to expense over a five-year period. This amount was recorded in intellectual property with a corresponding increase to additional paid-in capital. For the fiscal years ended March 31, 2003 and 2002, amortization amounted to $1,000,000 and $1,360,000, respectively. Further, we 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. The impairment charge amounted to $3,420,000 and brought the recorded value to $1,000,000 at March 31, 2002. This value was then amortized over the adjusted remaining useful life of one year and was completely amortized as of March 31, 2003. 9. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following: March 31, 2004 2003 Furniture and fixtures . . . . . . . . . . . . . . . . . . $ 315,384 $ 308,777 Computers, and other office equipment . . . . . 1,058,966 1,083,960 Capitalized equipment leases . . . . . . . . . . . . . 48,037 74,370 Leasehold improvements . . . . . . . . . . . . . . . . 131,098 120,059 Purchased software . . . . . . . . . . . . . . . . . . . . 289,638 1,843,123 321,742 1,908,908 Less accumulated depreciation and amortization . . . (1,694,303) $ 148,820 (1,566,294) $ 342,614 Depreciation expense related to the above assets was $186,158 and $231,019 for the fiscal years ended March 31, 2004 and 2003, respectively. 10. ADVANCES ON TECHNOLOGY SALE During fiscal year 1997, we entered into two separate transactions involving the sale of rights to our technologies underlying two products, QuoteXpress and MailXpress. The transactions occurred with two separate Canadian companies and were nearly identical in nature in that they involved the receipt of cash and notes receivable from the buyers, with the notes receivable being collateralized by the intellectual properties being sold. Concurrent with the sales, we entered into "Management and Marketing Agreements" with the buyers giving us exclusive worldwide rights to use, modify and sub license the source code for the technologies and providing for fees to be paid to the buyers under certain conditions. Any payments between parties were contingent upon each other, and were structured in such a way to minimize the possibility that either party would ever make payments to the other. At this time, no money has been paid to the buyers and based upon current projections, it is anticipated that no moneys will be paid under the remainder of the terms. The cash payments received up front, amounting to $2,190,000 and $2,900,000 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 were reflected under the balance sheet caption "Advances on technology sales", and were being amortized to income using the interest method over the terms of the agreements. The notes receivable due to us 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 principal and interest payments due us. If the notes receivable due to us were not repaid, the ownership of the intellectual properties would revert back to us at the end of the agreements. Interest income on the notes has been recognized to the extent of the amounts due to buyers under the "Owners fee" provisions of the sales agreements, with both the interest income and the "Owners fee" reflected in other income, along with the amortization of the technology advances. The products related to these agreements were obsolete and were not generating any revenue. We have fulfilled all obligations under these agreements and therefore we amortized the remaining balance of the advances on technology sales liability into income as of March 31, 2003. 11. NOTE PAYABLE During the fiscal year ended March 31, 2003, we 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 balance on these notes of $56,224 was fully paid off in the fiscal year ending March 31, 2004. We entered into a one-year note payable with our primary banking institution in March 2001. The note was extended for six months in March 2002 and became due September 2002. We repaid the note in full in September 2002. 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. 12. CAPITAL LEASES In the fiscal year ended March 31, 2004, we elected to pay off all of our outstanding capital leases. We therefore have no future capital lease payments. In the fiscal year ended March 31, 2003, we did not sign or settle any capital leases. Accumulated depreciation on capitalized lease assets was $41,188 and $45,222 at March 31, 2004 and 2003 respectively. 13. CONVERTIBLE PREFERRED STOCK Under our Articles of Incorporation, as amended in February 1998, we are authorized to issue 5,000,000 shares of preferred stock. 2,740,000 shares have been designated as Series A preferred stock, of which no shares are outstanding as of March 31, 2004, and 769,231 have been designated as Series B preferred stock, of which no shares are outstanding as of March 31, 2004. Repurchase Of Preferred Stock: On December 31, 2002, we entered into a Preferred Stock Buy Back and Mutual Release Agreement with Brown Simpson Partners I, Ltd. (successors-in-interest to Brown Simpson Strategic Growth Fund, Ltd. and Brown Simpson Strategic Growth Fund, L.P.). As part of the Agreement, we repurchased from Brown Simpson all of the outstanding shares of our Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock was reflected on our balance sheet as $5.7 million in Preferred Shareholder Equity. In consideration of the aforesaid purchase of the Shares, we paid one hundred thousand dollars ($100,000.00) and issued to Brown Simpson 846,154 warrants to purchase shares of Common Stock, exercisable at the negotiated price of $0.01 per share. In addition, in consideration for Brown Simpson agreeing to enter into a settlement and mutual release related to its antidilution claim, we 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 to equity. On January 24, 2003, Brown Simpson exercised 1,153,846 warrants by remitting $11,538.46 to us, 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 us, and Brown Simpson was issued 846,154 shares of common stock. 14. COMMON SHAREHOLDERS' EQUITY Under our Articles of Incorporation, as amended in June 1999, we are authorized to issue 50,000,000 shares of common stock, of which 22,687,469 and 19,275,211 was issued and outstanding as of March 31, 2004 and 2003 respectively. During the fiscal year ended March 31, 2004, in connection with a private placement of $1,028,750 that occurred in January of 2004 which provided net cash in the amount of $977,474, we issued 1,959,523 common shares at $0.525 per share and 489,880 share purchase warrants. Each warrant entitles the holder to purchase an additional share of common stock at a price of $0.8625 per share for a period of five years. In connection with the private placement, we also paid a placement fee, a portion of which was paid by the issuance of 64,350 shares of common stock and 40,476 share purchase warrants. We also issued 187,500 shares in connection with an amendment and settlement to the merger agreement with Cross Communications. In addition, during the fiscal year ended March 31, 2004, we issued a total of 37,500 shares to various suppliers of services, and a total of 89,282 shares to settle certain liabilities. During the fiscal year ended March 31, 2003, in August, 2002, in connection with the fiscal year 2002 acquisition of WizShop, we issued 613,403 common shares as additional purchase consideration (see Note 4, "Acquisitions"). In April of 2002, in connection with the fiscal year 2002 acquisition of Application Design Associates, we 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 us as part of GBG's option to purchase ADA, which was closed on May 6, 2003. (See Note 4, "Acquisitions"). Additionally, during the fiscal year ended March 31, 2003, we issued 57,178 shares to settle certain of our liabilities or those of our subsidiaries. During the fiscal year ended March 31, 2002, in connection with the acquisition of Cross, we issued 64,947 common shares as additional purchase consideration (see Note 4, "Acquisitions"). In May, 2001, in connection with the acquisition of WizShop, we issued 699,993 common shares (see Note 4, "Acquisitions"). Also in May, 2001, in connection with the acquisition of ADA, we issued 250,000 common shares (see Note 4, "Acquisitions"). In addition, during the fiscal year ended March 31, 2002, we issued a total of 198,093 shares to various suppliers of services, and a total of 75,073 shares to settle certain of our liabilities or those of our subsidiaries. Warrants: As of March 31, 2004, a total of 1,759,860 warrants to purchase shares of our common stock remain outstanding and are currently exercisable as follows: Number of Warrants Exercise Price ($ / share) Expiration Date 300,000 2.375 12/1/2004 99,504 6.50 2/8/2005 800,000 30.00 7/7/2005 30,000 18.00 8/2/2005 530,356 0.8625 1/14/2009 Stock Option Plan: In June 1996, we adopted the 1996 Stock Option Incentive Plan (the "Plan"). The "Plan" provides for the granting of stock options to acquire common stock and/or the granting of stock appreciation rights to obtain, in cash or shares of common stock, the benefit of the appreciation of the value of shares of common stock after the grant date. On September 17, 2002 our 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 after its adoption. Under the Plan, the Board of Directors may grant incentive stock options to purchase shares of our common stock only to employees, and the Board of Directors may grant non-qualified stock options to purchase shares of our common stock to our directors, officers, consultants and advisers. The Board of Directors may grant options to purchase shares of our common stock at prices not less than fair market value, as defined under the Plan, at the date of grant for all stock options. The Board of Directors also has the authority to set exercise dates (no longer than ten years from the date of grant), payment terms and other provisions for each grant. In addition, incentive options may be granted to persons owning more than 10% of the voting power of all classes of stock, at a price no lower than 110% of the fair market value at the date of grant, as determined by the Board of Directors. Options granted under the Plan generally vest over four years at a rate of 25% after year one and then equally on a monthly basis over the next three years from the date of grant. As of March 31, 2004, no stock appreciation rights have been granted under the Plan. 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 our 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, those 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 approved the repricing of all of the options held by almost all of our employees (including executive officers). Exercise prices ranged from $0.22 to $0.47 per share. The Board of Directors determined such a repricing to be appropriate in order to sustain the incentivization of our employees. Employees' existing option grants were repriced on October 23, 2002 to an exercise price of $0.15 per share (the current fair market value of our 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). All grants maintained their existing vesting schedules. These are deemed to be a repricing under FIN 44 and will result in variable plan accounting. While no compensation expense was required to be recognized in the fiscal year ended March 31, 2003, compensation expense in the amount of $857,128 was required to be recognized in the fiscal year ended March 31, 2004. Compensation expense will continue to be recognized in the future if the stock price continues to increase above the revised exercise price of the options. Activity for stock options under the 1996 Stock Option Incentive Plan for the years ended March 31, 2004, 2003 and 2002 is as follows: Shares Available for Grant Number of Options Price Per Share Weighted Average Exercise Price Balances, March 31, 2001* 52,521 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 Balances, March 31, 2002* 370,282 3,562,654 $0.67 - $5.44 $0.86 Authorized 855,000 -- -- -- Granted (4,997,530) 4,997,530 $0.14 - $0.66 $0.25 Canceled 5,419,879 (5,419,879) $0.15 - $5.44 $0.55 Exercised -- -- -- -- Balances, March 31, 2003* 1,647,631 3,140,305 $0.14 - $2.01 $0.31 Authorized -- Granted (1,719,000) 1,719,000 $0.12 - $1.00 $0.61 Canceled 723,021 (723,021) $0.14 - $2.01 $0.94 Exercised -- (727,949) $0.15 - $1.00 $0.28 Balances, March 31, 2004 651,652 3,408,335 $0.12 - $0.95 $0.33 The weighted average fair value of those options granted during the years ended March 31, 2004, 2003 and 2002 was $0.39, $0.29 and $1.09, respectively. The weighted average fair value of those options that were repriced on October 23, 2002 was $0.08. Options to purchase 1,735,513, 1,962,864 and 1,268,477 shares were exercisable with a weighted average exercise price of $0.16, $0.30 and $0.80 at March 31, 2004, 2003 and 2002, respectively. The following table summarizes the stock options outstanding at March 31, 2004: Options Outstanding Currently Exercisable Range of Exercise Price Number Outstanding at March 31, 2004 Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number Exercisable at March 31, 2004 Weighted Average Exercise Price $0.00 - $0.15 720,668 6.9 $0.15 456,500 $0.15 $0.16 - $0.20 1,286,000 6.0 $0.17 1,276,624 $0.17 $0.21 - $0.50 650,000 9.1 $0.37 0 $0.00 $0.51 -- $0.80 527,667 9.0 $0.72 2,389 $0.76 $0.81 - $1.00 224,000 8.7 $0.83 0 $0.00 3,408,335 7.4 $0.33 1,735,513 $0.16 15. REVENUE We derive revenue from our customers as discussed in Note 3, "Summary of Significant Accounting Policies: Revenue Recognition". Two customers accounted for 21% of our revenues for the fiscal year ended March 31, 2004. One customer accounted for 15% of revenues, and a second customer accounted for 6% of revenues. None of these customers accounted for any significant accounts receivable at March 31, 2004. Two customers accounted for 23% of our revenues for the fiscal year ended March 31, 2003. One customer accounted for 17% of revenues, and a second customer accounted for 6% of revenues. 16. STOCK, OPTION AND WARRANT EXPENSE The stock, option and warrant expense is a non-cash expense related to the issuance of equity and equity-related securities for services performed for us by employees and outside third party contractors. The accounting for these expenses is in accordance with APB 25 for employee options and SFAS 123, and EITF 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or are in Conjunction with Selling, Goods or Services", for outside third party contractors. Stock issued for contractor services and as payment for liabilities is priced using the closing price of our common stock on the date the shares are issued. The expense is recognized over the term of the agreement or when the services have been performed. The fair value of options and warrants issued for services is estimated using the Black Scholes option pricing model. The pricing model's variables are measured on the date of grant, or if there are contingencies related to the services and vesting, the variables are measured on the date the contingencies are satisfied. The exercise price is set equal to the closing price of the stock on the measurement date. The term of the options and warrants ranges from one to ten years; the assumed expected life of the options and warrants ranges from one to four years. For the fiscal year ended March 31, 2004, interest rates used are the approximate Treasury rate of 2.505%. The expected volatility was 89.2%. The expense is recognized over the term of the agreement or when the services have been performed. 17. OTHER INCOME Other income (expense) consists of the following items: Year Ended March 31, Description 2004 2003 2002 Owners fee on sales of technology $ -- $ (1,176,750) $ (1,569,000) Interest on note from sales of technology -- 1,176,750 1,569,000 Amortization of technology advances -- 206,724 306,908 Cancellation of sales of technology contracts -- 628,927 -- Miscellaneous income (expense) 11,450 112,422 (7,645) Total other income $ 11,450 $ 948,073 $ 299,263 18. INCOME TAXES Deferred tax benefits arising from net operating loss carryforwards were determined using the applicable statutory rates. The net operating loss carryforward balances vary from the applicable percentages of net loss due to expenses recognized under generally accepted accounting principles, but not deductible for tax purposes, and due to amortization of goodwill for tax purposes, which was written off in prior years for book purposes. Net operating loss carryforwards available to us for U.S. federal and state tax purposes are as follows as of March 31, 2004: Federal State Balance $ 2,729,703 Expiration 2012 Balance $ 1,453,582 Expiration 2005 3,219,423 2013 4,298,379 2011 4,429,411 2019 3,294,278 2012 3,684,281 2020 1,378,267 2013 9,313,338 2021 992,596 2014 8,036,642 2022 $ 11,417,102 3,835,266 2023 1,654,326 2024 $ 36,902,390 At March 31, 2004, we have approximately $3,704,390 in Canadian net operating loss carryforwards that expire from 2006 through 2013. The utilization of the net operating losses to offset future taxable income may be limited under U.S. tax laws. For federal and state tax purposes, at March 31, 2004 and 2003, we had net deferred tax assets of approximately $15,032,000 and $13,862,000, respectively, which were fully offset by valuation allowances. These net deferred tax assets principally arise due to our net operating loss carryforwards. In accordance with generally accepted accounting principles, a valuation allowance must be established for a deferred tax asset if it is uncertain that a tax benefit may be realized from the asset in the future. We have established a valuation allowance to the extent of our deferred tax assets since it is more likely than not that the benefit will not be realized. The total valuation allowance changed during this fiscal year by $1,169,905 and by $2,108,775 in fiscal year 2003, and by $2,161,000 in fiscal year 2002. 19. EARNINGS PER SHARE (EPS) NET LOSS PER SHARE: 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 (number of shares) used in the basic and diluted EPS calculation: Year Ended March 31, 2004 2003 2002 Basic EPS: Net loss from continuing operations $ (2,357,519) $ (3,157,234) $ (11,249,054) Net income (loss) from discontinued operations 105,834 (275,116) (7,195,424) Net loss $ (2,251,685) $ (3,432,350) $ (18,444,478) Weighted average common shares outstanding 20,604,458 18,039,262 16,975,660 Basic EPS from continuing operations $ (0.11) $ (0.17) $ (0.66) Basic EPS from discontinued operations $ 0.00 $ (0.02) $ (0.43) Basic EPS $ (0.11) $ (0.19) $ (1.09) Diluted EPS: Net loss from continuing operations $ (2,357,519) $ (3,157,234) $ (11,249,054) Net income (loss) from discontinued operations 105,834 (403,698) (7,195,424) Net loss $ (2,251,685) $ (3,432,350) $ (18,444,478) Weighted average common shares outstanding 20,604,458 18,039,262 16,975,660 Convertible preferred -- -- -- Warrants -- -- -- Stock options -- -- -- Total shares 20,604,458 18,039,262 16,975,660 Diluted EPS from continuing operations $ (0.11) $ (0.17) $ (0.66) Diluted EPS from discontinued operations $ 0.00 $ (0.02) $ (0.43) Diluted EPS $ (0.11) $ (0.19) $ (1.09) In fiscal years 2004, 2003 and 2002, 5,043,195 potential shares, 5,347,901 potential shares, and 7,557,135 potential shares, respectively, were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive. 20. OPERATING LEASES We currently lease space for our operations in Los Gatos, California and Vancouver, British Columbia, Canada. The lease for the California office expires in September 2004, 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 was $124,917 in fiscal 2004, $187,388 in fiscal 2003 and $548,354 in fiscal 2002. Future minimum lease payments due under these agreements are as follows for the years ending March 31: 2005 .................. $ 52,153 2006 .................. 26,044 2007 .................. 27,440 2008 ..................... 6,976 --------- $ 112,613 ========= 21. RELATED PARTY TRANSACTIONS Effective May 1, 1996, we entered into a three year employment agreement with our 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. As of May 1, 2004, no notice had been provided by either party, so the agreement has automatically renewed for an additional one-year term. On December 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 our Chief Executive Officer entered into a stock purchase agreement. Under the terms of the agreement, the Chief Executive Officer received 560,000 shares of preferred stock, which subsequently converted to common, with detachable warrants to purchase 280,000 shares of our common stock at $2.50 per share, in exchange for a note receivable in the amount of $1,050,000. The note is collateralized by certain assets of the officer and bears interest at a rate of 7%. This note was for the purchase of stock and did not result in us lending cash to Mr. LaPine. Mr. LaPine has not sold any of the stock purchased with this note and has not received any cash income related to this transaction. Additionally, the warrants to purchase 280,000 shares at $2.50 per share have expired. On January 15, 2000, we entered into a Loan Forgiveness Agreement with the Chief Executive Officer which provided that the $1,050,000 promissory note would be forgiven if he continues to serve as our Chief Executive Officer through May 1, 2004, and there are no uncured defaults by him under his Employment Agreement on May 1, 2004. The note, together with interest accrued thereon has been presented as contra-equity in the balance sheet. The note plus interest is being amortized over the period of the contract of employment. Consequently, in the year ended March 31, 2004, expense of $77,783 has been recorded as employment compensation. On July 26, 2002, the Board of Directors approved the reduction in the purchase price of the 560,000 shares of our Common Stock from $3.75 per share to $0.25 per share (representing the current fair market value of the shares); 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. 22. COMMITMENTS AND CONTINGENCIES Wizshop.com, Inc., one of our wholly-owned subsidiaries, filed a lawsuit against Earthlink Network, Inc. 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 is entitled to under the agreement. We sought monetary 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, which is included in discontinued operations in the accompanying Statement of Operations and Comprehensive Loss. We are not a party to any other legal proceedings. 23. EMPLOYEE BENEFIT PLAN During 1998, we established a plan (the "Plan") which is qualified under Section 401(k) of the Internal Revenue Code of 1986. Eligible employees may make voluntary contributions to the Plan, not to exceed the statutory amount, and we may make matching contributions. We made no contributions in 2004, 2003 or 2002. 24. SEGMENT INFORMATION After the Consolidation and Centralization Plan was largely completed by March 31, 2003 (See Note 5), we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Our products consist mainly of the Global Market Pro family of products and the Hiplink family of products. 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 fiscal year ended March 31, 2004, we have been reporting the single line of business of wireless and mobile enterprise software and no longer report operations from three prior segments: Enterprise and Commerce Sales, Professional and Related Services and Logistics. Further, per SFAS 131, the corresponding information for the earlier periods presented has been reclassified accordingly to conform to the single segment current year presentation. Foreign sales and assets have not been material in any year presented. 25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarter Ended June 30, 2003 Quarter Ended September 30, 2003 Quarter Ended December 31, 2003 Quarter Ended March 31, 2004 Year Ended March 31, 2004 Revenue from continuing operations $ 353,662 $ 373,172 $ 283,846 $ 327,693 $ 1,338,373 Gross profit from continuing operations 271,274 310,048 204,448 228,755 1,014,525 Net loss (672,708) (1,156,077) (71,516) (351,384) (2,251,685) Net loss per common share basic and diluted $ (0.03) $ (0.06) $ (0.00) $ (0.02) $ (0.11) Quarter Ended June 30, 2002 Quarter Ended September 30, 2002 Quarter Ended December 31, 2002 Quarter Ended March 31, 2003 Year Ended March 31, 2003 Revenue from continuing operations $ 359,979 $ 295,188 $ 350,445 $ 333,578 $ 1,339,190 Gross profit from continuing operations 288,269 186,544 279,699 232,393 986,905 Net loss (1,034,557) (1,229,151) (571,943) (596,699) (3,432,350) Net loss per common share basic and diluted $ (0.06) $ (0.07) $ (0.03) $ (0.03) $ (0.19) Due to the discontinuation of ADA in the fourth quarter of fiscal year 2003, and the discontinuation of WizShop in the second quarter of fiscal year 2004, the amounts listed above will differ from the amounts previously reported in the Company's Form 10-Qs. (See Note 5, "Discontinued Operations".) 26. STRATEGIC INVESTMENT IN ADA 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 us $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. GBG provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, and we therefore reflected ADA as a discontinued operation as of March 31, 2003. In May 2003, GBG purchased the remaining 51% of ADA for the return of 500,000 shares of our common stock originally issued in May of 2001 and 2002 as part of our acquisition of ADA. This event resulted in the discontinuation of ADA's operations in the fiscal year ended March 31, 2003. 27. VALUATION AND QUALIFYING ACCOUNTS Balance at March 31, 2001 Acquired Balances Charged to Cost of Goods Sold Charged to Operating Expenses Reduction Against Balance Sheet Account Balance at March 31, 2002 Allowance for doubtful accounts $ 35,967 $ -- $ -- $ (4,265) $ (26,702) $ 5,000 Balance at March 31, 2002 Acquired Balances Charged to Cost of Goods Sold Charged to Operating Expenses Reduction Against Balance Sheet Account Balance at March 31, 2003 Allowance for doubtful accounts $ 5,000 -- -- $ 5,590 $ (4,500) $ 6,090 Balance at March 31, 2003 Acquired Balances Charged to Cost of Goods Sold Charged to Operating Expenses Reduction Against Balance Sheet Account Balance at March 31, 2004 Allowance for doubtful accounts $ 6,090 -- -- -- $ (6,090) -- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: JUNE 28__, 2004 SEMOTUS SOLUTIONS, INC. BY: /S/ ANTHONY N. LAPINE ----------------------------- ANTHONY N. LAPINE CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /S/ ANTHONY N. LAPINE ------------------------ CHIEF EXECUTIVE OFFICER JUNE 28__, 2004 ANTHONY N. LAPINE AND CHAIRMAN OF THE BOARD /S/ CHARLES K. DARGAN II ------------------------ CHIEF FINANCIAL OFFICER, JUNE 28__, 2004 CHARLES K. DARGAN II TREASURER /S/ MARK WILLIAMS ------------------------ DIRECTOR JUNE 28__, 2004 MARK WILLIAMS /S/ LAURENCE MURRAY ------------------------ DIRECTOR JUNE 28__, 2004 LAURENCE MURRAY /S/ ROBERT LANZ ------------------------ DIRECTOR AND CHAIRMAN JUNE 28__, 2004 ROBERT LANZ OF THE AUDIT COMMITTEE CERTIFICATIONS I, Anthony N. LaPine, President and Chief Executive Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10K of Semotus Solutions, Inc.; 2. 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 report; 3. 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; 4. 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's four fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 28__, 2004 /S/ ANTHONY N. LAPINE ---------------------------- ANTHONY N. LAPINE PRESIDENT AND CHIEF EXECUTIVE OFFICER I, Charles K. Dargan, II, Chief Financial Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10K of Semotus Solutions, Inc.; 2. 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 report; 3. 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; 4. 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's four fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 28__, 2004 /S/ CHARLES K. DARGAN, II -------------------------------- CHARLES K. DARGAN, II CHIEF FINANCIAL OFFICER EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Name of Company State of Incorporation Semotus Systems, Corp. British Columbia, Canada Simkin, Inc. Delaware WizShop.com, Inc. Delaware EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 333-57772 and 333-113179) of our report dated May 28June __, 2004, relating to the consolidated financial statements of Semotus Solutions, Inc. and subsidiaries for the year ended March 31, 2004, which appears in the Annual Report on Form 10K. /s/ Burr, Pilger & Mayer LLP Burr, Pilger & Mayer LLP Palo Alto, California June __, 2004 EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Semotus Solutions, Inc. Los Gatos, California We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-15399) and the Registration Statements on Form S-3 (File Nos. 333-67490, 333-63938, 333-57772 and 333-113179) 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 Form 10-K for the year ended March 31, 2004. /s/ BDO Seidman, LLP BDO Seidman, LLP San Jose, California June __, 2004 EXHIBIT 99.5 CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350 Pursuant to 18 U.S.C. ss.1350, the undersigned certifies that this Annual Report on Form 10K for the period ended March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Semotus Solutions, Inc. DATED: JUNE 28__, 2004 /S/ ANTHONY N. LAPINE ------------------------------- ANTHONY N. LAPINE CHIEF EXECUTIVE OFFICER EXHIBIT 99.6 CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350 Pursuant to 18 U.S.C. ss.1350, the undersigned certifies that this Annual Report on Form 10K for the period ended March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Semotus Solutions, Inc. DATED: JUNE 28__, 2004 /S/ CHARLES K. DARGAN, II ------------------------------ CHARLES K. DARGAN, II CHIEF FINANCIAL OFFICER