-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PNEqnktJcqngSrxyCxM3nojmRAoEOf6JBMgyoNKptthhr5lFvDKNIbCL+csn/L0U 7YvADq+Mrpe47SGTHaHYIQ== 0001072613-02-001763.txt : 20021118 0001072613-02-001763.hdr.sgml : 20021118 20021114192524 ACCESSION NUMBER: 0001072613-02-001763 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMOTUS SOLUTIONS INC CENTRAL INDEX KEY: 0000832370 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 954599440 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15569 FILM NUMBER: 02827796 BUSINESS ADDRESS: STREET 1: 1735 TECHNOLOGY WAY STREET 2: STE 790 CITY: SAN JOSE STATE: CA ZIP: 95125 BUSINESS PHONE: 4083671700 MAIL ADDRESS: STREET 1: 1705 TECHNOLOGY WAY STREET 2: SUITE 790 CITY: SAN JOSE STATE: CA ZIP: 95125 FORMER COMPANY: FORMER CONFORMED NAME: LORD ABBOTT INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATALINK SYSTEMS CORP /CA/ DATE OF NAME CHANGE: 19960723 FORMER COMPANY: FORMER CONFORMED NAME: DATALINK NET INC DATE OF NAME CHANGE: 19990707 10-Q/A 1 form10q-a_11606b.txt AMEND. NO. 2 RO FORM 10'Q (QTR. ENDED 06/30/02) ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A 2 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002 COMMISSION FILE NUMBER: 1-15569 SEMOTUS SOLUTIONS, INC. ---------------------------------------------------- (Exact name of small business issuer in its charter) Nevada 36-3574355 - ------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer Incorporation or Organization) Identification Number) 16400 Lark Avenue, Suite 230, Los Gatos, CA. 95032 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices including zip code) (408) 358-7100 --------------------------- (Issuer's telephone number) Indicate by a check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] There were 18,106,997 shares of the Registrant's common stock outstanding as of November 8, 2002. We have amended our quarterly report on Form 10Q for the quarter ended June 30, 2002 in order to implement FASB Statement 144 to remove the results of one of our subsidiaries, Five Star Advantage, Inc., which has been discontinued. The effect of this amended 10-Q does not impact previously reported net loss or net loss per share. ================================================================================ SEMOTUS SOLUTIONS, INC. TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: a. Consolidated Balance Sheets as of June 30, 2002 and March 31, 2002 .................................... 3 b. Consolidated Statements of Operations and Comprehensive Loss for the three-month periods ended June 30, 2002 and 2001 ............................... 4 c. Consolidated Statements of Cash Flows for the three months ended June 30, 2002 and 2001 .................. 5 d. Notes to the Consolidated Financial Statements ............. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............................ 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT ................. 16 MARKET RISK ITEM 4. CONTROLS AND PROCEDURES ........................................ 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. ............................................. 16 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...................... 16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................ 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 16 ITEM 5. OTHER INFORMATION .............................................. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 16 SIGNATURES .............................................................. 17 CERTIFICATIONS .......................................................... 18 2 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMNTS SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)
ASSETS June 30 March 31 - ------ 2002 2002 CURRENT ASSETS: ----------- ----------- Cash and cash equivalents (including restricted cash of $693,286 at June 30 and March 31, 2002) $ 4,065,776 $ 4,797,589 Trade receivables (net of allowance for doubtful accounts of $73,000 at June 30, 2002 and $67,000 at March 31, 2002) 323,773 266,220 Income and GST tax receivable 6,268 3,823 Other receivables 55,309 60,395 Prepaid expenses 165,935 167,998 Net current assets from discontinued operation -- 113,343 ----------- ----------- Total current assets 4,617,061 5,409,368 Property and equipment, net 585,672 652,452 Capitalized contract, net 432,718 576,958 GMP intellectual property, net 750,000 1,000,000 Goodwill 2,474,597 2,474,597 Net noncurrent assets from discontinued operation 15,432 21,804 ----------- ----------- Total assets $ 8,875,480 $10,135,179 =========== =========== LIABILITIES - ----------- Current liabilities: Accounts payable $ 681,178 $ 629,635 Accrued expenses and other current liabilities 194,371 339,787 Notes payable 723,105 693,286 Current portion of capital lease obligation 87,004 89,297 Current portion of advances on technology sales 271,370 269,109 Deferred revenue 988,559 1,323,858 Net current liabilities from discontinued operation 52,790 -- ----------- ----------- Total current liabilities 2,998,377 3,344,972 Capital lease obligation, net of current portion 21,035 44,200 Advances on technology sales, net of current portion 492,979 566,542 ----------- ----------- Total liabilities 3,512,391 3,955,714 ----------- ----------- Minority interest 286,958 202,528 Commitments and contingencies (Note 6) PREFERRED SHAREHOLDERS' EQUITY: Convertible preferred stock, Series B: $0.001 par value; $13.00 liquidation value; authorized: 5,000,000 shares; issued and outstanding: 469,231 at June 30, 2002 and March 31, 2002 469 469 Additional paid-in capital 5,681,987 5,681,987 ----------- ----------- Total preferred shareholders' equity 5,682,456 5,682,456 ----------- ----------- COMMON SHAREHOLDERS' EQUITY (deficit): Common stock: $0.01 par value; authorized: 50,000,000 shares; issued and outstanding: 17,479,226 at June 30, 2002 and 17,200,784 at March 31, 2002 174,793 172,008 Additional paid-in capital 60,430,593 60,396,089 Accumulated other comprehensive loss (128,129) (142,360) Notes receivable - related parties (619,587) (701,817) Accumulated deficit (60,463,995) (59,429,439) ----------- ----------- Total common shareholders' equity (deficit) (606,325) 294,481 ----------- ----------- Total liabilities, minority interest, preferred and common shareholders' equity $ 8,875,480 $10,135,179 =========== ===========
See accompanying notes to consolidated financial statements. 3 SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited)
Three Months Ended June 30, --------------------------- 2002 2001 ----------- ----------- Revenues: Wireless services $ 349,590 $ 317,976 Enterprise and commerce sales 265,916 117,141 Professional and related services 19,294 295,862 Logistics 277,705 489,077 ----------- ----------- Total revenue 912,505 1,220,056 ----------- ----------- Cost of sales: Wireless Services 70,326 208,309 Enterprise and commerce sales 145,414 47,696 Professional and related services 2,271 153,063 Logistics 119,309 278,736 ----------- ----------- Total cost of revenue 337,320 687,804 ----------- ----------- Gross Profit 575,185 532,252 Operating Expenses: (Exclusive of depreciation and amortization and stock, option and warrant expense) Research and development 296,239 505,132 Sales and marketing 296,556 772,142 General and administrative 653,442 1,289,631 Impairment of goodwill -- 650,000 Depreciation and amortization: Research and development 34,135 26,483 General and administrative 311,723 968,090 ----------- ----------- 345,858 994,573 Stock, option and warrant expense: Sales and marketing -- 21,000 General and administrative 21,054 152,917 ----------- ----------- 21,054 173,917 ----------- ----------- Total operating expenses 1,613,149 4,385,395 Operating Loss From Continuing Operations (1,037,964) (3,853,143) Net interest income 24,363 113,096 Other income 80,901 63,910 ----------- ----------- Total interest and other income 105,264 177,006 ----------- ----------- Net loss before minority interest (932,700) (3,676,137) Minority interest 20,978 -- ----------- ----------- Net loss from continuing operations (911,722) (3,676,137) Loss from discontinued operation (122,835) (253,681) ----------- ----------- Net Loss (1,034,557) (3,929,818) Other comprehensive income (loss) - Translation adjustment 14,231 (14,118) ----------- ----------- Comprehensive loss $(1,020,326) $(3,943,936) =========== =========== Net loss per common share: Basic $ (0.06) $ (0.24) Diluted $ (0.06) $ (0.24) Weighted average shares used in per share calculation, basic and diluted 17,382,241 16,481,656 =========== ===========
See accompanying notes to consolidated financial statements. 4 SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended June 30, --------------------------- 2002 2001 ----------- ----------- Cash flows from operating activities: Net loss $(1,034,557) $(3,929,818) Foreign currency translation adjustment 14,231 (14,118) Adjustments to reconcile net loss to net cash used in operating activities in continuing operations: Depreciation and amortization 345,858 994,573 Compensation expense related to stock issued for services 21,054 173,917 Net amortization of contract income (105,855) -- Amortization of technology advances (71,302) (79,804) Amortization of notes receivable 70,241 103,419 Impairment of goodwill -- 650,000 Non-cash settlements of liabilities 27,121 -- Loss from discontinued operation 122,835 253,681 Changes in assets and liabilities net of acquired assets and liabilities due to acquisitions: Accounts and other receivables (54,912) (123,636) Capitalized in-progress contract costs -- (170,863) Prepaid expenses and other assets 2,063 (43,128) Accounts payable 51,543 (34,762) Accrued liabilities (145,416) (38,119) Deferred revenue (86,398) (4,504) ----------- ----------- Net cash used in operating activities of continuing operations (843,494) (2,263,162) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (17,937) (10,971) Cash received from FY2002 acquisitions, net 1,096,472 Sale of Kinetidex technology 350,000 Minority investment in subsidiary 105,409 -- ----------- ----------- Net cash provided by investing Activities of continuing operations 87,472 1,435,501 ----------- ----------- Cash flows from financing activities: Repayments of notes payable to bank -- (151,672) Repayments of capital lease obligations (25,448) (19,575) Proceeds from exercise of options and warrants -- 11,668 ----------- ----------- Net cash used in financing activities of continuing operations (25,448) (159,579) Net cash provided by (used in) discontinued Operation 49,657 (20,314) ----------- ----------- Net decrease in cash and cash equivalents (731,813) (1,007,554) Cash and cash equivalents, beginning of period 4,104,303 7,330,749 ----------- ----------- Cash and cash equivalents, end of period $ 3,372,490 $ 6,323,195 =========== ===========
See accompanying notes to consolidated financial statements. 5 SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited)
Three Months Ended June 30, --------------------------- 2002 2001 ----------- ----------- SUPPLEMENTAL CASH FLOW DISCLOSURE: Cash paid for interest $ 10,156 $ 12,660 =========== =========== Cash paid for income taxes $ 5,981 $ 5,381 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Non-cash purchase consideration for the acquisition of Wizshop, Inc. and Application Design Associates, Inc. through the issuance of common stock $ -- $ 4,666,000 =========== =========== Common stock issued for services $ 21,054 $ 173,917 =========== =========== Common stock issued for liabilities $ 16,235 $ -- =========== =========== Property and equipment purchased through the issuance of capital leases $ -- $ 11,254 =========== ===========
See accompanying notes to consolidated financial statements. 6 SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. FORMATION AND BUSINESS OF THE COMPANY: Semotus(TM) Solutions, Inc. ("Semotus" or the "Company"), changed its name from Datalink.net, Inc. as of January 11, 2001. The Company, originally Datalink Systems Corporation, was formed under the laws of the State of Nevada on June 18, 1996. On June 27, 1996, the Company went public through an acquisition of a public corporation, Datalink Communications Corporation ("DCC"), which was previously Lord Abbott, Inc., a Colorado corporation formed in 1986. As a part of the transaction, the Company also acquired a Canadian corporation, DSC Datalink Systems Corporation, incorporated in Vancouver, British Columbia, now named Semotus Systems Corp. Semotus is a leading provider of enterprise application software connecting employees to critical business systems, information, and processes. Semotus helps mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in their business processes for shorter sales and service cycles. The Company's products serve such vertical markets as workforce automation and financial services. Semotus' enterprise application software provides mobility, convenience, efficiency and improves profitability. For more information please go to our website at http://www.semotus.com. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Semotus Solutions, Inc. and its subsidiaries. The consolidated balance sheet as of June 30, 2002, the consolidated statements of operations and comprehensive loss for the three months ended June 30, 2002 and 2001, and the consolidated statements of cash flows for the three months ended June 30, 2002 and 2001 have been prepared by the Company, without audit and with the instructions to Form 10-Q and Regulation S-K. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended March 31, 2002. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:, DSC Datalink Systems Corporation (Canadian subsidiary), Cross Communications, Inc., Simkin, Inc., ISS, Inc. (dba Wares on the Web) FiveStar Advantage, Inc., WizShop, Inc. and Application Design Associates, Inc. All significant intercompany transactions and balances have been eliminated in consolidation. Operations of the Canadian subsidiary consist mainly of research and development and engineering on behalf of the parent. FiveStar Advantage, Inc. has been reclassified as a discontinued operation. All other subsidiaries generate revenues from the sales of products and services. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. 7 3. RECENT PRONOUNCEMENTS In June 2001, the FASB issued FASB Statements No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company adopted SFAS 141 and 142 as of April 1, 2002 and is no longer amortizing goodwill. The effect of the adoption of these Statements resulted in the net loss for the three months ended June 30, 2002 being smaller by $179,735 due to not amortizing goodwill. In August 2001, the FASB issued SFAS No. 143 (SFAS 143) "Accounting for Obligations Associated with the Retirement of Long-Lived Assets". SFAS 143 addresses financial accounting and reporting for the retirement obligation of an asset. SFAS 143 states that companies should recognize the asset retirement cost, at its fair value, as part of the cost of the asset and classify the accrued amount as a liability in the balance sheet. The asset retirement liability is then accreted to the ultimate payout as interest expense. The initial measurement of the liability would be subsequently updated for revised estimates of the discounted cash outflows. SFAS 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect that the implementation of SFAS 143 will have any material impact on its financial position, results of operations, or cash flows. In October 2001, the FASB issued SFAS No. 144 (SFAS 144) "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supersedes SFAS No. 121 by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and by broadening the presentation of discontinued operations to include more disposal transactions. SFAS 144 was adopted effective April 1, 2002. In accordance with the adoption, the Company has classified the operations of FiveStar as discontinued operations. See Note 5, "FiveStar Advantage, Inc." 4. EARNINGS PER SHARE (EPS) DISCLOSURES: The Company has adopted SFAS No. 128 "Earnings Per Share " (EPS). 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. For the three months ended June 30, 2002 and 2001, 7,517,303 potential shares and 7,490,355 potential shares, respectively, were excluded from the shares used to calculate diluted EPS as their effect is anti-dilutive. 8 5. FIVESTAR ADVANTAGE, INC. As part of Semotus' Centralization and Consolidation Plan, which is further described in the Company's March 31, 2002 10-K, Semotus reduced its e-commerce and m-commerce presence with the elimination of unprofitable products and services in that segment. FiveStar was not expected to make a significant contribution to the Company's future profitability as its operations were unprofitable. Therefore, Semotus decided to close the facilities and cease the operations as of the end of June 2002. Furthermore, FiveStar filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on June 28, 2002. In accordance with FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the operations of FiveStar Advantage, Inc. have been recorded as discontinued operations. FiveStar was part of the Enterprise and Commerce Sales segment. The disposal of the assets and liabilities is now under the control of the U.S. Bankruptcy Court and a gain or loss on disposal will be recognized at the time of the final disposition by the Court, which is not expected to be material. The major classes of assets and liabilities included in the discontinued operation are as follows: at June 30, 2002 and March 31, 2002 respectively, inventory of $134,662 and $178,171 and payables of $176,347 and $166,394. At March 31, 2002 there was also $71,989 in cash and $54,346 in accounts receivable. Revenue from FiveStar recorded in the three months ended June 30, 2002 and 2001 respectively was $152,992 and $374,229. 6. COMMITMENTS AND CONTINGENCIES: The Company continues to be a party to certain commitments and contingencies, as previously reported in Note 20 and Part II, Item 3 of Registrant's Form 10K for the year ended March 31, 2002. Please also refer to Park II, Item 1 of this report. 7. SEGMENT INFORMATION Semotus' business has evolved into four segments: wireless services, enterprise and commerce sales, professional and related services and logistic system sales. Semotus' wireless services segment focuses in three areas: Company hosted solutions, client hosted (premise-based) solutions, and financial consumer solutions. The Company creates wireless information products by customizing and delivering actionable and time sensitive information whenever that information is most valuable to the customer. Services and applications are device agnostic and protocol independent, integrating seamlessly into every enterprise infrastructure and working with every wireless carrier and all text messaging devices. Semotus provides two different wireless solutions: (i) Company-hosted where Semotus hosts and manages the information on its servers and (ii) premise based where Semotus installs and engineers the software and information on the customer's servers. Semotus' enterprise and commerce sales line of business provides online transactional information and sales of products and services. This line of business also serves as the platform for the Company's m-commerce initiatives. The online services include website development and maintenance, sales, marketing, customer retention programs and services, logistics, distribution, and tracking and reporting. Semotus uses the enterprise and commerce business to add-on wireless products such as alerts to wireless devices, comparative data information and real time messaging. Semotus' professional services line of business provides customers with online and wireless information and operations consulting, software engineering and training. This line of business provides the software tools and management to install and efficiently run online and wireless operations. The professional and related services business provides Semotus with access to customers who have wireless requirements that can be met with Semotus' wireless solutions. The logistic system sales line of business provides proprietary software with complementary hardware and consulting to satisfy a customer's complete logistical needs. These system installations provide automated logistical solutions for equipment deployment, call centers, dispatching and servicing. 9 All segment financial information presented is unaudited.
PROFESSIONAL LOGISTIC WIRELESS ENTERPRISE AND AND RELATED SYSTEM CORPORATE SERVICES COMMERCE SALES SERVICES SALES AND OTHER TOTAL ------------ ------------ ------------ ------------ ------------ ------------ As of and for the Three Months Ended June 30, 2002 Revenue $ 349,590 $ 265,916 $ 19,294 $ 277,705 $ -- $ 912,505 Gross profit 279,264 120,502 17,023 158,396 -- 575,185 Operating loss* (328,774) 90,410 8,969 (32,234) (776,338) (1,037,964) Depreciation and amortization 83,275 2,493 1,880 8,210 250,000 345,858 Capital expenditures 17,937 -- -- -- -- 17,937 Total assets, June 30, 2002* 4,961,411 1,162,458 261,225 190,353 2,300,033 8,875,480 Three Months Ended June 30, 2001 Revenue $ 317,976 $ 117,141 $ 295,862 $ 489,077 $ -- $ 1,220,056 Gross profit 109,667 69,445 142,799 210,341 -- 532,252 Operating loss* (373,052) (197,822) (404,986) 60,839 (2,938,122) (3,853,143) Depreciation and amortization 82,317 23,355 57,870 5,237 825,795 994,573 Capital expenditures 9,390 -- -- 1,581 -- 10,971 Total assets, June 30, 2001 10,215,218 6,347,340 1,322,533 1,631,768 5,440,000 24,956,859
*Certain corporate marketing, research and development and general and administrative costs have not been allocated to the segments and have been included in "Corporate and other". The $2,300,033 of assets at June 30, 2002 under "Corporate and other" is substantially comprised of the GMP Intellectual Property asset and goodwill. The $5,440,000 of assets under "Corporate and other" at June 30, 2001 is substantially all comprised of the GMP Intellectual Property asset. Further, the selected profit and loss items for the three months ended June 30, 2002 and 2001and the total assets at June 30, 2002 and 2001 respectively, have been adjusted for the discontinued operation of FiveStar, which is categorized in the Enterprise and Commerce Sales segment. See Note 5, "FiveStar Advantage, Inc." ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the attached financial statements and notes thereto. Except for the historical information contained herein, the matters discussed below are forward-looking statements that involve certain risks and uncertainties, including, among others, the risks and uncertainties discussed below. CRITICAL ACCOUNTING POLICIES We described our critical accounting policies in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended March 31, 2002. Our critical accounting policies are those that are most important to the portrayal of our financial condition and results of operation, and require our management's significant judgments and estimates and such consistent application fairly depicts our financial condition and results of operations for all periods presented. Critical accounting policies affecting us have not changed materially since March 31, 2002. OVERVIEW Semotus still reports four business segments: wireless services, enterprise and commerce sales, professional and related services, and logistic system sales. However, at the end of this fiscal year 2002, Semotus determined that the economy would continue in a weak recovery and that the market for technology products would stay anemic. Accordingly, the Company has centralized and consolidated its organization and its operations. Semotus has organized its operations around two core lines of businesses, while maintaining but de-emphasizing its other operations: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) workforce automation with the HiplinkXS family of products and services. These products maintain high gross and operating margins and form the core of the enterprise software marketing strategy with wireless and mobile features available in the software. Logistic systems, largely ADA's products and services, continue as part of Semotus' wireless and mobile strategy. This field force automation software provides Semotus with a unique platform for its wireless productivity enhancement tools such as Hiplink. 10 Certain professional services have been de-emphasized. As well, m-commerce initiatives have been reduced. The e-commerce economy has contracted and m-commerce is not expected to make a significant contribution in the market in the near future. Consequently, Semotus has reduced its e-commerce and m-commerce presence with the elimination of unprofitable products and services in that segment. At Wares on the Web, one e-commerce customer remains and at WizShop, while there is still some small monthly sponsorship and advertising revenue, the operations have been largely consolidated into Semotus' other divisions and subsidiaries. At the end of June, FiveStar's operations were closed as the market for e-fulfillment is currently unprofitable, see Note 5, "FiveStar Advantage, Inc." As a result of the centralization and consolidation implementation, the net loss declined to $1,034,557 from $3,929,818 and to $0.06 per share from $0.24 per share in the three months ended June 30, 2002 versus 2001. Likewise, the overall cash decline was reduced to $731,813 from $1,007,554 in the three months ended June 30, 2002 versus 2001. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 REVENUES Revenues for the three months ended June 30, 2002 were $912,505, as compared to $1,220,056, for the three months ended June 30, 2001. Given the continued decline in economic activity and weakened capital and consumer spending for technology products and services, Semotus experienced a decline in revenues of 25% in the three months ended June 30, 2002 versus 2001. All segments of the Company's business were affected except for the wireless segment. The increase in sales of wireless products and services was more than offset by declines in logistic system sales and professional services as new contracts for system integration services and engineering consulting services did not materialize. Potential customers have delayed capital spending decisions or have kept most of the work in-house. Further, Semotus' Centralization and Consolidation Plan has eliminated unprofitable products and services, which has largely been in the professional services and enterprise and commerce segments. The Plan has accounted for some of the revenue decline in professional services, but is the main reason for most of the decline in the enterprise and commerce segment. The e-commerce economy has contracted and is not expected to recover in the near future. Wireless Services The 10% increase in revenues in the three months ended June 30, 2002 versus 2001 is due to the increased sales of the newest version of Hiplink XS, Semotus' field force automation product. The financial service products, Global Market Pro and Equity Market Pro, have maintained their level of revenues even as the financial service market is experiencing significant declines in sales and trading activity. Enterprise and Commerce Sales The 127% increase in revenues in the three months ended June 30, 2002 versus 2001 is largely due to above mentioned Centralization and Consolidation Plan and the closing of the operations of FiveStar Advantage, Inc. By classifying Fivestar's operations into discontinued operations the overall decline in FiveStar's revenues have been eliminated from the segment. Fivestar's revenues for the three months ended June 30, 2002 and 2001 respectively were $152,992 and $374,229. The remaining revenue increase is due to the implementation of a customer loyalty software contract at WizShop. Professional and Related Services The 93% decline in revenues in the three months ended June 30, 2002 versus 2001 is due to the reduction in new professional service contracts at Wares and also directly the result of the sale of Simkin's Kinetidex 2.0 product in June 2001. Simkin's revenues have remained at much lower levels since that time, with fewer medical software training contracts. Logistic System Sales The 43% decline in revenues in the June 30, 2002 quarter versus the same quarter in 2001 is a direct result of less capital spending on system integration projects and the beverage industry reducing new capital spending. ADA received fewer system integration contracts. Further, ADA is in process of upgrading its core asset tracking and management software, which has not been completed. The new software should provide further incentives for customers to upgrade and increase revenues at ADA. COST OF REVENUES AND GROSS MARGIN The overall gross profit margin increased to 63% from 44% in the three months ended June 30, 2002 versus 2001. The increase is the result of changes in product mix from lower margin enterprise and commerce segment product to higher margin wireless and logistic system segment products. Further, with the elimination of unprofitable products and services and the closing of the FiveStar operations, the overall gross profit margin improved since the remaining products and services carried much higher margins. 11 Wireless services The gross profit margin for this segment has increased significantly to 80% from 34% in the three months ended June 30, 2002 versus 2001. This increase is the result of the continuation of a changing product mix: i) increased higher margin sales of enterprise products such as Global Market Pro, ii) the introduction of a higher margin version of Hiplink, a field force automation wireless product, and iii) the reduction and discontinuance of lower margin consumer products. Further, Semotus has been able to renegotiate data feed contracts to lower costs for the financial service products which has added to the improved gross profit margin. Enterprise and commerce sales The gross profit margin for this segment declined to 45% from 59% for the three months ended June 30, 2002 versus 2001. This is largely due to a contract at WizShop for a customer loyalty and tracking software which is fully implemented and additional costs are recognized upon implementation. Professional and related services The gross profit margin in this segment increased to 88% from 48% in the three months ended June 30, 2002 versus 2001 as a direct result of the elimination of unprofitable contracts and services. The remaining professional service business carries much higher margins since the services are extensions of existing contracts that do not require as much start-up costs. Logistic system sales The gross profit margin for this segment increased to 57% from 43% in the three months ended June 30, 2002 versus the same period in 2001 principally due to a shift in the mix of services provided in the system integration contracts. ADA experienced more demand for higher margin software and consulting services and less demand for lower margin hardware. This services shift improved the overall gross profit margin. OPERATING EXPENSES Operating expenses declined overall in the three month period ended June 30, 2002 versus the same period in the last fiscal year, due to the Centralization and Consolidation Plan, which has significantly reduced operating expenses in all areas of the firm including research and development, sales and marketing and general and administrative cost centers. The Company categorizes operating expenses into five major categories: research and development, sales and marketing, general and administrative, depreciation and amortization, and stock, option and warrant expense. The table below summarizes the changes in these five categories of operating expenses (unaudited): Three Months Ended June 30, --------------------------- Description 2002 2001 - --------------- ----------- ----------- Research and development $ 296,239 $ 505,132 Sales and marketing 296,556 772,142 General and administrative 653,442 1,289,631 Net impairment of goodwill -- 650,000 Depreciation and amortization 345,858 994,573 Stock, option and warrant expense 21,054 173,917 ----------- ----------- Total $ 1,613,149 $ 4,385,395 =========== =========== Research and development expenses are expenses incurred in developing new products and product enhancements for current products. These expenditures are charged to expense as incurred. In the three months ended June 30, 2002, much of the development work for the Global Market Pro, Equity Market Pro and HiplinkXS products has been completed which has reduced research and development expenses. Remaining engineering costs are production projects for the existing products and services and engineering work on the update to ADA's asset tracking and management software. Sales and marketing expenses consist of costs incurred to develop and implement marketing and sales programs for the Company's product lines. These include costs required to staff the marketing department, participation in trade shows, media development and advertising, and web site development and maintenance. These costs also include the expenses of hiring sales personnel and maintaining a customer support call center. These costs have declined principally due to the reduction in general advertising and non-sales supported marketing. There has also been a reduction in marketing personnel as the Company has shifted to emphasizing marketing and sales support for its existing products. 12 General and administrative expenses include senior management, accounting, legal and consulting. This category also includes the costs associated with being a publicly traded company, including the costs of the AMEX listings, investor and public relations, rent, administrative personnel, and other overhead related costs. These costs declined during the three months ended June 30, 2002 as personnel and offices were reduced and operating functions were consolidated. The net impairment of goodwill 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. As noted in Note 5, "Sale of Technology and Net Impairment of Goodwill", of our Annual Report on Form 10-K for the year ended March 31, 2002, Semotus elected to sell the royalty rights and software of Kinetidex 2.0 to Micromedex, Inc., the joint developer and exclusive distributor of the product. Semotus received $350,000 for the product and all future royalty rights. Semotus considered a variety of factors for a potential impairment of goodwill, which included the sale of the technology, future prospects of Simkin's business, and importantly, the consideration paid for Simkin, which was substantially all common stock. Subsequent to the acquisition, the price of the common stock of Semotus had declined from $14.375 to $1.59 as of June 30, 2001. Consequently, Semotus elected to take a goodwill impairment charge of $650,000. Depreciation and amortization expense includes depreciation of computers and other related hardware and certain fixtures. Amortization includes goodwill costs for periods prior to April 1, 2002 and certain intellectual property costs. The decrease in this expense is primarily the result of the adoption of SFAS 142, "Goodwill and Other Intangible Assets" in which goodwill is no longer amortized. Further, Semotus elected to take an impairment charge of $3,541,017 for intangible assets at March 31, 2002 which has reduced the asset value of intangible assets other than goodwill to $1,000,000 at March 31, 2002. This impairment charge has reduced the amortization associated with the intangible assets. The non-cash charges for compensation consists mainly of grants of stock, options and warrants for services provided to the Company. Such services include financial, marketing and public relations consulting. Additionally, common stock was issued for certain accrued liabilities. The decline in non-cash charges for compensation is due mainly to the termination of contracts with service providers, which called for stock or warrant compensation, as well as the decline in the stock and option grants to service providers, in the three months ended June 30, 2002. The common stock issued was valued at its fair market value at the time of issuance, or in the instance of common stock purchase warrants, in accordance with the Black-Scholes pricing guidelines. Certain employee stock options, which have been repriced, are subject to the variable plan requirements of APB No. 25, that requires the Company to record compensation expense for changes in the fair value of the Company's common stock. While no compensation expense was required to be recognized in the three months ended June 30, 2002 and 2001, expense will be recognized in the future if the stock price increases above the revised exercise price of the options. NON-OPERATING INCOME AND EXPENSES Non-operating income and expenses for the three ended June 30, 2002 and 2001 are primarily interest income from invested cash, interest expense from notes payable, amortization of advances from technology sales received in previous periods, and the owner's fees and offsetting interest income recognized, related to the technology sales. See the Consolidated Statement of Operations and Comprehensive Loss and Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2002. Net interest income declined as less cash was available for investment during the three month period ended June 30, 2002 versus 2001 as Semotus continues with operating losses. Amortization of technology advances decreased somewhat in the three months ended June 30, 2002, due to the application of the effective interest method of amortization on the balances. COMPREHENSIVE LOSS The 74% reduction in the comprehensive loss to $1,020,326 or $0.06 per share for the three months ended June 30, 2002, compared to $3,943,936 or $0.24 per share for the three months ended June 30, 2001, is a direct result of the implementation of cost reduction programs which have consolidated and centralized Semotus' operating units and the elimination of unprofitable products and services. SEGMENT RESULTS Semotus' business has evolved into four segments: wireless services, enterprise and commerce sales, professional and related services and logistic system sales. (See Note 7, "Segment Information" for further information about each of the segments.) Specific results of the segments are discussed under "Revenues" and "Cost of Revenues and Gross Margin" in this section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations". 13 All segment financial information presented is unaudited.
PROFESSIONAL LOGISTIC WIRELESS ENTERPRISE AND AND RELATED SYSTEM CORPORATE SERVICES COMMERCE SALES SERVICES SALES AND OTHER TOTAL ------------ ------------ ------------ ------------ ------------ ------------ As of and for the Three Months Ended June 30, 2002 Revenue $ 349,590 $ 265,916 $ 19,294 $ 277,705 $ -- $ 912,505 Gross profit 279,264 120,502 17,023 158,396 -- 575,185 Operating loss* (328,774) 90,410 8,969 (32,234) (776,338) (1,037,964) Depreciation and amortization 83,275 2,493 1,880 8,210 250,000 345,858 Capital expenditures 17,937 -- -- -- -- 17,937 Total assets, June 30, 2002* 4,961,411 1,162,458 261,225 190,353 2,425,033 9,000,480 Three Months Ended June 30, 2001 Revenue $ 317,976 $ 117,141 $ 295,862 $ 489,077 $ -- $ 1,220,056 Gross profit 109,667 69,445 142,799 210,341 -- 532,252 Operating loss* (373,052) (197,822) (404,986) 60,839 (2,938,122) (3,853,143) Depreciation and amortization 82,317 23,355 57,870 5,237 825,795 994,573 Capital expenditures 9,390 -- -- 1,581 -- 10,971 Total assets, June 30, 2001 10,215,218 6,347,340 1,322,533 1,631,768 5,440,000 24,956,859
*Certain corporate marketing, research and development and general and administrative costs have not been allocated to the segments and have been included in "Corporate and other". The $2,300,033 of assets at June 30, 2002 under "Corporate and other" is substantially comprised of the GMP Intellectual Property asset and goodwill. The $5,440,000 of assets under "Corporate and other" at June 30, 2001 is substantially all comprised of the GMP Intellectual Property asset. Further, the selected profit and loss items for the three months ended June 30, 2002 and 2001and the total assets at June 30, 2002 and 2001 respectively, have been adjusted for the discontinued operation of FiveStar, which is categorized in the Enterprise and Commerce Sales segment. See Note 5, "FiveStar Advantage, Inc." LIQUIDITY AND CAPITAL RESOURCES The overall decrease in the cash position of Semotus is due to the continued operating losses at the Company. Cash continued to be spent on operating resources and upgrading and maintaining certain wireless and logistic system products although a cash management and cost reduction program has been implemented and has reduced the overall cash loss by 27% for the three month period ended June 30, 2002 versus 2001. The sources and uses of cash are summarized as follows (unaudited): THREE MONTHS ENDED JUNE 30, --------------------------- 2002 2001 ----------- ----------- From continuing operations: Cash (used in) operating activities $ (843,494) (2,263,162) Cash provided by investing activities 87,472 1,435,501 Cash (used in) financing activities (25,448) (159,579) Net cash provided by (used in) discontinued Operation 49,657 (20,314) ----------- ----------- Net decrease in cash and cash equivalents $ (731,813) $(1,007,554) =========== =========== 14 Cash used in operating activities from continuing operations consisted principally of a net loss of $1,034,577 offset somewhat by non-cash charges of $345,858 of depreciation and amortization and $21,054 of stock based compensation. Additionally, the loss from the discontinued operation contributed $122,835. Other operating activities that contributed to the use of cash were $233,120 in the net change of current assets and current liabilities. This largely resulted from decreases in accrued liabilities and deferred revenue of $145,416 and $86,398 respectively, offset somewhat by increases in accounts payable of $51,543.and accounts receivable of $54,912. Cash provided from investing activities of $87,472 resulted principally from an increase in the minority investment in ADA of $105,409 offset by capital expenditures of $17,937. Cash flows from financing activities produced a net decrease in cash of $25,448 which resulted from repayments of capital leases. As of June 30, 2002, the Company had unrestricted cash and cash equivalents amounting to $3,372,490, a decrease of $731,813 from the balance at March 31, 2002. Working capital decreased to $1,618,684 from $2,064,396 at the fiscal 2002 year end. The decrease in working capital is from the resources used in the operations of Semotus as explained above. The Company has not yet generated sufficient revenues to cover the costs of continued product development and support, sales and marketing efforts and general and administrative expenses. There are no material commitments for capital expenditures at June 30, 2002. Management believes that it has adequate working capital for the next 12 months. RECENT PRONOUNCEMENTS: In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combination (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company adopted SFAS 142 as of April 1, 2002 and is no longer amortizing goodwill. The effect of the adoption of these Statements resulted in the net loss for the three months ended June 30, 2002 being smaller by $179,735 due to not amortizing goodwill. In August 2001, the FASB issued SFAS No. 143 (SFAS 143) "Accounting for Obligations Associated with the Retirement of Long-Lived Assets". SFAS 143 addresses financial accounting and reporting for the retirement obligation of an asset. SFAS 143 states that companies should recognize the asset retirement cost, at its fair value, as part of the cost of the asset and classify the accrued amount as a liability in the balance sheet. The asset retirement liability is then accreted to the ultimate payout as interest expense. The initial measurement of the liability would be subsequently updated for revised estimates of the discounted cash outflows. SFAS 143 will be effective for fiscal years beginning after June 15, 2002. At this time, the Company does not expect that the implementation of SFAS 143 will have any material impact on its financial position, results of operations, or cash flows. In October 2001, the FASB issued SFAS No. 144 (SFAS 144) "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supersedes the SFAS No. 121 by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and by broadening the presentation of discontinued operations to include more disposal transactions SFAS 144 was adopted effective April 1, 2002. In accordance with the adoption, the Company has classified the operations of FiveStar as discontinued operations. See Note 5, "FiveStar Advantage, Inc." FORWARD LOOKING STATEMENTS AND RISK FACTORS This report includes forward-looking statements relating to, among other things, projections of future results of operations, our plans, objectives and expectations regarding our future services and operations and our acquisitions of Cross, Simkin, Wares, Five Star, Tech-ni-comm, WizShop and Application Design Associates and general industry and business conditions applicable to us. We have based these forward-looking statements on our current expectations and projections about future events. You can find many of these forward-looking statements by looking for words such as "may", "should", "believes", "expects", "anticipates", "estimates", "intends", "projects", "goals", "objectives", or similar expressions in this document or in documents incorporated herein. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about us that could cause actual results to differ materially from those in such forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to, our limited operating history, our historical losses, the infancy of the wireless data industry where there is no established market for our products and services, our ability to adapt to rapid technological changes, our dependence on wireless networks owned and controlled by others, and the other factors that we describe in the section entitled "Risk Factors" in our Form 10-K for the year ended March 31, 2002. Semotus Solutions claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK We have limited exposure to financial market risks, including changes in interest rates. At June 30, 2002, we had cash and cash equivalents of $4,065,776 including restricted cash of $693,286. Cash and cash equivalents consisted of demand deposits and money market accounts. Because of the cash equivalency of the money market accounts and the liquidity thereof, there is no material exposure to changes in interest rates for these accounts. The Company also has short-term notes payable in the amount of $723,105, at June 30, 2002. These notes are due and payable within one year. Because of the short-term nature of the notes and the fixed rate on the notes, there is no material exposure to changes in interest rates for these accounts. The Company does not have any derivative or hedge instruments at June 30, 2002. Semotus has a permanent engineering operation in Vancouver, B.C., Canada and therefore has an exposure to the Canadian and U.S. dollar exchange rate. The Company, in the ordinary course of its business, transfers funds to the Canadian company and records the translation at the current exchange rate. The Company records translation gains and losses in Comprehensive Income. At June 30, 2002, the cumulative translation loss was $128,129. Given the relative stability of the Canadian and U.S. dollar exchange rate, the Company has not deemed it necessary to hedge this exposure. ITEM 4. CONTROLS AND PROCEDURES a) Evaluation of disclosure controls and procedures. Semotus' chief executive officer and chief financial officer evaluated the Company's disclosure controls and procedures as of November 8, 2002, and concluded that the Company's disclosure controls and procedures were effective as of this date. b) Changes in internal controls. There were not any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to November 8, 2002. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Brown Simpson lawsuit previously reported in Registrant's Form 10K for the year ended March 31, 2002 has been stayed until August 29, 2002 pending settlement negotiations between the parties. The Earthlink lawsuit previously reported in Registrant's Form 10K for the year ended March 31, 2002 is proceeding on schedule. We are also a party to other legal proceedings in the normal course of business. Based on evaluation of these matters and discussions with counsel, we believe that liabilities arising from these matters will not have a material adverse effect on our consolidated results of operations or financial position. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The Company issued securities, which were not registered under the Securities Act of 1933, as amended, as follows: During the Quarter ended June 30, 2002, the Company issued a total of 28,442 shares of its common stock to settle certain liabilities of the Company. The Company also issued 250,000 shares of its common stock to 2007978 Ontario, Inc., pursuant to the first year price guarantee in the acquisition of Application Design Associates, Inc. ("ADA") and subsequent 49% sale of ADA's stock to Ontario, Inc., which transferred the rights to these shares to Ontario, Inc. With respect to these transactions, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The investors were given complete information concerning the Company. The appropriate restrictive legend was placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits 99.1 Certification Pursuant to 18 U.S.C. ss. 1350 b) Reports on Form 8-K: During the quarter ended June 30, 2002, we did not file any Current Reports on Form 8-K with the Commission. 16 SIGNATURES Pursuant to the requirements 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. SEMOTUS SOLUTIONS, INC. DATE: NOVEMBER 13, 2002 BY: /s/ ANTHONY N. LAPINE ------------------------------------- ANTHONY N. LAPINE PRESIDENT AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) BY: /s/ CHARLES K. DARGAN, II ------------------------------------- CHARLES K. DARGAN, II CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) 17 CERTIFICATIONS I, Anthony N. LaPine, President and Chief Executive Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Semotus Solutions, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Anthony N. LaPine ------------------------- Anthony N. LaPine President and Chief Executive Officer 18 I, Charles K. Dargan, II, Chief Financial Officer of the Company, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Semotus Solutions, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Charles K. Dargan, II --------------------------------- Charles K. Dargan, II Chief Financial Officer 19 EX-99.1 3 exh99-1_11606b.txt CERTIFICATION EXHIBIT 99.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350 Pursuant to 18 U.S.C. ss.1350, each of the undersigned certifies that this Quarterly Report on Form 10-Q/A for the period ended June 30, 2002 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: NOVEMBER 13, 2002 /s/ ANTHONY N. LAPINE ------------------------------- ANTHONY N. LAPINE CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350 Pursuant to 18 U.S.C. ss.1350, each of the undersigned certifies that this Quarterly Report on Form 10-Q/A for the period ended June 30, 2002 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: NOVEMBER 13, 2002 /s/ CHARLES K. DARGAN, II ------------------------------- CHARLES K. DARGAN, II CHIEF FINANCIAL OFFICER -----END PRIVACY-ENHANCED MESSAGE-----