U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2001
Commission file number: 1-15569
SEMOTUS SOLUTIONS, INC.
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(Exact name of business issuer in its charter)
Nevada 36-3574355
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
1735 Technology Drive, Suite 790, San Jose, CA 95110
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(Address of Principal Executive Offices including zip code)
(408) 367-1700
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(Issuer's telephone number)
Check whether the issuer (1) 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 17,293,477 shares of the Registrant's Common Stock outstanding as of
February 14, 2002.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
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SEMOTUS SOLUTIONS, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
a. Consolidated Balance Sheets as of December 31, 2001
and March 31, 2001 3
b. Consolidated Statements of Operations and Comprehensive
Loss for the three and nine month periods ended
December 31, 2001 and 2000 4
c. Consolidated Statements of Cash Flows for the nine
months ended December 31, 2001 and 2000 5
d. Notes to the Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING
MARKET RISK 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25
ITEM 5. OTHER INFORMATION 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMNTS
SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 2001 March 31
(unaudited) 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,806,447 $ 7,844,042
Restricted cash 693,286 694,222
Trade receivables (net of allowance for doubtful
accounts of $103,156 at December 31, 2001 and
$62,887 at March 31, 2001) 687,286 462,368
Income and GST tax receivable 2,976 127,266
Other receivables 75,551 115,716
Inventory (net of reserve of $238,500 at
December 31, 2001 and $188,500 at March 31, 2001) 308,773 387,547
Prepaid expenses 136,524 155,959
------------ ------------
Total current assets 6,710,843 9,787,120
Property and equipment, net 862,760 977,678
Investments -- 151,000
Capitalized contract, net 721,198 --
GMP intellectual property, net (Note 5) 4,760,000 5,780,000
Goodwill, net (Notes 3 and 4) 7,057,424 4,760,746
Other assets 167,660 313,417
------------ ------------
Total assets $ 20,279,885 $ 21,769,961
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 962,518 $ 626,830
Accrued expenses and other current liabilities 388,901 228,340
Notes payable 693,401 694,222
Current portion of capital lease obligations 82,742 38,222
Current portion of advances on technology sales 218,428 307,390
Current portion of deferred revenue 1,363,028 111,333
------------ ------------
Total current liabilities 3,709,018 2,006,337
Capital lease obligations, net of current portion 68,032 63,447
Advances on technology sales, net of current
portion 690,786 835,170
Deferred revenue, net of current portion 250,087 --
------------ ------------
Total liabilities 4,717,923 2,904,954
------------ ------------
Commitments and contingencies (Note 9)
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 December 31, 2001 and March 31, 2001 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:
Common stock: $0.01 par value; authorized:
50,000,000 shares; issued and outstanding:
17,293,477 at December 31, 2001 and 15,903,368
at March 31, 2001 172,935 159,034
Additional paid-in capital 60,285,752 55,217,626
Accumulated other comprehensive loss (139,800) (102,536)
Notes receivable - related parties (877,290) (1,106,612)
Accumulated deficit (49,562,091) (40,984,961)
------------ ------------
Total common shareholders' equity 9,879,506 13,182,551
------------ ------------
Total liabilities, preferred and common
shareholders' equity $ 20,279,885 $ 21,769,961
============ ============
See accompanying notes to consolidated financial statements.
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SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Wireless services $ 346,421 $ 324,859 $ 1,017,190 $ 1,365,086
Enterprise and commerce sales 604,208 744,273 2,068,402 2,650,818
Professional and related services 156,302 305,561 597,028 323,147
Logistic systems sales 316,662 -- 1,186,303 --
------------ ------------ ------------ ------------
Total revenue $ 1,423,593 $ 1,374,693 $ 4,868,923 $ 4,339,051
Cost of revenue:
Wireless services 108,785 166,408 420,031 743,324
Enterprise and commerce sales 412,390 525,410 1,534,038 1,823,427
Professional and related services 71,050 30,557 374,357 32,315
Logistic systems sales 141,567 -- 597,249 --
------------ ------------ ------------ ------------
Total cost of revenue 733,792 722,375 2,925,675 2,599,066
------------ ------------ ------------ ------------
Gross Profit 689,801 652,318 1,943,248 1,739,985
Operating Expenses:
(Exclusive of depreciation
and amortization and stock,
option and warrant expense)
Research and development 317,812 374,665 1,215,186 915,846
Sales and marketing 438,683 1,275,002 1,796,063 3,394,750
General and administrative 941,793 2,189,722 3,911,308 4,827,877
Net impairment of goodwill (Note 4) -- -- 650,000 --
Depreciation & amortization:
Research and development 22,605 25,403 72,014 46,242
General and administrative 974,068 355,521 2,913,528 1,027,131
Stock, option and warrant expense:
Sales and marketing 21,000 -- 63,000 --
General and administrative 74,847 37,564 323,275 97,955
------------ ------------ ------------ ------------
Total operating expenses 2,790,808 4,257,877 10,944,374 10,309,801
------------ ------------ ------------ ------------
Net loss from operations (2,101,007) (3,605,559) (9,001,126) (8,569,816)
Net interest income 66,082 168,672 216,604 599,060
Other income, net (Note 7) 64,526 45,915 207,392 257,602
------------ ------------ ------------ ------------
Total interest and other
income 130,608 214,587 423,996 856,662
Net loss (1,970,399) (3,390,972) (8,577,130) (7,713,154)
Other comprehensive loss
- Translation adjustment (6,744) 6,113 (37,264) (7,501)
------------ ------------ ------------ ------------
Comprehensive loss $ (1,977,143) $ (3,384,859) $ (8,614,394) $ (7,720,655)
============ ============ ============ ============
Net loss per share:
Basic $ (.11) $ (.22) $ (.51) $ (.51)
Diluted $ (.11) $ (.22) $ (.51) $ (.51)
Weighted average shares
used in per share
calculation, basic and
diluted 17,185,991 15,585,819 16,882,685 15,006,031
See accompanying notes to consolidated financial statements.
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SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
December 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (8,577,130) $ (7,713,154)
Foreign currency translation adjustment (37,264) (7,501)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,985,542 1,073,373
Compensation expense related to stock
issued for services 386,275 97,955
Amortization of technology advances (233,345) (266,375)
Amortization of notes receivable 255,982 181,445
Net amortization of contract income (500,731) --
Non-cash compensation received for service -- (150,000)
Impairment of goodwill 650,000 --
Changes in assets and liabilities, net of acquired
assets and liabilities due to acquisitions:
Accounts and other receivables 151,924 (831,216)
Inventory 78,774 49,089
Prepaid expenses and other assets 34,408 192,074
Accounts payable 149,864 224,217
Accrued liabilities 176,303 (78,792)
Deferred revenue 204,663 (107,658)
------------ ------------
Net cash used in operating activities (4,274,735) (7,336,543)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (20,707) (511,675)
Cash received from FY 2002 acquisitions, net 1,096,472 --
Cost of FY 2001 acquisitions, net of cash acquired -- (196,004)
Sale of Kinetidex technology 350,000 --
Other assets -- 36,561
------------ ------------
Net cash provided by (used in)
investing activities 1,425,765 (671,118)
------------ ------------
Cash flows from financing activities:
Repayment of line of credit -- (37,364)
Repayment of notes payable (154,283) --
Payment on shareholder's loan -- (13,244)
Repayment of capital lease obligations (46,010) (8,434)
Proceeds from exercise of options and warrants 11,668 2,017,206
------------ ------------
Net cash (used in) provided by financing
activities (188,625) 1,958,164
------------ ------------
Net decrease in cash and cash equivalents (3,037,595) (6,049,497)
Cash and cash equivalents, beginning of the period 7,844,042 16,360,776
------------ ------------
Cash and cash equivalents, end of the period $ 4,806,447 $ 10,311,279
============ ============
See accompanying notes to consolidated financial statements.
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SEMOTUS SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
Nine Months Ended December 31,
2001 2000
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 66,574 $ 68,154
========== ==========
Cash paid for income taxes $ 5,190 $ 1,600
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Non-cash purchase consideration from
acquisition of ISS, Inc. through the
issuance of common stock $ -- $1,671,750
========== ==========
Non-cash purchase consideration from
acquisition of Cross Communications, Inc.
and Simkin, Inc. through the issuance
of common stock $ -- $2,753,900
========== ==========
Consideration in connection with
40,000 common stock warrants to
obtain option to repurchase license
technology $ -- $ 217,000
========== ==========
Issuance of 800,000 common stock
warrants to obtain GMP Intellecutal
Property $ -- $6,800,000
========== ==========
Common stock issued for services $ 386,275 $ 97,955
---------- ----------
Preferred stock converted to common
stock $ -- $ 600
---------- ----------
Non-cash purchase consideration for the
acquisition of Wizshop, Inc. and
Application Design Associates, Inc.
through the issuance of common stock $4,666,000 $ --
========== ==========
Additional non-cash purchase consideration
paid to shareholder of Cross
Communications, Inc. pursuant to the
first year performance criteria of the
Merger Agreement $ 18,086 $ --
---------- ----------
Property and equipment obligations
under capital leases, net $ 122,971 $ 62,136
========== ==========
See accompanying notes to consolidated financial statements.
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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. In the June
27, 1996 acquisition of DCC, the Company issued 3,293,064 shares of its $0.01
par value Common Stock (as adjusted for the 1 for 10 reverse split effective on
February 9, 1998 and a 2 for 1 forward split effective April 27, 2000) to the
holders of 100% of the outstanding Common Stock of DCC, and DCC became a wholly
owned subsidiary of the Company. As a part of the transaction, the Company
acquired a Canadian corporation, DSC Datalink Systems Corporation, now named
Semotus Systems Corporation, incorporated in Vancouver, British Columbia.
Semotus is a wireless infrastructure company providing end-to-end mobile data
solutions to enterprises for their employees (productivity tools) and their
customers (revenue tools). The Company enables enterprises and consumers to
customize, interact with and respond to critical business data utilizing a new
generation of wireless devices. Semotus leverages its core patented
XpressLink(TM) technology across the high demand vertical markets of finance,
medical, e-commerce and field force automation through its modular expansion of
this market leading technology, and through acquisitions of established
companies providing products and services to which Semotus can contribute value
through wireless enhancement.
Semotus' acquisition strategy, pursuant to which the Company has acquired six
companies through December 31, 2001, focuses on companies in target markets that
have a significant customer base and meaningful revenues. From this foundation,
Semotus intends to strengthen and enhance the existing revenues and then provide
wireless solutions to further enhance and grow revenues. See Note 3,
"Acquisitions".
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Semotus Solutions, Inc. and its subsidiaries (see footnote 3, "Acquisitions").
The consolidated balance sheet as of December 31, 2001, the consolidated
statements of operations and comprehensive loss for the three months and nine
months ended December 31, 2001 and 2000, and the consolidated statements of cash
flows for the nine months ended December 31, 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 and nine-month periods ended December 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2002. 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-KSB for the year ended
March 31, 2001.
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.
All financial data and share data in this Form 10-Q give retroactive effect to
the 2 for 1 stock split which was effected on April 27, 2000.
2. 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
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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 the Company and
its wholly owned subsidiaries: Semotus Systems Corporation (Canadian
subsidiary), Cross Communications, Inc., Simkin, Inc., Wares on the Web, Inc.,
Five Star Advantage, Inc., WizShop.com, 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 Semotus and its other
subsidiaries. All other subsidiaries generate revenues from the sale of products
and services.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-TERM ASSETS
Long-term assets, such as intellectual property rights and goodwill are
amortized on a straight-line basis over the economic life of the assets. The
expected useful life of those assets is currently five years.
CAPITALIZED CONTRACT
Semotus capitalizes the fair value of contracts acquired in business
combinations as required by APB 16 "Business Combinations". Fair value is
determined by estimating the cost expected to be incurred in order to perform
the obligations under the contract plus adding a reasonable profit associated
with the performance effort. The capitalized cost is amortized into cost of
revenue as revenues are recognized.
STOCK BASED COMPENSATION:
Semotus has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under this
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. The fair value
method is required for all stock-based compensation issued to non-employees,
including consultants and advisors. Under the fair value method, compensation
cost relating to issuances of stock options, warrants and appreciation rights
are measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period.
Companies are permitted to continue to account for employee stock-based
transactions under Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," but are required to disclose pro forma net
income and earnings per share as if the fair value method has been adopted. The
Company has 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, that requires the Company to record
compensation expense for changes in the fair value of the Company's common
stock.
REVENUE RECOGNITION:
Semotus recognizes revenues in each of its lines of business based upon contract
terms and completion of the sales process.
Wireless services: revenue is generated from wireless services provided to
enterprises and consumers. The revenue is generated from recurring monthly
charges based on utilization fees, transaction fees, and maintenance and service
charges. In the B2C business, the Company also receives a small revenue stream
from pager rentals. 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 premise-based business, wireless software is
delivered to the customer and revenue is recognized upon shipment, assuming no
significant obligations remain.
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Enterprise and commerce sales: revenue is generated from online sales,
advertising, sponsorships, hosting fees and other services. Online sales revenue
is recognized upon a completed sale and shipment of a product. Advertising and
sponsorships revenue is recognized when payment is received. Hosting fees and
other services, such as licensing, are recognized ratably over the service
period.
Professional and related services: revenue is generated from software
engineering and sales and from training and consultation. Revenue is recognized
when the engineering, training or consultation work has been performed in
accordance with the contract.
Logistic systems sales: revenue is generated from logistic software sales,
computer equipment sales and system installation and consulting services.
Revenue is recognized when the system installation is completed and/or
consulting work has been performed in accordance with the contract. For
multi-period contracts, usually for maintenance or licensing, revenue is
recognized ratably over these service periods.
COST OF REVENUE:
The cost of revenue for the wireless services line of business 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 the enterprise and commerce sales and service line of
business includes the purchase cost of the products, and advertising, servicing,
hosting and shipping costs. Any engineering costs directly related to the
products offered are also included as a cost of revenue.
The cost of revenue for professional and related services is primarily personnel
costs for engineering, training and consulting.
The cost of revenue for the logistic system sales segment is the cost of the
production of the software, purchased equipment costs and the cost of the
personnel for engineering, installation and consulting.
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
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).
Outstanding common shares and per share amounts have been adjusted for a 2 for 1
stock split, which was effective April 27, 2000.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
PURCHASE ACQUISITIONS:
Acquisitions, which have been accounted for under the purchase method of
accounting, include the results of operations of the acquired business from the
date of acquisition. Net assets of the companies acquired are recorded at their
fair value to the Company at the date of acquisition. Goodwill is amortized over
the economic life of the asset. The expected useful life is currently five
years. Amortization will continue until the adoption of FASB Statement No. 142,
beginning on April 1, 2002. (See Note 3, "Acquisitions" and Note 4, "Sale of
Technology and Net Impairment of Goodwill".)
COMPREHENSIVE INCOME (LOSS):
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income", which was adopted by the Company in the
third
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quarter of fiscal year 1999. SFAS 130 establishes standards for reporting
comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Items to be included, which are excluded from net income
(loss), include foreign currency translation adjustments.
RECENT PRONOUNCEMENTS:
In March 2000, the Emerging Issues Task Force (EITF) of the FASB published their
consensus on EITF Issue No 00-3, "Application of AICPA Statement of Position
(SOP) 97-2, Software Revenue Recognition, to Arrangements that Include the Right
to Use Software Stored on Another's Entity's Hardware." The EITF consensus gives
guidance on accounting for hosting arrangements. The Company does not expect the
adoption of EITF Issue No. 00-3 to have a material effect on its consolidated
results of operations or financial position.
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." Interpretation No. 44 clarifies the application of Opinion 25
for the following issues: (1) the definition of employee for purposes of
applying Opinion 25, (2) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (3) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (4)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000. Due to the repricing
of employee stock options in November 2001, the adoption of Interpretation No.
44 may have a material effect on the Company's financial position and results of
operations in the future. For the three and nine month periods ended December
31, 2001, the effect was immaterial.
In June 2001, the FASB finalized FASB Statements No. 141, "Business
Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets"
(SFAS 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's previous business combinations were accounted for using both the
pooling-of-interests and purchase methods. The pooling-of-interests method does
not result in the recognition of acquired goodwill or other intangible assets.
As a result, the adoption of SFAS 141 and 142 will not affect the results of
past transactions accounted for under the pooling-of-interests method. However,
all future business combinations will be accounted for under the purchase
method, which may result in the recognition of goodwill and other intangible
assets, some of which will be recognized through operations, either by
amortization or impairment charges, in the future. For purchase business
combinations completed prior to December 31, 2001, the net carrying amount of
goodwill is $7,057,424 and other intangible assets is $721,198. Amortization
expense for goodwill during the three and nine month periods ended December 31,
2001 was $459,156 and $1,396,449, respectively. The Company intends to complete
the transitional goodwill impairment test within six months from the date of
adoption. The impact of the adoption of SFAS 141 and SFAS 142 on the Company's
financial position and results of operations could be material.
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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 will be effective for fiscal years beginning after
December 15, 2001. The impact of adopting SFAS 144 on the Company's financial
position and result of operations could be material.
3. ACQUISITIONS
All acquisitions accounted for under the purchase method of accounting have
their results of operations included in the financial statements as of the date
of acquisition. Goodwill is currently amortized on a straight line basis over
the economic life of the asset. The current estimated life is five years. (See
Note 2, "Summary of Significant Accounting Policies: Purchase Acquisitions".)
WizShop.com, Inc. ("WizShop")
On April 6, 2001 WizShop's shareholders approved a merger transaction with
Semotus. On May 7, Semotus acquired all the outstanding stock of WizShop and the
transaction officially closed. The acquisition was accounted for under the
purchase method of accounting. The value of common stock issued for the
acquisition was approximately $3.4 million. Semotus recorded $3.4 million of
goodwill. Semotus issued 699,993 shares of common stock and may issue up to
another 750,000 shares over the next two years if certain revenue targets are
met. Semotus has also agreed to issue additional shares if Semotus' common stock
does not trade at or above $10.00 per share by the end of each year after such
shares are issued. The maximum number of additional shares that can be issued is
twice the initial shares and earnout shares that have not been sold by the
original WizShop stockholders. The first of the measurement dates is August
2002. At that time, if the Company's common stock has not closed at $10.00 per
share or above, additional shares will be issued to the original WizShop
stockholders still holding the Semotus common stock.
The effect of issuing any additional shares if certain revenue targets are met
will be accounted for as additional purchase price consideration. The effect of
issuing any additional shares if certain per share trading prices are not met
has been accounted for in the Company's financial statements at the date of
acquisition.
WizShop builds and maintains outsourced e-commerce environments for Internet
portal companies. WizShop is in the outsourced e-commerce market through
WizShop-powered, co-branded shopping sites. WizShop also creates successful
online sales and merchandising programs for its clients through WizShop's sales
and marketing initiatives. (See footnote 13, "WizShop.com", for further
information concerning WizShop.)
Application Design Associates, Inc.
On April 30, 2001, Semotus and Application Design Associates, Inc. ("ADA")
signed a merger agreement. On May 15, 2001 Semotus acquired all the outstanding
stock of ADA and the transaction officially closed. The acquisition was
accounted for under the purchase method of accounting. The value of common stock
issued for the acquisition was approximately $1.25 million. Semotus recorded
$1.3 million of goodwill. Semotus issued 250,000 shares of the Company's common
stock and may issue up to another 750,000 shares of common stock over the next
three years if certain revenue targets are met. Semotus has also agreed to issue
additional shares if Semotus' common stock does not trade at or above $5.00 per
share by the end of each year after such shares are issued. The maximum number
of additional shares that could be issued would be twice the initial shares and
earn out shares, or 2 million shares.
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The effect of issuing any additional shares if certain revenue targets are met
will be accounted for as additional purchase price consideration. The effect of
issuing any additional shares if certain per share trading prices are not met
has been accounted for in the Company's financial statements at the date of
acquisition.
ADA creates proprietary software that is a complete logistical solution for
automation of customer call centers, dispatching, equipment deployment,
servicing and invoicing, while interfacing to existing corporate business
functions and existing ERP solutions.
Pro forma results
The following summary, prepared on a pro forma basis, presents the results of
the Company's operations (unaudited) as if the acquisitions accounted for under
the purchase method since April 1, 2000 had been completed as of the beginning
of each period.
Nine Months Ended
Three Months Ended December 31,
December 31, 2000 2001 2000
------------------ ------------------------------
(Unaudited) (Unaudited) (Unaudited)
Revenue: $ 2,653,029 $ 5,007,772 $ 6,262,316
Net Loss: $ (4,247,457) $ (8,566,277) $(10,840,784)
Net Loss per share- basic
and diluted $ (0.25) $ (0.51) $ (0.67)
The unaudited pro forma results of operations are not necessarily indicative of
what actually would have occurred if the acquisitions had taken place as of the
beginning of each period, nor is it a projection of the Company's results of
operations for any future period.
4. 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, Semotus 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 the Company's Simkin subsidiary and Micromedex. Semotus 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.
Semotus' management performs an on-going analysis of the recoverability of its
goodwill and other intangibles and the value of its investments in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed Of". Based on quantitative and qualitative
measures, the Company assesses the need to record impairment losses on
long-lived assets used in operations when impairment indicators are present.
A number of factors indicated that impairment may have arisen in the period
ended June 30, 2001, specifically for Semotus' 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 by Semotus
for Simkin was in the form of the issuance of shares of the Company's common
stock at a time when its stock price was much higher than at June 30, 2001. The
Company's stock price was approximately $14.375 at the time of the acquisition.
At June 30, 2001, the Company's 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.
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Based on the factors described above, the Company determined that the goodwill
in its Simkin subsidiary may have become impaired. In accordance with SFAS No.
121, the Company performed an undiscounted cash flow analysis of its acquisition
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:
- the Company's stock price;
- comparable companies;
- - Contribution to the Company's market valuation and overall business
prospects.
The methodologies used were consistent with the specific valuation methods used
when the original purchase price was determined. The Company's 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 Semotus' 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.
At December 31, 2001, the Company determined that the carrying value of its
goodwill and other intangibles are recoverable. The Company will continue to
analyze the recoverability of its long-lived assets and assess the need to
record impairment losses when impairment indicators are present.
5. GMP INTELLECTUAL PROPERTY AND J.P. MORGAN CHASE MANHATTAN WARRANTS
On July 7, 2000 the Company granted an affiliate of J.P. Morgan Chase & Co.
common stock warrants to purchase up to 800,000 shares of Semotus 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-Sholes pricing model amounted to
$6,800,000 and is 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 three months and nine months ended December
31, 2001, amortization amounted to $340,000 and $1,020,000 respectively, with
accumulated amortization of $2,040,000 at December 31, 2001.
6. REVENUE
The Company derives revenue from its customers as discussed in Footnote 2,
"Summary of Significant Accounting Policies: Revenue Recognition". One customer
of WizShop in the enterprise and commerce segment accounted for 41% and 38% of
the segment's revenues for the three months and nine months ended December 31,
2001. The revenues from this customer will continue over the remaining 15 months
of the contract. For the three and nine months ended December 31, 2000, one
customer of FiveStar in the enterprise and commerce segment accounted for
approximately 7.5% and 25% respectively of the Company's revenues. Since then,
this customer's contribution as a percentage of total revenues has declined in
actual contribution and as more enterprise customers have been added.
7. OTHER INCOME:
Other income (expense) consists of the following items:
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Three Months Ended Nine Months Ended
December 31, December 31,
DESCRIPTION 2001 2000 2001 2000
- ----------- ----------- ----------- ----------- -----------
Owner's fee sales $ (392,250) $ (392,250) $(1,176,750) $(1,176,750)
of technology
Interest on note from
sales of technology 392,250 392,250 1,176,750 1,176,750
Amortization of
technology advances 75,731 60,315 233,345 266,375
Miscellaneous expense (11,205) (14,400) (25,953) (8,773)
----------- ----------- ----------- -----------
Total other income $ 64,526 $ 45,915 $ 207,392 $ 257,602
=========== =========== =========== ===========
8. 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 nine months ended December 31, 2001 and 2000, 7,319,276 potential shares
and 6,193,164 potential shares, respectively, were excluded from the shares used
to calculate diluted EPS as their effect is anti-dilutive.
9. COMMITMENTS AND CONTINGENCIES:
The Company is subject to various lawsuits and claims with respect to matters
arising in the normal course of business. While the impact on future financial
results is not subject to reasonable estimation because considerable uncertainty
exists, management believes, after consulting with counsel, that the ultimate
liabilities resulting from such lawsuits and claims will not materially affect
the consolidated results, liquidity or financial position of the Company.
10. SEGMENT INFORMATION
Due to additional businesses resulting from the acquisitions, Semotus began
reporting segment information in the fourth quarter of the fiscal year ended
March 31, 2001. The Company has reclassified the three months and nine months
ended December 31, 2000 for comparison purposes, although Semotus did not have
separate segments at that time.
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 is its wireless line of business, which
focuses in three areas: business to business ("B2B") application service
provider ("ASP") solutions, B2B premise-based solutions, and B2C 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) ASP, 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.
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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.
As Semotus continues to acquire companies, the nature and structure of the
business segments may change.
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
December 31, 2001
Revenue $ 346,421 604,208 156,302 316,662 -- $ 1,423,593
Gross Profit $ 237,636 191,818 85,252 175,095 -- $ 689,801
Operating loss* $ (122,550) (47,035) 33,737 (119,979) (1,845,180) $ (2,101,007)
Depreciation and
Amortization $ 73,742 38,261 77,122 8,393 799,155 $ 996,673
Capital Expenditures $ 4,172 -- -- -- -- $ 4,172
Total Assets, December 31, 2001* $ 8,797,980 4,979,388 930,871 1,417,831 4,153,816 $ 20,279,885
As of and for the
Nine Months Ended
December 31, 2001
Revenue $ 1,017,190 2,068,401 597,029 1,186,303 -- $ 4,868,923
Gross Profit $ 597,159 534,364 222,671 589,054 -- $ 1,943,248
Operating loss* $ (638,950) (766,211) (505,857) (133,640) (6,956,468) $ (9,001,126)
Depreciation and
Amortization $ 233,873 107,127 196,751 21,402 2,426,389 $ 2,985,542
Capital Expenditures $ 14,992 -- -- 5,715 -- $ 20,707
Total Assets, December 31, 2001* $ 8,797,980 4,979,388 930,871 1,417,831 4,153,816 $ 20,279,885
As of and for the
Three Months Ended
December 31, 2000
Revenues $ 324,859 744,273 305,561 -- -- $ 1,374,693
Gross Profit $ 158,451 218,863 275,004 -- -- $ 652,318
Operating loss* $ (417,884) (234,584) (159,502) -- (2,793,589) $ (3,605,559)
Depreciation and
Amortization $ 38,513 7,128 13,222 -- 322,061 $ 380,924
Capital Expenditure $ 196,794 -- -- -- -- $ 196,794
Total Assets, December 31, 2000* $ 13,374,176 1,767,041 3,343,107 -- 5,938,539 $ 24,422,862
As of and for the
Nine Months Ended
December 31, 2000
Revenues $ 1,365,086 2,650,818 323,147 -- -- $ 4,339,051
Gross Profit $ 621,762 827,391 290,832 -- -- $ 1,739,985
Operating loss* $ (1,185,619) (381,797) (156,125) -- (6,846,275) $ (8,569,816)
Depreciation and
Amortization $ 77,658 17,338 13,222 -- 965,155 $ 1,073,373
Capital Expenditure $ 511,675 -- -- -- -- $ 511,675
Total Assets, December 31, 2000* $ 13,374,175 1,767,041 3,343,107 -- 5,938,539 $ 24,422,862
<FN>
* 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 $4,153,816 and $5,938,539 of assets at
December 31, 2001 and 2000 respectively under "Corporate and other" is comprised
of the GMP Intellectual Property, Semotus' Global Market Pro wireless financial
product.
</FN>
11. WIZSHOP.COM
The WizShop relationship started in June 2000 with the negotiation and execution
of an agreement for Semotus to build and host an m-commerce wireless platform
for WizShop's proprietary online shopping mall. The wireless platform's
functionality included wireless alerts, comparison pricing and transaction
purchases. In November 2000, as the web-based, online business market weakened,
WizShop discontinued the online shopping mall project and refocused its efforts
on its core business, building and private labeling online shopping malls for
large portals.
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Semotus recognized $350,000 of revenues for the engineering work performed under
the WizShop agreement in the quarter ended September 30, 2000. The Company also
recognized $200,000 in cost of goods sold, and $150,000 in gross profit. Semotus
was compensated as follows: (i) 1% of WizShop's equity in the form of common
stock, valued at $150,000 and (ii) engineering services, including a shopping
website for Semotus' B2C wireless products, which is linked to Semotus' website
and to WizShop's large portal customer's shopping websites, valued at the
standard engineering costs for WizShop portal customers. Semotus will not
recognize the balance of the contract since the project has been discontinued.
Semotus maintains the rights to the wireless applications developed for WizShop.
In February 2001, with the continued decline in online shopping and the decline
in the economy, the board of directors of WizShop decided to sell the company.
In late February, WizShop contacted Semotus, among others, to inquire about
acquiring WizShop. A definitive purchase agreement was signed March 13, 2001 and
the transaction was approved by WizShop shareholders on April 6, 2001.
12. SUBSEQUENT EVENT - 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. GBG is now a 49% shareholder in ADA.
For its 49% stock purchase, GBG paid $250,000 in cash and agreed to invest $1
million in ADA over the next 15 months in order to help with the development of
the next generation of ADA asset tracking and management software. Additionally,
as part of the transaction, GBG assumed a personal loan of the President of ADA
and received the 250,000 shares of Semotus stock securing the loan. GBG has also
received 5 year warrants exercisable into 150,000 shares of Semotus stock.
At the end of 15 months, GBG has the option to purchase Semotus' 51% ownership
of ADA for either (i) $2.5 million in cash or (ii) return of the 250,000 shares
of common stock received for assuming the personal loan. These shares also carry
a price guaranty, for which Semotus could issue up to an additional 250,000
shares (see footnote 3, "Acquisitions - Application Design Associates, Inc.")
Global Beverage Group's suite of products are designed to streamline the entire
order-to-cash cycle for wholesalers that provide direct delivery of products to
stores, offices and homes. The company's solutions are designed to handle
complex order management, customer service and distribution logistics such as
direct-store-delivery, direct-home-delivery, mobile workforces and vendor
managed inventory.
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.
OVERVIEW
Semotus is organized into four business segments: wireless services, enterprise
and commerce sales, professional and related services, and logistic system
sales. In the wireless services segment, Semotus is concentrating on providing
consulting and engineering services and turnkey applications for wireless
enablement of corporate Intranets, Internet and e-commerce transactions.
Semotus' enterprise and commerce sales line of business provides online
transactional information and sales of products and services. Semotus'
professional service line of business provides customers with online and
wireless information and operations consulting, software engineering, and
training. Finally, the logistic system sales line of business provides customers
with proprietary software and complementary hardware and consulting services to
satisfy a customer's complete logistical needs.
Semotus has focused its operational and financial efforts into reducing its net
loss and its cash burn. Significant cost reduction programs have been instituted
and the Company has consolidated and centralized its operating units. Further,
Semotus has eliminated non-margin revenues and customers that were not cost
effective to manage.
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As a result of the operating improvements, the net loss declined to $1,970,399
from $3,390,972 and to $0.11 per share from $0.22 per share in the three months
ended December 31, 2001 versus 2000. Likewise, the overall cash decline was
reduced to $3,037,595 from $6,049,497 in the nine months ended December 31, 2001
versus 2000.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31,
2001 AND 2000
REVENUES
Revenues for the three months and nine months ended December 31, 2001 were
$1,423,593 and $4,868,923, respectively, as compared to $1,374,693 and
$4,339,051, respectively, for the three and nine months ended December 31, 2000.
Notwithstanding the decline in economic activity and the weakening of capital
and consumer spending for technology products and services, Semotus has
increased revenues 3.5% and 12.2% in the three and nine months ended December
31, 2001 versus 2000. These increases resulted from the addition of system
integration sales at ADA and for the nine months ended December 31, 2001,
additional professional services contracts at Wares. The revenue increases were
offset by declines in sales in the wireless segment and in the enterprise and
commerce sales segment over the last nine months. Wireless sales marginally
increased in the three month period, but declined in the nine month period from
the prior fiscal year due to the completion of a large contract in the last
fiscal year and due to the declines in sales of consumer products, offset by
increases in sales of field force automation products. The enterprise and
commerce segment revenue decline is substantially the result of the large drop
in sales from a FiveStar customer who had decided to fulfill its on-line sales
in-house. FiveStar has replaced a portion of this lost revenue through enhanced
marketing programs.
Wireless Services
The 6.6% increase in revenues in the three months ended December 31, 2001 versus
2000 is due to the increased sales of the newest version of Hiplink XS, Semotus'
field force automation product. The 25.5% decline in revenues in the nine months
ended December 31, 2001 versus 2000 results from the completion of a large
wireless services contract in the last fiscal year, which did not affect the
current fiscal year.
Enterprise and Commerce Sales
The 18.8% and 22.0% decline in revenues in the three months and nine months
ended December 31, 2001 versus 2000 is largely due to above mentioned customer
loss at Five Star. Although the lost customers have been replaced by new
customers, this has not been sufficient to offset all of the decline in
revenues. Further, Five Star has been affected by a decline in consumer spending
in fiscal year 2002 as the economy has been in a recession.
Professional and Related Services
The 84.8% increase in revenues in the nine months ended December 31, 2001 versus
2000 is due to additional professional service contracts at Wares. Additionally,
Wares revenues are only included from the acquisition date in mid-November 2000
in the last fiscal year. The 48.9% decline in revenues in the three months ended
December 31, 2001 versus 2000 is directly the result of the sale of Simkin's
Kinetidex 2.0 product in June 2001. Simkin's revenues will remain at lower
levels for the remainder of this fiscal year.
Logistic System Sales
This is a new segment for Semotus, which is made up of the revenue from ADA,
which focuses on the sales of proprietary software and hardware systems that
manage the logistics and tracking of assets.
COST OF REVENUES AND GROSS MARGIN
The overall gross profit margin increased slightly to 48.5% from 47.5% in the
three months ended December 31, 2001 versus 2000 and it was essentially the same
in the nine months ended December 31, 2001 versus 2000 at 39.9% versus 40.1%
respectively. 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
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products. This product mix enhancement, when combined with increased sales, has
improved the overall gross profit margin in the third quarter of fiscal year
2002. The product mix shift is not as pronounced in the nine months ended
December 31, 2001, as the changes occurred mostly in the three month period
ended December 31, 2001.
Wireless services
The gross profit margin for this segment has increased significantly to 68.6%
from 48.8% in the three months ended December 31, 2001 versus 2000 and to 58.7%
from 45.6% in the nine months ended December 31, 2001 versus 2000. This increase
is the result of a changing product mix: i) increased higher margin sales of
enterprise products such as Global Market Pro, ii) the introduction in July of a
higher margin version of Hiplink, a field force automation wireless product, and
iii) the reduction and discontinuance of lower margin consumer products.
Cost of revenues in this segment 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 and pager airtime for those customers without
their own pagers, and certain telephone, computer and other direct operational
costs.
Enterprise and commerce sales
The gross profit margin for this segment increased to 31.8% from 29.4% in the
three month period ended December 31, 2001 versus 2000, due to the addition of
WizShop and its higher gross margin products, including the contract for the
customer loyalty and tracking software. The gross profit margin declined to
25.8% from 31.2% in the nine months ended December 31, 2001 versus 2000 due to
the decline in gross margin at FiveStar from the reduced sales with higher gross
profit margins of the one customer mentioned previously. Further, the decline in
consumer spending has shifted the product mix to lower margin items.
Professional and related services
The gross profit margin in this segment has declined to 54.5% and 37.3% in the
three and nine months ended December 31, 2001 from approximately 90% gross
profit margin in the same three and nine month periods of the last fiscal year
due to different allocations of costs pre-and-post acquisition in November 2000.
Additionally, the gross profit declined due to additional costs incurred to
complete and meet deadlines on a software engineering contact at Wares.
The cost of revenue in this segment is principally personnel costs related to
providing consulting and training services, with some computer hardware costs
included for one Wares customer.
Logistic system sales
The gross profit margin for this segment was 55.3% and 49.7%, respectively, for
the three and nine months ended December 31, 2001. The cost of revenues is
principally personnel costs related to software programming, consultation and
installation of the systems. Also included in the cost of revenues is the
computer hardware costs related to each system installation.
OPERATING EXPENSES
Operating expenses declined overall in the three month period ended December 31,
2001 versus the same period in the last fiscal year, but increased slightly in
the nine month period ended December 31, 2001 versus 2000. Semotus expanded its
management and staff in the last fiscal year including the personnel at the six
acquired companies. These employees include engineering, sales and marketing.
However, during the three months ended September 30, 2001 and extending into the
three months ended December 31, 2001, Semotus has installed a corporate-wide
cost reduction and cash management program, which has significantly reduced
overall operating expenses. 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):
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Percentage Increase Percentage Increase
Three Months Ended (Decrease) Nine Months Ended (Decrease)
December 31 ------------------- December 31, -------------------
Description 2001 2000 % 2001 2000 %
- ----------------- ----------- ----------- ----------- ----------- ----------- -----------
Research and
development $ 317,812 $ 374,665 (15.2)% $ 1,215,186 $ 915,846 32.7%
Sales and
marketing 438,683 1,275,002 (65.6)% 1,796,063 3,394,750 (47.1)%
General and
administrative 941,793 2,189,722 (57.0)% 3,911,308 4,827,877 (19.0)%
Net impairment
of goodwill -- -- 650,000 -- --
Depreciation and
amortization 996,673 380,924 161.7% 2,985,542 1,073,373 178.2%
Stock, option and
warrant expense 95,847 37,564 155.2% 386,275 97,955 294.3%
----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,790,808 $ 4,257,877 (34.5)% $10,944,374 $10,309,801 6.2%
=========== =========== =========== =========== =========== ===========
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. The increase in these costs for the nine months
ended December 31, 2001 is due principally to hiring additional engineering
personnel, for the development of updates to existing products, such as an
equity version of the Global Market Pro(TM) product and the new release of the
Company's premise-based wireless product, HiplinkXS. In the three months ended
December 31, 2001, much of the development work for these products has been
completed which has reduced research and development expenses.
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 and develop a sales and
marketing strategy, 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.
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 Nasdaq and AMEX listings,
investor and public relations, rent, administrative personnel, and other
overhead related costs. These costs declined during the three and nine months
ended December 31, 2001 as personnel and offices were reduced and operating
functions were consolidated.
The net reduction 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 footnote 4, "Sale of
Technology and Net Impairment of Goodwill", 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 has
declined from $14.375 to $0.75 as of December 31, 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 and certain intellectual property costs. The increase in this expense is
primarily the result of the amortization of goodwill from the Company's
acquisitions and the amortization associated with the warrants awarded to Chase
in connection with Global Market Pro.
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.
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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 and nine months ended December 31, 2001 or
2000, 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 and nine months ended December
31, 2001 and 2000 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. The following tables reflect
the changes in other income (unaudited).
Three Months Ended Nine Months Ended
December 31, December 31,
DESCRIPTION 2001 2000 2001 2000
- ----------- ----------- ----------- ----------- -----------
Owner's fee sales
of technology $ (392,250) $ (392,250) $(1,176,750) $(1,176,750)
Interest on note from
sales of technology 392,250 392,250 1,176,750 1,176,750
Amortization of
technology advances 75,731 60,315 233,345 266,375
Miscellaneous expense (11,205) (14,400) (25,953) (8,773)
----------- ----------- ----------- -----------
Total non-operating
income $ 64,526 $ 45,915 $ 207,392 $ 257,602
=========== =========== =========== ===========
Net Interest Income $ 66,082 $ 168,672 $ 216,604 $ 599,060
=========== =========== =========== ===========
Net Interest income declined as less cash was available for investment during
the three and nine month periods ended December 31, 2001 versus 2000. The major
source of cash for the three months and nine months ended December 31, 2000 was
the exercise of common stock warrants and options. Amortization of technology
advances decreased somewhat in the nine months ended December 31, 2001, due to
the application of the effective interest method of amortization on the
balances.
COMPREHENSIVE LOSS
The 41.6% reduction in the comprehensive loss of $1,977,143 or $(0.11) per share
for the three months ended December 31, 2001, compared to $3,384,859 or $(0.22)
per share for the three months ended December 31, 2000, is a direct result of
the implementation of cost reduction programs which have consolidated and
centralized Semotus' operating units. The comprehensive loss of $8,614,394 or
$(0.51) per share in the nine months ended December 31, 2001 as compared to
$7,720,655 or $(0.51) per share in the nine months ended December 31, 2000 was
due primarily to two factors: (i) a very large increase in non-cash charges from
acquisitions including goodwill and impairment, and the amortization of
intellectual property, and (ii) an increase in engineering costs related to the
introduction of upgraded wireless products.
SEGMENT RESULTS
Due to additional businesses resulting from the acquisitions, Semotus began
reporting segment information in the fourth quarter of the fiscal year ended
March 31, 2001. The Company has reclassified the three and nine months ended
December 31, 2000 for comparison purposes, although Semotus did not have
separate segments at that time.
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Semotus' business has evolved into four segments: wireless services, enterprise
and commerce sales, professional and related services and logistic system sales.
(See Footnote 10, "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".
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
December 31, 2001
Revenue $ 346,421 604,208 156,302 316,662 -- $ 1,423,593
Gross Profit $ 237,636 191,818 85,252 175,095 -- $ 689,801
Operating loss* $ (122,550) (47,035) 33,737 (119,979) (1,845,180) $ (2,101,007)
Depreciation and
Amortization $ 73,742 38,261 77,122 8,393 799,155 $ 996,673
Capital Expenditures $ 4,172 -- -- -- -- $ 4,172
Total Assets, December 31, 2001* $ 8,797,980 4,979,388 930,871 1,417,831 4,153,816 $ 20,279,885
As of and for the
Nine Months Ended
December 31, 2001
Revenue $ 1,017,190 2,068,401 597,029 1,186,303 -- $ 4,868,923
Gross Profit $ 597,159 534,364 222,671 589,054 -- $ 1,943,248
Operating loss* $ (638,950) (766,211) (505,857) (133,640) (6,956,468) $ (9,001,126)
Depreciation and
Amortization $ 233,873 107,127 196,751 21,402 2,426,389 $ 2,985,542
Capital Expenditures $ 14,992 -- -- 5,715 -- $ 20,707
Total Assets, December 31, 2001* $ 8,797,980 4,979,388 930,871 1,417,831 4,153,816 $ 20,279,885
As of and for the
Three Months Ended
December 31, 2000
Revenues $ 324,859 744,273 305,561 -- -- $ 1,374,693
Gross Profit $ 158,451 218,863 275,004 -- -- $ 652,318
Operating loss* $ (417,884) (234,584) (159,502) -- (2,793,589) $ (3,605,559)
Depreciation and
Amortization $ 38,513 7,128 13,222 -- 322,061 $ 380,924
Capital Expenditure $ 196,794 -- -- -- -- $ 196,794
Total Assets, December 31, 2000* $ 13,374,176 1,767,041 3,343,107 -- 5,938,539 $ 24,422,862
As of and for the
Nine Months Ended
December 31, 2000
Revenues $ 1,365,086 2,650,818 323,147 -- -- $ 4,339,051
Gross Profit $ 621,762 827,391 290,832 -- -- $ 1,739,985
Operating loss* $ (1,185,619) (381,797) (156,125) -- (6,846,275) $ (8,569,816)
Depreciation and
Amortization $ 77,658 17,338 13,222 -- 965,155 $ 1,073,373
Capital Expenditure $ 511,675 -- -- -- -- $ 511,675
Total Assets, December 31, 2000* $ 13,374,175 1,767,041 3,343,107 -- 5,938,539 $ 24,422,862
<FN>
* 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 $4,153,816 and $5,938,539 of assets at
December 31, 2001 and 2000 respectively, of assets under "Corporate and other"
is comprised of the GMP Intellectual Property, Semotus' Global Market Pro
wireless financial product.
</FN>
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 wireless products although a cash management and cost
reduction program has been implemented and has reduced the overall cash loss by
49.8%. In the nine months ended December 31, 2000 warrants and options were
converted to common stock, which provided cash and which has been reduced
significantly in the nine months ended December 31, 2001. The sources and uses
of cash are summarized as follows (unaudited):
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NINE MONTHS ENDED
DECEMBER 31,
2001 2000
----------- -----------
Cash used in
operating activities $(4,274,735) $(7,336,543)
Cash provided by (used in)
investing activities 1,425,765 (671,118)
Cash (used in) provided by
financing activities (188,625) 1,958,164
----------- -----------
Net decrease in
cash and cash equivalents $(3,037,595) $(6,049,497)
=========== ===========
Cash used in operating activities consisted principally of a net loss of
$8,577,130 offset somewhat by non-cash charges of $2,985,542 of depreciation and
amortization and $386,275 of stock based compensation. Further, the impairment
of goodwill of $650,000 also offset the net loss. Other operating activities
that contributed to offsetting the use of cash were $795,936 in the net change
of current assets and current liabilities. This largely resulted from receivable
collections of $151,924 and increases in accounts payable of $149,864 and
accrued liabilities of $176,303.
Cash provided from investing activities of $1,425,765 resulted principally from
$1,096,472 of cash received, net of assets acquired from the two companies
acquired in the period ended June 30, 2001, plus $350,000 from the sale of the
Kinetidex technology.
Cash flows from financing activities produced a net decrease in cash of $188,625
which resulted from $200,293 of repayments on notes payable and capital leases
offset slightly by $11,668 in cash received from the exercise of stock options.
As of December 31, 2001, the Company had cash and cash equivalents amounting to
$4,806,447, a decrease of $3,037,595 from the balance at March 31, 2001. Working
capital decreased to $3,001,825 from $7,780,783 at the fiscal 2001 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 December 31, 2001.
Management believes that it has adequate working capital for the next 12 months.
RECENT PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities. The Company
does not currently or intend to engage in any derivative or hedging activities.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," as amended by SAB 101A and SAB 101B which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 provides guidance on necessary disclosures relating
to revenue recognition policies in addition to outlining the criteria that must
be met in order to recognize revenue. SAB 101 did not have a material effect on
the Company's consolidated results of operations or financial position.
In March 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board (FASB) published their consensus on EITF Issue No 00-3,
"Application of AICPA Statement of Position (SOP) 97-2, Software Revenue
Recognition, to Arrangements that Include the Right to Use Software Stored on
Another's Entity's Hardware". The EITF consensus gives guidance on accounting
for hosting arrangements. The Company does not expect the adoption of EITF Issue
No. 00-3 to have a material effect on its consolidated results of operations or
financial position.
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion
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No. 25". Interpretation No. 44 clarifies the application of Opinion 25 for the
following issues: (1) the definition of employee for purposes of applying
Opinion 25, (2) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (3) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (4) the accounting
for an exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000. Due to the repricing of employee stock
options in December 2000, the adoption of Interpretation No. 44 may have a
material effect on the Company's financial position and results of operations in
the future. For the periods ended June 30, 2001 and 2000, the effect was
immaterial.
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's previous business combinations were accounted for using both the
pooling-of-interests and purchase methods. The pooling-of-interests method does
not result in the recognition of acquired goodwill or other intangible assets.
As a result, the adoption of SFAS 141 and 142 will not affect the results of
past transactions accounted for under the pooling-of-interests method. However,
all future business combinations will be accounted for under the purchase
method, which may result in the recognition of goodwill and other intangible
assets, some of which will be recognized through operations, either by
amortization or impairment charges, in the future. For purchase business
combinations completed prior to December 31, 2001, the net carrying amount of
goodwill is $7,057,424 and other intangible assets is $721,198. Amortization
expense for goodwill during the three and nine month period ended December 31,
2001 was $459,156 and $1,396,449 respectively. The Company intends to complete
the transitional goodwill impairment test within six months from the date of
adoption. The impact of the adoption of SFAS 141 and SFAS 142 on the Company's
financial position and results of operations could be material.
In August 2001, the FASB issued SFAS No. 143 (SFAS 143) "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets". 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 will be effective for fiscal years beginning after
December 15, 2001. The
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impact of adopting SFAS 144 on the Company's financial position and result of
operations could be material.
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 the Form 10KSB that we filed with the SEC on June 26, 2001. Semotus
Solutions claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE REGARDING MARKET RISK
We have limited exposure to financial market risks, including changes in
interest rates. At December 31, 2001, we had cash and cash equivalents of
$4,806,447 and 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 interest rates for these accounts.
The Company also has short-term notes payable in the amount of $693,401, at
December 31, 2001. 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 December 31, 2001.
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 December 31,
2001, the cumulative translation loss was $139,800. Given the relative stability
of the Canadian and U.S. dollar exchange rate, the Company has not deemed it
necessary to hedge this exposure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to legal proceedings in the normal course of business.
Based on evaluation of these matters and discussions with counsel, management
believes that liabilities arising from these matters will not have a material
adverse effect on the consolidated results of operations or financial position
of the Company.
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 December 31, 2001, the Company issued a total of
245,697 shares of its common stock to suppliers of services to the Company or to
settle certain liabilities of the Company.
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
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Page 24
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
Exhibit 2.1 - Common Stock Purchase Agreement by and among
Application Design Associates, Inc., John Hibben and 2007978 Ontario, Inc. dated
January 18, 2002.
Exhibit 2.2 - 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.
Exhibit 4.1 - Warrant to purchase 150,000 shares of Semotus'
common stock issued to 2007978 Ontario, Inc. dated January 18, 2002
b) Reports on Form 8-K:
None.
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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: February 14, 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)
and Director
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