Washington, D.C. 20549

For the fiscal year ended: March 31, 2004

(Exact name of Registrant as specified in its Charter)

(Address of principal executive offices, including zip code)

(Registrant's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Securities Registered Pursuant to Section 12(g) of the Act: NONE.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [_].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [_] No [X]

The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the registrant's Common Stock on September 30, 2003, as reported by Amex ($0.91 per share), was approximately $17,619,218. The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the registrant's Common Stock on June 9, 2004 as reported by Amex ($0.35 per share), was approximately $7,595,864. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of June 9, 2004, 22,702,469 shares of the registrant's Common Stock were outstanding.

The Proxy Statement for the 2004 Annual Meeting of Shareholders, which will be filed with the Commission within 120 days after the close of the fiscal year, is incorporated by reference into Part III.

Semotus® Solutions, Inc. ("We" or "Our"), is a leading provider of software for wireless enterprise applications. Our software connects employees to critical business systems, information, and processes. We help mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in their business processes for shorter sales and service cycles. Our two lines of business consist of: (i) wireless financial services with the Global Market Pro, Equity Market Pro and Futures Market Pro software and services, and (ii) enterprise wireless messaging and communications with the HipLinkXS family of software and services. Our enterprise application software provides mobility, convenience, and efficiency and improves profitability.

We changed our name from Datalink.net, Inc. as of January 11, 2001. We were formed under the laws of the State of Nevada on June 18, 1996. On June 27, 1996, we went public through an acquisition of a public corporation, Datalink Communications Corporation ("DCC"), which was previously Lord Abbott, Inc., a Colorado corporation formed in 1986. As a part of the transaction, we also acquired a Canadian corporation, DSC Datalink Systems Corporation, incorporated in Vancouver, British Columbia, now named Semotus Systems Corp.

COMPANY INTERNET SITE AND AVAILABILITY OF SEC FILINGS. Our corporate Internet site is www.semotus.com. We make available on that site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to those filings, and other filings we make electronically with the U.S. Securities and Exchange Commission. The filings can be found in the Investor Relations section of our site, and are available free of charge. In addition to our web site, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC. Information on our Internet site is not part of this Form 10-K.

SEGMENT INFORMATION

After the Centralization and Consolidation Plan was largely completed by March 31, 2003 (See Item 7 -Centralization and Consolidation Plan), we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Our products consist mainly of the Global Market Pro family of products and the Hiplink family of products. Utilizing the definitions described in Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), the nature of the products and services are all similar. Accordingly, starting in the fiscal year ended March 31, 2004, we have been reporting the single line of business of wireless and mobile enterprise software and no longer report operations from three prior segments: Enterprise and Commerce Sales, Professional and Related Services and Logistics. Further, per SFAS 131, the corresponding information for the earlier periods presented has been reclassified accordingly to conform to the single segment current year presentation.

DISCONTINUATION AND SALE OF OPERATIONS

As part of our Centralization and Consolidation Plan, which was largely completed by March 31, 2003, we reduced our e-commerce and m-commerce presence with the elimination of unprofitable products and services. One of our subsidiaries, FiveStar Advantage, Inc. ("Five Star") was not expected to make a significant contribution to our future profitability as its operations were unprofitable. Therefore, we decided to close the facilities and cease the operations as of the end of June 2002. Furthermore, Five Star filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on June 28, 2002; this liquidation closed on April 29, 2004. In continuing with the reduced e-commerce and m-commerce presence and the elimination of unprofitable products and services, we decided to discontinue the operations of Wares on the Web ("Wares") in August 2002. The Wares operations were unprofitable, and consequently, Wares filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on August 19, 2002; this liquidation closed on March 24, 2003. WizShop.com, Inc.'s ("WizShop") operations were also discontinued as of September 30, 2003, as it was not expected to make a significant contribution to our future profitability. WizShop did not have any additional contracts for its online software marketing business, the last of which was completed as of March 31, 2003.

On January 18, 2002, the Global Beverage Group ("GBG"), a Canadian-based direct store delivery consortium, completed a strategic investment in Semotus' subsidiary, Application Design Associates, Inc. ("ADA"), by acquiring a 49% share in ADA. For its 49% stock purchase, GBG paid us $250,000 in cash and agreed to invest $1 million in ADA over the next 15 months in order to help with the development of the next generation of ADA asset tracking and management software. GBG provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, in accordance with Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), and we therefore reflected ADA as a discontinued operation as of March 31, 2003. In May 2003, GBG purchased the remaining 51% of ADA for the return of 500,000 shares of our common stock originally issued in May of 2001 and April of 2002 as part of our acquisition of ADA. This event resulted in the discontinuation of ADA's operations in fiscal year 2003.

In accordance with SFAS 144, the operations of FiveStar, Wares and ADA were recorded as discontinued operations in the fiscal year ended March 31, 2003. In the second quarter ended September 30, 2003, the WizShop operation was recorded as a discontinued operation, and in the fiscal year ended March 31, 2004, the net income from discontinued operations of $105,834 is comprised solely of the operations of WizShop. Substantially all of the income was from a legal settlement. The net loss from discontinued operations of $403,698 for the fiscal year ended March 31, 2003, consisted of a net loss from operations in the fiscal year ended March 31, 2003 of $122,021 at Five Star and Wares, a net loss from operations of $677,069 at ADA, and net income of $395,392 at WizShop. A net gain upon disposition of the assets and liabilities of Five Star and Wares of $128,582 was recognized at March 31, 2003.

On January 23, 2004, we closed an equity private placement of $1,028,750. Under the terms of the private placement, we sold an aggregate of 1,959,523 shares at $0.525 per share and 489,881 share purchase warrants. Each warrant entitles the holder to purchase an additional share of common stock at a price of $0.8625 per share for a period of five years. In connection with the private placement, we paid a placement fee of $85,000, of which $51,216 was paid in cash and the balance was paid by the issuance of 64,350 shares of common stock and 40,476 share purchase warrants. After payment of expenses and placement fees, we received net proceeds of $977,474. These funds are being used to finance the ongoing operations of the business and to augment our sales and marketing efforts.

Except for the historical information contained herein, this report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section under "Description of Business", "Recent Acquisitions" and "Risk Factors" as well as in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Now that we have completed our Centralization and Consolidation Plan, our focus is on growing revenues organically within our two lines of business: (i) wireless financial services with the Global Market Pro, Equity Market Pro and Futures Market Pro software and services, and (ii) enterprise wireless messaging and communications with the HipLinkXS family of software and services.

We focus our enterprise application software strategy in target markets where there are significant growth opportunities and an existing strong customer base that is adopting mobile and wireless technology. Customer penetration and product acceptance are paramount to our formula. While we continue to improve and maintain our market leading technology, we mold our products for market acceptance. Through strong customer relationships and market knowledge, we blend our technology into readily identifiable and sellable products and services.

Enterprises are adopting mobile and wireless software solutions in order to increase their employees' productivity and customer satisfaction. Our technology can service any enterprise in any market segment. We have chosen to focus in two areas that we believe project the greatest amount of growth potential and the strongest need for mobile and wireless solutions. Those two lines of business are: (i) wireless financial services with the Global Market Pro, Equity Market Pro and Futures Market Pro software and services, and (ii) enterprise wireless messaging and communications with the HipLinkXS family of software and services.

WIRELESS FINANCIAL SERVICES: Mobile and wireless software services, handheld devices, and financial management applications are now standard on the floors of stock exchanges. Wireless data delivery can put the individual traders one step ahead of the market, increasing their transaction time and giving them a competitive advantage. It is for this reason that Semotus developed Global Market Pro ("GMP") with J.P. Morgan Chase in 1999. Global Market Pro is an advanced wireless application designed specifically for traders and financial professionals in the global capital, derivative and foreign exchange markets. Equity Market Pro was developed from the GMP platform and is designed for equity traders and salesmen who have a real-time need for equity market information. A new product, Futures Market Pro, was also developed from the GMP platform and is designed for futures traders and other people who have a real-time need for futures market information. Equity Market Pro and Futures Mark et Pro services are marketed to major financial institutions, similar to GMP. These applications provide the flexibility for a user to request additional information or change requirements and set-up at any time from the Internet or the user's wireless device.

ENTERPRISE WIRELESS MESSAGING AND COMMUNICATIONS: HipLinkXS has evolved from an enterprise text messaging application into a complete mobile communications solution. HipLinkXS consists of a suite of powerful messaging products that provide real-time wireless text and voice messaging and paging capabilities. This family of software applications enables corporations and individuals to send messages to a large mobile field force, through network management software for sales force automation or a database management application. We address the needs of enterprises with large numbers of employees in the field by providing complete solutions that assist field service organizations with routing and dispatching, communications, order status, access to corporate databases and customer billing. By having remote access to technical information, inventory status and corporate databases, the field service worker's productivity increases. Mobile and wireless software solutions are becoming a critical component of many enterprises today.

During the fiscal year ended March 31, 2004, after centralizing and consolidating our operations into the enterprise application software business, we offered our services and products through two major lines of business within the enterprise application software market: (i) wireless financial services and software, and (ii) wireless messaging and communications software.

ENTERPRISE APPLICATION SOFTWARE

Enterprise application software connects employees to critical business systems, information, and processes. It helps mobile employees make better and faster decisions, increase customer satisfaction, and improve efficiencies in their business processes for shorter sales and service cycles through the immediate access to mission critical information in a mobile environment. We create mobile and wireless information products by customizing and delivering actionable and time sensitive information whenever that information is most valuable to the customer. Our 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. We provide two different types of wireless solutions: (i) ASP-based, where we host and manage the information on our servers and (ii) premise-based where we install and engineer the software and information on our customers' servers.

WIRELESS FINANCIAL SERVICES AND SOFTWARE

Global Market Pro ("GMP") is a wireless application designed for traders and financial professionals in the global capital, derivative and foreign exchange markets. We developed GMP in cooperation with J.P. Morgan Chase Manhattan Bank's Global Markets Data Division in 1999. This application is being marketed to the trading and professional finance industry, where it is highly adaptable to a variety of wireless platforms. In addition, GMP is capable of advanced customization based on the unique preferences of each individual.

GMP provides real-time financial data from leading news and information sources, including Reuters, Market News International and GovPX. This product has been engineered for all device platforms including, RIM Interactive 957, two-way pagers, WAP phones and the Palm VII. The application features a portfolio customization Web site interface, allowing users to set event or time driven push alerts based on specific criteria or establish custom portfolios for real-time on-demand data requests. We are continuing to expand the product's features and capabilities.

Equity Market Pro ("EMP") is an enterprise application built for the institutional equity trader using the GMP financial platform. We developed EMP with the same customization capability and are deploying EMP using our over-the-air-programming (OTAP) technology. EMP is designed for the secure delivery of real-time financial information and news. EMP features Dow Jones News Service(SM) as its premier news source. Market data for EMP is sourced from Reuters and GovPX.

EMP is targeted to the over 400,000 institutional professionals who use real-time equity data at a workstation and is sold to institutions for their employees. All data provided through EMP is completely customizable providing information specific to each trader's needs. Features include the ability to create and track an unlimited number of watch lists for either push or pull delivery, snap quotes, charts and graphs, corporate profiles, symbol lookup, indices, and world composite data. EMP monitors any security or market indicator in real-time and sends out a wireless alert when pre-set values have been reached.

Futures Market Pro ("FMP") is a dynamic wireless financial application that gives financial professionals instant access to real-time futures and equities data. FMP, like EMP and GMP, can be customized to individual information needs. FMP monitors the market for events on any contract or stock, and creates and tracks custom watch lists. Alerts can be set on futures, securities or indices so that a user is notified when the market moves. Other features include snap quotes, time and sales info, watch lists, charts, news from Dow Jones and Comtex, built in portfolios, customized alerts, corporate profiles, symbol lookup and an OTAP application loader.

We continue to offer a suite of wireless financial consumer products. These products allow customers to retrieve customized information from real-time data feeds, receive and send messages and other information, as well as set their own parameters for real-time data they wish to receive. Our current line of financial consumer products is mostly comprised of QuoteXpress(R), CompanyNewsX and CommodityXpress(TM).

WIRELESS MESSAGING AND COMMUNICATIONS SOFTWARE

As part of our expanding enterprise application technology and product offerings, we launched a newly upgraded Hiplink product called HipLinkXS in July of 2001. HipLinkXS has developed into a suite of powerful messaging products that provide real-time wireless text and voice messaging and paging capabilities. This family of software applications enables corporations and individuals to send messages to a large mobile field force, through network management software for sales force automation or a database management application. Some examples of applications that HipLinkXS can easily integrate with, working as the critical event notification component, include: NetIQ AppManager, Remedy ARS, HP OpenView, Tivoli Enterprise Console, Tivoli NetView, CA Paradigm Service Desk, CA Unicenter, ISS Real Secure, and many more.

HipLinkXS products also have sophisticated voice and two-way messaging capabilities that can turn a wireless device literally into a remote control, allowing the user access to the designated computer network anytime, anywhere. Users can send messages and request a response back from the receiver, with the ability to trigger server processes based on the response from the two-way device. HipLinkXS supports virtually any wireless device for secure, reliable, two-way communications via a single integration point, providing turnkey access to wireless carriers around the world.

The HipLink solution supports both UNIX and NT and is scalable and configurable to the specific requirements of the enterprise customer. The software functions in the mission critical environment of enterprise messaging including wireless applications for network management messaging and monitoring, field work force communications, help desk operations and Internet messaging and monitoring.

Currently, the HipLinkXS Family of products includes: HipLinkXS Desktop Messaging; HipLinkXS Application Messaging; RemLinkXS; IQLinkXS; OpenLinkXS; QuickLinkXS.

We maintain strategic relationships with wireless and technology companies in order to further develop our services and product offerings. Maintaining market-leading technology is a difficult task; however, we believe that we continue to produce new software and engineered products and services that are leading the mobile and wireless market. The key relationships for us are with telecommunications carriers, wireless device manufacturers and content providers.

We have a very diversified customer list. Although we have many customers utilizing our mobile and wireless services, the broadly diversified base means there is no significant concentration in any industry. In the fiscal year ended March 31, 2004, there were two customers accounting for over 5% of our revenues. One customer accounted for 15% of revenues, and a second customer accounted for 6% of revenues. None of these customers accounted for any significant accounts receivable at March 31, 2004.

REVENUE AND LONG-LIVED ASSETS

Almost all of our revenue is generated in the United States through our Los Gatos, California office, and most of our fixed assets are located in the Los Gatos, California office.

We maintain strong relationships with all of the major telecommunications carriers, content providers and wireless hardware manufacturers for our wireless products and services. We are not dependent upon any one carrier, content provider or hardware manufacturer for our business.

We are participating in the highly competitive businesses of enterprise application software, mobile and wireless telecommunications, systems integration and professional services. The competition is from a broad range of both large and small domestic and international corporations. Some of our competitors have far greater financial, technical and marketing resources than we do.

The competitive factors important to us are our technology, engineering expertise, customer support and customer relationships. Industry competitive factors include, but are not limited to, technology, engineering capability, customer support, breadth and depth of strategic relationships, financial condition, and marketing initiatives. We leverage the quality of our engineering team and customer service team, the depth and breadth of our customer relationships, and our ability to respond quickly to change in order to be competitive and successful.

We maintain our research and development operations in Vancouver, B.C., Canada. As of March 31, 2004, we employed seven persons in research and development and engineering. We find it advantageous to have our research and development activities in Vancouver due to the abundance of available, affordable and talented software engineers. Total costs incurred in research and development amounted to $563,602, $719,965 and $999,589, respectively, in the years ended March 31, 2004, 2003 and 2002.

Our success and ability to compete effectively are dependent in part upon our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect our proprietary rights. Employees are required to execute confidentiality and non-use agreements that transfer any rights they may have in copyrightable works or patentable technologies to us. In addition, prior to entering into discussions with potential business partners or customers regarding our business and technologies, we generally require that such parties enter into nondisclosure agreements with us. If these discussions result in a license or other business relationship, we also generally require that the agreement setting forth the parties' respective rights and obligations include provisions for the protection of our intellectual property rights. For example, the standard language in our agreements provides that we retain ownership of all patents and copyrights in our technologies and requires our customers to display our copyright and trademark notices.

To date, we have federally registered certain of our trademarks. "Semotus", "QuoteXpress", "MailXpress", "Net2Wireless" and "Simkin" are registered trademarks of ours. In addition, we have applied for federal registration of other marks. However, we may not be successful in obtaining the service marks and trademarks for which we have applied. In December 2003, we sold the rights to most of our issued patents and patent applications, but we retained a nonexclusive worldwide right to make, use and sell any products covered by these patents that we sold. We retained patent #5875436 "Virtual Transcription System" and a patent application related to our financial data services software. However, future patents with respect to our technology may not be granted, and, if granted, patents may be challenged or invalidated. In addition, issued patents may not provide us with any competitive advantages and may be challenged by third parties. Our practice is to affix copyright notices on our software and product literature in order to assert copyright protection for these works.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to duplicate aspects of our products or to obtain and use information that we regard as proprietary. Our steps to protect our proprietary technology may not be adequate to prevent misappropriation of such technology, and may not preclude competitors from independently developing products with functionality or features similar to our products. If we fail to protect our proprietary technology, our business, financial condition and results of operations could be harmed significantly.

Companies in the software and application services and wireless industries have frequently resorted to litigation regarding intellectual property rights. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of others' proprietary rights. From time to time, we have received, and may receive in the future, notice of claims of infringement of others' proprietary rights. Any such claims could be time-consuming, result in costly litigation, divert management's attention, cause product or service release delays, require us to redesign our products or services or require us to enter into royalty or licensing agreements. If a successful claim of infringement were made against us and we could not develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our business could suffer.

At March 31, 2004, we had 20 full-time employees and 5 part-time employees, approximately 13 of whom were engaged in sales and marketing, 5 in finance and administration, and 7 in engineering. No employees are covered by a collective bargaining agreement. We believe that we have a good relationship with all of our employees.

Our business and the results of our operations are affected by a variety of risk factors, including those described below.

We have not achieved profitability and we expect to continue to incur operating losses in the future. These losses may be higher than our current losses from operations. Many of our operating expenses are fixed in the short term. We have incurred (and may incur in the future) losses from the impairment of goodwill or other intangible assets, or from the impairment of the value of private companies that we acquired. We must therefore generate revenues sufficient to offset these expenses in order for us to become profitable. If we do achieve profitability, we may not be able to sustain it.

Because we expect to continue to incur significant sales and marketing, systems development and administrative expenses, we will need to generate significant revenue to become profitable and sustain profitability on a quarterly or annual basis. We may not achieve or sustain our revenue or profit goals and our losses may continue or grow in the future. As a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis.

Our future revenues and operating results are dependent to a large extent upon general economic conditions, conditions in the wireless market and within that market, our primary target markets of financial services and software and messaging and communications software. Economic activity continues to be slow in these markets, and our sales cycle is significantly extended as existing and potential customers continue to reduce their spending commitments, deferring wireless projects and declining to make investments in new wireless services. Moreover, adoption of wireless services has not proceeded as rapidly as previously anticipated. If general economic conditions continue to be adverse, if the economies in which our target customers are located continue to suffer from a recession, if demand for our solutions does not expand, or if war or terrorism impacts the U.S., Canada or our other target markets, our ability to increase our customer base may be limited, and our revenue may decrease further.

During 2002 and 2001, we recorded approximately $9,695,199 in goodwill and other intangibles related to our acquisitions. Consideration for our acquisitions was partially or fully funded through the issuance of shares of our common stock at a time when our stock was at historically high prices. All of these companies were privately held and their fair values are highly subjective and not readily determinable. Our policy is to review the value of all our acquisitions for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. At the time of our acquisitions and investments, market valuations and the availability of capital for such companies were at historically high levels. During the years ended March 31, 2003 and 2004, stock prices and market valuations in our industry and in our vertical markets have fallen substantially in response to a variety of factors, including a general downturn in the economy, terrorism, a curtailment in the availab ility of capital and a general reduction in technology expenditures. The market valuations of those companies in which we have invested and of other companies similar to those we acquired have declined substantially. For the fiscal years ended March 31, 2003 and 2004, we did not record any impairment charges from continuing operations. However, for the fiscal year ended March 31, 2002, we recorded $909,272 in goodwill impairment charges and $3,420,000 in other intellectual property impairment charges from continuing operations. If similar adverse market conditions develop in the future, we may be required to take additional impairment charges. Further, in accordance with SFAS 144, we have presented the operations of FiveStar, Wares, ADA and WizShop as discontinued operations. In the net loss from discontinued operations for 2002 and 2003, impairment charges were taken against the goodwill of both Wares (fiscal year 2002) and ADA (fiscal year 2003). Regarding ADA's discontinuance, Global Beverage provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, and we therefore reflected ADA as a discontinued operation as of March 31, 2003. As discussed in Note 6, "Impairment of Long Lived Assets and Goodwill," we performed the impairment tests and determined that impairment charges were required. The impairment expense for the Wares goodwill was $1,156,587 and for the ADA goodwill was $635,724. We continue to perform the impairment tests on a quarterly basis.

For acquisitions which we have accounted for using the purchase method, we regularly evaluate the recorded amount of long-lived assets, consisting primarily of goodwill, acquired contracts and core technology, to determine whether there has been any impairment of the value of the assets and the appropriateness of their estimated remaining lives. We evaluate impairment whenever events or changed circumstances indicate that the carrying amount of the long-lived assets might not be recoverable. At March 31, 2002, we recorded an impairment charge of $3,420,000 related to intellectual property assets, and $3,617,283 related to goodwill, for which $909,272 was related to continuing operations and the balance was related to discontinued operations. Further, in accordance with SFAS 144, we have presented the operations of Five Star, Wares, ADA and WizShop as discontinued operations. Regarding ADA's discontinuance, Global Beverage provided us with notice on February 28, 2003 that it was exercising its option to buy the remaining 51% of ADA. Consequently, although the closure of the sale was delayed until May of 2003 and was subject to the resolution of certain outstanding issues, we felt that the sale of ADA was probable as of March 31, 2003, and we therefore reflected ADA as a discontinued operation as of March 31, 2003. In the net loss from discontinued operations for fiscal year 2003, impairment charges were taken against the goodwill of ADA. As discussed in Note 6, "Impairment of Long Lived Assets and Goodwill," we performed the impairment tests and determined that impairment charges were required. The impairment expense for the ADA goodwill was $635,724. Our current outstanding goodwill balance as of March 31, 2004 and 2003 was $1,430,141, related to the Cross Communications, Inc. acquisition.

In addition, changes in generally accepted accounting principles (GAAP) require us to discontinue amortizing goodwill and certain intangible assets. We adopted these changes effective April 1, 2002. Under this approach, goodwill and certain intangible assets will not be amortized into results of operations, but instead are reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangible assets is more than its fair value.

We will continue to regularly evaluate the recorded amount of our long-lived assets including acquired contracts and core technology and test for impairment. In the event we determine that any long-lived asset has been impaired, we will record additional impairment charges in future quarters. Goodwill will be evaluated at least annually. We are unable to predict the amount, if any, of potential future impairments.

We believe that our future business prospects depend in part on our ability to maintain and improve our current services and to develop new ones on a timely basis. Our services will have to achieve market acceptance, maintain technological competitiveness and meet an expanding range of customer requirements. As a result of the complexities inherent in our service offerings, major new wireless data services and service enhancements require long development and testing periods. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new services and service enhancements. Additionally, our new services and service enhancements may not achieve market acceptance. If we cannot effectively maintain, improve and develop services we may not be able to recover our fixed costs or otherwise become profitable.

The wireless and data communications industries are characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service introductions. Our services are integrated with wireless handheld devices and the computer systems of our customers. Our services must also be compatible with the data networks of wireless carriers. We must respond to technological changes affecting both our customers and suppliers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our ability to grow and achieve profitability will depend, in part, on our ability to accomplish all of the following in a timely and cost-effective manner:

• effectively use and integrate new wireless and data technologies;
• continue to develop our technical expertise;
• enhance our wireless data, engineering and system design services;
• develop applications for new wireless networks; and
• influence and respond to emerging industry standards and other changes.

Our ability to grow and achieve profitability partly depends on our ability to buy sufficient capacity on the networks of wireless carriers and on the reliability and security of their systems. We depend on these companies to provide uninterrupted and trouble free service and would not be able to satisfy our customers' needs if they failed to provide the required capacity or needed level of service. In addition, our expenses would increase and our profitability could be materially adversely affected if wireless carriers were to increase the prices of their services.

Our business strategy is based on the assumption that the number of subscribers to our services, the amount of information they want to receive and the number of services we offer will all increase. We must continue to develop and expand our systems and operations to accommodate this growth. The expansion and adaptation of our customer service and network operations center requires substantial financial, operational and management resources. We may be unable to expand our operations for one or more of the following reasons:

• we may not be able to locate or hire at reasonable compensation rates qualified engineers and other employees necessary to expand our capacity;
• we may not be able to obtain the hardware necessary to expand our capacity;
• we may not be able to expand our customer service, billing and other related support systems; and
• we may not be able to obtain sufficient additional capacity from wireless carriers.

Due to the limited deployment of our services to date, the ability of our systems and operations to connect and manage a substantially larger number of customers while maintaining superior performance is unknown. Any failure on our part to develop and maintain our wireless data services as we experience growth could significantly reduce demand for our services and materially adversely affect our revenue.

Our business strategy is based on the assumption that the number of subscribers to our services, the amount of information they want to receive and the number of services we offer will all increase. We must continue to develop and expand our systems and operations to accommodate this growth. The expansion and or maintenance and adaptation of our customer service and network operations centers require substantial financial, operations and management resources. At the same time, we have reduced our operating expenses, which entails a reduction in operational and management resources. While we believe that our cost reductions were targeted at areas that are not necessary to maintain and develop our ability to serve customers, there can be no assurance that we will succeed in lowering costs while maintaining our ability to provide service. If we fail to maintain or improve service levels, we may lose customers and/or the opportunity to provide more services and products.

Because of the technical nature of our products and the dynamic market in which we compete, our performance depends on attracting and retaining key employees. Competition for qualified personnel in the wireless data and messaging software industries is intense, and finding and retaining qualified personnel with experience in both industries is even more difficult. We believe there are only a limited number of individuals with the requisite skills in the field of wireless data communication, and it is increasingly difficult to hire and retain these persons. We have a written employment agreement with Anthony N. LaPine, the Company's Chairman, CEO and President. We do not have employment agreements with any other officer or employee. If we lose the services of Mr. LaPine or any other officer or key employee, such as Pamela LaPine, Cornel Fota, Tali Durant or Charles K. Dargan, we may not be able to manage or operate our business successfully and achieve our business objectives.

To help ensure that we would have sufficient capital to take advantage of our core business opportunities, we have taken significant actions during the past two fiscal years to reduce our operating expenses. Most of our current operating expenses, such as employee compensation and lease payments for facilities and equipment, are relatively stable and these expense levels are based in part on our expectations regarding future revenues. As a result, any shortfall in our revenues relative to our expectations could cause significant changes in our operating results from quarter to quarter. If the cost-cutting actions that we have taken are insufficient, we may not have sufficient capital to fund our operations, and additional capital may not be available on acceptable terms, if at all. Any of these outcomes could adversely impact our ability to respond to competitive pressures or could prevent us from conducting all or a portion of our planned operations. We may need to undertake additional measures to reduce our operating expenses in the future.

We expect that the cash we receive through our operations and our cash on hand will be sufficient to meet our working capital and capital expenditure needs for the next 12 months. After that, we may need to raise additional funds, and additional financing may not be available on acceptable terms, if at all. We also may require additional capital to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. If we issue additional equity securities to raise funds, the ownership percentage of existing shareholders will be reduced. If we incur debt, the debt will rank senior to our common shares, and we will incur debt service costs.

Our success is dependent in part on our ability to protect our intellectual property, and our failure to protect our intellectual property could have a significant adverse impact in our business.

Our success and ability to compete effectively are dependent in part upon our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as nondisclosure agreements and other contractual restrictions, to establish and protect our proprietary rights. The measures we undertake may not be adequate to protect our proprietary technology. To date, we have federally registered certain of our trademarks and applied for a patent on our financial data services software. Our practice is to affix copyright notices on our software and product literature in order to assert copyright protection for these works. The lack of federal registration of all of our trademarks, patents and copyrights may have an adverse effect on our intellectual property rights in the future. Additionally, we may be subject to further risks as we enter into transactions in countries where intellectual property laws are unavailable, do not provide adequate protection or are d ifficult to enforce. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to duplicate aspects of our products or to obtain and use information that we regard as proprietary. Our steps to protect our proprietary technology may not be adequate to prevent misappropriation of such technology, and may not preclude competitors from independently developing products with functionality or features similar to our products. If we fail to protect our proprietary technology, our business, financial condition and results of operations could be harmed significantly.

Quarterly fluctuations in our operating performance are exacerbated by the length of time between our first contact with a business customer and the first revenue from sales of services to that customer or end users. Because our services represent a significant investment for our business customers, we spend a substantial amount of time educating them regarding the use and benefits of our services and they, in turn, spend a substantial amount of time performing internal reviews and obtaining capital expenditure approvals before purchasing our services. As much as a year may elapse between the time we approach a business customer and the time we begin to deliver services to a customer or end user. Any delay in sales of our services could cause our quarterly operating results to vary significantly from projected results, which could cause our stock price to decline. In addition, we may spend a significant amount of time and money on a potential customer that ultimately does not purchase our services.

Our software products and platforms are complex and must meet the stringent technical requirements of our customers. We must develop our services quickly to keep pace with the rapidly changing software and telecommunications markets. Software as complex as ours is likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Our software may not be free from errors or defects after delivery to customers has begun, which could result in the rejection of our software or services, damage to our reputation, lost revenue, diverted development resources and increased service and warranty costs.

We may be subject to claims relating to information transmitted over systems we develop or operate. These claims could take the form of lawsuits for defamation, negligence, copyright or trademark infringement or other actions based on the nature and content of the materials. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

A significant barrier to the growth of wireless data services or transactions on the Internet or by other electronic means has been the need for secure transmission of confidential information. Our systems could be disrupted by unauthorized access, computer viruses and other accidental or intentional actions. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. If a third-party were able to misappropriate our users' personal or proprietary information or credit card information, we could be subject to claims, litigation or other potential liabilities that could materially adversely impact our revenue and may result in the loss of customers.

Our existing wireless data services are dependent on real-time, continuous feeds from outside third parties. The ability of our subscribers to obtain data or make wireless transactions through our service requires timely and uninterrupted connections with our wireless network carriers. Any significant disruption in the feeds or wireless carriers could result in delays in our subscribers' ability to receive information or execute wireless transactions. There can be no assurance that our systems will operate appropriately if we experience a hardware or software failure or if there is an earthquake, fire or other natural disaster, a power or telecommunications failure, insurrection or an act of war. A failure in our systems could cause delays in transmitting data, and as a result we may lose customers or face litigation that could involve material costs and distract management from operating our business.

In designing, developing and supporting our wireless data services, we rely on wireless carriers, wireless handheld device manufacturers, content providers and software providers. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services unless and until we are able to replace the functionality provided by these products and services.

We also depend on third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. In addition, we rely on the ability of our content providers to continue to provide us with uninterrupted access to the news and financial information we provide to our customers. The failure of third parties to meet these criteria, or their refusal or failure to deliver the information for whatever reason, could materially harm our business.

The markets for wireless data services are still emerging and continued growth in demand for and acceptance of these services remains uncertain. Current barriers to market acceptance of these services include cost, reliability, functionality and ease of use. We cannot be certain that these barriers will be overcome. Our competitors may develop alternative wireless data communications systems that gain broader market acceptance than our systems. If the market for our services does not grow or grows more slowly than we currently anticipate, we may not be able to attract customers for our services and our revenues would be adversely affected.

There are a number of competitors who are larger and have much greater resources than we do. Many of our competitors have more experienced people and larger facilities and budgets than we do. Some of our current competitors include wireless financial service providers, such as Aether Systems and Wolf Tech, and wireless messaging and communications software providers, such as California Amplifier, Sonic Mobility and Invoq. These competitors could use their resources to conduct greater amounts of research and development and to offer services at lower prices than we can. These factors may adversely affect our ability to compete by decreasing the demand for our products and services.

Intense competition could develop in the market for services we offer. We developed our software using standard industry development tools. Many of our agreements with wireless carriers, wireless handheld device manufacturers and data providers are non-exclusive. Our competitors could develop and use the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services. Our potential competitors could include: wireless network carriers such as Verizon Wireless, Cingular, Sprint PCS, TMobile, Nextel and AT&T Wireless; wireless device manufacturers, such as Palm, Motorola, Good Technology and RIM; software developers such as Microsoft Corporation; and systems integrators such as IBM. Most of our potential competitors have significantly greater resources than we do. Furthermore, competitors may develop a different approach to marketing the services we provide in which subscribers may not be required to pay for the inf ormation provided by our services. Competition could reduce our market share or force us to lower prices to unprofitable levels.

The wireless data and messaging software industries have experienced substantial consolidation. We expect this consolidation to continue. These acquisitions could adversely affect our business and results of operations in a number of ways, including the following:

• our customers could acquire or be acquired by one of our competitors and terminate their relationship with us;
• our customers could merge with other customers, which could reduce the size of our customer base;
• current and potential competitors could improve their competitive positions through strategic acquisitions; and
• companies from whom we acquire content could acquire or be acquired by one of our competitors and stop licensing content to us.

The market for wireless data services is still emerging and continued growth in demand for and acceptance of these services remains uncertain. Current barriers to market acceptance of these services include cost, reliability, functionality and ease of use. We cannot be certain that these barriers will be overcome. If the market for our services does not grow or grows slower than we currently anticipate, our business, financial condition and operating results could be adversely affected.

We are not currently subject to direct regulation by the Federal Communications Commission ("FCC") or any other governmental agency, other than regulations applicable to businesses in general. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers who supply us airtime are subject to regulation by the FCC and regulations that affect them could adversely affect our business, by, for example, increasing our costs or reducing our ability to continue selling and supporting our services. Our business could suffer depending on the extent to which our activities or those of our customers or suppliers are regulated.

Our business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorists' activities and threats aimed at the United States, transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we may experience an increase in operating costs, such as costs for transportation, insurance and security as a result of the terrorist activities and potential activities. We may also experience delays in receiving payments from payers that have been affected by the terrorist activities and potential activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact our results of operations, impair our ability to raise capital or otherwise adversely affect our ability to grow our business.

Sales of substantial numbers of shares of common stock by our major stockholders in the public market could harm the price of our common stock. As of March 31, 2004, Anthony N. LaPine, our President and Chief Executive Officer and Chairman of the Board, beneficially owned 2,584,624 shares of our common stock. These shares are eligible for resale into the public market within the restrictions imposed by Rule 144 under the Securities Act of 1933. Sales of a significant amount of these shares could adversely affect the market price of our common stock.

In addition, as of March 31, 2004, we have granted and have outstanding 3,408,335 options, with 1,735,513 of those immediately exercisable, to purchase our common shares in accordance with our 1996 Stock Option Plan. The exercise of options and the subsequent sale of shares could adversely affect the market price of our common shares. On April 29, 2004, the Securities and Exchange Commission declared effective a registration statement to register the resale of 2,023,874 shares of common stock and 530,357 shares of common stock issuable upon the exercise of certain share purchase warrants. We are unable to predict the effect that sales of these shares may have on the then prevailing market price of our shares. It is likely that market sales of large amounts of our shares (or the potential for those sales even if they do not actually occur) will have the effect of depressing the market price of our shares.

The volume of trading in our common shares on the American Stock Exchange has not been substantial. As a result, even small dispositions of our common shares in the public market could cause the market price of the common shares to fall. The perception among investors that these sales will occur could also produce this effect.

The trading price of our common stock has historically been highly volatile. Since we began trading on the American Stock Exchange, our stock price has ranged from $0.10 to $42.00 (as adjusted for stock splits). We expect that the market price of our common stock will continue to fluctuate as a result of variations in our quarterly operating results and other factors beyond our control. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to a variety of factors, including:

• announcements of technological or competitive developments;
• acquisitions or strategic alliances by us or our competitors;
• the gain or loss of a significant customer or order;
• changes in estimates of our financial performance or changes in recommendations by securities analysts regarding us or our industry; or
• general market or economic conditions.

This risk may be heightened because our industry is relatively new and evolving, characterized by rapid technological change and susceptible to the introduction of new competing technologies or competitors.

In addition, the market for internet, wireless and technology companies in particular has experienced extreme price and volume fluctuations. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. These broad market and industry factors and general economic conditions may materially and adversely affect our stock price.

Our shares should not be purchased by investors who need income from their holdings. We intend to retain any future earnings to fund the operation and expansion of our business. We do not anticipate paying cash dividends on our shares in the future. As a result, our common stock is not a good investment for people who need income from their holdings.

This report, including the sections entitled "Description of Business", "Recent Developments" and "Risk Factors," contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Any statements in this report regarding Semotus' outlook for its business and their respective markets, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends and other matters, are forward-looking statements. These statements relate to future events or our future financial and operating performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from that expressed or implied by these forward-looking statements. These risks and other factors include, among other things, those listed under "Risk Factors" and elsewhere in this document. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "our future success depends," "seek to continue" or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results except as required by law.

Our corporate headquarters are located in Los Gatos, California. The accounting and legal departments, as well as a portion of our marketing, sales, and customer support departments, are housed at this location. This facility is approximately 2,000 square feet, and is under a lease that expires on September 20, 2004 with a monthly rental expense of $4,704. Semotus Systems Corp., a Semotus subsidiary which houses our engineering and research and development group, is located in Vancouver, British Columbia, Canada, where it occupies a facility of approximately 2,437 square feet. This lease expires on June 30, 2007, and has a monthly rental expense of $2,640.

We believe that the existing facilities will be sufficient to meet our current needs. Should we need additional space to accommodate increased activities, we believe we can secure additional space at comparable cost.

WizShop.com, Inc. ("WizShop"), one of our wholly-owned subsidiaries, filed a lawsuit against Earthlink Network, Inc. and Earthlink Operations, Inc. (collectively "Earthlink") on April 15, 2002 in the California Superior Court. This suit alleged eight causes of action against Earthlink, including breach of written agreement, promissory fraud, fraudulent concealment, breach of fiduciary duty, constructive fraud, unfair business practices, accounting and constructive trust. The suit arose out of Earthlink's breach of the written agreement with WizShop, and Earthlink's apparent acts of fraud in connection with Earthlink's failure and refusal to accurately account for and pay to WizShop revenues to which WizShop is entitled to under the agreement. We sought monetary damages of $20,000,000 for the above matter. On May 19, 2003, the parties reached a settlement and signed a settlement and mutual general release agreement, in which Earthlink agreed to pay to WizShop a total sum of $210,000.

We are not a party to any other legal proceedings.

No matters were submitted to the Company's stockholders for consideration during the fiscal quarter ended March 31, 2004.

(a) MARKET INFORMATION. Our common stock first began trading on the OTC Bulletin Board on May 9, 1997. On December 29, 1999, trading in our common stock moved to the American Stock Exchange ("AMEX"), under the symbol "DLK". On August 14, 2000, trading in our common stock moved to the Nasdaq National Market ("Nasdaq"), under the symbol "XLNK". On December 18, 2000, trading in our common stock moved back to the AMEX under the symbol "DLK".

A 2 for 1 forward stock split became effective on April 27, 2000. Share prices have been adjusted to reflect this split.

The following table sets forth the high and low closing sales prices of our common stock as reported by the AMEX for the periods indicated:

(b) HOLDERS. As of March 31, 2004, we had approximately 450 shareholders of record. We believe that in excess of 15,000 beneficial owners hold shares of our common stock in depository or nominee form.

(c) DIVIDENDS. We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, to support the development and growth of our business and we do not anticipate paying any cash dividends in the foreseeable future.

(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS. The information required by this Item will be included in our Proxy Statement for the Annual Meeting of Shareholders to be held in September 2004 under the caption "Executive Compensation - Summary Information Concerning Stock Option Plans," which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated herein by reference.

RECENT SALES OF UNREGISTERED SECURITIES. During the quarter ended March 31, 2004 we issued securities which were not registered under the Securities Act of 1933, as amended, as follows:

The following selected consolidated financial data should be read in conjunction with Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and notes thereto and other financial information included elsewhere in this report. The selected consolidated statements of operations data for the years ended March 31, 2000, 2001, 2002, 2003 and 2004 are derived from our audited consolidated financial statements.

* Fiscal year 2000 selected financial data is presented in this table as originally filed by Semotus with the SEC. The data are not restated to take into consideration the acquisition of Five Star on December 28, 2000 under the pooling method of accounting, which, because of the discontinuance of the operations of Five Star, would have appeared only in the net loss or gain from discontinued 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.

At the end of fiscal year 2003 we had completed our Centralization and Consolidation Plan. Through fiscal year 2004 to present, we have focused on growing revenues within our two core product lines: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) enterprise wireless messaging and communications with the HiplinkXS family of products and services. 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.

We have transitioned our business from consumer driven wireless products and services to enterprise-based application software products and services with emphasis in the mobile and wireless software markets. This transition has mostly taken place since March 2000. As part of the transition, we acquired six companies Cross, Simkin, Wares, Five Star, WizShop and ADA. For specific information concerning the acquired companies see Note 4 to the Financial Statements, "Acquisitions". Each subsidiary provided revenues and a significant customer base to allow us to add to our technology, expand our product offerings and penetrate targeted vertical markets. However, due to the continued economic recession and limited capital spending, we centralized and consolidated our operations and closed Five Star and Wares, sold ADA, discontinued WizShop and consolidated Simkin and Cross (See the "Centralization and Consolidation Plan" below). After the Centralization and Consolidation Plan was la rgely completed by March 31, 2003, we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Through fiscal year 2004 to the present, we have been focused on growing revenues within our two core product lines: i) financial services with the Global Market Pro and Equity Market Pro products and services and ii) enterprise wireless messaging and communications with the HiplinkXS family of products and services. 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.

In May 2002, the Board of Directors determined that we needed to focus our operations on our core enterprise software products. Given the continued economic recession and limited capital spending, as well as the reduced access to capital, we economically utilized our limited resources on those products with the best margins and cash flow generation. As part of that effort, we reduced our e-commerce operations and closed the FiveStar business as of the end of June 2002 and closed the Wares' business as of August 2002. WizShop was discontinued as of September 2003. Both Simkin's and Cross' business operations were also consolidated. Additionally, we reflected ADA as a discontinued operation as of March 31, 2003, and in May 2003, GBG purchased the remaining 51% ownership of ADA. Accordingly, we redirected our human and capital resources towards more profitable products and services. (See "Factors Affecting Comparability; Strategic Repositioning").

Our management performs an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our investments in accordance with SFAS 144 and SFAS 142, "Goodwill and Other Intangible Assets". Based on quantitative and qualitative measures, we assess 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 March 31, 2002 for certain amounts of goodwill related to the acquisitions of Simkin, Wares and WizShop. Also, an impairment may have arisen with the recorded asset value of our Global Market Pro intellectual property.

For Simkin, the analysis was to determine if a further reduction in goodwill was necessary. We had previously taken a $650,000 net impairment charge in the quarter ended June 30, 2001. See Note 7 to the Financial Statements, "Sale of Technology and Net Impairment of Goodwill". For Wares and WizShop, we analyzed the current carrying value of the goodwill related to both acquisitions.

The result of this analysis necessitated charges to income of certain intangible assets which include goodwill, GMP intellectual property and acquired software. Those charges total approximately $7 million for the fiscal year ended March 31, 2002. See Notes 6 and 7 to the Financial Statements, "Impairment of Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of Goodwill" respectively. No further impairment charges in continuing operations have been taken in fiscal year ended March 31, 2004 and 2003, although a net loss from discontinued operations of $799,090 was taken for the operations of Five Star, Wares and ADA, mostly comprised of an impairment to goodwill of $635,724 at ADA. Management has determined that the remaining goodwill of $1,430,141 (net of accumulated amortization prior to the adoption of SFAS 142, of $727,058) is fairly valued using the impairment tests as described in SFAS 144 and SFAS 142, which includes discounted cash flow analysis and comparable c ompany analysis. This remaining amount of goodwill consists entirely of one of our wireless enterprise application software product lines, the HipLink family of software products, which is generating current revenue and cash flow.

The critical accounting policies are revenue recognition, cost allocation to revenue and valuation of intangible assets.

We recognize revenues based upon contract terms and completion of the sales process. Revenue is generated from one-time software licensing fees, annual maintenance fees and monthly wireless services fees provided to enterprises and consumers. We also receive a small revenue stream from pager rentals. 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. The revenue for the maintenance fees received through the Hiplink contracts are recognized ratably over the life of the maintenance contract. In the financial services, the monthly wireless services are billed in arrears and are recognized upon invoicing. For any professional or related services, revenue is generated from software engineering, training and consultation servi ces; revenue is recognized when the engineering, training or consultation work has been performed in accordance with the contract. For consumer wireless services and pager rentals, revenue is recognized monthly upon credit card billing as the monthly service is delivered.

The cost of revenue principally includes costs to obtain data feeds from various exchanges, costs of engineering development directed to specifically identified products, costs of servicing and hosting customer products, costs for pager rental or depreciation and pager airtime for those customers without their own pagers, and certain telephone, computer and other direct operational costs.

Our management performs an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our acquired net assets in accordance with SFAS 144 and SFAS 142. Based on quantitative and qualitative measures, we assess the need to record impairment losses on long-lived assets used in operations when impairment indicators are present.

In accordance with SFAS 144 and SFAS 142, we perform an undiscounted cash flow analysis of the long-lived assets and acquired net assets to determine whether an impairment exists. When the undiscounted cash flows are less than the carrying value of the net assets, management determines a range of fair values using a combination of valuation methodologies. The methodologies include:

• 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.

We adopted SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets" as of April 1, 2002. Accordingly, we no longer amortize intangible assets with an indefinite useful life or goodwill, but instead will assess potential future impairments of such intangible assets and goodwill by performing impairments tests on a quarterly basis to analyze the current fair market value of the intangible assets and goodwill in relation to the carrying value of the assets.

In prior years, we had capitalized the fair value of contracts acquired in business combinations as required by APB 16 "Business Combinations". Fair value was 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 was amortized into cost of revenue as revenues were recognized and was fully amortized as of March 31, 2003.

For other accounting policies see Note 3 to the Financial Statements, "Summary of Significant Accounting Policies".

All financial results for the fiscal years ended March 31, 2004, 2003 and 2002 have been restated for the discontinued operations of Five Star, Wares, ADA and WizShop.

Revenues for the years ended March 31, 2004, 2003 and 2002 were $1,338,373, $1,339,190 and $1,416,940, respectively.

Revenues for the fiscal year ended March 31, 2004 versus 2003 remained essentially the same. While there has been some variability in the number of customers, the overall revenue level has not changed. This is due to the fact that corporate capital spending has remained fairly constant through these last two fiscal years.

The 5% decrease in revenues for the fiscal year ended March 31, 2003 versus 2002 was due to the continuation of the technology recession as the enterprise and commerce sales and the professional services segments had declines with fewer new customers and contracts. Wireless services generally maintained its level of revenues.

The gross profit margin increased by 2% to 76% for the fiscal year ended March 31, 2004, due to the fact that we are continuing to sell our enterprise application software and wireless financial software and services, which have a high gross profit margin. Additionally, we continued to be more efficient in all of our business operations, which improved gross and operating margins.

The gross profit margin increased by 12% in the fiscal year ended March 31, 2003 to 74%, due largely to the higher margin enterprise application software and wireless financial software and services, which was a much larger component of the overall revenue mix in the fiscal year ended March 31, 2003 as compared to fiscal year 2002. Further, through the Centralization and Consolidation Plan, we have become more efficient in all of our business operations, which improved gross and operating margins.

Operating expenses decreased by 33% in the fiscal year ended March 31, 2004, mainly due to the continued reduction in general and administrative expenses as described below.

Operating expenses decreased by 59% in the fiscal year ended March 31, 2003, due to the continued reduction in overall expenses through the Centralization and Consolidation Plan. Further, there were not any impairment charges taken in continuing operations in the fiscal year ended March 31, 2003.

We categorize operating expenses into five major categories: research and development, sales and marketing, general and administrative, depreciation and amortization and stock, option and warrant expense. For the fiscal year ended March 31, 2002, there are two categories of impairment charges that are categorized as operating expenses: goodwill and intangible assets. For the fiscal years ended March 31, 2003 and 2004, there were not any impairment charges from continuing operations. The table below summarizes the changes in these categories of operating expenses during the past three fiscal years:

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. These costs are principally for the development of updates to existing products, such as Futures Market Pro, Equity Market Pro and Global Market Pro, and for releases of new versions of our enterprise application products, HiplinkXS, OpenLink, IQLink and RemLink. These expenses have declined over the past three fiscal years because the major development work for these products has been completed, and research and development expenses were reduced as part of the Centralization and Consolidation Plan.

Sales and marketing expenses consist of costs incurred to develop and implement marketing and sales programs for our 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 been a reduction in marketing personnel as we have shifted our emphasis to marketing and sales support for our existing products.

General and administrative expenses include senior management, accounting, legal and consulting expenses. 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 fiscal years ended March 31, 2003 and March 31, 2004 as personnel and offices were reduced and operating functions were consolidated.

In the fiscal year ended March 31, 2002, our management performed an on-going analysis of the recoverability of our goodwill and other intangibles and the value of our acquired net assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of" ("SFAS 121"), and, in the fiscal years ended March 31, 2004 and 2003, in accordance with SFAS 142. Based on quantitative and qualitative measures, we assessed the need to record impairment losses on long-lived assets used in operations when impairment indicators were present. As a result of our review, management determined that the carrying value of goodwill and recorded asset value were not fully recoverable and an impairment charge of $909,272 was taken, wholly comprised of an impairment charge to Simkin's goodwill in fiscal year 2002. Furthermore, we took an impairment charge of $3,420,000 for GMP Intellectual Property in the quarter ended March 31, 2002. See Notes 6 and 7, "Impairment of Long-Lived Assets and Goodwill" and "Sale of Technology and Net Impairment of Goodwill" respectively, to the Financial Statements in this Form 10K. There were no impairment charges from continuing operations in the fiscal years ended March 31, 2003 or 2004, although an impairment charge of $635,724 was taken in the discontinued operations of ADA. Management has determined that the remaining goodwill of $1,430,141 (net of accumulated amortization of $727,058) is fairly valued using the impairment tests as described in SFAS 144 and SFAS 142, which includes discounted cash flow analysis and comparable company analysis. This remaining amount of goodwill consists entirely of the HipLink family of software products, which is generating current revenue and cash flow.

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 decline in this expense through fiscal year 2003 is as a result of the impairment charges in fiscal 2002 which reduced the asset balances to be amortized and from our decline in capital spending. The decline in this expense from fiscal year 2003 to fiscal year 2004 is due to the final amortization of GMP in fiscal year 2003, and the fact that there were no acquisitions of property, plant or equipment in fiscal year 2004.

The non-cash charges for compensation consists mainly of grants of stock, options and warrants for services. Such services include financial, marketing and public relations consulting. Additionally, common stock was issued for settlement of certain accrued liabilities. The decline in non-cash charges for compensation in fiscal year 2003 was 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 fiscal years ended March 31, 2003 and 2002. The increase in non-cash charges for compensation in fiscal 2004 is due to new contracts for services being entered into, an increase in stock and option grants to service providers, and variable accounting charges for repriced options.

The common stock issued was valued at the fair market value of stock issued, 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 us to record compensation expense for changes in the fair value of our common stock. While no compensation expense was required to be recognized in fiscal year 2003 or fiscal year 2002, in fiscal year 2004 there was a stock compensation expense recognized in the amount of $894,409, due to the compensation expense adjustment for the repriced stock options based on the increase in the common stock price in fiscal year 2004. Compensation expense will be recognized in the future if the stock price increases above the exercise price of the repriced options.

Non-operating income and expenses are primarily made up of interest income from invested cash, interest expense from a note payable and retired bank lines of credit, 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 non-operating income and expenses:

Non-operating income, net of expenses, decreased in the year ended March 31, 2004 versus 2003, due to the cancellation of the technology sales contracts at the end of fiscal year 2003; no further income will be amortized from those contracts.

Non-operating income, net of expenses, increased in the fiscal year ended March 31, 2003 versus 2002, due to the cancellation of the technology sales contracts, of which the remaining deferred balances were recognized as income. This was offset somewhat due to less cash available for investment during the year resulting from the operating losses and the decrease in the amortization of technology advances amount.

The decrease in the comprehensive loss for the fiscal year ended March 31, 2004 to ($2,232,707) or $(0.11) per share was due to a continued improvement in our overall operating efficiency.

The decrease in the comprehensive loss for the fiscal year ended March 31, 2003 to ($3,383,296) or $(0.19) per share was due to an improvement in our overall operating efficiency as the Consolidation and Centralization Plan was implemented. The gross profit margin improved and the operating costs were reduced. Further, impairment charges decreased by approximately $3,600,000 in the year ended March 31, 2003.

After the Consolidation and Centralization Plan was largely completed by March 31, 2003, we determined that our ongoing operations were in one segment, wireless and mobile enterprise software. Our products consist mainly of the Global Market Pro family of products and the Hiplink family of products. Utilizing the definitions described in SFAS 131, "Disclosures about Segments of an Enterprise and Related Information", the nature of the products and services are all similar. Accordingly, starting in the current fiscal year, we will report the single line of business of wireless and mobile enterprise software and will no longer report operations from three prior segments: Enterprise and Commerce Sales, Professional and Related Services and Logistics. Further, per SFAS 131, the corresponding information for the earlier period presented has been reclassified accordingly to conform to the single segment current year presentation.

Our cash flow position has improved at March 31, 2004, due to the continued improvement in operations and due to the cash received from the private placement financing and exercise of stock options.

Although our cash position had decreased at March 31, 2003 due to our continued operating losses, this cash loss was reduced through our Centralization and Consolidation Plan.

The overall decrease in our cash position at March 31, 2002 was due to our continued operating losses. Cash continued to be spent on operating resources and upgrading wireless products although a cash management and cost reduction program was implemented and reduced the overall cash loss.

The sources and uses of cash are summarized as follows:

Cash used in operating activities at March 31, 2004 consisted principally of a net loss of $2,251,685 offset somewhat by non-cash charges of $201,181 for depreciation and amortization, $77,783 for the amortization of notes receivable, a stock and option compensation expense of $952,473, and a charge of $105,834 for the net income from discontinued operations. Further, there was a non-cash charge of $44,578 for a non-cash settlement of liabilities. Other operating activities that used cash were accounts payable and accrued liabilities in the amounts of $296,978 and $40,345, respectively.

Cash used in operating activities at March 31, 2003 consisted principally of a net loss of $3,432,350 offset somewhat by non-cash charges of $1,255,635 for depreciation and amortization, $593,259 for the amortization and forgiveness of notes receivable, net, and $176,346 for a non-cash legal settlement. Further there was a charge for the net loss from discontinued operations of $403,698 and a gain on the cancellation of technology contracts of $628,927. Other operating activities that used cash were accrued liabilities of $116,603.

Cash used in operating activities at March 31, 2002 consisted principally of a net loss of $18,444,478 offset somewhat by non-cash charges of $4,329,272 of impairment charges, depreciation and amortization of $2,360,771 and stock based compensation of $471,181. Other operating activities that provided cash were a reduction in accounts receivable of $250,365, and an increase in deferred revenue of $162,651 offset by a reduction in accounts payable of $104,559.

During the fiscal year ended March 31, 2004, there was no cash used in investing activities. Cash used in investing activities of $15,889 at March 31, 2003 resulted principally from $16,949 of capital expenditures offset somewhat by $560 from the sale of assets and $500 from cash received from certain acquisitions during the fiscal year. Cash provided by investing activities in 2002 of $1,388,983 resulted principally from $1,063,571 of cash provided by discontinued operations, net of assets acquired of $24,588, and $350,000 from the sale of the Kinetidex technology.

Cash flows from financing activities during the fiscal year ended March 31, 2004 produced a net increase in cash of $1,112,543. This resulted from net proceeds from a private placement of $977,474, and from the proceeds from the exercise of stock options and warrants for $211,584. This was offset slightly by the repayments of notes payable and capital leases by $56,224 and $20,291, respectively.

During fiscal year ended March 31, 2003, cash flows from financing activities produced a net decrease in cash of $210,941. This resulted from the repurchase of preferred stock for $100,000, from the $78,869 of repayments of notes payable and $33,792 of repayments of capital leases, and from the $9,818 cash used in discontinued operations, offset slightly by $11,538 in cash received from the exercise of warrants.

Cash flows used in financing activities at March 31, 2002 produced a net decrease in cash of $195,450. This resulted from $154,398 of repayments of notes payable and $40,423 of repayments of capital leases, and $12,297 in cash used in discontinued operations, offset slightly by $11,668 in cash received from the exercise of stock options.

As of March 31, 2004, we had cash and cash equivalents of $1,717,052, a decrease of $252,858 from the prior year. Working capital increased to $1,682,495 from the fiscal year ended March 31, 2003 due to the cash received from the private placement financing and the exercise of stock options, to the payoff of the notes payable and capital leases and to the disposition of the discontinued operations.

As of March 31, 2003, we had cash and cash equivalents of $1,969,910 a decrease of $2,100,732 from the prior year. Working capital decreased to $1,464,645 from the fiscal year ended March 31, 2002. The decrease in working capital is from the resources used in our operations, as explained above, somewhat offset by cash produced by the conversion of warrants and options into common stock. We have not yet generated sufficient revenues to cover the costs of continued product development and support, sales and marketing efforts and general and administrative expenses.

As of March 31, 2002, we had cash and cash equivalents of $4,070,642 (exclusive of restricted cash of $693,286), a decrease of $3,260,107 from the prior year. The continued decrease in working capital is from the resources used in our operations as explained above. We have not yet generated sufficient revenues to cover the costs of continued product development and support, sales and marketing efforts and general and administrative expenses.

In the fiscal year ended March 31, 2004, we elected to pay off all of our outstanding capital leases. There were no material commitments for capital expenditures at March 31, 2004 and we have no future capital lease payments. Operating lease expenses were $124,917 in fiscal 2004 and will be $52,153 in fiscal year 2005.

The following table discloses our contractual commitments for future periods. Long term commitments are comprised solely of operating leases (See Note 20).

At March 31, 2004 and 2003, we had a deferred tax asset of approximately $15,032,000 and $13,862,000, respectively, principally arising from net operating loss carryforwards available to offset future taxable income. As management cannot determine that it is more likely than not that we will realize the benefit of this asset, a 100% valuation allowance has been established.

Management believes that it has adequate working capital for the next 12 months.

In November 2002, the Emerging Issues Task Force issued its final consensus on Revenue Arrangements with Multiple Deliverables. This guidance is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 or alternatively, entities may elect to report the change in accounting as a cumulative-effect adjustment. EITF 00-21 discusses criteria necessary to determine when an arrangement may be viewed to have separate units of accounting (and thus revenue) and when an arrangement should be viewed as a single unit of accounting. As of March 31, 2004, we have not entered into any arrangements with multiple deliverables, nor do we currently foresee doing so.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. The interpretation applies immediately to variable interests in variable interest entities created or obtained after January 31, 2003. The interpretation is applied to the enterprise no later than the end of the first reporting period beginning after June 15, 2003. The application of this interpretation is not expected to have a material effect on our financial statements. The interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the interpretation becomes effective. As of March 31, 2004, we did not have any variable interest entities.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement clarifies and creates more consistent reporting of contracts as either derivatives or hybrid financial instruments. The Statement is effective for contracts entered into or modified after June 30, 2003. We historically have not used derivatives or hedging instruments. Currently, we do have a small exposure to the Canadian - -- U.S. dollar exchange rate, but at this time we have not deemed it necessary to hedge this exposure.

In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective as of the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 on June 1, 2003. The adoption of SFAS No. 150 has not had a material impact on our results of operations or financial condition.

We have limited exposure to financial market risks, including changes in interest rates. At March 31, 2004, we had cash and cash equivalents of $1,717,052. 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.

We have no notes payable at March 31, 2004.

We have a permanent engineering operation in Vancouver, B.C., Canada and therefore we have an exposure to the Canadian and U.S. dollar exchange rate. In the ordinary course of business, we transfer funds to the Canadian company and record the translation at the current exchange rate. We record translation gains and losses in comprehensive income (loss). At March 31, 2004, the cumulative translation loss was $74,328. Given the relative stability of the Canadian and U.S. dollar exchange rate, we have not deemed it necessary to hedge this exposure. We actively monitor the situation and as of March 31, 2004 there has been a small but trending decline in the U.S. dollar against the Canadian dollar. Should the trend continue, we would seek to limit or hedge the exposure.

Our financial statements and supplementary data and the reports of independent auditors thereon are listed in Item 15 of this Report and are incorporated herein by reference.

BDO Seidman, LLP served as our independent auditors from September 3, 1998 to July 15, 2002. We had determined to change our independent auditors for fiscal year 2003, and we dismissed BDO Seidman LLP on July 15, 2002. The decision to change independent auditors was recommended by our Management and the Audit Committee of the Board of Directors, and approved by a unanimous vote of the full Board of Directors.

Our decision to change our independent auditors did not occur due to any existing or previous accounting disagreements with BDO Seidman LLP, and BDO Seidman LLP has expressed no disclaimer of opinion, adverse opinion, qualification or limitation as to uncertainty, audit scope, or accounting principles regarding our financial statements or the audit process, for the fiscal years ended March 31, 2002 or 2001. Neither have there been any accounting disagreements or reportable events within the meaning of Item

304(a)(1)(iv) and Item 304(a)(1)(v) of SEC Regulation S-K for those periods or for the interim period from April 1, 2002 up to and including July 15, 2002. BDO Seidman LLP had stated in its letter addressed to the SEC its concurrence with the foregoing statements in this paragraph.

On July 15, 2002, we engaged Burr, Pilger & Mayer LLP to serve as our independent auditors for the fiscal year ended March 31, 2003. The decision to engage Burr, Pilger & Mayer LLP was recommended by the Company's management team and the Audit Committee of the Board of Directors, and unanimously approved by the full Board of Directors. We did not seek the advice of Burr, Pilger & Mayer LLP on specific audit issues relating to the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on our financial statements, or any matter that was a reportable event prior to engagement of this firm.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. First, it should be noted that the design of any system of controls is based in part upon certain assumptions, and there can be no assurance that any design will succeed in achieving its stated goals. Further, in designing and evaluating the disclosure controls and procedures, Semotus and its management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon our evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in bringing to their attention on a timely basis, information required to be disclosed in the reports the Company files under the Exchange Act.

The CEO and CFO note that, since our last evaluation of internal controls, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

We have omitted certain information from this Report that is required by Part III. We intend to file a definitive proxy statement pursuant to Regulation 14A with the Securities and Exchange Commission relating to our annual meeting of stockholders not later than 120 days after the end of the fiscal year covered by this Report, and such information is incorporated by reference herein.

The information required by this Item will be included in our Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption "Directors and Executive Officers" which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated by reference into this Item.

The information required by this Item will be included in our Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption "Executive Compensation" which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated by reference into this Item.

The information required by this Item will be included in our Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption "Security Ownership of Certain Beneficial Owners and Management" which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated by reference into this Item.

The information required by this Item will be included in our Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption "Certain Relationships and Related Transactions" which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated by reference into this Item.

The information required by this Item will be included in our Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption "Principal Accountant Fees and Services" which will be filed with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year ended March 31, 2004, and is incorporated by reference into this Item.

(a)(1) FINANCIAL STATEMENTS

The following financial statements required by this item are submitted in a separate section beginning on page 278 of this report.

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of March 31, 2004 and 2003

Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2004, 2003 and 2002

Consolidated Statements of Common Shareholders' Equity for the years ended March 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the years ended March 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

(a)(2) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the notes thereto.

(a)(3) EXHIBITS.

* Management contract or compensatory plan or arrangement.

** This Warrant was cancelled, ab initio, and effectively replaced with 150,000 common stock options under the Company's 1996 Stock Option Plan.

(b) REPORTS ON FORM 8-K. We filed three Current Reports on Form 8-K during the fourth quarter ended March 31, 2004.

Two 8-Ks were filed on January 26, 2004 with respect to a private placement of $1,028,750. An 8-K was filed on February 13, 2004 with respect to our financial results for the third quarter ended December 31, 2003.

(c) EXHIBITS. The exhibits required by this Item are listed under Item 15(a)(3).

(d) FINANCIAL STATEMENTS SCHEDULES. The financial statement schedules required by this Item are listed under Item 15(a)(2).