What changed in this filing

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Item 2. Management’s Discussion and Analysis

2003-08-14 compared with 2003-02-13 · 213 added, 377 removed, 101 unchanged (85% of the section changed)

17 unchanged sentences

March 31, 2003.

Semotus still reports four business segments:

wireless services, enterprise and

commerce sales, professional and related services, and logistic system sales.

However, at the end of this fiscal year 2002, Semotus determined that the

economy would continue in a weak recovery and that the market for technology

products would stay anemic.

Accordingly, the Company has centralized and

consolidated its organization and its operations.

Semotus has organized its

operations around two core lines of businesses, while maintaining but

de-emphasizing its other operations:

i) financial services with the Global

Market Pro and Equity Market Pro products and services and ii) workforce

automation with the HiplinkXS family of products and services.

These products

maintain high gross and operating margins and form the core of the enterprise

software marketing strategy with wireless and mobile features available in the

Logistic systems, largely ADA's products and services, continue as part of

Semotus' wireless and mobile strategy.

This field force automation software

provides Semotus with a unique platform for its wireless productivity

enhancement tools such as Hiplink.

Certain professional services have been de-emphasized.

As well, m-commerce

initiatives have been reduced.

The e-commerce economy has contracted and

m-commerce is not expected to make a significant contribution in the market in

the near future.

Consequently, Semotus has reduced its e-commerce and m-commerce

presence with the elimination of unprofitable products and services in that

WizShop, the remaining subsidiary in the Enterprise and Commerce Sales

segment, still receives small monthly sponsorship and advertising revenue, and

has one large customer loyalty software contract.

Most of the operations have

been largely consolidated into Semotus' other divisions and subsidiaries.

end of June, FiveStar's operations were closed as the market for e-fulfillment

is currently unprofitable, and in August, Wares on the Web was closed as the

market for e-commerce and web based services remains depressed, see Note 5,

"Discontinued Operations".

However, in accordance with FAS 148, "Accounting for Stock-Based

Compensation - Transition and Disclosure", the Company has made more detailed

disclosure of the effect of the fair value method of accounting for stock

options in its Notes to the Consolidated Financial Statements.

"Stock Based Compensation Expense".

After the Consolidation and Centralization Plan was largely completed by March

31, 2003, the Company determined that its ongoing operations were in one

segment, wireless and mobile enterprise software.

The Company's products consist

mainly of the Global Market Pro family of products and the Hiplink family of

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,

Semotus will report the single line of business of wireless and mobile

enterprise software and will no longer report operations from three prior

Enterprise and Commerce Sales, Professional and Related Services and

Further, per SFAS 131, the corresponding information for the earlier

period presented has been restated to conform to the single segment.

As a result of the centralization and consolidation implementation, the net loss

declined to $672,704 from $1,034,558 and to $0.03 per share from $0.06 per share

in the three months ended December 31, 2002 versus 2001 and the net loss

declined to $2,835,651 from $8,577,130 and to $0.16 per share from $0.51 per

share in the nine months ended December 31, 2002 versus 2001.

Likewise, the

overall cash decline was reduced to $1,598,836 from $2,758,876 in the nine

months ended December 31, 2002 versus 2001.

RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31,

2002 AND 2001

Revenues for the three months and nine months ended December 31, 2002 were

$875,169 and $2,648,190, respectively, as compared to $935,975 and $3,459,101,

respectively, for the three and nine months ended December 31, 2001.

Given the continued decline in economic activity and weakened capital and

consumer spending for technology products and services, Semotus experienced a

decline in revenues of 6% and 23% respectively in the three months and nine

months ended December 31, 2002 versus 2001.

All segments of the Company's

business were affected.

Potential customers have delayed capital spending

decisions or have kept most of the work in-house.

New sales of wireless and

software products and services have slowed.

Further, Semotus' Centralization and

Consolidation Plan has eliminated unprofitable products and services, which has

largely been in the professional services and enterprise and commerce segments.

The Plan has accounted for some of the revenue decline in professional services,

but is the main reason for most of the decline in the enterprise and commerce

The e-commerce economy has contracted and is not expected to recover in

the near future.

Wireless Services

The 2% and 5% decline in revenues in the three and nine months ended December

31, 2002 respectively, versus 2001 result from the continued decline in

corporate capital spending.

Both HiplinkXS and the financial service products,

Global Market Pro and Equity Market Pro, have experienced a longer sale cycle,

which has delayed and postponed their revenues.

Enterprise and Commerce Sales

The 2% and 17% decline in revenues in the three month and nine month periods

ended December 31, 2002 versus 2001, respectively is primarily due to the

initial implementation of a customer loyalty software contract at WizShop in the

quarter ended September 30, 2001.

The capitalized contract costs and the

commensurate deferred revenue were recognized at that time, which created large

initial revenues.

Since then, the contract has been amortized over its term,

which ends March 31, 2003.

Professional and Related Services

Revenues declined 34% and 85% in the three and nine months ended December 31,

2002, respectively, versus 2001 due largely to the reduction in new professional

service contracts at Simkin and also directly the result of the sale of Simkin's

Kinetidex 2.0 product in June 2001 for which certain services were performed.

Further, the Wares subsidiary was closed in August 2002 and since then has

contributed minor amounts of revenue.

Logistic System Sales

The 13% and 27% decline in revenues in the three and nine month periods ended

December 31, 2002 versus 2001, respectively, is a direct result of less capital

spending on system integration projects and the beverage industry reducing new

capital spending.

ADA received fewer system integration contracts.

is in process of upgrading its core asset tracking and management software,

which has not been completed.

The new software should provide further incentives

for customers to upgrade and increase revenues at ADA.

in the three months ended June 30, 2003 versus 2002.

Likewise, the overall cash

decline was reduced to $230,760 from $709,056 in the three months ended June 30,

2003 versus 2002.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002

Revenues for the three months ended June 30, 2003 were $353,662, as compared to

$614,094 for the three months ended June 30, 2002.

The difference is largely due to the customer loyalty contract at WizShop, which

was completed on March 31, 2003.

The recorded revenue resulted from the

amortization of deferred revenue and as such, had no impact on the cash position

of the Company.

Revenues from wireless and mobile enterprise software sales were

approximately the same in the three months ended June 30, 2003 and 2002.

COST OF REVENUES AND GROSS MARGIN

The overall gross profit margin increased to 65% and 61% in the three and nine

months ended December 31, 2002 from 56% and 50% in the same periods ended

December 31, 2001.

The increase is the result of continuing changes in product

mix from lower margin enterprise and commerce segment product to higher margin

wireless and logistic system segment products.

Further, with the elimination of

unprofitable products and services and the closing of the FiveStar and Wares

operations, the overall gross profit margin improved since the remaining

products and services carried much higher margins.

Wireless Services

The gross profit margin for this segment increased to 80% from 69% in the three

months ended December 31, 2002 versus 2001, and also increased to 74% from 59%

in the nine months ended December 31, 2002 versus 2001.

The increase in the

three and nine-month gross profit margins is due to:

i) increased higher margin

sales of enterprise products such as Global Market Pro, ii) the introduction of

a higher margin version of Hiplink, a field force automation wireless product,

and iii) the reduction and discontinuance of lower margin consumer products.

Enterprise and Commerce Sales

The gross profit margin in this segment increased to 42% and 43% in the three

and nine months ended December 31, 2002 from 39% and 41% in the same periods

ended December 31, 2001.

This increase is due to the elimination of unprofitable

products and services and the closing of the FiveStar and Wares operations.

major portion of this segment's gross margin comes from the customer loyalty

software contract at WizShop.

Professional and Related Services

The gross profit margin in this segment declined to 77% in the three-month

period ended December 31, 2002 from 89% in the three-month period ended December

However, the gross profit margin increased to 89% in the nine-month

period ended December 31, 2002 from 52% in the nine-month period ended December

The decline in the three-month gross profit margin is primarily due to

the decline in revenues, which has reduced the fixed cost coverage.

nine-month period increase is a direct result of the elimination of unprofitable

contracts and services.

The remaining professional service business carries much

higher margins since the services are extensions of existing contracts that do

not require as much start-up costs.

Logistic System Sales

The gross profit margin increased to 66% for the three months ended December 31,

2002 versus 55% for the three months ended December 31, 2001 and it increased to

58% from 50% in the nine months ended December 31, 2002 versus 2001.

principally due to a shift in the mix of services provided in the system

integration contracts.

ADA experienced more demand for higher margin software

and consulting services and less demand for lower margin hardware.

This services

shift has allowed ADA to increase the gross profit margin.

The overall gross profit margin increased to 77% in the three months ended June

30, 2003 from 65% in the same period ended June 30, 2002.

The increase is the

result of continuing improvements in the reduction of costs for the mobile

enterprise software products.

Also, the customer loyalty contract at WizShop was

included in the last fiscal year, which had lower margins than the mobile

enterprise software products.

The cost of sales consists mainly of network and

airtime charges and data feed charges.

OPERATING EXPENSES

Operating expenses declined overall in the three month and nine month periods

ended December 31, 2002 versus the same periods in the last fiscal year, due to

the Centralization and Consolidation Plan, which has significantly reduced

operating expenses in all areas of the firm, including research and development,

sales and marketing and general and administrative cost centers.

categorizes operating expenses into five major categories:

development, sales and marketing, general and administrative, depreciation and

amortization, and stock, option and warrant expense.

The table below summarizes

the changes in these five categories of operating expenses (unaudited):

THREE MONTHS ENDED NINE MONTHS ENDED

DECEMBER 31, DECEMBER 31,

Operating expenses declined overall in the three month period ended June 30,

2003 versus the same period in the last fiscal year, due to the full

amortization of the GMP asset and due to the Centralization and Consolidation

Plan, which has significantly reduced operating expenses in all areas of the

firm, including research and development, sales and marketing and general and

administrative cost centers.

The Company categorizes operating expenses into

five major categories:

research and development, sales and marketing, general

and administrative, depreciation and amortization, and stock, option and warrant

The table below summarizes the changes in these five categories of

operating expenses (unaudited):

Three Months Ended

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

4 unchanged sentences

General and administrative 367,041 541,523

Net impairment of goodwill -- -- -- 650,000

Depreciation and amortization 54,958 333,275

11 unchanged sentences

Remaining engineering costs are

production projects for the existing products and services and engineering work

on the update to ADA's asset tracking and management software.

production projects for the existing products and services.

Sales and marketing expenses consist of costs incurred to develop and implement

16 unchanged sentences

public relations, rent, administrative personnel, and other overhead related

These costs declined during the three months and nine months ended

December 31, 2002 as personnel and offices were reduced and operating functions

were consolidated.

The net impairment of goodwill is related to an impairment charge to goodwill

related to Simkin for $650,000.

As noted in Note 5 of Semotus' Form 10K for the

year ended March 31, 2002, "Sale of Technology and Net Impairment of Goodwill",

Semotus elected to sell the royalty rights and software of Kinetidex 2.0 to

Micromedex, Inc., the joint developer and exclusive distributor of the product.

Semotus received $350,000 for the product and all future royalty rights.

considered a variety of factors for a potential impairment of goodwill, which

included the sale of the technology, future prospects of Simkin's business, and

importantly, the consideration paid for Simkin, which was substantially all

common stock.

Subsequent to the acquisition, the price of the common stock of

Semotus had declined from $14.375 to $1.59 as of June 30, 2001.

Consequently,

Semotus elected to take a goodwill impairment charge of $650,000.

These costs declined during the three months ended June 30, 2003 as

personnel and offices were reduced and operating functions were consolidated.

Depreciation and amortization expense includes depreciation of computers and

other related hardware and certain fixtures.

Amortization includes goodwill

costs for periods prior to April 1, 2002 and certain intellectual property

The decrease in this expense is primarily the result of the adoption of

SFAS 142, "Goodwill and Other Intangible Assets" in which goodwill is no longer

Further, Semotus elected to take an impairment charge of $3,541,017

for intangible assets at March 31, 2002 which has reduced the asset value of

intangible assets other than goodwill to $1,000,000 at March 31, 2002.

impairment charge has reduced the amortization associated with the intangible

The decline in this expense for the

three months ended June 30, 2003 versus 2002 is as a result of the full

amortization of the GMP asset, the reduced asset balances to be amortized from

the discontinuance of the FiveStar, Wares and ADA operations, and from the

decline in capital spending at Semotus.

The non-cash charges for compensation consists mainly of grants of stock,

4 unchanged sentences

was issued for certain accrued liabilities.

The decline in non-cash charges for

compensation is due mainly to the termination of contracts with service

providers, which called for stock or warrant compensation, as well as the

decline in the stock and option grants to service providers, in the three months

and nine months ended December 31, 2002.

The common stock issued was valued at its fair market value at the time of

issuance, or in the instance of common stock purchase warrants, in accordance

with the Black-Scholes pricing guidelines.

Certain employee stock options, which

have been repriced, are subject to the variable plan requirements of FIN No.

that requires the Company to record compensation expense for changes in the fair

value of the Company's common stock.

While no compensation expense was required

to be recognized in the three months and nine months ended December 31, 2002 or

2001, expense will be recognized in the future if the stock price increases

above the revised exercise price of the options.

The common stock issued was valued

at its fair market value at the time of issuance, or in the instance of common

stock purchase warrants, in accordance with the Black-Scholes pricing

Certain employee stock options, which have been repriced, are

subject to the variable plan requirements of FIN No.

44, that requires the

Company to record compensation expense for changes in the fair value of the

Company's common stock.

$347,835 in compensation expense was required to be

recognized in the three months ended June 30, 2003;

No compensation expense for

variable stock options was required to be recognized in the three months ended

June 30, 2002.

Expense will also be recognized in the future if the stock price

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

Therefore, the

increase in non-cash charges for compensation is due mainly to the compensation

expense recorded for the October 2002 repriced stock options and to a lesser

extent from the compensation expense for the settlement of the Merger Agreement

with the shareholder of Cross Communications, Inc.

NON-OPERATING INCOME AND EXPENSES

Non-operating income and expenses for the three and nine months ended December

31, 2002 and 2001 are primarily interest income from invested cash, interest

expense from notes payable, amortization of advances from technology sales

received in previous periods, and the owner's fees and offsetting interest

income recognized, related to the technology sales.

See the Consolidated

Statement of Operations and Comprehensive Loss and Notes to the Financial

Statements in our Annual Report on Form 10-K for the year ended March 31, 2002.

Non-operating income and expense for the three months ended June 30, 2003 are

primarily interest income from invested cash, interest expense from notes

payable, and the legal settlement with WizShop (see Note 4, "Other Income").

the three months ended June 30, 2002 non-operating income and expense also

included interest income and expense as well as amortization of advances from

technology sales received in previous periods, and the owner's fees and

offsetting interest income recognized, related to the technology sales.

Consolidated Statement of Operations and Comprehensive Loss and Notes to the

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

Net interest income declined as less cash was available for investment during

the three and nine month periods ended December 31, 2002 versus 2001 as Semotus

continues with operating losses.

Amortization of technology advances decreased

somewhat in the three months ended December 31, 2002, due to the application of

accelerated amortization on the balances.

the three month periods ended June 30, 2003 versus 2002 as Semotus continues

with operating losses.

The overall increase in non-operating income was due to

the WizShop settlement offset somewhat by the decline in the amortization of

technology advances income.

Semotus determined that as of March 31, 2003, the

technology transactions were completed and therefore the contracts were

terminated (see Note 10, "Advances on Technology Sale" in our Annual Report on

Form 10-K for the year ended March 31, 2003).

COMPREHENSIVE LOSS

The comprehensive loss of $574,024 or $0.03 per share and $2,835,444 or $0.16

per share for the three months and nine months ended December 31, 2002,

respectively, compared to $1,977,143 or $0.11 per share and $8,614,394 or $0.51

per share for the three months and nine months ended December 31, 2001,

respectively, is a direct result of the implementation of cost reduction

programs which have consolidated and centralized Semotus' operating units and

the elimination of unprofitable products and services.

SEGMENT RESULTS

Semotus' business has evolved into four segments:

wireless services, enterprise

and commerce sales, professional and related services and logistic system sales.

(See Note 8, "Segment Information" for further information about each of the

Specific results of the segments are discussed under "Revenues" and "Cost of

Revenues and Gross Margin" in this section titled "Management's Discussion and

Analysis of Financial Condition and Results of Operations".

All segment financial information presented is unaudited.

WIRELESS ENTERPRISE AND PROFESSIONAL AND LOGISTIC CORPORATE

SERVICES COMMERCE SALES RELATED SERVICES SYSTEM SALES AND OTHER TOTAL

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

AS OF AND FOR THE THREE MONTHS

ENDED DECEMBER 31, 2002

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

Revenue $ 338,970 $ 250,212 $ 11,475 $ 274,512 $ -- $ 875,169

Gross Profit 270,810 105,972 8,888 180,983 -- 566,653

Operating loss* (16,330) 89,950 (496) 6,188 (765,066) (685,754)

Depreciation and amortization 28,922 43,471 -- 7,531 250,000 329,924

Capital expenditures 2,567 -- -- -- -- 2,567

Total assets, December 31, 2002* 3,614,285 713,951 263,530 134,168 1,628,812 6,354,746

NINE MONTHS ENDED DECEMBER 31, 2002

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

Revenue $ 962,773 $ 766,775 $ 51,744 $ 866,898 $ -- $ 2,648,190

Gross Profit 716,643 332,880 45,886 507,054 -- 1,602,463

Operating Loss* (830,801) 255,358 22,830 (41,772) (2,633,843) (3,228,228)

Depreciation and amortization 193,951 45,964 1,880 23,950 750,000 1,015,745

Capital expenditures 22,083 -- -- -- -- 22,083

Total assets, December 31, 2002* 3,614,285 713,951 263,530 134,168 1,628,812 6,354,746

AS OF AND FOR THE THREE MONTHS

ENDED DECEMBER 31, 2001

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

Revenue $ 346,421 $ 255,380 $ 17,512 $ 316,662 $ -- $ 935,975

Gross Profit 237,636 100,243 15,640 175,095 -- 528,614

Operating loss* (122,550) 45,551 4,148 (119,979) (1,679,071) (1,871,901)

Depreciation and amortization 73,742 21,744 7,486 8,393 719,199 830,564

Capital expenditures 4,172 -- -- -- -- 4,172

Total assets, December 31, 2001* 8,797,980 4,802,917 828,350 1,417,831 4,153,816 20,000,894

NINE MONTHS ENDED DECEMBER 31, 2001

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

Revenue $ 1,017,190 $ 921,334 $ 334,274 $ 1,186,303 $ -- $ 3,459,101

Gross Profit 597,159 378,085 172,736 589,054 -- 1,737,034

Operating Loss* (638,934) (177,929) (443,143) (133,640) (6,640,791) (8,034,437)

Depreciation and amortization 233,873 66,842 71,354 21,402 2,267,539 2,661,010

Capital expenditures 14,992 -- -- 5,715 -- 20,707

Total assets, December 31, 2001* 8,797,980 4,802,917 828,350 1,417,831 4,153,816 20,000,894

* Certain corporate marketing, research and development and general and

administrative costs have not been allocated to the segments and have been

included in "Corporate and other".

Further, the selected profit and loss items in the three and nine month periods

ended December 31, 2002 and 2001 and total assets at December 31, 2002 and 2001

respectively, have been adjusted for the discontinued operations of FiveStar and

Wares on the Web, which are categorized in the Enterprise and Commerce Sales

See Note 5, "Discontinued Operations".

The comprehensive loss of $657,731 or $0.03 per share for the three months ended

June 30, 2003, compared to $1,020,327 or $0.06 per share

for the three months ended June 30, 2002, respectively, is a direct result of

the implementation of cost reduction programs which have consolidated and

centralized Semotus' operating units and the elimination of unprofitable

products and services.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

Cash continued to be spent on operating

resources and upgrading and maintaining certain wireless and logistic system

products although a cash management and cost reduction program has been

implemented and has reduced the overall cash loss by 42% for the nine month

period ended December 31, 2002 versus 2001.

The sources and uses of cash are

summarized as follows (unaudited):

NINE MONTHS ENDED

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

resources and upgrading and maintaining certain wireless products although a

cash management and cost reduction program has been implemented and has reduced

the overall cash loss by 67% for the three month period ended June 30, 2003

The sources and uses of cash are summarized as follows (unaudited):

THREE MONTHS ENDED

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

Cash used in operating activities $(255,364) $(892,908)

Cash provided by investing activities 188,856 1,425,765

Cash used in financing activities (161,809) (188,625)

Cash used in investing activities -- (17,937)

Cash provided by (used in) financing activities 24,604 (22,119)

Net cash provided by discontinued operations -- 223,908

3 unchanged sentences

Cash used in operating activities from continuing operations consisted

principally of a net loss of $2,835,651 offset somewhat by non-cash charges of

$1,015,745, of depreciation and amortization, $574,647 of amortization of notes

receivable, $165,215 of settlement of liabilities and $24,283 of stock based

compensation.

Additionally, the loss from the discontinued operations

contributed $125,860.

Other operating activities that contributed to offsetting

the use of cash were $202,775 in the net change of current assets and current

This largely resulted from decreases in accrued liabilities and

accounts payable of $189,041 and $97,186 respectively and increases in accounts

receivable of $116,828, offset somewhat by increases in deferred revenue of

Cash provided by investing activities consisted principally of the continuing

investment in ADA of $210,379, by the 49% owner of ADA, Global Beverage Group.

This was offset somewhat by capital expenditures of $22,083.

Cash flows from financing activities produced a net decrease in cash of

$161,809, which resulted primarily from the repurchase by the Company of its

preferred stock for $100,000 in cash as part of the consideration (see Note 6,

"Repurchase of Preferred Stock"), as well as from repayments on notes payable

and capital leases.

As of December 31, 2002, the Company had cash and cash equivalents amounting to

principally of a net loss of $672,704 offset by $378,650 of stock based

compensation, and somewhat offset by non-cash charges of $54,958 of depreciation

and amortization, and $18,940 of amortization of notes receivable.

operating activities that contributed to the use of cash were $41,020 in the net

change of current assets and current liabilities.

This largely resulted from

decreases in accrued liabilities and accounts payable of $32,228 and $5,300

respectively and increases in accounts receivable of $45,509, offset somewhat by

increases in deferred revenue of $29,629.

There was no cash used in investing activities for the three months ended June

Cash used in investing activities for the three months ended June 30,

2002 consisted principally of the acquisition of property and equipment.

Cash flows from financing activities produced a net increase in cash of $24,604,

which resulted primarily from the exercise of stock options, offset slightly

from repayments on notes payable and capital leases.

As of June 30, 2003, the Company had cash and cash equivalents amounting to

$1,745,302, a decrease of $230,760 from the balance at March 31, 2003.

capital decreased to $1,252,372 at December 31, 2002 from $2,064,396 at the

fiscal 2002 year end.

The decrease in working capital is from the resources used

in the operations of Semotus as explained above.

The Company has not yet

generated sufficient revenues to cover the costs of continued product

development and support, sales and marketing efforts and general and

administrative expenses.

There are no material commitments for capital

expenditures at December 31, 2002.

capital decreased to $1,298,474 at June 30, 2003 from $1,464,645 at the fiscal

2003 year end.

The decrease in working capital is from the resources used in the

operations of Semotus as explained above.

The Company has not yet generated

sufficient revenues to cover the costs of continued product development and

support, sales and marketing efforts and general and administrative expenses.

There are no material commitments for capital expenditures at June 30, 2003.

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

RECENT PRONOUNCEMENTS:

In June 2002, the FASB issued SFAS No.

146, "Accounting for Exit or Disposal

Activities" ("SFAS 146").

SFAS 146 addresses significant issues regarding the

recognition, measurement, and reporting of costs that are associated with exit

and disposal activities, including restructuring activities that are currently

accconted for under EITF No.

94-3, "Liability Recognition for Certain Employee

Termination Benefits and Other Costs to Exit and Activity (including Certain

Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs

related to terminating a contract that is not a capital lease and termination

benefits that employees who are involuntarily terminated receive under the terms

of a one-time benefit arrangement that is not an ongoing benefit arrangement or

an individual deferred-compensation contract.

SFAS 146 is effective for exit or

disposal activities that are initiated after December 31, 2002 and early

application is encouraged.

The Company's adoption of SFAS 146 on January 1, 2003

had no impact on the Company's financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation NO.

45 ("FIN 45"),

"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING

INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS, AN INTERPRETATION OF FASB

STATEMENTS NO.

5, 57, AND 107 AND RESCISSION OF FASB INTERPRETATION NO.

45 clarifies the requirements of FASB Statement No.

5, "ACCOUNTING FOR

CONTINGENCIES" relating to to the guarantor's accounting for, and disclosure of

the issuance of certain types of guarantees.

The disclosure provisions of the

Interpretation are effective for financial statements of interim or annual

reports that end after December 15, 2002, irrespective of the guarantor's

The Company's adoption of FIN 45 did not have a material impact in the

Company's financial position or results of operations.

In December 2002, the FASB issued SFAS No.

11 unchanged sentences

position or results of operations.

In January 2003, the FASB issued Interpretation No.

46, "Consolidation of

Variable Interest Entities, an interpretation of ARB No.

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,

The application of this interpretation is not expected to have a material

effect on the Company's financial statements.

The interpretation requires

certain disclosures in financial statements issued after January 31, 2003 if it

is reasonably possible that the Company will consolidate or disclose information

about variable interest entities when the interpretation becomes effective.

of June 20, 2003, the Company does not have any variable interest entities.

In November 2002, the Emerging Issues Task Force issued its final consensus on

Revenue Arrangements with Multiple Deliverables.

This guidance is effective for

revenue arrangements entered into in fiscal periods beginning after June 15,

2003 or alternatively, entities may elect to

report the change in accounting as a cumulative-effect adjustment.

discusses criteria necessary to determine when an arrangement may be viewed to

have separate units of accounting (and thus revenue) and when an arrangement

should be viewed as a single unit of accounting.

The Company is currently

reviewing how this might affect revenue recognition for arrangements the Company

could enter into that have multiple deliverables.

At June 30, 2003, Semotus does

not have any contracts with multiple deliverables.

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 instrument 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,

The Company historically has not used derivatives or hedging instruments.

Currently, the Company does have a small exposure to the Canadian - U.S.

exchange rate, but has 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.

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.

The Company adopted SFAS No.

150 on June 1, 2003 and does not expect the

adoption to have a material impact on the Company's results of operations or

financial condition

FORWARD LOOKING STATEMENTS AND RISK FACTORS

2 unchanged sentences

expectations regarding our future services and operations and our acquisitions

of Cross, Simkin, Wares, Five Star, Tech-ni-comm, WizShop and Application Design

Associates and general industry and business conditions applicable to us.

have based these forward-looking statements on our current expectations and

projections about future events.

You can find many of these forward-looking

statements by looking for words such as "may", "should", "believes", "expects",

"anticipates", "estimates", "intends", "projects", "goals", "objectives", or

similar expressions in this document or in documents incorporated herein.

forward-looking statements are subject to a number of risks, uncertainties and

assumptions about us that could cause actual results to differ materially from

those in such forward-looking statements.

Such risks, uncertainties and

assumptions include, but are not limited to, our limited operating history, our

historical losses, the infancy of the wireless data industry where there is no

established market for our products and services, our ability to adapt to rapid

technological changes, our dependence on wireless networks owned and controlled

by others, and the other factors that we describe in the section entitled "Risk

Factors" in the Form 10K for the year ended March 31, 2002.

Semotus Solutions

claims the protection of the safe harbor for forward-looking statements

contained in the Private Securities Litigation Reform Act of 1995.

of Cross, Simkin and WizShop, and general industry and business conditions

applicable to us.

We have based these forward-looking statements on our current

expectations and projections about future events.

You can find many of these

forward-looking statements by looking for words such as "may", "should",

"believes", "expects", "anticipates", "estimates", "intends", "projects",

"goals", "objectives", or similar expressions in this document or in documents

incorporated herein.

These forward-looking statements are subject to a number of

risks, uncertainties and assumptions about us that could cause actual results to

differ materially from those in such forward-looking statements.

uncertainties and assumptions include, but are not limited to, our limited

operating history, our historical losses, the infancy of the wireless data

industry where there is no established market for our products and services, our

ability to adapt to rapid technological changes, our dependence on wireless

networks owned and controlled by others, and the other factors that we describe

in the section entitled "Risk Factors" in the Form 10K for the year ended March

Semotus Solutions claims the protection of the safe harbor for

forward-looking statements contained in the Private Securities Litigation Reform

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis