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Item 2. Management’s Discussion and Analysis

2003-11-14 compared with 2003-08-14 · 187 added, 188 removed, 126 unchanged (75% of the section changed)

15 unchanged sentences

fairly depicts our financial condition and results of operations for all periods

Critical accounting policies affecting us have not changed materially since

March 31, 2003.

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

13 unchanged sentences

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 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.

declined to $1,156,077 from $1,229,151 and to $0.06 per share from $0.07 per

share in the three months ended September 30, 2003 versus 2002.

Also, the net

loss declined to $1,828,785 or $0.09 per share from $2,263,708 or $0.13 per

share for the six months ended September 30, 2003 versus 2002.

Likewise, the

overall cash decline was reduced to $424,272 from $1,293,133 in the six months

ended September 30, 2003 versus 2002.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2003 AND

Revenues for the three and six months ended September 30, 2003 were $373,172 and

$726,834, respectively, as compared to $295,188 and $655,167, respectively, for

the three and six months ended September 30, 2002.

The 26% and 11% increase in revenue for the three and six months ended September

30, 2003 as compared to 2002 is largely due to moderate increases in sales of

Semotus' wireless products and services:

the Global Market Pro family of

products and the HipLink family of products.

Semotus has experienced some sales

increases as corporate capital spending is recovering in calendar 2003.

COST OF REVENUES AND GROSS 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.

The overall gross profit margin increased to 83% and 80% in the three and six

months ended September 30, 2003 from 63% and 72% in the same periods ended

September 30, 2002.

The increase is the result of continuing improvements in the

reduction of costs and low variable costs for the wireless and mobile enterprise

software products.

The cost of sales consists mainly of network, airtime and

data feed charges.

OPERATING EXPENSES

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

Operating expenses declined overall in the three and six month periods ended

September 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 expense.

The table below summarizes the changes in these five

categories of operating expenses (unaudited):

Three Months Ended Six Months Ended

September 30, September 30,

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Research and development $ 150,955 $ 155,909 $ 312,632 $ 380,763

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Sales and marketing 159,000 218,889 346,288 492,629

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General and administrative 200,325 1,033,693 453,931 1,548,314

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Depreciation and amortization 53,308 331,754 108,266 665,029

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Stock, option and warrant expense 914,727 1,867 1,293,377 22,921

7 unchanged sentences

Much of the development work for the Global

Market Pro, Equity Market Pro and HiplinkXS products has been completed which

has reduced research and development expenses.

Remaining engineering costs are

production projects for the existing products and services.

Market Pro and HiplinkXS product lines have been completed which has reduced

research and development expenses.

Remaining engineering costs are production

projects for the existing products and services.

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

7 unchanged sentences

These costs have declined principally due to the reduction in general

advertising and non-sales supported marketing.

There has also been a reduction

in marketing personnel as the Company has shifted to emphasizing marketing and

sales support for its existing products.

General and administrative expenses include senior management, accounting, legal

and consulting.

This category also includes the costs associated with being a

publicly traded company, including the costs of the AMEX listings, investor and

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

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

personnel and offices were reduced and operating functions were consolidated.

advertising and

non-sales supported marketing.

There has also been a reduction in marketing

personnel as the Company has shifted to emphasizing marketing and sales support

for its existing products.

General and administrative expenses include senior management, accounting,

legal, business development consulting, rent, administrative personnel, and

other overhead related costs.

This category also includes the costs associated

with being a publicly traded company, including the costs of the AMEX listings,

SEC filings, investor and public relations.

These costs declined substantially

during the three and six months ended September 30, 2003 as personnel and

offices were reduced and operating functions were consolidated.

Depreciation and amortization expense includes depreciation of computers and

1 unchanged sentence

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.

three and six months ended September 30, 2003 versus 2002 is as a result of the

full amortization of the GMP asset in fiscal year 2003, and from the decline in

capital spending on depreciable assets at Semotus.

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

1 unchanged sentence

Such services include

financial, marketing and public relations consulting.

financial, legal and business development consulting.

Additionally, common stock

1 unchanged sentence

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.

at its fair market value at the time of issuance.

Certain employee stock

options, which have been repriced, are subject to the variable plan requirements

44, that requires the Company to record compensation expense for

increases in the fair value of the Company's common stock.

$1,262,562, respectively, in compensation expense was required to be recognized

in the three and six months ended September 30, 2003;

no compensation expense

for variable stock options was required to be recognized in the three and six

months ended September 30, 2002.

Expense will also be recognized in the future

if the stock price continues to be above the revised exercise price of the

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 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

Non-operating income and expense for the three and six months ended September

30, 2003 are primarily interest income from invested cash and interest expense

from notes payable (see Note 4, "Other Income").

For the three and six months

ended September 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.

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, 2003.

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

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).

the three and six month periods ended September 30, 2003 versus 2002 as Semotus

continues with operating losses.

The interest expense from notes payable

resulted in a net expense for the six months ended September 30, 2003.

factor was 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,

COMPREHENSIVE LOSS

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.

The decrease in comprehensive loss of $1,155,783 or $0.06 per share, and

$1,813,518 or $0.09 per share for the three and six months ended September 30,

2003, respectively, compared to $1,241,095 or $0.07 per share, and $2,261,421 or

$0.13 per share for the three months ended September 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

4 unchanged sentences

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 overall cash loss by 67% for the six month period ended September 30, 2003,

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

THREE MONTHS ENDED

SIX MONTHS ENDED

SEPTEMBER 30,

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Cash used in operating activities $ (585,847) $ (1,214,882)

1 unchanged sentence

Cash provided by (used in) financing activities 84,003 (20,378)

Net cash provided by discontinued operations -- 223,908

Net cash provided by (used in) discontinued operations 77,572 (41,515)

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1 unchanged sentence

============ ============

Cash used in operating activities from continuing operations consisted

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.

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Cash used in operating activities consisted principally of a net loss of

$1,828,785 offset by $1,293,377 of stock based compensation, and somewhat offset

by non-cash charges of $108,266 of depreciation and amortization, and $38,213 of

amortization of notes receivable.

Additional non-cash income of $105,834 was

contributed by discontinued operations.

Other operating activities that

contributed to the use of cash were $147,315 in the net change of current assets

and current liabilities.

This largely resulted from decreases in accounts

payable $151,239 offset somewhat by increases in accrued liabilities and

deferred revenue of $24,227 and $29,947 respectively, and an increase in

accounts receivable of $45,223.

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

September 30, 2003.

Cash used in investing activities for the six months ended

September 30, 2002 consisted principally of the acquisition of property and

Cash flows from financing activities produced a net increase in cash of $84,003,

1 unchanged sentence

from repayments on notes payable and capital leases.

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

Net cash provided by discontinued operations of $77,572 is primarily from the

operations of WizShop, Inc.

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

$1,545,638, a decrease of $424,272 from the balance at March 31, 2003.

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.

capital decreased to $1,252,341 at September 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 September 30, 2003.

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

RECENT PRONOUNCEMENTS:

In December 2002, the FASB issued SFAS No.

148, "Accounting for Stock-Based

Compensation, Transition and Disclosure." SFAS No.

148 amends SFAS No.

requires prominent disclosures in both annual and interim financial statements

about the method of accounting for stock-based employee compensation and the

effect of the method used on reported results.

148 is effective for

fiscal years ending after December 15, 2002 and is effective for interim periods

beginning after December 15, 2002.

The Company's adoption of SFAS NO.

January 1, 2003 did not have a material effect on the Company's financial

position or results of operations.

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

Adoption of EITF 00-21 did not have a material impact on the

Company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No.

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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

The application of this interpretation has not had 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.

of September 30, 2003, the Company does not have any variable interest entities.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on

2 unchanged sentences

clarifies financial accounting and reporting for derivative instruments,

including certain derivative instrument embedded in other contracts, and for

including certain derivative instruments embedded in other contracts, and for

hedging activities under SFAS 133, "Accounting for Derivative Instruments and

16 unchanged sentences

financial condition.

As of September 30, 2003, the adoption of SFAS No.

not had a material impact on the Company's results of operations or financial

FORWARD LOOKING STATEMENTS AND RISK FACTORS

1 unchanged sentence

projections of future results of operations, our plans, objectives and

expectations regarding our future services and operations and our acquisitions

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

expectations regarding our future services and operations 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.

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

Such risks, uncertainties and assumptions include, but are not

limited to, our limited operating history, our historical losses, our reduced

capital resources, 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, 2003.

Semotus Solutions

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

contained in the Private Securities Litigation Reform Act of 1995.

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