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U. S. Securities and Exchange Commission

Washington, D.C. 20549



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FORM 10-QSB



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(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly periods ended March 31, 2006

or



| ̈ | Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the Transition Period From  to

Commission File number 000-23025



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NOTIFY TECHNOLOGY CORPORATION

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|CALIFORNIA                                                     |  | 77-0382248                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

1054 South De Anza Blvd.

San Jose, CA 95129

(Address of principal executive offices)

(408) 777-7920

(Issuers
telephone number)



---

Check whether
the issuer (1) filed all reports required to be filed by Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)    Yes ̈No  x

As of March 31, 2006 there were 13,968,995 shares of Common Stock outstanding.

Transitional Small Business Disclosure Format    Yes ̈No  x



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##### Table of Contents

INDEX



|                                          |  |         |  |                                                                                                      |  |   
|----------------------------------------- |  | ------- |  | ---------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION (unaudited) |  |        
|                                          |  |         | 
|                                          |  | Item 1. |  | Condensed Financial Statements: (unaudited)                                                          |  | 3 
|                                          |  |         | 
|                                          |  |         |  | Condensed Balance Sheets as of March 31, 2006 and September 30, 2005                                 |  | 3 
|                                          |  |         | 
|                                          |  |         |  | Condensed Statements of Operations for the three and six-month periods ended March 31, 2006 and 2005 |  | 4 
|                                          |  |         | 
|                                          |  |         |  | Condensed Statements of Cash Flows for the six month periods ended March 31, 2006 and 2005           |  | 5 
|                                          |  |         | 
|                                          |  |         |  | Notes to the Condensed Financial Statements                                                          |  | 6 
|                                          |  |         | 
|                                          |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 9 
|                                          |  |         | 
|                                          |  | Item 3. |  | Controls and Procedures                                                                              |  | 19
|                                          | 
|PART II. OTHER INFORMATION                |  |        
|                                          |  |         | 
|                                          |  | Item 5. |  | Other Information                                                                                    |  | 20
|                                          |  |         | 
|                                          |  | Item 6. |  | Exhibits                                                                                             |  | 20
|                                          | 
|SIGNATURES                                |  | 20     



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##### Table of Contents

PART I. FINANCIAL INFORMATION (unaudited)

Item 1. Financial Statements

NOTIFY TECHNOLOGY CORPORATION

CONDENSED BALANCE SHEETS



|                                               |  |                |             |   |                    |   |             |  
|---------------------------------------------- |  | -------------- | ----------- | - | ------------------ | - | ----------- | -
|                                               |  | March 31, 2006 |             |   | September 30, 2005 |  
|                                               |  | (unaudited)    |             |   | (1)                |  
|Assets                                         |  |                |             |   |                    |   |             |  
|Current assets:                                |  |                |             |   |                    |   |             |  
|Cash and cash equivalents                      |  | $              | 490,076     |   |                    | $ | 424,228     |  
|Accounts receivable, net                       |  |                | 617,797     |   |                    |   | 472,942     |  
|Other current assets                           |  |                | 58,481      |   |                    |   | 58,751      |  
|                                               |  |                |             |   |                    |   |             |  
|Total current assets                           |  |                | 1,166,354   |   |                    |   | 955,921     |  
|                                               |  |               
|Property and equipment, net                    |  |                | 112,243     |   |                    |   | 144,418     |  
|                                               |  |                |             |   |                    |   |             |  
|Total assets                                   |  | $              | 1,278,297   |   |                    | $ | 1,100,339   |  
|                                               |  |                |             |   |                    |   |             |  
|Liabilities and shareholders deficit          |  |                |             |   |                    |   |             |  
|Current liabilities:                           |  |                |             |   |                    |   |             |  
|Current portion of capital lease obligations   |  | $              | 18,192      |   |                    | $ | 22,609      |  
|Accounts payable                               |  |                | 49,252      |   |                    |   | 47,650      |  
|Accrued payroll and related liabilities        |  |                | 314,044     |   |                    |   | 328,535     |  
|Deferred revenue                               |  |                | 1,554,635   |   |                    |   | 1,287,866   |  
|Customer advances                              |  |                |            |   |                    |   | 30,039      |  
|Other accrued liabilities                      |  |                | 122,382     |   |                    |   | 139,484     |  
|Warrant liability                              |  |                | 145,252     |   |                    |   |            |  
|                                               |  |                |             |   |                    |   |             |  
|Total current liabilities                      |  |                | 2,203,757   |   |                    |   | 1,856,183   |  
|Long term portion of capital lease obligations |  |                | 13,792      |   |                    |   | 23,044      |  
|                                               |  |                |             |   |                    |   |             |  
|Total liabilities                              |  |                | 2,217,549   |   |                    |   | 1,879,227   |  
|                                               |  |                |             |   |                    |   |             |  
|Shareholders deficit:                         |  |                |             |   |                    |   |             |  
|Common stock                                   |  |                | 13,969      |   |                    |   | 13,969      |  
|Additional paid-in capital                     |  |                | 22,840,830  |   |                    |   | 22,840,830  |  
|Accumulated deficit                            |  |                | (23,793,751 | ) |                    |   | (23,633,687 | )
|                                               |  |                |             |   |                    |   |             |  
|Total shareholders deficit                    |  |                | (938,952    | ) |                    |   | (778,888    | )
|                                               |  |                |             |   |                    |   |             |  
|Total liabilities and shareholders deficit    |  | $              | 1,278,597   |   |                    | $ | 1,100,339   |  
|                                               |  |                |             |   |                    |   |             |  

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|(1) | The information in this column was derived from our audited financial statements for the year ended September 30, 2005
|--- | ----------------------------------------------------------------------------------------------------------------------

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

CONDENSED UNAUDITED STATEMENTS OF OPERATIONS



|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|------------------------------------------- |  | ----------------------------------- | ---------- | --------------------------------- | ---- | - | ---------- |  | - | ---------- | - |  | - | ---------- | -
|                                            |  | Three-Month Periods Ended March 31, |            | Six-Month Periods Ended March 31, |     
|                                            |  | 2006                                |            |                                   | 2005 |   | 2006       |  |   | 2005       |  
|Revenue:                                    |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Product revenue                             |  | $                                   | 675,783    |                                   |      | $ | 1,976,168  |  | $ | 1,961,890  |   |  | $ | 2,463,138  |  
|Service revenue                             |  |                                     | 211,023    |                                   |      |   | 452,233    |  |   | 445,874    |   |  |   | 851,169    |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Total revenue                               |  |                                     | 886,806    |                                   |      |   | 2,428,401  |  |   | 2,407,764  |   |  |   | 3,314,307  |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Cost of Revenue:                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Product cost                                |  |                                     | 2,731      |                                   |      |   | 1,233,977  |  |   | 457,396    |   |  |   | 1,253,326  |  
|Service cost                                |  |                                     | 7,277      |                                   |      |   | 11,306     |  |   | 15,375     |   |  |   | 23,937     |  
|Royalty payments                            |  |                                     | 18,653     |                                   |      |   |           |  |   | 35,898     |   |  |   |           |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Total cost of sales                         |  |                                     | 28,661     |                                   |      |   | 1,245,283  |  |   | 508,669    |   |  |   | 1,277,263  |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Gross profit                                |  |                                     | 858,145    |                                   |      |   | 1,183,118  |  |   | 1,899,095  |   |  |   | 2,037,044  |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Operating expenses:                         |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Research and development                    |  |                                     | 228,068    |                                   |      |   | 266,328    |  |   | 462,446    |   |  |   | 513,020    |  
|Sales and marketing                         |  |                                     | 438,093    |                                   |      |   | 428,588    |  |   | 818,286    |   |  |   | 835,107    |  
|General and administrative                  |  |                                     | 324,786    |                                   |      |   | 400,156    |  |   | 636,065    |   |  |   | 773,380    |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Total operating expenses                    |  |                                     | 990,947    |                                   |      |   | 1,095,072  |  |   | 1,916,797  |   |  |   | 2,121,507  |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Income (loss) from operations               |  |                                     | (132,802   | )                                 |      |   | 88,046     |  |   | (17,702    | ) |  |   | (84,463    | )
|                                            |  |                                     |            |                                  
|Other income (expense), net                 |  |                                     | 1,974      |                                   |      |   | 1,003      |  |   | 2,890      |   |  |   | (1,349     | )
|Loss on fair value of warrants              |  |                                     | (145,252   | )                                 |      |   |           |  |   | (145,252   | ) |  |   |           |  
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Net income (loss)                           |  | $                                   | (276,080   | )                                 |      | $ | 87,043     |  | $ | (160,064   | ) |  | $ | (83,114    | )
|                                            |  |                                     |            |                                   |      |   |            |  |   |            |   |  |   |            |  
|Basic net income (loss) per share           |  | $                                   | (0.02      | )                                 |      | $ | 0.01       |  | $ | (0.01      | ) |  | $ | (0.01      | )
|Diluted net income (loss) per share         |  | $                                   | (0.02      | )                                 |      | $ | 0.00       |  | $ | (0.01      | ) |  | $ | (0.01      | )
|                                            |  |                                     |            |                                  
|Basic weighted average shares outstanding   |  |                                     | 13,968,995 |                                   |      |   | 13,968,995 |  |   | 13,968,995 |   |  |   | 13,821,787 |  
|Diluted weighted average shares outstanding |  |                                     | 13,968,995 |                                   |      |   | 19,224,313 |  |   | 13,968,995 |   |  |   | 13,821,787 |  

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS



|                                                                                      |  |                                  |          |   |      |   |           |  
|------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | --------- | -
|                                                                                      |  | Six-Month Periods EndedMarch 31, |         
|                                                                                      |  | 2006                             |          |   | 2005 |  
|                                                                                      |  | (Unaudited)                      |          |   |      |  
|Cash flows used in operating activities:                                              |  |                                  |          |   |      |   |           |  
|Net loss                                                                              |  | $                                | (160,064 | ) |      | $ | (83,114   | )
|Adjustments to reconcile net loss to cash provided by (used in) operating activities: |  |                                  |          |   |      |   |           |  
|Depreciation and amortization                                                         |  |                                  | 38,705   |   |      |   | 56,118    |  
|Fair value of warrant liability                                                       |  |                                  | 145,252  |   |      |   |          |  
|(Gain) loss from the sale of property and equipment                                   |  |                                  | (1,114   | ) |      |   | (2,753    | )
|Changes in operating assets and activities:                                           |  |                                  |          |   |      |   |           |  
|Accounts receivable                                                                   |  |                                  | (144,855 | ) |      |   | (62,005   | )
|Other current assets                                                                  |  |                                  | 270      |   |      |   | 3,562     |  
|Accounts payable                                                                      |  |                                  | 1,602    |   |      |   | (10,633   | )
|Deferred revenue                                                                      |  |                                  | 266,769  |   |      |   | 38,579    |  
|Other accrued liabilities                                                             |  |                                  | (61,632  | ) |      |   | (235,793  | )
|                                                                                      |  |                                  |          |   |      |   |           |  
|Net cash provided by (used in) operating activities                                   |  |                                  | 84,934   |   |      |   | (296,029  | )
|                                                                                      |  |                                  |          |   |      |   |           |  
|Cash flows used in investing activities:                                              |  |                                  |          |   |      |   |           |  
|Purchase of property and equipment                                                    |  |                                  | (7,016   | ) |      |   | (26,745   | )
|Proceeds from the sale of fixed assets                                                |  |                                  | 1,600    |   |      |   | 4,000     |  
|                                                                                      |  |                                  |          |   |      |   |           |  
|Net cash used in investing activities                                                 |  |                                  | (5,416   | ) |      |   | (22,745   | )
|                                                                                      |  |                                  |          |   |      |   |           |  
|Cash flows provided by (used in) financing activities:                                |  |                                  |          |   |      |   |           |  
|Payments on short term borrowings                                                     |  |                                  |         |   |      |   |          |  
|Proceeds from exercise of options                                                     |  |                                  |         |   |      |   | 38,750    |  
|Payments on capital lease                                                             |  |                                  | (13,669  | ) |      |   | (10,016   | )
|                                                                                      |  |                                  |          |   |      |   |           |  
|Net cash provided by (used in) financing activities                                   |  |                                  | (13,669  | ) |      |   | 28,734    |  
|                                                                                      |  |                                  |          |   |      |   |           |  
|Net (decrease) increase in cash and cash equivalents                                  |  |                                  | 65,848   |   |      |   | (290,040  | )
|Cash and cash equivalents at beginning of period                                      |  |                                  | 424,228  |   |      |   | 1,026,121 |  
|                                                                                      |  |                                  |          |   |      |   |           |  
|Cash and cash equivalents at end of period                                            |  | $                                | 490,076  |   |      | $ | 736,081   |  
|                                                                                      |  |                                  |          |   |      |   |           |  
|Non-cash investing activities:                                                        |  |                                  |          |   |      |   |           |  
|Property and equipment acquired through capital lease                                 |  | $                                |         |   |      | $ | 37,704    |  

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements of Notify Technology Corporation (referred to as the Company, we,
us and our unless the context otherwise requires) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions of
Regulation S-B Item 310(b) and Article 10 of Regulation S-X. The condensed financial statements included herein are unaudited but include all adjustments (consisting only of normal recurring adjustments), which we consider necessary for a fair
presentation of the financial position at such date and the operating results and cash flows for those periods. Although we believe that the disclosures in these condensed financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and related footnotes prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-KSB for the year
ended September 30, 2005.

Results for any interim period are not necessarily indicative of results for any other interim period or
for the entire year.

2. GOING CONCERN

For some time, we have operated our business with limited available cash and our cash position is highly reliant on continuing operations. As a result, there is substantial doubt as to our ability to continue as a going concern. Although
our primary product focus and the majority of our revenue are derived from our wireless software products, we still receive limited but declining revenue from our legacy wireline products. Historically, the combined operating revenue, supplemented
by our cash balances, has been sufficient to sustain our operations since July 2001 when we obtained our last funding from financing. Our intent is to increase our NotifyLink revenue sufficiently to replace the declining revenue from our wireline
products and fund all operations from our NotifyLink revenue. It is not possible for us to predict with assurance when, or if, we will achieve this goal or whether we will have sufficient available cash to fund initiatives to increase NotifyLink
revenue.

Our plans to improve our current situation involve the expansion of our product offering into niche markets. We believe that
these niche markets are not adequately addressed by market competitors at the present time. We also intend to capitalize on our ability to offer a single middleware solution for those companies deploying a variety of manufacturers devices on a
single email system. We have reduced our operating costs from prior periods and expect to continue emphasizing efficient operations. The success of our business operations will depend upon a significant favorable market acceptance for our new
wireless software products. We continue to evaluate our opportunities to obtain further financing but it is not a critical element in our plans. It is not possible for us to predict with assurance the outcome of these matters. If we are unable to
achieve profitable operations from our software wireless products, or obtain further financing if we consider it necessary, then our business will fail.

We cannot predict whether we will be able to obtain additional financing if it is needed. Any potential financing could take the form of debt or equity and could include terms that are unfavorable to us and/or our
existing stockholders. Any equity financing transaction would be expected to dilute the equity and voting interests of our existing stockholders.

3. LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2005 and the six-month period ended March 31, 2006, we funded our operations
through a combination of our gross profit earned from revenue and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification market solutions along with the
continuation of the Visual Got Mail Solution program. We continue to evaluate our opportunities to obtain further financing but it is not a critical element in our plans.



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NOTIFY TECHNOLOGY CORPORATION

A significant characteristic of our business is the sale of our products customarily in the form of annual contracts paid for upon signing but the revenue amortized over the twelve month service period. As our
installed base grows, this practice increases the deferred revenue liability on the balance sheet as we add new contracts faster than old contracts expire. The major cost of operations is comprised of (1) the engineering design of our product
offered for sale and (2) the physical sale of a contract that requires both direct sales effort and customer service hours to facilitate a trial period of our software prior to purchase. The change in the NotifyLink deferred revenue to
$1,554,635 as of March 31, 2006 from $859,798 as of March 31, 2005 indicates the improvement in the product revenue. Deferred revenue also represents the obligation to service the contracts underlying the revenue. However, the cash flow
required to service the contracts is significantly less than the revenue recognized each month.

We also continue to generate significant
revenue from the service portion of our Visual Got Mail Solution although that revenue stream has an uncertain future as our sole customer for this solution has terminated its marketing efforts for the product that our service supports.
Consequently, we consider the Visual Got Mail Solution a declining product.

Our continued operations depend on the cash flow from both the
NotifyLink and Visual Got Mail Solution service product sales. In the event our revenue is interrupted, we would have to reduce our operations to service our exiting contract obligations unless we secured additional financing. If we were unable to
achieve NotifyLink revenue improvements or secure financing, we would have to restructure our business to reduce costs.

In the event we
require additional capital, we cannot predict whether we will be able to obtain financing on commercially reasonable terms, if at all. Any future financings may take the form of debt or equity securities or a combination of debt and equity,
including convertible notes or warrants. In the event we are required to obtain additional financing, we cannot predict whether we could successfully conclude a financing with any new investors. Minimally, we expect that any additional financing
could result in a substantial dilution of the equity and voting interests of our current shareholders.

4. NET INCOME (LOSS) PER SHARE

The net income per share for the three month period ended March 31, 2006 was a loss of $0.02 compared to a gain of $0.01 for the same
period in the prior year. Options to purchase 3,280,667 and 3,383,667 shares of common stock and warrants to purchase 1,871,651 and 1,871,651 shares of common stock were outstanding at March 31, 2006 and 2005, respectively. The outstanding
options and warrants were not included in the computation of diluted net loss per share for the three month period ended March 31, 2006 as the effect would be anti-dilutive but were included in the computation of diluted net income per share
for the three month period ended March 31, 2005.

5. FINANCING ACTIVITIES

In accordance with The Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in a Companys Stock, the terms of our warrants for Common shares issued in connection with our Series A Preferred offering issued on July 20, 2001, qualify for treatment as a liability on our balance sheet at
their fair value.

The terms contained within the Warrant Agreement that qualify these warrants under EITF 00-19 is the penalty clause that
grant the warrant holders a 5% issuance of additional warrants for each month the Company is late in filing reports required by the SEC. Since the terms in the Warrant Agreement do not limit the number of times the penalty clause can be triggered,
and because the EITF has declared that the Company is not in control of when its filings are effective, EITF 00-19 guidelines require that the fair market value of the warrants be recognized as a liability on the Companys balance sheet.

The fair value of the warrants was estimated as of March 31, 2006 using the Black-Scholes option-pricing model with the following
assumptions: no dividends, risk-free (10-year Treasury yield) interest rate of 4.76%; the remaining contractual life of 2.31 years and volatility of 166.00%. The fair value was estimated to be $145,252 on the closing day of the second fiscal quarter
of 2006. This change in value reflects the increase in market price of the Companys stock in the three month period ended March 31, 2006. Consequently, the fair value of the warrants was recorded as Loss on fair value of
warrants in the Companys statement of operations, and included in Warranty liability on the Companys balance sheet.



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NOTIFY TECHNOLOGY CORPORATION

6. ACCOUNTING FOR STOCK BASED COMPENSATION

The Company accounts for stock-based employee compensation using
the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations and complies with the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure  an Amendment of FASB Statement No. 123. The following table illustrates the effect on net
income (loss) and net income (loss) per common share if the Company had applied the fair market recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                                                            |  |                             |          |   |                                 |   |         |      |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ------------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                                            |  | Three Months Ended March 31 |          |   | Six Months Ended March 31, 2006 |  
|                                                                                                                                            |  | 2006                        |          |   | 2005                            |   |         | 2006 |  |   | 2005     |  
|Net income (loss) as reported                                                                                                               |  | $                           | (276,079 | ) |                                 | $ | 87,043  |      |  | $ | (160,064 | ) |  | $ | (83,114  | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                                    |  |                             |         |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             | (24,602  | ) |                                 |   | (38,956 | )    |  |   | (51,696  | ) |  |   | (75,273  | )
|                                                                                                                                            |  |                             |          |   |                                 |   |         |      |  |   |          |   |  |   |          |  
|Pro forma net income (loss)                                                                                                                 |  | $                           | (300,681 | ) |                                 | $ | 48,087  |      |  | $ | (211,760 | ) |  |   | (158,387 | )
|                                                                                                                                            |  |                             |          |   |                                 |   |         |      |  |   |          |   |  |   |          |  
|                                                                                                                                            |  |                             |          |  
|                                                                                                                                            |  | 2006                        |          |   | 2005                            |   |         | 2006 |  |   | 2005     |  
|Basic earnings per share:                                                                                                                   |  |                             |          |   |                                 |   |         |      |  |   |          |   |  |   |          |  
|As reported                                                                                                                                 |  | $                           | (0.02    | ) |                                 | $ | 0.01    |      |  | $ | (0.01    | ) |  | $ | (0.10    | )
|Pro forma                                                                                                                                   |  | $                           | (0.02    | ) |                                 | $ | 0.00    |      |  | $ | (0.01    | ) |  | $ | (0.16    | )
|                                                                                                                                            |  |                             |          |  
|Diluted earnings per share:                                                                                                                 |  |                             |          |   |                                 |   |         |      |  |   |          |   |  |   |          |  
|As reported                                                                                                                                 |  |                             |         |   |                                 | $ | 0.01    |      |  |   |         |   |  |   |         |  
|Pro forma                                                                                                                                   |  |                             |         |   |                                 | $ | 0.00    |      |  |   |         |   |  |   |         |  

7. PRODUCT WARRANTY

The Company warrants its products for a specific period of time, generally twelve months, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of sales when the
related revenue is recognized. The accrued warranty cost represents the best estimate at the time of sale of the total costs that the Company expects to incur to repair or replace product parts, which fail while still under warranty. The amount of
accrued estimated warranty costs are primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, the Company reviews the accrued balances and updates the historical warranty
cost trends. The Company ceased shipping product in 2004 and had no product under warranty during the three month or six month periods ended March 31, 2006.



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8. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS 123R), Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95. SFAS 123R eliminates the ability to account for
share-based compensation transactions using APB 25 and would require that such transactions be accounted for using a fair-value-based method and recognized as expenses in the statement of operations. SFAS 123R requires that a modified version of
prospective application be used, which requires that the fair value of new awards granted after the effective date of SFAS 123R, plus unvested awards at the date of adoption, be expensed over the applicable vesting period. The provisions of SFAS
123R will be effective for the Company beginning in October 2006; the Companys first fiscal quarter of fiscal year 2007. The Company has not yet determined which fair value method and transitional provision it will follow. The impact on the
Companys financial statements of applying the Black-Scholes option valuation method of accounting for stock options is disclosed in Note 5.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING
STATEMENTS

This Quarterly Report on Form 10-QSB contains forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve risks and uncertainties. Forward-looking statements generally include words such as may, will, plans,
seeks, expects, anticipates, outlook, intends, believes and words of similar import as well as the negative of those terms. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-QSB, including,
but not limited to, statements regarding the future growth of our wireless product line; statements regarding future revenue from our products; statements regarding our future success; statements regarding future costs; statements regarding future
research and development efforts; statements regarding competition in the market for wireless products; statements regarding future patent applications; statements regarding future financial results; statements regarding future plans to extend our
product line; statements regarding the sufficiency of our existing cash balances to fund our operations; and statements regarding the effect of future financings on our existing shareholders are based on current expectations and are subject to
important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Such important factors include, but are not limited to, those discussed below under Risk Factors and elsewhere
in this Quarterly Report and in other documents we file with the U.S. Securities and Exchange Commission. When reading the sections titled Results of Operations and Financial Condition, you should also read our unaudited
condensed financial statements and related notes included elsewhere herein, our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2005, and the section below entitled Risk Factors. We disclaim any obligation to
update any forward-looking statements as a result of developments occurring after the date of this Quarterly Report.

RESULTS OF OPERATIONS

Three-Month Periods Ended March 31, 2006 and 2005

Revenue

Revenue consists of net revenue from the sale of NotifyLink software licenses, software
installation fees, the sale of third party software products and net revenue from services related to our Visual Got Mail Solution. Software revenue is recognized on a straight-line basis over the term of each contract. Installation revenue is
recognized upon completion of trial activity and finalizing the software agreement. Third party software revenue is recognized upon delivery. We recognize Visual Got Mail Solution service revenue in the month the service is provided.



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Revenue for the three month period ended March 31, 2006 decreased to $886,806 from $2,428,401 for the three month period ended March 31, 2005 because the three month period ended March 31, 2005
contained revenue associated with Customer Premise Equipment (CPE) that we no longer sell. Our wireless product line revenue improved to $670,789 from $519,362 for the three-month periods ended March 31, 2006 and 2005, respectively.
The service portion of the Visual Got Mail solution, which is a declining product, was $211,023 in the three month period ended March 31, 2006 compared to $452,233 in the comparable period of fiscal 2005. This decline was expected and we expect
the service revenue to continue to decline in future periods as the installed base declines.

Our NotifyLink product line remains our
primary focus and is an email and Personal Information Management (PIM) system designed for business users. We are a provider of secure real time wireless synchronization of email, calendar, contacts and tasks, supporting any Blackberry, Palm and
Windows Mobile Wireless device on all major cellular voice and data networks worldwide. The NotifyLink solution provides users with bi-directional mobile automatic synchronization of emails sent to end users email mailbox and all
emails originated, forwarded and replied to from the mobile device will be synchronized with the users desktop. The transmitted information keeps personal calendars continually up to date at both the server level and the mobile device level.

The Visual Got Mail Solution service consists of a subscription service, operated by us, which links CPE hardware product to our
customers voice mail platform. We receive a monthly subscription service fee for each active voice mail user on our customers service. In June 2004, our sole customer for this solution made a decision to cease marketing the product that
our services support and the installed base of customers is slowly declining. A contract for the service contains a 30-day written cancellation clause so we consider the Visual Got Mail Solution a declining product with an uncertain life.

We sell our products primarily in the United States directly to business users, resellers and one long distance telephone carrier. The
NotifyLink and Visual Got Mail Solution revenue accounted for 76% and 24%, respectively, of total revenue in the three-month period ended March 31, 2006 and 21% and 77%, respectively, of total revenue in the three-month period ended
March 31, 2005. 24% of our total revenue is concentrated in one customer with the remaining revenue spread out among many different customers during the three month period ended March 31, 2006.

Cost of Revenue

Cost of revenue consists primarily
of the cost to operate our hosting services, royalty costs on our NotifyLink sales and to manufacture our products. Cost of revenue decreased to $28,661 in the three-month period ended March 31, 2006 from $1,245,283 for the three-month period
ended March 31, 2005. The decrease in the cost of revenue is due to product mix where the three-month period ended March 31, 2005 contained manufacturing costs for CPE sales while the cost of revenue for the three-month period ended
March 31, 2006 had no CPE component.

Our gross margin increased to 96.8% in the three month period ended March 31, 2006 compared
to a gross margin of 48.7% in the three-month period ended March 31, 2005. The increase occurred because the three month period ended March 31, 2005 contained the one-time event of low margin CPE sales whereas the same period of the
current year contained none.

Our gross margin has historically been affected by a number of factors, including product mix, product
demand, pricing pressures, warranty costs, and timing. The most significant fluctuations have been associated with our legacy CPE product sales but we have ceased manufacturing and selling CPE. We are still subject to product demand, product mix and
pricing pressures as our sales transition to software and service products but expect to avoid the more significant changes that have been historically caused by hardware versus software and service sales. Considering the factors we are still
subject to, our gross margin can and will continue to fluctuate and there can be no assurance that we will maintain our gross margins at the current levels.



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Research and development

Research and development expenses consist primarily of personnel costs and support expenses.
Research and development expenses decreased to $228,068 for the three-month period ended March 31, 2006 from $266,328 for the three-month period ended March 31, 2005. This decrease reflects a conservative approach in the investment level
in our Ohio staff that designs and develops our wireless products. Although conservative, we have maintained our spending in this area and expect to continue investing in this area of research and development as resources allow. There can be no
assurance that the market will continue to accept our wireless products.

Sales and marketing

Sales and marketing expense consists primarily of personnel, travel costs and sales commissions related to our sales effort of the NotifyLink product
line. Sales and marketing costs decreased to $438,093 for the three month period ended March 31, 2006 from $428,588 for the three month period ended March 31, 2005. We continue to use an internal sales force and a customer support staff to
facilitate the NotifyLink sales process and sales expense is directly influenced by commissions as we steadily have improved NotifyLink revenue. Sale of the NotifyLink product involves a trial process requiring assistance to prospective customers
installing our software. We also make efficient use of marketing programs to establish name recognition and reach out to our target markets. In contrast, the Visual Got Mail Solution sales are completely supported at the executive staff level.

We anticipate that sales and marketing expenses will increase in future quarters as we hire additional sales and customer support
personnel and attempt to expand our existing and create new distribution channels.

General and administrative

General and administrative expense consists of general management and finance personnel costs, insurance expense, occupancy costs, professional fees and
other general corporate expenses. General and administrative expenses decreased to $324,786 for the three-month period ended March 31, 2006 from $400,156 for the three-month period ended March 31, 2005. The decrease is due to cost
containment measures in compensation, legal and audit services.

We expect that general and administrative expense may increase in future
quarters as we become subject to more of the requirements mandated by Sarbanes-Oxley Act.

Six-Month Periods Ended March 31, 2006 and 2005

Revenue

Revenue for the six
month period ended March 31, 2006 decreased to $2,407,764 from $3,314,307 for the six month period ended March 31, 2005 because the combined Visual Got Mail Solution CPE and Service revenue decreased to $1,096,107 in the six month period
ended March 31, 2006 from $2,235,529 for the six month period ended March 31, 2005 as a result of our discontinuation of such product and decline in such service. Our wireless product line revenue improved to $1,280,809 from $1,096,107 for
the six-month periods ended March 31, 2006 and 2005, respectively.

The NotifyLink and Visual Got Mail Solution revenue accounted for
53% and 47%, respectively, of total revenue in the six-month period ended March 31, 2006 and 33% and 67%, respectively, of total revenue in the six-month period ended March 31, 2005. 47% of our revenue is concentrated in one customer with
the remaining revenue spread out among many different customers during the six-month period ended March 31, 2006.

Cost of Revenue

Cost of revenue consists primarily of the cost to operate our hosting services, royalty costs on our NotifyLink sales and to manufacture our products.
Cost of revenue decreased to $508,669 in the six-month



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period ended March 31, 2006 from $1,277,263 for the six-month period ended March 31, 2005. The decrease in the cost of revenue is due to greater volume of sales of CPE which carry a higher cost than do our
other products in the six-month period ended March 31, 2005.

Our gross margin increased to 78.9% in the six-month period ended
March 31, 2006 compared to a gross margin of 61.5% in the six-month period ended March 31, 2005. The increase occurred because of the lower volume of sales of higher cost CPE in the six-month period ended March 31, 2006.

Our gross margin has historically been affected by a number of factors, including product mix, product demand, pricing pressures, warranty costs, and
timing. The most significant fluctuations have been associated with our legacy CPE product sales but we have ceased manufacturing and selling CPE. We are still subject to product demand, product mix and pricing pressures as our sales transition to
software and service products but expect to avoid the more significant changes that have been historically caused by hardware versus software and service sales. Considering the factors we are still subject to, our gross margin can and will continue
to fluctuate and there can be no assurance that we will maintain our gross margins at the current levels.

Research and development

Research and development expenses consist primarily of personnel costs and support expenses. Research and development expenses decreased to $462,446 for
the six-month period ended March 31, 2006 from $513,020 for the six-month period ended March 31, 2005. This decrease reflects a conservative approach in the investment level in our Ohio staff that designs and develops our wireless
products. Although conservative, we have maintained our spending in this area and expect to continue investing in this area of research and development as resources allow. There can be no assurance that the market will continue to accept our
wireless products.

Sales and marketing

Sales and marketing expense consists primarily of personnel, travel costs and sales commissions related to our sales effort of the NotifyLink product line. Sales and marketing costs decreased to $818,286 for the six-month period ended
March 31, 2006 from $835,107 for the six-month period ended March 31, 2005. We continue to use an internal sales force and a customer support staff to facilitate the NotifyLink sales process and sales expense is directly influenced by
commissions as we steadily have improved NotifyLink revenue. Sale of the NotifyLink product involves a trial process requiring assistance to prospective customers installing our software. We also make efficient use of marketing programs to establish
name recognition and reach out to our target markets.

We anticipate that sales and marketing expenses will increase in future quarters as
we hire additional sales and customer support personnel and attempt to expand our existing and create new distribution channels.

General and
administrative

General and administrative expense consists of general management and finance personnel costs, insurance expense,
occupancy costs, professional fees and other general corporate expenses. General and administrative expenses decreased to $636,065 for the six-month period ended March 31, 2006 from $773,380 for the six-month period ended March 31, 2005.
The decrease is due to cost containment measures in compensation, legal and audit services.

We expect that general and administrative
expense may increase in future quarters as we become subject to more of the requirements mandated by Sarbanes-Oxley Act.

LIQUIDITY AND CAPITAL
RESOURCES

During fiscal 2005 and the six month period ended March 31, 2006, we funded our operations through a combination of our
gross profit earned from revenue and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification market solutions along with the continuation of the Visual Got
Mail Solution program. We continue to evaluate our opportunities to obtain further financing but it is not a critical element in our plans.



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A significant characteristic of our business is the sale of our products customarily in the form of annual contracts paid for upon signing but the revenue amortized over the twelve month service period. As our
installed base grows, this practice increases the deferred revenue liability on the balance sheet as we add new contracts faster than old contracts expire. The major cost of operations is comprised of (1) the engineering design of our product
offered for sale and (2) the physical sale of a contract that requires both direct sales effort and customer service hours to facilitate a trial period of our software prior to purchase. The change in the NotifyLink deferred revenue to
$1,554,635 as of March 31, 2006 from $859,798 as of March 31, 2005 indicates the improvement in the product revenue. Deferred revenue also represents the obligation to service the contracts underlying the revenue. However, the cash flow
required to service the contracts is significantly less than the revenue recognized each month.

We also continue to generate significant
revenue from the service portion of our Visual Got Mail Solution although that revenue stream has an uncertain future as our sole customer for this solution has terminated its marketing efforts for the product that our service supports.
Consequently, we consider the Visual Got Mail Solution a declining product.

Our continued operations depend on the cash flow from both the
NotifyLink and Visual Got Mail Solution service product sales. Our intent is to increase our NotifyLink revenue sufficiently to replace the declining revenue from our wireline products and fund all operations from our NotifyLink revenue. Our plans
to improve our current situation involve the expansion of our product offering into niche markets. We believe that these niche markets are not adequately addressed by market competitors at the present time. We also intend to capitalize on our
ability to offer a single middleware solution for those companies deploying a variety of manufacturers devices on a single email system. We have reduced our operating costs from prior periods and expect to continue emphasizing efficient
operations. The success of our business operations will depend upon a significant favorable market acceptance for our new wireless software products. We continue to evaluate our opportunities to obtain further financing but it is not a critical
element in our plans. It is not possible for us to predict with assurance the outcome of these matters.

In the event our revenue is
interrupted, we would have to reduce our operations to service our exiting contract obligations unless we secured additional financing. If we were unable to achieve NotifyLink revenue improvements or secure financing, we would have to restructure
our business to reduce costs.

In the event we require additional capital, we cannot predict whether we will be able to obtain financing on
commercially reasonable terms, if at all. Any future financings may take the form of debt or equity securities or a combination of debt and equity, including convertible notes or warrants. In the event we are required to obtain additional financing,
we cannot predict whether we could successfully conclude a financing with any new investors. Minimally, we expect that any additional financing could result in a substantial dilution of the equity and voting interests of our current shareholders.

At March 31, 2006, we had cash and cash equivalents of $490,076. Over the last several years, we have financed our operations
primarily through revenue from operations and existing cash balances. The net cash generated from operating activities equaled $84,933 in the six-month period ended March 31, 2006 versus net cash used by operating activities of $296,029 in the
six-month period ended March 31, 2005. The cash used in operations was a combination of a net loss of $160,064, an increase in accounts receivable of $144,855 due to strong NotifyLink sales and the pay down of a customer advance of $30,039. The
net cash provided in the six-month period ended March 31, 2006 was largely attributable to an increase in the fair value of warrants liability of $145,252 and an increase in deferred revenue of $266,769. We anticipate that we will have negative
cash flow from time to time in operating activities in future quarters and years.

Net cash used in investing activities was an outflow of
$5,416 and $22,745 for the six-month periods ended March 31, 2006 and 2005, respectively. The net cash outflow in both periods was due to capital purchases partially offset by the sale of fixed assets.

Net cash provided by financing activities was an outflow of $13,669 and an inflow of $28,734 for the six-month periods ended March 31, 2006 and
2005, respectively. The net cash outflow for the six-month period ended March 31, 2006 was due to payments on capital leases and the inflow for the six-month period ended March 31, 2005 was the acquisition of a capital lease on a customer
service telephone system and proceeds from the exercise of options.

We have no off balance sheet arrangements as defined by
Item 303(c) of Regulation S-B.

RISK FACTORS

We operate in a dynamic and rapidly changing business environment that involves numerous risks and uncertainties. The following section lists some, but not all, of these risks and uncertainties, which may have a
material adverse effect on our business, financial condition or results of operations.



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Because of our financial condition and our business plans, our financial statements disclose that there is substantial doubt as to our ability to continue as a going concern and accordingly our business has a high
risk of failure

Due to the fact that our cash position is highly reliant on continuing operations, there is substantial doubt as to our
ability to continue as a going concern. Although, our primary product focus and the majority of our revenue are derived from our wireless software products, we still receive limited revenue from our legacy wireline products. Historically, the
combined operating revenue, supplemented by our cash balances, has been sufficient to sustain our operations since July 2001 when we obtained our last funding from financing. Our intent is to increase our NotifyLink revenue sufficiently to replace
the income from our wireline products and fund all operations from our NotifyLink revenue. It is not possible for us to predict with assurance when, or if, we will achieve this goal.

Our plans to improve our currant situation involve the expansion of our product offering into niche markets, such as the support of PIM for the IMAP
email market, that few, if any, of our competitors service. We also intend to capitalize on our ability to offer a single middleware solution for those companies deploying a variety of manufacturers devices on a single email system. We have
reduced our operating costs from prior periods and expect to continue emphasizing efficient operations. The success of our business operations will depend upon a significant favorable market acceptance for our new wireless software products. We will
continue to evaluate our opportunities to obtain further financing but it is not a critical element in our plans. It is not possible for us to predict with assurance the outcome of these matters. If we are unable to achieve profitable operations
from our software wireless products or obtain further financing if we consider it feasible, then our business will fail.

We cannot predict
whether we will be able to obtain additional financing if it is needed. Any potential financing could take the form of debt or equity and could include terms that are unfavorable to us and/or our existing stockholders. Any equity financing
transaction would be expected to dilute the equity and voting interests of our existing stockholders.

A significant portion of our revenue is derived
from the sale of a single solution to a single customer and that customer is changing their business commitment to the market in which our product is sold

For the three-month period ended March 31, 2006, 24% of our revenue came from the sale of our Visual Got Mail Solution service to a single competitive provider of local phone services. In July 2004, the customer
changed its business position in the market in which our product is sold and terminated its outbound marketing efforts. Although our customer continues to purchase our service product from us, the installed base upon which our service is based has
changed from a growth status to a declining status. If, for whatever reason, this customer is not able to, or chooses not to, sell or support its voice mail service, or the contractual rate we charge per user is renegotiated down, our revenue,
operating profit and financial condition would be materially adversely affected. In such an event, we would have no alternative distribution channel for our Visual Got Mail Solution and our revenue, operating results and financial condition would be
materially adversely affected.

Our sole Visual Got Mail Solution customer has recently merged with another company. We cannot predict what
effect this merger will have on our business or financial results or the willingness of this customer to continue our contracts relating to the Visual Got Mail Solution product.



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We have a history of losses, and there is no assurance of future profitability

We commenced
operations in August 1994 and through January 1996 were engaged primarily in research and development. We introduced the Visual Got Mail Solution in fiscal 2001 and made a subsequent decision in fiscal 2003 to refocus our strategy on developing and
selling software applications for the 2way wireless data market. Accordingly, our business has changed substantially in recent years, making it difficult to make period-to-period comparisons of our operations, and we face all of the risks and
uncertainties encountered by early-stage companies. For the fiscal years ended September 30, 2005, 2004, 2003 and 2002, we incurred net losses of $557,452, $655,908, $1,100,475 and $1,741,752, respectively. We incurred net loss of $160,064 for
the six month period ended March 31, 2006 and as of March 31, 2006, we had an accumulated deficit of $23,657,676 and a working capital deficit of $891,942 We anticipate having negative cash flow from operating activities in future quarters
and years. We also expect to incur further operating losses in future quarters and years until such time, if ever, as there is a substantial increase in orders for our products and product sales generating sufficient revenue to fund our continuing
operations. There can be no assurance that sales of our products will ever generate significant revenue, that we will ever generate positive cash flow from our operations or that we will attain or thereafter sustain profitability in any future
period.

If we are unable to market our wireless software products and achieve industry acceptance quickly, we could lose existing and potential
customers and our sales would decrease

We continue to invest in our wireless products in order to grow our revenue and improve our
financial condition. We need to market our new wireless software products on a timely basis to keep pace with technological developments, emerging industry standards, and the growing needs of our sophisticated customers. We intend to extend our
product offerings primarily through our NotifyLink product line. However, we may experience difficulties in marketing these new products, and our inability to timely and cost-effectively introduce them and future enhancements, or the failure of
these new products or enhancements to achieve market acceptance, could seriously harm our business. Life cycles of wireless software products are difficult to predict, because the market for such products is new and evolving and characterized by
rapid technological change, frequent enhancements to existing products and new product introductions, changing customer needs and evolving industry standards. The introduction of competing products that employ new technologies and emerging industry
standards could render our products and services obsolete and unmarketable or shorten the life cycles of our products and services. The emergence of new industry standards might require us to redesign our products. If our products are not in
compliance with industry standards that become widespread, our customers and potential customers may not purchase our products.

If the market for
wireless data communications devices does not grow, we may not successfully sell our NotifyLink products

The overall market for
wireless data communications devices has experienced significant growth in recent years. The success of our NotifyLink Enterprise and Hosted products depends upon this growth. There can be no assurance that the market for wireless software products
will continue to grow, that firms within the industry will adopt our software products for integration with their wireless data communications solutions, or that we will be successful in independently establishing product markets for our wireless
software products. We cannot predict that growth of our NotifyLink products will continue or maintain itself at the current level. If the various markets in which our software products compete fail to grow, or grow more slowly than we currently
anticipate, or if we were unable to establish product markets for our new software products, our business, results of operation and financial condition would be materially adversely affected.

We may be unable to generate the capital necessary to support our planned level of research and development activities or to manufacture and market our products

At March 31, 2006, we had an accumulated deficit of $23,657,676 and incurred net loss of $160,064 for the six month period ended
March 31, 2006. We also had a working capital deficit at that date of 891,942 Our recently developed NotifyLink products will need to attain favorable market acceptance in order for us to be able to continue our research and development
activities and to fund operating expenses at current levels. Regardless, because our NotifyLink wireless product line has not provided sufficient contributions to our revenue to date to operate profitably without the contribution of our Visual Got
Mail Solution service



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revenue, the success of our business operations will depend upon a significant favorable market acceptance for our new wireless software products and our ability to obtain further financing. Obtaining additional
financing will be subject to a number of factors including market conditions, investor acceptance of our business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or
unavailable to us. If we are unable to raise additional financing, we will have to rely on our operations for cash flow or significantly reduce our spending, delay or cancel planned activities or substantially change our current corporate structure.
In such an event, we intend to implement expense reduction plans in a timely manner. However, these actions would have material adverse effects on our business, results of operations, and prospects, resulting in a possible failure of our business.

Our quarterly operating results may vary

We anticipate that we will experience significant fluctuations in our operating results in the future. Fluctuations in operating results may cause the price of our common stock to be volatile. Operating results may vary as a result of many
factors, including the following:



| |  |  | the reduced commitment of our long distance customer to the voice mail business underlying our voice mail notification business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | our level of research and development;
| | - |  | --------------------------------------



| |  |  | our sales and marketing activities;
| | - |  | -----------------------------------



| |  |  | announcements by us or our competitors;
| | - |  | ---------------------------------------



| |  |  | size and timing of orders from customers;
| | - |  | -----------------------------------------



| |  |  | new product introductions by us or our competitors;
| | - |  | ---------------------------------------------------



| |  |  | future market acceptance of our products;
| | - |  | -----------------------------------------



| |  |  | licensing costs of patent conflicts; and
| | - |  | ----------------------------------------



| |  |  | price erosion.
| | - |  | --------------

Each of the above factors is difficult to
control and forecast. Thus, they could have a material adverse effect on our business, financial condition and results of operations.

Notwithstanding the difficulty in forecasting future sales, we generally must undertake research and development and sales and marketing activities and other commitments months or years in advance. Accordingly, any shortfall in product
revenue in a given quarter may materially adversely affect our financial condition and results of operations because we are unable to adjust expenses during the quarter to match the level of product revenue, if any, for the quarter. Due to these and
other factors, we believe that quarter to quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance.

Our products may not be accepted

We announced the
launch of our new NotifyLink web based service and our NotifyLink Desktop products in November 2000. We released improved versions of the NotifyLink product throughout fiscal 2003 and 2004. The NotifyLink family, the Hosted product, was introduced
in November 2004. Our newest products, released in August 2005, expand our product offering to the IMAP market where few wireless email and PIM solutions are available. To date, we have received increasing but limited revenue from the sale of these
products. We do not believe our sales to date are sufficient to determine whether or not there are sufficient consumers or business demand for our products to bring us to profitability.

We intend to devote resources to sales and marketing efforts of the NotifyLink product line and to promote general consumer and business interest in our
products. There can be no assurance that such efforts will be successful or that significant market demand for our products will ever develop.

We
depend on a limited number of potential customers and need to develop marketing channels

We are building a formal referral channel and
participate in informal referral arrangements with



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several wireless carriers, 2way wireless device manufacturers and one net ware company for the sale of our NotifyLink products and services where our products assist in the sales of their products. We have a limited
direct sales force to sell our NotifyLink products and services to eventual users and we rely upon both formal and informal referral arrangements to provide leads for our NotifyLink products. To date, most of our referral arrangements are formal and
we will receive referrals only to the extent that our referral partners successfully refer our products and services to potential users. There can be no assurance that we will achieve a significant volume of sales of our NotifyLink products and
services to end users or that we will continue to receive referrals from our formal arrangements. Our Enterprise solution product is relatively new and we have not yet achieved sufficient growth in our sales to operate profitably without
contribution from our Visual Got Mail Solution, whose sales are expected to be limited to service revenue from a gradually declining installed base.

We are expanding our distribution channels for our wireless products by participating in national and regional trade shows, promotions with strategic partners, training programs for telephone and wireless carrier
sales representatives and presenting at Novell GroupWise user meetings across the United States. We cannot predict whether these activities will result in increased wireless revenue. We also have limited international sales due to limited resources
to build a reseller network. Our management will need to expend time and effort to develop these channels. Our customer profile has changed from volume sales to a limited number of large telecommunication customers to relatively small sales to a
large number of business customers. We have expanded our internal sales force in response. Because, historically, our marketing efforts have been largely focused on developing relationships for wireline products, our management has had only limited
experience in selling wireless with the new customer profile. We may not be able to adapt our traditional marketing and distribution programs to expand our distribution channels and any marketing efforts undertaken by or on behalf of us may not be
successful.

Our products may suffer from defects

Some of our products consist of software and services related to our wireless NotifyLink product line. Our NotifyLink products incorporate a mix of new and proven technology that has been tested extensively, but may
still contain undetected design flaws. A failure by us to detect and prevent a design flaw or a widespread product defect could materially adversely affect the sales of the affected product and our other products and materially adversely affect our
business, financial condition and operating results.

We have stopped production and development of our Visual Got Mail Solution product
and all products in the field are out of warranty so we have no exposure from unknown defects from this product line.

We face significant competition

We believe the market for our wireless products is highly competitive and that competition is likely to intensify. In the market for
wireless email notification and management software, we compete with Research In Motion Limited, Consilient Technologies Corp., Infowave Software, Inc, Wireless Knowledge, Synchrologic, Visto and Good Technology. Our Visual Got Mail Solution
indirectly competes with a single alternate Voice Mail notification service offered by local exchange carriers such as BellSouth, SBC Communications, and Verizon. Many of these companies have greater financial, technical and marketing resources than
we do. In addition, there are several companies with substantially greater technical, financial and marketing resources than we have that could produce competing products. These companies include wireless software providers such as Consilient
Technologies Corp., Infowave Software, Inc, Wireless Knowledge, Synchrologic, Visto and Good Technology. We expect that to the extent that the market for our products develops, competition will intensify and new competitors will enter the market. We
may not be able to compete successfully against existing and new competitors as the market for our products evolves and the level of competition increases. A failure to compete successfully against existing and new competitors would materially and
adversely affect our business, revenue, operating results, and financial condition.

Delisting from the Nasdaq SmallCap Market may affect the liquidity
of our trading market and the market price of our common stock

Since September 4, 2002, our common stock has been quoted on the
Over-the-Counter Bulletin Board. Our shareholders could find it difficult to dispose of or to obtain accurate quotations as to the market



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value of, our common stock. In addition, delisting may make our common stock ineligible for use as, or make our common stock substantially less attractive as, collateral for margin and purpose loans, for investment by
financial institutions under their internal policies or state legal investment laws, as consideration in the financing of future acquisitions of businesses or assets by us, and for issuance by us in future capital raising transactions any of which
could cause the market price of our common stock to decrease. Delisting subjects our common stock to the penny stock rules contained in Section 15(g) of the Securities Exchange Act of 1934.

We depend on key executives

Our potential for
success depends significantly on key management employees, including our Chairman, President and Chief Executive Officer, Paul F. DePond, our Vice President of Development, Rhonda Chicone-Shick, our Chief Financial Officer, Gerald W. Rice, our Vice
President of Business Development, Gordon S. Faulmann and our Director of International Sales, Elizabeth Dorman. We have entered into employment agreements with these five key management employees. The loss of their services or those of any of our
other key employees would materially adversely affect us. We also believe that our future success will depend in large part on our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. If we
were unable to hire the necessary personnel, the development of new products and enhancements to current products would likely be delayed or prevented. Competition for these highly-skilled employees is intense. Therefore, there can be no assurance
that we will be successful in retaining our key personnel and in attracting and retaining the personnel we require for expansion.

Our intellectual
property may not be adequately protected and we may infringe the rights of others

We regard various features and design aspects of our
products as proprietary and rely primarily on a combination of patent and trademark laws and employee and third-party nondisclosure agreements to protect our proprietary rights. We were issued a patent covering the design of our MessageAlert
products in 1995 that expires in 2010, a patent covering the MultiSense technology used in our MessageAlert product issued in 1996 that expires in 2016 and a patent on our Call Manager call waiting device in 1999 that expires in 2019. We intend to
continue to apply for patents, as appropriate, for our future technologies and products. There are few barriers to entry into the market for our products, and there can be no assurance that any patents we apply for will be granted or that the scope
of our patents or any patents granted in the future will be broad enough to protect us against the use of similar technologies by our competitors. There can be no assurance, therefore, that any of our competitors, some of whom have far greater
resources than we do, will not independently develop technologies that are substantially equivalent or superior to our technology.

In
November 2003, NCR Corporation and Notify Technology Corporation entered into a non-exclusive license agreement that allows us to offer certain product features on our enterprise product that are covered by a patent held by NCR. This agreement
requires a royalty payment calculated on all of our revenue of product we sell that uses the features covered by the patent.

On May 17, 2001,
Research In Motion Limited, the maker of the Blackberry® hand-held computer, announced that it had been issued a patent on its Blackberry single mailbox integration. Generally, the patent relates to Research In Motions proprietary system and method of redirecting
information between a host computer system and a mobile communications device while maintaining a common electronic address between the host system and the mobile device. Research In Motion also announced that it had filed a complaint against
Glenayre Technologies, Inc. for, among other items, patent and trademark infringement. Our intellectual property counsel has reviewed the patent and issued an opinion to us opining that version 4.0 of our Desktop software does not infringe on
Research In Motions patent.Nevertheless, no assurances can be given that Research In Motion will not bring an action against us for a patent infringement or similar claim, or if any such claim is brought, the eventual results thereof.
We may be involved from time to time in litigation to determine the enforceability, scope and validity of any of our proprietary rights or of third parties asserting infringement claims against us. These claims could result in substantial cost to us
and could divert our management and technical personnel away from their normal responsibilities.



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Our stock price may be volatile

The market price for our common stock may be affected by a number of
factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors results
of operations, changes in earnings estimates, developments in our industry, sales of substantial numbers of shares of our common stock in the public market, general market conditions and other factors, including factors unrelated to our operating
performance or the operating performance of our competitors. In addition, stock prices for many companies in the technology sector have experienced wide fluctuations that have often been unrelated to the operating performances of these companies.
These factors and fluctuations, as well as general economic, political and market conditions, such as recessions, may materially adversely affect the market price of our common stock.

Our charter provisions may discourage acquisition bids

Our Articles of Incorporation gives our board
of directors the authority to issue an aggregate of 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights for these shares, without any further vote or action by our
shareholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing
flexibility in connection with possible acquisition and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

Our articles of incorporation limit the liability of officers and directors and we have entered into indemnification agreements with them

Our Articles of Incorporation eliminate, in certain circumstances, the liability of our directors for monetary damages for breach of their fiduciary
duties as directors. We have also entered into indemnification agreements with each of our directors and officers. Each of these indemnification agreements provides that we will indemnify the indemnitee against expenses, including reasonable
attorneys fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by them in connection with any civil or criminal action or administrative proceeding arising out of their performance of duties as a
director or officer, other than an action instituted by the director or officer. These indemnification agreements also require that we indemnify the director or other party thereto in all cases to the fullest extent permitted by applicable law. Each
indemnification agreement permits the director or officer that is party thereto to bring suit to seek recovery of amounts due under the indemnification agreement and to recover the expenses of such a suit if they are successful.

Item 3. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Our chief executive officer and our chief financial officer, after evaluating our disclosure controls and procedures (as defined in the rules and
regulation of the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-QSB, have concluded that as of such date, our
disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

(b) Changes in Internal Controls.

During the period covered by this Quarterly Report on Form 10-QSB, there were no significant changes in our internal controls over financial reporting or
in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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PART II. OTHER INFORMATION

Item 5. Other Information

In accordance with Section 10A(i)(2) of the Securities Exchange Act of
1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are required to disclose the non-audit services approved by our audit committee to be performed by L.L. Bradford & Company, LLC (Bradford), our external
auditors. Non-audit services are defined as services other than those provided in connection with an audit or a review of the financial statements of a company. Our audit committee has approved the engagement of Bradford for non-audit services in
fiscal 2006, including tax related services.

Item 6. Exhibits



| | (a) | Exhibits:
| | --- | ---------

10.25* Patent Purchase Agreement dated
March 22, 2006, by and between Notify Technology Corporation and Sunshine Data Ventures LLC (incorporated herein by reference to Exhibit 10.25 to the Registrants Current Report on Form 8-K filed on March 24, 2006).

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002



---

|* | Confidential treatment has been requested with respect to portions of this exhibit.
|- | -----------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |                                             
|------------------- |  | --------------------------------------------
|                    |  | NOTIFY TECHNOLOGY CORPORATION               
|                    | 
|Dated: May 15, 2006 |  |                                             
|                    |  | /s/ Gerald W. Rice                          
|                    |  | Chief Financial Officer                     
|                    |  | (Principal Financial and Accounting Officer)



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