U. S.
Securities and Exchange Commission


Washington,
D.C.  20549




FORM
10-Q




(Mark One)






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




For the
quarterly period ended June 30, 2010




or




o
              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




NOTIFY
TECHNOLOGY CORPORATION


(Exact
name of registrant as specified in its charter)




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




1054
South De Anza Blvd., Suite202


San Jose,
CA  95129


(Address
of principal executive offices)




(408)
777-7920


(Registrant’s
telephone number including area code)




________________________________________________________________


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.




Yes
            x
            No
            o




Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files).




Yes
            o
            No
            o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.






Large accelerated
      filer   ̈
            Accelerated
      filer   ̈Non-accelerated
      filer   ̈
            Smaller reporting
      company  þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes
            o
            No
            x






As of
August 13, 2010, there were 14,090,106 shares of common stock
outstanding.









INDEX




PART
      I.  FINANCIAL INFORMATIONItem
      1.
            Condensed
      Financial Statements:Condensed
      Balance Sheets as of June 30, 2010 (unaudited) and September 30,
      2009
            
            
            3Condensed
      Statements of Operations for the three and nine-month periods ended June
      30, 2010 and 2009 (unaudited)
            
            
            4Condensed
      Statements of Cash Flows for the nine-month periods endedJune
      30, 2010 and 2009 (unaudited)
            
            
            5Notes
      to Condensed Financial Statements (unaudited)
            
            
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            
            9Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            
            14Item
      4(T).
            Controls
      and Procedures
            
            
            14PART
      II.  OTHER INFORMATIONItem
      1.
            Legal
      Proceeding
            
            
            15Item
      1A.
            Risk
      Factors
            
            
            15Item
      6.
            Exhibits
            
            
            20SIGNATURES
            
            
            
            21









PART
I.  FINANCIAL INFORMATION (unaudited)





Item
1. Financial Statements





NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
BALANCE SHEETS




June
      30,
            
            
            September
      30,2010
            
            
            2009(unaudited)
            
            
            
            (1)AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            2,623,905
            
            
            $
            1,565,447Accounts
      receivable, net
            
            
            401,740
            
            
            
            810,543Other
      current assets
            
            
            33,348
            
            
            
            40,540Total
      current assets
            
            
            3,058,993
            
            
            
            2,416,530Non-current
      assetsProperty
      and equipment, net
            
            
            278,185
            
            
            
            247,117Lease
      deposits
            
            
            15,602
            
            
            
            15,602Total
      non-current assets
            
            
            293,787
            
            
            
            262,719Total
      assets
            
            $
            3,352,780
            
            
            $
            2,679,249Liabilities
      and shareholders' deficitCurrent
      liabilities:Current
      portion of capital lease obligations
            
            $
            2,639
            
            
            $
            4,142Accounts
      payable
            
            
            27,905
            
            
            
            75,340Accrued
      payroll and related liabilities
            
            
            444,074
            
            
            
            454,946Deferred
      revenue
            
            
            3,267,831
            
            
            
            2,995,906Other
      accrued liabilities
            
            
            134,952
            
            
            
            140,464Total
      current liabilities
            
            
            3,877,401
            
            
            
            3,670,798Long
      term portion of deferred revenue
            
            
            118,835
            
            
            
            137,250Long
      term portion of capital lease obligations
            
            
            4,668
            
            
            
            6,543Total
      long term liabilities
            
            
            123,503
            
            
            
            143,793Total
      liabilities
            
            
            4,000,904
            
            
            
            3,814,591Shareholders'
      deficit:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized, no shares
      outstanding
            
            
            —
            
            
            
            —Common
      stock, $0.001 par value, 30,000,000 shares authorized, 14,090,106 and
      14,075,662 shares issued and outstanding on June 30, 2010 and September
      30, 2009, respectively
            
            
            14,090
            
            
            
            14,076Additional
      paid-in capital
            
            
            23,496,102
            
            
            
            23,442,160Accumulated
      deficit
            
            
            (24,158,316
            )
            
            
            (24,591,578
            )Total
      shareholders’ deficit
            
            
            (648,124
            )
            
            
            (1,135,342
            )Total
      liabilities
      and shareholders' deficit
            
            $
            3,352,780
            
            
            $
            2,679,249











See
accompanying notes to condensed financial statements









NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
STATEMENTS OF OPERATIONS




Three-Month
      PeriodsEnded
      June 30,
              
              
              Nine-month
      PeriodsEnded
      June 30,2010
              
              
              2009
              
              
              2010
              
              
              2009(unaudited)
              
              
              (unaudited)Revenue:Product
      revenue
              
              $
              1,837,377
              
              
              $
              1,593,805
              
              
              $
              5,367,871
              
              
              $
              4,366,636Total
      revenue
              
              
              1,837,377
              
              
              
              1,593,805
              
              
              
              5,367,871
              
              
              
              4,366,636Cost
      of revenue:Product
      cost
              
              
              12,348
              
              
              
              —
              
              
              
              27,131
              
              
              
              8,620Royalty
      payments
              
              
              1,707
              
              
              
              38,925
              
              
              
              5,103
              
              
              
              109,072Total
      cost of revenue
              
              
              14,055
              
              
              
              38,925
              
              
              
              32,234
              
              
              
              117,692Gross
      profit
              
              
              1,823,322
              
              
              
              1,554,880
              
              
              
              5,335,637
              
              
              
              4,248,944Operating
      expenses:Research
      and development
              
              
              605,502
              
              
              
              469,970
              
              
              
              1,579,872
              
              
              
              1,449,731Sales
      and marketing
              
              
              544,314
              
              
              
              567,522
              
              
              
              1,955,598
              
              
              
              1,708,292General
      and administrative
              
              
              462,153
              
              
              
              397,804
              
              
              
              1,369,737
              
              
              
              1,127,477Total
      operating expenses
              
              
              1,611,969
              
              
              
              1,435,296
              
              
              
              4,905,207
              
              
              
              4,285,500Income
      (loss) from operations
              
              
              211,353
              
              
              
              119,584
              
              
              
              430,430
              
              
              
              (36,556
              )Other
      income (expense), net
              
              
              1,153
              
              
              
              662
              
              
              
              2,832
              
              
              
              2,913Net
      income (loss)
              
              $
              212,506
              
              
              $
              120,246
              
              
              $
              433,262
              
              
              $
              (33,643
              )Basic
      net income (loss) per share
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.03
              
              
              $
              (0.00
              )Basic
      weighted average shares outstanding
              
              
              14,082,099
              
              
              
              14,075,662
              
              
              
              14,076,629
              
              
              
              14,075,662Diluted
      net income (loss) per share
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              0.03
              
              
              $
              (0.00
              )Diluted
      weighted average shares outstanding
              
              
              15,855,291
              
              
              
              14,849,281
              
              
              
              15,949,153
              
              
              
              14,075,662





See
accompanying notes to condensed financial statements









NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
STATEMENTS OF CASH FLOWS


Nine-month
      Periods
                    Ended
      June 30,2010
                  
                  
                  2009(Unaudited)Cash
      flows provided by operating activities:Net
      income (loss)
                  
                  $
                  433,262
                  
                  
                  $
                  (33,643
                  )Adjustments
      to reconcile net income (loss) to cash provided byoperating
      activities:Depreciation
      and amortization
                  
                  
                  90,757
                  
                  
                  
                  65,314SFAS
      123(R) expense
                  
                  
                  51,934
                  
                  
                  
                  37,470Changes
      in operating assets and activities:Accounts
      receivable
                  
                  
                  408,803
                  
                  
                  
                  (89,930
                  )Other
      current assets
                  
                  
                  7,192
                  
                  
                  
                  2,593Accounts
      payable
                  
                  
                  (47,435
                  )
                  
                  
                  9,841Deferred
      revenue
                  
                  
                  253,510
                  
                  
                  
                  546,230Other
      accrued liabilities
                  
                  
                  (16,384
                  )
                  
                  
                  (52,647
                  )Net
      cash provided by operating activities
                  
                  
                  1,181,639
                  
                  
                  
                  485,228Cash
      flows used in investing activities:Purchase
      of property and equipment
                  
                  
                  (121,825
                  )
                  
                  
                  (135,422
                  )Net
      cash used in investing activities
                  
                  
                  (121,825
                  )
                  
                  
                  (135,422
                  )Cash
      flows used in financing activities:Exercise
      of stock options
                  
                  
                  2,022
                  
                  
                  
                  --Principal
      payments on capital lease obligations
                  
                  
                  (3,378
                  )
                  
                  
                  (3,308
                  )Net
      cash used in financing activities
                  
                  
                  (1,356
                  )
                  
                  
                  (3,308
                  )Net
      increase in cash and cash equivalents
                  
                  
                  1,058,458
                  
                  
                  
                  346,498Cash
      and cash equivalents at beginning of period
                  
                  
                  1,565,447
                  
                  
                  
                  1,010,607Cash
      and cash equivalents at end of period
                  
                  $
                  2,623,905
                  
                  
                  $
                  1,357,105




Supplemental
      disclosure of cash informationCash
      paid for interest
              
              $
              417
              
              
              $
              636Cash
      paid for taxes
              
              $
              4,855
              
              
              $
              850




See
accompanying notes to condensed financial statements




NOTIFY
TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)





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 to Form 10-Q and Article 8 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.  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-K for the year ended September 30,
2009.





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





2. NET
INCOME (LOSS) PER SHARE





The net
income per share for the nine-month period ended June 30, 2010 was a gain of
$0.03 compared to a loss of $(0.00) for the same period in the prior
year.  Options to purchase 3,369,458 and 3,608,014 shares of common
stock were outstanding at June 30, 2010 and 2009, respectively. The outstanding
options were included in the computation of diluted net gain per share for the
nine-month period ended June 30, 2010 to fully dilute the earnings per share but
were not included in the computation of diluted net loss for the nine-month
period ended June 30, 2009 as the effect would be anti-dilutive.





3. FINANCING
ACTIVITIES




21X
Investments LLC is beneficially owned by David Brewer, a director and chairman
of the Audit Committee of the Company since February 2000.  As a
result of the May 29, 2007 transaction, Mr. Brewer acquired approximately 55%
beneficial ownership of the stock of the Company.






The
Company’s 2008 Equity Incentive Plan (“2008 Plan”) was established on December
17, 2008.  The Board authorized 2,317,000 shares of the Company’s
common stock to be reserved under the 2008 Plan.  Included in the
3,369,458 total outstanding options as of June 30, 2010 were 1,675,014 options
granted under the 2008 Plan to various employees.  These grants
included 169,470 options exchanged on December 17, 2008 for 900,000 options
granted under a prior option plan.




Cash
proceeds received from the exercise of stock options amounted to $2,022 in the
three and nine-month periods ended June 30, 2010. There were no option exercises
in the nine-month period ended June 30, 2009.





4. ACCOUNTING
FOR STOCK BASED COMPENSATION




The
Company accounts for all compensation related to stock, options or warrants
using a fair value based method whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. The Company uses the Black-Scholes
pricing model to calculate the fair value of options and warrants issued to both
employees and non-employees. Stock issued for compensation is valued using the
market price of the stock on the date of the related agreement.




The Company recognized stock based employee compensation
in the three and nine-month periods ended June 30, 2010 and recorded non-cash
expenses of $16,847 and $51,934 respectively.







NOTIFY
TECHNOLOGY CORPORATION
 Notes
to Condensed Financial Statements
 (Unaudited)





5. PRODUCT
WARRANTY




We
warrant our products to current paid-up customers and make available for
download service update releases that contain the most up-to-date version of our
products.  These software updates are continually maintained and
released when available.  As such, we do not maintain a separate
warranty reserve but expense the cost to create and post any maintenance release
as a part of normal operations.




6. RECENT
ACCOUNTING PRONOUNCEMENTS


On July
1, 2009, the Financial Accounting Standards Board (FASB) officially launched the
FASB Accounting Standards Codification (ASC) 105 -- Generally Accepted Accounting
Principles, which established the FASB Accounting Standards Codification
(“the Codification”), as the single official source of authoritative,
nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and
Exchange Commission.  The Codification is designed to simplify U.S.
GAAP into a single, topically ordered structure.  All guidance
contained in the Codification carries an equal level of
authority.  The Codification is effective for interim and annual
periods ending after September 15, 2009.  Accordingly, the Company
refers to the Codification in respect of the appropriate accounting standards
throughout this document as “FASB ASC”.  Implementation of the
Codification did not have any impact on the Company’s consolidated financial
statements.




In
February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and
amendments to certain recognition and disclosure requirements.  Under
this ASU, a public company that is a SEC filer, as defined, is not required to
disclose the date through which subsequent events have been
evaluated.  This ASU is effective upon the issuance of this
ASU.  The adoption of this ASU did not have a material impact on our
consolidated financial statements




In
December 2007, the FASB issued an update to FASB ASC 805, “Business
Combinations” which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree,
and the goodwill acquired. This update also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business
combination. This update is effective for the Company with respect to business
combinations for which the acquisition date is on or after January 1, 2009.
The Company adopted this update in the second quarter of 2009 without
significant financial impact.




In
December 2007, the FASB issued an update to FASB ASC 810, “Consolidation”, which
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, the amount of consolidated
net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810
also establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of noncontrolling owners.
This update is effective for the Company as of January 1, 2009. The Company
adopted this update in January 2009 without significant impact on the
consolidated financial position, results of operations, and
disclosures.




September
2009, the FASB issued Accounting Standards Update No. 2009-13 (ASU 2009-13),
Multiple-Deliverable Revenue Arrangements which updates ASC Topic 605-25,
Multiple Elements Arrangements (formerly EITF 00-21), of the FASB codification.
ASU 2009-13 provides new guidance on how to determine if an arrangement
involving multiple deliverables contains more than one unit of accounting, and
if so allows companies to allocate arrangement considerations in a manner more
consistent with the economics of the transaction. ASU 2009-13 is effective for
the Company, prospectively, for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010; early application
is permitted. The Company is currently evaluating the impact of adopting ASU
2009-13 on its financial statements.







NOTIFY
TECHNOLOGY CORPORATION
 Notes
to Condensed Financial Statements
 (Unaudited)


In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value
measurements.  This ASU requires additional disclosures regarding
significant transfers in and out of Levels 1 and 2 of fair value measurements,
including a description of the reasons for the transfers.  Further,
this ASU requires additional disclosures for the activity in Level 3 fair value
measurements, requiring presentation of information about purchases, sales,
issuances, and settlements in the reconciliation for fair value
measurements.  This ASU is effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal
years.  We are currently evaluating the impact of this ASU; however,
we do not expect the adoption of this ASU to have a material impact on our
consolidated financial statements.





7. ACCOUNTS
RECEIVABLE


There
were no significant concentrations in the outstanding balance of account
receivable as of June 30, 2010.




8. SUBSEQUENT
EVENTS




On July
1, 2010, Softvault Systems, Inc., or Softvault, filed a complaint against us
alleging patent infringement in the District Court for the Eastern District of
Texas, Marshall Division.  The case is entitled Softvault Systems,
Inc. v. Intel Corporation, Good Technology, Inc., Notify Technology Corporation
and Softex Incorporated, Civil Action No. 2:10-cv-219.  In the
complaint, Softvault asserts that our products infringe U.S. Patent Nos.
6,249,868 (“Method and System for Embedded, Automated, Component-level Control
of Computer Systems and Other Complex Systems”) and 6,594,765 (“Method and
System for Embedded, Automated, Component-level Control of Computer Systems and
Other Complex Systems”).  The complaint seeks unspecified monetary
damages, interest, costs, attorneys’ fees and other relief.  We have
not yet been served with the complaint.  While we believe we have
meritorious defenses against Softvault’s claim, due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome
of this matter.










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




FORWARD
LOOKING STATEMENTS




This
Quarterly Report on Form 10-Q 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.  These
forward-looking statements include, but are 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 our future financings;


·
            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; and


·
            statements
      regarding future plans to extend our product
  line.




These
statements 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 and
our Annual Report on Form 10-K for the fiscal year ended September 30,
2009.  We undertake no obligation to update any forward-looking
statements as a result of developments occurring after the date of this
Quarterly Report.  The following
discussion and analysis of our financial condition and results of operations
should be read together with our Consolidated FinancialStatements and related notes included
elsewherein this Quarterly Report on Form 10-Q.





OVERVIEW




We were
incorporated in the State of California in August 1994.  We are an
independent software vendor (“ISV”) focused on providing secure, wireless
synchronization of email and personal information management (“PIM”) (calendar,
contacts, and tasks information) across a variety of wireless devices and email
collaboration suites. Our products provide solutions to organizations and
businesses supporting Novell GroupWiseä, Microsoft Exchangeä, Google EnterpriseTM and a
variety of alternative email collaboration suites such as the Sun Java
Communications Suite, the Oracle Collaboration Suite, the Mirapoint Messaging
Suite, CommunigatePro, Scalix Enterprise Server, Kerio Messaging Suite, the
MDaemon Messaging Suite, FirstClass, and Meeting Maker.  We support a
variety of wireless device platforms on each of these suites including the
BlackBerry®, Apple® iPhone®, iPad®, iPod® touch, Palm, Windows Mobile®, and
Symbian.  Using our products, our customers can achieve secure
wireless mobile access using various handheld wireless devices to manage their
email, calendar appointments and address books on any of the email collaboration
suites we support.  Our products support wireless devices from a wide
range of manufacturers and network carriers around the world.




We
completed our initial public offering in September 1997, receiving net proceeds
of approximately $6.2 million. Prior to our initial public offering, our working
capital requirements were met through the sale of equity and debt securities in
private placements and, to a lesser extent, product revenue and a line of
credit. We have sustained significant operating losses in every fiscal period
since inception and expect to incur quarterly operating losses in the future.
Our limited operating history makes the prediction of future operating results
difficult if not impossible. Future operating results will depend on many
factors, including the demand for our products, the level of product and price
competition, and our ability to develop and market new products and control
costs. There can be no assurance that our revenues will grow or be sustained in
future periods or that we will ever achieve profitability.










RESULTS
OF OPERATIONS




Three-Month
Periods Ended June 30, 2010 and 2009




Revenue




Revenue
consists of net revenue from the sale of NotifyLink and NotifySync software
licenses, installation fees and the sale of third party software.  We
recognize the license portion at the point of sale for those sales where VSOE
has been established and the service portion ratably over the term of the
service contract. For those contracts where VSOE has not been established, the
revenue of the entire contract is recognized ratably over the term of the
contract.  Maintenance 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
to the customer.




Our
revenues increased 15% to $1,837,377 in the three-month period ended June 30,
2010 from $1,593,805 in the three-month period ended June 30,
2009.  The increase in revenue was attributed to growth in domestic
sales of our NotifyLink product line plus sales from our new NotifySync product
line.  We also believe that the current rapid growth in the Smartphone
market and the increasing number of devices available has had a favorable impact
on our business.  This rapid growth also creates challenges as we are
required to test and certify the many new devices as they are released by
manufacturers that can only be done through increased headcount.





Our
NotifyLink product is comprised of a backend server component and a wireless
device client component. We are a provider of secure real time wireless
synchronization of email, calendar, contacts and tasks, supporting 13 different
email platforms. In addition we support any BlackBerry®, Palm®, Windows Mobile,
and select Symbian wireless devices 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 mailboxes and all emails originated forwarded and replied to from the
mobile device will be synchronized with the user’s email mailbox.  The
synchronized information also keeps personal calendars, contacts, and task
information continually up to date at both the server and the mobile device
level.





Our
NotifySyncTM product gives BlackBerry® users secure, real-time, wireless
synchronization of Email and PIM with their ActiveSync Server. NotifySync
provides direct connect support to several email platforms namely Axigen Mail
Server, CommuniGate Pro Mail Server, Microsoft Exchange, Kerio Mail Server, and
the Zimbra Collaboration Suite. Organizations receive through NotifySync a
synchronization solution that offers them support on all popular cellular voice
and data networks as well as any 802.11x wireless network.





In the
last three months we have certified NotifyLink compatibility with a number of
Android phones and the new Apple iPhone 4.





We sell
our products primarily in the United States directly to business users and
resellers.  Certain domestic customers have deployed our product to
international sites, demonstrating NotifyLink’s ability to link our customers’
email across international boundaries. We also have limited direct sales
internationally and sell primarily through resellers.  We launched an
ecommerce site in January 2009 to provide our new NotifySync product to the
general market.




Cost
of revenue




Cost of
revenue consists of the hosting center costs to support the service portion of
our NotifyLink products and the cost of resale software related to NotifyLink.
Cost of revenue decreased to $14,055 in the three-month period ended June 30,
2010, from $38,925 for the three-month period ended June 30, 2009. The decrease
in the cost of revenue was due to the elimination of a royalty applied to
software sales because we fully paid up the royalty license in fiscal
2009.









Our gross
margin increased to 99.2% in the three month period ended June 30, 2010 compared
to a gross margin of 97.6% in the three-month period ended June 30,
2009.  The major cost component affecting gross margin had been a
royalty expense that no longer exists.  The other major costs of our
business, consisting of product design and sales/support, are categorized in
operating expenses and thus do not impact gross margin.





Research
and development





Research and development expenses
consist primarily of personnel costs and expenses. Research and development
expenses increased to $605,502 for the three-month period ended June 30, 2010
from $469,970 for the three-month period ended June 30, 2009.  The
increase is due to a significant increase in headcount in our testing department
to meet the demand to certify new devices.   We have also
reinforced our development staff to support porting our solution to new devices
and creating new products in the area of device management.




We
believe that our future success depends significantly on our ability to continue
to enhance our existing wireless products and to develop new products.
Therefore, we intend to continue to incur research and development costs for the
foreseeable future.





Sales
and marketing




Sales and
marketing expense consists primarily of personnel, travel costs and sales
commissions related to our sales and marketing efforts.  We use an
internal sales force and a customer support staff to facilitate the NotifyLink
sales process.  Sales and marketing costs decreased to $544,314 for
the three-month period ended June 30, 2010 from $567,522 for the three-month
period ended June 30, 2009.  The minor decrease in spending was due to
lower salary and commission expenses.




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, rent expense, professional fees and other general
corporate expenses.  General and administrative expenses increased to
$462,153 for the three-month period ended June 30, 2010 from $397,804 for the
three-month period ended June 30, 2009.  The increase is due to
compensation and option vesting expense.




Nine-month
Periods Ended June 30, 2010 and 2009




Revenue




Revenue
for the nine-month period ended June 30, 2010 increased 23% to $5,367,871 from
$4,366,636 for the nine-month period ended June 30, 2009.  A majority
of our revenue in both periods was derived from domestic
sources, centering largely on Novell
GroupWise environments and IMAP based email systems.  Sales of our
NotifySync product focused at the BlackBerry market also improved our revenues over the nine-month
period ended June 30, 2010.





Cost of revenue




Cost of
revenue consists of the cost of resale software related to NotifyLink and minor
royalty costs. Cost of revenue decreased to $32,234 in the nine-month period
ended June 30, 2010, from $117,692 for the nine-month period ended June 30,
2009. The major cost component affecting gross margin last year had been royalty
expense.  The decrease in the cost of revenue was due to the fact that
we fully paid up the royalty license in fiscal 2009.









Our gross
margin increased to 99.4% in the nine-month period ended June 30, 2010, compared to a gross margin of 97.3% in the
nine-month period ended June 30, 2009. The other
major costs of our business, consisting of product design and sales/support,
are categorized in operating expensesand thus do not impact gross
margin.





Research
and development





Research
and development expenses consist primarily of personnel costs and expenses.
Research and development expenses increased to $1,579,872 for the nine-month
period ended June 30, 2010, from
$1,449,731 for the nine-month period ended June 30, 2009.  The release
of numerous new smart phones into the market is driving the cost to keep our
product current and compatible with frequent new devices or operating system
releases. We are also committing more resources to developing new products for
the market.




We believe that our future success, if any, depends
significantly on ourability to continue to
enhance our existing wireless products and to develop new products. Therefore,
we intend to continue to incur research and development costs for the
foreseeable future





Sales
and marketing




Sales and
marketing expenses consist primarily of personnel, travel costs and sales
commissions related to our sales effort of the NotifyLink product line. We use
an internal sales force and a customer support staff to facilitate the
NotifyLink sales process.  Sales and
marketing costs increased to$1,955,598for thenine-monthperiod
endedJune 30,2010,from $1,708,292for thenine-monthperiod endedJune
30, 2009. The increase in sales expense is
due to additions to our sales staff and
commissions on sales activity. There is an inherent mismatch of commission expense to revenue because a majority of
our revenue is recognized over the life of the contract, whereas we record
commission expense in the month the contract is signed.




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 referral base and create new distribution channels.





General
and administrative





General
and administrative expenses consist of general management and finance personnel
costs, insurance expense, occupancy costs, professional fees, stock-based compensation expense and other general
corporate expenses.  General and administrative expenses increased to
$1,369,737 for the nine-month period ended June 30, 2010 from $1,127,477 for the
nine-month period ended June 30, 2009. The increase in expenses wasprimarilydueto increases in compensation
expense.  In addition, we
experienced increases in legal andnon-cash
option vesting.





We expect that general andadministrative expense may continue to increase in
future quarters as we adhere to the requirements mandated by the Sarbanes-Oxley
Act and integrate any additional requirements imposed by future
regulations.




LIQUIDITY
AND CAPITAL RESOURCES




In the
nine-month period ended June 30, 2010, we funded our operations through cash
provided by operations.  Our ability to fund our operations depends
upon the continued success of our NotifyLink and NotifySync wireless e-mail
notification market solutions.




A
significant characteristic of our business is the sale of our products
customarily in the form of annual contracts paid for upon signing with the
revenue amortized over the twelve-month service period.  The
unamortized contract revenue is reflected in the deferred revenue account on our
balance sheet.  As our installed base grows, this practice increases
the deferred revenue liability on the balance sheet provided we add new
contracts faster than old contracts expire.









The major
cost of operations is comprised of (1) the engineering design of our products
offered for sale and (2) the testing and certification of our Notify products on
new devices, (3) and a sales process that entails both a direct sales effort and
technical support hours to facilitate a trial period of our software prior to
purchase.  The increase in the NotifyLink deferred revenue to
$3,386,666 as of June 30, 2010 from $3,133,156 as of September 30, 2009,
combined with the increase in revenues in the nine-month period ended June 30,
2010, indicates that total product revenue continued to improve in the first
three quarters of 2010.  Deferred revenue also represents the
obligation to service the contracts underlying the revenue.  However,
the cash flow required to provide the service of contracts is significantly less
than the amortized revenue recognized each month.




Our
continued operations depend on the cash flow from sales of NotifyLink and
NotifySync.  In the event sales of our products decline or our revenue
is otherwise interrupted for a significant period of time, we would have to
reduce our operations to minimally service our existing contract obligations
unless we secured additional financing. If we were unable to increase our
revenues or secure financing, we would have to restructure our business to
reduce costs.




We also
continue to evaluate our opportunities to obtain financing to provide additional
funding for our operations.




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




The
Company’s 2008 Equity Incentive Plan (“2008 Plan”) was established on December
17, 2008.  The Board authorized 2,317,000 shares of the Company’s
common stock to be reserved under the 2008 Plan.  Included in the
3,355,014 total outstanding options as of June 30, 2010 were 1,675,014 options
granted under the 2008 Plan to various employees.  These grants
included 169,470 options exchanged on December 17, 2008 for 900,000 options
granted under a prior option plan.





At June
30, 2010, we had cash and cash equivalents of $2,623,905, compared to $1,357,105
at June 30, 2009.  Over the last several years, we have financed our
operations primarily through revenue from operations.  The net cash
generated by operating activities equaled $1,181,639 in the nine-month period
ended June 30, 2010, versus net cash generated by operating activities of
$485,228 in the nine-month period ended June 30, 2009. The cash generated by
operations in the nine-month period ended June 30, 2010 was a combination of net
income of $433,262 plus an decrease in accounts receivable of $408,803 and an
increase in deferred revenue of $253,510 offset by an decrease in accounts
payable of $47,435.  The cash generated by operations in the
nine-month period ended June 30, 2009 was primarily due toa combination of a net loss of
$33,643, an increase in accounts receivable of $89,930 and an increase in other accrued liabilities of
$52,647, offset by an increase in
deferred revenue of $546,230.  Although we have been cash positive in
the last two fiscal years, we anticipate that we may have negative cash flow
from time to time in operating activities in future periods.




Net cash
used by investing activities in the nine-month period ended June 30, 2010 was an
outflow of $121,825 for office furniture and computer
purchases.  There was a net cash outflow of $134,422 from the purchase
of fixed assets in the nine-month period ended June 30, 2009.




Net cash
used by financing activities was an outflow of $1,356 and an outflow of $3,308
for the nine-month periods ended June 30, 2010 and 2009,
respectively.  The new cash outflow for the nine-month period ended
June 30 2010 was $3,378 due to payments on capital leases offset by $2,022
received from the exercise of options.  The net cash outflow for the
nine-month period ended June 30, 2009 was due to payments on capital
leases.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make significant estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities. We evaluate
estimates, including those related to bad debts, inventories and income taxes,
on an ongoing basis. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.









We
believe the following critical accounting policies, among others, involve the
more significant judgments and estimates used in the preparation of our
financial statements:




We
recognize software license agreements when persuasive evidence of an agreement
exists, delivery of the product has occurred, the license fee is fixed or
determinable and collection is probable.  Our license agreements take
two basic forms.  The first form of agreement is essentially a
subscription agreement that is used in connection with our hosting arrangement
where we provide both the software combined with hosting services from a
hardened site.  The agreement generally has a fixed term and the
license revenue is recognized ratably over the term of each service
contract.  The second form of agreement involves the purchase of a
license and a service agreement based on the Vendor Supplied Objective Evidence
(“VSOE”) where only the service agreement is renewed each year.  We
recognize the license portion at the point of sale for those sales where VSOE
has been established and the service portion ratably over the term of the
service contract. For those contracts where VSOE has not been established, the
revenue of the entire contract is recognized ratably over the term of the
contract.  Our sales process provides for an optional
trial period prior to the agreement to purchase and no revenue is
recognized during that trial period.




We
recognize revenue when the title and risk of loss have passed to the customer,
there is persuasive evidence of an arrangement, delivery of the product has
occurred or services have been rendered, the sales price is fixed or
determinable and collection is probable. Installation, when required, is
commonly completed prior to an agreement to facilitate a trial of the
product.  Technical assistance is available during the sales process
and is unrelated to the service component portion of the final
arrangement.  Revenue related to installation is recognized when the
agreement is signed and the contract period has commenced.




The
Company accounts for all compensation related to stock, options or warrants
using a fair value based method whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. The Company uses the Black-Scholes
pricing model to calculate the fair value of options and warrants issued to both
employees and non-employees. Stock issued for compensation is valued using the
market price of the stock on the date of the related agreement.




We
maintain allowances for doubtful accounts for estimated bad debts. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances might be
required.




The
carrying value of our deferred tax assets is dependent upon our ability to
generate sufficient future taxable income in certain tax
jurisdictions.  Should we determine that we would not be able to
realize all or part of our deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to income in the period such
determination was made.  Currently, our deferred tax assets are fully
reserved.





OFF
BALANCE SHEET ARRANGEMENTS




We have
no off balance sheet arrangements as defined by Item 303(a)4 of Regulation
S-K.





Item
3. Quantitative
and Qualitative Disclosures About Market Risk.





We are a smaller reporting company as defined by Rule
12b-2 of theSecurities Exchange Act of
1934 (the "Exchange Act")and not required to provide the information required
underthis item.





Item
4T. 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 Exchange Act), as of the end of
the period covered by this Quarterly Report on Form 10-Q, 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-Q, 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.





PART
II.  OTHER INFORMATION




Item
1. Legal Proceedings.




On July
1, 2010, Softvault Systems, Inc., or Softvault, filed a complaint against us
alleging patent infringement in the District Court for the Eastern District of
Texas, Marshall Division.  The case is entitled Softvault Systems,
Inc. v. Intel Corporation, Good Technology, Inc., Notify Technology Corporation
and Softex Incorporated, Civil Action No. 2:10-cv-219.  In the
complaint, Softvault asserts that our products infringe U.S. Patent Nos.
6,249,868 (“Method and System for Embedded, Automated, Component-level Control
of Computer Systems and Other Complex Systems”) and 6,594,765 (“Method and
System for Embedded, Automated, Component-level Control of Computer Systems and
Other Complex Systems”).  The complaint seeks unspecified monetary
damages, interest, costs, attorneys’ fees and other relief.  We have
not yet been served with the complaint.  While we believe we have
meritorious defenses against Softvault’s claim, due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome
of this matter.




Item
1A. 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.





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 the sale of hardware products to the telephone market. We made the
decision in fiscal 2003 to refocus our strategy on developing and selling
software applications for the wireless 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 nine-month period
ended June 30, 2010, we had a net income of $433,262.  For the fiscal
year ended September 30, 2009, we had a net income of $70,685.  For
the fiscal years ended September 30, 2008, 2007 and 2006, we incurred net losses
of $287,680, $426,004, and $314,892, respectively. Although our cash flows from
operations were positive in the nine-month period ended June 30, 2010 and the
years ended September 30, 2009, 2008 and 2007, we are not assured that we can
maintain a positive cash flow from operating activities in future periods. There
can be no assurance that sales of our products will continue to generate or
maintain a positive cash flow or that we will attain or thereafter sustain
profitability in any future period.










We
may be unable to generate the cash necessary to support a competitive level of
research and development activities.




At June
30, 2010, we had an accumulated deficit of $24,158,316 and recorded a net income
for the nine-month period ended June 30, 2010 of $433,262. We also had a working
capital deficit at that date of $818,408.  Our NotifyLink and
NotifySync products will need to sustain a favorable market acceptance in order
for us to be able to continue our research and development activities and to
fund operating expenses at a level required to stay competitive in our
market.  Regardless, as our wireless product lines have only generated
sufficient contributions to our revenues to date to operate profitably at the
current level of research and development for the last fiscal year, an increase
in the level of research and development driven by market pressures could
require us 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, in a situation that required an increase in research and
development we are unable to maintain market acceptance of our wireless products
or raise additional financing, we will have to 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.




If
we are unable to develop market and sell new and improved wireless products on a
timely basis, we could lose existing and potential customers and our sales could
decrease.




We
continue to invest in our wireless software products in order to grow our
revenue and improve our financial condition.  We need to develop our
market and sell new and improved 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 may experience
difficulties in marketing and selling new products, and our inability to timely
and cost-effectively introduce new products 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
relatively 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.




Revenues
or expenses may vary, affecting our quarterly operating results.




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:




·
            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; 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 revenues
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 revenues, 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
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 copyright, trademark and trade secret laws and
employee and third-party nondisclosure agreements to protect our proprietary
rights.  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.





We
need to continue to develop our marketing channels and build our sales
force.




We
continue to develop our formal referral partner channel and our international
reseller partner channel.  We participate in informal referral
arrangements with several wireless carriers, wireless device manufacturers and
several of our collaboration partners for the sale of our NotifyLink and
NotifySync products and services where our products assist in the sale of their
products.  We have a limited direct sales force to sell our NotifyLink
and NotifySync products and services to organizations and businesses, and we
rely upon both formal and informal referral arrangements to provide leads for
our NotifyLink and NotifySync 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 continue to receive
referrals through our formal or informal arrangements.  Our NotifyLink
and NotifySync solutions are sold into an emerging market and although we have
operated on a cash positive basis in the fiscal years ending September 30, 2009,
2008 and 2007, we have only achieved sufficient growth in our sales to generate
net income in fiscal 2009 and in the nine-month period ended June 30,
2010.




We are
expanding our distribution channels for our wireless products by participating
in national and regional trade shows and promotions with strategic partners
across the United States and Europe.  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 consists of a large
number of small to medium business customers thereby reducing our dependence on
any one customer.  We have expanded our internal sales force in
response. We are building experience selling into the wireless market but make
use of modest 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.




Most 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
depend on key executives.




Our
potential for success depends significantly on key management employees,
including our Chairman, President and Chief Executive Officer, Mr. Paul F.
DePond, our Vice President of Development, Rhonda Chicone and our Chief
Financial Officer, Gerald W. Rice.  We have entered into amended and
restated employment agreements with these three key management
employees.  We do not currently have “key man” life insurance on any
of these executives or any of our other key employees.  The loss of
the services of these executives or those of any of our other key employees
would materially and 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 retain or 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 or in attracting and retaining the
personnel we require for expansion.










We
face significant competition.




We
believe the market for our wireless products is extremely competitive for
certain platforms, and less competitive for others.  Several companies
offer wireless email notification and management software for Microsoft Exchange
and Novell GroupWise.  Many of these companies have greater financial
and other resources than we do.  Microsoft and Novell offer similar
products at little to no charge that function in large parts of the enterprise
email market.  We sell our products in segments of the market where
the free products do not provide adequate functionality or sufficient product
features.  If these lower cost products were extended to our segment
of the market, we would face additional price pressure.  We may not be
able to compete successfully against better funded 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.




If
the market for wireless data communications devices does not grow, we may not
successfully increase or maintain the sale of our NotifyLink products.




The
overall market for wireless data communications devices has experienced
significant growth in recent years.  The success of our NotifyLink
Enterprise On-Premise and On-Demand products depends upon this
growth.  There can be no assurance that the market for wireless
software products will continue to grow.  We cannot predict that
growth of our NotifyLink products will continue. If the various markets in which
our software products compete fail to grow, or grow more slowly than we
currently anticipate, or if we are unable to establish product markets for our
new software products, our business, results of operation and financial
condition would be materially and adversely affected.




Risks
Related to Our Common Stock




If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers to
sell our securities and the ability of shareholders to sell their securities in
the secondary market.




Companies
trading on the OTC Bulletin Board, such as Notify Technology, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934 (“Exchange
Act”), and must be current in their reports under Section 13 of the Exchange
Act, in order to maintain price quotation privileges on the OTC Bulletin Board.
 If we fail to remain current on our reporting requirements, we could be
removed from the OTC Bulletin Board.  As a result, the liquidity of our
securities could be adversely affected by limiting the ability of broker-dealers
to sell our securities and the ability of shareholders to sell their securities
in the secondary market




Our
common stock is subject to the “penny stock” rules of the Securities and
Exchange Commission, and the trading market in our common stock is limited,
which makes transactions in our stock cumbersome and may reduce the investment
value of our stock.




Our
common stock is “penny stock” because it is not registered on a national
securities exchange or listed on an automated quotation system sponsored by a
registered national securities association, pursuant to Rule 3a51-1(a) under the
Exchange Act.  For any transaction involving a penny stock, unless exempt,
the rules require:




·
            That
      a broker or dealer approve a person’s account for transactions in penny
      stocks; and


·
            That
      the broker or dealer receives from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.




The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Securities and Exchange Commission
relating to the penny stock market, which, in highlight form:




·
            Sets
      forth the basis on which the broker or dealer made the suitability
      determination; and


·
            That
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.









Generally,
brokers may be less willing to execute transactions in securities subject to the
penny stock rules.  This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock.




Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.




The
market for penny stocks has suffered in recent years from patterns of fraud and
abuse.




Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse.
 Such patterns include:




·
            Control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or issuer;


·
            Manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;


·
            Boiler
      room practices involving high-pressure sales tactics and unrealistic price
      projections by inexperienced salespersons;


·
            Excessive
      and undisclosed bid-ask differential and markups by selling
      broker-dealers; and


·
            The
      wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, along with the
      resulting inevitable collapse of those prices and with consequential
      investor losses.




Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
 The occurrence of these patterns or practices could increase the
volatility of our share price.




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 give 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.









One
of our directors holds a large percentage of our stock and is able to exert
substantial control over us.




David A.
Brewer, a member of our Board of Directors and the Chairman of our Audit
Committee since 2000, together with an entity affiliated with Mr. Brewer,
currently own approximately 56% of our outstanding common stock.  In
addition, Mr. Brewer owns options to purchase an additional fractional percent
of our common stock.   This represents a significant influence
over all matters requiring approval by shareholders, including the election of
directors, amendments to our Articles of Incorporation and significant corporate
transactions, such as a merger or other sale of our company or its
assets.  This concentration of ownership will limit other
shareholders’ ability to influence corporate matters and may have the effect of
delaying or preventing a third party from acquiring control over
us.




Our
Articles of Incorporation limit the liability of directors and officers and we
have entered into indemnification agreements with them.





Our
Articles of Incorporation eliminate, in certain circumstances, the liability of
our directors and officers for monetary damages for breach of their fiduciary
duties as directors and officers.  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 such director or officer in connection with any civil or
criminal action or administrative proceeding arising out of his 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, officer 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.  We currently have
directors’ and officers’ liability insurance, but there can be no assurance that
any or all of our indemnification obligations will be covered by this insurance
or that the insurance limits will not be exceeded.





Item
6.  Exhibits




(a)
            Exhibits:




31.1*
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2*
              
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1‡
              
              Certification
      of Chief Executive Officer and Chief Financial Officer under Section 906
      of the Sarbanes-Oxley Act of
2002











‡- Furnished
herewith.









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 CORPORATIONDated: August
      13, 2010
              
              /s/
      Gerald W. RiceChief
      Financial Officer(Principal
      Financial and Accounting Officer)




EXHIBIT INDEX





Exhibit
              Number
            
            Description31.1*
            
            Certification of Chief Executive Officer
      pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2*
            
            Certification of Chief Financial Officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 200232.1‡
            
            Certification of Chief Executive Officer and Chief
      Financial Officer under Section 906
      of the Sarbanes-Oxley Act of
2002










‡- Furnished
herewith.