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UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-QSB



(Mark One)



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



| |  | For the quarterly period ended December 31, 2002
| |  | ------------------------------------------------



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)



|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 Registrant (1) has filed all reports required to be filed by Section 13 of 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 ̈



As of December 31, 2002 there were 5,783,678 shares of Common Stock outstanding.



Transitional Small Business Disclosure Format



Yes ̈No  x



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INDEX



|PART I.    FINANCIAL INFORMATION (unaudited)                        
|--------------------------------------------------------------------
|                                                                    
|Item 1.                                                             
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Item 2.                                                             
|                                                                    
|Item 3.                                                             
|                                                                    
|PART II.    OTHER INFORMATION                                       
|                                                                    
|Item 5.                                                             
|                                                                    
|Item 6.                                                             
|                                                                    
|SIGNATURES                                                          
|                                                                    
|CERTIFICATION UNDER SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002



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PART I.    FINANCIAL INFORMATION (unaudited)



Item 1.    Financial Statements



NOTIFY TECHNOLOGY CORPORATION



BALANCE SHEET



|                                           |  | December 31, 2002 |             |   | September 30, 2002 |  
|------------------------------------------ |  | ----------------- | ----------- | - | ------------------ | -
|                                           |  | (Unaudited)       |             |   | (1)                |  
|Assets                                     |  |                   |             |   |                    |  
|Current assets:                            |  |                   |             |   |                    |  
|Cash and cash equivalents                  |  | $                 | 216,150     |   |                    | $
|Restricted cash                            |  |                   | 500,000     |   |                    |  
|Accounts receivable                        |  |                   | 1,387,278   |   |                    |  
|Inventories                                |  |                   | 33,285      |   |                    |  
|Pre-paid inventory                         |  |                   | 292,750     |   |                    |  
|Other current assets                       |  |                   | 74,563      |   |                    |  
|                                           |  |                   |             |   |                    |  
|Total current assets                       |  |                   | 2,504,026   |   |                    |  
|                                          
|Property and equipment, net                |  |                   | 223,075     |   |                    |  
|                                           |  |                   |             |   |                    |  
|Total assets                               |  | $                 | 2,727,101   |   |                    | $
|                                           |  |                   |             |   |                    |  
|Liabilities and shareholders equity       |  |                   |             |   |                    |  
|Current liabilities:                       |  |                   |             |   |                    |  
|Accounts payable                           |  | $                 | 75,384      |   |                    | $
|Accrued payroll and related liabilities    |  |                   | 157,108     |   |                    |  
|Deferred revenue                           |  |                   | 375,165     |   |                    |  
|Short term borrowings                      |  |                   | 488,250     |   |                    |  
|Other accrued liabilities                  |  |                   | 236,031     |   |                    |  
|                                           |  |                   |             |   |                    |  
|Total current liabilities                  |  |                   | 1,331,938   |   |                    |  
|Shareholders equity:                      |  |                   |             |   |                    |  
|Preferred stock                            |  |                   | 1,004,520   |   |                    |  
|Common stock                               |  |                   | 5,784       |   |                    |  
|Additional paid-in capital                 |  |                   | 21,803,246  |   |                    |  
|Retained earnings                          |  |                   | (21,418,387 | ) |                    |  
|                                           |  |                   |             |   |                    |  
|Total shareholders equity                 |  |                   | 1,395,163   |   |                    |  
|                                           |  |                   |             |   |                    |  
|Total liabilities and shareholders equity |  | $                 | 2,727,101   |   |                    | $
|                                           |  |                   |             |   |                    |  

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|(1) |  | The information in this column was derived from our audited financial statements for the year ended September 30, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------





See accompanying notes to unaudited financial statements



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STATEMENTS OF OPERATIONS



|                                     |  | Three-Month Periods Ended December 31, |          
|------------------------------------ |  | -------------------------------------- | ---------
|                                     |  | 2002                                   |          
|                                     |  | (Unaudited)                            |          
|Revenue:                             |  |                                        |          
|Product sales                        |  | $                                      | 1,989,390
|Service revenue                      |  |                                        | 254,884  
|Royalty revenue                      |  |                                        | 18,200   
|                                     |  |                                        |          
|Total revenue                        |  |                                        | 2,262,474
|                                    
|Cost of Sales:                       |  |                                        |          
|Product cost                         |  |                                        | 1,511,289
|Service cost                         |  |                                        | 89,412   
|                                     |  |                                        |          
|Total cost of sales                  |  |                                        | 1,600,701
|                                     |  |                                        |          
|Gross profit                         |  |                                        | 661,773  
|                                    
|Operating expenses:                  |  |                                        |          
|Research and development             |  |                                        | 247,809  
|Sales and marketing                  |  |                                        | 110,553  
|General and administrative           |  |                                        | 364,378  
|                                     |  |                                        |          
|Total operating expenses             |  |                                        | 722,740  
|                                     |  |                                        |          
|Loss from operations                 |  |                                        | (60,967  
|Other (income) and expense, net      |  |                                        | 37,569   
|                                     |  |                                        |          
|Net loss                             |  | $                                      | (98,536  
|                                     |  |                                        |          
|Basic and diluted net loss per share |  | $                                      | (0.02    
|                                     |  |                                        |          
|Weighted average shares outstanding  |  |                                        | 4,549,808
|                                     |  |                                        |          





See accompanying notes to unaudited financial statements



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NOTIFY TECHNOLOGY CORPORATION



STATEMENTS OF CASH FLOWS



|                                                                        |  | Three-Month Periods Ended December 31, |           
|----------------------------------------------------------------------- |  | -------------------------------------- | ----------
|                                                                        |  | 2002                                   |           
|                                                                        |  | (Unaudited)                            |           
|Cash flows used in operating activities:                                |  |                                        |           
|Net loss                                                                |  | $                                      | (98,536   
|Adjustments to reconcile net loss to cash used in operating activities: |  |                                        |           
|Depreciation and amortization                                           |  |                                        | 24,461    
|Changes in operating assets and activities:                             |  |                                        |           
|Accounts receivable                                                     |  |                                        | (802,304  
|Inventories                                                             |  |                                        | 366,311   
|Pre-paid inventory                                                      |  |                                        | (292,750  
|Other current assets                                                    |  |                                        | 6,864     
|Accounts payable                                                        |  |                                        | (351,439  
|Deferred revenue                                                        |  |                                        | 6,494     
|Other accrued liabilities                                               |  |                                        | 78,503    
|                                                                        |  |                                        |           
|Net cash used in operating activities                                   |  |                                        | (1,062,396
|                                                                        |  |                                        |           
|Cash flows used in investing activities:                                |  |                                        |           
|Purchase of property & equipment                                        |  |                                        | (87,660   
|Decrease in restricted cash                                             |  |                                        | 351,300   
|                                                                        |  |                                        |           
|Net cash provided by (used in) investing activities                     |  |                                        | 263,640   
|                                                                        |  |                                        |           
|Cash flows provided by financing activities:                            |  |                                        |           
|Net proceeds from short term borrowings                                 |  |                                        | 488,250   
|Proceeds from issuance of common stock, net of issuance costs           |  |                                        |          
|                                                                        |  |                                        |           
|Net cash provided by (used in) financing activities                     |  |                                        | 488,250   
|                                                                        |  |                                        |           
|Net increase in cash and cash equivalents                               |  |                                        | (310,506  
|Cash and cash equivalents at beginning of period                        |  |                                        | 526,656   
|                                                                        |  |                                        |           
|Cash and cash equivalents at end of period                              |  | $                                      | 216,150   
|                                                                        |  |                                        |           
|Supplemental disclosure of cash flow information                        |  |                                        |           
|Cash paid for interest                                                  |  | $                                      | 14,786    
|                                                                        |  |                                        |           





See accompanying notes to unaudited financial statements





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NOTIFY TECHNOLOGY CORPORATION



NOTES TO
THE FINANCIAL STATEMENTS (Unaudited)



| | 1. |  | BASIS OF PRESENTATION
| | -- |  | ---------------------



The accompanying unaudited financial statements of Notify Technology Corporation (referred to as we, us and
our unless the context otherwise requires) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-B Item 310(b) and Article 10 of Regulation
S-X. The balance sheets as of December 31, 2002 and September 30, 2002, the statements of operations for the three-month periods ended December 31, 2002 and 2001 and the statements of cash flows for the three-month periods ended December 31, 2002
and 2001 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 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 generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying 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, 2002.



In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 addresses the timing and amount of costs recognized as a result of restructuring and similar activities. The company will apply SFAS No. 146 to activities initiated after December 31, 2002. The adoption of SFAS No. 146
is not expected to have a material impact on the companys consolidated statements of income or financial position.



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



| | 2. |  | GOING CONCERN
| | -- |  | -------------



Due to our present financial condition, our current stage of research and development of new product and our business plans, there is
substantial doubt as to our ability to continue as a going concern. To date, our NotifyLink product line does not provide significant contributions to our revenues and our Visual Got Mail Solution sales are highly concentrated in one customer. The
success of our business operations will depend upon our ability to obtain further financing until such time, if ever, as there is favorable market acceptance for our new wireless software products. It is not possible for us to predict with assurance
the outcome of these matters. If we are unable to obtain further financing and profitable operations from our new software wireless products, then our business will fail.



| | 3. |  | LIQUIDITY AND CAPITAL RESOURCES
| | -- |  | -------------------------------



During fiscal 2001, we financed our operations through a combination of existing cash balances, the sale of common stock, the sale of
preferred stock and the proceeds from the exercise of warrants and options. During fiscal 2002, we financed our operations through a combination of gross margin from sales of product and services and existing cash balances. Our ability to fund our
recurring losses from operations depends upon the success of our wireline Visual Got Mail Solution and the success in our wireless products designed for wireless e-mail notification and wireless e-mail notification market solutions, and/or raising
other sources of financing. Management entered into several additional arrangements during fiscal 2002 that it believed would produce increased revenue from our NotifyLink products but that increase has not yet materialized. We believe that our
existing cash balances are sufficient to fund our operations through at least June 30, 2003.* However, to fund our operations during the remainder of fiscal 2003 we will need to raise additional funds or adjust downward our level of spending.* There
is no assurance that we will be successful in acquiring or raising these additional funds or reducing expenses sufficiently.



| | 4. |  | NET LOSS PER SHARE
| | -- |  | ------------------



The weighted average number of common shares used in the net loss per share calculation was reduced by the 1,233,870 common shares placed
in escrow in connection with our initial public offering. Options to purchase 2,140,952 and 2,167,119 shares of common stock were outstanding at December 31, 2002 and 2001, respectively, but were not included in the computation of diluted net loss
per share as the effect would be anti-dilutive.



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NOTIFY TECHNOLOGY
CORPORATION





| | 5. |  | USE OF ESTIMATES
| | -- |  | ----------------



The preparation of financial statements in conformity with generally U.S. accepted accounting principles requires management to make
estimates and assumptions. These assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.



| | 6. |  | INVENTORIES
| | -- |  | -----------



We primarily purchase inventory ready for sale from a turnkey manufacturer and operate no manufacturing facilities ourselves.
Consequently, inventories consisted of finished goods, which are stated at lower of cost (first-in, first-out) or market.



|               |  | December 31, 2002 |  | September 30, 2002
|-------------- |  | ----------------- |  | ------------------
|Finished Goods |  | 33,285            |  | 399,596           



| | 7. |  | COMMITMENTS
| | -- |  | -----------



We currently occupy two facilities under operating leases. The lease on our San Jose, California facility expires in March 2003. The
future minimum payments for the remainder of the lease are $53,042. The lease on our Canfield, Ohio facility expires in October 2006. Future minimum payments under this lease for the remainder of the year ending September 30, 2003 and for each of
the following three years ending September 30 are $53,540 and $71,387 per annum, respectively.



At December 31, 2002, we had $500,000 of outstanding letters of credit to our suppliers related to a commitment to purchase additional inventory. The letters of credit are secured by a money market
account of $500,000, which is recorded as restricted cash.



| | 8. |  | INCOME TAXES
| | -- |  | ------------



Due to our loss position, there was no provision for income taxes for the three-month periods ended December 31, 2002 and 2001.



|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, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. In addition, we may from time to time make oral forward-looking statements. These statements
may generally be identified by the use of such words as expect, anticipate, believe, intend, plan, will, or shall, and include, but are not necessarily limited to,
all of the statements marked below with an asterisk (*). These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including those set forth below under Risk Factors. When reading the sections titled Results of Operations and Financial Condition, you should
also read our unaudited condensed consolidated financial statements and related notes included elsewhere herein, our annual report on Form 10-KSB for the year ended September 30, 2002, 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.



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NOTIFY TECHNOLOGY
CORPORATION





RESULTS OF OPERATIONS



Three-Month Periods Ended December 31, 2002 and 2001



Revenue



Revenue
consists primarily of net revenue from the sale of telephony equipment, service revenue related to the Visual Got Mail Solution and the Centrex Receptionist and royalty revenue. We recognize revenue on sales of telephony products when the product is
delivered, title has transferred, and no obligations remain. Service income is recognized on a straight-line basis over the period of the service agreement. Revenue from royalty agreements is recognized on receipt of payment.



Revenue for the three-month period ended December 31, 2002
increased to $2,262,474 from $232,945 for the three-month period ended December 31, 2001. Revenue increased from the previous year primarily due to the combined CPE, fulfillment and service revenue totaling $2,153,812 from our Visual Got Mail
Solution product introduced in April 2002. The Visual Got Mail Solution allows competitive providers of local telephone service to offer voice mail, including message notification, to local telephone customers without relying on a stutter dial tone
or FSK signaling provided by the incumbent telephone company. The Visual Got Mail Solution consists of a hardware product, based on our Call Manager product, that provides a visual indication that a telephone customer has received a voice message
and a subscription service, operated by us, which links the hardware product to the competitive providers voice mail platform. We sell the hardware product and related fulfillment services to the provider and also receive from the provider a
monthly fee for each active user for providing the subscription service. For the three-month period ending December 31, 2002, revenue from our Visual Got Mail Solution was $2,153,812. In comparison, during the three-month period ending December 31,
2001, we sold no Call Manager product in its original configuration. Revenue for the three-month period ended December 31, 2002 includes royalty revenue of $18,200 from our multi-sense/stutter-dial patent compared to $63,880 for the three-month
period ended December 31, 2001. The level of royalty revenue varies from period to period based on the level of third party activity. This level of activity has declined in the last twelve months and has been reflected in decreasing royalty
revenues. There is no assurance that our multi-sense/stutter-dial technology will continue to be used so that we may continue to collect royalty income. Revenue from our NotifyLink products and service was $12,129 for the period ended December 31,
2002 compared to $18,660 for the period ended December 31, 2001. The Centrex Receptionist product line generated $77,000 and $127,000 of revenue in the three-month period ended December 31, 2002 and 2001, respectively. Revenue from the Centrex
Receptionist is lower than we experienced in past years and there can be no assurance that we will not experience an additional decline in revenue from our Centrex Receptionist product in the future.



We sell our products in the United States primarily to 2way
wireless carriers, long distance telephone carriers, regional bell operating companies and local exchange carriers. The Visual Got Mail Solution, Centrex Receptionist, and royalty revenue accounted for 95%, 2% and 1%, respectively, of total revenue
in the three-month period ended December 31, 2002. Revenue from our Centrex Receptionist, and royalty revenue accounted for 55%, and 27%, respectively of total revenues in the three-month period ended December 31, 2001. Sales to telephone
companies were 97% and 59% of total revenue for the three-month periods ended December 31, 2002 and 2001, respectively. Significant portions of our revenue are concentrated in a small number of customers although not necessarily the same customers
each period. One customer accounted for 95% of total sales in the three-month period ended December 31, 2002. Three other customers accounted for 50%, 27% and 9% of the total sales in the three month period ended December 31, 2001.



Our new wireless NotifyLink products have not sold as
anticipated and only accounted for $18,660 in revenue during the three-month period ending December 31, 2002. Consequently, we are re-evaluating the level of investment in the wireless NotifyLink product line. Of the $2,153,812 of revenue generated
from our Visual Got Mail Solution, monthly service fees from the Visual Got Mail Solution end user accounts that were active during the quarter represented $216,667. This monthly service fee is an ongoing revenue stream as long as each end user is
an active Voice Mail customer. The Visual Got Mail Solution utilizes a modified



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version of our traditional Call Manager device. Although the Visual Got Mail Solution is shipping in significant volume, and, as of December
31, 2002, we had a backlog of $2,100,000, we expect minimal sales of our traditional Call Manager in the future. Since our NotifyLink products have been slow to sell despite apparent interest, and the Visual Got Mail Solution is being sold to a
single customer, we anticipate that we will continue to experience substantial variances in quarterly revenue.



At December 31, 2002, $119,000 of the deferred revenue is related to the Customer Premise Equipment (CPE) portion of the Visual Got Mail
Solution where title has transferred to our customer but the CPE has not been delivered. The combined revenue of the CPE and fulfillment is recognized as delivery occurs. Another $158,000 of deferred income is related to Centrex Receptionist
products that have been delivered and are pending installation and configuration, at which time title transfers to the customer and revenue is recognized. $51,000 of the deferred revenue is related to Centrex Receptionist service contracts that are
being recognized over the period of each service agreement. The remaining $47,000 is related to software sales where revenue is recognized over the period of customer service obligation.



Cost of Sales



Cost of sales consists primarily of the cost to manufacture our products and the postal costs associated with our fulfillment service.
Cost of sales increased to $1,600,701 in the three-month period ended December 31, 2002 from $33,192 for the three-month period ended December 31, 2001. This increase was the result of sales of the Visual Got Mail Solution during the three-month
period ended December 31, 2002, whereas this product was not yet introduced in the three-month period ended December 31, 2001.



Our gross margin decreased to 29.2% in the three-month period ended December 31, 2002 compared to a gross margin of 85.8% in the
three-month period ended December 31, 2001. The decrease occurred because the period ended December 31, 2001 contained unusually high royalty revenue from our stutter-dial patent and a concentration of higher margin Centrex Receptionist sales. Our
Visual Got Mail Solution, which was not sold during the period ended December 31, 2001, is sold at volume pricing and is, consequently, a lower margin product.



Our gross margin can generally be affected by a number of factors, including product mix, product demand, pricing pressures, inventory
write downs, warranty costs, and timing and amount of royalty revenue receipts. Considering these factors, our gross margin has and will continue to fluctuate significantly 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, tooling expense and support expenses. Research and development expenses decreased to $247,809 for the three-month period ended December 31, 2002 from $293,110 for the three-month period ended December 31, 2001. This decrease
reflects the decrease in our Ohio Staff that supports our efforts to develop our NotifyLink products to service other networks and devices. Although we have reduced our spending in this area and intend to re-evaluate our level of investment from
time-to-time, we expect to continue investing in this area of research and development. There can be no assurance that the market will accept these products.



Sales and marketing



Sales and marketing expense consists primarily of personnel, consulting, travel costs and sales commissions related to our sales and
marketing efforts. Sales and marketing costs decreased to $110,553 for the three-month period ended December 31, 2002 from $144,804 for the three-month period ended December 31, 2001. This decrease is primarily the result of personnel reductions. We
continue to support our NotifyLink product sales effort using a limited internal sales force and our Visual Got Mail Solution relationship is maintained by our executive level staff.



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.



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NOTIFY TECHNOLOGY
CORPORATION





General and administrative



General and administrative expense consists of general management and finance personnel costs, occupancy costs, professional fees and other general corporate expenses. General and administrative
expenses decreased to $364,378 for the three-month period ended December 31, 2002 from $383,654 for the three-month period ended December 31, 2001.



We expect that general and administrative expense may increase in future quarters as the requirements of being a public company conforming
to the Sarbanes-Oxley Act unfold.



LIQUIDITY AND CAPITAL
RESOURCES



During fiscal 2002 and the
three-month period ending December 31, 2002, we financed our operations through a combination of gross margin from sales of product and services and existing cash balances. Our ability to fund our recurring losses from operations depends upon the
continuation of the current Visual Got Mail Solution program, our success in the wireless e-mail notification and wireless e-mail notification market solutions, and/or raising other sources of financing. We had a backlog of 151,000 Visual Got Mail
Solution units as of December 31, 2002 that we expect to fulfill in fiscal 2003.* We do not believe that our existing cash balances are sufficient to fund our operations through September 30, 2003 and, therefore, we believe that we will have to
secure additional financing or restructure our business in order to reduce costs. In October 2002, we entered into a credit facility arrangement of $750,000 that will allow us to continue to purchase our Visual Got Mail Solution inventory, but is
not intended to fund operations through September 30, 2003. In the three-month period ending December 31, 2002, we borrowed $651,000 on this credit facility and used these funds in addition to our own funds to purchase products from our overseas
manufacturer. Of the amount borrowed, $488,250 was outstanding on December 31, 2002.



At December 31, 2002, we had cash and cash equivalents and restricted cash of $716,150. Of this amount, $500,000 is recorded as restricted cash, which is securing outstanding letters of credit to our
suppliers issued in connection with commitments to purchase additional inventory of $1,078,000.



Over the last three years, we have financed our operations primarily through sales of equity and debt securities and bank lines of credit. In the three-month periods ended December 31, 2002 and 2001,
the net cash used in operating activities equaled $1,062,396 and $609,332, respectively. The net cash used in operations in the three-month period ended December 31, 2002 contained a net loss of $98,536. The major causes of the decrease in net
operating assets was an increase in accounts receivable of $802,304 due to stronger sales in the first quarter of fiscal 2003 than the first quarter of fiscal 2002, a decrease of $366,310 in inventory due to the timing of shipments of inventory for
the Visual Got Mail Solution program, an increase in pre-paid inventory of $292,750, offset by an decrease in accounts payable of $351,439. We anticipate that we will have a negative cash flow from operating activities in future quarters and years.



Net cash used in investing activities changed
from an outflow of $20,749 in the three-month period ended December 31, 2001 to an inflow of $263,640 in the three-month period ended December 31, 2002 due to a decrease in restricted cash offset by increased expenditures for property and equipment
from $27,119 in fiscal 2001 to $87,660 in fiscal 2002 to purchase equipment to install and expand computer server systems to support the Visual Got Mail Solution.



Cash from financing activities increased by the use of $488,250 of short term borrowings to purchase
inventory for the Visual Got Mail Solution program. This is a new line item this fiscal quarter as we borrowed against our $750,000 line of credit negotiated in late fiscal 2002. We can use the line of credit for inventory purchases only and the
short term loans are a combination of purchase order financing and accounts receivable financing. The cost of the short term loans is in the form of a fee per purchase and interest once funds are actually disbursed to pay for the inventory. The
short term loans are secured by the inventory purchased and certain of the Companys assets.



We currently occupy two facilities under operating leases. The lease on our San Jose, California facility expires in March 2003. The
future minimum payments under this lease for the remainder of the lease are $53,042. The lease on our Canfield, Ohio facility expires in October 2006. Future minimum payments under this lease for the remainder of the year ending September 30, 2003
and for each of the following three years ending September 30 are $53,540 and $71,387 per annum, respectively.



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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.



Most of our Revenue is Derived from the Sale of a Single Solution to a Single Customer



Revenue from our Visual Got Mail Solution accounted for 83% and 95% of the fiscal year ending September 30, 2002 and the three-month
period ended December 31, 2002, respectively. Also, the sale of our Visual Got Mail Solution was to a single long distance telephone company providing local telephone services. All the sales to this customer in the fiscal year 2002 occurred in the
last six months of the year. As we do not anticipate sales from our other products to increase significantly in the near term, including our Centrex Receptionist product and NotifyLink services, we expect our revenue for at least the next two
quarters and possibly longer will be largely dependent on our ability to continue selling to our long distance telephone customer. Although as of December 31, 2002, we had a backlog of approximately $2,100,000 in orders from this customer, there can
be no assurance that we will receive additional orders from this customer. In addition, a significant portion of the revenue and a disproportionate amount of the operating profit related to the Visual Got Mail Solution is derived from our provision
of fulfillment services and subscription services. If, for whatever reason, this customer were not able to sell its services to its customers at the rate implied by its level of orders with us, our revenue, operating profit and financial condition
would be materially adversely affected. In addition, this customer could at any time decide to decrease its sales efforts with respect to local telephone service, cease to promote or provide voice mail services or use an alternative to our Visual
Got Mail Solution. 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.



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



We are currently researching and developing new products and enhancements to existing products. Due to our
present financial condition and our business plans, there is substantial doubt as to our ability to continue as a going concern. To date, our NotifyLink product line does not provide significant contributions to our revenues and our Visual Got Mail
Solution sales are highly concentrated in one customer. The success of our business operations will depend upon our ability to obtain further financing or restructure our business until such time, if ever, as there is favorable market acceptance for
our new wireless software products. It is not possible for us to predict with assurance the outcome of these matters. If we are unable to obtain further financing and profitable operations from our new software wireless products, or re-structure our
business then our business will fail.



We Have a Limited
Operating History and a History of Losses, Moreover, 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 made a decision in
January 2000 to develop and sell software applications for the 2way wireless data market. Accordingly, we have a limited operating history, and we face all of the risks and uncertainties encountered by early-stage companies. For the fiscal years
ended September 30, 2001, 2000, 1999, and 1998, we incurred net losses of $3,337,612, $3,526,452, $3,123,284 and $2,617,561 respectively. We incurred a net loss of $1,741,752 for fiscal 2002 and a net loss of $98,536 for the three-month period ended
December 31, 2002. As of December 31, 2002, we had an accumulated deficit of $21,418,386 and working capital of $1,172,088. We anticipate having a 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.



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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 Internet Edition and Standard Edition 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. In fact, our sales and marketing efforts over
the last year have not resulted in significant sales of our NotifyLink products. In addition, if a number of ReFlexcarriers should go out of business, we would have more difficulty selling our NotifyLink products to the fewer remaining ReFlexcarriers. 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.



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, Units and Class A warrants to be volatile. Operating results may vary as a result of many factors, including the following:



| |  |  | the continued 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; 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 Products May Not Be Accepted



We sold our first Centrex Receptionist in March 1998, the
first Call Manager product in April 1999, and announced the first sales of our e-mail version of our Visual Got Mail products in November 1999. We also announced the launch of our new NotifyLink web based service and our NotifyLink Desktop products
in November 2000 followed by the introduction of our voice mail version of our Visual Got Mail Solution in April 2002. To date, we have received only limited revenue from the sale of these products. While we have experienced some success with our
Visual Got Mail Solution in 2002 and in the three-month period ended December 31, 2002, we are limited by having one customer. We also believe that our wireless products are commercially viable, but developing products for the consumer and business
marketplaces is inherently difficult and uncertain. We do not believe our sales to date are sufficient to determine whether or not there is meaningful consumer or business demand for our products.



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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 Limited Number of Potential Customers and Need to Develop Marketing Channels



Currently, our Voice Mail notification CPE and service revenue is highly dependant on one customer. Also, we have entered into agreements
with three wireless carriers and one 2way wireless device manufacturer for the sale of our NotifyLink products and services. We have a minimal direct sales force to sell our NotifyLink products and services to eventual users and we rely almost
entirely upon our four customers to resell our NotifyLink products and services to users. To date, we have received only limited revenue from our four NotifyLink customers, and we will receive revenue from these customers only to the extent that
they successfully resell our products and services to users. The success of our NotifyLink Internet Edition web based product will be dependent on our ability to sell it to, or in conjunction with, the seven largest 2way wireless carriers. Our
NotifyLink desktop software will be largely dependent on establishing a relationship with large 2way wireless device manufacturers. There can be no assurance that we will ever sell our NotifyLink products and services to additional 2way wireless
carriers or 2way wireless device manufacturers or that we will ever receive any revenue from our existing customers. Our Enterprise solution product is just being introduced and no significant sales have yet been established.



Although we have sold significant quantities of our Call
Manager as part of our Visual Got Mail Solution, we are highly dependant on one customer. We believe that we can sell only limited quantities of our traditional Call Manager and Centrex Receptionist products in the future. To date, we have sold our
wireline products to one long distance telephone company, five Regional Bell Operating Companies, or RBOCs, and twelve Local Exchange Carriers, or LECs. We have experienced a significantly reduced market for our caller-id Call Manager products. Our
Centrex Receptionist product is selling at a reduced level and we do not anticipate a significant increase in Centrex Receptionist sales in future quarters. If we fail to maintain a significant relationship with our current customer, our business
and operating results would be materially adversely affected.



We also intend to develop other distribution channels for our products by including certain wireless device manufacturers and national wireless carriers. Our management will need to expend time and effort to develop these channels.
Because our marketing efforts have been largely focused on developing relationships with RBOCs and LECs, our management has had only limited experience in selling our products through these channels. We may not be able to implement this marketing
and distribution program 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 will consist of software and service 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. Many of our products incorporate a combination of reasonably sophisticated computer chip design, electric
circuit design, software programming and telephony technology. We have devoted substantial resources to researching and developing each of these elements. In order to reduce the manufacturing costs, expand the feature sets and otherwise enhance the
operation of our products, we have from time to time redesigned our products. We expect that in the future we will engage in similar redesigns of our products. In addition, we are in the process of developing new, similarly complex products. Though
we extensively test our products before marketing them, any new, redesigned or current product may contain design flaws that we would not detect through our testing procedures. In addition, we rely on subcontractors to manufacture our products.
Though we have quality control procedures designed to detect manufacturing errors, there can be no assurance that we will identify all defective products. We believe that reliable operation will be an important purchase consideration for both our
consumer and business customers. 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.



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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



Although most of our current revenue comes from our wireline
Visual Got Mail Solution, our wireless products play a significant role in our plans for future growth. 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 the offerings under our product family 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.



Delisting from the Nasdaq SmallCap Market May Affect the Liquidity of Our
Trading Market and the Market Price of Our Common Stock



Our common stock is now quoted on the Over-the-Counter Bulletin Board. Our shareholders could find it difficult to dispose of, or to obtain accurate quotations of, or to obtain accurate quotations as to the market 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 Face Significant Competition



We believe the market for our products is highly competitive and that competition is likely to intensify. In the market for wireless
e-mail notification and management software, we indirectly compete with Research In Motion Limited and Infowave Software, Inc, Wireless Knowledge, Extended Systems, Synchrologic, Visto and Good Technology. Our Visual Got Mail Solution indirectly
competes with a single alternate voice mail notification service offered only by Local Exchange Carriers. Our Centrex Auto Attendant products compete with PC based auto attendant and voice mail systems. These companies include telephone equipment
manufacturers such as Nortel, Inc. and Lucent Technologies, Inc.



Some 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 telephone equipment manufacturers such as Nortel, Inc. and Lucent Technologies, Inc. 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 adversely affect our business and results of operations.



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 Operations, Gaylan Larson and our Chief Financial
Officer, Gerald W. Rice. We have entered into employment agreements with these three 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



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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 have been issued a patent covering the design of our MessageAlert products, and a patent covering the MultiSense technology used in our MessageAlert product. We have also applied for patents on our Visual Got Mail technology. 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.



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.



We May Not Be Able to Obtain Critical Components from Our Suppliers



Currently, we are able to obtain many key
components used in our products only from single or limited sources. We do not have long term supply contracts with these or any other component vendors and purchase all of our components on a purchase order basis. Component shortages may occur and
we may not be able to obtain the components we need in a timely manner and on a commercially reasonable basis. In particular, the microcontroller that forms the core of our Call Manager that is a key component in our Visual Got Mail Solution is
manufactured only by Epson Electronics America, Inc. From time to time, the semiconductor industry has experienced extreme supply constraints. If we were unable to obtain sufficient quantities of microcontrollers from Epson Electronics America,
Inc., our business and operating results would be materially adversely affected.



We utilize an offshore manufacturer to manufacture our products and this manufacturer may not be able to support our manufacturing requirements. If we are unable to obtain sufficient quantities of
sole-source components or subassemblies, or to develop alternate sources, we could experience delays or reductions in product shipments or be forced to redesign our products. Each of these scenarios could materially adversely affect our business and
operating results.



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Our Products May Not Comply with Government Regulations and Industry Standards



Our products must comply with a variety of regulations and standards. These include regulations and standards set by the Federal
Communications Commission, Underwriters Laboratories, National Registered Testing Laboratories, and Bell Communications Research. As our business expands into international markets, we will be required to comply with whatever governmental
regulations and industry standards exist in those markets. In addition, the U.S. telecommunications market is evolving rapidly in part due to recently enacted laws revamping the telecommunications regulatory structure. Additional legislative or
regulatory changes are possible. If we fail to comply with existing regulations and standards or to adapt to new regulations and standards, our business and operating results could be materially adversely affected.



Sales of Outstanding Shares May Hurt Our Stock Price



The market price for our common stock could fall
substantially if our shareholders sell large amounts of our common stock. Potential future sales of our common stock include the following:



| |  |  | 1,233,870 shares of our common stock that are outstanding which were placed in an escrow in connection with our initial public offering.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have registered for resale 7,782,820 shares of common stock that underlie our outstanding Series A preferred stock and warrants will be registered for resale in
the public market.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | David Brewer holds 1,161,600 shares of common stock and warrants to purchase 721,244 shares of common stock that we have agreed to register for resale.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various investors hold 543,228 shares of common stock and warrants to purchase 257,647 shares of common stock that we have agreed to register for resale.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



Sales or the Possibility of Sales of Our Common
Stock in the Public Market May Adversely Affect the Market Price of Our Securities. Options and Warrants May Dilute Current Shareholders



The following options and warrants to purchase our common stock are outstanding:



| |  |  | 1,600,000 Class A warrants to purchase 2,096,000 shares of our common stock for $4.96 per share, issued in connection with our initial public offering, subject to
adjustment in some circumstances;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 425,000 Class A warrants to purchase 556,750 shares of our common stock for $4.96 per share, issued in connection with our 1997 bridge financing;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2,140,952 options outstanding as of December 31, 2002 under our 1997 Stock Plan, and subject to vesting requirements. 988,710 additional shares of our common stock
are reserved for issuance under our 1997 Stock Plan;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants as of December 31, 2002 to purchase 721,244 shares of common stock at a price of $1.00 per share held by David Brewer;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 74,983 shares of common stock at a price of $1.00 held by various investors;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase 190,354 shares of common stock at a price of $0.01 per share issued to various prior investors as an anti-dilution adjustment to our issuance
of securities in our July 2001 private placement;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase an aggregate of 1,871,651 shares of common stock at a price per share of $1.00 issued in connection with our July 2001 private placement; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | options to purchase an aggregate of 9.2685 units at a price per unit of $100,000, each unit consisting of shares of Series A Preferred Stock convertible into an
aggregate of 100,000 shares of common stock and a warrant to purchase 35,000 shares of common stock issued to the placement agent in our July 2001 private placement.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Holders of these options and warrants may exercise them at a time when we would otherwise be able to obtain
additional equity capital on terms more favorable to us. Moreover, while these options and warrants are outstanding, our ability to obtain financing on favorable terms may be adversely affected.



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 Net Income Will Be Decreased if the Escrow Securities Are Released



In connection with our initial public
offering, many of our shareholders, including current officers, directors and employees, placed a substantial portion of our securities then held by them into an escrow account. These securities will be released from escrow if we reach pre-tax
earnings targets. Upon the release from this escrow of any securities owned by our officers, directors, consultants or employees, we will be required to record compensation expense for financial reporting purposes. Accordingly, in any period in
which securities are released from this escrow, we will record a substantial non-cash charge to earnings that will increase our loss or reduce or eliminate earnings, if any, at that time. The amount of this charge will be equal to the aggregate
market price of the securities owned by directors, officers and employees which are released from the escrow. Although the amount of compensation expense recognized by us would not affect our total shareholders equity or cash flow, it may have
a depressive effect on the market price of our securities.



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.



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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 Securities Exchange Act of 1934 (the Exchange Act) Rules 13a-14(c) and 15d-14(c)) as of a date (the Evaluation Date) within 90 days before the filing date of this Quarterly Report on Form 10-QSB, have concluded
that as of the Evaluation Date, our disclosure controls and procedures are 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.



Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. Because of inherent
limitations in any system of disclosure controls and procedures, no evaluation of controls can provide absolute assurance that all instances of error or fraud, if any, within our company may be detected.



| | (b) |  | Changes in Internal Controls.
| | --- |  | -----------------------------



Subsequent to the Evaluation Date, there were no significant changes in our internal controls or in other factors that could significantly
affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.



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 responsible for listing the non-audit services approved in the three months ended
December 31, 2002 by our Audit Committee to be performed by our external auditor. Non-audit services are defined in the law as services other than those provided in connection with an audit or a review of our financial statements. The non-audit
services approved by the Audit Committee in the three months ended December 31, 2002 are each considered by the Company to be audit-related services, which are closely related to the financial audit process. The non-audit services performed by our
external auditor during the three months ended December 31, 2002 were each approved by the Audit Committee. During the three months ended December 31, 2002, the Audit Committee approved engagements of Burr, Pilger & Mayer LLP, our external
auditor, for the following non-audit services: (1) quarterly estimated taxes and tax preparation for the fiscal year ended September 30, 2003; and (2) review amendments to our SB-2. Non-audit services were also approved by the Audit Committee for
the engagement of Ernst & Young LLP for the (1) review of our SB-2 filed in December 2002 and (2) tax services for the fiscal year ended September 30, 2002.



Item 6.    Exhibits and Reports on Form 8-K



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



99.1    Certification of Chief Executive Officer and Chief Financial Officer



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------



On January 22, 2003, We filed a Current Report on Form 8-K to report to report that we had changed our independent accountants from Ernst
& Young LLP to Burr, Pilger & Mayer LLP.



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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.





|Dated:  February 13, 2003 |  |  |  | NOTIFY TECHNOLOGY CORPORATION
|------------------------- |  |  |  | -----------------------------
|                         
|                          |  |  |  |                              
|                          |  |  |  |                              



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Certification under Section 302(a) of the Sarbanes-Oxley Act of 2002



I, Paul F. DePond, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Notify Technology Corporation;
|-- |  | --------------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date:  February 13, 2002 |  |  |  | 
|------------------------ |  |  |  | 
|                         |  |  |  | 
|                         |  |  |  | 



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Certification under Section 302(a) of the Sarbanes-Oxley Act of 2002



I, Gerald W. Rice, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Notify Technology Corporation;
|-- |  | --------------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date:  February 13, 2002 |  |  |  | 
|------------------------ |  |  |  | 
|                         |  |  |  | 
|                         |  |  |  | 



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##### Table of Contents



EXHIBIT
INDEX





99.1    Certification of Chief Executive Officer and Chief Financial Officer



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