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U. S. Securities and Exchange Commission

Washington, D.C. 20549



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FORM 10-QSB



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(Mark One)

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

For the quarterly periods ended June 30, 2006

or



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

For the Transition Period From  to

Commission File number 000-23025



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NOTIFY TECHNOLOGY CORPORATION

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



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

1054 South De Anza Blvd.

San Jose, CA 95129

(Address of principal executive offices)

(408) 777-7920

(Issuers
telephone number)



---

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

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

As of June 30, 2006 there were 13,968,995 shares of Common Stock outstanding.

Transitional Small Business Disclosure Format    Yes ̈No  x



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##### Table of Contents

INDEX



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



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##### Table of Contents

PART I. FINANCIAL INFORMATION (unaudited)

Item 1. Financial Statements

NOTIFY TECHNOLOGY CORPORATION

CONDENSED BALANCE SHEETS



|                                                                                                        |  |               |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                        |  | June 30, 2006 |             |   | September 30,2005 |  
|                                                                                                        |  | (unaudited)   |             |   | (1)               |  
|Assets                                                                                                  |  |               |             |   |                   |   |             |  
|Current assets:                                                                                         |  |               |             |   |                   |   |             |  
|Cash and cash equivalents                                                                               |  | $             | 820,428     |   |                   | $ | 424,228     |  
|Accounts receivable, net                                                                                |  |               | 524,748     |   |                   |   | 472,942     |  
|Other current assets                                                                                    |  |               | 45,213      |   |                   |   | 58,751      |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total current assets                                                                                    |  |               | 1,390,389   |   |                   |   | 955,921     |  
|                                                                                                        |  |              
|Property and equipment, net                                                                             |  |               | 104,440     |   |                   |   | 144,418     |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total assets                                                                                            |  | $             | 1,494,829   |   |                   | $ | 1,100,339   |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Liabilities and shareholders deficit                                                                   |  |               |             |   |                   |   |             |  
|Current liabilities:                                                                                    |  |               |             |   |                   |   |             |  
|Current portion of capital lease obligations                                                            |  | $             | 17,896      |   |                   | $ | 22,609      |  
|Accounts payable                                                                                        |  |               | 12,704      |   |                   |   | 47,650      |  
|Accrued payroll and related liabilities                                                                 |  |               | 256,121     |   |                   |   | 328,535     |  
|Deferred revenue                                                                                        |  |               | 1,704,283   |   |                   |   | 1,287,866   |  
|Customer advances                                                                                       |  |               |            |   |                   |   | 30,039      |  
|Other accrued liabilities                                                                               |  |               | 109,344     |   |                   |   | 139,484     |  
|Warrant liability                                                                                       |  |               | 457,919     |   |                   |   |            |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total current liabilities                                                                               |  |               | 2,558,267   |   |                   |   | 1,856,183   |  
|Long term portion of capital lease obligations                                                          |  |               | 13,883      |   |                   |   | 23,044      |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total liabilities                                                                                       |  |               | 2,572,150   |   |                   |   | 1,879,227   |  
|                                                                                                        |  |               |             |   |                   |   |             |  
|Shareholders deficit:                                                                                  |  |               |             |   |                   |   |             |  
|Preferred stock, $0.001 par value, 5,000,000 shares authorized                                          |  |               |            |   |                   |   |            |  
|Common stock, $0.001 par value, 30,000,000 shares authorized, 13, 968,955 shares issued and outstanding |  |               | 13,969      |   |                   |   | 13,969      |  
|Additional paid-in capital                                                                              |  |               | 22,840,830  |   |                   |   | 22,840,830  |  
|Accumulated deficit                                                                                     |  |               | (23,932,120 | ) |                   |   | (23,633,687 | )
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total shareholders deficit                                                                             |  |               | (1,077,321  | ) |                   |   | (778,888    | )
|                                                                                                        |  |               |             |   |                   |   |             |  
|Total liabilities and shareholders deficit                                                             |  | $             | 1,494,829   |   |                   | $ | 1,100,339   |  
|                                                                                                        |  |               |             |   |                   |   |             |  

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

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

CONDENSED UNAUDITED STATEMENTS OF OPERATIONS



|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------- |  | ---------------------------------- | ---------- | - | --------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                      |  | Three-Month Periods Ended June 30, |            |   | Nine-Month Periods Ended June 30, |  
|                                                      |  | 2006                               |            |   | 2005                              |   |            | 2006 |  |   | 2005       |  
|Revenue:                                              |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Product revenue                                       |  | $                                  | 745,606    |   |                                   | $ | 604,200    |      |  | $ | 2,707,495  |   |  | $ | 3,067,338  |  
|Service revenue                                       |  |                                    | 191,909    |   |                                   |   | 262,433    |      |  |   | 637,784    |   |  |   | 1,113,602  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Total revenue                                         |  |                                    | 937,515    |   |                                   |   | 866,633    |      |  |   | 3,345,279  |   |  |   | 4,180,940  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Cost of Revenue:                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Product cost                                          |  |                                    | 2,420      |   |                                   |   | 25,586     |      |  |   | 459,816    |   |  |   | 1,278,912  |  
|Service cost                                          |  |                                    |           |   |                                   |   | 10,175     |      |  |   | 15,375     |   |  |   | 34,112     |  
|Royalty payments                                      |  |                                    | 20,855     |   |                                   |   |           |      |  |   | 56,753     |   |  |   |           |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Total cost of sales                                   |  |                                    | 23,275     |   |                                   |   | 35,761     |      |  |   | 531,944    |   |  |   | 1,313,024  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Gross profit                                          |  |                                    | 914,240    |   |                                   |   | 830,872    |      |  |   | 2,813,335  |   |  |   | 2,867,916  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses:                                   |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Research and development                              |  |                                    | 250,589    |   |                                   |   | 266,796    |      |  |   | 713,035    |   |  |   | 779,816    |  
|Sales and marketing                                   |  |                                    | 403,320    |   |                                   |   | 405,064    |      |  |   | 1,221,606  |   |  |   | 1,240,171  |  
|General and administrative                            |  |                                    | 334,681    |   |                                   |   | 412,411    |      |  |   | 970,746    |   |  |   | 1,185,791  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                              |  |                                    | 988,590    |   |                                   |   | 1,084,271  |      |  |   | 2,905,387  |   |  |   | 3,205,778  |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                                  |  |                                    | (74,350    | ) |                                   |   | (253,399   | )    |  |   | (92,052    | ) |  |   | (337,862   | )
|                                                      |  |                                    |            |  
|Other income (expense), net                           |  |                                    | (1,353     | ) |                                   |   | 704        |      |  |   | 1,537      |   |  |   | 2,053      |  
|Proceeds from sale of patents                         |  |                                    | 250,000    |   |                                   |   |           |      |  |   | 250,000    |   |  |   |            |  
|Loss on fair value of warrants                        |  |                                    | (312,667   | ) |                                   |   |           |      |  |   | (457,919   | ) |  |   |           |  
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                              |  | $                                  | (138,370   | ) |                                   | $ | (252,695   | )    |  | $ | (298,434   | ) |  | $ | (335,809   | )
|                                                      |  |                                    |            |   |                                   |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net loss per share                  |  | $                                  | (0.01      | ) |                                   | $ | (0.02      | )    |  | $ | (0.02      | ) |  | $ | (0.02      | )
|                                                      |  |                                    |            |  
|Basic and diluted weighted average shares outstanding |  |                                    | 13,968,995 |   |                                   |   | 13,968,995 |      |  |   | 13,968,995 |   |  |   | 13,921,486 |  

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS



|                                                       |  |                                   |          |   |      |   |           |  
|------------------------------------------------------ |  | --------------------------------- | -------- | - | ---- | - | --------- | -
|                                                       |  | Nine-Month Periods Ended June 30, |         
|                                                       |  | 2006                              |          |   | 2005 |  
|                                                       |  | (Unaudited)                       |         
|Cash flows provided by (used in) operating activities: |  |                                   |          |   |      |   |           |  
|Net loss                                               |  | $                                 | (298,434 | ) |      | $ | (335,809  | )
|Adjustments to reconcile net loss to cash provided by  |  |                                   |          |   |      |   |           |  
|(used in) operating activities:                        |  |                                   |          |   |      |   |           |  
|Depreciation and amortization                          |  |                                   | 52,733   |   |      |   | 81,422    |  
|Proceeds from the sale of patents                      |  |                                   | (250,000 | ) |      |   |          |  
|Fair value of warrant liability                        |  |                                   | 457,919  |   |      |   |          |  
|Gain from the sale of property and equipment           |  |                                   | (1,982   | ) |      |   | (4,343    | )
|Changes in operating assets and activities:            |  |                                   |          |   |      |   |           |  
|Accounts receivable                                    |  |                                   | (51,805  | ) |      |   | 14,931    |  
|Other current assets                                   |  |                                   | 13,537   |   |      |   | (10,226   | )
|Accounts payable                                       |  |                                   | (34,946  | ) |      |   | (39,525   | )
|Deferred revenue                                       |  |                                   | 416,417  |   |      |   | 81,064    |  
|Other accrued liabilities                              |  |                                   | (132,591 | ) |      |   | (202,413  | )
|                                                       |  |                                   |          |   |      |   |           |  
|Net cash provided by (used in) operating activities    |  |                                   | 170,848  |   |      |   | (414,899  | )
|                                                       |  |                                   |          |   |      |   |           |  
|Cash flows provided by (used in) investing activities: |  |                                   |          |   |      |   |           |  
|Purchase of property and equipment                     |  |                                   | (7,726   | ) |      |   | (28,088   | )
|Proceed from the sale of patents                       |  |                                   | 250,000  |   |      |   |          |  
|Proceeds from the sale of fixed assets                 |  |                                   | 1,600    |   |      |   | 5,600     |  
|                                                       |  |                                   |          |   |      |   |           |  
|Net cash used in investing activities                  |  |                                   | 243,874  |   |      |   | (22,488   | )
|                                                       |  |                                   |          |   |      |   |           |  
|Cash flows provided by (used in) financing activities: |  |                                   |          |   |      |   |           |  
|Payments on short term borrowings                      |  |                                   |         |   |      |   |          |  
|Proceeds from exercise of options                      |  |                                   |         |   |      |   | 38,750    |  
|Payments on capital lease                              |  |                                   | (18,521  | ) |      |   | (16,576   | )
|                                                       |  |                                   |          |   |      |   |           |  
|Net cash provided by (used in) financing activities    |  |                                   | (18,521  | ) |      |   | 22,174    |  
|                                                       |  |                                   |          |   |      |   |           |  
|Net (decrease) increase in cash and cash equivalents   |  |                                   | 396,200  |   |      |   | (415,213  | )
|Cash and cash equivalents at beginning of period       |  |                                   | 424,228  |   |      |   | 1,026,121 |  
|                                                       |  |                                   |          |   |      |   |           |  
|Cash and cash equivalents at end of period             |  | $                                 | 820,428  |   |      | $ | 610,908   |  
|                                                       |  |                                   |          |   |      |   |           |  
|Non-cash investing activities:                         |  |                                   |          |   |      |   |           |  
|Property and equipment acquired through capital lease  |  | $                                 | 6,156    |   |      | $ | 37,704    |  
|Supplemental disclosure of cash information            |  |                                   |          |   |      |   |           |  
|Cash paid for interest                                 |  | $                                 | 1,892    |   |      | $ | 2,469     |  
|Cash paid for income taxes                             |  | $                                 | 300      |   |      | $ | 1,100     |  

See accompanying notes to unaudited condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION

1. BASIS OF PRESENTATION

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

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

2. GOING CONCERN

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

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

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

3. LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2005 and the nine-month period ended June 30, 2006, we funded our operations
through a combination of our gross profit earned from revenue and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification market solutions along with the
continuation of the Visual Got Mail Solution program. We continue to evaluate our opportunities to obtain further financing but it is not a critical element in our plans.



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NOTIFY TECHNOLOGY CORPORATION

A significant characteristic of our business is the sale of our products customarily in the form of annual contracts paid for upon signing but the revenue amortized over the twelve month service period. As our
installed base grows, this practice increases the deferred revenue liability on the balance sheet as we add new contracts faster than old contracts expire. The major cost of operations is comprised of (1) the engineering design of our product
offered for sale and (2) the physical sale of a contract that requires both direct sales effort and customer service hours to facilitate a trial period of our software prior to purchase. The change in the NotifyLink deferred revenue to
$1,704,283 as of June 30, 2006 from $859,798 as of June 30, 2005 indicates the improvement in the product revenue. Deferred revenue also represents the obligation to service the contracts underlying the revenue. However, the cash flow
required to service the contracts is significantly less than the revenue recognized each month.

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

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

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

4. NET INCOME (LOSS) PER SHARE

The net loss per share for the three month period ended June 30, 2006 was a loss of $0.01 compared to a loss of $0.02 for the same
period in the prior year. Options to purchase 3,362,333 and 3,383,667 shares of common stock and warrants to purchase 1,871,651 and 1,871,651 shares of common stock were outstanding at June 30, 2006 and 2005, respectively. The outstanding
options and warrants were not included in the computation of diluted net loss per share for the three month periods ended June 30, 2006 and June 30, 2005.

5. FINANCING ACTIVITIES

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

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

The fair value of the warrants was estimated as of June 30, 2006 using
the Black-Scholes option-pricing model with the following assumptions: no dividends, risk-free (10-year Treasury yield) interest rate of 5.16%; the remaining contractual life of 2.06 years and volatility of 180.46%. The fair value was estimated to
be $457,919 on the closing day of the third fiscal quarter of 2006. The same warrants were valued at $145,252 on March 31, 2006 and the difference of $312,667 was recorded as an expense for the three-month period ended June 30, 2006 and
the liability on the balance sheet increased to $457,919 as of



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NOTIFY TECHNOLOGY CORPORATION

June 30, 2006. This change in value reflects the increase in market price of the Companys stock in the six month period ended June 30, 2006. The fair value of the warrants was recorded as Loss on
fair value of warrants in the Companys statement of operations, and included in Warranty liability on the Companys balance sheet.

6. ACCOUNTING FOR STOCK BASED COMPENSATION

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



|                                                                                                                                            |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                                            |  | Three Months Ended June 30 |          |   | Nine Months Ended June 30 |  
|                                                                                                                                            |  | 2006                       |          |   | 2005                      |   |          | 2006 |  |   | 2005     |  
|Net income (loss) as reported                                                                                                               |  | $                          | (138,370 | ) |                           | $ | (252,695 | )    |  | $ | (298,434 | ) |  | $ | (335,809 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                                    |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                            | (24,950  | ) |                           |   | (32,302  | )    |  |   | (76,646  | ) |  |   | (107,575 | )
|                                                                                                                                            |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Pro forma net income (loss)                                                                                                                 |  | $                          | (163,320 | ) |                           | $ | (284,997 | )    |  | $ | (375,080 | ) |  | $ | (443,384 | )
|                                                                                                                                            |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|                                                                                                                                            |  |                            |          |  
|                                                                                                                                            |  | 2006                       |          |   | 2005                      |   |          | 2006 |  |   | 2005     |  
|Basic earnings per share:                                                                                                                   |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|As reported                                                                                                                                 |  | $                          | (0.01    | ) |                           | $ | (0.02    | )    |  | $ | (0.02    | ) |  | $ | (0.02    | )
|Pro forma                                                                                                                                   |  | $                          | (0.01    | ) |                           | $ | (0.02    | )    |  | $ | (0.03    | ) |  | $ | (0.03    | )

7. PRODUCT WARRANTY

The Company warrants its products for a specific period of time, generally twelve months, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of sales when the
related revenue is recognized. The accrued warranty cost represents the best estimate at the time of sale of the total costs that the Company expects to incur to repair or replace product parts, which fail while still under warranty. The amount of
accrued estimated warranty costs are primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, the Company reviews the accrued balances and updates the historical warranty
cost trends. The Company ceased shipping product in 2004 and had no product under warranty during the three month or nine month periods ended June 30, 2006.



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8. RECENT ACCOUNTING PRONOUNCEMENTS

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

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

FORWARD LOOKING
STATEMENTS

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

RESULTS OF OPERATIONS

Three-Month Periods Ended June 30, 2006 and 2005

Revenue

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



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Revenue for the three month period ended June 30, 2006 increased to $937,515 from $866,633 for the three month period ended June 30, 2005 as the improvement in NotifyLink revenue exceeded the reduction in
Visual Got Mail Solution revenue. Our wireless NotifyLink product line revenue improved to $745,606 from $571,564 for the three-month periods ended June 30, 2006 and 2005, respectively. The service portion of the Visual Got Mail solution, which
is a declining product, was $191,909 in the three month period ended June 30, 2006 compared to $295,069 in the comparable period of fiscal 2005. This decline in Visual Got Mail Solution revenue was expected and we expect the service revenue to
continue to decline in future periods as the installed base declines.

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

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

We sell our products primarily in the United States directly to business users, resellers and one long distance telephone carrier. The NotifyLink and
Visual Got Mail Solution revenue accounted for 79% and 21%, respectively, of total revenue in the three-month period ended June 30, 2006 and 34% and 64%, respectively, of total revenue in the three-month period ended June 30, 2005. 21% of
our total revenue is concentrated in one customer with the remaining revenue spread out among many different customers during the three month period ended June 30, 2006.

Cost of Revenue

Cost of revenue consists primarily of the cost to operate our hosting services,
royalty costs on our NotifyLink sales and to manufacture our products. Cost of revenue decreased to $23,275 in the three-month period ended June 30, 2006 from $35,761 for the three-month period ended June 30, 2005. The decrease in the cost
of revenue is due to lower depreciation costs.

Our gross margin increased to 97.5% in the three month period ended June 30, 2006
compared to a gross margin of 95.9% in the three-month period ended June 30, 2005. The high gross margins are because the major costs of the business consist of product design and sales and support, both of which fall below the line in
operating expenses.

Our gross margin has historically been affected by a number of factors, including product mix, product demand, pricing
pressures, warranty costs, and timing. The most significant historical fluctuations have been associated with our legacy CPE product sales but we have ceased manufacturing and selling CPE. We are still subject to product demand, product mix and
pricing pressures as our sales completely transition to software and service products but we expect to avoid the more significant changes that have been historically caused by hardware versus software and service sales. Considering we are no longer
subject to hardware manufacturing costs, our gross margin will be a less critical measurement of our performance in the future.

Research and
development

Research and development expenses consist primarily of personnel costs and support expenses. Research and development
expenses decreased to $250,589 for the three-month period ended June 30, 2006



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from $266,796 for the three-month period ended June 30, 2005. This decrease reflects a conservative approach in the investment level in our Ohio staff that designs and develops our wireless products. Although
conservative, we have maintained our spending in this area and expect to continue investing in this area of research and development as resources allow. There can be no assurance that the market will continue to accept our wireless products.

Sales and marketing

Sales and
marketing expense consists primarily of personnel, travel costs and sales commissions related to our sales effort of the NotifyLink product line. Sales and marketing costs decreased to $403,320 for the three month period ended June 30, 2006
from $405,064 for the three month period ended June 30, 2005. We continue to use an internal sales force and a customer support staff to facilitate the NotifyLink sales process and sales expense is directly influenced by commissions as we
steadily have improved NotifyLink revenue. Sale of the NotifyLink product involves a trial process requiring assistance to prospective customers installing our software. We also make efficient use of marketing programs to establish name recognition
and reach out to our target markets. In contrast, the Visual Got Mail Solution sales are completely supported at the executive staff level.

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

General and administrative

General and
administrative expense consists of general management and finance personnel costs, insurance expense, occupancy costs, professional fees and other general corporate expenses. General and administrative expenses decreased to $334,681 for the
three-month period ended June 30, 2006 from $412,611 for the three-month period ended June 30, 2005. The decrease is due to cost containment measures in compensation, legal and audit services.

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

Nine-Month Periods Ended June 30, 2006 and 2005

Revenue

Revenue for the nine month period ended June 30, 2006 decreased to $3,345,279 from
$4,180,940 for the nine month period ended June 30, 2005 because the combined Visual Got Mail Solution CPE and Service revenue decreased to $1,288,016 in the nine month period ended June 30, 2006 from $2,530,612 for the nine month period
ended June 30, 2005 as a result of our discontinuation of the hardware product and decline in the related service. Our wireless product line revenue improved to $2,057,263 from $1,650,328 for the nine-month periods ended June 30, 2006 and
2005, respectively.

The NotifyLink and Visual Got Mail Solution revenue accounted for 60% and 39%, respectively, of total revenue in the
nine-month period ended June 30, 2006 and 37% and 61%, respectively, of total revenue in the nine-month period ended June 30, 2005. 21% of our revenue is concentrated in one customer with the remaining revenue spread out among many
different customers during the nine-month period ended June 30, 2006.

Cost of Revenue

Cost of revenue consists primarily of the cost to operate our hosting services, royalty costs on our NotifyLink sales and to manufacture our products.
Cost of revenue decreased to $531,944 in the nine-month period ended June 30, 2006 from $1,313,024 for the nine-month period ended June 30, 2005. The decrease in the cost of revenue is due to the volume of sales of CPE in the nine-month
period ended June 30, 2005 which carry a higher cost than do our current software and service products.



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Our gross margin increased to 84.1% in the nine-month period ended June 30, 2006 compared to a gross margin of 68.6% in the nine-month period ended June 30, 2005. The increase occurred because of the lower
volume of sales of higher cost CPE in the nine-month period ended June 30, 2006.

Our gross margin has historically been affected by a
number of factors, including product mix, product demand, pricing pressures, warranty costs, and timing. The most significant fluctuations have been associated with our legacy CPE product sales but we have ceased manufacturing and selling CPE. We
are still subject to product demand, product mix and pricing pressures as we complete our transition to software and service products and expect to avoid the more significant changes that have been historically caused by hardware versus software and
service sales. Considering we are no longer subject to hardware manufacturing costs, our gross margin will be a less critical measurement of our performance in the future.

Research and development

Research and development expenses consist primarily of personnel costs and
support expenses. Research and development expenses decreased to $713,035 for the nine-month period ended June 30, 2006 from $779,816 for the nine-month period ended June 30, 2005. This decrease reflects a conservative approach in the
investment level in our Ohio staff that designs and develops our wireless products. Although conservative, we have maintained our spending in this area and expect to continue investing in this area of research and development as resources allow.
There can be no assurance that the market will continue to accept our wireless products.

Sales and marketing

Sales and marketing expense consists primarily of personnel, travel costs and sales commissions related to our sales effort of the NotifyLink product
line. Sales and marketing costs decreased to $1,221,606 for the nine-month period ended June 30, 2006 from $1,240,171 for the nine-month period ended June 30, 2005. We continue to use an internal sales force and a customer support staff to
facilitate the NotifyLink sales process and sales expense is directly influenced by commissions as we steadily have improved NotifyLink revenue. Sale of the NotifyLink product involves a trial process requiring assistance to prospective customers
installing our software. We also make efficient use of marketing programs to establish name recognition and reach out to our target markets.

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

General and administrative

General and
administrative expense consists of general management and finance personnel costs, insurance expense, occupancy costs, professional fees and other general corporate expenses. General and administrative expenses decreased to $970,746 for the
nine-month period ended June 30, 2006 from $1,185,791 for the nine-month period ended June 30, 2005. The decrease is due to cost containment measures in compensation, legal and audit services.

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

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2005 and the nine-month period ended June 30, 2006, we funded our operations through a combination of our gross profit earned from revenue and existing cash balances. Our ability to fund our
recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification market solutions along with the continuation of the Visual Got Mail Solution program. We continue to evaluate our opportunities to obtain further
financing but it is not a critical element in our plans.

A significant characteristic of our business is the sale of our products
customarily in the form of



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annual contracts paid for upon signing but the revenue amortized over the twelve month service period. As our installed base grows, this practice increases the deferred revenue liability on the balance sheet as we add
new contracts faster than old contracts expire. The major cost of operations is comprised of (1) the engineering design of our product offered for sale and (2) the physical sale of a contract that requires both direct sales effort and
customer service hours to facilitate a trial period of our software prior to purchase. The change in the NotifyLink deferred revenue to $1,704,283 as of June 30, 2006 from $914,343 as of June 30, 2005 indicates the improvement in the
product revenue. Deferred revenue also represents the obligation to service the contracts underlying the revenue. However, the cash flow required to service the contracts is significantly less than the revenue recognized each month.

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

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

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

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

At June 30, 2006, we had cash and cash equivalents of $820,428. Over the last several years, we have financed our operations primarily through
revenue from operations and existing cash balances. The net cash generated from operating activities equaled $170,848 in the nine-month period ended June 30, 2006 versus net cash used by operating activities of $414,899 in the nine-month period
ended June 30, 2005. The cash used in operations was a combination of a net loss of $298,434, an increase in accounts receivable of $51,805 due to strong NotifyLink sales and a decrease of accounts payable of $34,946. The net cash provided in
the nine-month period ended June 30, 2006 was largely attributable to an increase in the fair value of warrants liability of $457,919 and an increase in deferred revenue of $416,417. We anticipate that we will have negative cash flow from time
to time in operating activities in future quarters and years.

Net cash provided by investing activities was an outflow of $7,726 for asset
purchases, $1,600 from the sale of assets and an inflow of $250,000 from proceeds from the sale of patents for obsolete hardware products used in our legacy wireline business during the nine-month period ended June 30, 2006. There was a net
cash outflow of $22,488 from the purchase of fixed assets in the nine-month period ended June 30, 2005.

Net cash provided by
financing activities was an outflow of $18,521 and an inflow of $22,174 for the nine-month periods ended June 30, 2006 and 2005, respectively. The net cash outflow for the nine-month period ended June 30, 2006 was due to payments on
capital leases and the inflow for the nine-month period ended June 30, 2005 was the acquisition of a capital lease on a customer service telephone system and proceeds from the exercise of options.



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

RISK FACTORS

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

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

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

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

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

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

For the three-month period ended June 30, 2006, 21% of our revenue came from the sale of our Visual Got Mail Solution service to a single competitive provider of local phone services. In July 2004, the customer
changed its business position in the market in which our product is sold and terminated its outbound marketing efforts. Although our customer continues to purchase our service product from us, the installed base upon which our service is based has
changed from a growth status to a declining status. If, for whatever reason, this customer is not able to, or chooses not to, sell or support its voice mail service, or the contractual rate we charge per user is renegotiated down, our revenue,
operating profit and financial condition would be materially adversely affected. In such an event, we would have no alternative distribution channel for our Visual Got Mail Solution and our revenue, operating results and financial condition would be
materially adversely affected.

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



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

We commenced
operations in August 1994 and through January 1996 were engaged primarily in research and development. We introduced the Visual Got Mail Solution in fiscal 2001 and made a subsequent decision in fiscal 2003 to refocus our strategy on developing and
selling software applications for the 2way wireless data market. Accordingly, our business has changed substantially in recent years, making it difficult to make period-to-period comparisons of our operations, and we face all of the risks and
uncertainties encountered by early-stage companies. For the fiscal years ended September 30, 2005, 2004, 2003 and 2002, we incurred net losses of $557,452, $655,908, $1,100,475 and $1,741,752, respectively. We incurred net loss of $298,434 for
the nine month period ended June 30, 2006 and as of June 30, 2006, we had an accumulated deficit of $23,932,120 and a working capital deficit of $1,167,878 Although we have been cash positive in fiscal 2006, we anticipate having negative
cash flow from operating activities from time to time in future quarters and years. We also expect to incur further operating losses in future quarters and years until such time, if ever, as there is a substantial increase in orders for our products
and product sales generating sufficient revenue to fund our continuing operations. There can be no assurance that sales of our products will ever generate significant revenue, that we will ever generate positive cash flow from our operations or that
we will attain or thereafter sustain profitability in any future period.

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

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

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

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

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

At June 30, 2006, we had an accumulated deficit of
$23,932,120 and incurred net loss of $298,434 for the nine month period ended June 30, 2006. Although $457,919 of this loss is attributable to non-operating and non-cash accounting adjustments, we also had a working capital deficit at that date
of $1,167,878 Our recently developed NotifyLink products will need to attain favorable market acceptance in order for us to be able to continue our research and development activities and to fund operating expenses at



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current levels. Regardless, because our NotifyLink wireless product line has not provided sufficient contributions to our revenue to date to operate profitably without the contribution of our Visual Got Mail Solution
service revenue, the success of our business operations will depend upon a significant favorable market acceptance for our new wireless software products and our ability to obtain further financing. Obtaining additional financing will be subject to
a number of factors including market conditions, investor acceptance of our business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are
unable to raise additional financing, we will have to rely on our operations for cash flow or significantly reduce our spending, delay or cancel planned activities or substantially change our current corporate structure. In such an event, we intend
to implement expense reduction plans in a timely manner. However, these actions would have material adverse effects on our business, results of operations, and prospects, resulting in a possible failure of our business.

Our quarterly operating results may vary

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



| |  | the price of our common stock could increase and generate a non-operating, non-cash expense from the application of EITF 00-19;
|- |  | -------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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

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

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

Our products may not be accepted

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



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

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

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

Our products may suffer from defects

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

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

We face significant competition

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



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

Since September 4, 2002, our common stock has been quoted on the Over-the-Counter Bulletin Board. Our shareholders could find it difficult to dispose of or to obtain accurate quotations as to the market value of,
our common stock. In addition, delisting may make our common stock ineligible for use as, or make our common stock substantially less attractive as, collateral for margin and purpose loans, for investment by financial institutions under their
internal policies or state legal investment laws, as consideration in the financing of future acquisitions of businesses or assets by us, and for issuance by us in future capital raising transactions any of which could cause the market price of our
common stock to decrease. Delisting subjects our common stock to the penny stock rules contained in Section 15(g) of the Securities Exchange Act of 1934.

We depend on key executives

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

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

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

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

On May 17, 2001, Research In Motion Limited, the maker
of the Blackberry® hand-held computer, announced that it had been issued a patent on its Blackberry single mailbox integration. Generally, the patent relates to Research In Motions proprietary system and method of redirecting information
between a host computer system and a mobile communications device while maintaining a common electronic address between the host system and the mobile device. Research In Motion also announced that it had filed a complaint against Glenayre
Technologies, Inc. for, among other items, patent and trademark infringement. Our intellectual property counsel has reviewed the patent and issued an opinion to us opining that version 4.0 of our Desktop software does not infringe on Research In
Motions patent.Nevertheless, no assurances can



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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.

Our stock price may be volatile

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

Our charter provisions may discourage acquisition
bids

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

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

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

Item 3. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

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



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(b) Changes in Internal Controls.

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

PART II. OTHER INFORMATION

Item 5. Other Information

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

Item 6. Exhibits

(a) Exhibits:



|     |  |                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      
|     | 
|32.1 |  | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

---

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

SIGNATURES

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



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



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