U. S.
Securities and Exchange Commission




Washington,
D.C.  20549




FORM
10-Q




(Mark One)




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


For the
quarterly periods ended December 31, 2008


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




NOTIFY
TECHNOLOGY CORPORATION





(Exact
name of registrant as specified in its charter)




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




1054
South De Anza Blvd.


San Jose,
CA  95129





(Address
of principal executive offices)







(408)
777-7920


(Registrant’s
telephone number including area code)





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




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
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 xNo  ̈




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




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




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




Yes  ̈No x




As of
December 31, 2008, there were 14,075,662 shares of common stock
outstanding.





INDEX




PART I.  FINANCIAL
      INFORMATIONItem
      1.
                                                          Condensed
      Financial Statements:Condensed
      Balance Sheets as of December 31, 2008 (unaudited)
      and  September 30, 2008
                                                          3Condensed
      Statements of Operations for the three-month periods ended December 31,
      2008 and 2007 (unaudited)
                                                          4Condensed
      Statements of Cash Flows for the three-month periods ended December 31,
      2008 and 2007 (unaudited)
                                                          5Notes
      to Condensed Financial Statements (unaudited)
                                                          6Item
      2.
                                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                          8Item
      3
                                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                                          12Item
      4(T).
                                                          Controls
      and Procedures
                                                          13PART
      II.  OTHER INFORMATIONItem
      1A.
                                                          Risk
      Factors
                                                          13Item
      2.
                                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                          19Item
      6.
                                                          Exhibits
                                                          19SIGNATURES
                                                          19




2


PART
I.  FINANCIAL INFORMATION (unaudited)







Item
      1.
                Financial
      Statements





NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
BALANCE SHEETS




December 31,
                  
                  
                  September 30,2008
                  
                  
                  2008(unaudited)
                  
                  
                  
                  (1)AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  1,052,177
                  
                  
                  $
                  1,010,607Accounts
      receivable, net
                  
                  
                  826,975
                  
                  
                  
                  509,735Other
      current assets
                  
                  
                  36,942
                  
                  
                  
                  39,452Total
      current assets
                  
                  
                  1,916,094
                  
                  
                  
                  1,559,793Non-current
      assetsProperty
      and equipment, net
                  
                  
                  202,920
                  
                  
                  
                  173,224Total
      non-current assets
                  
                  
                  202,920
                  
                  
                  
                  173,224Total
      assets
                  
                  $
                  2,119,014
                  
                  
                  $
                  1,733,018Liabilities
      and shareholders' deficitCurrent
      liabilities:Current
      portion of capital lease obligations
                  
                  $
                  4,011
                  
                  
                  $
                  4,445Accounts
      payable
                  
                  
                  64,890
                  
                  
                  
                  40,045Accrued
      payroll and related liabilities
                  
                  
                  324,411
                  
                  
                  
                  349,292Deferred
      revenue
                  
                  
                  2,866,631
                  
                  
                  
                  2,418,235Other
      accrued liabilities
                  
                  
                  170,479
                  
                  
                  
                  171,108Total
      current liabilities
                  
                  
                  3,430,422
                  
                  
                  
                  2,983,125Long
      term portion of capital lease obligations
                  
                  
                  10,034
                  
                  
                  
                  10,685Total
      liabilities
                  
                  
                  3,440,456
                  
                  
                  
                  2,993,810Commitments
      and contingenciesShareholders'
      deficit:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized, no shares
      outstanding
                  
                  
                  —
                  
                  
                  
                  —Common
      stock, $0.001 par value, 30,000,000 shares authorized, 14,075,662 and
      13,968,995 shares issued and outstanding on December 31, 2008 and
      September 30, 2007, respectively
                  
                  
                  14,076
                  
                  
                  
                  14,076Additional
      paid-in capital
                  
                  
                  23,387,395
                  
                  
                  
                  23,387,395Accumulated
      deficit
                  
                  
                  (24,722,913
                  )
                  
                  
                  (24,662,263
                  )Total
      shareholders’ deficit
                  
                  
                  (1,321,442
                  )
                  
                  
                  (1,260,792
                  )Total   liabilities
      and shareholders' deficit
                  
                  $
                  2,119,014
                  
                  
                  $
                  1,733,018




(1) The
information in this column was derived from our audited financial statements for
the year ended September 30, 2008.





See
accompanying notes to condensed financial statements


3


NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
(UNAUDITED) STATEMENTS OF OPERATIONS





Three-Month PeriodsEnded December 31,2008
                              
                              
                              2007(Unaudited)Revenue:Product
      sales
                              
                              $
                              1,349,261
                              
                              
                              $
                              1,074,854Total
      revenue
                              
                              
                              1,349,261
                              
                              
                              
                              1,074,854Cost
      of revenue:Product
      cost
                              
                              
                              5,260
                              
                              
                              
                              5,080Royalty
      payments
                              
                              
                              34,188
                              
                              
                              
                              29,070Total
      cost of revenue
                              
                              
                              39,448
                              
                              
                              
                              34,150Gross
      profit
                              
                              
                              1,309,813
                              
                              
                              
                              1,040,704Operating
      expenses:Research
      and development
                              
                              
                              479,915
                              
                              
                              
                              395,683Sales
      and marketing
                              
                              
                              562,249
                              
                              
                              
                              414,206General
      and administrative
                              
                              
                              329,919
                              
                              
                              
                              323,356Total
      operating expenses
                              
                              
                              1,372,083
                              
                              
                              
                              1,133,245Loss
      from operations
                              
                              
                              (62,270
                              )
                              
                              
                              (92,541
                              )Interest
      income (expense) and other, net
                              
                              
                              1,620
                              
                              
                              
                              4,650SFAS
      123(R) expense
                              
                              
                              —
                              
                              
                              
                              (4,810
                              )Net
      loss
                              
                              $
                              (60,650
                              )
                              
                              $
                              (92,701
                              )Basic
      and diluted net loss per share
                              
                              $
                              (0.00
                              )
                              
                              $
                              (0.01
                              )Weighted
      average shares outstanding
                              
                              
                              14,075,662
                              
                              
                              
                              14,017,328





See
accompanying notes to condensed financial statements


4


NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
STATEMENTS OF CASH FLOWS




Three-Month PeriodsEnded December 31,2008
                                                                        
                                                                        
                                                                        2007(Unaudited)Cash
      flows provided by (used in) operating activities:Net
      loss
                                                                        
                                                                        $
                                                                        (60,650
                                                                        )
                                                                        
                                                                        $
                                                                        (92,701
                                                                        )Adjustments
      to reconcile net loss to cash provided by operating
      activities:Depreciation
      and amortization
                                                                        
                                                                        
                                                                        18,454
                                                                        
                                                                        
                                                                        
                                                                        15,635SFAS
      123(R) expense
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        4810Changes
      in operating assets and activities:Accounts
      receivable
                                                                        
                                                                        
                                                                        (317,240
                                                                        )
                                                                        
                                                                        
                                                                        (49,146
                                                                        )Other
      current assets
                                                                        
                                                                        
                                                                        2,510
                                                                        
                                                                        
                                                                        
                                                                        (17,572
                                                                        )Accounts
      payable
                                                                        
                                                                        
                                                                        24,845
                                                                        
                                                                        
                                                                        
                                                                        13,747Deferred
      revenue
                                                                        
                                                                        
                                                                        448,396
                                                                        
                                                                        
                                                                        
                                                                        186,031Other
      accrued liabilities
                                                                        
                                                                        
                                                                        (25,510
                                                                        )
                                                                        
                                                                        
                                                                        (20,423
                                                                        )Net
      cash provided by (used in) operating activities
                                                                        
                                                                        
                                                                        90,805
                                                                        
                                                                        
                                                                        
                                                                        40,381Cash
      flows provided by (used in) investing activities:Purchase
      of property and equipment
                                                                        
                                                                        
                                                                        (48,150
                                                                        )
                                                                        
                                                                        
                                                                        (15,897
                                                                        )Deposit
      on property and equipment
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        (31,850
                                                                        )Net
      cash used in investing activities
                                                                        
                                                                        
                                                                        (48,150
                                                                        )
                                                                        
                                                                        
                                                                        (47,837
                                                                        )Cash
      flows provided by (used in) financing activities:Proceeds
      from exercise of options
                                                                        
                                                                        
                                                                        —
                                                                        
                                                                        
                                                                        
                                                                        27,933Principal
      payments on capital lease obligations
                                                                        
                                                                        
                                                                        (1,085
                                                                        )
                                                                        
                                                                        
                                                                        (4,481
                                                                        )Net
      cash provided by (used in) financing activities
                                                                        
                                                                        
                                                                        (1,085
                                                                        )
                                                                        
                                                                        
                                                                        23,452Net
      increase (decrease) in cash and cash equivalents
                                                                        
                                                                        
                                                                        41,570
                                                                        
                                                                        
                                                                        
                                                                        15,996Cash
      and cash equivalents at beginning of period
                                                                        
                                                                        
                                                                        1,010,607
                                                                        
                                                                        
                                                                        
                                                                        839,775Cash
      and cash equivalents at end of period
                                                                        
                                                                        $
                                                                        1,052,177
                                                                        
                                                                        
                                                                        $
                                                                        855,771Supplemental
      disclosure of cash informationCash
      paid for interest
                                                                        
                                                                        $
                                                                        229
                                                                        
                                                                        
                                                                        $
                                                                        510Cash
      paid for taxes
                                                                        
                                                                        $
                                                                        850
                                                                        
                                                                        
                                                                        $
                                                                        —





See
accompanying notes to condensed financial statements


5





NOTIFY
TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)





1.           BASIS
OF PRESENTATION





The
accompanying unaudited condensed financial statements of Notify Technology
Corporation (referred to as “the Company”, “we”, “us” and “our” unless the
context otherwise requires) have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the instructions 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.  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, 2008.





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





2.      NET
INCOME (LOSS) PER SHARE





The net
loss per share for the three-month period ended December 31, 2008 was a loss of
$(0.00) compared to a loss of $(0.01) for the same period in the prior
year.  Options to purchase 3,453,544 and 2,778,000 shares of common
stock and warrants to purchase zero and 1,871,651 shares of common stock were
outstanding at December 31, 2008 and 2007, respectively. The outstanding options
were not included in the computation of diluted net loss per share for the
three-month periods ended December 31, 2008 and 2007 as the effect would be
anti-dilutive.





3.
            FINANCING
      ACTIVITIES




On May
29, 2007, Commonwealth Associates, L.P., along with a number of other investors,
sold all of their respective interests in the Company, including options to
purchase Series A Preferred Stock in the form of Unit Purchase Options, to 21X
Investments LLC.  Commonwealth Associates, L.P. and the other
investors had originally acquired their interests in the July 2001 Preferred
Stock Offering of the Company.




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




The
warrants mentioned in note 2 above and the Unit Purchase Options mentioned in
this note 3 expired on July 20, 2008 leaving 14,075,662 shares of common stock
and options to purchase 3,453,244 shares of common stock as the only issued and
outstanding securities of the Company.  There were no remaining
obligations associated with the expiring warrants and options.




On
December 17, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan
(“2008 Plan”) subject to the approval of the company's
shareholders.  The Board authorized 2,317,000 shares of the Company’s
common stock to be reserved under the 2008 Plan.  Included in the
3,453,244 total outstanding options as of December 31, 2008 were 1,580,544
options granted under the 2008 Plan on December 17, 2008 to various
employees.  These grants included 169,470 options exchanged for
900,000 options granted under a prior option plan.


6


NOTIFY
TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)





4.
            ACCOUNTING
      FOR STOCK BASED COMPENSATION




Statement
of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for
Stock-Based Compensation—Transition and Disclosure, an Amendment of FASB
Statement No. 123," amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," to require more prominent disclosures in both annual and interim
financial statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.




On
October 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), “Share-Based Payment,” requiring us to recognize expense
related to the fair value of our employee stock option awards. We recognize the
cost of all share-based awards on a graded vesting basis over the vesting period
of the award.  We recognized stock based employee compensation of
$4,810 in the three-month period ended December 31, 2007.




We
recognized no compensation expense during the first three months of fiscal 2009
related to the grant of options to non-employees.





5.
            PRODUCT
      WARRANTY




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




6.
            RECENT
      ACCOUNTING PRONOUNCEMENTS




In June
2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in
Income Taxes,” which clarifies the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with FASB Statement
No. 109, “ Accounting for
Income Taxes”.  FIN 48 provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosures, and transition.  FIN 48 is effective for fiscal years
beginning after December 15, 2006.  For the three-month period ended
December 31, 2008, FIN 48 has had no impact on the condensed financial
statements.





In
September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value
Measurements”.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair
value.  SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007.  For the three-month period ended December 31,
2008, SFAS No. 157 has had no impact on the condensed financial
statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 159, “The Fair
Value Option for Financial Assets and Financial
Liabilities”,  SFAS No. 159 provides an option to report
selected financial assets and financial liabilities using fair
value.  The standard establishes required presentation and disclosures
to facilitate comparisons with companies that use different measurements for
similar assets and liabilities.  SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007, with early adoption allowed only if
SFAS No. 157 is also adopted.  The Company is currently evaluating the
impact of this standard on the condensed financial statements.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141R"). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. SFAS 141R
is effective for fiscal years beginning after December 15, 2008. The
Company is currently evaluating the impact of this standard on the condensed
financial statements.


7




NOTIFY
TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)




In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51" ("SFAS 160"). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. The Company
is currently evaluating the impact of this standard on the condensed financial
statements.





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




FORWARD
LOOKING STATEMENTS




This
Quarterly Report on Form 10-Q contains forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which involve risks and
uncertainties.  Forward-looking statements generally include words
such as “may,” “will,” “plans,” “seeks,” ”expects,” “anticipates,” “outlook,”
“intends,” “believes” and words of similar import as well as the negative of
those terms. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements.  All
forward-looking statements in this Quarterly Report on Form 10-Q include, but
are not limited to:




·
            statements
      regarding the future growth of our wireless product
  line;


·
            statements
      regarding future revenue from our
products;


·
            statements
      regarding our future success;


·
            statements
      regarding our future financings;


·
            statements
      regarding future costs;


·
            statements
      regarding future research and development
  efforts;


·
            statements
      regarding competition in the market for wireless
  products;


·
            statements
      regarding future patent
applications;


·
            statements
      regarding future financial results;
and


·
            statements
      regarding future plans to extend our product
  line.




These
statements are based on current expectations and are subject to important
factors that could cause actual results to differ materially from those
projected in the forward-looking statements. Such important factors include, but
are not limited to, those discussed below under “Risk Factors” and elsewhere in
this Quarterly Report and in other documents we file with the U.S. Securities
and Exchange Commission. When reading the sections titled "Results of
Operations" and "Financial Condition," you should also read our unaudited
condensed financial statements and related notes included elsewhere herein and
our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2008 We
disclaim any obligation to update any forward-looking statements as a result of
developments occurring after the date of this Quarterly Report.





OVERVIEW




We were
incorporated in the State of California in August 1994.  We are an
independent software vendor (“ISV”) focused on providing secure, wireless
synchronization of email and personal information management (“PIM”) (calendar,
contacts, and tasks information) across a variety of wireless devices and email
collaboration suites. Our products provide solutions to organizations and
businesses supporting Novell GroupWiseä, Microsoft
Exchangeä,
Google EnterpriseTM and a variety of alternative email collaboration suites such
as the Sun Java Communications Suite, the Oracle Collaboration Suite, the
Mirapoint Messaging Suite, CommunigatePro, Scalix Enterprise Server, Kerio
Messaging Suite, the MDaemon Messaging Suite, FirstClass, and Meeting
Maker.  We support a variety of wireless device platforms on each of
these suites including the BlackBerry®, Apple® iPhone®, iPod® touch, Palm,
Windows Mobile®, and Symbian. In July 2006, we became an official BlackBerry ISV
Alliance Partner with Research In Motion.  Using our products, our
customers can achieve secure wireless mobile access using various handheld
wireless devices to manage their email, calendar appointments and address books
on any of the email collaboration suites we support.  Our products
support wireless devices from a wide range of manufacturers and network carriers
around the world.


8





NOTIFY
TECHNOLOGY CORPORATION




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





RESULTS
OF OPERATIONS




Three-Month
Periods Ended December 31, 2008 and 2007




Revenue




Revenue
consists of net revenue from the sale of NotifyLink software licenses,
installation fees and the sale of third party software.  License
revenue is recognized on a straight-line basis over the term of each
contract.  Installation revenue is recognized upon completion of trial
activity and finalizing the software agreement.  Third party software
revenue is recognized upon delivery to the customer.




Our
revenues increased 25% to $1,349,261 in the three-month period ended December
31, 2008 from $1,074,854 in the three-month period ended December 31,
2007.  The increase in revenue was attributed to growth in both
domestic and international sales of our NotifyLink product line.  Over
the past twelve months, we have increased our level of activity in both Europe
and other parts of the world.  We also believe that the growth in
acceptance of cloud computing has led to an increase in sales of our on-demand
product.




Our
NotifyLink product is comprised of a backend server component and a wireless
device client component. We are a provider of secure real time wireless
synchronization of email, calendar, contacts and tasks, supporting 13 different
email platforms. In addition we support any BlackBerry, Palm, Windows Mobile,
and select Symbian wireless devices on all major cellular voice and data
networks worldwide.  The NotifyLink solution provides users with
bi-directional mobile “automatic” synchronization of emails sent to end users’
email mailboxes and all emails originated forwarded and replied to from the
mobile device will be synchronized with the user’s email
mailbox.  The synchronized information also keeps personal
calendars, contacts, and task information continually up to date at
both the server and the mobile device level.




We sell
our products primarily in the United States directly to business users and
resellers.  Certain domestic customers have deployed our product to
international sites, demonstrating NotifyLink’s ability to link our customers’
email across international boundaries. We also have limited direct sales
internationally and sell primarily through resellers.




Cost
of revenue




Cost of
revenue consists of the hosting center costs to support the service portion of
our NotifyLink products, the cost of resale software related to NotifyLink and
royalty expense to NCR for certain technology utilized in our NotifyLink
product. Cost of revenue increased to $39,448 in the three-month period ended
December 31, 2008, from $34,151 for the three-month period ended December 31,
2007. The increase in the cost of revenue was due to a fixed royalty percentage
applied to increased software sales.




9


NOTIFY
TECHNOLOGY CORPORATION


Our gross
margin increased to 97.1% in the three month period ended December 31, 2008
compared to a gross margin of 96.8% in the three-month period ended December 31,
2007.  The major cost component affecting gross margin is the royalty
expense mentioned above that is applied at a constant percentage of revenues
regardless of volume.  The other major costs of our business,
consisting of product design and sales/support, are categorized in operating
expenses and thus do not impact gross margin.




Research
and development





Research and development expenses
consist primarily of personnel costs and expenses. Research and development
expenses increased to $479,915 for the three-month period ended December 31,
2008 from $395,683 for the three-month period ended December 31,
2007.  Virtually all the increase is due to salaries as we invested
heavily in expanding the NotifyLink product line and readying a new product line
for launch in early 2009.  Our development efforts were devoted to
improving our software product in the area of device management, porting our
solution to new devices and creating new products.




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





Sales
and marketing




Sales and
marketing expense consists primarily of personnel, travel costs and sales
commissions related to our sales and marketing efforts.  We use an
internal sales force and a customer support staff to facilitate the NotifyLink
sales process.  Sales and marketing costs increased to $562,249 for
the three-month period ended December 31, 2008 from $414,206 for the three-month
period ended December 31, 2007.  The increase in sales expense is due
to merit increases in salaries and increases in commissions related to the
improved sales activity. We have also devoted additional resources to developing
international sales.




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





General
and administrative





General
and administrative expense consists of general management and finance personnel
costs, insurance expense, rent expense, professional fees and other general
corporate expenses.  General and administrative expenses increased
slightly to $329,919 for the three-month period ended December 31, 2008 from
$323,356 for the three-month period ended December 31, 2007.





Although we have been able to avoid
increased expenses in recent periods, we expect that general and administrative
expense may increase in future quarters as we adhere to the requirements
mandated by the Sarbanes-Oxley Act and integrate any additional requirements
imposed by future regulations.





LIQUIDITY
AND CAPITAL RESOURCES




During
the three-month period ended December 31, 2008, 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.




A
significant characteristic of our business is the sale of our products
customarily in the form of annual contracts paid for upon signing with the
revenue amortized over the twelve-month service period.  The
unamortized contract revenue is reflected in the deferred revenue account on our
balance sheet.  As our installed base grows, this practice increases
the deferred revenue liability on the balance sheet provided we add new
contracts faster than old contracts expire.  For example, deferred
revenue increased significantly to $2,866,631 at December 31, 2008 from
$2,418,235 at September 30, 2008 partially due to a renewal of an existing
$200,000 account by one customer plus a growth in the same account of
$40,000.  This account balance will amortize over the next twelve
months at the rate of $20,000 a month. If we continue to renew and grow accounts
as in this example plus sell new accounts, we could continue to see deferred
revenue increase in the future.




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TECHNOLOGY CORPORATION





The major
cost of operations is comprised of (1) the engineering design of our products
offered for sale and (2) the sales process of a contract that requires both
direct sales effort and technical support hours to facilitate a 30-day trial
period of our software prior to purchase.  We believe that the
increase in the NotifyLink deferred revenue to $2,866,630 as of December 31,
2008 from $2,312,548 as of December 31, 2007, combined with the increase in
revenues over the same period, indicates that total product revenue improved in
the twelve-month period ended December 31, 2008.  Deferred revenue
also represents the obligation to service the contracts underlying the
revenue.  However, the cash flow required to provide the service of
contracts is significantly less than the amortized revenue recognized each
month.




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




We are
currently planning to expand our product offerings into our current or other
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.  The success of our business operations will depend upon a
continued favorable market acceptance for our wireless software
products.




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





In July
2008, warrants and options to purchase our preferred shares that had been
outstanding since July 2001, expired without having been
exercised.  The expiration left 14,075,662 shares of common stock and
options to purchase 3,453,244 shares of common stock as our only issued and
outstanding securities.  There were no remaining obligations
associated with the expiring warrants and options.  This
simplification of our equity structure could be advantageous in the event we
require additional capital.




On
December 17, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan
(“2008 Plan”) subject to the approval of our shareholders.  The Board
authorized 2,317,000 shares of the Company’s common stock to be reserved under
the 2008 Plan.  Included in the 3,453,244 total outstanding options as
of December 31, 2008 were 1,580,544 options granted under the 2008 Plan on
December 17, 2008 to various employees.  These grants included 169,470
options exchanged for 900,000 options granted under a prior option
plan.





At
December 31, 2008, we had cash and cash equivalents of $1,052,177, compared to
$855,771 at December 31, 2007.  Over the last several years, we have
financed our operations primarily through revenue from operations and existing
cash balances.  The net cash generated by operating activities equaled
$90,804 in the three-month period ended December 31, 2008, versus net cash
generated by operating activities of $40,381 in the three-month period ended
December 31, 2007. The cash generated by operations in the three-month period
ended December 31, 2008 was a combination of a net loss of $60,650 and an
increase in accounts receivable of $317,240 offset by an increase in deferred
revenue of $448,396 and an increase in accounts payable of
$24,845.  The cash generated by operations in the three-month period
ended December 31, 2007 was a combination of a net loss of $92,701 and an
increase in deferred revenue of $186,031 partially offset by an increase in
accounts receivable of $49,146, an increase in deposits on property and
equipment of $31,850 for a software system partially installed and a increase in
accounts payable of $13,747.  Although we have been cash positive in
the last two fiscal years, we anticipate that we will have negative cash flow
from time to time in operating activities in future periods.




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TECHNOLOGY CORPORATION




Net cash
used by investing activities in the three-month period ended December 31, 2008
was an outflow of $48,150 for computer  purchases.  There
was a net cash outflow of $47,837 from the purchase of fixed assets in the
three-month period ended December 31, 2007.




Net cash
provided by financing activities was an outflow of $1,085 and an inflow of
$23,452 for the three-month periods ended December 31, 2008 and 2007,
respectively.  The net cash outflow for the three-month period ended
December 31, 2008 was due to payments on capital leases.  The inflow
for the three-month period ended December 31, 2007 was due to $27,933 from the
exercise of options partially offset by $4,481 of payments on capital
leases.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




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




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




We
recognize revenue in accordance with the American institute of Certified Public
Accounts Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” and
SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB
104”).




Under SOP
97-2, we recognize software license agreements when persuasive evidence of an
agreement exists, delivery of the product has occurred, the license fee is fixed
or determinable and collection is probable.  Our license agreements
generally have a fixed term and the license revenue is recognized ratably over
the term of each license.




Under SAB
104, we recognize revenue when the title and risk of loss have passed to the
customer, there is persuasive evidence of an arrangement, delivery of the
product has occurred or services have been rendered, the sales price is fixed or
determinable and collection is probable. We recognize revenues at time of
shipment of our products and sales are recorded net of discounts and
returns.




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





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





OFF
BALANCE SHEET ARRANGEMENTS




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




Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk.





Market risk generally represents the
risk of loss that may result from the potential change in value of a financial
instrument as a result of fluctuations in interest rates and market prices. We
do not currently have any trading derivatives nor do we expect to have any in
the future. We have established policies and internal processes related to the
management of market risks, which we use in the normal course of our business
operations.




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TECHNOLOGY CORPORATION




Intangible
Asset Risk





At
December 31, 2008, we did not carry any intangible assets on our financial
statements.





Equity
Price Risk





At
December 31, 2008, we did not own any equity investments. As a result, we do not
currently have any direct equity price risk.





Commodity
Price Risk





We do not
enter into contracts for the purchase or sale of commodities. As a result, we do
not currently have any direct commodity price risk.





Item
      4T.
            Controls
      and Procedures.




(a)
            Evaluation of
      Disclosure Controls and
Procedures.





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




(b)
            Changes in Internal
      Controls.




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





PART
II.  OTHER
INFORMATION




Item1
      A.
            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.




The
recent downturn in the macroeconomic environment may negatively impact our
future results of operations.




The
recent disruption in global macroeconomic conditions has had a significant
impact on the wireless industry as a whole.  Due to the uncertainty
about current macroeconomic conditions, our customers may postpone spending in
response to tighter credit, negative financial news and/or declines in income or
asset values, which could have a material adverse effect on the demand for our
products. Other factors that could influence demand include conditions in the
residential real estate and mortgage markets, labor and healthcare costs, access
to credit, consumer confidence and other macroeconomic factors affecting
consumer spending behavior. These and other economic factors could have a
material adverse effect on future demand for our products and on our financial
condition and operating results.




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TECHNOLOGY CORPORATION




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




We
commenced operations in August 1994 and through January 1996 were engaged
primarily in the sale of hardware products to the telephone market. We made the
decision in fiscal 2003 to refocus our strategy on developing and selling
software applications for the wireless market.  Accordingly, our
business has changed substantially in recent years, making it difficult to make
period-to-period comparisons of our operations and we face all of the risks and
uncertainties encountered by early-stage companies. For the fiscal years ended
September 30, 2008, 2007, 2006, and 2005, we incurred net losses of $287,681,
$426,004, $314,892 and $557,452, respectively. We incurred a net loss of $60,650
for the three-month period ended December 31, 2008.  Although our cash
flow from operations was positive in the three-month period ended December 31,
2008, we are not assured that we can maintain a positive cash flow from
operating activities in future periods. We may also incur further operating
losses in the future until such time, if ever, as there is a substantial
increase in orders for our products and product sales generate sufficient
revenue to fund our continuing operations.  There can be no assurance
that sales of our products will continue to generate or maintain positive cash
flow or that we will attain or thereafter sustain profitability in any future
period.





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




At
December 31, 2008, we had an accumulated deficit of $24,722,913 and incurred a
net loss for the three-month period ended December 31, 2008 of $60,650. We also
had a working capital deficit at that date of $1,514,328.  Our
NotifyLink products will need to sustain a favorable market acceptance in order
for us to be able to continue our research and development activities and to
fund operating expenses at a level required to stay competitive in our
market.  Regardless, as our NotifyLink wireless product line has not
generated sufficient contributions to our revenues to date to operate profitably
at the current level of research and development, an increase in the level of
research and development driven by market pressures could require us to obtain
further financing..  Obtaining additional financing will be subject to
a number of factors including market conditions, investor acceptance of our
business plan, and investor sentiment.  These factors may make the
timing, amount, terms and conditions of additional financing unattractive or
unavailable to us.  If, in a situation that required an increase in
research and development we are unable to maintain market acceptance of our
wireless products or raise additional financing, we will have to significantly
reduce our spending, delay or cancel planned activities or substantially change
our current corporate structure.  In such an event, we intend to
implement expense reduction plans in a timely manner.  However, these
actions would have material adverse effects on our business, results of
operations, and prospects, resulting in a possible failure of our
business.




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




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




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




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




·
            our
      level of research and development;




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TECHNOLOGY CORPORATION




·
            our
      sales and marketing activities;




·
            announcements
      by us or our competitors;




·
            size
      and timing of orders from
customers;




·
            new
      product introductions by us or our
competitors;




·
            future
      market acceptance of our products;
and




·
            price
      erosion.




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




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




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




We
continue to develop our formal referral partner channel and our international
reseller partner channel.  We participate in informal referral
arrangements with several wireless carriers, wireless device manufacturers and
several of our collaboration partners for the sale of our NotifyLink products
and services where our products assist in the sale of their
products.  We have a limited direct sales force to sell our NotifyLink
products and services to organizations and businesses 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 continue to receive
referrals through our formal or informal arrangements.  Our NotifyLink
solution is sold into an emerging market and although we have operated on a cash
positive basis in the fiscal years ending September 30, 2008 and 2007, we have
not yet achieved sufficient growth in our sales to operate profitably on an
income statement basis.




We are
expanding our distribution channels for our wireless products by participating
in national and regional trade shows and promotions with strategic partners
across the United States and Europe.  We cannot predict whether these
activities will result in increased wireless revenue.  We also have
limited international sales due to limited resources to build a reseller
network.  Our management will need to expend time and effort to
develop these channels.  Our customer profile consists of a large
number of small to medium business customers thereby reducing our dependence on
any one customer.  We have expanded our internal sales force in
response. We are building experience selling into the wireless market but make
use of modest marketing and distribution programs to expand our distribution
channels and any marketing efforts undertaken by or on behalf of us may not be
successful.




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




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




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TECHNOLOGY CORPORATION


Our
products may suffer from defects.




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




We
depend on key executives.




Our
potential for success depends significantly on key management employees,
including our Chairman, President and Chief Executive Officer, Mr. Paul F.
DePond, our Vice President of Development, Rhonda Chicone and our Chief
Financial Officer, Gerald W. Rice.  We have entered into amended and
restated employment agreements with these three key management
employees.  We do not currently have “key man” life insurance on any
of these executives or any of our other key employees.  The loss of
the services of these executives or those of any of our other key employees
would materially and adversely affect us.  We also believe that our
future success will depend in large part on our ability to attract and retain
additional highly skilled technical, management, sales and marketing personnel.
If we were unable to retain or hire the necessary personnel, the development of
new products and enhancements to current products would likely be delayed or
prevented.  Competition for these highly-skilled employees is
intense.  Therefore, there can be no assurance that we will be
successful in retaining our key personnel or in attracting and retaining the
personnel we require for expansion.




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




We regard
various features and design aspects of our products as proprietary and rely
primarily on a combination of copyright, trademark and trade secret laws and
employee and third-party nondisclosure agreements to protect our proprietary
rights.   Our software products are generally not subject to
patent claims.  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.





Our charter provisions may discourage
acquisition bids.




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





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 such director in
connection with any civil or criminal action or administrative proceeding
arising out of his performance of duties as a director or officer, other than an
action instituted by the director or officer.  These indemnification
agreements also require that we indemnify the director or other party thereto in
all cases to the fullest extent permitted by applicable law.  Each
indemnification agreement permits the director or officer that is party thereto
to bring suit to seek recovery of amounts due under the indemnification
agreement and to recover the expenses of such a suit if they are
successful.  We currently have directors’ and officers’ liability
insurance, but there can be no assurance that any or all of our indemnification
obligations will be covered by this insurance or that the insurance limits will
not be exceeded.




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TECHNOLOGY CORPORATION
  Risks
Related to Our Industry




We
face significant competition.




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




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




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




Risks
Related to Our Common Stock




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




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




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




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




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




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




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




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CORPORATION




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




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




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




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




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




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




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




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




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




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




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




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




Our
stock price may be volatile




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




18




NOTIFY TECHNOLOGY
CORPORATION




Item
      2.
                Unregistered
      Sales of Equity Securities and Use of
Proceeds.





In December 2008, we issued options to
purchase an aggregate of 1,480,544 shares of our common stock to a total of 18
individuals pursuant to our 2008 Equity Incentive Plan.  The issuances
were made in reliance on Regulation D promulgated pursuant to the Securities
Act, and without general solicitation or advertising.





PART
II. OTHER
INFORMATION





Item 6.
              Exhibits
  (a)
              Exhibits:31.1                   Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2                   Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1Certification
      of Chief Executive Officer and Chief Financial Officer under Section 906
      of the Sarbanes-Oxley Act of 2002




SIGNATURES




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




NOTIFY
      TECHNOLOGY CORPORATIONDated:  February
      13, 2009/s/
      Gerald W. RiceChief
      Financial Officer(Principal
      Financial and Accounting
Officer)




19