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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 three and nine month period ended June 30, 2005



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 Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



As of June 30, 2005 there were 13,968,995 shares of Common Stock outstanding.



Transitional Small Business Disclosure Format    Yes ̈No  x



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INDEX



|                                          |  |         |  |                                                                                                            |  |   
|----------------------------------------- |  | ------- |  | ---------------------------------------------------------------------------------------------------------- |  | --
|PART I.
FINANCIAL INFORMATION (unaudited) |  |        
|                                          |  |         | 
|                                          |  | Item 1. |  | Condensed Financial Statements: (unaudited)                                                                |  |   
|                                          |  |         | 
|                                          |  |         |  | Condensed Balance Sheets as of June 30, 2005 and September 30, 2004                                        |  | 3 
|                                          |  |         | 
|                                          |  |         |  | Condensed Statements of Operations for the three-month and nine-month periods ended June 30, 2005 and 2004 |  | 4 
|                                          |  |         | 
|                                          |  |         |  | Condensed Statements of Cash Flows for the three-month and nine-month periods ended June 30, 2005 and 2004 |  | 5 
|                                          |  |         | 
|                                          |  |         |  | Notes to the Condensed Financial Statements                                                                |  | 6 
|                                          |  |         | 
|                                          |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 8 
|                                          |  |         | 
|                                          |  | Item 3. |  | Controls and Procedures                                                                                    |  | 17
|                                          | 
|PART II.
OTHER INFORMATION                |  |        
|                                          |  |         | 
|                                          |  | Item 5. |  | Other Information                                                                                          |  | 18
|                                          |  |         | 
|                                          |  | Item 6. |  | Exhibits                                                                                                   |  | 18
|                                          |  |        
|SIGNATURES                                |  |         |  | 18                                                                                                        



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PART I. FINANCIAL INFORMATION (unaudited)



Item 1. Financial Statements



NOTIFY TECHNOLOGY CORPORATION

CONDENSED BALANCE SHEETS



|                                               |  |               |             |   |                   |   |             |  
|---------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                               |  | June 30, 2005 |             |   | September 30,2004 |  
|                                               |  | (unaudited)   |             |   | (1)               |  
|Assets                                         |  |               |             |   |                   |   |             |  
|Current assets:                                |  |               |             |   |                   |   |             |  
|Cash and cash equivalents                      |  | $             | 610,908     |   |                   | $ | 1,026,121   |  
|Accounts receivable, net                       |  |               | 470,494     |   |                   |   | 485,425     |  
|Other current assets                           |  |               | 66,824      |   |                   |   | 56,598      |  
|                                               |  |               |             |   |                   |   |             |  
|Total current assets                           |  |               | 1,148,226   |   |                   |   | 1,568,144   |  
|                                               |  |              
|Property and equipment, net                    |  |               | 153,504     |   |                   |   | 170,391     |  
|                                               |  |               |             |   |                   |   |             |  
|Total assets                                   |  | $             | 1,301,730   |   |                   | $ | 1,738,535   |  
|                                               |  |               |             |   |                   |   |             |  
|Liabilities and shareholders deficit          |  |               |             |   |                   |   |             |  
|Current liabilities:                           |  |               |             |   |                   |   |             |  
|Current portion of capital lease obligations   |  | $             | 24,770      |   |                   | $ | 14,571      |  
|Accounts payable                               |  |               | 24,487      |   |                   |   | 64,012      |  
|Accrued payroll and related liabilities        |  |               | 364,821     |   |                   |   | 378,057     |  
|Deferred revenue                               |  |               | 1,162,239   |   |                   |   | 1,081,175   |  
|Customer advances                              |  |               | 60,054      |   |                   |   | 271,114     |  
|Other accrued liabilities                      |  |               | 195,051     |   |                   |   | 173,168     |  
|                                               |  |               |             |   |                   |   |             |  
|Total current liabilities                      |  |               | 1,831,422   |   |                   |   | 1,982,097   |  
|Long term portion of capital lease obligations |  |               | 27,552      |   |                   |   | 16,623      |  
|                                               |  |               |             |   |                   |   |             |  
|Total liabilities                              |  |               | 1,858,974   |   |                   |   | 1,998,720   |  
|                                               |  |               |             |   |                   |   |             |  
|Shareholders deficit:                         |  |               |             |   |                   |   |             |  
|Common stock                                   |  |               | 13,969      |   |                   |   | 13,814      |  
|Additional paid-in capital                     |  |               | 22,840,831  |   |                   |   | 22,802,236  |  
|Accumulated deficit                            |  |               | (23,412,044 | ) |                   |   | (23,076,235 | )
|                                               |  |               |             |   |                   |   |             |  
|Total shareholders deficit                    |  |               | (557,244    | ) |                   |   | (260,185    | )
|                                               |  |               |             |   |                   |   |             |  
|Total liabilities and shareholders deficit    |  | $             | 1,301,730   |   |                   | $ | 1,738,535   |  
|                                               |  |               |             |   |                   |   |             |  

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|(1) | The information in this column was derived from our audited financial statements for the year ended September 30, 2004
|--- | ----------------------------------------------------------------------------------------------------------------------



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, |  
|                                     |  | 2005                               |            |   | 2004                              |   |           | 2005 |  |   | 2004       |  
|Revenue:                             |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Product revenue                      |  | $                                  | 604,200    |   |                                   | $ | 408,475   |      |  | $ | 3,067,338  |   |  | $ | 1,085,433 |  
|Service revenue                      |  |                                    | 262,433    |   |                                   |   | 437,364   |      |  |   | 1,113,602  |   |  |   | 1,326,001 |  
|Royalty revenue                      |  |                                    |           |   |                                   |   | 100,000   |      |  |   |           |   |  |   | 154,975   |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Total revenue                        |  |                                    | 866,633    |   |                                   |   | 945,839   |      |  |   | 4,180,940  |   |  |   | 2,566,409 |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Cost of revenue:                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Product cost                         |  |                                    | 25,586     |   |                                   |   | 77,504    |      |  |   | 1,278,912  |   |  |   | 421,760   |  
|Service cost                         |  |                                    | 10,175     |   |                                   |   | 56,963    |      |  |   | 34,112     |   |  |   | 158,306   |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Total cost of revenue                |  |                                    | 35,761     |   |                                   |   | 134,467   |      |  |   | 1,313,024  |   |  |   | 580,066   |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Gross profit                         |  |                                    | 830,872    |   |                                   |   | 811,372   |      |  |   | 2,867,916  |   |  |   | 1,986,343 |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Operating expenses:                  |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Research and development             |  |                                    | 266,796    |   |                                   |   | 216,356   |      |  |   | 779,816    |   |  |   | 691,418   |  
|Sales and marketing                  |  |                                    | 405,064    |   |                                   |   | 257,966   |      |  |   | 1,240,171  |   |  |   | 637,140   |  
|General and administrative           |  |                                    | 412,411    |   |                                   |   | 352,932   |      |  |   | 1,185,791  |   |  |   | 1,103,276 |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Total operating expenses             |  |                                    | 1,084,271  |   |                                   |   | 827,254   |      |  |   | 3,205,778  |   |  |   | 2,431,834 |  
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Loss from operations                 |  |                                    | (253,399   | ) |                                   |   | (15,882   | )    |  |   | (337,862   | ) |  |   | (445,491  | )
|                                     |  |                                    |            |  
|Other income (expense), net          |  |                                    | 704        |   |                                   |   | (501      | )    |  |   | 2,053      |   |  |   | (9,939    | )
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Net loss                             |  | $                                  | (252,695   | ) |                                   | $ | (16,383   | )    |  | $ | (335,809   | ) |  | $ | (455,430  | )
|                                     |  |                                    |            |   |                                   |   |           |      |  |   |            |   |  |   |           |  
|Basic and diluted net loss per share |  | $                                  | (0.02      | ) |                                   | $ | (0.00     | )    |  | $ | (0.02      | ) |  | $ | (0.10     | )
|                                     |  |                                    |            |  
|Weighted average shares outstanding  |  |                                    | 13,968,995 |   |                                   |   | 4,593,995 |      |  |   | 13,921,486 |   |  |   | 4,597,877 |  



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, |          
|                                                                                      |  | 2005                              |           |   | 2004 |  
|                                                                                      |  | (Unaudited)                       |          
|Cash flows used in operating activities:                                              |  |                                   |           |   |      |   |           |  
|Net loss                                                                              |  | $                                 | (335,809  | ) |      | $ | (455,430  | )
|Adjustments to reconcile net loss to cash provided by (used in) operating activities: |  |                                   |           |   |      |   |           |  
|Depreciation and amortization                                                         |  |                                   | 81,422    |   |      |   | 84,937    |  
|(Gain) loss from the sale of property and equipment                                   |  |                                   | (4,343    | ) |      |   | 6,079     |  
|Changes in operating assets and activities:                                           |  |                                   |           |   |      |   |           |  
|Accounts receivable                                                                   |  |                                   | 14,931    |   |      |   | 25,258    |  
|Other current assets                                                                  |  |                                   | (10,226   | ) |      |   | 53,367    |  
|Accounts payable                                                                      |  |                                   | (39,525   | ) |      |   | (58,294   | )
|Deferred revenue                                                                      |  |                                   | 81,064    |   |      |   | 586,132   |  
|Other accrued liabilities                                                             |  |                                   | (202,413  | ) |      |   | 40,091    |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Net cash (used in) provided by operating activities                                   |  |                                   | (414,899  | ) |      |   | 282,140   |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Cash flows used in investing activities:                                              |  |                                   |           |   |      |   |           |  
|Purchase of property and equipment                                                    |  |                                   | (28,088   | ) |      |   | (36,827   | )
|Proceeds from the sale of fixed assets                                                |  |                                   | 5,600     |   |      |   | 3,000     |  
|Decrease in restricted cash                                                           |  |                                   |          |   |      |   | 436,000   |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Net cash (used in) provided by investing activities                                   |  |                                   | (22,488   | ) |      |   | 402,173   |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Cash flows provided by financing activities:                                          |  |                                   |           |   |      |   |           |  
|Payments on short term borrowings                                                     |  |                                   |          |   |      |   | (162,750  | )
|Proceeds from exercise of options                                                     |  |                                   | 38,750    |   |      |   |          |  
|Payments on capital lease                                                             |  |                                   | (16,576   | ) |      |   | (10,217   | )
|                                                                                      |  |                                   |           |   |      |   |           |  
|Net cash provided by (used in) financing activities                                   |  |                                   | 22,174    |   |      |   | (172,967  | )
|                                                                                      |  |                                   |           |   |      |   |           |  
|Net (decrease) increase in cash and cash equivalents                                  |  |                                   | (415,213  | ) |      |   | 511,346   |  
|Cash and cash equivalents at beginning of period                                      |  |                                   | 1,026,121 |   |      |   | 556,805   |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Cash and cash equivalents at end of period                                            |  | $                                 | 610,908   |   |      | $ | 1,068,151 |  
|                                                                                      |  |                                   |           |   |      |   |           |  
|Non-cash investing activities:                                                        |  |                                   |           |   |      |   |           |  
|Property and equipment acquired through capital lease                                 |  | $                                 | 37,704    |   |      | $ |          |  



See accompanying notes to unaudited
condensed financial statements



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NOTIFY TECHNOLOGY CORPORATION



NOTES TO THE
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 (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, 2004.



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



2. GOING CONCERN



Due to our present financial condition and the risks associated with our
business plans, there is substantial doubt as to our ability to continue as a going concern. We are currently researching and developing new products and enhancements to existing products. We are investing substantial resources in the development of
our wireless product, NotifyLink. Although the revenue contribution of our NotifyLink product line has increased significantly on a relative basis, the product is in a growth mode and we cannot predict its long term contribution. Our Visual Got Mail
Solution revenues are highly concentrated to one customer, which changed its program in June 2003 in a manner that has had an effect on our revenues related to CPE sales whereby we have recognized revenue upon events other than customary shipments.
Our customer recently announced that it had entered into a definitive merger agreement under which the customer would be sold to a regional bell operating company. The merger is subject to regulatory approval and is not expected to be completed
until regulatory approvals are obtained. We cannot predict what effect this merger, if completed, will have on our business or financial results or the willingness of our customer to continue our contracts relating to Visual Got Mail Solution. The
success of our business operations will depend on the success of our sales and development efforts for NotifyLink and on our ability to obtain further financing until such time, if ever, as there is sustained favorable market acceptance for our
wireless software products. 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 new software wireless products or obtain further financing as required, then our
business will fail.



3. LIQUIDITY AND CAPITAL RESOURCES



During fiscal 2004, we financed our operations through a
combination of gross margin from sales of product and services and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification and wireless e-mail notification
market solutions and the continuation of the current Visual Got Mail Solution program, and/or raising other sources of financing. We improved the sales of our NotifyLink wireless products to $553,596 and $1,559,205 in the three and nine-month
periods ended June 30, 2005, respectively, from $329,882 and $571,152 in the three and nine-month periods ended June 30, 2004, respectively. We continue to generate significant revenue from the service portion of our Visual Got Mail Solution
although that revenue stream has an uncertain future as the customer has terminated its marketing efforts for the product that our service supports. Consequently, we consider the Visual Got Mail Solution a declining product. We do not believe that
our existing cash balances are sufficient to fund our operations beyond December 31, 2005 and we will have to increase the sales of our NotifyLink products or secure additional financing. If we are unable to achieve NotifyLink revenue improvements
or secure financing, we will have to restructure our business in order to reduce costs.



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NOTIFY TECHNOLOGY CORPORATION



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



Options to purchase 3,383,667 and 3,408,667 shares of common stock and
warrants to purchase 1,871,651 and 2,062,005 shares of common stock were outstanding at June 30, 2005 and 2004, respectively, but were not included in the computation of diluted net income (loss) per share as the effect would be anti-dilutive.



5. 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 |  
|                                                                                                                                            |  | 2005                       |          |   | 2004                      |   |          | 2005 |  |   | 2004     |  
|Net loss as reported                                                                                                                        |  | $                          | (252,695 | ) |                           | $ | (16,383  | )    |  | $ | (335,809 | ) |  | $ | (455,430 | )
|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 |  |                            | (32,302  | ) |                           |   | (137,141 | )    |  |   | (107,575 | ) |  |   | (452,372 | )
|                                                                                                                                            |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Pro forma net loss                                                                                                                          |  | $                          | (284,997 | ) |                           | $ | (153,524 | )    |  |   | (443,384 | ) |  | $ | (907,802 | )
|                                                                                                                                            |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|                                                                                                                                            |  |                            |          |  
|                                                                                                                                            |  | 2005                       |          |   | 2004                      |   |          | 2005 |  |   | 2004     |  
|Earnings per share basic and diluted:                                                                                                       |  |                            |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|As reported                                                                                                                                 |  | $                          | (0.02    | ) |                           | $ | (0.00    | )    |  | $ | (0.02    | ) |  | $ | (0.10    | )
|Pro forma                                                                                                                                   |  | $                          | (0.02    | ) |                           | $ | (0.03    | )    |  | $ | (0.03    | ) |  | $ | (0.20    | )



6. 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 costs represent 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 following table reflects the change in the Companys warranty
accrual during fiscal year 2005:



|                                     |  |   |       |  
|------------------------------------ |  | - | ----- | -
|Warranty accrual, September 30, 2004 |  | $ | 4,724 |  
|Charged to cost of sales             |  |   |      |  
|Actual warranty expenditures         |  |   | (372  | )
|                                     |  |   |       |  
|Warranty accrual, June 30, 2005      |  | $ | 4,352 |  
|                                     |  |   |       |  



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NOTIFY TECHNOLOGY CORPORATION



7. 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, as amended, and
section 21E of the Securities Exchange Act of 1934, as amended. In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as expect,
anticipate, believe, intend, plan, will, or shall, and include, but are not necessarily limited to, all of the statements marked in this Form 10-QSB with an asterisk
(*). These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth below under Risk Factors. When reading the sections titled Results of Operations and Financial Condition, you should also read our unaudited condensed financial
statements and related notes included elsewhere herein, our Annual Report on Form 10-KSB for the year ended September 30, 2004, 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 and Nine-Month Periods Ended June 30, 2005 and 2004



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 the sale of customer premise equipment (CPE) and 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, and we recognize revenue on sales of telephony products when the product is delivered, title has transferred, and no obligations remain.



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Revenue for the three-month period ended June 30, 2005 decreased to $866,633 from $945,839 for the three-month period ended
June 30, 2004 due to product mix. Revenue for the nine-month period ended June 30, 2005 increased to $4,180,940 from $2,566,409 for the nine-month period ended June 30, 2004. Most of the year-to-date increase in revenue resulted from a one-time
recognition of $1,417,010 of deferred revenue triggered by our customers decision to destroy product inventory held by us thereby eliminating the delivery obligation that had previously barred revenue recognition. Revenue from the normal
fulfillment of CPE in the nine-month period ended June 30, 2004 was $359,328 of product that in turn generated $151,470 in associated fulfillment revenue in the same period. There was no fulfillment revenue associated with the $1,417,010 in CPE
sales in the nine-month period ended June 30, 2005. Our wireless product line revenue improved to $553,596 from $329,882 for the three-month periods ended June 30, 2005 and 2004, respectively. Our wireless product line revenue also improved
significantly to $1,559,205 from $571,152 for the nine-month periods ended June 30, 2005 and 2004, respectively. The service portion of the Visual Got Mail solution was $295,069 in the three-month period ended June 30, 2005 compared to $412,980 in
the comparable period of fiscal 2004 and $1,113,602 in the nine-month period ended June 30, 2005 compared to $1,253,131 in the nine-month period ended June 30, 2004. We expect the service revenue to decline in future periods as the installed base
declines*.



Despite the significant revenue activity of our
wireline products in the nine-month period ended June 30, 2005, our NotifyLink product line remains our primary focus and is an email and Personal Information Management (PIM) system designed for business users. 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.



Our Visual Got Mail Solution allows competitive providers of local telephone service to offer voice mail, including message notification, to local
telephone customers without relying on a stutter dial tone or FSK signaling provided by the incumbent telephone company. The Visual Got Mail Solution consists of a hardware product, based on our Call Manager product, that provides a visual
indication that a telephone customer has received a voice message and a subscription service, operated by us, which links the hardware product to the competitive providers voice mail platform. It was the hardware portion of the product that
generated $1,417,010 in revenue in the nine-month period ended June 30, 2005. We also receive from our customer a monthly fee for each active voice mail user for providing the subscription service. In June 2004, our customer made a decision to cease
marketing the product that our services support and the installed base of customers is slowly declining. A contract for continuation of the service until March 2006 has been signed between Notify and our customer but that contract contains a 30-day
written cancellation clause. As such, we consider the Visual Got Mail Solution a declining product so we anticipate that we will continue to experience substantial variances in quarterly revenue. Our balance sheet still contains $247,897 of deferred
revenue representing the margin on additional CPE product still held by us and waiting future fulfillment or other disposition instructions.



Revenue for the three-month and nine-month periods ended June 30, 2004 included $100,000 and $154,975, respectively, from royalties on our
multi-sense/stutter-dial patent but there was no royalty revenue in the three or nine-month periods ended June 30, 2005.



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 64% and 34%, respectively, of total revenue in the three-month period ended June 30, 2005 and 35% and 51%, respectively, of total revenues in the three-month period ended June 30, 2004. The NotifyLink
and Visual Got Mail Solution revenue accounted for 37% and 61%, respectively, of total revenue in the nine-month period ended June 30, 2005 and 22% and 67%, respectively, of total revenues in the nine-month period ended June 30, 2004. 34% 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, 2005.



At June 30, 2005, $247,897 of our deferred revenue is related to the CPE portion of the Visual Got Mail Solution where title has transferred to our
customer but the CPE has not been delivered. Our customer



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disposed of a large quantity of this product during the three-month period ended March 31, 2005 that led to our recognition of $1,417,010 in
revenue during that period. Our balance sheet also contains $914,342 of deferred revenue related to NotifyLink where subscription contracts are sold on an annual basis and revenue is recognized on a straight-line basis over the term of the
individual contracts.



Cost of Revenue



Cost of revenue consists primarily of the cost to operate our hosting
services and to manufacture our products. Cost of revenue decreased to $35,761 in the three-month period ended June 30, 2005 from $134,467 for the three-month period ended June 30, 2004. The reduction is due to product mix where the three-month
period ended June 30, 2004 contained manufacturing costs for CPE sales while the cost of revenue for the three-month period ended June 30, 2005 had no CPE component.



Our gross margin increased to 95.9% in the three-month period ended June 30, 2005 compared to a gross margin of 85.8% in the
three-month period ended June 30, 2004 and the gross margin for the nine-month period ended June 30, 2005 decreased to 68.6% compared to 77.4% for the nine-month period ended June 30, 2004. The decrease occurred because the nine-month period ended
June 30, 2005 contained a larger volume of low margin CPE sales than the same period of the prior year. Also, the nine-month period ended June 30, 2004 contained $154,975 of royalty revenue with no associated cost of revenue while there was no
royalty revenue in the nine-month period ended June 30, 2005.



Our gross margin can generally be affected by a number of factors, including product mix, product demand, pricing pressures, warranty costs, and timing. Considering these factors, our gross margin has and will continue to fluctuate
significantly and there can be no assurance that we will maintain our gross margins at the current levels.



Research and development



Research and development expenses consist primarily of personnel costs and support expenses. Research and development expenses increased to $266,796 for the three-month period ended June 30, 2005 from $216,356 for the three-month period
ended June 30, 2004. Research and development expenses increased to $779,816 for the nine-month period ended June 30, 2005 from $691,418 for the nine-month period ended June 30, 2004. This increase reflects the increase in our Ohio staff that
designs and develops our wireless products. The primary focus of our development continues to be in the NotifyLink product area. 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 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 increased to $405,064 for the three-month period ended
June 30, 2005 from $257,966 for the three-month period ended June 30, 2004. Sales and marketing costs increased to $1,240,171 for the nine-month period ended June 30, 2005 from $637,140 for the nine-month period ended June 30, 2004. This increase is
the result of personnel additions to establish an internal sales force and staff up customer support to facilitate the NotifyLink sales process. Sale of the NotifyLink product involves a trial process requiring assistance to prospective customers
installing our software. We have also expanded our marketing programs as the NotifyLink product benefits from establishing name recognition and reaching out to our target markets. In contrast, the Visual Got Mail Solution sales are completely
supported by our executive staff.



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



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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 increased to $412,411 for the three-month period ended June 30, 2005 from $352,932 for the three-month period ended June 30, 2004. General and administrative expenses increased to
$1,185,791 for the nine-month period ended June 30, 2005 from $1,103,276 for the nine-month period ended June 30, 2004 due to implementing a Sarbanes-Oxley compliant software for tracking and managing NotifyLink contracts and compensation increases.



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



LIQUIDITY AND CAPITAL RESOURCES



During fiscal 2004, we financed our operations through a combination of gross margin from sales of product and services and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our
NotifyLink wireless e-mail notification and wireless e-mail notification market solutions and the continuation of the current Visual Got Mail Solution program, and/or raising other sources of financing. We improved the sales of our NotifyLink
wireless products to $553,596 and $1,559,205 in the three and nine-month periods ended June 30, 2005, respectively, from $329,882 and $571,152 in the three and nine-months periods ended June 30, 2004, respectively. We continue to generate
significant revenue from the service portion of our Visual Got Mail Solution although that revenue stream has an uncertain future as the customer has terminated its marketing efforts for the product that our service supports. Consequently, we
consider the Visual Got Mail Solution a declining product. We do not believe that our existing cash balances are sufficient to fund our operations beyond December 31, 2005 and we will have to increase the sales of our NotifyLink products or secure
additional financing. If we are unable to achieve NotifyLink revenue improvements or secure financing, we will have to restructure our business in order 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, 2005, we had cash and cash equivalents of $610,908. Over the
last three years, we have financed our operations primarily through sales of equity and debt securities and bank lines of credit. The net cash used in operating activities equaled $414,899 in the nine-month period ended June 30, 2005 versus net cash
provided by operating activities of $282,140 in the nine-month period ended June 30, 2004. The cash used in operations was a combination of a net loss of $335,809 and the pay down of a customer advance of $211,060. The net cash provided in the
nine-month period ended June 30, 2004 was largely attributable to an increase in deferred revenue. We anticipate that we will have negative cash flow from operating activities in future quarters and years.*



Net cash used in investing activities was an outflow of $22,488 and an inflow
of $402,173 for the nine-month periods ended June 30, 2005 and 2004, respectively. The net cash outflow was due to capital purchases in the nine-month period ended June 30, 2005 and the inflow due to decreases in restricted cash of $436,000,
partially offset by purchases of property and equipment in the nine-month period ended June 30, 2004. Cash had been routinely restricted during the inventory purchase process that employed letters of credit. We terminated purchases of inventory at
the end of the 2003 fiscal year thereby eliminating the process that restricted cash.



Net cash provided by financing activities was an inflow of $22,174 and an outflow of $172,967 for the nine-month periods ended June 30, 2005 and 2004, respectively. The net cash inflow for the nine-month period ended
June 30, 2005 was due to proceeds received from the exercise of options partially offset by payments on capital leases. The net cash outflow for the nine-month periods ended June 30, 2004 was due to payments on a capital lease and short-term
borrowings .



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



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RISK FACTORS



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



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 nine-month
period ended June 30, 2005, 61% of our revenue came from the sale of our Visual Got Mail Solution CPE and 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 customer recently announced that it had entered into a definitive merger
agreement under which the customer would be sold to a regional bell operating company. The merger is subject to regulatory approval and is not expected to be completed until regulatory approvals are obtained. We cannot predict what effect this
merger, if completed, will have on our business or financial results or the willingness of our customer to continue our contracts relating to the Visual Got Mail Solution product.



Because of Our Financial Condition and Our Business Plans, Our Financial Statements Disclose That There is Substantial Doubt as to Our
Ability to Continue as a Going Concern and Accordingly Our Business Has a High Risk of Failure



We are currently replacing our wireline products with our wireless software products and researching and developing new products and enhancements to our
existing NotifyLink product family. Due to our present financial condition and our business plans, there is substantial doubt as to our ability to continue as a going concern. To date, our NotifyLink product line has not generated sufficient revenue
to completely replace our wireline service product. As our wireline service revenues decline, we need to improve the sales of NotifyLink to compensate. 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. 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 new software wireless
products or obtain further financing, then our business will fail. We cannot predict whether we will be able to obtain additional financing when or as needed. Any potential financing could take the form of debt or equity and could include terms that
are unfavorable to the Company and/or its existing stockholders. Any equity financing transaction would be expected to dilute the equity and voting interests of our existing stockholders.



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, 2004, 2003, 2002, 2001,



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2000, 1999, and 1998, we incurred net losses of $655,908, $1,100,475, $1,741,752, $3,337,612, $3,526,452, $3,123,284 and $2,617,561
respectively. We incurred a net loss of $335,809 for the nine-month period ended June 30, 2005 and as of June 30, 2005, we had an accumulated deficit of $23,412,044 and a working capital deficit of $683,196. We anticipate having negative cash flow
from operating activities in future quarters and years. We also expect to incur further operating losses in future quarters and years until such time, if ever, as there is a substantial increase in orders for our products and product sales
generating sufficient revenue to fund our continuing operations. There can be no assurance that sales of our products will ever generate significant revenue, that we will ever generate positive cash flow from our operations or that we will attain or
thereafter sustain profitability in any future period.



If We Are Unable To
Market Our Wireless Software Products and Achieve Industry Acceptance Quickly, We Could Lose Existing And Potential Customers and Our Sales Would Decrease



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



If the Market for Wireless Data Communications Devices Does Not Grow, We May Not Successfully Sell Our NotifyLink Products



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



We May Be
Unable to Generate the Capital Necessary to Support Our Planned Level of Research and Development Activities or to Manufacture and Market Our Products



At June 30, 2005, we had an accumulated deficit of $23,412,044 and incurred a net loss of $335,809 for the nine-month period ended June 30, 2005. We also
had a working capital deficit at that date of $683,196. Our recently developed NotifyLink products will need to attain favorable market acceptance in order for us to be able to continue our research and development activities and to fund operating
expenses at current levels. Regardless, because our NotifyLink wireless product line has not provided sufficient contributions to our revenues 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 significantly reduce our spending, delay or cancel planned activities or



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substantially change our current corporate structure. In such an event, we intend to implement expense reduction plans in a timely manner.
However, these actions would have material adverse effects on our business, results of operations, and prospects, resulting in a possible failure of our business.



Our Quarterly Operating Results May Vary



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



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



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



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



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



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



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



| |  | 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 revenues in a given quarter may materially
adversely affect our financial condition and results of operations because we are unable to adjust expenses during the quarter to match the level of product revenues, if any, for the quarter. Due to these and other factors, we believe that quarter
to quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance.



Our Products May Not Be Accepted



We 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 newest member of the NotifyLink family, the Hosted product, was introduced in November 2004. To date, we have received increasing but limited revenue from the sale of these products. We do not
believe our sales to date are sufficient to determine whether or not there are sufficient consumers or business demand for our products to bring us to profitability.



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



We Depend on a Limited Number of Potential Customers and Need to Develop Marketing Channels



We participate in formal relationships with agents and referral partners and
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 Enterprise products. We have established many formal
referral arrangements but 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 referral partners or other informal 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 revenues from a gradually declining installed base.



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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 revenues. We also have limited international sales as we rely on opportunities that present themselves due to limited resources. Our management will need to expend time and effort to develop these channels. We have also changed
our customer profile from volume sales to a limited number of large telecommunication customers to relatively small sales to a large number of business customers and 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. Our Visual Got Mail Solution product incorporates a combination of reasonably sophisticated computer chip design, electric
circuit design, software programming and telephony technology. We have devoted substantial resources to researching and developing each of these elements. In order to reduce the manufacturing costs, expand the feature sets and otherwise enhance the
operation of our products, we have from time to time redesigned our products. Though we extensively test our products before marketing them, any new, redesigned or current product may contain design flaws that we would not detect through our testing
procedures.



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 directly compete with Research In Motion Limited 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 Extended Systems, Intellisync, and Microsoft
Corporation. 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, revenues, operating results, and financial condition.



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



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



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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 Inside Sales, Elizabeth Dorman. We have entered into
employment agreements with these five key management employees. The loss of their services or those of any of our other key employees would materially adversely affect us. We also believe that our future success will depend in large part on our
ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. If we were unable to hire the necessary personnel, the development of new products and enhancements to current products would likely be
delayed or prevented. Competition for these highly-skilled employees is intense. Therefore, there can be no assurance that we will be successful in retaining our key personnel and in attracting and retaining the personnel we require for expansion.



Our Intellectual Property May Not Be Adequately Protected and We May
Infringe the Rights of Others



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



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



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



Our Products May Not Comply with Government Regulations and Industry Standards



Our products must comply with a variety of regulations and standards. These include regulations and standards set by the Federal Communications
Commission, Underwriters Laboratories, National Registered Testing Laboratories, and Bell Communications Research. As our business expands into international markets, we will be required to comply with whatever governmental regulations and industry
standards exist in those markets. In addition, the U.S. telecommunications market is evolving rapidly in part



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due to recently enacted laws revamping the telecommunications regulatory structure. Additional legislative or regulatory changes are
possible. If we fail to comply with existing regulations and standards or to adapt to new regulations and standards, our business and operating results could be materially adversely affected.



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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NOTIFY TECHNOLOGY CORPORATION



(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 Burr, Pilger
& Mayer LLP (BPM), 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 BPM for non-audit services in fiscal 2005, including tax related services and review of a registration statement on Form SB-2 registering the common shares underlying our Series A preferred offering of 2001.



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



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, 2005 |  |                                             
|                       |  | /s/ Gerald W. Rice                          
|                       |  | Chief Financial Officer                     
|                       |  | (Principal Financial and Accounting Officer)



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