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, 2009


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., Suite202


San Jose,
CA  95129


(Address
of principal executive offices)




(408)
777-7920


(Registrant’s
telephone number including area code)





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




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




Yes          x           No          o




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




Yes          oNo          o




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




Large
      accelerated filer  o
              Accelerated
      filer  oNon-accelerated
      filer  o
              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          oNo            x




As of
February 10, 2010, 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, 2009 (unaudited)
      and  September 30, 2009
                          3Condensed
      Statements of Operations for the three-month periods ended December 31,
      2009 and 2008 (unaudited)
                          4Condensed
      Statements of Cash Flows for the three-month periods ended December 31,
      2009 and 2008 (unaudited)
                          5Notes
      to Condensed Financial Statements (unaudited)
                          6Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          9Item
      3
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          13Item
      4(T).
                          Controls
      and Procedures
                          13PART
      II.  OTHER INFORMATIONItem
      1A.
                          Risk
      Factors
                          14Item
      6.
                          Exhibits
                          19SIGNATURES
                          20


2


PART
I.  FINANCIAL INFORMATION (unaudited)





Item
1.                Financial
Statements





NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
BALANCE SHEETS




December
      31,
                                                                      
                                                                      
                                                                      September
      30,2009
                                                                      
                                                                      
                                                                      2009(unaudited)
                                                                      
                                                                      
                                                                      
                                                                      (1)AssetsCurrent
      assets:Cash
      and cash equivalents
                                                                      
                                                                      $
                                                                      1,712,844
                                                                      
                                                                      
                                                                      $
                                                                      1,565,447Accounts
      receivable, net
                                                                      
                                                                      
                                                                      1,208,823
                                                                      
                                                                      
                                                                      
                                                                      810,543Other
      current assets
                                                                      
                                                                      
                                                                      33,135
                                                                      
                                                                      
                                                                      
                                                                      40,540Total
      current assets
                                                                      
                                                                      
                                                                      2,954,802
                                                                      
                                                                      
                                                                      
                                                                      2,416,530Non-current
      assetsProperty
      and equipment, net
                                                                      
                                                                      
                                                                      260,356
                                                                      
                                                                      
                                                                      
                                                                      247,117Lease
      deposits
                                                                      
                                                                      
                                                                      15,602
                                                                      
                                                                      
                                                                      
                                                                      15,602Total
      non-current assets
                                                                      
                                                                      
                                                                      275,958
                                                                      
                                                                      
                                                                      
                                                                      262,719Total
      assets
                                                                      
                                                                      $
                                                                      3,230,760
                                                                      
                                                                      
                                                                      $
                                                                      2,679,249Liabilities
      and shareholders' deficitCurrent
      liabilities:Current
      portion of capital lease obligations
                                                                      
                                                                      $
                                                                      3,948
                                                                      
                                                                      
                                                                      $
                                                                      4,142Accounts
      payable
                                                                      
                                                                      
                                                                      17,310
                                                                      
                                                                      
                                                                      
                                                                      75,340Accrued
      payroll and related liabilities
                                                                      
                                                                      
                                                                      498,627
                                                                      
                                                                      
                                                                      
                                                                      454,946Deferred
      revenue
                                                                      
                                                                      
                                                                      3,435,527
                                                                      
                                                                      
                                                                      
                                                                      2,995,906Other
      accrued liabilities
                                                                      
                                                                      
                                                                      124,324
                                                                      
                                                                      
                                                                      
                                                                      140,464Total
      current liabilities
                                                                      
                                                                      
                                                                      4,079,736
                                                                      
                                                                      
                                                                      
                                                                      3,670,798Long
      term portion of deferred revenue
                                                                      
                                                                      
                                                                      131,112
                                                                      
                                                                      
                                                                      
                                                                      137,250Long
      term portion of capital lease obligations
                                                                      
                                                                      
                                                                      5,580
                                                                      
                                                                      
                                                                      
                                                                      6,543136,692
                                                                      
                                                                      
                                                                      
                                                                      143,793Total
      liabilities
                                                                      
                                                                      
                                                                      4,216,428
                                                                      
                                                                      
                                                                      
                                                                      3,814,591Shareholders'
      deficit:Preferred
      stock, $0.001 par value, 5,000,000 shares authorized, no shares
      outstanding
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      —Common
      stock, $0.001 par value, 30,000,000 shares authorized, 14,075,662 and
      14,075,662 shares issued and outstanding on December 31, 2009 and
      September 30, 2009, respectively
                                                                      
                                                                      
                                                                      14,076
                                                                      
                                                                      
                                                                      
                                                                      14,076Additional
      paid-in capital
                                                                      
                                                                      
                                                                      23,460,181
                                                                      
                                                                      
                                                                      
                                                                      23,442,160Accumulated
      deficit
                                                                      
                                                                      
                                                                      (24,459,925
                                                                      )
                                                                      
                                                                      
                                                                      (24,591,578
                                                                      )Total
      shareholders’ deficit
                                                                      
                                                                      
                                                                      (985,668
                                                                      )
                                                                      
                                                                      
                                                                      (1,135,342
                                                                      )Total
      liabilities
      and shareholders' deficit
                                                                      
                                                                      $
                                                                      3,230,760
                                                                      
                                                                      
                                                                      $
                                                                      2,679,249




(1) The
information in this column was derived from our audited financial statements for
the year ended September 30, 2009.





See
accompanying notes to condensed financial statements


3


NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
STATEMENTS OF OPERATIONS





Three-Month
      PeriodsEnded
      December 31,2009
                  
                  2008(Unaudited)Revenue:Product
      sales
                  
                  $
                  1,796,645
                  
                  
                  $
                  1,349,261Total
      revenue
                  
                  
                  1,796,645
                  
                  
                  
                  1,349,261Cost
      of revenue:Product
      cost
                  
                  
                  9,064
                  
                  
                  
                  5,260Royalty
      payments
                  
                  
                  1,991
                  
                  
                  
                  34,188Total
      cost of revenue
                  
                  
                  11,055
                  
                  
                  
                  39,448Gross
      profit
                  
                  
                  1,785,590
                  
                  
                  
                  1,309,813Operating
      expenses:Research
      and development
                  
                  
                  453,850
                  
                  
                  
                  479,915Sales
      and marketing
                  
                  
                  715,990
                  
                  
                  
                  562,249General
      and administrative
                  
                  
                  485,184
                  
                  
                  
                  329,919Total
      operating expenses
                  
                  
                  1,655,024
                  
                  
                  
                  1,372,083Income
      (loss) from operations
                  
                  
                  130,566
                  
                  
                  
                  (62,270
                  )Interest
      income (expense) and other, net
                  
                  
                  1,087
                  
                  
                  
                  1,620Net
      income (loss) before provision for income taxes
                  
                  $
                  131,653
                  
                  
                  $
                  (60,650
                  )Provision
      for income taxes
                  
                  
                  —
                  
                  
                  
                  —Net
      income (loss)
                  
                  $
                  131,653
                  
                  
                  $
                  (60,650
                  )Basic
      and diluted net income (loss) per share
                  
                  $
                  0.01
                  
                  
                  $
                  (0.00
                  )Weighted
      average shares outstanding
                  
                  
                  14,075,662
                  
                  
                  
                  14,075,662Diluted
      weighted net income (loss) per share
                  
                  $
                  0.01
                  
                  
                  $
                  (0.00
                  )Diluted
      weighted average shares outstanding
                  
                  
                  15,904,358
                  
                  
                  
                  14,075,662





See
accompanying notes to condensed financial statements


4


NOTIFY
TECHNOLOGY CORPORATION


CONDENSED
STATEMENTS OF CASH FLOWS


Three-Month
      PeriodsEnded
      December 31,2009
                                                                                  
                                                                                  
                                                                                  2008(Unaudited)Cash
      flows provided by operating activities:Net
      income (loss)
                                                                                  
                                                                                  $
                                                                                  131,653
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (60,650
                                                                                  )Adjustments
      to reconcile net income (loss) to cash provided byoperating
      activities:Depreciation
      and amortization
                                                                                  
                                                                                  
                                                                                  29,991
                                                                                  
                                                                                  
                                                                                  
                                                                                  18,454SFAS
      123(R) expense
                                                                                  
                                                                                  
                                                                                  18,021
                                                                                  
                                                                                  
                                                                                  
                                                                                  —Changes
      in operating assets and activities:Accounts
      receivable
                                                                                  
                                                                                  
                                                                                  (398,280
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (317,240
                                                                                  )Other
      current assets
                                                                                  
                                                                                  
                                                                                  7,405
                                                                                  
                                                                                  
                                                                                  
                                                                                  2,510Accounts
      payable
                                                                                  
                                                                                  
                                                                                  (58,030
                                                                                  )
                                                                                  
                                                                                  
                                                                                  24,845Deferred
      revenue
                                                                                  
                                                                                  
                                                                                  433,483
                                                                                  
                                                                                  
                                                                                  
                                                                                  448,396Other
      accrued liabilities
                                                                                  
                                                                                  
                                                                                  27,541
                                                                                  
                                                                                  
                                                                                  
                                                                                  (25,510
                                                                                  )Net
      cash provided by operating activities
                                                                                  
                                                                                  
                                                                                  191,784
                                                                                  
                                                                                  
                                                                                  
                                                                                  90,805Cash
      flows used in investing activities:Purchase
      of property and equipment
                                                                                  
                                                                                  
                                                                                  (43,230
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (48,150
                                                                                  )Net
      cash used in investing activities
                                                                                  
                                                                                  
                                                                                  (43,230
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (48,150
                                                                                  )Cash
      flows used in financing activities:Principal
      payments on capital lease obligations
                                                                                  
                                                                                  
                                                                                  (1,157
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,085
                                                                                  )Net
      cash used in financing activities
                                                                                  
                                                                                  
                                                                                  (1,157
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,085
                                                                                  )Net
      increase in cash and cash equivalents
                                                                                  
                                                                                  
                                                                                  147,397
                                                                                  
                                                                                  
                                                                                  
                                                                                  41,570Cash
      and cash equivalents at beginning of period
                                                                                  
                                                                                  
                                                                                  1,565,447
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,010,607Cash
      and cash equivalents at end of period
                                                                                  
                                                                                  $
                                                                                  1,712,844
                                                                                  
                                                                                  
                                                                                  $
                                                                                  1,052,177Supplemental
      disclosure of cash informationCash
      paid for interest
                                                                                  
                                                                                  $
                                                                                  158
                                                                                  
                                                                                  
                                                                                  $
                                                                                  229Cash
      paid for taxes
                                                                                  
                                                                                  $
                                                                                  855
                                                                                  
                                                                                  
                                                                                  $
                                                                                  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 to Form 10-Q and Article 8 of
Regulation S-X.  The condensed financial statements included herein
are unaudited but include all adjustments (consisting only of normal recurring
adjustments), which we consider necessary for a fair presentation of the
financial position at such date and the operating results and cash flows for
those periods.  Although we believe that the disclosures in these
condensed financial statements are adequate to make the information presented
not misleading, certain information normally included in financial statements
and related footnotes prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission.  The accompanying condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
our Annual Report on Form 10-K for the year ended September 30,
2009.





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





2.      NET
INCOME (LOSS) PER SHARE





The net
income per share for the three-month period ended December 31, 2009 was a gain
of $0.01 compared to a loss of $(0.00) for the same period in the prior
year.  Options to purchase 3,535,236 and 3,453,544 shares of common
stock were outstanding at December 31, 2009 and 2008, respectively. The
outstanding options were included in the computation of diluted net income
per share for the three month period ended December 31, 2009 to fully dilute the
earnings per share but were not included in the computation of diluted net loss
for the three-month period ended December 31, 2008 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
options 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.




The
Company’s 2008 Equity Incentive Plan (“2008 Plan”) was established on December
17, 2008.  The Board authorized 2,317,000 shares of the Company’s
common stock to be reserved under the 2008 Plan.  Included in the
3,535,236 total outstanding options as of December 31, 2009 were 1,727,236
options granted under the 2008 Plan to various employees.  These
grants included 169,470 options exchanged on December 17, 2008 for 900,000
options granted under a prior option plan.





4. ACCOUNTING
FOR STOCK BASED COMPENSATION




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


6


NOTIFY TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)




The
Company recognized stock based employee compensation in the three-month period
ended December 31, 2009 and recorded a non-cash expense of $18,021.





5. PRODUCT
WARRANTY




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




6. RECENT
ACCOUNTING PRONOUNCEMENTS




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




In May
2009, the FASB issued FASB ASC 855, “Subsequent Events”.  This
Statement addresses accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or available to be
issued.  FASB ASC 855 requires disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, the date
issued or date available to be issued.  The Company adopted this
Statement in the fourth fiscal quarter of 2009.




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




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




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


7


NOTIFY
TECHNOLOGY CORPORATION


Notes
to Condensed Financial Statements


(Unaudited)





7. ACCOUNTS
RECEIVABLE




Forty-one
percent of the accounts receivable balance of $1,208,823 as of December 31, 2009
was concentrated in one customer triggered by the annual renewal of their
subscription to our NotifyLink On-Demand product.




8. SUBSEQUENT
EVENTS




There
were no material subsequent events as of February 10, 2010.


8


NOTIFY
TECHNOLOGY CORPORATION





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




FORWARD
LOOKING STATEMENTS




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




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


·
            statements
      regarding future revenue from our
products;


·
            statements
      regarding our future success;


·
            statements
      regarding our future financings;


·
            statements
      regarding future costs;


·
            statements
      regarding future research and development
  efforts;


·
            statements
      regarding competition in the market for wireless
  products;


·
            statements
      regarding future patent
applications;


·
            statements
      regarding future financial results;
and


·
            statements
      regarding future plans to extend our product
  line.




These
statements are based on current expectations and are subject to important
factors that could cause actual results to differ materially from those
projected in the forward-looking statements. Such important factors include, but
are not limited to, those discussed below under “Risk Factors” and elsewhere in
this Quarterly Report and in other documents we file with the U.S. Securities
and Exchange Commission. When reading the sections titled "Results of
Operations" and "Financial Condition," you should also read our unaudited
condensed financial statements and related notes included elsewhere herein and
our Annual Report on Form 10-K for the fiscal year ended September 30,
2009.  We undertake no obligation to update any forward-looking
statements as a result of developments occurring after the date of this
Quarterly Report.  The following
discussion and analysis of our financial condition and results of operations
should be read together with our Consolidated FinancialStatements and related notes included
elsewherein this Quarterly Report on Form
10-Q.





OVERVIEW




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


9


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, 2009 and 2008




Revenue




Revenue
consists of net revenue from the sale of NotifyLink software licenses,
installation fees and the sale of third party software.  We recognize
the license portion at the point of sale for those sales where VSOE has been
established and the service portion ratably over the term of the service
contract. For those contracts where VSOE has not been established, the revenue
of the entire contract is recognized ratably over the term of the
contract.  Maintenance revenue is recognized on a straight-line basis
over the term of each contract.  Installation revenue is recognized
upon completion of trial activity and finalizing the software
agreement.  Third party software revenue is recognized upon delivery
to the customer.




Our
revenues increased 33% to $1,796,645 in the three-month period ended December
31, 2009 from $1,349,261 in the three-month period ended December 31,
2008.  The increase in revenue was attributed to growth in domestic
sales of our NotifyLink product line plus sales from our new NotifySync product
line.  We also believe that the current rapid growth in the Smartphone
market and the increasing number of devices available has had a favorable impact
on our business.





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





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





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




Cost
of revenue




Cost of
revenue consists of the hosting center costs to support the service portion of
our NotifyLink products and the cost of resale software related to NotifyLink.
Cost of revenue decreased to $11,055 in the three-month period ended December
31, 2009, from $39,448 for the three-month period ended December 31, 2008. The
decrease in the cost of revenue was due to the elimination of a royalty applied
to software sales because we fully paid up the royalty license in fiscal
2009.




10


NOTIFY
TECHNOLOGY CORPORATION





Our gross
margin increased to 99.4% in the three month period ended December 31, 2009
compared to a gross margin of 97.1% in the three-month period ended December 31,
2008.  The major cost component affecting gross margin had been a
royalty expense that no longer exists.  The other major costs of our
business, consisting of product design and sales/support, are categorized in
operating expenses and thus do not impact gross margin.





Research
and development





Research and development expenses
consist primarily of personnel costs and expenses. Research and development
expenses decreased to $453,850 for the three-month period ended December 31,
2009 from $479,915 for the three-month period ended December 31,
2008.  The decrease is not significant enough to have one major
cause.   Our development efforts focus on porting our solution to
new devices and improving our current product plus creating new products in the
area of device management.




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 $715,990 for
the three-month period ended December 31, 2009 from $562,249 for the three-month
period ended December 31, 2008.  The increase in sales expense is due
to expanding our sales force and the supporting sales administration
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.





General
and administrative





General
and administrative expense consists of general management and finance personnel
costs, insurance expense, rent expense, professional fees and other general
corporate expenses.  General and administrative expenses increased to
$485,184 for the three-month period ended December 31, 2009 from $329,919 for
the three-month period ended December 31, 2008.  The increase is due
to compensation expense and option vesting expense recorded on the general and
administrative line.




LIQUIDITY
AND CAPITAL RESOURCES




In the
three-month period ended December 31, 2009, we funded our operations through
cash provided by operations.  Our ability to fund our operations
depends upon the continued success of our NotifyLink and NotifySync wireless
e-mail notification market solutions.




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




The major
cost of operations is comprised of (1) the engineering design of our products
offered for sale and (2) the 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.  The increase in the
NotifyLink deferred revenue to $3,566,639 as of December 31, 2009 from
$3,133,156 as of September 30, 2009, combined with the increase in revenues in
the three-month period ended December 31, 2009, indicates that total product
revenue continued to improve in the first fiscal quarter of
2010.  Deferred revenue also represents the obligation to service the
contracts underlying the revenue.  However, the cash flow required to
provide the service of contracts is significantly less than the amortized
revenue recognized each month.


11


NOTIFY
TECHNOLOGY CORPORATION




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




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




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




Our 2008
Equity Incentive Plan (the “2008 Plan”) was established on December 17,
2008.  The Board authorized 2,317,000 shares of the Company’s common
stock to be reserved under the 2008 Plan.  Included in the 3,535,236
total outstanding options as of December 31, 2009 were 1,727,236 options granted
under the 2008 Plan to various employees.  These grants included
169,470 options exchanged on December 17, 2008 for 900,000 options granted under
a prior option plan.





At
December 31, 2009, we had cash and cash equivalents of $1,712,844, compared to
$1,052,177 at December 31, 2008.  Over the last several years, we have
financed our operations primarily through revenue from
operations.  The net cash generated by operating activities equaled
$191,784 in the three-month period ended December 31, 2009, versus net cash
generated by operating activities of $90,805 in the three-month period ended
December 31, 2008. The cash generated by operations in the three-month period
ended December 31, 2009 was a combination of net income of $131,653 less an
increase in accounts receivable of $398,280 and a decrease in accounts payable
of $58,030 offset by an increase in deferred revenue of $433,483.  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.  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.




Net cash
used by investing activities in the three-month period ended December 31, 2008
was an outflow of $43,230 for computer purchases.  There was a net
cash outflow of $48,150 from the purchase of fixed assets in the three-month
period ended December 31, 2008.




Net cash
provided by financing activities was an outflow of $1,157 and an outflow of
$1,085 for the three-month periods ended December 31, 2009 and 2008,
respectively.  The net cash outflow for the three-month period ended
December 31, 2009 was due to payments on capital leases.  The outflow
for the three-month period ended December 31, 2008 was also due to payments on
capital leases.




CRITICAL
ACCOUNTING POLICIES AND ESTIMATES




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




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


12


NOTIFY
TECHNOLOGY CORPORATION





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




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




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




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




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





OFF
BALANCE SHEET ARRANGEMENTS




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





Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





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





Item
      4T.
            Controls
      and Procedures.




(a)    
Evaluation of
Disclosure Controls and Procedures.





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


13


NOTIFY
TECHNOLOGY CORPORATION




(b)    
Changes in Internal
Controls.




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





PART
      II.
            OTHER
      INFORMATION




Item
      1A.
            Risk
      Factors.




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





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




We
commenced operations in August 1994 and through January 1996 were engaged
primarily in the sale of hardware products to the telephone market. We made the
decision in fiscal 2003 to refocus our strategy on developing and selling
software applications for the wireless market.  Accordingly, our business
has changed substantially in recent years, making it difficult to make
period-to-period comparisons of our operations and we face all of the risks and
uncertainties encountered by early-stage companies. For the three-month period
ended December 31, 2009, we had a gain of $131,653.  For the fiscal year
ended September 30, 2009, we had a gain of $70,685.  For the fiscal years
ended September 30, 2008, 2007 and 2006, we incurred net losses of $287,680,
$426,004, and $314,892, respectively. Although our cash flows from operations
were positive in the three-month period ended December 31, 2009 and the years
ended September 30, 2009, 2008 and 2007, we are not assured that we can maintain
a positive cash flow from operating activities in future periods. There can be
no assurance that sales of our products will continue to generate or maintain a
positive cash flow or that we will attain or thereafter sustain profitability in
any future period.





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




At
December 31, 2009, we had an accumulated deficit of $24,459,925 and recorded a
net income for the three-month period ended December 31, 2009 of $131,653. We
also had a working capital deficit at that date of $1,124,934.  Our
NotifyLink and NotifySync products will need to sustain a favorable market
acceptance in order for us to be able to continue our research and development
activities and to fund operating expenses at a level required to stay
competitive in our market.  Regardless, as our wireless product lines have
only generated sufficient contributions to our revenues to date to operate
profitably at the current level of research and development for the last fiscal
year, an increase in the level of research and development driven by market
pressures could require us to obtain further financing.  Obtaining
additional financing will be subject to a number of factors including market
conditions, investor acceptance of our business plan, and investor
sentiment.  These factors may make the timing, amount, terms and conditions
of additional financing unattractive or unavailable to us.  If, in a
situation that required an increase in research and development we are unable to
maintain market acceptance of our wireless products or raise additional
financing, we will have to significantly reduce our spending, delay or cancel
planned activities or substantially change our current corporate
structure.  In such an event, we intend to implement expense reduction
plans in a timely manner.  However, these actions would have material
adverse effects on our business, results of operations, and prospects, resulting
in a possible failure of our business.




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




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


14


NOTIFY
TECHNOLOGY CORPORATION




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




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




·
            our
      level of research and development;




·
            our
      sales and marketing activities;




·
            announcements
      by us or our competitors;




·
            size
      and timing of orders from
customers;




·
            new
      product introductions by us or our
competitors;




·
            future
      market acceptance of our products;
and




·
            price
      erosion.




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




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




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




We
continue to develop our formal referral partner channel and our international
reseller partner channel.  We participate in informal referral arrangements
with several wireless carriers, wireless device manufacturers and several of our
collaboration partners for the sale of our NotifyLink and NotifySync products
and services where our products assist in the sale of their products.  We
have a limited direct sales force to sell our NotifyLink and NotifySync products
and services to organizations and businesses, and we rely upon both formal and
informal referral arrangements to provide leads for our NotifyLink and
NotifySync products.  To date, most of our referral arrangements are
formal, and we will receive referrals only to the extent that our referral
partners successfully refer our products and services to potential users. 
There can be no assurance that we will continue to receive referrals through our
formal or informal arrangements.  Our NotifyLink and NotifySync solutions
are sold into an emerging market and although we have operated on a cash
positive basis in the fiscal years ending September 30, 2009, 2008 and 2007, we
have only achieved sufficient growth in our sales to generate net income in
fiscal 2009 and in the three-month period ended December 31, 2009.




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.


15


NOTIFY
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.  There can be no assurance, therefore, that any of our competitors,
some of whom have far greater resources than we do, will not independently
develop technologies that are substantially equivalent or superior to our
technology.





We
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.


16


NOTIFY
TECHNOLOGY CORPORATION




Risks
Related to Our Common Stock




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




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




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




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




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




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




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




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




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




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




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




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




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




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




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


17


NOTIFY
TECHNOLOGY CORPORATION




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




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




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




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




Our
stock price may be volatile




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




Our charter provisions may discourage
acquisition bids.




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




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




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


18


NOTIFY
TECHNOLOGY CORPORATION




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





Our
Articles of Incorporation eliminate, in certain circumstances, the liability of
our directors and officers for monetary
damages for breach of their fiduciary duties as directors and officers.  We
have also entered into indemnification agreements with each of our directors and
officers.  Each of these indemnification agreements provides that we will
indemnify the indemnitee against expenses, including reasonable attorneys' fees,
judgments, penalties, fines, and amounts paid in settlement actually and
reasonably incurred by such directors and officers 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 directors and officers or other party thereto in all cases to the
fullest extent permitted by applicable law.  Each indemnification agreement
permits the director or officer that is party thereto to bring suit to seek
recovery of amounts due under the indemnification agreement and to recover the
expenses of such a suit if they are successful.  We currently have
directors’ and officers’ liability insurance, but there can be no assurance that
any or all of our indemnification obligations will be covered by this insurance
or that the insurance limits will not be exceeded.




Item
6.  Exhibits




(a)
            Exhibits:




31.1* Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
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




* - Filed
herewith.




‡- Furnished
herewith.





19




NOTIFY
TECHNOLOGY CORPORATION




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 12, 2010/s/
      Gerald W. RiceChief
      Financial Officer(Principal
      Financial and Accounting
Officer)


20


NOTIFY
TECHNOLOGY CORPORATION





EXHIBIT INDEX





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




* - Filed
  herewith.




‡- Furnished
      herewith.


21