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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



(Mark one)



|x | Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------



For the Fiscal Year Ended September 30, 2006



or



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



Commission File Number 000-23025



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NOTIFY TECHNOLOGY CORPORATION

(Name of small business issuer in its charter)



|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|California                                                     |  | 77-0382248                         
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                               | 
|1054 S. De Anza Blvd. Suite 105 San Jose, California           |  | 95129                              
|(Address of principal executive offices)                       |  | (Zip Code)                         



Issuers
telephone number: (408) 777-7920



Securities
registered under Section 12(b) of the Exchange Act:



None



Securities registered under
Section 12(g) of the Exchange Act:



Common Stock



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Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ̈



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



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ̈



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



State issuers revenues
for its most recent fiscal year.    $4,356,362



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on December 15, 2006, was approximately $1,281,600. Shares of Common
Stock held by officers and directors and their affiliated entities have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.



The number of shares outstanding of Registrants common stock, $0.001
par value at December 15, 2006 was 13,968,995 shares.



Transitional Small Business Disclosure Format (check one):    Yes ̈No  x



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PART I



FORWARD LOOKING STATEMENTS



You should read the following discussion in conjunction with our audited financial statements and the notes thereto that appear elsewhere in this
Annual Report on Form 10-KSB. The following discussion contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve
risks and uncertainties. Forward-looking statements generally include words such as may, will, plans, seeks, expects, anticipates, outlook, intends,
believes and words of similar import as well as the negative of those terms. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. All forward-looking statements included in this Annual Report on Form 10-KSB, including, but not limited to, statements regarding the future growth of our wireless product line; statements regarding
future revenues from our products; statements regarding our ability to receive referrals from our channel partners; statements regarding our future success; statements regarding future costs; statements regarding future research and development
efforts; statements regarding competition in the market for wireless products; statements regarding future patent applications; statements regarding future financial results; and statements regarding future plans to extend our product line; 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 Annual Report and in other documents we file with the U.S. Securities and Exchange Commission.



ITEM 1. Description of Business



We are a software developer of enterprise mobility solutions for wireless and wireline handheld devices supporting a variety of email collaboration suites
including Novell GroupWise, Microsoft
Exchange, and various alternative email
collaboration suites including the Sun Java Communications Suite, the Oracle Collaboration Suite, The Mirapoint Messaging Suite, CommunigatePro, Gordano Messaging Suite, Scalix Enterprise Server, Kerio FirstClass, and Meeting Maker. As of
July 4, 2006, Notify became an official BlackBerry ISV Alliance Partner with Research In Motion. Our product provides our customers with secure wireless mobile access using various handheld wireless devices to manage their email, calendar
appointments and address book. Our product supports wireless devices from different manufacturers and different network carriers if required. Our objective is to become a leading supplier of mobile wireless e-mail personal information management
(e.g., contacts, calendars, tasks), notification, and access across a variety of 2way devices and 2way networks. We also provide services related to our Visual Got Mail Solution, a wireline legacy product for voice mail notification sold to
one long distance telephone company that provides voice mail as part of its local service product. In late fiscal 2004, this customer reduced its commitment to the local service that employs our product such that we consider the service of our
Visual Got Mail Solution a declining product with a short remaining life.



Even though the Visual Got Mail Solution is no longer sold, we have continued to generate service revenue from the installed base of voice mail users for several years. The Visual Got Mail Solution generated
substantially all of our revenue in fiscal 2002 and 2003, and a substantial but declining portion of our revenue through fiscal 2006. The revenue from the Got Mail Solution will cease in March 2007. Since 2004, our wireless software product line
revenue has grown and constituted the majority of our total revenue in fiscal 2006. The focus of our sales, marketing and development effort in fiscal 2006 has been in our mobility software products. Wireless products contributed approximately 65%
of our total revenue in fiscal 2006 as compared to 43% of total revenues in fiscal 2005. We sell our products primarily through direct sales. To a lesser extent, we sell our products through resellers both domestically and internationally.



We are currently the only provider of a wireless enterprise
synchronization solution enabling organizations a single solution to simultaneously support any BlackBerry, Palm and Windows Mobile device. We provide a network independent solution thereby facilitating unparalleled flexibility to change devices or
networks as



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technology develops or user needs evolve. In addition, we are the only provider of wireless enterprise synchronization middleware supporting BlackBerry
wireless devices other than Research In Motion Limited (RIM). As such, we have an Independent Software Vendor (ISV) partnership agreement with RIM recognizing our ability to provide full BlackBerry support to users in the alternative
email collaboration suite market space. Our NotifyLink Enterprise provides both wired and wireless synchronization for email, calendar, contacts and task information. Our NotifyLink Enterprise comes in an On-Premise Edition and an
On-Demand Edition. Both the NotifyLink Enterprise Edition On-Premise and On-Demand versions can be integrated into an organizations existing network while offering broad wireless device support.



For wireless device users, NotifyLink provides support for a variety of
wireless networks including cellular networks such as CDMA/1XRTT, GSM/GPRS, and all fixed wireless networks using 802.11x technology. For wired devices such as Palm and Windows Mobile PDAs, NotifyLink will provide network based
synchronization allowing the mobile user to synchronize their mobile device independent of their desktop location. We have designed the NotifyLink On-Premise Edition for information technology (IT) organizations that desire centralized management
and support for their mobile user needs. With the NotifyLink On-Premise Edition, organizations can easily support their growing mobile workforce while providing a migration path from wired to wireless device usage.



We recently expanded our product offering with the NotifyLink Enterprise
On-Demand Edition. The NotifyLink On-Demand Edition provides users with the same features as the NotifyLink On-Premise Edition without the need to install a NotifyLink server on the customers premise. The NotifyLink On-Demand Edition is
particularly well suited for smaller user organizations seeking a comprehensive wireless synchronization solution while minimizing infrastructure costs and IT resources.



Products



NotifyLink Enterprise Mobility Solution (NotifyLink)



NotifyLink Enterprise is comprised of the NotifyLink Enterprise On-Premise Edition and the NotifyLink Enterprise On-Demand Edition. NotifyLink has been
designed to uniquely address the needs of organizations of all sizes.



Using any of the NotifyLink Enterprise Editions, mobile users can read, compose, reply, forward, mark as read, and delete email messages from their mobile device. NotifyLink provides users with an 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. NotifyLink is device agnostic because email users are provided with a platform
specific smart client, which is loaded on the mobile device. Once the platform specific smart client mobile device is installed on their wireless device and the server on-line, the user is able to open their email, read it and then perform any
number of operations including replying, forwarding, and even deleting the email. NotifyLink supports attachment download and upload for Palm, Windows Mobile, and BlackBerry mobile devices. NotifyLink also supports the ability to forward
attachments. NotifyLink provides bi-directional mobile synchronization of the users calendar, contacts, and tasks regardless of whether the information was entered on the mobile device or at the users desktop. The transmitted information
keeps personal calendars continually up to date at both the client server level and the mobile device level.



NotifyLinks wireless functionality supports all Palm, Windows Mobile and BlackBerry OS devices simultaneously over a variety of wireless
networks: GSM/GPRS, CDMA/1XRTT and any 802.11x. NotifyLink wireless functionality also provides over-the-air synchronization of email and personal information management (PIM) thereby freeing users from the requirement to
cradle their wireless devices in order to maintain synchronization. NotifyLink provides automatic notification of new email and PIM eliminating the need for users to initiate a data session in order to retrieve their personal data.



All email and PIM is stored behind an organizations firewall, while all
delivery of information to and from the wireless devices is encrypted utilizing either Triple Data Encryption Algorithum (TDES) or Advanced



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Encryption Standard (AES) encryption algorithms. Information security is increased because NotifyLink supports both TDES and the latest AES. AES is a Federal
Information Processing Standard (FIPS), that specifies a cryptographic algorithm for use by U.S. Government organizations to protect sensitive, unclassified information.



NotifyLink Enterprise On-Premise Edition



The NotifyLink On-Premise Edition provides a single enterprise solution supporting the wireless needs of its users through
the use of an on-premise server. The NotifyLink On-premise Edition is based on a client-server architecture comprised of the NotifyLink Enterprise server and the NotifyLink device client module. The NotifyLink Enterprise server product involves
three components: database component, web component and a messaging component. All three components may be installed to the same server or each component can be installed to a separate server in a more distributed environment. The NotifyLink
On-Premise Edition is ideal for companies with a volume of mobile professionals who need real-time synchronization of their existing email to any one of a variety of supported mobile devices.



NotifyLink Enterprise On-Demand Edition



Beginning in November 2004, we began to actively market our NotifyLink
On-Demand Edition for Novell GroupWise. In March 2005, we launched the NotifyLink On-Demand Edition for Microsoft Exchange. Throughout 2006 the NotifyLink Enterpride On Demand product line was expanded to support the variety of alternative
collaboration suites also supported by the On-Premise Edition. The NotifyLink On-Demand Edition provides the same wireless synchronization of email, calendar, contacts and task information as our NotifyLink On-Premise Edition, except
without the need of any on-premise hardware or software. The NotifyLink On-Demand Edition provides wireless synchronization services and support from a hardened data center that provides users a high level of reliability and availability. It
remotely accesses email and PIM data from the customer email collaboration suite and synchronizes to a users BlackBerry, Palm or Windows Mobile wireless device. The NotifyLink On-Demand Edition provides organizations with a simple solution to
their immediate mobility needs. It was designed as a cost efficient alternative for customers whose universe of wireless users does not justify an internal server or who do not have the internal IT resources to maintain a NotifyLink Enterprise
server. The NotifyLink On-Demand Edition is also targeted at organizations interested in outsourcing the wireless synchronization of email and PIM.



Visual Got Mail Solution



Our legacy Visual Got Mail Solution is designed to provide voice mail notification services to customers. In fiscal 2006, our revenues from our Visual Got
Mail Solution consisted principally of sales to one customer in connection with its local voice mail telephone service. The Visual Got Mail Solution, designed for telephone company deployment as a service offering, includes a scalable carrier class
server infrastructure that we host and a Call Manager telephone adjunct (CPE) that we manufactured and sold. The Visual Got Mail Solution integrates our caller-id technology with a unique method of voice mail notification into a single device that
can fit into the palm of your hand. Revenues for the Visual Got Mail Solution declined substantially from fiscal 2003 to fiscal 2004 as the customer reduced its commitment to providing local telephone services. We recognized $1,417,010 of deferred
revenue in fiscal 2005 related to CPE owned by our customer that our customer decided to dispose of rather than deliver to its customers. We recognized a final $650,232 in CPE revenue in fiscal 2006. We recorded another $809,300 in Visual Got Mail
Solution revenue in fiscal 2006 compared to $1,377,267 in fiscal 2005. This revenue consisted of service revenue generated from an installed base of voice mail users built up since May 2002 but in decline since July 2004. The Visual Got Mail
Solution revenues will terminate at the end of February 2007 as a result of recent business merger activity by our customer.



Sales, Marketing and Distribution



We are expanding our customer base by gathering leads through several channels. We have an inside sales force that handles leads generated from our
corporate web site, the web sites of our strategic partners where we



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maintain a presence, referrals from referral partners with whom we have agreements, 2way wireless carriers and other customers. Carriers that we have
referral relationships with include Verizon Wireless, T-Mobile Wireless, Cingular Wireless and Sprint in the United States and Bell Mobility Wireless, Rogers, and Telus in Canada. Another channel is based on referrals from 2way device manufacturers
such as RIM and Palm, Inc. Additional leads come from Novells Cool Solutions web site and the PalmSource web site. One market advantage of our NotifyLink wireless solution is that we support Novells email system called GroupWise. We will
continue to receive referrals from these channel partners only to the extent that they successfully refer our products and services to interested customers.



Our Visual Got Mail Solution has generated revenue from both voice mail notification services to the users of our customer and sales of adjunct equipment
devices. Service revenue is based on the monthly active installed base of voice mail users and varies as the installed base changes. The installed base grew to a high of 490,000 voice mail users in July 2004 but has since been in decline due to the
reduction of our customers commitment to marketing the voice mail services that the Visual Got Mail Solution supports. The installed base of voice mail users has declined or churned off approximately 64% in the last twenty-eight
months, (July 2004 through September 2006), with a corresponding decline in our service revenue. The second component of the Visual Got Mail Solution is a hardware device that we supplied and was sold by our customer to their end users of voice
mail. Orders to ship this product effectively ceased in September 2004. In fiscal 2006, we recognized $650,232 of deferred revenue related to the remaining CPE owned by our customer that our customer decided to dispose of rather than deliver to its
customers. If the demand for the Visual Got Mail Solution service were to cease or decline at an accelerated rate, the loss of the on-going service revenue would have an adverse effect on our business. We expect the Visual Got Mail Solution revenues
to be adversely affected in future periods by the decline in the installed base of voice mail users or cease entirely as a result of a recent business merger activity by our customer.



The traditional sales activities for our wireline products were large direct contracts with large telephone companies. The
Visual Got Mail Solution followed that pattern but sales of our NotifyLink products consist of numerous small contracts sold directly to individual companies. For the NotifyLink product line, we typically sell annual licenses recognized ratably over
the term of the contract. The NotifyLink product line and Visual Got Mail Solution accounted for 65% and 34% of total revenues in fiscal 2006, respectively. In fiscal 2005, the NotifyLink product line and Visual Got Mail Solution accounted for 43%
and 57% of total revenue, respectively.



Technical and Marketing Support



We have developed product collateral, improved web site
design and expanded marketing programs for the NotifyLink products. This program includes product awareness branding and product training through various mediums such as Notify web site marketing; strategic partner web site marketing; regional,
national and international trade shows; strategic partner regional user meetings; carrier training seminars; webinars; user market surveys and a monthly news letter.



We provide customer technical support to our customers for all of our products and product installation for our NotifyLink
customers. We maintain a hosting center for our Visual Got Mail Solution in California and a hosting center for our NotifyLink product line in Ohio. We also supply the support to maintain up-time requirements for the Visual Got Mail Solution and our
NotifyLink On-Demand products.



Research and Development



We incurred $975,611 and $1,040,197 in research and development expenses in
fiscal 2006 and 2005, respectively. Our development efforts were devoted to improving our software product, porting our solution to new wireless devices released by wireless device manufacturers, and creating new products within the NotifyLink
family. Our software engineering development is located in our offices in Canfield, Ohio. We believe that our future success, if any, depends significantly on our ability to continue to enhance our existing wireless



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products and to develop new products. Therefore, we intend to continue to incur research and development costs. We expect that our research and development
efforts will be focused in wireless software as our wireline products are mature and their market is declining.



Manufacturing



We had no significant manufacturing efforts in fiscal 2006. We did not order any new product in fiscal 2006 from our offshore turnkey manufacturer that
produced the Call Manager that is a component in our Visual Got Mail Solution. Fulfillment services ceased in September 2004 with the absence of customer fulfillment requests. The absence of fulfillment activity in fiscal 2006 has resulted in no
product under warranty thereby eliminating our potential warranty expense exposure.



Competition



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



Proprietary Rights



We regard various features and design aspects of our products as proprietary and we rely primarily on a combination of
patent, copyright, and trademark laws and employee and third-party nondisclosure agreements to protect our proprietary rights. In fiscal 2006, we sold our rights to several patents for legacy products no longer in production. Our software products
are generally not subject to patent claims although 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, that any issued patents will be enforceable or valid, 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 August 2006, we entered into a ISV Partnership with
Research In Motion Limited, the maker of the BlackBerry hand-held computer and have been endorsed for use on RIM devices in certain applications, primarily in the Internet Message Access Protocol (IMAP) market space where RIM has not
released its own solution to allow users of its devices full functionality.



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.



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In November of 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 Mobility Solution that are covered by a patent held by NCR. This agreement requires a royalty payment on Enterprise revenue subject to the patent. The agreement
contains a $500,000 cap on the aggregate royalty to be paid and an exit clause if we were to no longer sell our Enterprise Mobility Solution. We paid $80,229 in royalties under this agreement in the twelve months ended September 30, 2006
compared to $55,579 in the twelve month period ended September 30, 2005.



Employees



As of September 30, 2006, we
employed forty-four (44) persons of whom eighteen (18) were engaged in research and development, nine (9) in sales and marketing, fourteen (14) in customer service, and three (3) in general administration and finance. All of
these employees are employed on a full-time basis. None of our employees are currently represented by a labor union. We consider our relations with our employees to be good.



Our success, if any, will be dependent on our ability to attract and retain highly skilled technical personnel as well as
marketing and sales 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 highly skilled technical,
managerial, sales, and marketing personnel is intense. 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.



RISK FACTORS



A significant portion of our revenue is derived from the sale of a single solution to a single customer and that customer has changed its
business commitment to the market in which our product is sold and decided to terminate the service



For the fiscal years ended September 30, 2006 and 2005, 34% and 56%, respectively, 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. The customer recently merged
with another company and has notified us that it will terminate the Visual Got Mail Solution service at the end of February 2007. As such, this could have a significant negative impact on our business.



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



We commenced operations in August 1994 and through
January 1996 were engaged primarily in research and development. We introduced the Visual Got Mail Solution in fiscal 2001 and made a subsequent decision in fiscal 2003 to refocus our strategy on developing and selling software applications for the
2way wireless data market. Accordingly, our business has changed substantially in recent years, making it difficult to make period-to-period comparisons of our operations, and we face all of the risks and uncertainties encountered by early-stage
companies. For the fiscal years ended September 30, 2005, 2004, 2003 and 2002, we incurred net losses of $557,452, $655,908, $1,100,475 and $1,741,752, respectively. We incurred a net loss of $314,892 for the twelve month period ended
September 30, 2006 and as of September 30, 2006, we had an accumulated deficit of $23,948,578 and a working capital deficit of $714,129. Although the cash flow from operations was positive in the twelve month period ended
September 30, 2006, we anticipate difficulties in sustaining a positive cash flow from operating activities in future quarters and years. We may also incur further operating losses in future quarters and years until such time, if ever, as there
is a substantial increase in orders for our products and product sales generating sufficient revenue to fund our continuing operations. There can be no assurance that sales of our products will ever generate significant revenue, that we will ever
generate positive cash flow from our operations or that we will attain or thereafter sustain profitability in any future period.



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If 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 or cease entirely in
future periods. Accordingly, we must continue to 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 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, 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 September 30, 2006, we had an accumulated deficit of $23,948,578 and incurred a net loss for the year ended September 30, 2006 of $314,892. We also had a working capital deficit at that date of $714,129.
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 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 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.



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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, 2004 and 2005. The On-Demand product, was introduced in November 2004. We extended our products to operate in IMAP4 operating systems in September 2005. 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 is sufficient consumer 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 continue to build our formal referral channel
and participate in informal referral arrangements with several wireless carriers, 2way wireless device manufacturers and one net ware company for the sale of our NotifyLink products and services where our products assist in the sale of their
products. We have a limited direct sales force to sell our NotifyLink products and services to eventual users and we rely upon both formal and informal referral arrangements to provide leads for our NotifyLink products. To date, most of our referral
arrangements are formal and we will receive referrals only to the extent that our referral partners successfully refer our products and services to potential users. There can be no assurance that we will achieve a significant volume of sales of our
NotifyLink products and services to end users or that we will continue to receive referrals



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from our formal arrangements. Our Enterprise solution product is relatively new and we have not yet achieved sufficient growth in our sales to operate
profitably without contribution from our Visual Got Mail Solution, whose sales are expected to be limited to service revenues from a gradually declining installed base or cease entirely due to recent merger activity by our customer.



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 due to limited resources to build a reseller network. Our management will need to expend time and effort to develop these channels.
Our customer profile has changed from volume sales to a limited number of large telecommunication customers to relatively small sales to a large number of business customers. We have expanded our internal sales force in response. Because,
historically, our marketing efforts have been largely focused on developing relationships for wireline products, our management has had only limited experience in selling wireless with the new customer profile. We may not be able to adapt our
traditional marketing and distribution programs to expand our distribution channels and any marketing efforts undertaken by or on behalf of us may not be successful.



Our products may suffer from defects



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



We have stopped production and development of our Visual Got Mail Solution product and all product in the field is out of warranty so we have little or no
exposure from unknown defects.



We face significant competition



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



10



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stock substantially less attractive as, collateral for margin and purpose loans, for investment by financial institutions under their internal policies or
state legal investment laws, as consideration in the financing of future acquisitions of businesses or assets by us, and for issuance by us in future capital raising transactions any of which could cause the market price of our common stock to
decrease. Delisting subjects our common stock to the penny stock rules contained in Section 15(g) of the Securities Exchange Act of 1934.



We depend on key executives



Our potential for success depends significantly on key management employees, including our Chairman, President and Chief Executive Officer,
Mr. Paul F. DePond, our Vice President of Development, Rhonda Chicone, our Chief Financial Officer, Gerald W. Rice, our Vice President of Business Development, Gordon S. Faulmann and our Director of International Sales, Elizabeth
Dorman. We have entered into employment agreements with these five key management employees. The loss of their services or those of any of our other key employees would materially adversely affect us. We also believe that our future success will
depend in large part on our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. If we were unable to 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 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 we rely primarily on a combination of patent, copyright, and trademark laws and employee and third-party nondisclosure agreements to protect our proprietary
rights. In fiscal 2006, we sold our rights to several patents for legacy products no longer in production. Our software products are generally not subject to patent claims although 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, that any issued patents will be enforceable or valid, 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.



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



11



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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 2.
Description of Property



Our principal executive offices
are located at 1054 South DeAnza Boulevard, Suite 105, San Jose, California 95129. These facilities consist of approximately 2,500 square feet of office space pursuant to a lease that expires March 31, 2007. We have a second location at
6570 Seville Drive, Canfield, Ohio 44406 that houses an engineering group and our customer support organization. The Ohio facility consists of approximately 5,000 square feet of office space pursuant to a lease that expires in October 2008.



We have not invested in real property at this time nor do we
intend to do so. We have no formal policy with respect to investments in real estate or investments with persons primarily engaged in real estate activities.



ITEM 3. Legal Proceedings



We are not a party to any litigation.



ITEM 4. Submission of Matters to a Vote of Security Holders



No matters were submitted to a vote by security holders during the fourth quarter of fiscal 2006.



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PART II



ITEM 5. Market for Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities



(a) Market for Common Equity.



Our common stock was listed on the Nasdaq SmallCap Market under the symbol
NTFY until our common stock was delisted from the Nasdaq SmallCap Market on September 4, 2002. From September 4, 2002 until present, our common stock has been trading on the OTC Bulletin Board under the symbol NTFY.



The quarterly high and low bid prices of our common stock during fiscal 2006
and the quarterly high and low sales prices of our common stock for fiscal 2005 are as follows:



NTFY Common Stock



|                                     |  |      |       |     |   |      
|------------------------------------ |  | ---- | ----- | --- | - | -----
|                                     |  | High |       | Low
|Fiscal Year Ended September 30, 2006 |  |      |       |     |   |      
|Fourth Quarter                       |  | $    | 0.300 |     | $ | 0.190
|Third Quarter                        |  | $    | 0.310 |     | $ | 0.140
|Second Quarter                       |  | $    | 0.280 |     | $ | 0.031
|First Quarter                        |  | $    | 0.260 |     | $ | 0.160
|                                     |  |     
|Fiscal Year Ended September 30, 2005 |  |      |       |     |   |      
|Fourth Quarter                       |  | $    | 0.200 |     | $ | 0.150
|Third Quarter                        |  | $    | 0.240 |     | $ | 0.130
|Second Quarter                       |  | $    | 0.300 |     | $ | 0.150
|First Quarter                        |  | $    | 0.270 |     | $ | 0.135



These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The quarterly high and low bid prices of our common stock during fiscal 2006 were provided by Bloomberg L.P.



(b) Holders.



As of December 15, 2006, there were approximately 88 holders of record of our common stock.



(c) Dividends.



We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all
future earnings for the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.



(d) Equity Compensation Plans



The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 11 of
this Annual Report on Form 10-KSB.



(e) Recent sales of Unregistered
Securities



During the period covered by this Annual
Report on Form 10-KSB, there were no sales of unregistered securities of Notify.



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ITEM 6. Managements Discussion and Analysis or Plan of Operation



Overview



We were incorporated in the State of California in August 1994. We are a provider of secure real time wireless
synchronization of email, calendar, contacts and tasks, supporting any BlackBerry, Palm and Windows Mobile Wireless device on all major domestic cellular voice and data networks. NotifyLink, our middleware enterprise on-premise and On-Demand
solutions, work with Microsoft Exchange, Novell GroupWise and a variety of IMAP4 email systems including Sun, Oracle, MiraPoint, Communigate, Gordano, Stalker, Scalix, Kerio and Open-Xchange. NotifyLink users have the ability to compose, reply,
forward and delete their emails while mobile. In addition, users have the ability to maintain mobile synchronization with their calendar, contacts and tasks from their wireless device.



We have also been a supplier of wireline call and message notification products and services. In fiscal 2001, we developed a
voice mail notification product known as the Visual Got Mail Solution for a long distance company entering the local telephone market. Although we shifted our focus to the enterprise mobility software business in fiscal 2003, the Visual Got Mail
Solution generated substantially all of our revenue in fiscal 2002 and 2003, a substantial majority of our revenue in fiscal 2004 and approximately 57% and 34% in fiscal 2005 and 2006, respectively. We have continued to generate service revenue from
the currently installed base of voice mail users even though new sales of the Visual Got Mail Solution have declined significantly since mid fiscal 2003. In late 2004, our customer for this product reduced its commitment to the local telecom market.
Accordongly, we consider our Visual Got Mail Solution a declining product with a short remaining life. Because we believe our greatest opportunity for future growth lies with our wireless product line, the focus of our sales, marketing and
development effort in fiscal 2006 has been in our mobility software products. Wireless products contributed approximately 65% of our total revenue in fiscal 2006 as compared to 43% of total revenues in fiscal 2005. We currently sell our products
primarily through direct sales. To a lesser extent, we sell our products through resellers, both domestically and internationally.



We completed our initial public offering in September 1997, with 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 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 substantial 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, our ability to expand our existing distribution channels and to create new distribution channels, and our ability to develop and market new products and control costs. There can be no
assurance that our revenue will grow or be sustained in future periods or that we will ever achieve profitability.



Critical Accounting Policies and Estimates



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



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



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



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



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



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



The fair value of the warrants was estimated as of September 12, 2006 using the Black-Scholes option-pricing model with
the following assumptions: no dividends, risk-free (10-year Treasury yield) interest rate of 4.56%; the remaining contractual life of 1.81 years and volatility of 198.91%. The fair value was estimated to be $470,073 on the day that an amendment to
the warrant terms was executed modifying the terms that qualified the warrants for EITF 00-19 treatment. The same warrants were valued at $457,919 on June 30, 2006 and that entire amount had been recorded as an expense for the nine-month period
ended June 30, 2006 and the liability on the balance sheet increased to $457,919 as of June 30, 2006. The income statement for the three-month period ended September 30, 2006 reflected an additional $12,154 of Warrant Valuation
expense and represented the change in Warrant Liability Value for that period. The entire amount of $470,073 was reclassified to equity upon the amendment of the warrant terms on September 12, 2006.



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.



We generally warrant our products for a specific period of time, usually one year, against material defects. We provide for the estimated future costs
of warranty obligations in costs of goods sold when the related revenue is recognized. The accrued warranty costs represent our best estimate at the time of sale of the total costs that we will incur to repair or replace product parts, which fail
while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on repair costs. Actual warranty costs could differ from the estimated
amounts. On a quarterly basis, we review the accrued balances and update the historical warranty cost trends. If we were required to accrue additional warranty cost in the future, it would negatively affect operating results. As of
September 30, 2005, we had no product under warranty and our warranty reserves were zero.



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



Results of Operations



Revenue



Total revenue consists of a combination of gross revenue from the sale of annual contracts for NotifyLink, revenue from the sale of services related to
our Visual Got Mail Solution and revenue from the sale of telephony equipment related to our Visual Got Mail Solution. The revenue from the service contracts is recognized on a straight line basis over the term of the contract. Revenue from the
Visual Got Mail Solution service is recognized



15



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in the month the service is supplied. Revenue from the telephony equipment is recognized when the equipment is shipped. Revenue from the sale of NotifyLink
for the fiscal year ended September 30, 2006 increased to $2,869,480 from $2,104,745 for the fiscal year ended September 30, 2005. Revenue from the sale of the Visual Got Mail Solution service for the fiscal year ended September 30,
2006 decreased to $809,300 from $1,377,269 for the fiscal year ended September 30, 2005. Revenue from the sale of the Visual Got Mail Solution equipment for the fiscal year ended September 30, 2006 decreased to $650,232 from $1,477,010 for
the fiscal year ended September 30, 2005.



In the fiscal
year ended September 30, 2006, our revenue was spread out over a large number of customers except for the Visual Got Mail Solution that is sold to a single customer. Receivables from this customer made up 23% of our total billing for the fiscal
year ended September 30, 2006. This was down from 38% for the fiscal year ended September 30, 2005. In fiscal 2006, we increased the sales of NotifyLink consisting of smaller dollar sales to a higher volume of customers, so that it
represented 65% of total sales compared to 43% in fiscal 2005. This increase was primarily due to increased sales and marketing efforts. The revenue from the service component of the Visual Got Mail Solution declined slowly throughout fiscal 2006 as
a result of our customer announcing a decision to terminate its marketing efforts for the voice mail product that our Visual Got Mail Solution supports in July 2004. Although we experienced a steady but slow decline of monthly revenue in fiscal 2006
and fiscal 2005, we cannot predict the future revenue of the Visual Got Mail Solution other than to consider the product to be on the decline and have a limited life. We began fiscal 2006 with a small inventory of CPE inventory that was owned by our
customer but remained in our custody pending delivery instructions. A total of this inventory was declared obsolete and disposed of in fiscal 2006 resulting in a deferred revenue recognition of $650,232 on our income statement. If the demand for the
Visual Got Mail Solution service were to cease or decline at an accelerated rate, the loss of the on-going service revenue would have a materially adverse effect on our business.



Cost of Revenue



Cost of revenue consists of the cost to manufacture our Visual Got Mail Solution products, the hosting center costs to support the service portion of our
Visual Got Mail Solution and the cost of re-sale software related to NotifyLink . Cost of revenue decreased to $556,416 in the fiscal year ended September 30, 2006 from $1,283,791 in the fiscal year ended September 30, 2005. The historical
manufacturing costs of the CPE that was taken to income based on our customers decision to obsolete the CPE product comprised 80% of the cost of revenue for the fiscal year ended September 30, 2006. Historically, we manufactured and sold
CPE product to one customer that paid for the finished product upon delivery to the Notify warehouse. Notify suspended the gross margin on the CPE in deferred revenue until a fulfillment order was received to ship individual CPE units to specific
end users; a service we provided for a separate fee. Our customers decision to obsolete and dispose of the CPE eliminated the fulfillment obligation and released the gross margin from deferred income.



The gross margin increased to 87% in fiscal 2006 from 74% in fiscal 2005.
This increase in gross margin primarily occurred because the mix of lower margin CPE sales to the higher margin Visual Got Mail service revenue and software sales changed versus the mix in fiscal 2005.



Research and Development



We incurred $975,611 and $1,040,197 in research and development expenses in
fiscal 2006 and 2005, respectively. Our development efforts were devoted to improving our software product, porting our solution to new devices released by device manufacturers, and creating new products within the NotifyLink family. Our software
engineering development is located in our offices in Canfield, Ohio. 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 and, therefore,
we intend to continue to incur research and development costs. We expect that our research and development efforts will be focused in wireless software as our wireline products are mature and their market declining.



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Sales and Marketing



Sales and marketing expense consists primarily of personnel, show, travel costs and sales commissions related to our sales and marketing efforts. Sales
and marketing expenses decreased to $1,634,729 for the fiscal year ended September 30, 2006 from $1,702,454 for the fiscal year ended September 30, 2005. This decrease was attributable primarily to the fluctuations in both sales personnel
and marketing expense. The NotifyLink product line requires more brand awareness than our traditional products so our marketing efforts have expanded accordingly. The sales process for NotifyLink also involves a customer trial period that, in turn,
requires an initial installation process involving assistance from customer service personnel so customer service is an important tool to in the sales process.



We believe that sales and marketing expenses may increase in future quarters if we continue to emphasize an in-house sales force, which we believe is
necessary to implement our NotifyLink strategy. Also, any growth of NotifyLink will require more sales support as we attempt to expand our existing referral base and create new distribution channels.



General and Administrative



General and administrative expense consists of general management and
finance personnel, occupancy costs, professional fees and other general corporate expenses. General and administrative expenses decreased to $1,286,191 for fiscal 2006 from $1,552,351 for fiscal 2005. Decreases in compensation, rent, legal and audit
expenses contributed to the reduction.



Emerging Issues Task Force (EITF)
Issue No. 00-19



In accordance with The Emerging Issues
Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Companys Stock, the original terms of our warrants for Common shares issued in connection with our Series A
Preferred offering issued on July 20, 2001, qualified for treatment as a liability on our balance sheet at their fair value until September 12, 2006 when the holders of the warrants signed an amendment changing those terms that made the
warrants subject to EITF 00-19.



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



The fair value of the warrants was estimated as of March 31, 2006, June 30, 2006 and September 12, 2006 using the Black-Scholes
option-pricing model assuming no dividends and the following assumptions:



|                                                 |  |            |           |   |           |   |           |            |  |   |           |   |  |   |        
|------------------------------------------------ |  | ---------- | --------- | - | --------- | - | --------- | ---------- |  | - | --------- | - |  | - | -------
|                                                 |  | March 2006 |           |   | June 2006 |   |           | Sept. 2006 |  |   | Total    
|Number of warrants                               |  |            | 1,871,151 |   |           |   | 1,871,151 |            |  |   | 1,871,151 |   |  |   |        
|Risk-free (10-year Treasury yield) interest rate |  |            | 4.76      | % |           |   | 5.16      | %          |  |   | 4.56      | % |  |   |        
|Remaining contractual life                       |  |            | 2.3096    |   |           |   | 2.0603    |            |  |   | 1.8082    |   |  |   |        
|Volatility factor                                |  |            | 166.16    | % |           |   | 180.46    | %          |  |   | 198.91    | % |  |   |        
|Resulting warrant value                          |  | $          | 145,252   |   |           | $ | 457,919   |            |  | $ | 470,073   |   |  | $ | 470,073
|Loss on FV of warrants                           |  | $          | 145,252   |   |           | $ | 312,667   |            |  | $ | 12,154    |   |  | $ | 470,073



This change in value
reflects the increase in market price of the Companys stock in the nine month period ended September 12, 2006. The fair value of the warrants was recorded as Loss on fair value of warrants in the Companys statement of
operations, and included in Warranty liability on the Companys balance sheet until September 12, 2006 when the warrant value was reclassified to Equity.



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Sale of Patents



On February 13, 2006, we announced an agreement to assign certain patents related to our legacy products that were no longer in production for a
one-time payment of $250,000. The assignment was completed in June 2006 and the gain was reported as Other income in the fiscal quarter ended June320, 2006. This assignment was a one-time event and the patents involved are not required for any
current or proposed products.



Income Taxes



There was no provision for federal or state income taxes in fiscal 2005 or
2006 as we incurred net operating losses. We expect to incur a net operating loss in future quarters and years. As of September 30, 2006, we had federal and state net operating loss carryforwards of approximately $19,000,000 and $4,500,000,
respectively. The net loss carryforwards and certain research and development tax credit carryforwards will expire in tax years 2015 through 2026, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial
annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the Code), and similar state provisions. The annual limitation may result in the expiration of net operating losses and
credits carryforwards before full utilization. For financial reporting purposes, deferred tax assets primarily related to the net operating carryforwards recognized under Financial Accounting Standard No. 109, Accounting for Income
Taxes, has been fully offset by a valuation allowance.



Liquidity and
Capital Resources



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



A significant characteristic of our business is the sale of our products customarily in the form of annual contracts paid
for upon signing but the revenue amortized over the twelve month service period. As our installed base grows, this practice increases the deferred revenue liability on the balance sheet as we add new contracts faster than old contracts expire. The
major cost of operations is comprised of (1) the engineering design of our product offered for sale and (2) the physical sale of a contract that requires both direct sales effort and customer service hours to facilitate a trial period of
our software prior to purchase. The change in the NotifyLink deferred revenue to $1,623,606 as of September 30, 2006 from $1,287,866 as of September 30, 2005 indicates that product revenue is improving. Deferred revenue also represents the
obligation to service the contracts underlying the revenue. However, the cash flow required to service the contracts is significantly less than the revenue recognized each month.



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



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



In the event we require additional capital, we cannot predict whether we will be able to obtain financing on commercially reasonable terms, if at all. Any
future financings may take the form of debt or equity securities or a combination of debt and equity, including convertible notes or warrants. In the event we are required to obtain



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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 September 30, 2006, we had cash and cash equivalents of $829,406 compared to $424,228 at the same time last year. Over the last several years, we
have financed our operations primarily through revenue from operations and existing cash balances. The net cash provided by operating activities equaled $442,956 in the twelve-month period ended September 30, 2006 versus net cash used by
operating activities of $580,606 in the twelve-month period ended September 30, 2005. The cash used in operations in the twelve month period ended September 30, 2006 was a combination of a net loss of $314,892, a decrease of $144,423 in
accrued liabilities from the reduction of certain debts, offset by an increase in deferred revenue of $335,740 and a decrease in accounts receivable of $36,433. We anticipate that we will have negative cash flow from time to time in operating
activities in future quarters and years.



Net cash used in
investing activities was an outflow of $14,897 and $36,791 for the twelve-month periods ended September 30, 2006 and 2005, respectively. The net cash outflow in both periods was due to capital purchases partially offset by the sale of fixed
assets.



Net cash provided by financing activities was an
outflow of $22,881 and $15,504 for the twelve-month periods ended September 30, 2006 and 2005, respectively. The net cash outflow for the twelve-month period ended September 30, 2006 was due to payments on capital leases.



Off-Blance Sheet Arrangements



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



ITEM 7. Financial Statements



Our audited financial statements appear beginning on page F-1 of this
report.



ITEM 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure



None.



ITEM 8A. 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 regulations 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 Annual
Report on Form 10-KSB, have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.



(b) Changes in Internal Control Over Financial Reporting.



During the period covered by this Annual Report on Form 10-KSB, we upgraded our contract control software to manage the increase in active customer contracts. The new control software features integrated



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revenue recognition, billing and receivables programs. No other significant changes were made in our internal control over financial reporting or in other
factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM 8B. Other Information



We did not hold an annual meeting of shareholders during fiscal 2006. Therefore, in accordance with Rule 14a-5(f) under the Exchange Act and our bylaws,
our board of directors shall determine a date a reasonable period prior to our next annual meeting of shareholders by which date all shareholder proposals for such annual meeting must be submitted.



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PART III



ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act



Directors and Executive Officers



Our directors and executive officers and their ages as of September 30,
2006 are as follows:



|                                  |  |     |  |                                                
|--------------------------------- |  | --- |  | -----------------------------------------------
|Name                              |  | Age |  | Position                                       
|Directors and Executive Officers: |  |     |  |                                                
|Paul F. DePond                    |  | 53  |  | Chief Executive Officer, President and Chairman
|Gerald W. Rice                    |  | 58  |  | Chief Financial Officer and Secretary          
|Rhonda Chicone                    |  | 42  |  | Vice President of Product Development          
|Gordon Faulmann                   |  | 43  |  | Vice President of Business Development         
|David A. Brewer (1)(2)            |  | 54  |  | Director                                       
|Andrew H. Plevin (1)(3)           |  | 42  |  | Director                                       
|Inder Tallur                      |  | 41  |  | Director                                       
|David Kvederis (4)                |  | 58  |  | Director                                       
|Michael Acks (5)(6)               |  | 39  |  | Director                                       
|Neil Lichtman (4)(6)              |  | 57  |  | Director                                       

---

|(1) | Member of the audit committee of the board of directors.
|--- | --------------------------------------------------------

|(2) | Resigned from the compensation committee on December 19, 2006.
|--- | --------------------------------------------------------------

|(3) | Member of the compensation committee of the board of directors.
|--- | ---------------------------------------------------------------

|(4) | Appointed to the compensation committee on December 19, 2006.
|--- | -------------------------------------------------------------

|(5) | Appointed to the audit committee on December 19, 2006.
|--- | ------------------------------------------------------

|(6) | Appointed to the board on October 5, 2006 at the request of majority shareholders
|--- | ---------------------------------------------------------------------------------



Biographical information for directors and executive officers:



Paul F. DePond, our founder, has served as our President, Chief Executive Officer and Chairman of our board of
directors since our inception in August 1994. From September 1992 through May 1994, Mr. DePond served as Vice President of Corporate Marketing at Telebit Corporation, a supplier of high speed modems and dialup remote access products. From
January 1991 through September 1992, Mr. DePond served as Vice President of Marketing at Alantec Corporation, a manufacturer of networking products. Mr. DePond received a Bachelors of Science Degree in Electrical and Computer Engineering
from the University of Michigan, Ann Arbor in 1980 and Masters Degree in Computer Science from the University of Michigan, Ann Arbor in 1980.



Gerald W. Rice has served as our Chief Financial Officer and Secretary since August 1994. From November 1993 to June 1996, he owned Comprehensive
Business Services, a financial services company franchise. From April 1992 to April 1993, Mr. Rice served as Controller at Surface Sciences Instruments, a manufacturer of capital equipment for surface chemical analysis. From June 1990 to April
1992, Mr. Rice was Vice President of Finance and Secretary of Applied Dielectrics, a manufacturer of microwave circuit boards. Mr. Rice received an A.A. from Ohlone College in 1969 and a B.A. in Accounting from California State College of
Stanislaus in 1971.



Rhonda Chiconehas served as our
Vice President of Product Development since July 2001. From October 2000 to July 2001, Ms. Chicone served as our Director of Engineering and from October 1999 to October 2000, she served as our Engineering Manager. From January 1999 to October
1999, Ms. Chicone served as one of our senior software engineers. From September 1996 to January 1999, she served as President of Tech-Xpress Enterprises, Inc. Ms. Chicone received a Science degree in Computer Science from Youngstown
University in 1985 and a Masters of Science in Technology from Kent University in 2002.



21



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Gordon S. Faulmann has served as our Vice President of Business Development since November 2004.
Mr. Faulmann served as Director of Marketing with Motiont Communications from March 2000 to November 2004, Channel Sales Manager with BellSouth Mobility/Cingular from September 1995 until March 2000, Marketing Manager with American Signature
Technologies from October 1994 until September 1995 and Field Director of Marketing Research with the Florida State University from July 1988 until December 1992. Mr. Faulmann graduated from the Florida State University with a BS degree in
Business Administration/Finance in 1991.



David A.
Brewer has served as one of our directors since February 2000. Since January 1999, Mr. Brewer has served as general manager for Aragon Ventures LLC, a private equity investment firm. Mr. Brewer has been Chairman of the End Poverty Foundation, a
charity organization, since January 2001. He also serves as President of PriaVision, Inc. a startup company he co-founded which develops ophthalmic surgery products. From November 1999 to May 2003, Mr. Brewer served as Chief Executive Officer of
Explore Holdings LLC, a private equity investment firm, and from July 1995 to December 2002 he served as a managing member of Inktomi LLC, an internet research company. From September 1996 to December 1998, Mr. Brewer served as President, Chief
Executive Officer and director of Explore Technologies, Inc., an educational toy manufacturer. From February 1996 to May 1996, Mr. Brewer served as President, Chief Executive Officer, Chief Financial Officer and director of Inktomi Corporation, an
internet software developer.



Andrew H. Plevin has
served as one of our directors since February 1998. Mr. Plevin is currently the Co-CEO and President of Eastport Capital Corporation. From 2002 through 2006, Mr. Plevin was President of SPAR, LP. and since September 2000, he has served as managing
partner of Carnegie Hill Venture Partners, a private equity investment firm. From November 1997 to August 2000, Mr. Plevin served as President, Chief Executive Officer and Chief Financial Officer of Core Software Technology, Inc.



Inder Tallur has served as one of our directors since November 2003.
Since 2003, he has served as a Partner of ComVest Investment Partners. Mr. Tallur served as Director of Research of Commonwealth Associates, L.P. from 1995 until 2003. Mr. Tallur attended Tulane Universitys A.B. Freeman School of
Business from 1992 to 1994 where he received an MBA and attended Boston College in 1995 where he received an MS in finance. Mr. Tallur also worked for Digital Equipment Corporation from 1990 to 1991 and HCL HP India, a subsidiary of Hewlett
Packard from 1986 to 1990. Mr. Tallur received a BE in electronics from Visvesvaraya Regional College of Engineering, Nagpur, India in 1987.



David Kvederis has served as one of our directors since February 2005. He is the founder of BankServ, where he has served as President and Chief
Executive Officer since 1996. Before his 15-year association with Wells Fargo (1982 to 1996), Mr. Kvederis served six years with Mellon Bank in Pittsburgh and six years with Continental Illinois Bank in Chicago. Mr. Kvederis received an
MBA from the University of Chicago in 1976.



Michael
Acks was appointed to the board on October 5, 2006. Mr. Acks has served as President of RMC Capital, LLC, an investment company, since its inception in March 1998. During that time, he has also spent periods as a part-time
CFO for many of their investments. From May 1993 to March 1998, he served as Vice President and Controller of ValuJet Airlines (now known as AirTran Airlines, Inc). Prior to that, Mr. Acks served in various positions for Deloitte and
Touche from January 1990 until May 1993, last serving as a Senior Auditor. He is a graduate of The Georgia Institute of Technology.



Neil Lichtman was appointed to the board on October 5, 2006. Since October 2005, Mr. Lichtman has served as a consultant to private
equity firms investing in the managed services, telecom and data arenas. Mr. Lichtman served as President, CEO and Chairman for Comdial, a manufacturer of telephone equipment, from January 2004 until September 2005. From March 2002 through
December 2003, Mr. Lichtman served as the Senior Vice President-Voice and Data Services for Inter-Tel, a telecommunications company. From June 1996 through May 2000, Mr. Lichtman served as President, Chief Operating Officer and a member of
the Board of Directors of Claricom Holdings, the parent company of Claricom Networks and Claricom, Inc., a software



22



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company. From May 1984 to May 1996, Mr. Lichtman served in various senior management positions for Executone Information Systems, a data and
voice communications company. Mr. Lichtman began his career at Litton Industries in January 1973 and served in various positions there through May 1984.



As previously reported in our Current Report on Form 8-K filed on May 18, 2006, Harold Blue resigned as one of our
directors on May 16, 2006. We would like to thank Mr. Blue for his service as a director.



We have a separately-designated standing audit committee that was established in accordance with Section 3(a)(58)(A) of the Exchange Act.
Messrs. Brewer, Plevin and Acks currently serve as members of the audit committee. Each member of our audit committee is independent as defined under the National Association of Securities Dealers listing standards. The board
of directors has determined that Mr. Brewer is an audit committee financial expert as defined in Item 401(e) of Regulation S-B promulgated by the Securities and Exchange Commission.



All executive officers serve at the discretion of our board of directors. All
directors are elected annually and serve until the next annual meeting of shareholders or until the election and qualification of their successors. There are no family relationships between any of our directors or executive officers.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange Act requires our executive officers and
directors and persons who own more than ten percent of a registered class of our equity securities to file an initial report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Executive officers, directors and greater than ten percent shareholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. Based solely on our review
of copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended September 30, 2006 all filing requirements applicable to our officers, directors and ten percent
shareholders were fulfilled.



Code of Ethics



We have adopted the Notify Technology Corporation Code of Ethics for
Principal and Executive and Senior Financial Officers (Code of Ethics). The Code of Ethics applies to our principal executive officer, our principal financial officer, our principal accounting officer or controller, and persons
performing similar functions and responsibilities who shall be identified by our audit committee from time to time.



The Code of Ethics is available at or website, located at http://www.notifycorp.com.



We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from,
a provision of the Code of Ethics by posting such information on our website, at the address specified above.



23



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ITEM 10. Executive Compensation



Summary Compensation Table



The following table sets forth information for the three most recently completed fiscal years concerning the compensation of (i) the Chief Executive
Officer and (ii) all other executive officers of the Company who earned over $100,000 in salary and bonus in the fiscal year ended September 30, 2006 (together the Named Executive Officers).



|                                                          |  |                     |  |            |                       |           |   |                              |  |                            |  |                                 |  |                 |  |                             |  |   |                   
|--------------------------------------------------------- |  | ------------------- |  | ---------- | --------------------- | --------- | - | ---------------------------- |  | -------------------------- |  | ------------------------------- |  | --------------- |  | --------------------------- |  | - | ------------------
|                                                          |  |                     |  |            |                       |           |   |                              |  | Long-Term Compensation     |  |                                
|                                                          |  | Annual Compensation |  | Awards     |                       | Payouts   |   |                             
|Name and Principal Position                               |  | Year                |  | Salary ($) |                       | Bonus ($) |   | Other AnnualCompensation ($) |  | RestrictedStock Awards ($) |  | SecuritiesUnderlyingOptions (#) |  | LTIP Payouts($) |  | All OtherCompensation($)(1)
|Paul F. DePond Chief Executive Officer                    |  | 200620052004        |  | $          | 242,182225,865231,415 |           | $ | 39,750106,90062,854          |  |                         |  |                              |  | 250,000         |  |                          |  | $ | 29,59023,94419,965
|                                                          |  |                     |  |            |                       |           |   |                             
|Gerald W. Rice Chief Financial Officer                    |  | 200620052004        |  | $          | 185,772170,658170,992 |           | $ | 12,95033,97521,328           |  |                         |  |                              |  | 75,000          |  |                          |  | $ | 30,91625,11219,394
|                                                          |  |                     |  |            |                       |           |   |                             
|Rhonda Chicone Vice President, R&D                        |  | 200620052004        |  | $          | 110,185100,502102,906 |           | $ | 11,90031,55020,575           |  |                         |  |                              |  | 75,000          |  |                          |  | $ | 4,5205,5573,539   
|                                                          |  |                     |  |            |                       |           |   |                             
|Gordon Faulmann(2) Vice President of Business Development |  | 200620052004        |  | $          | 95,80084,922         |           |   |                           |  |                         |  |                              |  | 75,000         |  |                          |  | $ | 202678           

---

|(1) | Represents payments of health insurance premiums and dental benefits on behalf of the Named Executive Officers.
|--- | ---------------------------------------------------------------------------------------------------------------

|(2) | Mr. Faulmann was appointed as our Vice President of Business Development in November 2004.
|--- | ------------------------------------------------------------------------------------------



Option Grants in Last Fiscal Year



None of the Named Executive Officers received a stock option grant in fiscal 2006.



Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values



None of the Named Executive Officers exercised an
outstanding stock option in fiscal 2006. The following table sets forth certain information for the Named Executive Officers with respect to securities underlying unexercised options at the end of fiscal 2006.



|                   |  |                                |  |                   |  |                                                                          |  |                                                                |  |               |  |        
|------------------ |  | ------------------------------ |  | ----------------- |  | ------------------------------------------------------------------------ |  | -------------------------------------------------------------- |  | ------------- |  | -------
|                   |  | SharesAcquired on Exercise (#) |  | ValueRealized ($) |  | Number of SecuritiesUnderlying Unexercised Optionsat Fiscal Year End (#) |  | Value of UnexercisedIn-the-Money Optionsat Fiscal Year End ($)
|Name               |  |                                |  | Exercisable       |  | Unexercisable                                                            |  | Exercisable                                                    |  | Unexercisable
|Paul F. DePond     |  |                               |  |                  |  | 1,388,889                                                                |  | 111,111                                                        |  | 688,889       |  | 111,111
|Gerald W. Rice     |  |                               |  |                  |  | 428,750                                                                  |  | 31,250                                                         |  | 218,750       |  | 31,250 
|Rhonda Chicone     |  |                               |  |                  |  | 438,750                                                                  |  | 31,250                                                         |  | 243,750       |  | 31,250 
|Gordon S. Faulmann |  |                               |  |                  |  | 43,750                                                                   |  | 31,250                                                         |  | 43,750        |  | 31,250 



24



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Director Compensation



Our directors do not currently receive any cash compensation for service on the board of directors or any committee thereof.
Directors are eligible for option grants under our 1997 Stock Plan. During fiscal 2006, directors received the following option grants:



|               |  |                                                  |  |                                                       |   |  |                             |      |                 |        
|-------------- |  | ------------------------------------------------ |  | ----------------------------------------------------- | - |  | --------------------------- | ---- | --------------- | -------
|Name           |  | Number of SecuritiesUnderlyingOptions Granted(#) |  | % of Total Options Granted to Employees inFiscal Year |   |  | Exercise orBase Price($/Sh) |      | Expiration Date
|David Brewer   |  | 20,000                                           |  | 20.0                                                  | % |  | $                           | 0.20 |                 | 4/11/16
|Andrew Plevin  |  | 20,000                                           |  | 20.0                                                  | % |  | $                           | 0.20 |                 | 4/11/16
|Inder Tallur   |  | 20,000                                           |  | 20.0                                                  | % |  | $                           | 0.20 |                 | 4/11/16
|David Kvederis |  | 20,000                                           |  | 20.0                                                  | % |  | $                           | 0.20 |                 | 4/11/16
|Harold Blue    |  | 20,000                                           |  | 20.0                                                  | % |  | $                           | 0.20 |                 | 4/11/16



Employment
Agreements and Change-in-Control Arrangements



In July
2004, we entered into an amended and restated employment agreement with Mr. DePond. The agreement provides for a base annual salary of $225,000. Under the agreement, Mr. DePond is also eligible to receive annual bonuses based upon targets
approved by our board of directors.



In the event that
Mr. DePonds employment with the Company is terminated without cause within twenty-four (24) months following a change of control or at any time apart from a change of control, Mr. DePond is entitled to receive severance
compensation equal to a continuation of his salary for a period of twelve (12) months. Mr. DePond will also be paid the maximum amount of his bonus for the fiscal year in which such involuntary termination occurs that could have been
received had he satisfied all conditions necessary to earn such maximum amount of the bonus during the remainder of such fiscal year. In addition, Mr. DePond is entitled to receive 100% Company-paid dental and life insurance coverage and
reimbursement for all premium payments paid under COBRA for continuing health insurance coverage as provided to Mr. DePond and his dependents immediately prior to such termination until the earlier of (i) twelve (12) months following
such termination, or (ii) the date Mr. DePond becomes covered under another employers dental, life or health insurance plan. In lieu of such reimbursements, Mr. DePond may, at his sole election, receive a one-time cash payment
equal to the total amount of such premium payments Mr. DePond would be required to make for twelve (12) months following such termination. Mr. DePond is also entitled to receive outplacement services for a period of up to six
(6) months following such termination with a maximum obligation to the Company of $9,000 for such services. Mr. DePond is not entitled to severance compensation in the event of a termination for cause or voluntary resignation. In the event
of a termination due to disability, Mr. DePond is entitled to receive only those severance or disability benefits as are established under the Companys then existing severance and benefits plans and policies. In the event of a termination
due to Mr. DePonds death, Mr. DePond is entitled to receive a one-time cash payment equal to Mr. DePonds base annual salary minus the amount Mr. DePond is entitled to receive under the Company-paid life insurance
policy.



In July 2004, we entered into an amended and restated
employment agreement with Mr. Rice that provides for a base annual salary of $170,000. Under the agreement, Mr. Rice is also eligible to receive annual bonuses based upon targets approved by our board of directors.



In the event that Mr. Rices employment with the Company is
terminated without cause within twenty-four (24) months following a change of control or at any time apart from a change of control, Mr. Rice will be entitled to receive severance compensation equal to a continuation of his salary for a
period of six (6) months. Mr. Rice will also be paid the maximum amount of his bonus for the fiscal year in which such involuntary termination occurs that could have been received had he satisfied all conditions necessary to earn such
maximum amount of



25



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the bonus during the remainder of such fiscal year. In addition, Mr. Rice is entitled to receive 100% Company- paid dental and life insurance coverage
and reimbursement for all premium payments paid under COBRA for

continuing health insurance coverage as provided to Mr. Rice and his dependents
immediately prior to such termination until the earlier of (i) six (6) months following such termination, or (ii) the date Mr. Rice becomes covered under another employers dental, life or health insurance plan. In lieu of
such reimbursements, Mr. Rice may, at his sole election, receive a one-time cash payment equal to the total amount of such premium payments Mr. Rice would be required to make for six (6) months following such termination.
Mr. Rice is also entitled to receive outplacement services for a period of up to six (6) months following such termination with a maximum obligation to the Company of $9,000 for such services. Mr. Rice is not entitled to severance
compensation in the event of a termination for cause or voluntary resignation. In the event of a termination due to disability, Mr. Rice is entitled to receive only those severance or disability benefits as are established under the
Companys then existing severance and benefits plans and policies. In the event of a termination due to Mr. Rices death, Mr. Rice is entitled to receive a one-time cash payment equal to Mr. Rices base annual salary
minus the amount Mr. Rice is entitled to receive under the Company-paid life insurance policy.



In July 2004, we entered into an employment agreement with Ms. Chicone that was amended in April 2006 that provides for a base annual salary of
$120,000. Under the agreement, Ms. Chicone is also eligible to receive annual bonuses based on targets approved by our board of directors.



In the event that Ms. Chicones employment with the Company is terminated without cause within twenty-four (24) months following a change
of control or at any time apart from a change of control, Ms. Chicone will be entitled to receive severance compensation equal to a continuation of her salary for a period of twelve (12) months. Ms. Chicone will also be paid the
maximum amount of her bonus for the fiscal year in which such involuntary termination occurs that could have been received had she satisfied all conditions necessary to earn such maximum amount of the bonus during the remainder of such fiscal year.
In addition, Ms. Chicone is entitled to receive 100% Company-paid dental and life insurance coverage and reimbursement for all premium payments paid under COBRA for continuing health insurance coverage as provided to Ms. Chicone and her
dependents immediately prior to such termination until the earlier of (i) twelve (12) months following such termination, or (ii) the date Ms. Chicone becomes covered under another employers dental, life or health insurance
plan. In lieu of such reimbursements, Ms. Chicone may, at her sole election, receive a one-time cash payment equal to the total amount of such premium payments Ms. Chicone would be required to make for twelve (12) months following
such termination. Ms. Chicone is also entitled to receive outplacement services for a period of up to six (6) months following such termination with a maximum obligation to the Company of $9,000 for such services. Ms. Chicone is not
entitled to severance compensation in the event of a termination for cause or voluntary resignation. In the event of a termination due to death or disability, Ms. Chicone is entitled to receive only those severance or disability benefits as are
established under the Companys then existing severance and benefits plans and policies.



In November 2004, we entered into an employment agreement with Mr. Faulmann that provides for a base annual salary of $96,000. Under the agreement, Mr. Faulmann is also eligible to receive annual bonuses
based on targets approved by our board of directors.



In the
event that Mr. Faulmanns employment with the Company is terminated without cause within twelve (12) months following a change of control, Mr. Faulmann will be entitled to receive severance compensation equal to a continuation of
his salary for a period of six (6) months. Mr. Faulmann will also be paid the maximum amount of his bonus for the fiscal quarter in which such involuntary termination occurs that could have been received had he satisfied all conditions
necessary to earn such maximum amount of the bonus during the remainder of such fiscal quarter. In addition, Mr. Faulmann is entitled to receive reimbursement for certain medical expenses until the earlier of (i) six (6) months
following such termination or (ii) the date Mr. Faulmann becomes covered under another employers group health, dental or life insurance plan. In the event that Mr. Faulmanns employment with the Company is terminated
without cause apart from a change of control, Mr. Faulmann is entitled to receive severance compensation equal to a continuation of his salary for a period of



26



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three (3) months. Mr. Faulmann will also be paid the maximum amount of his bonus for the fiscal quarter in which such involuntary termination
occurs that could have been received had he satisfied all conditions necessary to earn such maximum amount of the bonus during the remainder of such fiscal quarter. Mr. Faulmann is not entitled to severance compensation in the event of a
termination for cause or voluntary resignation. In the event of a termination due to disability, Mr. Faulmann is entitled to receive only those severance or disability benefits as are established under the Companys then existing severance
and benefits plans and policies. In the event of a termination due to Mr. Faulmanns death, Mr. Faulmann is entitled to receive a one-time cash payment equal to Mr. Faulmanns base annual salary minus the amount
Mr. Faulmann is entitled to receive under the Company-paid life insurance policy.



The foregoing agreements define a change of control as (i) the acquisition of more than 30% of our voting securities by any person or group; (ii) a change in a majority of our board of directors
occurring within a two year period; or (iii) the approval by our shareholders of a transaction which would result in a transfer of more than 50% of our voting power, a sale of all or substantially all of our assets, or a liquidation; provided,
however, that a public offering of our common stock does not constitute a change of control. The agreements define cause as an act of dishonesty in connection with employment; a conviction of a felony that will detrimentally affect our
reputation or business; and willful and gross misconduct injurious to us. The agreements define disability as the inability to perform duties under the agreement due to mental or physical illness determined to be total and permanent by a
physician.



27



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ITEM 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters



The following table sets
forth certain information regarding beneficial ownership of our common stock and Series A preferred stock as of December 16, 2006, by (i) each person or entity who is known by us to own beneficially more than 5% of the outstanding shares
of that class of our stock, (ii) each of our directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers as a group.



The table is based on information provided to us or filed with the Securities and Exchange Commission (SEC) by
our directors, executive officers and principal shareholders. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting and investment power with respect to shares. Shares of common stock and Series A
preferred stock, as indicated in the table, issuable upon exercise of options or warrants that are currently exercisable or are exercisable within 60 days after December     , 2006, are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other shareholder. Unless otherwise indicated, the address for each shareholder listed in the
following table is c/o Notify Technology Corporation, 1054 S. De Anza Blvd., Suite 105, San Jose, California 95129.



|                                                                                                                                                            |  |                                           |  |                                                                                    |  |                                                                               |  |                |  |            |  |               
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | -------------- |  | ---------- |  | --------------
|                                                                                                                                                            |  | Shares of Common Stock Beneficially Owned |  | Shares of Series A Preferred Stock Beneficially Owned (Underlying Preferred Units) |  | Shares of Common StockBeneficially
Owned(Assuming Preferred Stock Conversion)
|Name and Address of Beneficial Owner                                                                                                                        |  | Number (1)                                |  | Percentage (1)                                                                     |  | Number (2)                                                                    |  | Percentage (2) |  | Number (3) |  | Percentage (3)
|Entities and persons affiliated withCommonwealth Associates GroupHoldings LLC
(4)(5)(6) c/o Commonwealth Associates, L.P.830 Third AvenueNew York, NY 10022 |  | 3,701,379                                 |  | 24.8%                                                                              |  | 75,683                                                                        |  | 100.0%         |  | 4,458,209  |  | 28.4%         
|Entities and persons affiliated withRMC Capital, LLC (7) c/o RMC Capital, LLC3291 N. Buffalo Dr., Suite 8 Las Vegas, NV 89129                               |  | 2,350,000                                 |  | 16.4                                                                               |  |                                                                              |  | *              |  | 2,350,000  |  | 16.4          
|David A. Brewer (8)                                                                                                                                         |  | 1,238,267                                 |  | 8.8                                                                                |  |                                                                              |  | *              |  | 1,238,267  |  | 8.8           
|Paul F. DePond (9)                                                                                                                                          |  | 1,578,171                                 |  | 10.2                                                                               |  |                                                                              |  | *              |  | 1,578,171  |  | 10.2          
|Gordon Faulmann (10)                                                                                                                                        |  | 56,250                                    |  | *                                                                                  |  |                                                                              |  | *              |  | 56,250     |  |              
|Gerald W. Rice (11)                                                                                                                                         |  | 466,453                                   |  | 3.2                                                                                |  |                                                                              |  | *              |  | 466,453    |  | 3.2           
|Rhonda Chicone (12)                                                                                                                                         |  | 462,250                                   |  | 3.2                                                                                |  |                                                                              |  | *              |  | 462,250    |  | 3.2           
|Andrew Plevin (13)                                                                                                                                          |  | 197,403                                   |  | 1.4                                                                                |  |                                                                              |  | *              |  | 197,403    |  | 1.4           
|Inder Tallur (14)                                                                                                                                           |  | 36,667                                    |  | *                                                                                  |  | 1,281                                                                         |  | 100.0          |  | 53,962     |  |              
|David Kvederis (15)                                                                                                                                         |  | 16,667                                    |  |                                                                                   |  |                                                                              |  |               |  | 16,667     |  |              
|Michael Acks (16)                                                                                                                                           |  | 2,350,000                                 |  | 16.4                                                                               |  |                                                                              |  |                |  | 2,350,000  |  | 16.4          
|Neil Lichtman                                                                                                                                               |  |                                          |  |                                                                                   |  |                                                                              |  |               |  |           |  |              
|All directors and executive officers as a group (10 persons)                                                                                                |  | 6,406,613                                 |  | 36.1                                                                               |  | 4,484                                                                         |  | 100.0          |  | 6,419,423  |  | 36.2          

---

|* | less than 1%
|- | ------------

|(1) | Applicable percentage of ownership is based on 13,968,995 shares of our common stock outstanding as of December 16, 2006, together with applicable options and warrants for such
shareholder.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Applicable percentage of ownership is based on options to purchase 9.2685 units outstanding as of December 16, 2006, in which each unit consists of 10,000 shares of
Series A preferred stock and a warrant to purchase 35,000 shares of common stock (a Preferred Unit).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

|(3) | Applicable percentage of ownership is based on 13,968,995 shares of our capital stock outstanding as of December 16, 2006, together with applicable options or warrants for such
shareholder.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes shares beneficially owned by Commonwealth Associates Group Holdings, LLC (CAGH), Commonwealth Management, LLC (Commonwealth Management),
Commonwealth Associates, L.P. (Commonwealth), ComVest Management, LLC (ComVest Management), ComVest Venture Partners, L.P. (ComVest), Michael Falk, Keith Rosenbloom and Inder Tallur. CAGH is the sole member of
Commonwealth Management, which is the general partner of Commonwealth, and ComVest Management, which is the general partner of ComVest. Mr. Falk is the chairman and principal member of CAGH and a managing member of each of Commonwealth
Management and ComVest Management. According to the Schedule 13D filed on July 29, 2004, by ComVest, ComVest Management, Commonwealth, Commonwealth Management, CAGH and Mr. Falk, Mr. Falk shares voting and dispositive power over
the shares held by ComVest and Commonwealth. Mr. Rosenbloom is a manager of ComVest Management. Mr. Tallur is a member of CAGH and a director of Notify.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Common stock consists of (i) 2,800,000 shares held by ComVest, (ii) 608,151 shares issuable to ComVest upon exercise of outstanding common stock warrants,
(iii) 90,650 shares issuable to ComVest upon exercise of warrants that are issuable upon exercise of an option to purchase 2.59 Preferred Units, (iv) 119,864 shares issuable to Commonwealth upon exercise of warrants that are issuable upon
exercise of an option to purchase 3.424707 Preferred Units, (v) 38,684 shares issuable to Mr. Falk upon exercise of the warrants that are issuable upon exercise of an option to purchase 1.105267 Preferred Units, (vi) 11,212 shares
issuable to Mr. Rosenbloom upon exercise of the warrants that are issuable upon exercise of an option to purchase 0.320367 Preferred Units, (vii) 4,485 shares issuable to Mr. Tallur upon exercise of the warrants that are issuable upon
exercise of an option to purchase 0.128147 Preferred Units and (viii) 36,667 shares issuable to Mr. Tallur upon exercise of options. Common stock excludes 48,282 shares issuable to other employees of CAGH, or its affiliates, upon exercise
of warrants that are issuable upon exercise of options to purchase an aggregate of 1.379645 Preferred Units. Commonwealth disclaims beneficial ownership of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Series A preferred stock consists of (i) 25,900 shares issuable to ComVest upon exercise of an option to purchase 2.59 Preferred Units, (ii) 34,247 shares issuable to
Commonwealth upon exercise of an option to purchase 3.424707 Preferred Units, (iii) 11,052 shares issuable to Mr. Falk upon exercise of an option to purchase 1.105267 Preferred Units, (iv) 3,203 shares issuable to Mr. Rosenbloom
upon exercise of an option to purchase 0.320367 Preferred Units, and (v) 1,281 shares issuable to Mr. Tallur upon exercise of an option to purchase 0.128147 Preferred Units. Series A preferred stock excludes 13,792 shares issuable to
other employees of CAGH, or its affiliates, upon exercise of options to purchase an aggregate of 1.379645 Preferred Units. Commonwealth disclaims beneficial ownership of such shares. Percentage beneficial ownership for the Series A preferred
stock is shown as 100% because no shares of Series A preferred stock are outstanding and under the SEC rules derivative securities held by a shareholder are only deemed outstanding for purposes of computing the percentage ownership of such
shareholder.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Common stock includes 350,000 shares issuable upon exercise of warrants.
|--- | ------------------------------------------------------------------------

|(8) | Includes 76,667 shares issuable upon exercise of options.
|--- | ---------------------------------------------------------

|(9) | Includes 1,430,556 shares issuable upon exercise of options.
|--- | ------------------------------------------------------------

|(10) | Includes 43,750 shares issuable upon exercise of options.
|---- | ---------------------------------------------------------

|(11) | Includes 441,250 shares issuable upon exercise of options.
|---- | ----------------------------------------------------------

|(12) | Includes 451,250 shares issuable upon exercise of options.
|---- | ----------------------------------------------------------

|(13) | Includes 86,667 shares issuable upon exercise of options.
|---- | ---------------------------------------------------------

|(14) | Common stock consists of (i) 4,485 shares issuable to Mr. Tallur upon exercise of the warrants that are issuable upon exercise of an option to purchase 0.128147 Preferred
Units and (ii) 36,667 shares issuable upon exercise of options. Series A preferred stock consists of 1,281 shares issuable to Mr. Tallur upon exercise of an option to purchase 0.128147 Preferred Units. Percentage beneficial ownership
for the Series A preferred stock is shown as 100% because no shares of Series A preferred stock are outstanding following the redemption and under the SEC rules derivative securities held by a shareholder are only deemed outstanding for
purposes of computing the percentage ownership of such shareholder.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Common stock consists of 16,667 shares issuable upon exercise of options.
|---- | -------------------------------------------------------------------------



29



---

|(16) | Common stock consists of 2,000,000 common shares held by RMC Capital (RMC) and 350,000 common shares issuable under warrants held by RMC. Michael Acks is the President
of RMC.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation Plan Information



The following table sets forth information with respect to our 1997 Stock
Plan as of September 30, 2006.



|                                                           |  |                                                                                         |  |                                                                        |       |                                                                                                                                       |        
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                           |  | (a)                                                                                     |  | (b)                                                                    |       | (c)                                                                                                                                  
|                                                           |  | Number of Securitiesto be Issuedupon Exercise ofOutstandingWarrants, Warrantsand
Rights |  | Weighted-AverageExercise Price ofOutstandingOptions,Warrants andRights |       | Number of SecuritiesRemaining Available orFuture Issuance
underEquity Compensation Plans(Excluding SecuritiesReflected in Column (a))
|Equity compensation plans approved by security holders     |  | 3,225,000                                                                               |  | $                                                                      | 1.154 |                                                                                                                                       | 249,662
|Equity compensation plans not approved by security holders |  | N/A                                                                                     |  |                                                                        | N/A   |                                                                                                                                       | N/A    
|                                                           |  |                                                                                         |  |                                                                        |       |                                                                                                                                       |        
|Total                                                      |  | 3,225,000                                                                               |  | $                                                                      | 1.154 |                                                                                                                                       | 249,662
|                                                           |  |                                                                                         |  |                                                                        |       |                                                                                                                                       |        



ITEM 12. Certain Relationships
and Related Transactions



During the last two years, we
have not been a party to any related party transactions described in Item 404 of Regulation S-B promulgated by the Securities and Exchange Commission.



ITEM 13. Exhibits



(a) Exhibits



|      |  |                                                                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1 |  | Amended and Restated Articles of Incorporation of Registrant as filed with the Secretary of State of California on September 2, 1997. (incorporated herein by reference to Exhibit (3.2)
to the Registrants Registration Statement on Form SB-2, Reg. No. 333-23369, filed on March 14, 1997)                              
|      | 
|3.1.2 |  | Certificate of Amendment to the Registrants Articles of Incorporation as filed with the Secretary of State of California on March 3, 1998. (incorporated herein by reference to Exhibit
(3.1.1) to the Registrants Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)
|      | 
|3.1.3 |  | Certificate of Amendment to the Registrants Articles of Incorporation as filed with the Secretary of State of California on July 12, 2001. (incorporated herein by reference to Exhibit
(3.1.2) to the Registrants Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)
|      | 
|3.1.4 |  | Certificate of Determination, Preferences and Rights of Series A Preferred Stock as filed with the Secretary of State of California on July 13, 2001. (incorporated herein by reference to
Exhibit (3.1) to the Registrants Current Report on Form 8-K, filed on July 23, 2001)                                            
|      | 
|3.2   |  | Amended and Restated Bylaws of Registrant. (as amended on October 5, 2006)                                                                                                                                                                                                                                                  
|      | 
|4.2   |  | Form of warrant issued to subscribers in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.1) to the Registrants Current
Report on Form 8-K, filed on July 23, 2001)                                                                                           
|      | 
|4.3   |  | Form of option issued to the placement agent in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.2) to the Registrants
Current Report on Form 8-K, filed on July 23, 2001)                                                                                    



30



---

|         |  |                                                                                                                                                                                                                                                                                                               
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4      |  | Form of warrant underlying the option issued to the placement agent in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.3) to
the Registrants Current Report on Form 8-K, filed on July 23, 2001)                                               
|         | 
|10.4(1)  |  | Form of Indemnification Agreement. (incorporated herein by reference to Exhibit (10.5) to the Registrants Registration Statement on Form SB-2, Reg. No. 333-23369, filed on March 14,
1997)                                                                                                                  
|         | 
|10.6(1)  |  | Registrants 1997 Stock Plan, as amended effective March 26, 2003, and form of stock option agreement. (incorporated by reference to Exhibit (4.1) to the Registrants Registration
Statement on Form S-8 Reg. No 333-108868, filed on September 17, 2003)                                                    
|         | 
|10.12.1  |  | Voice Mail Services Agreement, dated as of February 8, 2002, by and between the Registrant and AT&T Corp. (incorporated herein by reference to Exhibit (10.1) to the Registrants
Quarterly Report on Form 10-QSB for the quarterly period ended March 30, 2002, filed on May 15, 2002)                       
|         | 
|10.12.2  |  | First Amendment to the Voice Mail Services Agreement, dated as of February 8, 2003, by and between the Registrant and AT&T Corp. (incorporated herein by reference to Exhibit (10.1) to the
Registrants Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2003, filed on May 14, 2003)
|         | 
|10.16(1) |  | Amended and Restated Employment Agreement dated as of July 6, 2004 between Registrant and Paul DePond. (incorporated herein by reference to Exhibit (10.16) to the Registrants Quarterly
Report on Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                     
|         | 
|10.17(1) |  | Amended and Restated Employment Agreement dated as of July 6, 2004 between Registrant and Gerald Rice. (incorporated herein by reference to Exhibit (10.17) to the Registrants Quarterly
Report on Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                     
|         | 
|10.18(1) |  | Employment Agreement dated as of July 6, 2004 between Registrant and Rhonda Chicone-Shick. (incorporated herein by reference to Exhibit (10.18) to the Registrants Quarterly Report on
Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                                 
|         | 
|10.19    |  | Severance Agreement and Release dated September 30, 2004 between the Company and Gaylan I. Larson (incorporated herein by reference to Exhibit (10.19) to the Registrants Current
Report on Form 8-K, filed on October 1, 2004)                                                                              
|         | 
|10.20    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of March 15, 2004 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.20) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                          
|         | 
|10.21    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of October 11, 2001 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.21) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                        
|         | 
|10.22    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of October 11, 2001 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.22) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                        
|         | 
|10.23(1) |  | Employment Agreement dated November 15, 2004 between the Company and Gordon S. Faulmann (incorporated herein by reference to Exhibit (10.19) to the Registrants Current Report on Form
8-K, filed on November 17, 2004)                                                                                      
|         | 
|10.24    |  | Nonexclusive Technology License Agreement, dated as of November 24, 2003, by and between Registrant and NCR Corporation. (incorporated herein by reference to Exhibit (10.24) to the
Registrants Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004, filed on December 22, 2004)      
|         | 
|10.25    |  | Patent Purchase Agreement dated March 22, 2006, by and between Notify Technology Corporation and Sunshine Data Ventures LLC. (incorporated herein by reference to Exhibit (10.25) to the
Registrants Currant Report 8-K, filed on March 24, 2006)                                                            



31



---

|      |  |                                                                                                                                                                                                                                                    
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 |  | Amendment to Series A Warrants dated September 12, 2006 (incorporated herein by reference to Exhibit (10.26) to the Registrants Current Report on Form 8-K, filed on September 12,
2006)                                                          
|      | 
|10.27 |  | Amendment to ComVest Commitment Warrant dated September 12, 2006 (incorporated herein by reference to Exhibit (10.27) to the Registrants Current Report on Form 8-K, filed on September
12, 2006)                                                 
|      | 
|10.28 |  | Amendment to Unit Purchase Option dated September 12, 2006 with Commonwealth Associates, L.P. (incorporated herein by reference to Exhibit (10.28) to the Registrants Current Report on
Form 8-K, filed on September 12, 2006)                    
|      | 
|10.29 |  | Lease, dated as of September 22, 2006 by and between Registrant and Colbur Tech, LLC.                                                                                                                                                              
|      | 
|10.30 |  | Lease, dated as of February 27, 2006 by and among Registrant, and Ching C. Poon and Jenny M. Poon.                                                                                                                                                 
|      | 
|14.1  |  | Code of Ethics for Principal Executive and Senior Financial Officers (incorporated herein by reference to Exhibit (14.1) to the Registrants Annual Report on Form 10-KSB for the fiscal
year ended September 30, 2003, filed on December 29, 2003)
|      | 
|16.0  |  | Letter from Burr, Pilger & Mayer LLP, to the Securities and Exchange Commission dated October 18, 2005 (incorporated herein by reference to Exhibit (16) to the Registrants Current
Report on Form 8-K, filed on October 18, 2005)                
|      | 
|23.1  |  | Consent of L.L. Bradford & Company LLC, independent registered public accounting firm                                                                                                                                                              
|      | 
|24.1  |  | Power of Attorney (see page 34).                                                                                                                                                                                                                   
|      | 
|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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                     

---

|+ | Confidential treatment has been granted with respect to portions of these exhibits.
|- | -----------------------------------------------------------------------------------

|(1) | Management compensation plan/contract
|--- | -------------------------------------



ITEM 14. Principal Accountant Fees and Services



Summary of Fees



The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by our independent auditors for our 2006 and
2005 fiscal years:



|                   |  |                  |        |     |                  |   |         |    
|------------------ |  | ---------------- | ------ | --- | ---------------- | - | ------- | ---
|Type of Fees       |  | Fiscal Year 2006 |        |     | Fiscal Year 2005 |  
|Audit Fees         |  | $                | 45,400 | (4) |                  | $ | 75,385  | (1)
|Audit-Related Fees |  |                  |       |     |                  |   | 12,670  | (2)
|Tax Fees           |  |                  | 15,000 | (5) |                  |   | 17,067  | (3)
|All Other Fees     |  |                  |       |     |                  |   |        |    
|                   |  |                  |        |     |                  |   |         |    
|Total Fees         |  | $                | 60,400 |     |                  | $ | 105,122 |    
|                   |  |                  |        |     |                  |   |         |    

---

|(1) | Includes audit fees billed to us by Burr, Pilger & Mayer LLP.
|--- | -------------------------------------------------------------

|(2) | Includes $12,670 billed to us by Burr, Pilger & Mayer LLP for review of our Registration Statement on Form SB-2.
|--- | ----------------------------------------------------------------------------------------------------------------

|(3) | Includes fees for fiscal 2004 and fiscal 2003 income tax preparation billed to us by Burr, Pilger & Mayer LLP.
|--- | --------------------------------------------------------------------------------------------------------------



32



---

|(4) | Includes audit fees billed to us by L.L. Bradford, LLC and by Burr, Pilger & Mayer LLP.
|--- | ---------------------------------------------------------------------------------------

|(5) | Includes fees for fiscal 2005 income tax preparation billed to us by L.L. Bradford, LLC.
|--- | ----------------------------------------------------------------------------------------



Pre-Approval of Independent Auditor Services and Fees



Our audit committee reviewed and pre-approved all audit and non-audit fees for services provided by
L.L. Bradford & Company, LLC and Burr, Pilger & Mayer LLP and has determined that the provision of such services to us during fiscal 2006 is compatible with and did not impair L.L. Bradford & Company LLCs or
Burr, Pilger & Mayer LLPs independence. Burr, Pilger & Mayer LLP provided prior year audit services while L.L. Bradford & Company, LLC was engaged to perform the 2005 fiscal year-end audit and fiscal 2006 audit
services. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent auditors in accordance with the applicable requirements of the Securities and Exchange
Commission.



33



---

SIGNATURES



In accordance with Section 13 or 15(d) 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: December 19, 2006 |  |  |  | By: |  | /S/    PAUL F.
DEPOND        
|                         |  |  |  |     |  |                               |  | Paul F. DePond President and Chief Executive Officer



POWER OF ATTORNEY



KNOW ALL MEN BY THESE PRESENTS that each person whose
signature appears below constitutes and appoints Paul F. DePond and Gerald W. Rice and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-KSB, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys- in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.



In accordance with the requirements of the Securities Exchange Act of 1934,
this report was signed by the following persons on the behalf of the registrant in the capacities indicated below and on the dates stated.



|                                     |  |                                                                               |  |                  
|------------------------------------ |  | ----------------------------------------------------------------------------- |  | -----------------
|Signature                            |  | Title                                                                         |  | Date             
|                                     |  |                                                                              
|/S/    PAUL
DEPOND Paul DePond       |  | President, Chief Executive Officer and Chairman (Principal Executive Officer) |  | December 19, 2006
|                                     |  |                                                                              
|/S/    GERALD
RICE Gerald Rice       |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | December 19, 2006
|                                     |  |                                                                              
|/S/    DAVID
BREWER David Brewer     |  | Director                                                                      |  | December 19, 2006
|                                     |  |                                                                              
|/S/    ANDREW
PLEVIN Andrew Plevin   |  | Director                                                                      |  | December 20, 2006
|                                     |  |                                                                              
|Inder Tallur                         |  | Director                                                                      |  |                  
|                                     |  |                                                                              
|/S/    DAVID
KVEDERIS David Kvederis |  | Director                                                                      |  | December 19, 2006
|                                     |  |                                                                              
|/S/    NEIL
LICHTMAN Neil Lichtman   |  | Director                                                                      |  | December 15, 2006
|                                     |  |                                                                              
|/S/    MICHAEL
ACKS Michael Acks     |  | Director                                                                      |  | December 19, 2006



34



---

Notify Technology Corporation



Financial Statements



Years ended
September 30, 2006 and 2005



Contents



|                                                        |  |    
|------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm |  | F-2
|                                                        | 
|Audited Financial Statements:                           |  |    
|                                                        | 
|Balance Sheet                                           |  | F-3
|Statements of Operations                                |  | F-4
|Statements of Shareholders Equity (Deficit)            |  | F-5
|Statements of Cash Flows                                |  | F-6
|Notes to Financial Statements                           |  | F-7



F-1



---

Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders

Notify Technology Corporation



We have audited the accompanying balance sheet of Notify Technology Corporation as of September 30, 2006, and the related statements of operations, shareholders deficit, and cash flows for the years ended September 30, 2006
and 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.



In our opinion,
the financial statements referred to above present fairly, in all material respects, the financial position of Notify Technology Corporation at September 30, 2006, and the results of its operations and its cash flows for the years ended
September 30, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.



/s/    L.L. BRADFORD & COMPANY, LLC



Las Vegas, Nevada

November 8, 2006



F-2



---

Notify Technology Corporation



Balance Sheet



September 30, 2006



|                                                                                                                             |  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Assets                                                                                                                       |  |   |             |  
|Current assets:                                                                                                              |  |   |             |  
|Cash and cash equivalents                                                                                                    |  | $ | 829,406     |  
|Accounts receivable, net of allowance for doubtful accounts of $30,000                                                       |  |   | 436,509     |  
|Other current assets                                                                                                         |  |   | 53,135      |  
|                                                                                                                             |  |   |             |  
|Total current assets                                                                                                         |  |   | 1,319,050   |  
|                                                                                                                             | 
|Property and equipment, net                                                                                                  |  |   | 99,623      |  
|                                                                                                                             |  |   |             |  
|Total assets                                                                                                                 |  | $ | 1,418,673   |  
|                                                                                                                             |  |   |             |  
|Liabilities and Shareholders Deficit                                                                                        |  |   |             |  
|Current liabilities:                                                                                                         |  |   |             |  
|Current portion of capital lease obligations                                                                                 |  | $ | 18,219      |  
|Accounts payable                                                                                                             |  |   | 37,722      |  
|Accrued payroll and related liabilities                                                                                      |  |   | 231,200     |  
|Deferred revenue                                                                                                             |  |   | 1,623,606   |  
|Other accrued liabilities                                                                                                    |  |   | 122,432     |  
|                                                                                                                             |  |   |             |  
|Total current liabilities                                                                                                    |  |   | 2,033,179   |  
|                                                                                                                             | 
|Long term portion of capital lease obligations                                                                               |  |   | 9,201       |  
|                                                                                                                             |  |   |             |  
|Total liabilities                                                                                                            |  |   | 2,042,380   |  
|                                                                                                                             |  |   |             |  
|Commitments and contingencies (Note 7)                                                                                       |  |   |             |  
|                                                                                                                             | 
|Shareholders deficit:                                                                                                       |  |   |             |  
|Preferred stock, $0.001 par value, 5,000,000 shares authorized                                                               |  |   |             |  
|Common stock, $0.001 par value, 30,000,000 shares authorized, 13,968,995 shares issued and outstanding at September 30,
2006 |  |   | 13,969      |  
|Additional paid-in capital                                                                                                   |  |   | 23,310,903  |  
|Accumulated deficit                                                                                                          |  |   | (23,948,579 | )
|                                                                                                                             |  |   |             |  
|Total shareholders deficit                                                                                                  |  |   | (623,707    | )
|                                                                                                                             |  |   |             |  
|Total liabilities and shareholders deficit                                                                                  |  | $ | 1,418,673   |  
|                                                                                                                             |  |   |             |  



The accompanying
notes are an integral part of these financial statements.



F-3



---

Notify Technology Corporation



Statements of Operations



|                                                             |  |                           |            |   |      |   |            |  
|------------------------------------------------------------ |  | ------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                             |  | Years Ended September 30, |           
|                                                             |  | 2006                      |            |   | 2005 |  
|Revenues:                                                    |  |                           |            |   |      |   |            |  
|Product revenue                                              |  | $                         | 3,105,463  |   |      | $ | 3,527,343  |  
|Service revenue                                              |  |                           | 1,250,899  |   |      |   | 1,491,121  |  
|                                                             |  |                           |            |   |      |   |            |  
|Total revenue                                                |  |                           | 4,356,362  |   |      |   | 5,018,464  |  
|                                                             |  |                           |            |   |      |   |            |  
|Cost of revenues:                                            |  |                           |            |   |      |   |            |  
|Product cost                                                 |  |                           | 541,041    |   |      |   | 1,216,865  |  
|Service cost                                                 |  |                           | 15,375     |   |      |   | 66,926     |  
|                                                             |  |                           |            |   |      |   |            |  
|Total cost of revenues                                       |  |                           | 556,416    |   |      |   | 1,283,791  |  
|                                                             |  |                           |            |   |      |   |            |  
|Gross profit                                                 |  |                           | 3,799,946  |   |      |   | 3,734,673  |  
|                                                             |  |                           |            |   |      |   |            |  
|Operating costs and expenses:                                |  |                           |            |   |      |   |            |  
|Research and development                                     |  |                           | 975,611    |   |      |   | 1,040,197  |  
|Sales and marketing                                          |  |                           | 1,634,729  |   |      |   | 1,702,454  |  
|General and administrative                                   |  |                           | 1,286,191  |   |      |   | 1,552,351  |  
|                                                             |  |                           |            |   |      |   |            |  
|Total operating costs and expenses                           |  |                           | 3,896,531  |   |      |   | 4,295,002  |  
|                                                             |  |                           |            |   |      |   |            |  
|Loss from operations                                         |  |                           | (96,585    | ) |      |   | (560,329   | )
|                                                             |  |                          
|Other (income) expenses                                      |  |                           |            |   |      |   |            |  
|Gain from sale of patents                                    |  |                           | (250,000   | ) |      |   |           |  
|Loss on fair value of warrants                               |  |                           | 470,073    |   |      |   |           |  
|Other (income) expense, net                                  |  |                           | (1,766     | ) |      |   | (2,877     | )
|                                                             |  |                           |            |   |      |   |            |  
|Total other (income) expense, net                            |  |                           | 218,307    |   |      |   | (2,877     | )
|                                                             |  |                          
|Net loss                                                     |  | $                         | (314,892   | ) |      | $ | (557,452   | )
|                                                             |  |                           |            |   |      |   |            |  
|Basic and diluted net loss per share                         |  | $                         | (0.02      | ) |      | $ | (0.04      | )
|                                                             |  |                          
|Weighted-average shares used in computing net loss per share |  |                           | 13,968,995 |   |      |   | 13,933,461 |  



The accompanying
notes are an integral part of these financial statements.



F-4



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Notify Technology Corporation



Statements of Shareholders Equity (Deficit)



|                                    |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   |             |   |  |          |  
|----------------------------------- |  | ------------------------------------ |  | ------------ | - | ------------------------- | ---------- | ------------------- | - | ------ | ----------------------------------- | - | ---------- |  | - | ----------- | - |  | -------- | -
|                                    |  | ConvertibleRedeemablePreferred Stock |  | Common Stock |   | AdditionalPaid-In Capital |            | Accumulated Deficit |   |        | TotalShareholders Equity (Deficit) |  
|                                    |  | Shares                               |  | Amount       |   | Shares                    |            | Amount              |   |        |                                    
|Balance at September 30, 2004       |  |                                     |  | $            |  |                           | 13,813,995 |                     | $ | 13,814 |                                     | $ | 22,802,236 |  | $ | (23,076,235 | ) |  | (260,185 | )
|Exercise of Employee Options        |  |                                      |  |              |   |                           | 155,000    |                     |   | 155    |                                     |   | 38,594     |  |   |             |   |  | 38,749   |  
|Net loss and comprehensive net loss |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   | (557,452    | ) |  | (557,452 | )
|                                    |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   |             |   |  |          |  
|Balance at September 30, 2005       |  |                                     |  |              |  |                           | 13,968,995 |                     |   | 13,969 |                                     |   | 22,840,830 |  | $ | (23,633,687 | ) |  | (778,888 | )
|Reclassification of warrant value   |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   | 470,073    |  |   |             |   |  | 470,073  |  
|Net loss and comprehensive net loss |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   | (314,892    | ) |  | (314,892 | )
|                                    |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   |             |   |  |          |  
|Balance at September 30, 2006       |  |                                      |  | $            |   |                           | 13,968,995 |                     | $ | 13,969 |                                     | $ | 23,310,903 |  | $ | (23,948,579 | ) |  | (623,707 | )
|                                    |  |                                      |  |              |   |                           |            |                     |   |        |                                     |   |            |  |   |             |   |  |          |  



The accompanying
notes are an integral part of these financial statements.



F-5



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Notify Technology Corporation



Statements of Cash Flows



|                                                                                          |  |                           |          |   |      |   |           |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | --------- | -
|                                                                                          |  | Years Ended September 30, |         
|                                                                                          |  | 2006                      |          |   | 2005 |  
|Operating activities                                                                      |  |                           |          |   |      |   |           |  
|Net loss                                                                                  |  | $                         | (314,892 | ) |      | $ | (557,452  | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                           |          |   |      |   |           |  
|Depreciation and amortization                                                             |  |                           | 66,321   |   |      |   | 106,413   |  
|(Gain) loss from sale of fixed assets                                                     |  |                           | (1,981   | ) |      |   | (5,943    | )
|Reclassification of warrant liability                                                     |  |                           | 470,073  |   |      |   |          |  
|Changes in operating assets and liabilities:                                              |  |                           |          |   |      |   |           |  
|Accounts receivable, net                                                                  |  |                           | 36,433   |   |      |   | 12,482    |  
|Other current assets                                                                      |  |                           | 5,616    |   |      |   | (2,152    | )
|Accounts payable                                                                          |  |                           | (9,928   | ) |      |   | (16,362   | )
|Accrued liabilities                                                                       |  |                           | (144,426 | ) |      |   | (324,283  | )
|Deferred revenue                                                                          |  |                           | 335,740  |   |      |   | 206,691   |  
|                                                                                          |  |                           |          |   |      |   |           |  
|Net cash provided by (used in) operating activities                                       |  |                           | 442,956  |   |      |   | (580,606  | )
|                                                                                          |  |                           |          |   |      |   |           |  
|Investing activities                                                                      |  |                           |          |   |      |   |           |  
|Expenditures for property and equipment                                                   |  |                           | (16,497  | ) |      |   | (43,991   | )
|Proceeds from sale of fixed assets                                                        |  |                           | 1,600    |   |      |   | 7,200     |  
|                                                                                          |  |                           |          |   |      |   |           |  
|Net cash used in investing activities                                                     |  |                           | (14,897  | ) |      |   | (36,791   | )
|                                                                                          |  |                           |          |   |      |   |           |  
|Financing activities                                                                      |  |                           |          |   |      |   |           |  
|Proceeds from exercise of warrants                                                        |  |                           |         |   |      |   | 38,750    |  
|Payments on capital leases                                                                |  |                           | (22,881  | ) |      |   | (23,246   | )
|                                                                                          |  |                           |          |   |      |   |           |  
|Net cash provided by (used in) financing activities                                       |  |                           | (22,881  | ) |      |   | 15,504    |  
|                                                                                          |  |                           |          |   |      |   |           |  
|Net increase (decrease) in cash and cash equivalents                                      |  |                           | 405,178  |   |      |   | (601,893  | )
|Cash and cash equivalents at beginning of year                                            |  |                           | 424,228  |   |      |   | 1,026,121 |  
|                                                                                          |  |                           |          |   |      |   |           |  
|Cash and cash equivalents at end of year                                                  |  | $                         | 829,406  |   |      | $ | 424,228   |  
|                                                                                          |  |                           |          |   |      |   |           |  
|Supplemental disclosure of non-cash transactions:                                         |  |                           |          |   |      |   |           |  
|Equipment purchased under capital lease                                                   |  | $                         | 6,157    |   |      | $ | 37,705    |  
|Supplemental disclosure of cash flow information:                                         |  |                           |          |   |      |   |           |  
|Cash paid for interest                                                                    |  | $                         | 2,389    |   |      | $ | 3,318     |  
|Cash paid for income taxes                                                                |  | $                         | 1,175    |   |      | $ | 1,100     |  



The accompanying
notes are an integral part of these financial statements.



F-6



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Notify Technology Corporation



Notes to Financial Statements



September 30, 2006



1. Business and Basis of
Presentation



Notify Technology Corporation (the Company
or Notify), incorporated in California in 1994, is a software developer of enterprise mobility solutions for most wireless handheld devices including the RIM BlackBerry, Palm based products and Windows Mobile based products on a variety of email
platforms including various IMAP4 solutions as well as Novell GroupWise and Microsoft Exchange.



The Company has incurred net losses since inception and may incur net losses and negative cash flow from operations for at least the next two or three
years. The Company incurred losses of $314,892, $557,452 and $655,908 for the years ended September 30, 2006, 2005 and 2004, respectively. The Company has an accumulated deficit of $23.9 million as of September 30, 2006. During fiscal
2006, the Company financed its operations through the sale of its products and existing cash balances.



The Company chose to replace its historical wireline products starting in fiscal 2001 and although it still receives revenue from its legacy wireline
business, it currently focuses all its efforts on its wireless software products by researching and developing new products, enhancing its existing NotifyLink product family and marketing and selling the NotifyLink product line. To date, the
NotifyLink product line has not provided sufficient revenue to completely replace the wireline product revenue. If the Companys wireline revenues decline, it needs to improve the sales of NotifyLink to compensate. The success of the
Companys business operations will depend upon a significant favorable market acceptance for its wireless software products. If the Company is unable to achieve profitable operations from its software wireless products or obtain further
financing, then its business may fail.



If additional funds are
raised through the issuance of equity or debt securities, these securities could have rights that are senior to existing shareholders and could contain covenants that would restrict operations. Any additional financing may not be available in
amounts or on terms acceptable to the Company, if at all.



2. Summary of
Significant Accounting Policies



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from those
estimates.



Cash and Cash Equivalents



The Company considers all highly liquid, temporary investments with an
original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are deposited in demand and money market accounts in financial institutions in the United States.



Accounts Receivable/ Allowance for Doubtful Accounts



Accounts receivable are stated at net realizable value. Uncollectible
receivables are recorded as bad debt expense when all efforts to collect them have been exhausted and recoveries are recognized when they are received. Historically, the bad debts have been insignificant and the allowance for bad debt approximates
the average bad debt expense.



F-7



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Notify Technology Corporation



Notes to Financial Statements(Continued)



Inventories



The Companys current business does not require inventory and it no longer has any remaining inventory of its legacy products. If inventories were
present, they would be stated at the lower of cost or market on a first-in, first-out basis. At September 30, 2006, the value of inventory was zero.



Property and Equipment



Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over
the following estimated useful lives of the assets: five years for furniture and office equipment and three years for software and computer equipment. Leasehold improvements and assets under capital leases are amortized by the straight-line method
over the shorter of the lease term or the estimated useful lives of such assets. Upon retirement or sale, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in the statement of
operations. Repairs and maintenance are expensed as incurred.



Long-Lived
Assets



The Company monitors the recoverability of
long-lived assets based on estimated use factors such as future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets or realized upon sale. The Companys policy is to write
down assets to its net recoverable amount, which is determined based on either discounted future net cash flows or appraised values, in the period when it is determined that the carrying amount of the asset is not likely to be recoverable.



Income Taxes



The Company accounts for income taxes under the liability method. The
estimated future tax effect of differences between the basis in assets and liabilities for tax and accounting purposes is accounted for as deferred taxes. A valuation allowance has been established to reduce deferred tax assets as it is more likely
than not that all, or some portion, of such deferred tax assets would not be realized. A full allowance against deferred tax assets is provided.



Advertising Costs



Advertising costs are expensed as incurred. Advertising costs were $1,010 for the year ended September 30, 2006 and $10,590 for the year ended
September 30, 2005.



Revenue Recognition



The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position (SOP) 97-2, Software Revenue Recognition, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104).



Under SOP 97-2, the Company recognizes 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. The Companys license agreements generally have a fixed term and the license revenue is
recognized ratably over the term of each license.



Under SAB
104, the Company recognizes 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



F-8



---

Notify Technology Corporation



Notes to Financial Statements(Continued)



been rendered, the sales price is fixed or determinable and collection is probable. The Company recognizes revenues at time of shipment of its products and
sales are recorded net of discounts and returns.



Service
income is recognized on a straight-line basis over the period of the service agreement.



Deferred revenue relates to products where a sales contract has been executed and payment has been received but the obligation to provide services is being recognized over the contractual term of the license.



Research and Development



Based on the Companys software development process, the time period
between the development of new software features and the release of the product is short and capitalization of internal development costs has not been material to date.



Concentration of Credit Risk



Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. Cash and cash equivalents held with financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents.



The Company performs ongoing credit evaluations and generally requires no
collateral. The Company maintains reserves for credit losses, and such losses have been within managements expectations. As of September 30, 2006, one customer accounted for 24% of accounts receivable. Revenue from one customer accounted
for 29% and 57% of total revenues for fiscal years ended September 30, 2006 and 2005, respectively.



Fair Value of Financial Instruments



Carrying amounts of certain of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their
relatively short maturities. Based upon borrowing rates currently available to the Company for capital leases with similar terms, the carrying value of its capital lease obligations approximate fair value.



Stock-Based Compensation



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



The Company accounts for stock-based
employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and related interpretations. Under APB 25, compensation expense is
based on the difference, if any, on the date of the grant, between the fair value of the Companys stock and the exercise price.



F-9



---

Notify Technology Corporation



Notes to Financial Statements(Continued)



The following table illustrates the effect on net loss and net loss per share if the Company had
applied the fair value recognition provisions of SFAS 123 and SFAS 148 to stock-based employee compensation:



|                                                                                                                                    |  |              |          |   |      |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                    |  | Fiscal Years |         
|                                                                                                                                    |  | 2006         |          |   | 2005 |  
|Net loss, as reported                                                                                                               |  | $            | (314,892 | ) |      | $ | (557,452 | )
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                            |  |              |         |   |      |   |         |  
|Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax
effects |  |              | (91,064  | ) |      |   | (140,259 | )
|                                                                                                                                    |  |              |          |   |      |   |          |  
|Pro forma net loss                                                                                                                  |  |              | (405,956 | ) |      | $ | (697,711 | )
|                                                                                                                                    |  |              |          |   |      |   |          |  
|Net loss per shareBasic and diluted:                                                                                               |  |              |          |   |      |   |          |  
|As reported                                                                                                                         |  | $            | (0.02    | ) |      | $ | (0.04    | )
|                                                                                                                                    |  |              |          |   |      |   |          |  
|Pro forma                                                                                                                           |  | $            | (0.03    | ) |      | $ | (0.05    | )
|                                                                                                                                    |  |              |          |   |      |   |          |  



The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



|                          |  |      |       |   |      |   |       |  
|------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                          |  | 2006 |       |   | 2005 |  
|Expected dividend yield   |  |      | 0.00  | % |      |   | 0.00  | %
|Risk-free interest rate   |  |      | 4.76  | % |      |   | 3.47  | %
|Expected volatility       |  |      | 166   | % |      |   | 132   | %
|Expected life (in years): |  |      | 3     |   |      |   | 3     |  
|Fair value at grant date  |  | $    | 0.156 |   |      | $ | 0.215 |  



The Company recognized
no compensation expense in fiscal 2006 or in fiscal 2005 related to the grant of options to non-employees.



Net Loss Per Share



Net
loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares outstanding during the period.



Options to purchase 3,225,000 and 3,333,667 shares of common stock and warrants to purchase 1,871,651 and 1,871,651 shares of common stock were
outstanding at September 30, 2006 and 2005, respectively, but were not included in the computation of diluted net loss per share as the effect would be antidilutive.



Recent Accounting Pronouncements



In January 2003, the Financial Accountings Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. During October 2003, the FASB issued Staff Position 46-6 which is
effective for financial statements issued after October 9, 2003, and provides a broad deferral of the latest date by which all entities must apply FIN 46 to certain variable interest entities, to the first reporting period ending after
December 15, 2003. The adoption of FIN 46 did not have a material impact on the financial position or results of operations of the Company.



F-10



---

Notify Technology Corporation



Notes to Financial Statements(Continued)



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R
(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 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 interim or annual reporting periods beginning after December 15, 2005 for
companies that file as small business issuers. The adoption of SFAS 123R is expected to have a material impact on the Companys financial position and results of operations.



3. Emerging Issues Task Force (EITF) Issue No. 00-19



In accordance with The Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Companys Stock, the original terms of warrants for Common shares issued in connection with the Series A Preferred offering issued on July 20, 2001, qualified for treatment as a
liability on the balance sheet at their fair value until September 12, 2006 when the holders of the warrants signed an amendment changing those terms that made the warrants subject to EITF 00-19.



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



The fair value of the warrants was estimated as of March 31, 2006, June 30, 2006 and September 12, 2006 using the Black-Scholes option-pricing model assuming no dividends and the following assumptions:



|                                                 |  |            |           |   |           |   |           |            |  |   |           |   |  |   |        
|------------------------------------------------ |  | ---------- | --------- | - | --------- | - | --------- | ---------- |  | - | --------- | - |  | - | -------
|                                                 |  | March 2006 |           |   | June 2006 |   |           | Sept. 2006 |  |   | Total    
|Number of warrants                               |  |            | 1,871,151 |   |           |   | 1,871,151 |            |  |   | 1,871,151 |   |  |   |        
|Risk-free (10-year Treasury yield) interest rate |  |            | 4.76      | % |           |   | 5.16      | %          |  |   | 4.56      | % |  |   |        
|Remaining contractual life                       |  |            | 2.3096    |   |           |   | 2.0603    |            |  |   | 1.8082    |   |  |   |        
|Volatility factor                                |  |            | 166.16    | % |           |   | 180.46    | %          |  |   | 198.91    | % |  |   |        
|Resulting warrant value                          |  | $          | 145,252   |   |           | $ | 457,919   |            |  | $ | 470,073   |   |  | $ | 470,073
|Loss on FV of warrants                           |  | $          | 145,252   |   |           | $ | 312,667   |            |  | $ | 12,154    |   |  | $ | 470,073



This change in value
reflects the increase in market price of the Companys stock in the nine month period ended September 12, 2006. The fair value of the warrants was recorded as Loss on fair value of warrants in the Companys statement of
operations, and included in Warranty liability on the Companys balance sheet until September 12, 2006 when the warrant value was reclassified to Equity.



4. Sale of Patents



On February 13, 2006, an agreement was announced to assign certain patents related to the Companys legacy products that were no longer in
production for a one-time payment of $250,000. The assignment was completed in June 2006 and the gain was reported as Other income in the fiscal quarter ended June320, 2006. This assignment was a one-time event and the patents involved were not
required for any current or proposed products.



F-11



---

Notify Technology Corporation



Notes to Financial Statements(Continued)



5. Property and Equipment



Property and equipment consist of the following:



|                                               |  |                   |          |  
|---------------------------------------------- |  | ----------------- | -------- | -
|                                               |  | September 30,2006 |         
|Furniture and office equipment                 |  | $                 | 618,966  |  
|Software                                       |  |                   | 49,324   |  
|Leasehold improvements                         |  |                   | 2,246    |  
|                                               |  |                   |          |  
|                                               |  |                   | 670,536  |  
|Less accumulated depreciation and amortization |  |                   | (570,913 | )
|                                               |  |                   |          |  
|                                               |  | $                 | 99,623   |  
|                                               |  |                   |          |  



Property and equipment
includes $88,143 of office equipment under capital lease with accumulated amortization of $60,427 at September 30, 2006.



Depreciation and amortization expense was $66,321 and $106,413 for the years ended September 30, 2006 and 2005, respectively.



6. Capital Lease Obligations



During the year ended September 30, 2003, the Company entered into
three capital lease agreements for office equipment totaling $51,528, with principal and interest (6.0%) payments due monthly. During the year ended September 30, 2005, the Company entered into one capital lease for office equipment
totaling $37,705 with principal and interest (6.0%) due monthly. During the year ended September 30, 2006, the Company entered into one capital lease for office equipment totaling $6,157 with principal and interest (5.8%) due monthly.



Future minimum lease payments under the lease are as follows:



|                                            |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|For the year ending September 30,           |  |   |         |  
|2007                                        |  | $ | 19,564  |  
|2008                                        |  |   | 6,851   |  
|2009                                        |  |   | 1,776   |  
|2010                                        |  |   | 1,184   |  
|                                            |  |   |         |  
|Total minimum lease payments                |  |   | 29,375  |  
|Less: amount representing interest          |  |   | (1,955  | )
|                                            |  |   |         |  
|Present value of net minimum lease payments |  |   | 27,420  |  
|Less: current portion                       |  |   | (18,219 | )
|                                            |  |   |         |  
|                                            |  | $ | 9,201   |  
|                                            |  |   |         |  



7. Guarantees



Indemnification Agreements



The Company enters into standard indemnification arrangements in the
ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally their business partners or
customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim



F-12



---

Notify Technology Corporation



Notes to Financial Statements(Continued)



by any third party with respect to the Companys products. The term of these indemnification agreements is generally perpetual anytime after the
execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.



The Company has entered into indemnification agreements with its directors and officers that may require the Company: to indemnify its directors and
officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified; and to obtain directors and officers insurance if available on reasonable terms, which the Company currently has in place.



Product Warranty



The Company warrants its products to current paid-up customers and makes available for download service update releases that contain the most up-to-date
version of the Companys products. These software updates are continually maintained and released when available. As such, the Company does not maintain a separate warranty reserve but expenses the cost to create and post any maintenance
release as a part of normal operations.



8. Commitments and Contingencies



The Company currently occupies two facilities under
operating leases. The San Jose, California facility lease expires in March 2007 and the Canfield, Ohio facility lease expires in October 2008.



Future minimum lease payments are approximately as follows:



|                               |  |   |        
|------------------------------ |  | - | -------
|Year ending September 30, 2007 |  | $ | 102,085
|Year ending September 30, 2008 |  |   | 66,964 
|                               |  |   |        
|                               |  | $ | 169,049
|                               |  |   |        



Facility rent expense
totaled approximately $161,000 and $177,000 for the years ended September 30, 2006 and 2005, respectively.



In November 2003, NCR Corporation and Notify Technology Corporation entered into a non-exclusive license agreement that allows the Company to offer
certain product features on its Enterprise Mobility Solution that are covered by a patent held by NCR. This agreement requires that a royalty payment be made to NCR based on the revenue from any NotifyLink product that is sold that uses the
technology covered by the patent. Payments under this agreement were $80,229 and $49,839 during the fiscal years 2006 and 2005, respectively.



9. Shareholders Equity (Deficit)



Preferred Stock



The Board of Directors has the authority, without any further vote or action by the shareholders, to provide for the issuance of 4,100,000 shares of
preferred stock in one or more series with such designation, rights, preferences, and limitations as the Board of Directors may determine, including the consideration to be received, the number of shares comprising each series, dividend rates,
redemption provisions, liquidation preferences, redemption and fund provisions, conversion rights, and voting rights, all without the approval of the holders of common stock.



F-13



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Notify Technology Corporation



Notes to Financial Statements(Continued)



Convertible Redeemable Preferred Stock



In July 2001, the Companys shareholders authorized and the Company completed an offering of Series A convertible
redeemable preferred stock (Series A preferred stock) to a group of private investors. In connection with the offering, the Company issued 501,000 shares of Series A preferred stock at $10 per share and issued warrants to purchase
1,753,000 shares of common stock for consideration of $4.2 million, net of issuance costs. The Company has designated a total of 900,000 shares as Series A preferred stock.



Holders of our outstanding Series A preferred stock had the right to require the Company to redeem any unconverted
shares of Series A preferred stock at any time and from time to time during the period from July 20, 2003 to July 25, 2004. The per share redemption price was $10.00 plus any accrued dividends. The holders of Series A preferred
stock had the option to receive the redemption price in cash or in shares of our common stock, but the Company was not obligated to pay the redemption in cash unless the Companys board of directors unanimously approved such payment in cash. If
all holders of outstanding Series A preferred stock elected to redeem in cash, the aggregate redemption price would have totaled $4,610,000. The holders of the Companys Series A preferred stock chose to exercise their right of redemption
in the form of common shares. The outstanding Series A preferred shares were redeemed at an effective rate of 20 shares of common stock for each share of Series A preferred stock. The redemption date was July 20, 2004 at which time 461,000
Series A preferred shares were presented for redemption and 9,220,000 shares of common stock were subsequently issued on August 31, 2004.



In connection with the offering of Series A preferred stock, the Company issued options to purchase 9.2685 units at a price per unit of $100,000 to the
placement agent. Each unit consists of 10,000 shares of Series A preferred stock convertible into an aggregate of 100,000 shares of common stock with a warrant to purchase 35,000 shares of common stock. The option to purchase units expires in
July 2008. The warrant is exercisable at any time through July 2008 at a price of $1.00 per common stock. The preferred stock was valued at $1.45 per share while the warrants were valued at $1.38 per share. At September 30, 2006, all of these
options were outstanding.



Additionally, the Company also
issued a seven year warrant to purchase 118,151 shares of common stock at an exercise price of $1.00 per share to an investment fund in connection with the investment funds commitment to purchase Series A preferred stock for the amount of the
difference between $5 million and the aggregate amount of money invested by all other investors in the financing.



During fiscal 2003, 5,000 shares of Series A preferred stock were converted to 50,000 shares of common stock.



Common Stock



The following table summarizes shares of common stock reserved for future issuance by the Company:



|                       |  |                  
|---------------------- |  | -----------------
|                       |  | September 30,2006
|1997 Stock Option Plan |  | 3,225,000        
|Warrant agreements     |  | 1,871,651        
|                       |  |                  
|                       |  | 5,096,651        
|                       |  |                  



F-14



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Notify Technology Corporation



Notes to Financial Statements(Continued)



Warrants to Purchase Common Stock



At September 30, 2006, the Company had the following warrants outstanding:



| |  |  | Warrants to purchase 1,753,500 and 118,151 shares of common stock at an exercise price of $1.00 were issued in connection with the July 2001 private placement to the placement agent
and an investment fund, respectively. The warrant to purchase 1,753,500 shares of common stock expires in July 2008 and the warrant to purchase 118,151 shares of common stock expires in May 2008. In connection with the private placement, the Company
also agreed that if it issues additional equity instruments at a price per share less than $1.00, then the price and number of warrants shall be adjusted on a weighted-average basis.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On September 12, 2006, the Company entered into an amendment (the
Warrants Amendment) to the Warrants to Purchase Shares of Common Stock dated as of July 20, 2001 (the Warrants) with Commonwealth Associates, L.P. (Commonwealth) and other holders of Warrants holding in the
aggregate fifty-four percent (54%) of the outstanding Series A Warrants (as defined in the Warrants). Commonwealth and its affiliates beneficially own approximately forty-four (44%) of the Companys outstanding stock, assuming
the conversion of all shares of preferred stock underlying outstanding unit purchase options. In addition, Inder Tallur, one of the members of the Companys board of directors, is affiliated with Commonwealth.



The Warrants Amendment amended the terms of the Warrants to limit the maximum
number of additional Warrant Shares (as defined in the Warrants) subject to issuance as a result of penalties provided for in Section 10 of the Warrants for certain defaults by the Company described in Section 10 of the Warrants to the
number of additional Warrant Shares determined if the Company remained, with respect to its first default, in such default for five consecutive thirty (30) day periods. The original terms of the Warrants did not limit the number of additional
Warrant Shares that could be subject to issuance as a result of such defaults and could have theoretically resulted in an infinite number of additional Warrant Shares being subject to issuance for such defaults. This provision subjected the Company
to adverse accounting treatment with respect to the Warrants under Emerging Issues Task Force guidance EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, A Companys Own Stock
(EITF 00-19).



The Warrants Amendment is intended
to amend the terms that made the Warrants subject to EITF 00-19 and allow them to be reclassified as equity at a value calculated using the Black-Scholes option-pricing model as of September 12, 2006.



In addition, on September 12, 2006, the Company entered into a similar
amendment (the Commitment Warrant Amendment) to the Commitment Warrant to Purchase 118,151 Shares (Subject to Adjustment) of Common Stock dated as of May 16, 2001 (the Commitment Warrant) with ComVest Venture Partners,
L.P. (ComVest). ComVest holds one hundred percent (100%) of the outstanding Warrants (as defined in the Commitment Warrant). ComVest is an affiliate of Commonwealth.



In addition, on September 12, 2006, the Company entered into an amendment (the Option Amendment) to one of
the Unit Purchase Options issued in connection with the July 2001 Preferred Stock Offering of the Company (the Unit Purchase Options) with Commonwealth.



The Option Amendment amends the form of Warrant attached as Appendix A to Commonwealths Unit Purchase Options (the
Option Warrant) in order to limit the maximum number of additional Warrant Shares (as defined in the Option Warrant) subject to issuance as a result of penalties provided for in Section 10 of the Option Warrant for certain defaults
by the Company described in Section 10 of the Option Warrant to the number of additional Warrant Shares determined if the Company remained, with respect to its first default, in such



F-15



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Notify Technology Corporation



Notes to Financial Statements(Continued)



default for five consecutive thirty (30) day periods. The original terms of the Option Warrant did not limit the number of additional Warrant Shares
that could be subject to issuance as a result of such defaults and could have theoretically resulted in an infinite number of additional Warrant Shares being subject to issuance for such defaults, which would have subjected the Company to adverse
accounting treatment with respect to the Option Warrant under EITF 00-19 if such Option Warrant was ever issued.



The Option Amendment was intended to amend the terms that would otherwise make the Option Warrant subject to EITF 00-19 and allow it to be reclassified as
equity at a value calculated using the Black-Scholes option-pricing model in the event it is ever issued.



In order to amend each of the outstanding Unit Purchase Options, the holder of each such Unit Purchase Option is required to execute a separate Option
Amendment with the Company. Commonwealths Unit Purchases Option represents approximately thirty-seven percent (37%) of the outstanding Unit Purchase Options. All remaining outstanding Unit Purchase Options other than Commonwealths
remain subject to their original terms. None of the Option Warrants are presently outstanding and will be issued only upon exercise of the Unit Purchase Options. Because all of the Option Warrants were not amended as a result of the Option
Amendments, the Company could be required in the future to recognize additional charges under EITF 00-19, which would have an adverse effect on its future operating results.



1997 Stock Option Plan



In January 1997, the Company adopted the 1997 Stock Plan (the Plan), which provides for the granting of stock options to employees, officers,
consultants, and directors of the Company. Stock options are granted at fair market value on the date of grant with terms of up to ten years. Under the Plan, a total of 3,474,662 shares of the Companys common stock are reserved for issuance.
Under the terms of these option grants, the options commence vesting upon the first anniversary of the date of employment and continue to vest ratably over the remainder of the four-year vesting period. Certain grants of options to employees after
the initial grant of options to employees vest over three years. Certain grants to members of the Companys Board of Directors in compensation for their services vest over their current term of office of one year. The following table summarizes
stock option activity:



|                              |  |                            |   |  |                       |   |  |   |      
|----------------------------- |  | -------------------------- | - |  | --------------------- | - |  | - | -----
|                              |  | Shares Available for Grant |   |  | Options Outstanding  
|                              |  | Number ofShares            |   |  | Weighted-AveragePrice
|Balance at September 30, 2004 |  | 238,738                    |   |  | 3,390,924             |   |  | $ | 1.396
|Granted                       |  | (475,000                   | ) |  | 475,000               |   |  | $ | 0.260
|Cancelled                     |  | 377,257                    |   |  | (377,257              | ) |  | $ | 2.465
|Exercised                     |  |                           |   |  | (155,000              | ) |  | $ | 2.198
|                              |  |                            |   |  |                       |   |  |   |      
|Balance at September 30, 2005 |  | 140,995                    |   |  | 3,333,667             |   |  | $ | 1.181
|Granted                       |  | (100,000                   | ) |  | 100,000               |   |  | $ | 0.200
|Cancelled                     |  | 208,667                    |   |  | (208,667              | ) |  | $ | 1.119
|                              |  |                            |   |  |                       |   |  |   |      
|Balance at September 30, 2006 |  | 249,662                    |   |  | 3,225,000             |   |  | $ | 1.154
|                              |  |                            |   |  |                       |   |  |   |      



F-16



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Notify Technology Corporation



Notes to Financial Statements(Continued)



The following table summarizes outstanding and exercisable options at September 30, 2006:



|                |  |                             |  |                                         |  |                                 |       |                             |           |                                 |   |      
|--------------- |  | --------------------------- |  | --------------------------------------- |  | ------------------------------- | ----- | --------------------------- | --------- | ------------------------------- | - | -----
|                |  | Options Outstanding         |  | Options Exercisable                    
|Exercise Prices |  | Number ofOptionsOutstanding |  | Weighted- AverageRemaining Life
inYears |  | Weighted-AverageExercise Prices |       | Number ofOptionsExercisable |           | Weighted-AverageExercise Prices
|$0.220  $0.260 |  | 1,550,000                   |  | 7.38                                    |  | $                               | 0.251 |                             | 1,256,459 |                                 | $ | 0.250
|$0.320  $0.490 |  | 488,000                     |  | 5.05                                    |  | $                               | 0.333 |                             | 488,000   |                                 | $ | 0.333
|$0.800  $0.906 |  | 13,000                      |  | 2.52                                    |  | $                               | 0.882 |                             | 13,000    |                                 | $ | 0.882
|$1.600  $2.375 |  | 903,000                     |  | 4.70                                    |  | $                               | 1.603 |                             | 903,000   |                                 | $ | 1.603
|$2.750  $3.875 |  | 110,000                     |  | 3.92                                    |  | $                               | 3.190 |                             | 110,000   |                                 | $ | 3.190
|$6.125  $7.656 |  | 26,000                      |  | 3.06                                    |  | $                               | 6.680 |                             | 26,000    |                                 | $ | 6.680
|$8.813          |  | 135,000                     |  | 3.40                                    |  | $                               | 8.813 |                             | 135,000   |                                 | $ | 8.813
|                |  |                             |  |                                         |  |                                 |       |                             |           |                                 |   |      
|                |  | 3,225,000                   |  | 5.93                                    |  | $                               | 1.154 |                             | 2,931,459 |                                 | $ | 1.245
|                |  |                             |  |                                         |  |                                 |       |                             |           |                                 |   |      



10. Income Taxes



Due to operating losses, there is no provision for income taxes for 2005 or
2004. The expected statutory tax benefit of 34% is offset by the inability to recognize an income tax benefit from the net operating losses.



Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets for federal and state income taxes are as follows:



|                                 |  |                             |            |  
|-------------------------------- |  | --------------------------- | ---------- | -
|                                 |  | Year EndedSeptember 30,2006 |           
|Deferred tax assets:             |  |                             |            |  
|Net operating loss carryforwards |  | $                           | 6,640,000  |  
|Research credit carryforwards    |  |                             | 361,000    |  
|Other temporary differences      |  |                             | 35,000     |  
|                                 |  |                             |            |  
|Total deferred tax assets        |  |                             | 7,036,000  |  
|Valuation allowance              |  |                             | (7,036,000 | )
|                                 |  |                             |            |  
|Net deferred tax assets          |  | $                           |           |  
|                                 |  |                             |            |  



Realization of
deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Accordingly, a valuation allowance in an amount equal to the net deferred tax asset has been established to reflect these uncertainties.



As of September 30, 2006, the Company had net operating
loss carryforwards of approximately $19,500,000 and $5,000,000 for Federal and California tax purposes, which will expire in the years 2015 through 2025. As of September 30, 2006, the Company also had research and development tax credit
carryforwards for federal and California tax purposes of approximately $360,000 and $290,000, respectively. The credits will expire in the years 2016 through 2025, if not utilized. Utilization of the net operating losses and tax credit carryforwards
may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating
losses and tax credit carryforwards before full utilization.



F-17



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Notify Technology Corporation



Notes to Financial Statements(Continued)



11. Industry Segment, Customer, and Geographic Information



The Company has one operating segment by which management evaluates
performance. The Company sells its products primarily within the United States and Canada to business customers and to a long distance carrier.



All of the Companys long-lived assets are located in the United States.



F-18



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EXHIBIT INDEX



|         |  |                                                                                                                                                                                                                                                                                                                             
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1    |  | Amended and Restated Articles of Incorporation of Registrant as filed with the Secretary of State of California on September 2, 1997. (incorporated herein by reference to Exhibit (3.2)
to the Registrants Registration Statement on Form SB-2, Reg. No. 333-23369, filed on March 14, 1997)                              
|         | 
|3.1.2    |  | Certificate of Amendment to the Registrants Articles of Incorporation as filed with the Secretary of State of California on March 3, 1998. (incorporated herein by reference to Exhibit
(3.1.1) to the Registrants Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)
|         | 
|3.1.3    |  | Certificate of Amendment to the Registrants Articles of Incorporation as filed with the Secretary of State of California on July 12, 2001. (incorporated herein by reference to Exhibit
(3.1.2) to the Registrants Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)
|         | 
|3.1.4    |  | Certificate of Determination, Preferences and Rights of Series A Preferred Stock as filed with the Secretary of State of California on July 13, 2001. (incorporated herein by reference to
Exhibit (3.1) to the Registrants Current Report on Form 8-K, filed on July 23, 2001)                                            
|         | 
|3.2      |  | Amended and Restated Bylaws of Registrant. (as amended on October 5, 2006)                                                                                                                                                                                                                                                  
|         | 
|4.2      |  | Form of warrant issued to subscribers in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.1) to the Registrants Current
Report on Form 8-K, filed on July 23, 2001)                                                                                           
|         | 
|4.3      |  | Form of option issued to the placement agent in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.2) to the Registrants
Current Report on Form 8-K, filed on July 23, 2001)                                                                                    
|         | 
|4.4      |  | Form of warrant underlying the option issued to the placement agent in connection with the Registrants July 2001 private placement. (incorporated herein by reference to Exhibit (4.3) to
the Registrants Current Report on Form 8-K, filed on July 23, 2001)                                                             
|         | 
|10.4(1)  |  | Form of Indemnification Agreement. (incorporated herein by reference to Exhibit (10.5) to the Registrants Registration Statement on Form SB-2, Reg. No. 333-23369, filed on March 14,
1997)                                                                                                                                
|         | 
|10.6(1)  |  | Registrants 1997 Stock Plan, as amended effective March 26, 2003, and form of stock option agreement. (incorporated by reference to Exhibit (4.1) to the Registrants Registration
Statement on Form S-8 Reg. No. 333-108868, filed on September 17, 2003)                                                                 
|         | 
|10.12.1  |  | Voice Mail Services Agreement, dated as of February 8, 2002, by and between the Registrant and AT&T Corp. (incorporated by reference to Exhibit (10.1) to the Registrants Quarterly
Report on Form 10-QSB for the quarterly period ended March 30, 2002, filed on May 15, 2002)                                            
|         | 
|10.12.2  |  | First Amendment to the Voice Mail Services Agreement, dated as of February 8, 2003, by and between the Registrant and AT&T Corp. (incorporated herein by reference to Exhibit (10.1) to the
Registrants Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2003, filed on May 14, 2003)              
|         | 
|10.16(1) |  | Amended and Restated Employment Agreement dated as of July 6, 2004 between Registrant and Paul DePond. (incorporated herein by reference to Exhibit (10.16) to the Registrants Quarterly
Report on Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                                   
|         | 
|10.17(1) |  | Amended and Restated Employment Agreement dated as of July 6, 2004 between Registrant and Gerald Rice. (incorporated herein by reference to Exhibit (10.17) to the Registrants Quarterly
Report on Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                                   



---

|         |  |                                                                                                                                                                                                                                                                                                         
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18(1) |  | Employment Agreement dated as of July 6, 2004 between Registrant and Rhonda Chicone-Shick. (incorporated herein by reference to Exhibit (10.18) to the Registrants Quarterly Report on
Form 10-QSB for the three-month period ended June 30, 2004, filed on August 12, 2004)                           
|         | 
|10.19    |  | Severance Agreement and Release dated September 30, 2004 between the Company and Gaylan I. Larson (incorporated herein by reference to Exhibit (10.19) to the Registrants Current
Report on Form 8-K, filed on October 1, 2004)                                                                        
|         | 
|10.20    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of March 15, 2004 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.20) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                    
|         | 
|10.21    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of October 11, 2001 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.21) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                  
|         | 
|10.22    |  | Amendment No. 1 dated October 14, 2004, to Stock Option Agreement dated as of October 11, 2001 between the Company and Michael Ballard (incorporated herein by reference to Exhibit (10.22) to
the Registrants Current Report on Form 8-K, filed on October 20, 2004)                                  
|         | 
|10.23(1) |  | Employment Agreement dated November 15, 2004 between the Company and Gordon S. Faulmann (incorporated herein by reference to Exhibit (10.19) to the Registrants Current Report on Form
8-K, filed on November 17, 2004)                                                                                
|         | 
|10.24    |  | Nonexclusive Technology License Agreement, dated as of November 24, 2003, by and between Registrant and NCR Corporation. (incorporated herein by reference to Exhibit (10.24) to the
Registrants Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004, filed on December 22, 2004)
|         | 
|10.25    |  | Patent Purchase Agreement dated March 22, 2006, by and between Notify Technology Corporation and Sunshine Data Ventures LLC. (incorporated herein by reference to Exhibit (10.25) to the
Registrants Currant Report 8-K, filed on March 24, 2006)                                                      
|         | 
|10.26    |  | Amendment to Series A Warrants dated September 12, 2006 (incorporated herein by reference to Exhibit (10.26) to the Registrants Current Report on Form 8-K, filed on September 12,
2006)                                                                                                               
|         | 
|10.27    |  | Amendment to ComVest Commitment Warrant dated September 12, 2006 (incorporated herein by reference to Exhibit (10.27) to the Registrants Current Report on Form 8-K, filed on September
12, 2006)                                                                                                      
|         | 
|10.28    |  | Amendment to Unit Purchase Option dated September 12, 2006 with Commonwealth Associates, L.P. (incorporated herein by reference to Exhibit (10.28) to the Registrants Current Report on
Form 8-K, filed on September 12, 2006)                                                                         
|         | 
|10.29    |  | Lease, dated as of September 22, 2006 by and between Registrant and Colbur Tech, LLC.                                                                                                                                                                                                                   
|         | 
|10.30    |  | Lease, dated as of February 27, 2006 by and among Registrant, and Ching C. Poon and Jenny M. Poon.                                                                                                                                                                                                      
|         | 
|14.1     |  | Code of Ethics for Principal Executive and Senior Financial Officers (incorporated herein by reference to Exhibit (14.1) to the Registrants Annual Report on Form 10-KSB for the fiscal
year ended September 30, 2003, filed on December 29, 2003)                                                     
|         | 
|16.0     |  | Letter from Burr, Pilger & Mayer LLP, to the Securities and Exchange Commission dated October 18, 2005 (incorporated herein by reference to Exhibit (16) to the Registrants Current
Report on Form 8-K, filed on October 18, 2005)                                                                     
|         | 
|23.1     |  | Consent of L.L. Bradford & Company LLC, independent registered public accounting firm                                                                                                                                                                                                                   
|         | 
|24.1     |  | Power of Attorney (see page 34).                                                                                                                                                                                                                                                                        



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|     |  |                                                                                                                               
|---- |  | ------------------------------------------------------------------------------------------------------------------------------
|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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

|+ | Confidential treatment has been granted with respect to portions of these exhibits.
|- | -----------------------------------------------------------------------------------

|(1) | Management compensation plan/contract
|--- | -------------------------------------