NOTIFY TECHNOLOGY CORP, SB-2, 1999-04-08

NOTIFY TECHNOLOGY CORP
SB-2, 1999-04-08
TELEPHONE & TELEGRAPH APPARATUS

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As filed with the Securities and Exchange Commission on April 8, 1999
Registration No. [ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

NOTIFY TECHNOLOGY CORPORATION
(Name of small business issuer in its charter)

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CALIFORNIA 3661 77-0382248
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
(Address and telephone number,
of principal executive offices)

1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
(Address of principal place of business
or intended principal place of business)

Paul F. DePond
President and Chief Executive Officer
1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
(Name, Address and telephone number,
of agent for service)

Copies to:

HENRY P. MASSEY, JR., ESQ.
PETER S. HEINECKE, ESQ.
MICHAEL A. DE ANGELIS, ESQ.
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
(650) 493-9300
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of
this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]

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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED PER SECURITY OFFERING PRICE FEE
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Class A Warrants (1)......................... 425,000 $ 7.69 $ 3,268,250 $ 909
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Common Stock, $.001 par value (2)............ 425,000 $ -- $ -- $ --
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Total............................... $ 909
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(1) Pursuant to rule 457(g) under the Securities Act of 1933, the offering
price is estimated solely for the purposes of calculating the
registration fee based on the average of the high and low prices for
shares of our common stock as reported on the Nasdaq SmallCap Market
on April 6, 1999.

(2) Issuable upon exercise of the Class A Warrants; Pursuant to rule
457(g) under the Securities Act of 1933, no separate registration fee
is required.

PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL
SHARES AND WARRANTS AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS
UPON THE EXERCISE OF THE CLASS A WARRANTS.

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THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE OF THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.

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PROSPECTUS

NOTIFY TECHNOLOGY CORPORATION

425,000 SHARES OF COMMON STOCK AND
425,000 CLASS A WARRANTS

The selling security holders identified in the prospectus are
offering either (i) up to 425,000 of our Class A warrants or (ii) up to
425,000 shares of our common stock which underlie those Class A warrants. We
issued these warrants in March 1997 in connection with a bridge loan.

We are offering up to 425,000 shares of our common stock to
persons holding Class A warrants sold by the selling security holders, who
elect to exercise the warrants.

We will receive no proceeds from the sale of the Class A warrants
or the underlying common stock by the selling security holders. We will
receive $6.50, subject to adjustment, for each Class A warrant exercised.

Our common stock, Class A warrants and Units are currently listed
on the Nasdaq SmallCap Market under the symbols "NTFY," "NTFYW" and "NTFYU,"
respectively. Each Unit consists of one share of our common stock and one
Class A warrant. Our Class A warrants entitle the holder to purchase one
share of common stock at an exercise price of $6.50, subject to adjustment,
until August 28, 2002.

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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS APRIL 8, 1999

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TABLE OF CONTENTS
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PAGE PAGE
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Special Note Regarding Forward-Looking Certain Relationships and Related
Statements.......................................... 2 Transactions.......................... 29
Risk Factors............................................. 3 Principal Shareholders..................... 30
Use of Proceeds.......................................... 12 Description of Securities.................. 34
Price Range of Common Stock, Class A Warrants and Units.. 12 Selling Security Holders................... 36
Dividend Policy.......................................... 13 Plan of Distribution....................... 38
Management's Discussion and Analysis of Legal Matters.............................. 39
Financial Condition and Results of Operations....... 14
Business................................................. 19 Experts.................................... 39
Additional Information..................... 39
Management............................................... 24 Index to Financial Statements.............. F-1
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We are a California corporation. Our principal executive offices
are located at 1054 S. De Anza Blvd., Suite 105, San Jose, California 95129,
and our telephone number is (408) 777-7920. In this prospectus, "Notify
Technology," "we," "us," and "our" refer to Notify Technology Corporation,
unless the context otherwise requires.

You should rely only on the information incorporated by reference
or provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or the prospectus supplement is accurate as of
any date other than the date on the front of the document.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
"Business," and elsewhere in this prospectus constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties,
and other factors that may cause our or our industry's results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, those listed under "Risk Factors" and elsewhere in this prospectus.

In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of such terms or other comparable terminology.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future
results, events, levels of activity, performance, or achievements. We do not
assume responsibility for the accuracy and completeness of the
forward-looking statements. We do not intend to update any of the
forward-looking statements after the date of this prospectus to conform them
to actual results.

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Trade names and trademarks of other companies appearing in this
prospectus are the property of their respective holders.

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RISK FACTORS

Investing in our common stock and Class A warrants may subject you
to risks inherent in our business. The performance of our common stock and
our Class A warrants will reflect the performance of our business relative
to, among other things, our competition, general economic and market
conditions and industry conditions. The value of your investment may increase
or decline and could result in a loss. You should carefully consider the
following factors as well as other information contained in this prospectus
before deciding to invest in our common stock or Class A warrants.

WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES, MOREOVER, THERE
IS NO ASSURANCE OF FUTURE PROFITABILITY

We commenced operations in August 1994 and through January 1996 we
primarily engaged in research and development. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered
by early-stage companies. For the fiscal years ended September 30, 1997 and
1998, we incurred net losses of $1,382,910 and $2,617,561, respectively. As
of December 31, 1998, we had an accumulated deficit of $6,689,583 and working
capital of $2,002,594. We anticipate having a negative cash flow from
operating activities in future quarters. We incurred a net loss of $605,831
for the three month period ended December 31, 1998 and expect to incur
further operating losses in future quarters and years. These losses will
continue until we sell substantially more of our products and our revenue
exceeds our operational expenses. We may never sell significantly more of our
products or achieve or sustain profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and
"Business-Sales, Marketing and Distribution."

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, Units and Class A warrants to be
volatile. Operating results may vary as a result of many factors, including
the following:

- - our level of research and development;

- - our sales and marketing activities;

- - announcements by us or our competitors;

- - size and timing of orders from customers;

- - new product introductions by us or our competitors; 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. For example, during the third and fourth
quarters of fiscal 1997, we recorded revenue of approximately $2.8 million
primarily as the result of one customer conducting a particularly large
marketing program using our MessageAlert product. Since that time, no
customer has conducted a similarly large marketing program.

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

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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 the future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

OUR PRODUCTS MAY NOT BE ACCEPTED

We sold our first MessageAlert in January 1996, our first Centrex
Auto Attendant in December 1996 and our first Centrex Receptionist in March
1998. To date, we have received only limited revenue from the sale of these
products. We have not yet sold any of our recently developed Caller-ID
products. While we believe that our products are commercially viable,
developing products for the consumer and business marketplaces is inherently
difficult and uncertain. We do not believe our sales to date are sufficient
to determine whether or not there is meaningful consumer or business demand
for our products. We intend to devote significant resources to our sales and
marketing efforts and to promote consumer and business interest in our
products. There can be no assurance that we will be successful with such
efforts or that significant market demand for our products will ever develop.
See "Business-Products," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

WE DEPEND ON LIMITED NUMBER OF POTENTIAL CUSTOMERS AND NEED TO DEVELOP
MARKETING CHANNELS

We believe our success, if any, will be largely dependent on our
ability to either sell our products to or enter into joint marketing
arrangements with the seven Regional Bell Operating Companies (the "RBOCs")
and approximately 20 large Local Exchange Carriers ("LECs") in the United
States. In particular, we believe that we can successfully sell our
MessageAlert product and Caller-ID products only if we sell them to or in
conjunction with the RBOCs and LECs. We also expect to rely significantly on
the RBOCs and LECs for sales of our Centrex Receptionist product. Sales to
RBOCs and LECs constituted 71% and 86% of our revenue for the fiscal years
ended September 30, 1998 and 1997, respectively. In addition, two customers
accounted for 50% and 17% of sales for the fiscal year ended September 30,
1998, and one customer accounted for 70% of sales in the fiscal year ended
September 30, 1997. To date, we have sold our products to five RBOCs and
twelve LECs. It took us substantially longer than we originally anticipated
to qualify our products and to develop the marketing relationships that are
necessary to make these sales. RBOCs and LECs tend to be hierarchical
organizations, which distribute decision-making authority and resist taking
risks. Selling a product to or entering into a marketing relationship with an
RBOC or LEC is generally a lengthy process requiring multiple meetings with
numerous people in the organization. If we fail to develop significantly
enhanced relationships with the RBOCs and LECs, our business and operating
results would be materially adversely effected.

We also intend to develop other distribution channels for our
products, including certain Competitive Local Exchange Carriers ("CLECs").
Our management will need to expend time and effort to develop these channels.
Because our marketing efforts have been largely focused on the RBOCs and
LECs, our management has had only limited experience in selling our products
through these channels. We may not be able to implement such a marketing and
distribution program and any marketing efforts undertaken by or on behalf of
us may not be successful. See "Business-Sales, Marketing and Distribution."

OUR PRODUCTS MAY SUFFER FROM DEFECTS

Our products incorporate a combination of reasonably sophisticated
computer chip design, electric circuit design and telephony technology. We
have devoted substantial resources to researching and developing each of
these elements. In order to reduce the manufacturing costs, limit the power
consumption and otherwise enhance the operation of our products, we have
redesigned our products from time to time. We expect that in the future we
will engage in similar redesigns of our products. In addition, we are in the
process of developing new, similarly complex

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products. Though we extensively test our products before marketing them, any
new, redesigned or current product may contain design flaws that we won't
detect through our testing procedures. For example, in August 1996, we
recalled 6,500 of an earlier version of our MessageAlert product as a result
of a design flaw and, in November 1996, we recalled 14,000 of our
MessageAlert product, also as a result of a design flaw. The direct cost to
rework and repair the defective products in these instances was approximately
$29,000 and $13,000, respectively. No significant rework was required in
fiscal 1998 or in the three month period ended December 31, 1998. In
addition, we rely on subcontractors to manufacture and assemble our products.
Though we have quality control procedures designed to detect manufacturing
errors, there can be no assurance that we will identify all defective
products. We believe that reliable operation will be an important purchase
consideration for both our consumer and business customers. A failure to
detect and prevent a design flaw or a widespread product defect could
adversely affect the sales of both the affected product and our other
products, which could materially adversely affect our business, financial
condition and operating results. See "Business-Products" and "-Manufacturing."

WE FACE SIGNIFICANT COMPETITION

We believe the market for our products is highly competitive and
that competition is likely to intensify. In the market for visual message
waiting indicators, we compete with Solopoint, Inc., Voicewaves, Inc.,
Consumerware, Inc., SNI Innovation, Inc. and AASTRA TELECOM. In the market
for auto-attendant products, we compete directly with Solopoint, Inc.
Finally, we compete with CIDCO Incorporated, Solopoint, Inc., Consumerware,
Inc., SNI Innovation, Inc., TI Systems and AASTRA TELECOM in the Caller-ID
market. Certain of these companies have greater financial, technical and
marketing resources than we do. In addition, several other companies exist
which have substantially greater technical, financial and marketing resources
than we do and could produce competing products. These companies include
telephone equipment manufacturers such as Northern Telecom, Inc. and Lucent
Technologies, Inc. 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 adversely effect our business and results of
operations.

WE DEPEND ON KEY EXECUTIVES

Our potential for success depends significantly on certain key
management employees, including our Chairman, President and Chief Executive
Officer, Mr. Paul F. DePond, our Chief Operations Officer, Gaylan Larson and
our Chief Financial Officer, Gerald W. Rice. We have obtained three-year
key-man term life insurance on Mr. DePond in the amount of $2,000,000 and
have entered into employment agreements with him along with Mr. Larson and
Mr. Rice. The loss of their services or those of any of our other key
employees would materially adversely effect us. We also believe that our
future success will depend in large part on our ability to attract and retain
additional highly skilled technical, management, sales and marketing
personnel. If we were unable to hire the necessary personnel, the development
of new products and enhancements to current products would likely be delayed
or prevented. Competition for these highly-skilled employees is intense.
Therefore, there can be no assurance that we will be successful in retaining
our key personnel and in attracting and retaining the personnel we require
for expansion. See "Business-Employees" and "Management."

OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATELY PROTECTED AND WE MAY INFRINGE
THE RIGHTS OF OTHERS

Our success will depend in part on our ability to protect our
proprietary technology. We rely primarily on a combination of patent and
trademark laws and employee and third-party nondisclosure agreements to
protect our proprietary rights. We currently hold a patent covering the
design of our MessageAlert products and another patent covering the
MultiSense technology used in our MessageAlert product. We intend to continue
to seek patents for our future technologies and products when we believe it
to be appropriate. The process of seeking patent protection

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can be lengthy and expensive. There can be no assurance that any patents for
which we apply will be granted or that the scope of our patents or any
patents granted in the future will be broad enough to protect 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. Further, we intend to
distribute our products in a number of foreign countries. The laws of those
countries may not protect our proprietary rights to the same extent as the
laws of the United States.

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. Any such litigation
could result in substantial costs to us and could divert our management and
technical personnel away from their normal responsibilities. See
"Business-Proprietary Rights."

WE MAY NOT BE ABLE TO OBTAIN CRITICAL COMPONENTS FROM OUR SUPPLIERS

Currently, we are able to obtain certain key components used in our
products only from single or limited sources. We do not have long term supply
contracts with these or any other component vendors and we purchase all of
our components on a purchase order basis. Component shortages may occur and
we may not be able to obtain the components we need in a timely manner or on
a commercially reasonable basis. In particular, the microcontroller, which
forms the core of our Call Manager, is manufactured only by Seico Epson. From
time to time, the semiconductor industry has experienced extreme supply
constraints. If we were unable to obtain sufficient quantities of
microcontrollers from Seico Epson, our business and operating results would
be materially adversely effected. Our Centrex Receptionist product line
utilizes a hardware platform manufactured by Connected Systems. If we were
unable to obtain sufficient quantities of hardware platforms from Connected
Systems, our business would be materially adversely effected.

We subcontract the manufacture of our board level assemblies to
third parties. There is no assurance that these subcontractors will be able
to support our manufacturing requirements in the future. If we are unable to
obtain sufficient quantities of sole-source components or subassemblies, or
to develop alternative sources, we could experience delays or reductions in
product shipments or be forced to redesign our products. Each such scenario
could materially adversely effect our business and operating results. See
"Business-Manufacturing."

OUR PRODUCTS MAY NOT COMPLY WITH GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS

Our products must comply with a variety of regulations and
standards. These include regulations and standards set by the Federal
Communications Commission, Underwriters Laboratories, National Registered
Testing Laboratories, and Bell Communications Research. As our business
expands into international markets we will be required to comply with
whatever governmental regulations and industry standards exist in those
markets. In addition, the U.S. telecommunications market is evolving rapidly
in part due to recently enacted laws revamping the telecommunications
regulatory structure. Additional legislative or regulatory changes are
possible. If we fail to comply with existing regulations and standards or to
adapt to new regulations and standards, our business and operating results
could be materially adversely effected. See "Business-Governmental Regulation
and Industry Standards."

WE MAY NOT BE ABLE TO MANAGE OUR PLANNED GROWTH

We plan to expand our business operations during fiscal year 1999.
This expansion could strain our limited personnel, financial, management and
other resources. In order to manage our planned growth, we will need to
maintain our product development program and expand our sales and marketing
capabilities and personnel. In addition, we will need to adapt our financial
planning, accounting systems and management structure to

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accommodate such growth if it occurs. Our failure to properly anticipate or
manage our growth, if any, could adversely affect our business, operating
results and financial condition. See "Business."

SALES OF OUTSTANDING SHARES MAY HURT OUR STOCK PRICE

The market price for our common stock could fall substantially if
our shareholders sell large amounts of our common stock. Potential future
sales of our common stock include the following:

- - 425,000 Class A warrants and the underlying shares of common stock,
which we are registering with this Prospectus.

- - 2,156,518 outstanding shares of our common stock and options and
warrants to purchase our common stock are "restricted securities"
within the meaning of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Pursuant to Rule 144, substantially all
of these restricted shares are eligible for resale subject to the
restrictions on transferability relating to 1,369,744 shares of our
common stock or warrants to purchase shares of our common stock placed
in an escrow in connection with our initial public offering. See
"Principal Shareholders - Escrow Securities."

- - The holder of an option to purchase 160,000 Units consisting of one
share of common stock and one Class A warrant has certain demand and
"piggy-back" registration rights covering our securities. We could
incur substantial expenses if this option holder exercises this option.

- - David Brewer holds 850,000 shares of common stock and warrants to
purchase 1,344,444 shares of common stock. We have agreed to register
for resale these shares of common stock, including the shares
underlying the warrants, at the request of Mr. Brewer which can be made
at any time after June 3, 1999.

Sales of our common stock or the possibility of such sales, in the
public market may adversely affect the market price of our securities.

EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS MAY DILUTE CURRENT SHAREHOLDERS

The following options and warrants to purchase our common stock are
outstanding:

- - 1,600,000 Class A warrants to purchase 1,600,000 shares of our common
stock for $6.50 per share, issued in connection with our initial public
offering (subject to adjustment in certain circumstances);

- - 425,000 Class A warrants to purchase 425,000 shares of our common stock
for $6.50 per share, issued in connection with our 1997 bridge
financing;

- - an option to purchase 160,000 Units at a price per Unit of $7.00 issued
to the underwriter of our initial public offering;

- - additional warrants to purchase 207,192 shares of our common stock; and

- - 104,000 options outstanding as of March 1, 1999 under our 1997 Stock
Plan, and subject to vesting requirements (195,938 shares of our common
stock are reserved for issuance under our 1997 Stock Plan).

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- - warrants to purchase 1,344,444 shares of common stock at a price of
$3.60 held by David Brewer.

Holders of such options and warrants may exercise them at a time
when we would otherwise be able to obtain additional equity capital on terms
more favorable to us. Moreover, while these options are outstanding, our
ability to obtain financing on favorable terms may be adversely affected. See
"Management" and "Description of Securities."

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 such companies.
Such 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 SECURITIES MAY BE DELISTED FROM THE NASDAQ STOCK MARKET

If we do not continue to meet the minimum listing requirements of
the Nasdaq SmallCap Market, our Units, common stock and Class A warrants may
be delisted from that market. To maintain our listing we must have:

1. either at least $2,000,000 in tangible assets, a $35,000,000 market
capitalization or net income of at least $500,000 in two of the three
prior years;
2. at least 500,000 shares in the public float valued at $1,000,000
or more;
3. a minimum common stock bid price of $1.00;
4. at least two active market makers; AND
5. at least 300 holders of our common stock.

For a period in 1998, the bid price for our common stock fell below
$1.00. While the bid price has since risen above $1.00, there can be no
assurance that it will remain above $1.00.

If our securities were delisted from the Nasdaq SmallCap Market,
trading, if any, in our Units, common stock and Class A warrants would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or on the National Association of Security Dealer's "Electronic
Bulletin Board." As a result, the number of our securities which could be
bought or sold would likely be reduced, transactions in our securities might
be delayed and the prices for our securities might be lower than otherwise
would be attained.

OUR SECURITIES MAY BE CONSIDERED "PENNY" STOCKS

If our securities were to be delisted from Nasdaq, they could become
subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") relating to low-price ("Penny") stocks. This rule
imposes additional sales practice requirements on broker-dealers which sell
such securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000
or annual incomes exceeding $200,000, or $300,000 together with their
spouses). For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently,
the rule may adversely affect the ability of broker-dealers to sell our
securities.

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Commission regulations define a "penny stock" to be any non-Nasdaq
equity security that has a market price (as therein defined) of less than
$5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to
the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in
penny stocks.

The foregoing penny stock restrictions will not apply to our
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or if we meet
certain minimum net tangible assets or average revenue criteria. There can be
no assurance that our securities will qualify for exemption from these
restrictions. In any event, even if our securities were exempt from such
restrictions, we would remain subject to Section 15(b)(6) of the Exchange
Act. This Section gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of
a penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a
restriction would be in the public interest. If our securities were subject
to the rules on penny stocks, the market liquidity for our securities could
be severely adversely affected.

WARRANTHOLDERS MAY NOT BE ABLE TO EXERCISE CLASS A WARRANTS BECAUSE OF LACK
OF CURRENT PROSPECTUS OR STATE REGISTRATION

The Class A warrants included in our Units sold at our initial
public offering are detachable and separately tradeable. We did not knowingly
sell the Units to purchasers in jurisdictions in which our Units are not
registered under federal law or otherwise qualified for sale under state law.
Nevertheless, purchasers who reside in or move to jurisdictions in which the
shares underlying the warrants are not so registered or qualified during the
period that the warrants are exercisable may buy Units (or the warrants
included therein) in the aftermarket. In this event, we would be unable to
issue shares to those persons desiring to exercise their warrants unless and
until the underlying shares could be registered or qualified for sale in the
jurisdictions in which such purchasers reside, or unless an exemption from
such qualification exists in such jurisdictions. No assurance can be given
that we will be able to effect any such required registration or
qualification.

Additionally, holders of the Units will be able to exercise the
warrants included therein only if a current prospectus relating to the shares
underlying the warrants is then in effect under the Federal Securities Law
and such shares are qualified for sale or exempt from qualification under the
applicable securities or "blue sky" laws of the states in which the various
holders of the warrants then reside. Although we have undertaken to use
reasonable efforts to maintain the effectiveness of a current prospectus
covering the shares underlying the warrants, no assurance can be given that
we will be able to do so. The value of the warrants may be greatly reduced if
a current prospectus covering the shares issuable upon the exercise of the
warrants is not kept effective or if such securities are not qualified or
exempt from qualification in the states in which the holders of the warrants
then reside.

REDEMPTION OF CLASS A WARRANTS MAY ADVERSELY AFFECT WARRANTHOLDERS

We may redeem our Class A warrants on at least 30 days' prior
written notice, if the average closing bid price of our common stock for 30
consecutive trading days ending within 15 days of the date on which we give a
redemption notice exceeds $9.10 per share. If we redeem our Class A warrants,
holders of our Class A warrants will lose their right to exercise our Class A
warrants, except during such 30-day notice of redemption period. Upon the
receipt of a notice of redemption of our Class A warrants, the holders
thereof would be required to:

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<PAGE>

1. exercise the warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so;
2. sell the warrants at the then current market price (if any) when
they might otherwise wish to hold the warrants; or
3. accept the redemption price, which is likely to be substantially
less than the market value of the warrants at the time of redemption.

WE DO NOT EXPECT TO PAY DIVIDENDS

We have not paid any dividends to our shareholders since our inception
and do not plan to pay dividends in the foreseeable future. We intend to
reinvest earnings, if any, in the development and expansion of our business.
See "Dividend Policy."

OUR OFFICERS AND DIRECTORS SUBSTANTIALLY CONTROL US

Based upon the number of shares of our common stock that are
outstanding as of March 15, 1999, our officers and directors as a group will
beneficially own approximately 17.7%, of our outstanding common stock after
giving effect to the exercise of all currently exercisable outstanding
options and warrants held by such individuals. In addition, David Brewer
recently purchased 850,000 shares of our common stock and warrants to
purchase 1,334,444 shares of our common stock. As a result, Mr. Brewer now
beneficially owns 39.0% of our outstanding common stock, assuming the
exercise of all warrants held by Mr. Brewer. We have agreed to elect Mr.
Brewer to our Board of Directors. Consequently, the officers and directors as
a group will be able to exert substantial influence over the election of our
directors and the direction of our policies. See "Principal Shareholders."

WE HAVE CONTRACTUAL OBLIGATIONS TO THE UNDERWRITER OF OUR INITIAL PUBLIC
OFFERING

Until August 28, 2002, in the event D.H. Blair Investment Banking
Corp., the underwriter of our initial public offering, originates financing
or a merger, acquisition, or transaction to which we are a party, we will be
obligated to pay it a finder's fee in consideration for origination of such
transaction. The fee is based on a percentage of the consideration paid in
the transaction, ranging from 7% of the first $1,000,000 to 2-1/2% of any
consideration in excess of $9,000,000. In addition, D.H. Blair Investment
Banking Corp. has exercised its right to designate one person to sit on our
Board of Directors until August 28, 2002. The designee, Mr. Andrew Plevin,
was an employee of the D.H. Blair Investment Banking Corp., but is now the
Acting President and Chief Executive Officer of Core Software Technology, Inc.

OUR CHARTER PROVISIONS MAY DISCOURAGE ACQUISITION BIDS

Our Board of Directors has authority to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of such shares, without
any further vote or action by our shareholders. The rights of the holders of
our common stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisition and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. We have no current plans to issue
shares of Preferred Stock. See "Description of Securities-Preferred Stock."

OUR NET INCOME WILL BE DECREASED IF THE ESCROW SECURITIES ARE RELEASED

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<PAGE>

In connection with our initial public offering, certain of our
shareholders, including current officers, directors and employees, placed a
substantial portion of our securities then held by them into an escrow. These
securities will be released from escrow if we reach certain pre-tax earnings
targets or share price targets. Upon the release from this escrow of any
securities owned by our officers, directors, consultants or employees, we
will be required to record a compensation expense for financial reporting
purposes. Accordingly, in any period in which securities are released from
such escrow, we will record a substantial noncash charge to earnings that
will increase our loss or reduce or eliminate earnings, if any, at such time.
The amount of this charge will be equal to the aggregate market price of the
securities owned by directors, officers and employees which are released from
the escrow. Although the amount of compensation expense recognized by the us
will not affect our total shareholders' equity or cash flow, it may have a
depressive effect on the market price of our securities. See "Principal
Shareholders-Escrow Securities"

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
("Indemnification Agreement(s)") with each of our directors and officers.
Each such Indemnification Agreement 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. The 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. See "Management-Indemnification of Officers and
Directors and Related Matters."

WE FACE RISKS RELATED TO THE YEAR 2000

The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If not corrected, many computer and
other electronic applications and systems could fail or create erroneous
results when addressing dates on and after January 1, 2000. We believe that
we rely on systems, applications and third-party relationships which, if not
year 2000 compliant prior to the end of 1999, could have material adverse
impact on business, financial condition and results of operations. For
example, if our vendors are unable to supply products to us because of the
year 2000 problem, our results of operations could be detrimentally affected,
especially if the interruption of product supply coincides with our
obligations to deliver our products for customer promotional programs.

We are undertaking efforts to ensure that our business systems and
those of our suppliers and customers are compliant with the requirements of
the year 2000. However, our year 2000 program may not be effective or we may
not be able to implement it in a timely and cost-effective manner. Our year
2000 efforts may not, therefore, ensure against disruptions caused by the
approach or advent of the year 2000. The year 2000 problem is potentially
very widespread, and it is not possible to determine all the potential risks
that we may face. Our inability to remedy our own year 2000 problems or the
failure of third parties to do so may cause business interruptions or
shutdowns, financial loss, regulatory actions, harm to our reputation and
exposure to liability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation-Impact of the Year 2000 Issue."

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<PAGE>

USE OF PROCEEDS

We will not receive any proceeds from the resale of our Class A
warrants in the offering. However, if we sell all shares of our common stock
offered hereby, the proceeds to us would be approximately $ 2,762,500, less
expenses. We expect the net proceeds to be used for working capital and for
general corporate purposes.

Pending application, the net proceeds of the Offering will be
invested in short-term, high grade interest-bearing savings accounts,
certificates of deposit, United States government obligations, money market
accounts or short-term interest bearing obligations.

PRICE RANGE OF COMMON STOCK, CLASS A WARRANTS AND UNITS

Our common stock, Class A warrants and units have been trading
publicly on the Nasdaq SmallCap Market under the symbols "NTFY" and "NTFYU,"
respectively, since August 28, 1997. The table below sets forth the range of
quarterly high and low closing sales prices for our common stock, Class A
warrants and Units on the Nasdaq SmallCap Market during the calendar quarters
indicated.

NTFY COMMON STOCK
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1999 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 2.500 0.813
Second Quarter . . . . . . . . . . . . . . . . . . . 9.375 1.125
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1998 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 3.750 2.125
Second Quarter . . . . . . . . . . . . . . . . . . . 2.188 1.625
Third Quarter . . . . . . . . . . . . . . . . . . . 4.000 2.000
Fourth Quarter . . . . . . . . . . . . . . . . . . . 2.750 0.938
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1997
- ------------------ ---- ---
<S> <C> <C>
Fourth Quarter . . . . . . . . . . . . . . . . . . . 4.500 3.875
</TABLE>

NTFYW CLASS A WARRANTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1999 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 0.438 0.156
Second Quarter . . . . . . . . . . . . . . . . . . . 3.375 0.156
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1998 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 1.500 0.375
Second Quarter . . . . . . . . . . . . . . . . . . . 0.750 0.375
Third Quarter . . . . . . . . . . . . . . . . . . . 0.750 0.375
Fourth Quarter . . . . . . . . . . . . . . . . . . . 0.563 0.156
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1997 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
Fourth Quarter . . . . . . . . . . . . . . . . . . . 1.250 1.000
</TABLE>

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<PAGE>

NTFYU UNITS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1999 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 2.750 1.000
Second Quarter . . . . . . . . . . . . . . . . . . . 12.750 1.438
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1998 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . 5.000 2.500
Second Quarter . . . . . . . . . . . . . . . . . . . 3.000 2.125
Third Quarter . . . . . . . . . . . . . . . . . . . 4.625 2.250
Fourth Quarter . . . . . . . . . . . . . . . . . . . 3.000 1.000
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, 1997 HIGH LOW
- ------------------ ---- ---
<S> <C> <C>
Fourth Quarter . . . . . . . . . . . . . . . . . . . 5.313 5.000
</TABLE>

As of March 22, 1999, there were 74 holders of record of our common
stock, and 4 holders of record of our Class A warrants.

DIVIDEND POLICY

We have never paid any cash dividends on our stock and anticipate
that, for the foreseeable future, we will continue to retain any earnings for
use in the operation of our business. Payment of cash dividends in the future
will depend upon our earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements
and other factors deemed relevant by our Board of Directors.

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Notify Technology Corporation was founded in August 1994 to develop,
manufacture, market and sell computer telephony products for the business,
SOHO and residential markets. From inception until January 1996, we were
engaged primarily in research and development. In January 1996, we shipped
the first version of our MessageAlert product, in December 1996 shipped our
first Centrex Auto Attendant product and in March 1998 shipped our first
Centrex Receptionist product. In January 1999, we released our line of Call
Manager products and, in February 1999, we announced our "Got Mail"
technology. Substantially all of our revenue has been derived from sales of
our MessageAlert and Centrex Receptionist products.

To date, our working capital requirements have been met through the
sale of equity and debt securities and, to a lesser extent, product revenue
and our line of credit. We have sustained significant operating losses in
almost 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.

RESULTS OF OPERATIONS

REVENUE: To date, substantially all of our revenue has been derived
from the sale of our MessageAlert and Centrex Receptionist products. Revenue
consists of gross revenue less product returns. Revenue for the fiscal year
ended September 30, 1998 decreased to $1,638,268 from $3,735,773 for the
fiscal year ended September 30, 1997. Sales to RBOCs and LECs constituted 71%
and 86% of revenue for the fiscal year ended September 30, 1998 and the
fiscal year ended September 30, 1997, respectively. In addition, two
customers accounted for 50% and 17% of sales in fiscal 1998, and one customer
accounted for 70% of sales in the fiscal year ended September 30, 1997.

In the three months ended December 31, 1998, 75% of our revenue was
derived from the sale of our Centrex Receptionist product and 25% was derived
from the sale of our MessageAlert product. Revenue for the three month period
ended December 31, 1998 decreased to $226,344 from $1,063,026 for the three
month period ended December 31, 1997. Revenue was down from the previous year
due to a decrease in telephone company voice mail promotions utilizing the
MessageAlert product. Sales to telephone companies consisted of 78% and 72%
of revenue for the three month periods ended December 31, 1998 and 1997,
respectively. In addition, one customer accounted for 72% of sales in the
three month period ended December 31, 1998 and two customers accounted for
67% and 24% of sales in the three month period ended December 31, 1997.

A substantial portion of our revenue in the three month period ended
December 31, 1998 was derived from a continuing, non-promotional telephone
company program selling the Centrex Receptionist. In contrast, in the three
month period ended December 31, 1997, a substantial portion of our revenue
was derived from the sale of products in connection with telephone company
promotional programs utilizing the MessageAlert product. As the timing and

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<PAGE>

size of promotional programs using the MessageAlert product or our new Call
Manager products are uncertain, we anticipate we will continue to experience
substantial variances in quarterly revenue.

In addition, we believe that domestic telephone companies have in
aggregate decreased their purchases of telephone adjunct devices aimed solely
at Voice Mail customer acquisition. Based on requests for quotations issued
by telephone companies, we believe that purchases of telephone adjunct
devices to support Caller-ID programs continue to occur. A continuation of
this trend would have a material adverse effect on our Voice Mail-only
product business, which would have an adverse effect on our operating results
and financial condition.

COST OF SALES: Cost of sales consists primarily of the cost to
manufacture our products. Cost of sales decreased to $1,582,042 in the fiscal
year ended September 30, 1998 from $2,760,380 in the fiscal year ended
September 30, 1997. This decrease was the result of decreased sales of our
products for the use in telephone company promotional programs. As a result
of significant reserves for slow moving inventory taken in the fourth
quarter, our gross margin decreased to 3% in fiscal 1998 from 26% in fiscal
1997.

Cost of sales decreased to $112,300 in the three month period ended
December 31, 1998 from $766,037 for the three month period ended December 31,
1997. These decreases were the result of decreased sales of the MessageAlert
line of products. Our gross margin performance increased to 50.4% in the
three month period ended December 31, 1998 compared to 27.9% in the three
month period ended December 31, 1997. This improvement was the result of the
higher sales price received by us for lower volume orders of our MessageAlert
products and the higher gross margin associated with our Centrex Receptionist
product line.

RESEARCH AND DEVELOPMENT: Research and development expense consists
principally of personnel costs, contract design services, development tooling
and supply expenses. Research and development expense increased to $1,376,767
for the fiscal year ended September 30, 1998 from $745,063 for the fiscal
year ended September 30, 1997. This increase was primarily the result of an
aggressive program to develop and expand our product offerings that
significantly increased expenditures for engineers, outside consulting and
development materials.

Research and development expense remained level at $327,375 for the
three month period ended December 31, 1998 versus $327,621 for the three
month period ended December 31, 1997. As a result of this research and
development, we were able to release a new line of Caller-ID products at the
Consumer Electronics Show in January 1999.

We expect that research and development expenditures will continue
at, or near, the current level for fiscal 1999 in order that we may complete
the products under development and enhance our current products. See
"Business-Research and Development."

SALES AND MARKETING: Sales and marketing expense consists primarily
of personnel, consulting and travel costs and sales commissions related to
our sales and marketing efforts. Sales and marketing expenses decreased to
$589,295 for fiscal 1998 from $666,930 for fiscal 1997. These decreases were
attributable primarily to personnel changes and lower commissions earned.

Sales and marketing costs increased to $186,989 for the three month
period ended December 31, 1998 compared to $146,629 for the three month
period ended December 31, 1997 due to an increase in the size of the customer
service department to support the Centrex Receptionist product line. The
Centrex Receptionist product is remotely programmed by our customer service
staff and requires ongoing support.

We anticipate that sales and marketing expenses will increase
significantly in future quarters. See "Business-Sales, Marketing and
Distribution."

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<PAGE>

GENERAL AND ADMINISTRATIVE: General and administrative expense
consists of general management and finance personnel, occupancy costs and
professional fees and other general corporate expenses. General and
administrative expenses increased to $884,442 for the fiscal year ended
September 30, 1998 from $633,584 for the fiscal year ended September 30,
1997. These increases were primarily the result of additional legal,
accounting and printing expense and increases in executive salaries.

General and administrative expenses increased to $226,287 for the
three month period ended December 31, 1998 from $213,074 for the three month
period ended December 31, 1997. The increases were primarily the result of
costs related to the filing of a registration statement with the Securities
and Exchange Commission.

INCOME TAXES: There was no provision for federal or state income
taxes in fiscal 1997 or 1998 as we incurred net operating losses. As of
September 30, 1998, we had federal and state net operating loss carryforwards
of approximately $5,061,000, which will expire in years 2002 through 2013.
The research and development tax credit carryforwards for federal and state
purposes of approximately $50,000 and $30,000, respectively, will expire in
the years 2010 through 2013, 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, and similar state provisions. The annual
limitation may result in the expiration of net operating loss and credit
carryforwards before full utilization. For financial reporting purposes,
deferred tax assets primarily related to the net operating loss carryforwards
recognized under Financial Accounting Standard No. 109, "Accounting for
Income Taxes," have been fully offset by a valuation allowance, as the
realization of these assets is dependent on future earnings, the timing and
amount of which are uncertain.

LIQUIDITY AND CAPITAL RESOURCES

Our financial statements are prepared and presented on a basis
assuming we continue as a going concern. At September 30, 1998, we had an
accumulated deficit of $6.1 million and incurred a net loss of $2.6 million
for fiscal 1998. We expect to incur continuing research and development and
product launch expenses. We anticipate that the existing cash and cash
equivalents will enable us to maintain our current operations through at
least September 1999.

Our cash requirements may vary materially from those planned because
of the results of favorable new product acceptance or the development of
additional products or changes in the scale, timing or cost of our
manufacturing resources. We may need to raise additional funds in the form of
equity or debt financing to fund our future operations. We may also enter
into collaborative arrangements with corporate partners that could provide us
with additional funding in the form of equity, debt financing or license fees
in exchange for our rights with respect to certain markets or technology.
There can be no assurance that we will be able to raise any additional funds
or enter into any such collaborative arrangements on terms favorable to us,
or at all.

Prior to our initial public offering we financed our operations
primarily through sales of equity and debt securities and bank lines of
credit. In the fiscal years ended September 30, 1998 and 1997, our net cash
used in operating activities equaled $2,617,101 and $1,298,708, respectively.
Cash used in operating activities increased to $658,243 for the three month
period ending December 31, 1998 from $456,791 for the three month period
ending December 31, 1997. Cash used in operating activities for the three
month period ending December 31, 1997 was primarily related to operations
with shipments largely offsetting inventory purchases. The cash used in
operating activities for the three month period ended December 31, 1997 was
offset by higher sales than in the three month period ended December 31,
1998. We anticipate that we will have a negative cash flow from operating
activities in future quarters and years.

In March 1999, we sold to David Brewer 850,000 shares of common
stock and warrants to purchase 1,334,444 shares of common stock for aggregate
consideration of $3,060,000. The warrants consisted of four

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warrants to purchase 155,800 shares of common stock at $3.60 per share and
one warrant to purchase 721,244 shares of common stock at $3.60 per share.
Each of the four warrants expires upon the earlier of September 3, 2000 or 30
days after we meet certain product sales or revenue milestones. If we achieve
these milestones, we anticipate that Mr. Brewer will choose to exercise the
warrants and that we will receive as much as $2.2 million in additional
funding. However, there can be no assurance that will meet such milestones or
that Mr. Brewer will, in fact, exercise the warrants.

In connection with the sale of the common stock and warrants to Mr.
Brewer, we agreed to issue additional warrants to Mr. Brewer if we sell
shares of common stock in a capital raising transaction at price below $3.60
per share prior to the earlier of (i) March 3, 2002 or (ii) our calling our
outstanding Class A warrants.

In August 1997, we completed our initial public offering of
securities which consisted of the sale of 1.6 million Units, each consisting
of one share of our common stock and one Class A warrant to purchase one
share of our common stock at an exercise price of $6.50. The net proceeds of
the initial public offering, after deducting the underwriting discounts and
commissions and other expenses of the initial public offering, was
approximately $6.2 million.

In March 1997, we completed a bridge financing which consisted of
the sale of $850,000 principal amount of notes bearing interest at an annual
rate of 10% and warrants to purchase an aggregate of 425,000 shares of common
stock. The net proceeds of this financing of approximately $735,000 were
utilized by us to repay certain indebtedness and for working capital purposes
including general and administrative expense and expenses of the initial
public offering. We repaid the principal and accrued interest on these notes
with a portion of the proceeds of the initial public offering. We recognized
a non-recurring charge of approximately $130,000 representing the aggregate
amount of unamortized debt discount and debt issuance costs associated with
the financing at the time of repayment. See Note 3 of Notes to Financial
Statements.

IMPACT OF THE YEAR 2000 ISSUE

We have developed a three-phase program to limit or eliminate Y2K
exposures. Phase I is to identify those systems, applications and third-party
relationships that have exposure to Y2K disruptions in operations. Phase II
is the development and implementation of action plans to achieve Y2K
compliance in all areas prior to the end of 1999. Also included in Phase II
is the development of contingency plans which would be implemented should Y2K
compliance not be achieved in order to minimize disruptions in operations.
Phase III is the final testing or equivalent certification of testing of each
major area of exposure to ensure compliance. We intend to complete all phases
before the end of 1999.

We have identified three major areas determined to be critical for
successful Y2K compliance: Area 1, which included financial, research and
development and administrative informational systems applications reliant on
system software; Area 2, which includes research, development and quality
applications reliant on computer programs embedded in microprocessors; and
Area 3, which includes third-party relationships which may be affected by
Area 1 or Area 2 exposures, which exist in other companies.

With respect to Area 1, we are conducting an internal review and
contacting all software suppliers to determine major areas of Y2K exposure.
In research, development and quality applications (Area 2), we are working
with equipment manufacturers to identify exposures. With respect to Area 3,
we plan to evaluate our reliance on third parties in order to determine
whether their Y2K compliance will adequately assure uninterrupted operations.

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<PAGE>

We have not yet completed Phase I of the Y2K program with respect to
all three of the major areas. We believe that we rely on systems,
applications and third-party relationships which, if not Y2K compliant prior
to the end of 1999, could have material adverse impact on business, financial
condition and results of operations. Because we have not completed Phase II
contingency planning, we cannot describe what action we would take in any of
the areas should Y2K compliance not be achievable in time.

As of December 31, 1998, we had not identified any costs related to
replacement or remediation and testing of our Area 1 computer information
systems. Not having completed Phase I and Phase II evaluations, at this time
we have no basis for estimating the potential cost of our Y2K compliance
programs. The funds for these costs will be part of our cash flow from
operations and capital expenditures.

We do not expect that the year 2000 project will have a material
effect on our financial condition or results of operations unless the ability
of vendors to supply us products is interrupted. Any interruption of product
supply in conjunction with obligations to deliver product for customer
promotional programs could have a detrimental effect on the results of
operations. The cost of such disruption would be directly related to the size
and timing of any such interrupted program. We will be making special efforts
to avoid such an occurrence but there cannot be any assurance that we will
obtain the cooperation of vendors and customers to prevent such an event.

Based on the currently available information, management does not
believe that the Year 2000 will pose significant operational problems;
however, it is uncertain to what extent we may be affected by such matters.
In addition, there can be no assurance that the failure to ensure year 2000
capability by a supplier or another third party would not have a material
effect on us.

RELEASE OF ESCROW SECURITIES

-18-

<PAGE>

BUSINESS

We were incorporated in the State of California in August 1994. We
are engaged in the development, manufacture, marketing and sale of computer
telephony products for the business, Small Office Home Office ("SOHO") and
residential marketplaces. In recent years, the number of individuals and
businesses relying on their telephone company or other service provider to
provide them with services such as voice mail, and e-mail and CENTREX, a
business-oriented service that eliminates the need for on-premise telephone
switching equipment, has increased dramatically. Our products are designed to
enhance the convenience and utility of these services by providing customers
with features that are either not available or not included in standard
service packages.

PRODUCTS

MESSAGEALERT

The MessageAlert is a visual indicator for telephone company
provided voice mail (a "voice message waiting indicator", or "VMWI").
Telephone companies typically use one of two signaling standards to alert
voice mail subscribers that they have a message waiting: stutter dial tone
signaling and "CLASS" signaling, which enables detection of a voice mail
message without taking the line off-hook.

The MessageAlert is the only battery powered stutter and CLASS
compatible MWI on the market. We have been granted a patent on the MultiSense
Technology incorporated in it that enables it to work with both signaling
standards. We market the MessageAlert under the name "MessageAlert". The
MessageAlert is also marketed by certain other telephone companies under
their own names. In addition, we market a version of the MessageAlert,
"MessageAlert PBX," which is specifically adapted for PBX environments.

CENTREX RECEPTIONIST

Small businesses that use CENTREX services generally must maintain a
human attendant to answer incoming calls, or the calls will go unanswered or
they will be transferred into the business' general voice mail mailbox. The
Centrex Receptionist is a stand-alone unit that provides the CENTREX customer
with automatic call answer and transfer capability 24 hours a day. The
Centrex Receptionist provides thirty minutes of recorded announcement time,
special after hours or holiday announcements, and nine main menu items. Each
main menu item supports nine selections that can be either a transfer to a
telephone number or announcement. The Centrex Receptionist also provides
extension dialing, name directory services and call statistics. The unit has
a battery back-up that will last up to three days. The Centrex Receptionist
is remotely configured by Notify Technology Customer Service but locally
programmable by the user for voice mail messages and voice name directories
using a touch tone telephone. It has password protection for all
administrative programming. The current Centrex Receptionist model supports
two to four incoming CENTREX lines.

CALLER - ID

We announced a family of Caller - ID products in January 1999. Our
Caller - ID products incorporate the MessageAlert visual message waiting
indication technology and support for a combination of telephone company
services such as voicemail, Caller - ID, call waiting Caller - ID and deluxe
call waiting. These products are categorized as "Type I" (calling name and
calling number only); "Type II" (Type I features plus Call Waiting-Caller -
ID) and "Type II.V" (Type II plus Call Waiting Deluxe). The Type II and Type
II.V products take advantage of more sophisticated services offered by
telephone service providers than the "Type I" technology more commonly on the
market. This line of products is designed to bundle multiple services from
the telephone service provider offering more functionality to the end user
and more revenue opportunity for the telephone service provider.

-19-

<PAGE>

We intend to distribute our products through or in conjunction with
the large domestic telephone companies and certain of their authorized
resellers. To date, we have sold our MessageAlert product to five of the
seven Regional Bell Operating companies and twelve of the 20 largest local
exchange carriers. Our strategy is to encourage these telephone companies to
bundle our products with their services to acquire new customers and to
retain more new service subscribers. In addition, we intend to encourage
telephone companies and their authorized resellers that focus on selling
Centrex services to market our Centrex Receptionist as an enhancement to the
basic Centrex service. We believe that the relationships with telephone
companies that we have formed as a result of our marketing of the
MessageAlert product will aid us in developing the telephone companies as a
distribution channel for the Centrex Receptionist and the Call Manager
product line.

TECHNOLOGY: "GOT MAIL"

We recently announced the development of a visual "Got Mail"
technology that would allow home users to see that they have new e-mail
without turning on their computers. We are marketing this technology to large
telephone companies and Internet Service Providers that could offer the
visual service to their dial-up e-mail customers as a value-added service. We
have not yet announced a product utilizing our "Got Mail" technology.

SALES, MARKETING AND DISTRIBUTION

Our domestic and international marketing and sales activities for
the MessageAlert to date have been focused on direct sales to large telephone
companies. The MessageAlert is being either private labeled or joint marketed
by GTE Communication Systems Corporation, Pacific Bell, BellSouth
Corporation, Ameritech Corporation, Century Telephone Enterprises Inc.,
Commonwealth Telephone Company, Standard Telephone Company and Aliant
Communications, Inc. Except with respect to Pacific Bell, our relationship
with these companies has not been reduced to a formal agreement or contract
and none of these companies is obligated to purchase any product from us. We
manufacture product based on purchase orders and forecasts of purchases
received from Regional Bell Operating Companies ("RBOCs") and Local Exchange
Carriers ("LECs"). We believe large telephone companies typically do business
in this manner and do not intend to seek long-term contractual commitments
from our telephone company customers.

We are marketing the Centrex Receptionist to the same group of large
telephone companies we have targeted for the MessageAlert product. We have
entered into one contract with a major telephone company to sell the Centrex
Receptionist through its ongoing Customer Premise Equipment channel. We
believe that having established ourselves as a qualified supplier or joint
marketing partner with respect to the MessageAlert product will help shorten
the sales cycle with respect to the Centrex Receptionist. In particular, we
believe the Centrex Receptionist and the MessageAlert product can be marketed
together by the telephone companies to the business market.

We believe our success, if any, will be largely dependent on our
ability to either sell our products to or enter into joint marketing
arrangements with the seven RBOCs and approximately 20 large LECs in the
United States. In particular, we believe that our MessageAlert product can be
sold profitably only if it is sold to or in conjunction with the RBOCs and
LECs. We also expect to rely significantly on the RBOCs and LECs as a channel
for our Centrex Receptionist and Call Manager products. To date, we have sold
our products to five RBOCs and twelve LECs. Any failure to develop
significantly enhanced relationships with the RBOCs and LECs would have a
materially adverse effect on our business and operating results.

We are marketing our products outside North America by using sales
representatives in various countries. We have entered into a sales
representative agreement to market products in France and another agreement
to market products in the United Kingdom, Germany, Netherlands, Spain,
Sweden, and Switzerland. No significant revenue was generated from the
international market in fiscal 1998.

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<PAGE>

TECHNICAL AND MARKETING SUPPORT

We have developed product collateral and marketing programs for the
MessageAlert, Centrex Receptionist and Call Manager products. We intend to
expand our ongoing marketing programs. These marketing programs will include
augmentation of collateral material, advertising and trade shows,
supplemented with public relations campaigns.

We provide back-up technical support to large telephone companies
and resellers. Our support personnel perform all technical support. In the
future, our support organization will provide both sales and technical
support. Sales support consists of sales and marketing training at our home
office training facility for our own sales force and those of authorized
resellers. The Centrex Receptionist requires remote modem support by our
customer service group whenever the user wants to add lines, make directory
changes and perform system back-up on a billable service arrangement.

RESEARCH AND DEVELOPMENT

We incurred $1,376,767 and $745,063 in research and development
expenses in fiscal 1998 and 1997, respectively. We have had limited internal
engineering resources and have used contract engineering resources for a
significant portion of our research and development. We believe that our
future success, if any, depends significantly on our ability to continue to
enhance our existing products and to develop new products, and intend to
continue to incur continued research and development costs. We expect that
our research and development efforts will be focused in three areas: cost
reduction and feature enhancement of the MessageAlert product line; further
development of our Call Manager product line; and development of our "Got
Mail" technology.

MANUFACTURING

We have primarily used domestic contract manufacturing to minimize
resources devoted to manufacturing and to maximum flexibility and response
time. At times, we use offshore turnkey manufacturing when production volume
makes it a cost-effective alternative. To the extent possible, we use
standard parts and components for our products although certain components
are custom designed and/or are available only from a single source or limited
sources.

GOVERNMENTAL REGULATION AND INDUSTRY STANDARDS

Our products must comply with a variety of regulations and standards
including regulations and standards set by the Federal Communications
Commission, Underwriters Laboratories, National Registered Testing
Laboratories, and Bell Communications Research. As we enter international
markets we will be required to comply with whatever governmental regulations
and industry standards exist in those markets. In addition, the U.S.
telecommunications market is evolving rapidly in part due to recently enacted
laws revamping the telecommunications regulatory structure. Additional
legislative or regulatory changes are possible. Any failure to comply with
existing regulations and standards or to adapt to new regulations and
standards could have a material adverse effect on our business and operating
results.

COMPETITION

We currently have several direct competitors in the market for VMWI
products. Solopoint, Inc. produces the S025 Message Waiting Light, a stutter
dial tone and CLASS/FSK signal AC-powered VMWI. We believe that Bellsouth is
the only telephone company marketing the S025. Consumerware, Inc. produces
VoiceMail Lite, a battery powered, stutter tone only VMWI. We believe the
retail store unit of GTE is the only telephone company

-21-

<PAGE>

which markets the VoiceMail Lite. SNI Innovation, Inc. produces VisuAlert, a
dual standard VMWI that requires an AC adapter. We believe that no large
telephone company is reselling or marketing the VisuAlert product. AASTRA
TELECOM of Canada produces Call Answer Lite, a dual standard VMWI that
requires an AC Adapter. We believe competition in the VMWI market is based on
support of signaling standards, type of power source, other features, price
and quality. We believe we compete favorably with respect to all of these
factors.

We have one direct competitor in the market for auto-attendant
products specifically designed for the Centrex market. SoloPoint, Inc.
produces an auto-attendant product that has basic call answering and call
routing features but is missing one or more of the features of the Centrex
Receptionist. The Centrex Receptionist features include multiple levels of
menus, pre-recorded system prompts, interactive voice response for
configuration, name directory functionality, and call statistics for up to
four incoming ports. We believe competition in the auto-attendant market is
based on features (including ease of use, availability of a name directory,
amount of recording time and number of menu levels), price and quality. We
believe our Centrex Receptionist product competes favorably with respect to
all of these factors.

In the market of Call-ID products, there exist many companies, both
domestic and foreign who manufacture products offering a wide range of
functionality. The Caller - ID marketplace consists of two major segments;
retail and telephone company related sales. We compete in the telephone
company related segment that commonly requires large quantities of low
featured product for acquisition and entry level sales to Caller - ID
customers and smaller quantities of more fully featured product for multiple
service bundling and upgraded Caller - ID services such as Call Waiting -
Caller ID and Call Waiting - Disposition.

We compete with CIDCO Incorporated, Solopoint, Inc., Consumerware,
Inc., SNI Innovation, Inc., TI Systems and AASTRA TELECOM in the Caller - ID
market. Foreign manufacturers of Caller - ID product compete primarily in the
retail marketplace or resell through one of the domestic companies named
above.

We are not aware of any direct competitors of the "Got Mail"
technology announced in February 1999. There exist PC based products that
notify users of e-mail but these require the PC to be turned on. Our
technology, as announced, would not require an active computer to provide
notification.

We expect that to the extent that the market for any of our products
develops, competition will intensify and new competitors will enter the
market. Certain manufacturers of competing products 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 us that could produce competing products. These companies
include telephone equipment manufacturers such as CIDCO Incorporated,
Northern Telecom Limited and Lucent Technologies Inc. There can be no
assurance that we will 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 have a materially adverse effect upon our business and
results of operations.

PROPRIETARY RIGHTS

We rely on a combination of patent and trade secret law,
nondisclosure agreements and technical measures to establish and protect our
proprietary rights in our products. We have a design patent issued on the
MessageAlert design. The MessageAlert design is unique in that it provides a
visual message waiting indicator light packaged in the form of a 3M Post-
it(R) Note holder. In addition, we were granted a patent in October 1998
relating to the MultiSense technology used in the MessageAlert product. Our
MultiSense technology automatically detects and reacts to either stutter or
CLASS signaling. We intend to continue to apply for patents, as appropriate,
for our future technologies and products.

-22-

<PAGE>

There are few barriers to entry into the market for our products,
and there can be no assurance that any patents applied for by us will be
granted or that the scope of our patent or any patents granted in the future
will be broad enough to protect 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. Further, we intend to distribute our products in
a number of foreign countries. The laws of those countries may not protect
our proprietary rights to the same extent as the laws of the United States.

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. Any such litigation
could result in substantial costs to us and diversion of efforts by our
management and technical personnel.

We have entered into a non-exclusive license agreement with Active
Voice Corporation ("Active Voice") pursuant to which we have paid an up-front
fee on sales of our MessageAlert product in exchange for certain rights with
respect to a patent issued to Active Voice covering stutter dial tone
detection.

EMPLOYEES

As of September 30, 1998, we employed sixteen persons of whom three
were engaged in research and development, two in manufacturing, eight in
sales, marketing, and customer support, and three in general administration
and finance. Fifteen of our employees work full time. We contemplate
increasing our staff at a pace consistent with our business and growth. 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 are unable to 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.

FACILITIES

The Company's principal executive offices are located at 1054 South
DeAnza Boulevard, Suite 105, San Jose, California 95129. The facilities
consist of approximately 3,900 square feet of office space pursuant to a
lease that expires March 31, 2001. The Company will either renew its lease
and acquire more space if available or enter into a lease for new premises in
the local area.

HOW TO GET INFORMATION ABOUT NOTIFY TECHNOLOGY CORPORATION

We are subject to the informational requirements of the Exchange Act
and therefore file reports, proxy and information statements and other
information with the SEC. You may read and copy any materials we file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The SEC's Internet website is http://www.sec.gov.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Notify Technology
Corporation, and their ages as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- -------- ---------------------------------------------------------------------------
<S> <C> <C>
Paul F. DePond(1)............... 45 President, Chief Executive Officer and Chairman of the Board of Directors
Gaylan I. Larson................ 58 Vice President of Operations and Director
Gerald W. Rice.................. 51 Chief Financial Officer and Secretary
Michael Ballard(1)(2)........... 43 Director
Michael Smith(2)................ 52 Director
Andrew Plevin(1)................ 35 Director
</TABLE>
- --------------
(1) Member of Compensation Committee
(2) Member of Audit Committee

PAUL F. DEPOND, founder of Notify Technology Corporation, has served
as its President, Chief Executive Officer and Chairman of the Board of
Directors since its inception in August 1994. Mr. DePond also sits on the
Board of Directors of LearnCom, a company located in San Jose, CA. From
September 1992 through May 1994, Mr. DePond served as Vice President
Corporate Marketing of 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, Marketing, of Alantec Corporation, a
manufacturer of networking products. Mr. DePond received a B.S. in Electrical
Engineering and Computer Engineering in 1979, and an M.A. in Computer Science
in 1980, each from the University of Michigan at Ann Arbor.

GERALD W. RICE has served as Chief Financial Officer and Secretary
of Notify Technology Corporation 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 Science 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 Community College in 1969 and a B.A. in Accounting from California
State College of Stanislaus in 1971.

GAYLAN I. LARSON has served as Vice President of Operations and as a
Director of Notify Technology Corporation since August 1994. From January
1991 to August 1994, Mr. Larson was Chief Operating Officer of SportSense,
Inc., a manufacturer of golf training equipment. Prior to SportSense, Mr.
Larson served as General Manager of the Data Systems Division of
Hewlett-Packard Company, a company with which he had an 18 year relationship.
Mr. Larson received an A.A. from Sacramento Junior College in 1959, a B.S. in
Electrical Engineering from University of California, Berkeley in 1961, and a
M.S.E.E. in Engineering from Newark College of Engineering in 1965.

MICHAEL BALLARD has served as a director of Notify Technology
Corporation since January 1996. Mr. Ballard is the Chief Executive Officer
and Chairman of the Board of Savannah Chanel Vineyards, Inc. From October
1996 to November 1997, Mr. Ballard directed the dial-up technology division
of Cisco Systems, Inc. From May 1995 to October 1996, Mr. Ballard served as
Executive Vice President Marketing of Telebit Corporation. From June 1993 to
September 1994, Mr. Ballard served as Chief Operating Officer of UUNet, Inc.,
an internet service provider. From January 1986 to May 1993, Mr. Ballard held
several positions including Chief Executive Officer of Telebit Corporation.
Mr. Ballard received his B.F.A. in 1978 from the University of Utah.

-24-

<PAGE>

MICHAEL SMITH has served as a director of Notify Technology
Corporation since February 1996. Mr. Smith owned and operated COMAC, a
literature and product fulfillment company, from 1970 until 1999. Mr. Smith
currently serves as the President of COMAC, a subsidiary of Pierce Leahy
Corporation. Mr. Smith attended San Jose State University from 1964 through
1969.

ANDREW PLEVIN was elected as a director of Notify Technology
Corporation in February 1998. Since November 1997, Mr. Plevin has been acting
Chief Executive Officer and President of Core Software Technology, Inc. From
August 1993 to November 1997, Mr. Plevin served as Vice President of D.H.
Blair Investment Banking Corp. Mr. Plevin was nominated to the Board of
Directors pursuant to a requirement contained in the underwriting agreement
between Notify Technology and D.H. Blair Investment Banking Corp. for our
initial public offering. The provision provides that D.H. Blair Investment
Banking Corp. shall have the right to designate one director of our Board of
Directors for a period of five years from the closing date of our initial
public offering.

In connection with a private placement of our securities, we have
agreed to seek shareholder approval to expand our Board of Directors and to
elect David A. Brewer to 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. All executive officers serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of Notify Technology Corporation.

Our success, if any, will be dependent to a significant extent upon
certain key management employees, including Messrs. DePond and Larson. We
have 3-year key-man term life insurance on Mr. DePond in the amount of $2
million and have entered into employment agreements with him and with Messrs.
Larson, and Rice. See "Employment Contracts."

DIRECTOR COMPENSATION

Members of our Board of Directors do not receive compensation for
their services as directors.

-25-

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth information concerning the
compensation awarded to, earned by, or paid for services rendered to Notify
Technology Corporation in all capacities during the fiscal year ended
September 30, 1998, by (i) our Chief Executive Officer and (ii) our most
highly compensated executive officers whose salary and bonus for such year
exceeded $100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ----------------------------------------------------------------------- ----------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)(1)
- ------------------------ --------- ------------ ------- ---------------- ------------ ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul F. DePond . . . . 1998 132,739 - - - - - 7,950
Chief Executive 1997 121,381 - - - - - 8,673
Officer 1996 100,385, - - - - - 7,146

Gaylan Larson . . . . . 1998 115,585 - - - - - 6,138
Chief Operations 1997 112,446 - - - - - 7,518
Officer 1996 95,365 - - - - - -

Gerald Rice . . . . . 1998 105,759 - - - - - 6,562
Chief Financial 1997 95,519 - - - 24,752 - 6,886
Officer 1996 63,895 - - - - - -
- ------------------------ --------- ------------ ------- ---------------- ------------ ------------ ---------- ----------------
</TABLE>
- --------------
(1) Represents payments of insurance premiums on behalf of the Named Executive
Officers.

The following tables set forth certain information for the Named
Executive Officers with respect to grants and exercises in fiscal 1998 of
options to purchase common stock:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED OR
OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE
- ----------------------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Paul F. DePond.............................. - - - -
Gaylan Larson............................... - - - -
Gerald Rice................................. - - - -
</TABLE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES VALUE YEAR END (#) FISCAL YEAR END (1)($)
ACQUIRED ON REALIZED ---------------------------- -----------------------------
NAME EXERCISES(#) ($). EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------- ------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. DePond............ - - 110,792 - - -
Gaylan Larson............. - - - - - -
Gerald Rice............... - - 25,752 - - -
</TABLE>
- --------------

(1) Market value of underlying securities at fiscal year-end minus exercise
price multiplied by the number of shares.

-26-

<PAGE>

STOCK OPTION PLAN

Our Stock Option Plan provides for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), and for the
granting to employees and consultants of nonstatutory stock options and stock
purchase rights ("SPRs"). The Stock Option Plan was approved by the Board of
Directors and the shareholders in January 1997. Unless terminated sooner, the
Stock Option Plan will terminate automatically in January 2007. A total of
195,938 shares of common stock are currently reserved for issuance pursuant
to the Stock Option Plan. As of January 31, 1999 we had granted options to
purchase an aggregate of 59,000 shares of Common Stock to nine employees and
four non-employees at $0.906 per share and 45,000 shares of Common Stock to
two employees and two non-employees at $3.781 per share on the date of this
registration.

The Stock Option Plan may be administered by the Board of Directors
or a committee of the Board (the "Committee"), which Committee shall, in the
case of options intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code, consist of two or more
"outside directors" within the meaning of Section 162(m) of the Code. The
exercise price of incentive stock options must be at least equal to the fair
market value of our common stock on the date of grant. The exercise price of
nonstatutory stock options and SPRs granted under the Stock Option Plan is
determined by the Committee, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the Common Stock on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting power
of all classes of our outstanding capital stock, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market
value on the grant date and the term of such incentive stock option must not
exceed five years. The term of all other options granted under the Stock
Option Plan may not exceed ten years.

The Stock Option Plan provides that in the event of a merger of
Notify Technology Corporation with or into another corporation, a sale of
substantially all of our assets or a like transaction involving Notify
Technology Corporation, each option shall be assumed or an equivalent option
substituted by the successor corporation. If the outstanding options are not
assumed or substituted as described in the preceding sentence, the Committee
shall provide for the Optionee to have the right to exercise the option or
SPR as to all of the optioned stock, including shares as to which it would
not otherwise be exercisable. If the Administrator makes an option or SPR
exercisable in full in the event of a merger or sale of assets, the
Administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen (15) days from the date of such notice,
and the option or SPR will terminate upon the expiration of such period.

EMPLOYMENT CONTRACTS

In December 1996, we entered into an employment agreement with Paul
DePond, our President and Chief Executive Officer. The agreement provides for
a base salary of $130,000, which increased to $150,000 thirteen months
following our initial public offering, and a $50,000 bonus contingent on our
attainment of certain performance milestones. In addition, if we are sold
while Mr. DePond is employed by us, Mr. DePond will receive a bonus equal to
2% of the price at which we are sold.

In the event that we terminate Mr. DePond without cause following a
change in control, Mr. DePond is entitled to receive severance compensation
equal to a continuation of his salary for a period of twenty-four (24)
months. In the event that we terminate Mr. DePond without cause 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 eighteen (18) months.
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 our then existing severance and
benefits plans and policies.

-27-

<PAGE>

In December 1996, we entered into employment agreements with Mr.
Larson, our Vice President of Operations and Mr. Rice, our Chief Financial
Officer. The agreements provide for base salaries of $115,000 and $105,000
for Messrs. Larson and Rice, respectively. Under the agreements, Messrs.
Larson and Rice are eligible to receive annual bonuses based on an earnings
target approved by our board of directors.

In the event that we terminate Messrs. Larson or Rice without cause
following a change in control, the terminated officer is entitled to receive
severance compensation equal to a continuation of his salary for a period of
twelve (12) months. In the event that we terminate Messrs. Larson or Rice
without cause apart from a change of control, the terminated officer is
entitled to receive severance compensation equal to a continuation of his
salary for a period of six (6) months. Messrs. Larson and Rice are 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, the
terminated officer is entitled to receive only those severance or disability
benefits as are established under our then existing severance and benefits
plans and policies.

The foregoing agreements define a "change in control" as (i) the
acquisition of more than 30% of the voting securities of Notify Technology
Corporation 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 provided, however, that a public offering of our
common stock does not constitute a change of control. Messrs. DePond, Rice
and Larson have also agreed that the acquisition of shares and warrants by
David Brewer does not constitute a "change in control."The agreements define
"cause" as an act of dishonesty in connection with employment; a conviction
of a felony which will detrimentally affect our reputation or business;
willful and gross misconduct injurious to us; and continued and willful
failure to perform duties. 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.

INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS

We have adopted provisions in our Articles of Incorporation that
eliminate the personal liability of our directors for monetary damages
arising from a breach of their fiduciary duties in certain circumstances to
the fullest extent permitted by law and authorizes us to indemnify our
directors and officers to the fullest extent permitted by law. Such
limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our bylaws provide that we shall indemnify our directors and
officers to the fullest extent permitted by California law. We have entered
into indemnification agreements with our officers and directors containing
provisions which are in some respects broader than the specific
indemnification provisions contained in the California Corporations Code. The
indemnification agreements may require us, among other things, to indemnify
such officers and directors against certain 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) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

At present, there is no pending material litigation or proceeding
involving any of our directors or officers where indemnification may be
required or permitted. We are not aware of any threatened material litigation
or proceeding which may result in a claim for such indemnification.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Notify Technology Corporation pursuant to the foregoing
provisions, or otherwise, we have been advised that it is the opinion of the
Commission that such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.

-28-

<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In April 1997, Michael Ballard, one of our directors, loaned Notify
Technology $200,000 in exchange for a note in the principal amount of
$200,000 and warrants to purchase 2,970 shares of our Common Stock at a price
per share of $5.00. We repaid this note with a portion of the proceeds of our
initial public offering.

We have an ongoing business relationship with COMAC, a literature
and product fulfillment company previously owned by Michael Smith. Mr. Smith
currently serves as the president of COMAC, a subsidiary of Pierce Leahy
Corp. We use COMAC, along with other fulfillment companies, on a project by
project basis to facilitate the distribution of our products to telephone
company customers. We have no contractual obligation to use COMAC's services.
In fiscal year 1998, we paid to COMAC $61,100 in fees. During the first
quarter of fiscal 1999, we paid to COMAC $1,032 in fees.

In August 1997, we issued a five-year warrant to purchase 24,752
shares of our common stock with an exercise price of $5.00 per share to
Gerald W. Rice, our Chief Financial Officer.

From August 1993 to November 1997, Mr. Andrew Plevin, a director on
our Board of Directors, served as Vice President of D.H. Blair Investment
Banking Corp. D.H. Blair Investment Banking Corp. served as placement agent
for our 1997 bridge financing and as underwriter for our initial public
offering. In connection with the bridge financing and our initial public
offering, D.H. Blair Investment Banking Corp. received approximately
$1,150,000 in discounts, commission, and non-accountable expense allowances.
In addition, D.H. Blair Investment Banking Corp. received an option to
purchase 160,000 Units, at $7.00 per Unit, exercisable at any time, in whole
or in part, during the two year period commencing August 28, 2000.

In March 1999, we sold to David A. Brewer in a private placement
850,000 shares of common stock and warrants to purchase 1,334,444 shares of
common stock for aggregate consideration of $3,060,000. The warrants
consisted of four warrants to purchase 155,800 share of common stock at $3.60
per share and one warrant to purchase 721,244 shares of common stock at $3.60
per share. Each of the four warrants expires upon the earlier of September 3,
2000 or 30 days after we meet certain product sales or revenue milestones.
The fifth warrant expires on March 3, 2003 and contains a net exercise
provision. In connection with the sale of the common stock and warrants to
Mr. Brewer, we agreed to issue additional warrants to Mr. Brewer if we sell
shares of common stock in a capital raising transaction at price below $3.60
per share prior to the earlier of (i) March 3, 2002 or (ii) our calling our
outstanding Class A warrants. In addition, we agreed to register for resale
the common stock sold in the private placement and the common stock
underlying the warrants at the request of Mr. Brewer which may be made at any
time after June 3, 1999. We also agreed to seek shareholder approval to
increase the size of our board of directors and to elect Mr. Brewer to our
board of directors.

We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between us and our
officers, directors and principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors of the Board of Directors,
and will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.

-29-

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding
beneficial ownership of our common stock as of March 15, 1999, (i) by each
person (or group of affiliated persons) who is known by us to own
beneficially more than five percent of our common stock, (ii) by each of the
Named Executive Officers, (iii) by each of our directors, and (iv) by all of
our directors and executive officers as a group. We believe that the persons
and entities named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws, where applicable.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PERCENTAGE (1)
- --------------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
David A. Brewer(2)(3)(4)..................................................... 2,239,745 39.0%
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Paul F. DePond(5)............................................................ 516,731 11.5
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Alan Stahler(6)(7)........................................................... 315,500 6.9
c/o D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005

J. Morton Davis(8)(9)........................................................ 288,704 6.4
c/o D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005

Gaylan I. Larson............................................................. 198,019 4.5
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Gerald W. Rice(10)........................................................... 94,058 2.1
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Michael Ballard(11).......................................................... 71,970 1.6
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Michael Smith(12)............................................................ 54,269 1.2
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

Andrew Plevin(13)............................................................ 6,700 *
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129

All directors and executive officers as a group
(6 persons)............................................................... 941,747 17.7
</TABLE>
- --------------
* Less than one percent.

-30-

<PAGE>

(1) Applicable percentage of ownership is based on 4,399,326 shares of
common stock outstanding as of March 15, 1999 together with applicable
options or warrants for such shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities Exchange
Commission, and includes voting and investment power with respect to
shares. Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days after March 15, 1999 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 stockholder.

(2) Includes 1,357,444 shares issuable upon exercise of currently
exercisable warrants.

(3) Includes 19,801 shares of common stock owned by Hanabusa Investments,
Inc., of which Mr. Brewer is a shareholder.

(4) Includes 12,500 shares of common stock and 13,000 shares issuable upon
exercise of currently exercisable warrants owned by JBB Associates, of
which Mr. Brewer is a shareholder.

(5) Includes 110,792 shares issuable upon exercise of currently exercisable
warrants.

(6) Includes 157,000 shares issuable upon exercise of currently exercisable
warrants.

(7) Beneficial Ownership based on December 31, 1998 filing of Schedule 13G
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").

(8) Includes 144,352 shares issuable upon exercise of currently exercisable
warrants.

(9) Beneficial ownership based on December 31, 1998 filing of Schedule
13G/A under the Exchange Act.

(10) Includes 24,752 shares issuable upon exercise of currently exercisable
warrants.

(11) Includes 9,543 shares issuable upon exercise of currently exercisable
warrants.

(12) Includes 3,264 shares issuable upon exercise of currently exercisable
warrants.

(13) Includes 350 shares issuable upon exercise of currently exercisable
warrants.

ESCROW SECURITIES

In connection with our initial public offering, the holders of our
common stock and warrants to purchase common stock placed 1,242,985 shares of
our common stock (the "Escrow Shares") and warrants to purchase 126,759
shares of common stock (the "Escrow Warrants" and, together with the Escrow
Shares, the "Escrow Securities") into escrow pursuant to an escrow agreement
("Escrow Agreement") with our transfer agent, American Stock Transfer and
Trust, as escrow agent. The Escrow Securities are not assignable or
transferable; however, the Escrow Shares may be voted. Holders of any Escrow
Warrants in escrow may exercise their warrants prior to their release from
escrow; however, the shares issuable upon any such exercise will continue to
be held in escrow as Escrow Shares pursuant to the Escrow Agreement.

The Escrow Agreement provides that one-half of the Escrow Securities
(i.e. 684,872 shares of issued or issuable common stock) will be released
from escrow, on a pro rata basis, if, and only if, one or more of the
following conditions are met:

1. our net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by
our independent public accountants (the "Minimum Pretax Income")
amounts to at least $1.7 million for the fiscal year ending September
30, 1998 or September 30, 1999;

2. the Minimum Pretax Income amounts to at least $2.8 million
for the fiscal year ending September 30, 2000;

3. the Minimum Pretax Income amounts to at least $4.1 million
for the fiscal year ending on September 30, 2001;

4. the Minimum Pretax Income amounts to at least $5.4 million
for the fiscal year ending on September 30, 2002;

5. the Minimum Pretax Income amounts to at least $8.2 million
for the fiscal year ending on September 30, 2003;

-31-

<PAGE>

6. commencing on August 28, 1997 and ending 18 months
thereafter, the bid price of our common stock averages in excess of
$12.00 per share (subject to adjustment in the event of any reverse
stock splits or other similar events) for 30 consecutive business days;

7. commencing 18 months after August 28, 1997 and ending 36
months thereafter, the bid price averages in excess of $15.00 per share
(subject to adjustment in the event of any reverse stock splits or
other similar events) for 30 consecutive business days; or

8. we are acquired by or merged into another entity in a
transaction in which our shareholders receive per share consideration
at least equal to the level set forth in (6) above.

The Escrow Agreement further provides that the remaining Escrow
Securities (i.e. 684,872 shares of issued or issuable shares of common stock)
will be released from escrow, on a pro rata basis, if, and only if, one or
more of the following conditions is met:

1. the Minimum Pretax Income amounts to at least $2.8 million
for the fiscal year ending September 30, 1998 or September 30, 1999;

2. the Minimum Pretax Income amounts to at least $4.1 million
for the fiscal year ending on September 30, 2000;

3. the Minimum Pretax Income amounts to at least $5.4 million
for the fiscal year ending on September 30, 2001;

4. the Minimum Pretax Income amounts to at least $8.2 million
for the fiscal year ending on September 30, 2002;

5. the Minimum Pretax Income amounts to at least $9.5 million
for the fiscal year ending on September 30, 2003;

6. commencing on August 28, 1997 and ending 18 months
thereafter, the bid price of our common stock averages in excess of
$13.30 per share (subject to adjustment in the event of any reverse
stock splits or other similar events) for 30 consecutive business days;

7. commencing 18 months after August 28, 1997 and ending 36
months thereafter, the bid price averages in excess of $16.75 per share
(subject to adjustment in the event of any reverse stock splits or
other similar events) for 30 consecutive business days; or

8. we are acquired by or merged into another entity in a
transaction in which our shareholders receive per share consideration
at least equal to the level set forth in (6) above.

The Minimum Pretax Income amounts set forth above (i) shall be
calculated exclusive of any extraordinary earnings, including, but not
limited to, any charge to income resulting from release of the Escrow
Securities and (ii) shall be increased proportionately, with certain
limitations, in the event additional shares of common stock or securities
convertible into, exchangeable for or exercisable into common stock are
issued after completion of our initial public offering. The foregoing Minimum
Pretax Income amounts have been adjusted to reflect the effect of the share
issuances to David A. Brewer. The bid price amounts set forth above are
subject to adjustment in the event of any stock splits, reverse stock splits,
reverse stock splits or other similar events.

-32-

<PAGE>

Any money, securities, rights or property distributed in respect of
the Escrow Securities, including any property distributed as dividends or
pursuant to any stock split, merger, recapitalization, dissolution, or total
or partial liquidation of us, shall be held in escrow until release of the
Escrow Securities. If none of the applicable Minimum Pretax Income or bid
price levels set forth above have been met by December 31, 2003, the Escrow
Securities, as well as any dividends or other distributions made with respect
thereto, will be canceled and contributed to our capital. We expect that the
release of the Escrow Securities to its officers, directors, employees and
consultants, if it occurs, will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares on the date of release. Such charge could
substantially increase the loss or reduce or eliminate our net income for
financial reporting purposes for the period or periods during which such
shares are, or become probable of being, released from escrow. Although the
amount of compensation expense recognized by us will not affect our total
shareholders' equity, it may have a negative effect on the market price of
our securities.

The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between us and D. H. Blair & Co. and should not be
construed to imply or predict our future earnings or any increase in the
market price of our securities.

-33-

<PAGE>

DESCRIPTION OF SECURITIES

COMMON STOCK

We have authorized 15,000,000 shares of common stock, par value
$0.001 per share. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
shareholders. Subject to preferences that may be applicable to any shares of
preferred stock issued in the future, holders of common stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor. See "Dividend Policy." In the event
of a liquidation, dissolution or winding up of Notify Technology Corporation,
holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of common stock have no preemptive
rights and no right to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of the offering contemplated hereby,
will be fully paid and nonassessable.

CLASS A WARRANTS

The following is a brief summary of certain provisions of the Class
A warrants, but such summary does not purport to be complete and is qualified
in all respects by reference to the actual text of the warrant agreement,
dated August 28, 1997 between us and D.H. Blair Investment Banking Corp. (the
"Warrant Agreement"). A copy of the Warrant Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.

CLASS A WARRANTS

The holder of each Class A warrant is entitled, upon payment of the
exercise price of $6.50, to purchase one share of common stock. Unless
previously redeemed, the Class A warrants are exercisable at any time after
issuance through August 28, 2002, provided that at such time a current
prospectus relating to the underlying common stock is in effect and the
underlying common stock is qualified for sale or exempt from qualification
under applicable state securities laws. The Class A warrants included in the
Units are immediately transferable separately from the common stock issued
with such Class A warrants as part of the Units.

REDEMPTION

Commencing on the first anniversary of the effective date of the
Registration Statement, of which this Prospectus is a part, the Class A
warrants became subject to redemption by the Registrant, upon 30 days written
notice, at a price of $.05 per warrant, if the average closing bid price of
the common stock for any 30 consecutive trading days ending within 15 days of
the date on which the notice of redemption is given shall have exceeded $9.10
per share. Holders of Class A warrants will automatically forfeit their
rights to purchase the shares of common stock issuable upon exercise of such
warrants unless the warrants are exercised before the close of business on
the business day immediately prior to the date set for redemption. All of the
outstanding warrants of a class, except for those underlying the Unit
Purchase Option, must be redeemed if any of that class are redeemed. A notice
of redemption shall be mailed to each of the registered holders of the Class
A warrants by first class mail, postage prepaid, upon 30 days' notice before
the date fixed for redemption.

GENERAL

The Class A warrants may be exercised upon surrender of the
certificate or certificates therefor on or prior to the expiration or the
redemption date (as explained above) at the offices of our warrant agent (the
"Warrant Agent") with the Subscription Form on the reverse side of the
certificate or certificates completed and executed as indicated,

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<PAGE>

accompanied by payment (in the form of a certified or cashier's check payable
to the order of the Registrant) of the full exercise price for the number of
Class A warrants being exercised.

The Class A warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price per share and
the number of shares issuable upon exercise thereof upon the occurrence of
certain events, including issuances of common stock (or securities
convertible, exchangeable or exercisable into common stock) at less than
market value, stock dividends, stock splits, mergers, sale of substantially
all of our assets, and for other extraordinary events; provided, however,
that no such adjustment shall be made upon, among other things, (i) the
issuance or exercise of options or other securities under the Stock Option
Plan or other employee benefit plans or (ii) the sale or exercise of
outstanding options or warrants or the Class A warrants offered hereby.

We are not required to issue fractional shares of common stock, and
in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Class A warrants will not
possess any rights as a shareholder of the Registrant unless and until he
exercises the Class A warrants.

Upon notice to the Warrant Holders, we have the right to reduce the
exercise price or extend the expiration date of the Class A warrants.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE OR
SELL WARRANTS

Holders of Class A warrants will be able to sell or exercise the
Class A warrants only if a current prospectus relating to the Class A
warrants or shares underlying the Class A warrants is then in effect under
the Securities Act and such securities are qualified for sale or exempt from
qualification under the applicable securities or "blue sky" laws of the
states in which the various holders of the Class A warrants then reside.
Although we have undertaken to use reasonable efforts to maintain the
effectiveness of a current prospectus covering the Class A warrants and the
shares of common stock underlying the Class A warrants, no assurance can be
given that we will be able to do so. The value of the Class A warrants may be
greatly reduced if a current prospectus covering the Class A warrants and the
shares issuable upon the exercise of the Class A warrants is not kept
effective or if such Class A warrants or shares are not qualified or exempt
from qualification in the states in which the holders of the Class A warrants
then reside.

PREFERRED STOCK

We have authorized 5,000,000 shares of preferred stock. Shares of
preferred stock may be issued without shareholder approval. The Board of
Directors is authorized to issue such shares in one or more series and to fix
the rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without any vote or action by the shareholders.
No shares of preferred stock are currently outstanding, and we have no
present intention to issue any shares of preferred stock. Any preferred stock
to be issued could rank prior to the common stock with respect to dividend
rights and rights on liquidation. Our board of directors, without shareholder
approval, may issue preferred stock with voting and conversion rights which
could adversely affect the voting power of holders of common stock and
discourage, delay or prevent a change in control of Notify Technology
Corporation.

TRANSFER AGENT AND WARRANT AGENT

American Stock Transfer & Trust Company, New York, New York, serves
as Transfer Agent for the shares of common stock and Units and Warrant Agent
for the Class A warrants.

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<PAGE>

SELLING SECURITY HOLDERS

The Following table provides (i) the names of the selling warrant
holders, (ii) the number of shares of common stock owned by the selling
security holders before the offering, (iii) the number of Class A warrants
held by the selling security holders before the offering, (iv) the number of
shares of common stock which may be resold under this prospectus, and (v) the
number of Class A Warrants held by the selling security holders with may be
resold under this Prospectus. After the completion of the offering, assuming
all the warrants offered hereby are sold, and, in the event any of the
warrants are exercised, assuming the shares of common stock issued upon such
exercise are sold, no selling warrant holder will hold any of our securities,
except as set forth in the footnotes below.

<TABLE>
<CAPTION>
SHARES OF COMMON CLASS A WARRANTS
SHARES OF COMMON CLASS A WARRANTS STOCK WHICH MAY BE WHICH MAY BE RESOLD
STOCK OWNED BEFORE HELD BEFORE RESOLD UNDER THIS UNDER THIS
SELLING WARRANT HOLDER OFFERING (1) OFFERING (1) PROSPECTUS(2) PROSPECTUS
- ----------------------------- ------------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
The Frank & Brynde Berkowitz -- 31,250 31,250 31,250
Family Foundation

Abraham E. Cohen -- 25,000 12,500 12,500

Paul F. DePond (3)(4)(5) 405,939 25,000 25,000 25,000

Nathan Eisen & Rose Eisen -- 25,000 25,000 25,000

Susan Gartenburg Revocable -- 6,250 6,250 6,250
Trust

Deborah Katzin Memorial -- 6,250 6,250 6,250
Chesed Society

Regina Lehrer Trust -- 12,500 12,500 12,500

Alan C. Levinson & Audry J. -- 6,250 6,250 6,250
Levinson

William Newman -- 12,500 12,500 12,500

Neal J & Amy Polan -- 12,500 12,500 12,500

The Rubin Family Foundation, Inc. -- 25,000 25,000 25,000

Schon Family Foundation, -- 12,500 12,500 12,500

Gary J. Strauss -- 12,500 12,500 12,500

E. Donald Shapiro -- 25,000 25,000 25,000

Mordecai Soloff -- 12,500 12,500 12,500

South Ferry #2, L.P. -- 150,000 150,000 150,000
</TABLE>
-36-

<PAGE>

<TABLE>
<CAPTION>
SHARES OF COMMON CLASS A WARRANTS
SHARES OF COMMON CLASS A WARRANTS STOCK WHICH MAY BE WHICH MAY BE RESOLD
STOCK OWNED BEFORE HELD BEFORE RESOLD UNDER THIS UNDER THIS
SELLING WARRANT HOLDER OFFERING (1) OFFERING (1) PROSPECTUS(2) PROSPECTUS
- ----------------------------- ------------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Weingarten Family Foundation -- 12,500 12,500 12,500

Joel Wolff -- 25,000 25,000 25,000
</TABLE>
- --------------------
(1) As of March 15, 1999.
(2) Assuming selling security holders exercise all warrants registered
hereby instead of reselling such warrants.
(3) Mr. DePond will own 405,939 shares of our common stock after the
offering.
(4) Mr. DePond will own 9.2% of our common stock after the offering. Mr.
DePond's percentage of ownership is calculated assuming no Class A
warrants offered hereby are exercised and 4,399,326 shares of common
stock are outstanding after the offering.
(5) Mr. DePond has served as President, Chief Executive Officer, and
Chairman of the Board of Directors of Notify Technology since August,
1994.

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<PAGE>

PLAN OF DISTRIBUTION

The selling security holders may sell all or a portion of their
Class A warrants, or all or a portion of the shares of common stock issuable
upon exercise of the Class A warrants from time to time on the Nasdaq
SmallCap Market. Such sales will be made at prices prevailing at the times of
the sales. The selling security holders may also make private sales directly
or through a broker or brokers, who may act as agent or as principal. In
connection with any sales, the security holders and any brokers participating
in such sales may be deemed to be underwriters within the meaning of the
Securities Act. Notify Technology Corporation will receive no part of the
proceeds of such resales made hereunder.

Any broker-dealer participating in such transactions as agent may
receive commissions from the security holders (and, if they act as agent for
the purchaser of such Class A warrants or shares, from such purchaser). Usual
and customary brokerage fees will be paid by the security holders.
Broker-dealers may agree with the security holders to sell a specified number
of Class A warrants or shares at a stipulated price per security, and, to the
extent such a broker-dealer is unable to do so acting as agent for the
security holders, to purchase as principal any unsold Class A warrants or
shares at the price required to fulfill the broker-dealer commitment to the
security holders. Broker-dealers who acquire Class A warrants or shares as
principal may thereafter resell such Class A warrants or shares from time to
time in transactions (which may involve crosses and block transactions and
which may involve sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the-counter market,
in negotiated transactions or otherwise at market prices prevailing at the
time of sale or at negotiated prices, and in connection with such resales may
pay to or receive from the purchasers of such Class A warrants or shares
commissions computed as described above.

The anti-manipulative of Regulation M under the Exchange Act may
apply to sales in the market by certain of the selling security holders.
These selling security holders may indemnify any broker-dealer that
participates in transactions involving the sale of the Class A warrants or
shares against certain liabilities, including liabilities arising under the
Securities Act. Any commissions paid or any discounts or concessions allowed
to any such broker-dealers, and any profits received on the resale of such
Class A warrants or shares, may be deemed to be underwriting discounts and
commissions under the Securities Act if any such broker-dealers purchase
Class A warrants or shares as principal.

Upon notification by certain of the selling security holders to
Registrant that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a cross or block trade, a
supplemental prospectus will be filed under Rule 424(c) under the Securities
Act setting forth the name of the participating broker-dealer(s), the number
of shares involved, the price at which such shares were sold by such selling
security holders, the commissions paid or discounts or concessions allowed
these selling security holders to such broker-dealer(s), and where
applicable, that such broker-dealer(s) did not conduct any investigation to
verify the information set out in this Prospectus.

American Stock Transfer & Trust Company, our transfer agent, has
been designated as warrant agent (the "Warrant Agent") for the Class A
warrants. Pursuant to the Warrant Agreement, if at the time of the exercise
of any Class A warrant in respect of that warrant (i) the market price of our
common stock is greater than the purchase price of the warrant, (ii) the
exercise of the warrant was solicited by a member of the National Association
of Securities Dealers, Inc. ("NASD"), (iii) the warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was made
both at the time of the original offering and at the time of exercise; and
(v) the solicitation of the exercise of the warrant was not in violation of
Regulation M promulgated under the Exchange Act, the Warrant Agent,
simultaneously with the distribution of the proceeds from the exercise of the
Class A warrant to us shall, on behalf of us, pay from the proceeds, a fee of
5% of the purchase price to D. H. Blair & Co. A portion of such fee may be
reallowed by D. H. Blair & Co. to the dealer who solicited the exercise. In
the event that the above

-38-

<PAGE>

conditions are not met, we will not pay any finder's fee or commission in
connection with the offering hereby of the shares in connection with the
exercise of the Class A warrants. We will pay all of the expenses incident to
this offering which are estimated to be less than $189,154.

The Class A warrants may be exercised any time before August 28,
2002. Delivery of shares of common stock upon exercise of a warrant will be
made to the holder immediately following receipt by the Warrant Agent of the
original Warrant Certificate, with the subscription form on the reverse
thereof duly executed, along with payment of the purchase price in cash or by
official bank or certified check payable to Notify Technology Corporation. A
Class A warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of exercise and the person entitled to
receive the shares deliverable upon such exercise shall be treated for all
purposes as the holder of those shares as of the close of business on the
date of exercise. Any shares issued in connection with a timely exercise will
be shares of our common stock which have been registered for resale under the
Securities Act.

There can be no assurance that the selling security holders will
sell any or all of the Class A warrants or shares of common stock offered by
them hereunder.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon
for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at September 30, 1998 and for the years ended September 30, 1997
and 1998, as set forth in their report. We've included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.

ADDITIONAL INFORMATION

We have filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the common stock offered
pursuant to this Prospectus. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information included in
the Registration Statement and amendments thereof and the exhibits thereto,
which are available for inspection without charge, and copies of which may be
obtained at prescribed rates, at the office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and
at the Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission (http://www.sec.gov).

We will provide, without charge, to each person who received a
Prospectus, upon written or oral request of such person to us at the mailing
address or telephone number listed below, a copy of any of the information
incorporated by reference. The mailing address of our principal executive
offices is Notify Technology Corporation, 1054 S. De Anza Blvd., Suite 105,
San Jose, California 95129 and our telephone number is (408) 777-7920.

-39-

<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................................ F-2

Audited Financial Statements
Balance Sheets............................................................................... F-3
Statements of Operations..................................................................... F-4
Statement of Shareholders' Equity (Net Capital Deficiency)................................... F-5
Statements of Cash Flows..................................................................... F-6
Notes to Financial Statements................................................................ F-7

</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Notify Technology Corporation

We have audited the accompanying balance sheet of Notify Technology Corporation
as of September 30, 1998, and the related statements of operations,
shareholders' equity (net capital deficiency), and cash flows for the years
ended September 30, 1997 and 1998. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 statements 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, 1998, and the results of its operations and its cash flows for
the years ended September 30, 1997 and 1998, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP

San Jose, California
October 20, 1998

F-2
<PAGE>

NOTIFY TECHNOLOGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
-------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,117,613 $1,457,334
Accounts receivable, net of allowance for doubtful accounts of
$16,555 at September 30, 1998 and December 31, 1998 88,868 76,443
Note receivable 50,000 -
Inventories 828,323 836,242
Other current assets 42,757 80,578
-------------------------------------
3,127,561 2,450,597

Property and equipment, net 125,358 110,774

Other assets 155,443 134,610
-------------------------------------
$3,408,362 $2,695,981
-------------------------------------
-------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 234,180 $ 171,039
Other accrued liabilities 171,661 154,264
Accrued payroll and related 56,448 30,436
Customer overpayment 92,263 92,263
-------------------------------------
Total current liabilities 554,552 448,002

Commitments

Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.001 par value, 15,000,000 shares authorized,
3,541,569 shares issued and outstanding at September 30, 1998
and December 31, 1998 3,542 3,542
Additional paid-in capital 8,945,417 8,945,417
Notes receivable from shareholders (11,397) (11,397)
Accumulated deficit (6,083,752) (6,689,583)
-------------------------------------
Total shareholders' equity 2,853,810 2,247,979
-------------------------------------
Total liabilities and shareholders' equity $3,408,362 $2,695,981
-------------------------------------
-------------------------------------
</TABLE>

F-3
<PAGE>

NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE-MONTH PERIOD ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- -------------------------
1997 1998 1997 1998
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Product sales $ 3,735,773 $ 1,638,268 $1,063,026 $ 226,344
Cost of sales 2,760,380 1,582,042 766,037 112,300
-------------------------------------------------------------------------
Gross profit 975,393 56,226 296,989 114,044

Operating costs and expenses:
Research and development 745,063 1,376,767 327,621 327,375
Sales and marketing 666,930 589,295 146,629 186,989
General and administrative 633,584 884,442 213,074 226,287
-------------------------------------------------------------------------
Total operating costs and expenses 2,045,577 2,850,504 687,324 740,651

Loss from operations (1,070,184) (2,794,278) (390,335) (626,607)
Interest expense (199,133) (2,990) - -
Other income and expense, net 16,761 179,707 59,271 20,776
-------------------------------------------------------------------------
Net loss before extraordinary item (1,252,556) (2,617,561) (331,064) (605,831)
Extraordinary item loss from early
extinguishment of bridge notes (130,354) - - -
-------------------------------------------------------------------------
Net loss $(1,382,910) $(2,617,561) $ (331,064) $ (605,831)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted net loss per share
before extraordinary item $ (2.52) $ (1.13) $ (0.14) $ (0.26)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted loss per share $ (2.78) $ (1.13) $ (0.14) $ (0.26)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average shares used in
computing basic and diluted net loss
per share 497,157 2,296,449 2,297,606 2,298,584
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Pro forma net loss per share $ (1.82)
-------------------
-------------------

Weighted average shares used in
computing pro forma net loss per
share 760,693
-------------------
-------------------
</TABLE>

F-4
<PAGE>

NOTIFY TECHNOLOGY CORPORATION
STATEMENT OF SHAREHOLDERS` EQUITY (NET CAPITAL DEFICIENCY)

CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 4,500,000 $1,850,000 885,125 $ 58,619
Repayments of notes receivable from shareholders - - - -
Issuances of common stock to employees - - 33,057 12,200
Repurchases of common stock from shareholder - - (27,722) (7,000)
Issuances of common stock pursuant to conversion of
convertible promissory notes and accrued interest - - 165,694 761,476
Issuance of bridge warrants - - - 116,875
Conversion of no par common stock to $0.001 par common
stock - - - (941,114)
Issuance of common shares pursuant to initial public
offering (net of expenses) - - 1,600,000 1,600
Conversion of preferred A and preferred B shares to
common shares pursuant to initial public offering (4,500,000) (1,850,000) 891,060 891
Option purchased by underwriter - - - -
Net loss - - - -
---------------------------------------------------------
Balance at September 30, 1997 - - 3,547,214 3,547

<CAPTION>
TOTAL
NOTES SHAREHOLDERS'
ADDITIONAL RECEIVABLE EQUITY (NET
PAID-IN FROM ACCUMULATED CAPITAL
CAPITAL SHAREHOLDERS DEFICIT DEFICIENCY)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 $ - $ (17,650) $ (2,083,281) $ (192,312)
Repayments of notes receivable from shareholders - 4,075 - 4,075
Issuances of common stock to employees - (9,200) - 3,000
Repurchases of common stock from shareholder - 7,000 - -
Issuances of common stock pursuant to conversion of
convertible promissory notes and accrued interest - - - 761,476
Issuance of bridge warrants - - - 116,875
Conversion of no par common stock to $0.001 par common
stock 941,114 - - -
Issuance of common shares pursuant to initial public
offering (net of expenses) 6,152,533 - - 6,154,133
Conversion of preferred A and preferred B shares to
common shares pursuant to initial public offering 1,849,109 - - -
Option purchased by underwriter 160 - - 160
Net loss - - (1,382,910) (1,382,910)
----------------------------------------------------------------
Balance at September 30, 1997 8,942,916 (15,775) (3,466,191) 5,464,497

</TABLE>
F-5

<PAGE>

NOTIFY TECHNOLOGY CORPORATION
STATEMENT OF SHAREHOLDERS` EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)

CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchases of common stock from shareholder - $ - (7,544) $ (7)
Repayment of notes receivable from shareholders - - - -
Proceeds from exercise of options and warrants - - 1,899 2
Net loss - - - -
----------------------------------------------------------
Balance at September 30, 1998 - - 3,541,569 3,542
Net loss ( unaudited) - - - -
----------------------------------------------------------
Balance at December 31, 1998 (unaudited) - $ - 3,541,569 $ 3,542
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
TOTAL
NOTES SHAREHOLDERS'
ADDITIONAL RECEIVABLE EQUITY (NET
PAID-IN FROM ACCUMULATED CAPITAL
CAPITAL SHAREHOLDERS DEFICIT DEFICIENCY)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Repurchases of common stock from shareholder $ (550) $ - $ - $ (557)
Repayment of notes receivable from shareholders - 4,378 - 4,378
Proceeds from exercise of options and warrants 3,051 - - 3,053
Net loss - - (2,617,561) (2,617,561)
-------------------------------------------------------------
Balance at September 30, 1998 8,945,417 (11,397) (6,083,752) 2,853,810
Net loss ( unaudited) - - (605,831) (605,831)
-------------------------------------------------------------
Balance at December 31, 1998 (unaudited) $8,945,417 $ (11,397) $(6,689,583) $ 2,247,979
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
F-6
<PAGE>

NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE-MONTH PERIOD ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- ----------------------------
1997 1998 1997 1998
----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $(1,382,910) $(2,617,561) $ (331,064) $ (605,831)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 38,038 54,207 11,885 16,619
Deferred financing charges and accretion related to
bridge notes 232,375 - - -
Conversion of accrued interest on convertible notes
to common stock 29,351 - - -
Changes in operating assets and liabilities:
Accounts receivable (302,223) 348,037 127,959 12,425
Inventory (515,649) 267,255 372,069 (7,919)
Other assets (25,293) (214,142) (211,891) 33,012
Accounts payable 598,557 (481,174) (285,816) (63,141)
Other accrued liabilities 29,046 26,277 (139,933) (43,409)
-----------------------------------------------------------------------
Net cash used in operating activities (1,298,708) (2,617,101) (456,791) (658,244)

CASH FLOWS USED IN INVESTING ACTIVITIES
Expenditures for property and equipment (58,874) (65,825) (7,695) (2,035)
-----------------------------------------------------------------------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,000 - - -
Proceeds from issuance of convertible notes payable 125,000 - - -
Net proceeds from bridge notes 734,500 - - -
Repayment of bridge note payable (850,000) - - -
Advances under line of credit 44,000 - (12,500) -
Repayments under line of credit (57,335) (36,665) - -
Payments on repurchase of unvested stock - (354) (354) -
Proceeds from notes payable to shareholders 265,000 - - -
Payments on notes payable to shareholders (295,000) (200,000) (200,000) -
Payments of notes receivable from shareholders 4,075 4,175 4,175 -
Proceeds from initial public offering, net 6,154,133 - - -
Proceeds from exercise of options and warrants 160 3,052 5 -
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,127,533 (229,792) (208,674) -

Net increase (decrease) in cash and cash equivalents 4,769,951 (2,912,718) (673,160) (660,279)
Cash and cash equivalents at beginning of period 260,380 5,030,331 5,030,331 2,117,613
-----------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,030,331 $ 2,117,613 $ 4,357,171 $ 1,457,334
-----------------------------------------------------------------------
-----------------------------------------------------------------------

NONCASH FINANCING ACTIVITIES

Common stock issued for notes receivable from shareholders $ 9,200 $ - $ - $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Conversion of convertible preferred stock to common stock $ 1,850,000 $ - $ - $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Common stock retired for notes receivable from
shareholders $ 7,000 $ - $ - $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Conversion of convertible stock payable and accrued
interest to common stock $ 761,476 $ - $ - $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Value ascribed to warrants issued in conjunction with
private placement $ 116,875 $ - $ - $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest $ 71,140 $ 1,949 $ 11,708 $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
F-7
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

On February 25, 1998, the Company changed its name from Notify Corporation
to Notify Technology Corporation. Notify Technology Corporation (the Company)
develops, manufactures and markets computer telephony products.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial statements are prepared and presented on a basis
assuming it continues as a going concern. At September 30, 1998, the Company had
an accumulated deficit of $6.1 million and incurred a net loss of $2.6 million
for the year ended September 30, 1998. Management's planned expenditures for
fiscal 1999 approximate current cash and cash equivalents. The Company's
recently developed products will need to attain favorable market acceptance to
continue its research and development activities and fund operating expenses at
current levels. Management believes that sufficient funds will be available from
cash, cash equivalents, and operating activities to support planned operations
through September 30, 1999. There can be no assurance that the Company's new
products will attain favorable market acceptance. If the Company is unable to
attain certain revenue goals, significant reductions in spending and the delay
or cancellation of planned activities or more substantial restructuring of the
Company may be necessary. In such event, the Company intends to implement
expense reduction plans in a timely manner to enable the Company to meet its
cash requirements through at least September 30, 1999. These actions would have
material adverse effects on the Company's business, results of operations, and
prospects.

INTERIM RESULTS

The accompanying balance sheet as of December 31, 1998 and the statements
of operations, stockholders equity and cash flows for the three-month periods
ended December 31, 1997 and 1998 are unaudited. In the opinion of management,
the statements have been prepared on the same basis as the audited financial
statements and include all accruals considered necessary for a fair
presentation. Operating results for the three-month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending September 30, 1999.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of demand deposits and commercial paper
in highly liquid investments with a maturity of three months or less when
purchased and are stated at cost, which approximates market. The Company is
exposed to credit risk in the event of default by the financial institutions to
the extent of amounts recorded on the balance sheet.

F-8
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVENTORIES

Inventories are stated at the lesser of cost, on a first-in, first-out
basis, or fair value and consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
---------------------- ---------------------
<S> <C> <C>
Raw materials $ 567,457 $ 570,000
Work-in-process 117,588 116,060
Finished goods 143,278 150,182
---------------------- ---------------------
$ 828,323 $ 836,242
---------------------- ---------------------
---------------------- ---------------------
</TABLE>

Increases in the Company's inventory reserve account in fiscal 1997 and
1998 were approximately $162,000 and $437,000, respectively and inventory
written off and deducted from the reserve account was $2,800 and $0,
respectively. Obsolete inventory of $19,000 was disposed of in the three-month
period ended December 31, 1998, and additional reserves of $7,000 were expensed
in the three-month period ended December 31, 1998 to allow for normal inventory
shrinkage.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated or amortized on a
straight-line basis of the lesser of the estimated useful lives of the asset or
the lease term. The estimated useful lives range from three to five years.

OTHER ASSETS

At September 30, 1998, other assets primarily consist of a prepaid royalty
for certain technology rights, which is being amortized on a straight-line basis
over a three-year period.

REVENUE RECOGNITION

Product sales are recognized upon product shipment. In fiscal 1997, one
customer accounted for 70% of sales. In fiscal 1998, two customers accounted for
50% and 17% of sales and one customer accounted for 72% of sales in the
three-month period ended December 31, 1998.

F-9
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under SFAS 109, the liability method
is used to account for income taxes. Under this method, deferred tax assets and
liabilities are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.

USE OF ESTIMATES

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

CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to regional bell operating
companies and local exchange carriers in the United States. The Company performs
on-going credit evaluations and generally requires no collateral. The Company
maintains reserves for credit losses, and to date such losses have been within
management's expectations. Two customers accounted for 60% and 14% of accounts
receivable at September 30, 1998 and two customers accounted for 57% and 15% of
accounts receivable at December 31, 1998. One product accounted for 91% and 81%
of total revenues in fiscal 1997 and 1998, respectively.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based employee compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees and Related Interpretations." Accordingly, compensation cost for
stock options granted to employees is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
an employee must pay to acquire the stock.

F-10
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share is computed using the weighted-average
number of shares of common stock outstanding during the periods presented. Basic
net loss per share excludes any dilutive effects of stock options and warrants.
Diluted net loss per share includes the dilutive effect of the assumed exercise
of stock options and warrants using the treasury stock method. However, the
effect of outstanding stock options, warrants and convertible securities is
excluded from the calculation of diluted net loss per share as their inclusion
would be antidilutive. The weighted average number of common shares used in the
basic and diluted net loss per share calculation was reduced by the common stock
and potential common shares placed in escrow in connection with the Company's
initial public offering.

Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of preferred stock that converted to common stock
upon completion of the Company's initial public offering.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). The statement established standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. SFAS 130 requires that an enterprise display an amount
representing total comprehensive income for the period. The Company adopted SFAS
130 effective October 1, 1998 and its adoption did not impact the Company's
financial statements.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes new
requirements for the reporting of information regarding operating segments,
products, services, geographic areas, and major customers. SFAS 131 will be
effective for fiscal year 1999. The Company does not expect the adoption of SFAS
131 to have a significant impact on the Company's segment disclosure.

F-11
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

2. NOTE RECEIVABLE

In fiscal 1998, the Company issued an unsecured $50,000 note receivable to a
supplier, which is due in fiscal 1999. The note is repayable in services through
the due date, at which time any remaining balance is due in cash.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
---------------------- ---------------------
<S> <C> <C>
Furniture and office equipment $ 241,682 $ 243,719
Leasehold improvements 2,245 2,245
Less accumulated depreciation and amortization (118,569) (135,190)
---------------------- ---------------------
$ 125,358 $ 110,774
---------------------- ---------------------
---------------------- ---------------------
</TABLE>

4. FINANCING ARRANGEMENTS

During February 1997, the Company issued a $65,000 promissory note to a
shareholder, which accrued interest at the rate of 10% and was repaid from the
proceeds of the Company's initial public offering. The shareholder also received
a warrant to purchase 11,535 shares of common stock of the Company at $3.00 per
share. During fiscal 1998, the note was repaid from the proceeds of the offering
discussed in Note 6.

In April 1997, the Company issued a $200,000 promissory note to a
shareholder, which accrued interest at 10% per annum and was due and payable in
October 1997. In conjunction with this promissory note, the Company also issued
the shareholder a warrant to purchase 2,970 shares of the Company's common stock
at an exercise price of $5.00 per share. During fiscal 1998, the note was repaid
from the proceeds of the offering discussed in Note 6.

5. COMMITMENTS

The Company currently occupies a facility under an operating lease, which
expires in March 1999, and contains renewal options to extend the lease term for
one two-year period. Future minimum payments under this lease for the years
ending September 30, 1999 and 2000 are $109,000 and $149,000, respectively.

Rent expense totaled $73,000, $112,000 and $30,000 for the years ended
September 30, 1997, 1998 and the three-month period ended December 31, 1998,
respectively.

F-12
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

6. SHAREHOLDERS' EQUITY

INITIAL PUBLIC OFFERING OF UNITS AND RELATED MATTERS

In August 1997, the Company completed an offering to the public (the
Offering) of 1,600,000 units at $5.00 per unit. Each unit consisted of one share
of common stock, $0.001 par value and one Class A warrant. The proceeds of the
Offering were approximately $6,200,000, net of issuance costs. Each Class A
warrant entitles the holder to purchase one share of common stock at an exercise
price of $6.50, subject to adjustment, at any time through the fifth anniversary
of the Offering. Commencing one year from the date of the Offering, the warrants
are subject to redemption by the Company, at $0.05 per warrant, under certain
circumstances, on 30 days written notice. Additionally, the Company agreed to
grant to an underwriter an option to purchase, for nominal consideration, up to
160,000 units exercisable at $7.00 per unit during a two-year period that
commences three years from the date of the Offering.

COMMON STOCK

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

<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------------------
<S> <C>
1997 stock option plan 198,125
Warrant agreements 2,557,786
-------------------------
2,755,911
-------------------------
-------------------------
</TABLE>

WARRANTS

In March 1997, the Company issued 425,000 warrants in connection with a
bridge loan. Each bridge warrant automatically converted, upon the closing of
the Offering, into one Class A warrant, which is identical in all respects to a
Class A warrant issued in the Offering. The fair value of the bridge warrants,
amounting to approximately $117,000, together with the cost of the issuance of
bridge loan of approximately $115,000, were treated as additional interest
expense over the term of the bridge loan. Upon repayment of the bridge loan in
fiscal 1997, the unamortized portion of the value ascribed to the warrants and
debt issuance costs of approximately $130,000 were recorded as an extraordinary
item.

During fiscal 1996 and 1997, the Company issued 7,920 and 48,272 warrants
in connection with certain financings with exercise prices of $5.05 and $0.25,
respectively. These warrants expire in fiscal 2001.

F-13
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

6. SHAREHOLDERS' EQUITY (CONTINUED)

In August 1997, the Company issued a warrant that entitles an officer of
the Company to purchase 24,752 shares of common stock at an exercise price of
$5.00 per share. This warrant is exercisable any time and expires in April 2002.

At September 30, 1998, warrants issued in connection with various
financings, including 2,025,000 Class A warrants, were outstanding to purchase
2,237,786 shares of the Company's common stock (including 123,554 and 29,702
warrants held by three directors and two employees, respectively) at prices
ranging from $0.25 to $6.50 per share. These warrants are exercisable at any
time and expire at dates ranging from April 2000 to April 2002.

1997 STOCK OPTION PLAN

In January 1997, the Company adopted the Notify Corporation 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. A total
of 200,000 shares of the Company's common stock were reserved for issuance under
the Plan. Under the terms of these option grants, 25% of the options vest upon
the first anniversary of the date of grant and an additional 1/36 of the
unvested shares vest ratably over the following 36 months.

The following table summarizes stock option activity:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------
SHARES
AVAILABLE PRICE WEIGHTED
FOR NUMBER OF PER AVERAGE
GRANT SHARES SHARE PRICE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 - - $ - $ -
Shares reserved 200,000 - $ - $ -
Grants (17,500) 17,500 $4.75 $4.750
-------------------------------
Balance at September 30, 1997 182,500 17,500 $4.75 $4.750
Grants (79,875) 79,875 $1.625 - $3.25 $2.145
Cancellations 41,500 (41,500) $1.625 - $3.625 $3.094
Exercises - (1,875) $1.625 $1.625
-------------------------------
Balance at September 30, 1998 144,125 54,000 $1.625 - $3.625 $2.742
-------------------------------
-------------------------------
</TABLE>

F-14
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

6. SHAREHOLDERS' EQUITY (CONTINUED)

The following table summarizes outstanding and exercisable options at
September 30, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------------
WEIGHTED NUMBER OF WEIGHTED
NUMBER OF AVERAGE OPTIONS AVERAGE
OPTIONS REMAINING EXERCISABLE EXERCISE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS SHARES PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.625 28,000 9.40 1,875 $1.625
$1.875 10,000 9.95 - $1.875
$2.438 16,000 9.75 - $2.438
54,000 9.61 1,875 $1.912
</TABLE>

The weighted average fair value of options granted was $2.55 in 1997 and
$1.40 in 1998.

ESCROW SECURITIES

In connection with the Offering, holders of the Company's common and
preferred stock agreed to place 1,247,786 of their shares into escrow, and
holders of certain warrants agreed to place warrants to purchase 126,759 shares
of common stock into escrow. The securities will be released to the holders in
the event specified levels of pretax income of the Company for the years ending
September 30, 1998 to 2003 are achieved, or the market price of the Company's
common stock attains specified targets during a 36-month period commencing from
the effective date of the registration statement relating to the Company's
initial public offering. Any securities remaining in escrow on September 30,
2003 will be forfeited, which securities will then be contributed to the
Company's capital. The pretax income levels are subject to proportionate
adjustment upon the issuance of certain securities subsequent to the Company's
initial public offering.

In the event that the foregoing earnings or market price levels are
attained and the escrowed securities released, the Securities and Exchange
Commission has adopted the position that the release of escrowed securities to
officers, directors, employees, and consultants of the Company will be
compensatory and, accordingly, will result in compensation expense for financial
reporting purposes. The expense will equal the fair value of the escrowed
securities on the date of release and will result in a material charge to
operations.

F-15
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

7. RELATED PARTY TRANSACTIONS

The Company has an ongoing business relationship with a literature and
product fulfillment company owned by a director of the Company. The Company uses
this fulfillment company on a project by project basis to facilitate the
distribution of its products. The Company paid this fulfillment company $97,835,
$61,100 and $1,032 during fiscal 1997, 1998 and the three-month period ended
December 31, 1998, respectively.

8. INCOME TAXES

Due to operating losses, there is no provision for income taxes for 1997 or
1998. The expected statutory tax rate 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:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1998
---------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,279,000 $ 2,023,000
Research credit carryforwards 35,000 75,000
Other temporary differences 75,000 226,000
---------------------------------------------
Total deferred tax assets 1,389,000 2,324,000
---------------------------------------------

Valuation allowance (1,389,000) (2,324,000)
---------------------------------------------
Net deferred tax assets $ - $ -
---------------------------------------------
---------------------------------------------
</TABLE>

Realization of deferred tax assets is dependent on future earnings, 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. The change in the valuation allowance was a net increase of
$534,000 and $935,000 for fiscal years 1997 and 1998, respectively.

F-16
<PAGE>

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(Information at December 31, 1998 and for the three-month
periods ended December 31, 1997 and 1998 is unaudited)

8. INCOME TAXES (CONTINUED)

As of September 30, 1998, the Company had net operating loss carryforwards
of approximately $5,061,000 for federal and California tax purposes, which will
expire in years 2002 through 2013. As of September 30, 1998, the Company also
had research and development tax credit carryforwards for federal and California
tax purposes of approximately $50,000 and $30,000, respectively. The credits
will expire in years 2010 through 2013, it not utilized. Utilization of net
operating loss 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 loss and tax
credit carryforwards before full utilization.

9. SUBSEQUENT EVENTS (UNAUDITED)

In March 1999, the Company completed a private placement (the Placement) of
850,000 shares of unregistered common stock at $3.60 per share and warrants to
purchase common stock for total proceeds of approximately $3,060,000. The
Placement included a warrant to purchase 623,200 shares of common stock at $3.60
per share, immediately exercisable, which expires September 3, 2000 or upon the
Company achieving certain specified milestones. The Placement also included a
warrant to purchase 721,244 shares of common stock at $3.60 per share,
immediately exercisable, which expires on March 3, 2003.

F-17

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 317 of the California Corporations Code authorizes a court
to award, or a corporation's Board of Directors to grant indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of
1933, as amended (the "Securities Act"). Our Bylaws provide that we shall
indemnify our directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. We have entered into indemnification
agreements with our directors and officers containing provisions which are in
some respects broader than the specific indemnification provisions contained
in the California Corporations Code. The indemnification agreements may
require us, among other things, to indemnify our directors and officers
against certain liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of 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. Article IV of the Registrant's Articles of Incorporation (Exhibit 3.1
hereto) provides for indemnification of its directors and officers to the
maximum extent permitted by the California Corporations Code and Article IV
of the Registrant's Bylaws (Exhibit 3.3 hereto) provides for indemnification
of its directors, officers, employees and other agents to the maximum extent
permitted by the California Corporation Code. Reference is also made to
Section 6(b) of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale
of the Common Stock being registered hereby. All amounts are estimates,
except the registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
Registration Fee $ 909
Printing and engraving expenses 5,000
Legal fees and expenses 20,000
Auditors' accounting fees and expenses 20,000
Transfer Agent and Registrar fees 5,000
Solicitation Fee(1) 138,125
Miscellaneous expenses 5,000
--------
Total $189,034
--------
--------
</TABLE>
- ---------------------------
(1) This fee is payable to the underwriter of our initial public offering
if the exercise of the Class A warrants is solicited and certain other
certain conditions are met. See "Plan of Distribution."

II-1

<PAGE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The following is a summary of the transactions by Registrant during the
last three years involving sales of Registrant's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):

(1) From February 1995, to December 1996, we issued and sold to
fourteen of our employees or consultants 805,000 shares of our common stock
pursuant to restricted stock purchase agreements at prices varying from $.01
per share to $.10 per share. The sale and issuance of these securities was
exempt from the registration requirements of the Securities Act pursuant to
regulation 701 promulgated thereunder.

(2) In June 1996, we issued and sold to certain of our shareholders and
other investors an aggregate of $932,125 principal amount of convertible
promissory notes (the "Convertible Shareholder Notes") and warrants to
purchase that number of shares of our common stock equal to 20% of the
principal amount of the Convertible Shareholder Notes divided by the price
per share of our next equity financing at a price per share equal to the
price per share of our next equity financing (the "Shareholder Warrants").
The Convertible Shareholder Notes bore an interest rate of 8% per annum and
were convertible into equity of Notify Technology at a price equal to the
price per share of our next equity financing. The participants in this
financing consisted entirely of "accredited investors" as that term is
defined under Regulation D of the Securities Act. The sale and issuance of
these securities was exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D promulgated thereunder.

(3) In January 1997, we completed a restructuring of the Convertible
Shareholder Notes and Shareholder Warrants. Holders of an aggregate of
$732,125 in principal amount of the Convertible Shareholder Notes converted
their Convertible Shareholder Notes into our common stock at a price per
share of $4.55 and exchanged their accompanying Shareholder Warrants for
warrants to purchase an aggregate of 48,272 shares of our common stock at a
price of $0.25 per share. Holders of the remaining $200,000 principal amount
of Convertible Shareholder Notes agreed to defer repayment of the notes until
the earlier of the closing of our initial public offering or until April 30,
1997 and exchanged their Shareholder Warrants for warrants to purchase an
aggregate of 7,920 shares of our common stock at an exercise price of $5.05
per share. The sale and issuance of these securities was exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(9)
thereof.

(4) In February 1997, we issued to our Chief Executive Officer a 10%
subordinated promissory note with principal amount of $65,000 and warrants to
purchase 11,535 shares of our common stock at a price per share of $3.00 for
an aggregate purchase price of $65,000. The sale and issuance of these
securities was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof.

(5) In March 1997, we issued and sold 17 bridge units ("Bridge Units")
at $50,000 per unit. Each Bridge Unit consisted of a one-year $50,000
promissory note bearing 10% interest and warrants to purchase 25,000 shares
of our common stock at a purchase price of $3.00 per share. The warrants
automatically convert into warrants with identical terms as the Class A
warrants, and the promissory note becomes due upon the earlier of March 1998
or the closing of our initial public offering. All of the purchasers of the
Bridge Units were "accredited investors" as that term is defined in
Regulation D of the

II-2

<PAGE>

Securities Act. The sale and issuance of these securities was exempt from the
registration requirements of the Securities Act pursuant to Rule 506 of
Regulation D promulgated thereunder.

(6) In April 1997, we issued to one of our directors a 10% subordinated
promissory note with a principal amount of $200,000 and warrant to purchase
2,970 shares of our common stock at a price per share of $5.00 for an
aggregate purchase price of $200,000. The sale and issuance of these
securities was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof.

(7) In August 1997, we issued to Sutton Partners, L.P., a 10%
promissory note with a principal amount of $175,000. The issuance of the this
note was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.

(8) In March 1999, we sold to David Brewer 850,000 shares of our common
stock and warrants to purchase 1,334,444 shares of our common stock for
aggregate consideration of $3,060,000. The sale of our common stock and
warrants was exempt registration under the Securities Act pursuant to Section
4(2) thereof.

The sale and exchange of the above securities were deemed to be exempt
from registration under the Securities Act as indicated. The recipients of
securities in each such transaction represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
attached to the share certificates issued in such transactions. All
recipients had adequate access to information about the Registrant.

ITEM 27. EXHIBITS.

(a) Exhibits

<TABLE>
<S> <C>
3.1* Restated Articles of Incorporation of Registrant.

3.2* Bylaws of Registrant, as amended to date.

4.1* Form of Warrant Agreement.

4.2** Form of Common Stock Certificate.

5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.

10.1* Employment Agreement dated as of March 1, 1997 between Notify
Technology and Paul DePond (as amended). 10.2* Employment Agreement
dated as of March 1, 1997 between Notify Technology and Gaylan Larson
(as amended).

10.3* Employment Agreement dated as of March 1, 1997 between Notify
Technology and Gerald Rice (as amended).

10.4* Form of Indemnification Agreement.

10.5*** Escrow Agreement by and between Registrant, the American Stock Transfer
& Trust Company and certain security holders of the Registrant (as
amended).

10.6* Registrant's 1997 Stock Plan.
</TABLE>

II-3

<PAGE>

<TABLE>
<S> <C>
10.7* Lease between Registrant and C.C. Poon.

10.8***+ Nonexclusive Technology License Agreement between Registrant and Active
Voice Corporation dated April 30, 1997.

10.9**** Securities Purchase Agreement dated as of March 4, 1999 between Notify
Technology and David A. Brewer.

10.10* Form of Underwriter's Unit Purchase Option.

23.1 Consent of Independent Auditors (see page II-7).

23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part of
Exhibit 5.1).

24.1 Power of Attorney (see page II-6).
</TABLE>
- --------
(*) Incorporated by reference from Registration Statement on Form SB-2
(Registration No. 333-23369).

(**) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2 (Registration No. 333-23369).

(***) Incorporated by reference from Amendment No. 2 to Registration
Statement on Form SB-2 (Registration No. 333-23369).

(****) Incorporated by reference from Post-Effective Amendment No. 3 to
Registration Statement on Form SB-2 (Registration No. 333-23369).

+ Confidential treatment has been granted with respect to portions of
this exhibit.

(b) All schedules are omitted, since the required information is not
present in amounts sufficient to require submission of schedules or because
the information required is included in Registrant's financial statements and
notes thereto.

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the provisions described in Item 24, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;

II-4

<PAGE>

(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and

(iii) Include any additional or changed material information on the
plan of distribution.

(2) For determining liability under the Securities Act, Registrant will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.

(3) It will file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.

(4) It will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.

(5) For purposes of determining any liability under the Securities Act,
the Registrant will treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declares it effective.

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of the filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, California, on April 2,
1999.

NOTIFY TECHNOLOGY CORPORATION

By: /s/ Gerald W. Rice
-----------------------------
Gerald W. Rice
CHIEF FINANCIAL OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Paul F. DePond and Gerald W. Rice,
acting individually or jointly and severally, his or her attorneys-in-fact,
each with the power of substitution, for him or her in any and all
capacities, to sign any amendment to this Registration Statement on Form
SB-2, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that either or both of said attorneys-in-fact,
or any substitute or substitutes of such attorney or attorneys-in-fact, may
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------
<S> <C> <C>
/s/ Paul F. DePond President, Chief Executive Officer and Chairman April 2, 1999
- ----------------------------------------- (Principal Executive Officer)
Paul F. DePond

/s/ Gerald W. Rice Chief Financial Officer (Principal Financial and April 2, 1999
- ----------------------------------------- Accounting Officer)
Gerald W. Rice

/s/ Gaylan Larson Vice President, Operations and Director April 2, 1999
- -----------------------------------------
Gaylan Larson

Director
- -----------------------------------------
Michael Ballard

/s/ Andrew Plevin Director April 2, 1999
- -----------------------------------------
Andrew Plevin

/s/ Michael Smith Director April 6, 1999
- -----------------------------------------
Michael Smith
</TABLE>

II-6

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 20, 1998 in the Registration Statement
(Form SB-2) and the related Prospectus of Notify Technology Corporation for
the registration of 425,000 Class A Warrants and the shares of its Common
Stock underlying such warrants.

/s/ ERNST & YOUNG LLP

San Jose, California
April 5, 1999

II-7

<PAGE>

EXHIBIT INDEX
<TABLE>
<S> <C>
3.1* Restated Articles of Incorporation of Registrant.

3.2* Bylaws of Registrant, as amended to date.

4.1* Form of Warrant Agreement.

4.2** Form of Common Stock Certificate.

5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.

10.1* Employment Agreement dated as of March 1, 1997 between Notify
Technology and Paul DePond (as amended).

10.2* Employment Agreement dated as of March 1, 1997 between Notify
Technology and Gaylan Larson (as amended).

10.3* Employment Agreement dated as of March 1, 1997 between Notify
Technology and Gerald Rice (as amended).

10.4* Form of Indemnification Agreement.

10.5*** Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant (as amended).

10.6* Registrant's 1997 Stock Plan.

10.7* Lease between Registrant and C.C. Poon.

10.8***+ Nonexclusive Technology License Agreement between Registrant and
Active Voice Corporation dated April 30, 1997.

10.9**** Securities Purchase Agreement dated as of March 4, 1999 between Notify
Technology and David A. Brewer.

10.10* Form of Underwriter's Unit Purchase Option.

23.1 Consent of Independent Auditors (see page II-7).

23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part of
Exhibit 5.1).

24.1 Power of Attorney (see page II-6).
</TABLE>
- --------
(*) Incorporated by reference from Registration Statement on Form SB-2
(Registration No. 333-23369).

(**) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2 (Registration No. 333-23369).

(***) Incorporated by reference from Amendment No. 2 to Registration
Statement on Form SB-2 (Registration No. 333-23369).

(****) Incorporated by reference from Post-Effective Amendment No. 3 to
Registration Statement on Form SB-2 (Registration No. 333-23369).

+ Confidential treatment has been granted with respect to portions of
this exhibit.

II-8

<PAGE>

EXHIBIT 5.1

April 8, 1999

Notify Corporation
1054 De Anza Blvd., Suite 105
San Jose, CA 95129

RE: REGISTRATION STATEMENT ON FORM SB-2

Ladies and Gentlemen:

We have examined the Registration Statement on Form SB-2 to be filed by
Notify Technology Corporation (the "Company") on or around April 7, 1999 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of (i) 425,000 Class A warrants of the
Company (the "Warrants") for resale by certain security holders of the
Company (the "Selling Securityholders") and (ii) the 425,000 shares of the
Company's common stock (the "Shares") underlying the Warrants for either
resale by the Selling Securityholders or issuance to purchasers of the
Warrants. All Shares are to be issued under the Warrant Agreement, dated
August 28, 1997 between the Company and D.H. Blair Investment Banking Corp.
(the "Warrant Agreement"). As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in
connection with the sale and issuance of the Warrants and the Shares.

It is our opinion that, the Shares, when issued and sold in the manner
referred to in the Warrant Agreement, will be, legally and validly issued by
the Company, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement, including the prospectus constituting a part
thereof, and any amendment thereto.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

/s/ WILSON SONSINI GOODRICH & ROSATI