AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998

REGISTRATION NO. 333-23369
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE AMENDMENT NO. 2 TO FORM SB-2

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

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

CALIFORNIA 3661 77-0382248
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or
organization)

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)

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COPIES TO:

HENRY P. MASSEY, JR., ESQ.
PETER S. HEINECKE, ESQ.
BRADLEY A. BUGDANOWITZ, 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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PROSPECTUS

1,600,000 SHARES

NOTIFY TECHNOLOGY CORPORATION

All of the 1,600,000 shares (the "Shares") of Common Stock $.001 par value
(the "Common Stock") offered hereby are being sold by Notify Technology
Corporation (the "Company") to holders electing to exercise Class A Warrants
(the "Class A Warrants" or "Warrants") issued pursuant to the Warrant
Agreement, dated August 28, 1997 between the Company and D.H. Blair Investment
Banking Corp. (the "Underwriter"), the underwriter of the Company's initial
public offering (the "IPO"), in connection with the Company's IPO of units
(the "Units"), each consisting of one share of Common Stock and one redeemable
Class A Warrant. Each Class A Warrant entitles the holder to purchase one
share of Common Stock at an exercise price of $6.50, subject to adjustment,
until August 28, 2002 (the "Expiration Date"). The Warrants are subject to
redemption by the Company commencing August 28, 1998, at $.05 per Warrant on
30 days' written notice if the closing bid price of the Common Stock for 30
consecutive trading days ending within 15 days of the notice of redemption of
the Warrants averages in excess of $9.10 per share. See "Description of
Securities." References herein to "the Offering" or "this Offering" refer to
the offering made hereby.

The Common Stock and Class A Warrants are currently listed on the Nasdaq
SmallCap Market under the symbols "NTFY" and "NTFYW," respectively.

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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 AND "DILUTION."

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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PRICE: $6.50 PER SHARE

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UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSION COMPANY
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Per Share.................................. $ 6.50 $.325 $ 6.175
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Total...................................... $10,400,000 $520,000 $9,880,000

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THE DATE OF THIS PROSPECTUS IS JULY 2, 1998

PROSPECTUS SUMMARY

The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial data (including the
financial statements and the notes thereto) appearing elsewhere in this
Prospectus unless otherwise noted, all information in this Prospectus assumes
no exercise of (i) the Underwriter's Unit Purchase Option (as hereinafter
defined), (ii) the Public Warrants (as hereinafter defined), (iii) options
available for grant under the Company's 1997 Stock Option Plan (the "Stock
Option Plan") or (iv) other outstanding warrants and options. See "Management--
Stock Option Plan" and "Description of Securities."

THE COMPANY

The Company is 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 service provider to provide them
with services such as voice mail and CENTREX, a businessoriented service which
eliminates the need for on-premise telephone switching equipment, has increased
dramatically. The Company's products are designed to enhance the convenience
and utility of these services by providing customers with features which are
either not available or not included in standard service packages. The
Company's MessageAlert product increases the timeliness and ease of message
retrieval for voice mail subscribers by providing a visual indication that a
message has been received. The Company's Centrex Receptionist product gives
business and SOHO customers a cost-effective means of ensuring that incoming
calls are properly routed even when a human attendant is not available.

Over 14 million business and residential customers receive voice mail service
from their telephone company service provider. Telephone company provided voice
mail has several advantages over traditional answering machines including
better remote access, enhanced message management capabilities, support for
multiple calls and superior reliability. A major drawback to telephone company
provided voice mail is the lack of a visual indication that a message is
waiting; subscribers must pick up their phones and listen for a distinctive
dial tone to determine if they have a message. As a result, messages are often
received substantially later than if the blinking light of a traditional
answering machine had been available. Telephone company product managers
believe that the lack of a visual message waiting indicator (a "VMWI") is a
major reason for cancellation of voice mail service. The Company has remedied
this deficiency in telephone company provided voice mail by developing an
inexpensive, battery operated device which gives subscribers a visual
indication that a message is waiting.

The Company's second product is designed to enhance the functionality of the
CENTREX services which many small businesses purchase from their telephone
service provider. CENTREX gives small businesses useful business-oriented
telephone capabilities such as extension dialing, conference calling, call
transfer capability and call-forwarding without the need to buy and maintain
expensive telephone switches. The Company's Centrex Receptionist product
expands this feature set by providing auto-attendant features such as automatic
call answering, menu-prompted call routing and an automated name directory.
Small businesses can use the Centrex Receptionist to answer and route calls
received by their main or 800 number, thereby eliminating the need for a human
receptionist. The Company has designed the Centrex Receptionist to be easy to
install and configure and believes it offers a cost-effective solution to small
businesses' call-management needs.

The Company intends to distribute both of these products through or in
conjunction with the large domestic telephone companies and certain of their
authorized resellers. To date, the Company has sold its MessageAlert product to
three of the seven Regional Bell Operating Companies ("RBOCs") and seven of the
approximately 20 large local exchange carriers. The Company's strategy is to
encourage these telephone companies to bundle

the MessageAlert product with their voice mail services in order to increase
retention of new subscribers. In addition, the Company intends to encourage
telephone companies and their authorized resellers which focus on selling
CENTREX services to market its Centrex Receptionist as an enhancement to the
basic CENTREX service. The Company believes that the relationships with
telephone companies it has formed as a result of its marketing of the
MessageAlert product will aid it in developing the telephone companies as a
distribution channel for the Centrex Receptionist.

The Company intends to fund ongoing research and development of new products
and product enhancements. The Company expects to focus its efforts on three
areas: an enhanced MessageAlert product; expansion of the MessageAlert
architecture to create a line of combination Caller-ID /VMWI products; and
completion of a product to provide remote telephone access to e- mail.

The Company was incorporated in California in August 1994. Its address is
1054 S. De Anza Blvd., Suite 105, San Jose, CA 95129. Its telephone number at
that address is 408-777-7920.

SUMMARY FINANCIAL INFORMATION

SIX MONTHS
YEAR ENDED SEPTEMBER 30 ENDED MARCH 31,
------------------------ ---------------------
1996 1997 1997 1998
----------- ----------- --------- ----------
(UNAUDITED)

STATEMENTS OF OPERATIONS DATA:
Product sales................. $ 308,067 $ 3,735,773 $ 932,366 $1,272,470
Cost of sales................. 428,112 2,760,380 723,529 914,952
----------- ----------- --------- ----------
Gross profit (loss)........... (120,045) 975,393 208,837 357,518
Operating expenses:
Research and development..... 537,902 745,063 313,243 731,173
Sales and marketing.......... 549,916 666,930 298,253 267,728
General and administrative... 440,089 633,584 307,802 440,736
----------- ----------- --------- ----------
Total operating expenses...... 1,527,907 2,045,577 919,298 1,439,637
----------- ----------- --------- ----------
Loss from operations.......... (1,647,952) (1,070,184) (710,461) (1,082,119)
Interest income and (expense),
net.......................... (9,267) (182,372) (59,234) 109,493
Extraordinary item--loss from
early extinguishment of
bridge notes................. -- (130,354) -- --
----------- ----------- --------- ----------
Net loss...................... $(1,657,219) $(1,382,910) $(769,695) $ (972,626)
=========== =========== ========= ==========
Basic and diluted loss per
share before extraordinary
item......................... $ (10.71) $ (2.63) $ (3.18) $ (0.42)
=========== =========== ========= ==========
Basic and diluted loss per
share........................ $ (10.71) $ (2.91) $ (3.18) $ (0.42)
=========== =========== ========= ==========
Weighted average shares used
in computing net loss per
share........................ 154,694 475,448 242,395 2,297,023
=========== =========== ========= ==========
Pro forma net loss per
share(1)..................... $ (3.19) $ (1.71) $ (1.27)
=========== =========== =========
Weighted average shares used
in computing pro forma net
loss per share............... 519,992 809,290 607,693
=========== =========== =========

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(1) The pro forma net loss per share computation gives retroactive effect to
the conversion of the Outstanding Preferred Stock into Common Stock upon
the closing of the IPO, and excludes the Escrow Securities (as defined).
See Note 1 of Notes to Financial Statements for an explanation of the
calculation for pro forma net loss per share. See "Certain Relationships
and Related Transactions" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

MARCH 31,
1998
-----------
(UNAUDITED)

BALANCE SHEET DATA:
Working capital..................................................... $4,169,292
Total assets........................................................ 5,079,575
Total liabilities................................................... 583,877
Total shareholders' equity.......................................... 4,495,698

RISK FACTORS

LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATION OF NEGATIVE CASH
FLOW; NO ASSURANCE OF FUTURE PROFITABILITY

The Company commenced operations in August 1994 and through January 1996 was
engaged primarily in research and development. For the fiscal years ended
September 30, 1996 and 1997, the Company incurred net losses of $1,657,219 and
$1,382,910, respectively. As of March 31, 1998, the Company had an accumulated
deficit of $4,438,817 and working capital of $4,169,292. The Company initiated
a new program of research and development following its IPO in August 1997 to
increase the number of products offered to the market. The Company anticipates
having a negative cash flow from operating activities in future quarters and
years. The Company incurred a net loss of $972,626 for the six month period
ended March 31, 1998 and expects to incur further operating losses in future
quarters and years and until such time, if ever, as there is a substantial
increase in orders for the Company's products and product sales generate
sufficient revenue to fund its continuing operations. There can be no
assurance that sales of the Company's products will ever generate significant
revenue, that the Company will ever generate positive cash flow from its
operations or that the Company will attain or thereafter sustain profitability
in any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business--Sales, Marketing and
Distribution."

POSSIBLE FLUCTUATIONS IN QUARTERLY RESULTS

The Company anticipates that it may experience significant fluctuations in
operating results in the future. Fluctuations in operating results may result
in volatility in the price of the Company's Common Stock, Units and Warrants.
Operating results may fluctuate as a result of many factors, including the
Company's level of research and development and sales and marketing
activities, announcements by the Company and its competitors, volume and
timing of orders received, if any, during the period, the timing of commercial
introduction of future products and enhancements or competitive products and
the impact of price competition on the Company's average selling prices.
Almost all of these factors are beyond the Company's control.

For example, during the third quarter of fiscal 1997, the Company recorded
revenue of approximately $2.1 million primarily as the result of one customer
conducting a particularly large marketing program using the Company's
MessageAlert product during that quarter. Though the Company anticipates that
the customer will run similar programs in the future, the customer is not
committed to doing so and the timing of any such additional programs is
uncertain. The Company experienced revenue in the fourth quarter of fiscal
1997 and the six month period ended March 31, 1998 of $678,293 and $1,272,470,
respectively.

Notwithstanding the difficulty in forecasting future sales, the Company
generally must undertake its 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 the Company's financial condition and results of operations due to the
inability to adjust expenses during the quarter to match the level of product
revenues, if any, for the quarter. Due to these and other factors, the Company
believes that quarter to quarter comparisons of its 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."

UNCERTAINTY OF PRODUCT ACCEPTANCE

The Company sold its first MessageAlert in January 1996 and its first
Centrex Auto Attendant in December 1996. To date, the Company has received
only limited revenue from the sale of these products. While the Company
believes that its products are commercially viable, developing products for
the consumer and business marketplaces is inherently difficult and uncertain.
The Company does not believe its sales to date are sufficient to determine
whether or not there is meaningful consumer or business demand for its
products. The Company intends to make continued investments in sales and
marketing efforts and to promote consumer and business

interest in its products. There can be no assurance that such efforts will be
successful or that significant market demand for the Company's products will
ever develop. See "Business--Products," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Use of Proceeds."

DEPENDENCE ON LIMITED NUMBER OF POTENTIAL CUSTOMERS; NEED TO DEVELOP MARKETING
CHANNELS

The Company believes its success, if any, will be largely dependent on its
ability to either sell its products to or enter into joint marketing
arrangements with the seven RBOCs and approximately 20 large Local Exchange
Carriers ("LECs") in the United States. In particular, the Company believes
that its MessageAlert product can be sold profitably only if it is sold to or
in conjunction with the RBOCs and LECs. The Company also expects to rely
significantly on the RBOCs and LECs as a channel for its Centrex Receptionist
product. To date, the Company has sold its products to three RBOCs and seven
LECs. Qualifying its product and developing the marketing relationships
necessary to make these sales took substantially longer than the Company
originally anticipated. RBOCs and LECs tend to be hierarchical organizations
characterized by distributed decision-making authority and an institutional
reluctance to take 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. A failure by the
Company to develop significantly enhanced relationships with the RBOCs and
LECs would have a materially adverse effect on the Company's business and
operating results.

Sales to RBOCs and LECs constituted 69%, 86% and 70% of revenue for the
fiscal years ended September 30, 1996 and September 30, 1997 and the six month
period ended March 31, 1988, respectively. In addition, three customers
accounted for 30%, 18% and 16% of sales in fiscal 1996, one customer accounted
for 70% of sales in fiscal 1997 and two customers accounted for 62% and 22% of
sales in the six month period ended March 31, 1998.

Because the Company's marketing efforts have been largely focused on the
RBOCs and LECs, its management has had only limited experience in selling the
Company's products through these channels. There can be no assurance that the
Company will be able to implement such a marketing and distribution program or
that any marketing efforts undertaken by or on behalf of the Company will be
successful. See "Business--Sales, Marketing and Distribution."

RISK OF PRODUCT DEFECTS

The Company's products incorporate a combination of reasonably sophisticated
computer chip design, electric circuit design and telephony technology. The
Company has 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 its products, the Company
has from time to time redesigned its products. The Company expects that in the
future it will engage in similar redesigns of its products. In addition, the
Company is in the process of developing new, similarly complex products.
Though the Company extensively tests its products before marketing them, any
new, redesigned or current product may contain design flaws which are
undetected by the Company's testing procedures. For example, in August 1996,
the Company recalled 6,500 of an earlier version of its MessageAlert product
as a result of a design flaw and, in November 1996, the Company recalled
14,000 of its MessageAlert product, also as a result of a design flaw. The
direct cost to re-work and repair the defective products in these instances
was approximately $29,000 and $13,000, respectively. No significant rework was
required in fiscal 1997 or in the six month period ended March 31, 1998. In
addition, the Company relies on subcontractors to manufacture and assemble its
products. Though the Company has quality control procedures designed to detect
manufacturing errors, there can be no assurance that the Company will identify
all defective products. The Company believes that reliable operation will be
an important purchase consideration for both its consumer and business
customers. A failure by the Company to detect and prevent a design flaw or a
widespread product defect could materially adversely affect the sales of the
affected product and the Company's other products and materially adversely
affect the Company's business, financial condition and operating results. See
"Business--Products" and "--Manufacturing."

COMPETITION

The Company currently has several direct competitors in the market for
VMWIs. Voicewaves, Inc. produces VoiceLite, a line-powered, stutter tone only
VMWI. The Company believes competition in the VMWI market is based on support
of signaling standards, type of power source, other features, price and
quality. Certain manufacturers of competing VMWI products have greater
financial, technical and marketing resources than the Company. In addition,
there are several companies with substantially greater technical, financial
and marketing resources than the Company which could produce competing
products.

The Company has three direct competitors in the market for auto-attendant
products. The Company believes 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. The
Company also faces indirect competition from manufacturers of PC-based call
management systems. These systems are designed to provide voice mail
capability, auto-attendant features, and CENTREX-style functionality on a PC
platform. The Company expects that to the extent that the market for either of
its products develops, competition will intensify and new competitors will
enter the market. As the Company progresses into the Caller-ID market, it is
likely to experience competition from additional companies such as
Consumerware, Inc. and intensified competition from existing competitors.
There can be no assurance that the Company will be able to compete
successfully against existing and new competitors as the market for its
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 the Company's business and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon certain key
management employees, including its Chairman, President and Chief Executive
Officer, Mr. Paul F. DePond, and its Vice President of Operations, Gaylan
Larson. The Company has three-year key-man term life insurance on Mr. DePond
in the amount of $2,000,000 and has entered into employment agreements with
him along with Mr. Larson and Mr. Gerald Rice, the Company's Chief Financial
Officer. The loss of their services or those of any of the Company's other key
employees would have a materially adverse effect on the Company. The Company's
success, if any, will also be dependent on its ability to attract and retain
highly skilled technical personnel as well as marketing and sales personnel.
If the Company is 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 the Company
will be successful in retaining its key personnel and in attracting and
retaining the personnel it requires for expansion. See "Business--Employees"
and "Management."

RISKS OF LIMITED PROTECTION FOR COMPANY'S INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS AND INFRINGEMENT OF THIRD PARTIES' RIGHTS

The Company regards various features and design aspects of its products as
proprietary and relies primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure agreements to
protect its proprietary rights. The Company has been issued one patent
covering the design of its MessageAlert products, has applied for a patent
covering the MultiSense technology used in its MessageAlert product and
intends to continue to apply for patents, as appropriate, for its future
technologies and products. There are few barriers to entry into the market for
the Company's products, and there can be no assurance that any patents applied
for by the Company will be granted or that the scope of the Company's patent
or any patents granted in the future will be broad enough to protect against
the use of similar technologies by the Company's competitors. There can be no
assurance, therefore, that any of the Company's competitors, some of whom have
far greater resources than the Company, will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Further, the Company intends to distribute its products in a
number of foreign countries. The laws of those countries may not protect the
Company's proprietary rights to the same extent as the laws of the United
States.

The Company may be involved from time to time in litigation to determine the
enforceability, scope and validity of any proprietary rights of the Company or
of third parties asserting infringement claims against the Company. Any such
litigation could result in substantial costs to the Company and diversion of
efforts by the Company's management and technical personnel. See "Business--
Proprietary Rights."

DEPENDENCE ON SINGLE SUPPLIER; NO CONTRACTS OR AGREEMENTS

Certain key components used in the Company's products are currently
available only from single or limited sources. The Company does not have long
term supply contracts with these or any other component vendors and purchases
all of its components on a purchase order basis. No assurance can be given
that component shortages will not occur or that the Company will be able to
obtain the components it needs in a timely manner and on a commercially
reasonable basis. In particular, the application specific integrated circuit
("ASIC") which forms the core of the Company's MessageAlert product is
manufactured only by Microchip Technology, Inc. From time to time, the
semiconductor industry has experienced extreme supply constraints. An
inability of the Company to obtain sufficient quantities of ASICs from
Microchip Technology, Inc. would have a materially adverse effect on the
Company's business and operating results.

The Company subcontracts the manufacture of its products to third parties,
and there can be no assurance that these subcontractors will be able to
support the manufacturing requirements of the Company. An inability to obtain
sufficient quantities of sole-source components or subassemblies, or to
develop alternative sources as required in the future, could result in delays
or reductions in product shipments or could force the Company to redesign its
products, either of which could materially adversely effect the Company's
business and operating results. See "Business--Manufacturing."

COMPLIANCE WITH GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS

The Company's 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 the Company enters
international markets it 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. A failure by the Company to
comply with existing regulations and standards or to adapt to new regulations
and standards could have a material adverse effect on the Company's business
and operating results. See "Business--Governmental Regulation and Industry
Standards."

RISKS ASSOCIATED WITH PLANNED GROWTH

The Company plans to expand significantly its operations during the 1998
fiscal year, which could place a significant strain on its limited personnel,
financial, management and other resources. In order to manage its planned
growth, the Company will need to significantly expand its product development
and sales and marketing capabilities and personnel. In addition, the Company
will need to adapt its financial planning, accounting systems and management
structure to accommodate such growth if it occurs. A failure by the Company to
properly anticipate or manage its growth, if any, could adversely affect its
business, operating results and financial condition. In the last quarter of
fiscal 1996, the Company over-estimated its growth rate and, as a result,
built-up excessive inventories of certain products and components. There can
be no assurance that the Company will not experience similar or more severe
difficulties in the future. See "Business."

SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS

Future sales of Common Stock by existing shareholders pursuant to Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise, could have an adverse effect on the price of the Company's
securities. Pursuant to an agreement entered into in connection with a 1997
bridge financing (the

"Bridge Financing", and the warrants issued in connection therewith, the
"Bridge Warrants") the Company agreed to register for resale 425,000 Bridge
Warrants and the underlying securities upon expiration of the one-year
restriction on transferability to which the Bridge Financing investors have
agreed. 2,152,988 outstanding shares of Common Stock and options and warrants
to purchase Common Stock are "restricted securities" within the meaning of
Rule 144 under the Securities Act. Pursuant to Rule 144, substantially all of
these restricted shares became eligible for resale commencing 90 days
following August 28, 1997, the effective date of the Company's IPO of its
Units subject to the restrictions on transferability relating to the 1,370,083
shares of Common Stock or Warrants to purchase shares of Common Stock placed
in an Escrow in connection with the IPO. However, all the holders of the
shares of Common Stock outstanding prior to the IPO and all the holders of
options or warrants to purchase shares of Common Stock have agreed not to sell
or otherwise dispose of any securities of the Company for a period of thirteen
months from August 28, 1997 without the prior written consent of the
underwriter of the Company's IPO. The holder of an option to purchase 160,000
Units at a price per Unit of $7.00 (the "Unit Purchase Option") has certain
demand and "piggy-back" registration rights covering its securities. The
exercise of such rights could involve substantial expense to the Company.
Sales of Common Stock, or the possibility of such sales, in the public market
may adversely affect the market price of the Company's securities. See
"Description of Securities" and "Shares Eligible for Future Sale."

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

The Company has outstanding up to 1,600,000 Class A Warrants, 425,000 Public
Warrants to purchase 425,000 shares of Common Stock, the Unit Purchase Option
to purchase an aggregate of 320,000 shares of Common Stock assuming exercise
of the underlying Warrants, additional warrants to purchase 212,762 shares of
Common Stock and 200,000 shares of Common Stock reserved for issuance under
the Company's Option Plan, under which 37,875 options were outstanding as of
April 24, 1998. Holders of such options and warrants may exercise them at a
time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. Moreover, while these options
are outstanding, the Company's ability to obtain financing on favorable terms
may be adversely affected. See "Management" and "Description of Securities."

POSSIBLE VOLATILITY OF STOCK PRICE

The Company believes factors such as quarterly fluctuations in financial
results and announcements of new technology or products or regulatory
developments in the telephone industry may cause the market price of the
Company's securities to fluctuate, perhaps substantially. These fluctuations,
as well as general economic conditions, such as recessions or high interest
rates, may adversely affect the market price of the securities.

POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET

While the Company's Units, Common Stock and Warrants meet the current Nasdaq
listing requirements and are included on the Nasdaq SmallCap market, there can
be no assurance that the Company will continue to meet the criteria for
continued listing. Nasdaq has recently adopted more stringent financial
requirements for listing on Nasdaq. With respect to continued listing, such
new requirements are (i) 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, (ii) at least 500,000 shares in the public float valued
at $1,000,000 or more, (iii) a minimum Common Stock bid price of $1.00, (iv)
at least two active market makers, and (v) at least 300 holders of the Common
Stock. The Company will have to meet and maintain such new requirements. If
the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Common Stock and Warrants would thereafter be conducted in the over-
the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions and lower prices
for the Company's securities than might otherwise be attained.

RISK OF LOW-PRICE ("PENNY") STOCKS

If the Company's 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"), which 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 the Company's securities and may adversely affect the
ability of purchasers of the Company's securities to sell any securities
acquired in the secondary market.

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 the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or if the
Company meets certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Company's securities will qualify for
exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which 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 the Company's
securities were subject to the rules on penny stocks, the market liquidity for
the Company's securities could be severely adversely affected.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

The Warrants included in the Units sold at the IPO are detachable and
separately tradeable. Although the Units were not knowingly sold to purchasers
in jurisdictions in which the Units are not registered or otherwise qualified
for sale, purchasers who reside in or move to jurisdictions in which the
securities 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, the Company 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 the Company 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 Securities Act 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 the Company has 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
the Company 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.

ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS

The Warrants are subject to redemption by the Company commencing one year
from August 28, 1997 on at least 30 days' prior written notice, if the average
closing bid price of the Common Stock for 30 consecutive trading days ending
within 15 days of the date on which the notice of redemption is given exceeds
$9.10 per share. If the Warrants are redeemed, holders of Warrants will lose
their right to exercise the Warrants, except during such 30-day notice of
redemption period. Upon the receipt of a notice of redemption of the Warrants,
the holders thereof would be required to: (i) exercise the Warrants and pay
the exercise price at a time when it may be disadvantageous for them to do so,
(ii) sell the Warrants at the then current market price (if any) when they
might otherwise wish to hold the Warrants, or (iii) accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities--Redeemable
Warrants."

NO DIVIDENDS

The Company has paid no dividends to its shareholders since its inception
and does not plan to pay dividends in the foreseeable future. The Company
intends to reinvest earnings, if any, in the development and expansion of its
business. See "Dividend Policy."

SUBSTANTIAL CONTROL BY OFFICERS AND DIRECTORS

Based upon the number of shares of Common Stock that are outstanding, the
officers and directors of the Company as a group will beneficially own
approximately 24.9%, of the Company's outstanding Common Stock after giving
effect to the exercise of all currently exercisable outstanding options and
warrants held by such individuals. As a result, the officers and directors as
a group will be able to exert substantial influence over the election of the
Company's directors and the direction of the Company's policies. See
"Principal Shareholders."

CONTRACTUAL OBLIGATIONS TO UNDERWRITER FOLLOWING COMPLETION OF IPO

During the five-year period from August 28, 1997, in the event the
Underwriter originates financing or a merger, acquisition, or transaction to
which the Company is a party, the Company will be obligated to pay the
Underwriter 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, the Underwriter has
exercised the right to designate one director to the Company's Board of
Directors for a period of five years from August 28, 1997. The designee, Mr.
Andrew Plevin, was an employee of the Underwriter, but is now the Acting
President and Chief Executive Officer of Core Software Technology, Inc.

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

The Company's 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 the Company's shareholders. The rights of the
holders of 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 the outstanding voting stock of the Company. The Company has no current
plans to issue shares of Preferred Stock. See "Description of Securities--
Preferred Stock."

CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SECURITIES

thresholds required for the release of the Escrow Securities, the release will
be treated, for financial reporting purposes, as compensation expense of the
Company. Accordingly, the Company will, in the event of the release of the
Escrow Securities, recognize during the period that the earnings or stock
price thresholds are met a substantial noncash charge to earnings that would
increase the Company's 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
such Escrow Securities at the time of release from escrow. Although the amount
of compensation expense recognized by the Company will not affect the
Company's total shareholders' equity or cash flow, it may have a depressive
effect on the market price of the Company's securities. See "Principal
Shareholders--Escrow Securities" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Release of Escrow Securities."

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation eliminate in certain circumstances
the liability of directors of the Company for monetary damages for breach of
their fiduciary duty as directors. The Company has also entered into
indemnification agreements ("Indemnification Agreement(s)") with each of its
directors and officers. Each such Indemnification Agreement will provide that
the Company 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 will
also require the Company to indemnify the director or other party thereto in
all cases to the fullest extent permitted by applicable law. Each
Indemnification Agreement will permit 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."

USE OF PROCEEDS

If all of the Shares offered hereby are sold, the proceeds to the Company
would be approximately $9,830,000. The Company expects 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.

DIVIDEND POLICY

The Company has never paid any cash dividends on its stock and anticipates
that, for the foreseeable future, it will continue to retain any earnings for
use in the operation of its business. Payment of cash dividends in the future
will depend upon the Company's earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements and
other factors deemed relevant by the Company's Board of Directors.

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1998; (ii) as adjusted to reflect the exercise of the outstanding
Class A Warrants and the issuance of the underlying shares of Common Stock.
This table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------

Shareholders' equity:
Convertible Preferred Stock, $.001 par value,
5,000,000 shares authorized,
none issued and outstanding at March 31, 1998....... $ -- $ --
Common Stock, $.001 par value, 15,000,000 shares au-
thorized
3,540,226 shares issued and outstanding at March 31,
1998 (1)(2)......................................... 3,540 5,140
Additional paid-in capital........................... 8,942,575 18,770,975
Notes receivable from shareholders................... (11,600) (11,600)
Accumulated deficit.................................. (4,438,817) (4,438,817)
---------- -----------
Total shareholders' equity............................ 4,495,698 14,325,698
---------- -----------
Total capitalization................................. $4,495,698 $14,325,698
========== ===========

- --------
(1) Excludes (i) 425,000 shares of Common Stock issuable upon exercise of the
Public Warrants; (ii) 320,000 shares of Common Stock issuable upon
exercise of the Unit Purchase Option and the Warrants included in such
option; (iii) 200,000 shares of Common Stock reserved for issuance under
the Stock Option Plan, (iv) 212,762 shares of Common Stock issuable upon
exercise of outstanding warrants. See "Management/Stock Option Plan,"
"Certain Relationships and Related Transactions," and "Description of
Securities."
(2) Includes the 1,243,324 Escrow Shares. See "Principal Shareholders Escrow
Securities."

DILUTION

Dilution represents the difference between the price per share paid by the
purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. Net tangible book value per
share represents the net tangible assets of the Company (total assets less
total liabilities and intangible assets), divided by the number of shares of
Common Stock outstanding. At March 31, 1998, the Company had a net tangible
book value of $4,495,698, or approximately $1.27 per share $1.96 per share if
the Escrow Securities are excluded. After giving effect to the issuance of the
1,600,000 Shares offered hereby and the Company's receipt of the estimated net
proceeds therefrom and after deduction of expenses aggregating approximately
$570,000 (including a contingent fee of $520,000 payable to the Underwriter
under certain conditions; see "Plan of Distribution") the net tangible book
value of the Company, as adjusted at March 31, 1998 would have been
$14,325,698, or approximately $2.79 per share ($3.68 per share if the Escrow
Securities were excluded). This would result in an immediate dilution to
investors in the Offering of $3.71, or 57%, per share ($3.51 or 54%, per share
if the Escrow Securities were excluded), and the aggregate increase in the net
tangible book value to present shareholders would be $1.52 per share ($1.72
per share if Escrow Securities are excluded), as illustrated by the following
table:

Offering price per Share......................................... $6.50
Net tangible book value per share before Offering................ $1.27
Increase per share attributable to new investors in the Shares... 1.52
=====
Net tangible book value per share after the Offering............. 2.79
-----
Dilution per share to investors.................................. $3.71
=====

The following table sets forth on a pro forma basis the differences between
existing shareholders and new investors in the Offering with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing shareholders and by new investors:

PERCENTAGE OF PERCENTAGE OF TOTAL AVERAGE PRICE
NUMBER OUTSTANDING SHARES CONSIDERATION PAID CONSIDERATION PAID PER SHARE
--------- ------------------ ------------------ ------------------- -------------

Existing Shareholders... 3,540,226(1) 68.9% $ 8,946,115 46.2% $2.53
New Investors........... 1,600,000 31.1 10,400,000 53.8 $6.50
--------- ----- ----------- -----
Total.................. 5,140,226 100.0% $19,346,115 100.0%
========= ===== =========== =====

- --------

(1) Includes the 1,243,324 Escrow Shares. See "Principal Shareholders--Escrow
Securities."

As of the date of this Registration, there were outstanding warrants to
purchase 212,762 shares of Common Stock exercisable at prices ranging from
$0.25 to $5.05 per share. To the extent that such outstanding warrants are
exercised in the future, there may be additional dilution to existing
shareholders.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The statement of operations
data for each of the two years in the period ended September 30, 1997 are
derived from the audited financial statements of the Company included
elsewhere in this Prospectus. The selected financial data as of March 31, 1998
and for the six-month periods ended March 31, 1997 and 1998 have been derived
from the Company's unaudited financial statements which, in the opinion of
Management, reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the results of operations for such
periods. The results of the interim periods are not necessarily indicative of
the results of a full year.

YEAR ENDED SIX-MONTH PERIOD
SEPTEMBER 30, ENDED MARCH 31,
------------------------ ---------------------
1996 1997 1997 1998
----------- ----------- --------- ----------

STATEMENT OF OPERATIONS DATA:
Product sales................. $ 308,067 $ 3,735,773 $ 932,366 $1,272,470
Cost of sales................. 428,112 2,760,380 723,529 914,952
----------- ----------- --------- ----------
Gross profit (loss)........... (120,045) 975,393 208,837 357,518
Operating expenses:
Research and development...... 537,902 745,063 313,243 731,173
Sales and marketing........... 549,916 666,930 298,253 267,728
General and administrative.... 440,089 633,584 307,802 440,736
----------- ----------- --------- ----------
Total operating expenses...... 1,527,907 2,045,577 919,298 1,439,637
----------- ----------- --------- ----------
Loss from operations.......... (1,647,952) (1,070,184) (710,461) (1,082,119)
Interest income and (expense),
net.......................... (9,267) (182,372) (59,234) 109,493
Extraordinary item--loss from
extinguishment
of bridge notes.............. -- (130,354) -- --
----------- ----------- --------- ----------
Net loss...................... $(1,657,219) $(1,382,910) $(769,695) $ (972,626)
=========== =========== ========= ==========
Basic and diluted net loss per
share before
extraordinary item........... $ (10.71) $ (2.63) $ (3.18) $ (.42)
=========== =========== ========= ==========
Basic and diluted net loss per
share........................ $ (10.71) $ (2.91) $ (3.18) $ (.42)
=========== =========== ========= ==========
Weighted average shares used
in computing
net loss per share........... 154,694 475,448 242,395 2,297,023
=========== =========== ========= ==========
Pro forma net loss per share.. $ (3.19) $ (1.71) $ (1.27)
=========== =========== =========
Weighted average shares used
in computing
pro forma net loss per share. 519,992 809,290 607,693
=========== =========== =========

MARCH 31, 1998
--------------

BALANCE SHEET DATA:
Working capital.................................................. $4,169,292
Total assets..................................................... 5,079,575
Total liabilities................................................ 583,877
Total shareholders' equity....................................... 4,495,698

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

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's 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

The Company 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, the Company was engaged primarily
in research and development. In January 1996, the Company shipped the first
version of its MessageAlert product and in December 1996 shipped its first
Centrex Auto Attendant product. Substantially all of the Company's revenue has
been derived from sales of its MessageAlert product.

To date, the Company's working capital requirements have been met through
the sale of equity and debt securities and, to a lesser extent, product
revenue and the Company's line of credit. The Company has sustained
significant operating losses in every fiscal period since inception and
expects to incur substantial quarterly operating losses in the future. The
Company's limited operating history makes the prediction of future operating
results difficult if not impossible. Accordingly, although the Company
experienced significant growth in revenue in the fiscal year ended September
30, 1997, such growth should not be considered to be indicative of future
revenue growth. In particular, the sales revenue the Company experienced in
the third quarter of fiscal 1997 was not repeated in the fourth quarter of
fiscal 1997. See "--Results of Operations." Future operating results will
depend on many factors, including the demand for the Company's products, the
level of product and price competition, the ability of the Company to expand
its existing and to create new distribution channels, and the ability of the
Company to develop and market new products and control costs. There can be no
assurance that the Company's revenue will grow or be sustained in future
periods or that the Company will ever achieve profitability.

RESULTS OF OPERATIONS

Revenue: To date, substantially all of the Company's revenue has been
derived from the sale of its MessageAlert products. Revenue consists of gross
revenue less product returns. Revenue for the fiscal year ended September 30,
1996 increased from $308,067 to $3,735,773 for the fiscal year ended September
30, 1997. Revenue for the six month period ended March 31, 1997 increased from
$932,366 to $1,272,470 for the six month period ended March 31, 1998. Sales to
RBOCs and LECs constituted 69%, 86% and 70% of revenue for the fiscal year
ended September 30, 1996, 1997 and for the six month period ended March 31,
1988, respectively. In addition, three customers accounted for 30%, 18% and
16% of sales in the fiscal year ended September 30, 1996, one customer
accounted for 70% of sales in the fiscal year ended September 30, 1997 and two
customers accounted for 62% and 22% of sales in the six month period ended
March 31, 1988.

During the third quarter of fiscal 1997, the Company recorded revenue of
approximately $2.1 million primarily as the result of one customer conducting
a particularly large marketing program using the Company's MessageAlert
product during that quarter. Though the Company anticipates that the customer
will run similar programs in the future, the customer is not committed to
doing so and the timing of any such additional programs is uncertain. The
Company earned revenue in the fourth quarter of fiscal 1997 and the first
quarter of fiscal 1998 of $678,293 and $1,063,026 million, respectively.

Cost of Sales: Cost of sales consists primarily of the cost to manufacture
the Company's products. Cost of sales increased from $428,112 in the fiscal
year ended September 30, 1996 to $2,760,380 in the fiscal year ended September
30, 1997 and from $723,529 for the six month period ended March 31, 1997 to
$914,952 for the six month period ended March 31, 1998. These increases were
the result of increased sales of the Company's products.

Research and Development: Research and development expense consists
primarily of personnel costs, contract engineering expense, development
tooling, and supply expenses. Research and development expense increased from
$537,902 for the fiscal year ended September 30, 1996 to $745,063 for the
fiscal year ended September 30, 1997 and from $313,243 for the six month
period ended March 31, 1997 to $731,173 for the six month period ended March
31,1998. The increase was primarily the result of an aggressive program to
develop and expand the Company's product offerings which has significantly
increased expenditures for engineers, outside consulting and development
materials. The Company expects that the investment in research and development
will continue at, or near, the current level for the remainder of fiscal 1998.
See "Use of Proceeds" and "Business--Research and Development."

Sales and Marketing: Sales and marketing expense consists primarily of
personnel, consulting and travel costs and sales commissions related to the
Company's sales and marketing efforts. Sales and marketing expenses increased
from $549,916 for the year ended September 30, 1996 to $666,930 for the year
ended September 30, 1997 and decreased from $298,253 for the six month period
ended March 31, 1997 to $267,728 for the six month period ended March 31,
1998. The changes were attributable primarily to personnel decreases.

The Company anticipates that sales and marketing expenses will increase
significantly in future quarters as the Company hires additional sales
personnel and attempts to expand existing and develop new distribution
channels. See "Use of Proceeds" and "Business--Sales, Marketing and
Distribution."

General and Administrative: General and administrative expense consists of
general management and finance personnel, professional fees and other general
corporate expenses. General and administrative expenses increased from
$440,089 for the year ended September 30, 1996 to $633,584 for the year ended
September 30, 1997 and from $307,802 for the six month period ended March 31,
1997 to $440,736 for the six month period ended March 31, 1998. These
increases were primarily the result of additional legal, accounting and
printing expense and increases in executive salaries. The Company expects that
it will need to hire additional accounting and financial personnel in order to
support anticipated growth and comply with the reporting and investor
relations obligations of a public company.

Income Taxes: There was no provision for federal or state income taxes in
fiscal 1995, 1996, 1997 or in the six month period ended March 31, 1998, as
the Company incurred net operating losses. The Company expects to incur a net
operating loss in future quarters and years. As of September 30, 1997, the
Company had federal and state net operating loss carryforwards of
approximately $3,140,000. The net loss carryforwards and credit carryforwards
will expire in tax years 2002 through 2012, if not utilized. Utilization of
the net operating losses and credits may be subject to a substantial annual
limitation due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended (the "Code"), and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credit carryforwards before full utilization. For financial reporting
purposes, deferred tax assets primarily related to the net operating
carryforwards recognized under Financial Accounting Standard No. 109,
"Accounting for Income Taxes," have been fully offset by a valuation
allowance.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the IPO, the Company financed its operations primarily through
sales of equity and debt securities and bank lines of credit. In the fiscal
years ended September 30, 1996 and 1997, the Company's net cash used in
operating activities equaled $2,034,658 and $1,298,708, respectively. The
Company anticipates that it will have a negative cash flow from operating
activities in future quarters and years.

In August 1997, the Company completed its IPO which consisted of the sale of
1.6 million Units, each consisting of one share of Common Stock of the Company
and one Class A Warrant to purchase one share of Common Stock of the Company
at an exercise price of $6.50. The net proceeds of the IPO, after deducting
the underwriting discounts and commissions and other expenses of the IPO was
approximately $6.2 million.

In March 1997, the Company completed the Bridge Financing which consisted of
the sale of $850,000 principal amount of Bridge Notes bearing interest at an
annual rate of 10% and Bridge Warrants to purchase an aggregate of 425,000
shares of Common Stock. The net proceeds of the Bridge Financing of
approximately $735,000 were utilized by the Company to repay certain
indebtedness and for working capital purposes including general and
administrative expense and expenses of the IPO. The Company repaid the
principal and accrued interest on the Bridge Notes with a portion of the
proceeds of the IPO. The Company recognized a non-recurring charge of
approximately $130,000 representing the aggregate amount of unamortized debt
discount and debt issuance costs associated with the Bridge Financing at the
time of repayment. See Note 3 of Notes to Financial Statements.

The Company believes that the proceeds from the IPO, together with existing
sources of liquidity, will satisfy the Company's anticipated cash needs
through at least the next 12 months. Thereafter, if cash generated from
operations is insufficient to satisfy the Company's liquidity requirements,
the Company may attempt to sell additional equity or convertible debt
securities or obtain credit facilities.

IMPACT OF THE YEAR 2000 ISSUE

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. To be in "Year 2000 compliance" a computer
program must be written using four digits to define years. The Company's
current adjunct and software products are largely independent of other
operating environments and therefore, not affected by the Year 2000 Issue. All
products currently in development are being designed to be in Year 2000
compliance.

The Company is identifying Year 2000 dependencies in its systems and is
investigating the need for changes to its internal information systems to make
them Year 2000 compliant. The Company will initiate formal communications with
all of its significant suppliers and financial institutions, and will be
communicating with its large customers to determine the extent to which the
Company is vulnerable to those third parties failing to remediate their own
Year 2000 issues. The cost of the Year 2000 project is not expected to have a
material effect on the Company's financial condition or results of operations.
While the Company currently expects that the Year 2000 will not pose
significant operational problems, delays in the implementation of new
information systems, or a failure of its vendors, customer and financial
institutions could have material adverse consequences, including delays in the
delivery or sale of products.

RELEASE OF ESCROW SECURITIES

In the event any Escrow Securities owned by securityholders of the Company
who are officers, directors, consultants or employees of the Company are
released from escrow, compensation expense will be recorded for financial
reporting purposes. Therefore, in the event the Company attains any of the
earnings or stock price thresholds required for the release of the Escrow
Securities, the release will be treated, for financial reporting purposes, as
compensation expense of the Company. Accordingly, the Company will, in the
event of the release of the Escrow Securities, recognize during the period
that the earnings or stock price thresholds are met a substantial noncash
charge to earnings that would increase the Company's 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 such Escrow Securities at the time of
release from escrow. Although the amount of compensation expense recognized by
the Company will not affect the Company's total shareholders' equity or cash
flow, it may have a depressive effect on the market price of the Company's
securities. See "Principal Shareholders--Escrow Securities."

BUSINESS

The Company is engaged in the development, manufacture, marketing and sale
of computer telephony products for the business, SOHO and residential
marketplaces. In recent years, the number of individuals and businesses
relying on their telephone company service provider to provide them with
services such as voice mail and CENTREX, a business-oriented service which
eliminates the need for on-premise telephone switching equipment, has
increased dramatically. The Company's products are designed to enhance the
convenience and utility of these services by providing customers with features
which are either not available or not included in standard service packages.
The Company's MessageAlert product increases the timeliness and ease of
message retrieval for voice mail subscribers by providing a visual indication
that a message has been received. The Company's Centrex Receptionist product
gives business and SOHO customers a cost-effective means of ensuring that
incoming calls are properly routed even when a human attendant is not
available.

INDUSTRY BACKGROUND

Voice Mail

In 1995, approximately 14 million residential and business customers
received voice mail services from their telephone service provider. The number
of customers subscribing to voice mail has increased at an annual rate of
almost 20% since 1990. Residential voice mail subscribers typically pay their
telephone service provider a monthly fee of $6 to $7 for voice mail services
whereas business voice mail subscribers generally pay from $15 to $20. Because
of its message management capabilities, reliability and remote access
features, voice mail is a significant improvement over traditional telephone
answering machines. However, voice mail subscribers know they have a message
waiting only if they remember to pick up their telephone and listen for the
distinctive stutter dial tone which indicates that a message has been
received. As a result, messages are often received substantially later than if
the blinking light of the traditional answering machine had been available.
Telephone company voice mail product managers believe that the lack of a
visual message waiting indicator is one of the major reasons that voice mail
subscribers cancel their service. In a survey conducted by Pacific Bell, 83%
of respondents stated that a voice mail indicator light either "enhanced" or
"greatly enhanced" their voice mail service.

Development of a visual indicator for telephone company provided voice mail
was impeded by governmental regulation and shifting telephony standards. For
many years, the Federal Communications Commission ("FCC") prohibited the use
of any device which would take a telephone line "off-hook" for a purpose other
than making a telephone call. As a result, it was illegal to sell a device
which would sample a telephone line to determine if the stutter dial tone was
present. In response to this restriction, the major domestic telephone
companies in 1992 and 1993 adopted a signaling standard (known as "CLASS")
which enabled a device which was attached to a telephone line to be alerted to
the presence of a voice mail message without taking the line off-hook. In
addition, in September 1995, the FCC issued a waiver to allow stutter tone
detection devices to be attached to telephone lines. See "Business--
Governmental Regulation and Industry Standards." Despite these changes, the
vast majority of subscribers to telephone company provided voice mail still do
not receive a visual indication that they have a message waiting.

The Notify Technology Solution

The Company's MessageAlert product remedies this deficiency in voice mail
services by providing subscribers with a visual indication that a message has
been received. The MessageAlert is a small, battery-operated VMWI which
connects to a voice mail subscriber's telephone line between the telephone
jack and the telephone. The MessageAlert is designed to work with either one
or both of the signaling standards used by telephone companies to indicate
that voice mail has been received. When the MessageAlert senses that a message
has been received, its indicator light begins to blink. Once the message has
been retrieved, the light turns off. The Company believes the MessageAlert is
the only battery operated VMWI compatible with both stutter and CLASS
signaling on the market today.

Stutter dial tone, a normal dial tone turned on and off intermittently, is
still the most common signaling standard. This signal is initiated by a
communication from the voice mail platform to the central office switch. If a
subscriber has a message, the stutter dial tone is present; if there are no
messages, the dial tone is normal. Stutter compatible VMWIs work by checking
the telephone line whenever the customer completes a call and whenever a call
is placed to the customer's number but not picked up. The VMWI turns its
indicator light on or off based on the presence or absence of a stutter dial
tone when it checks the line.

CLASS signaling is emerging as a complement to, rather than a replacement
for, stutter signaling. CLASS signals are low speed signals transmitted over
the telephone line while the telephone is on hook. CLASS signals are used to
support Caller-ID as well as voice mail. With CLASS signaling, the voice mail
platform instructs the central office switch to notify the subscriber that
they have a message. If the subscriber's telephone line is not in use, the
CLASS signal is transmitted and picked up by the VMWI and the indicator light
on the VMWI begins to blink. When the subscriber retrieves his messages,
another CLASS signal is sent which causes the VMWI to cease blinking.

Both stutter signaling and CLASS signaling have limitations. Implementing
CLASS signaling often requires telephone companies to upgrade their switches
and other elements of their network. In addition, a CLASS signal cannot be
sent while the subscriber's phone is in use. If an attempt to transmit the
CLASS signal to the subscriber's VMWI is unsuccessful because the subscriber's
phone is in use, then the switch does not attempt to re-send the CLASS signal
again for a period of time, often from two to four hours. As a result, a
subscriber may not receive timely notification of messages received while they
are on the phone.

The stutter signal is deficient in two instances. First, if a subscriber
picks up his messages remotely, the stutter signal will turn off but the
VMWI's indicator light will stay on. Second, if a subscriber forwards a
message to another subscriber, a common occurrence in the office context, the
stutter signal will be implemented but the indicator light will not come on.
Both these failures occur because the VMWI samples the line only after
specified events; events which occur without the use of the subscriber's
telephone do not trigger a sampling of the line. FCC regulations prohibit the
sale or use of VMWIs which sample the line other than after the specific
events described above.

In order to overcome the deficiencies of stutter and CLASS signaling, the
Company developed its MessageAlert product, a VMWI which is compatible with
both standards. Combining stutter and CLASS signaling provides the advantages
of both methods and eliminates the disadvantages of each. The stutter is
immediate and never delayed, and CLASS signaling is not event driven. As a
result, subscribers are ensured of timely notification of new messages. The
Company has filed a patent application covering the "MultiSense" technology
which provides dual signaling capability to its MessageAlert product.

The Company is working with certain RBOCs and large LECs to encourage the
adoption of dual signaling as the standard for voice mail services. The
Company estimates that currently 20% of voice mail subscribers are on systems
which support both stutter and CLASS signaling with the remaining 80% on
systems which support only stutter signaling. The Company expects that
eventually all telephone companies will offer both CLASS and stutter signaling
throughout their networks but that the migration to dual signaling will be
slow because of the expense of upgrading switches to handle CLASS signaling.

Nevertheless, the Company believes that products which support dual-
signaling will have a significant competitive advantage even in telephone
systems with limited or no support for CLASS signaling. Almost all RBOCs and
large LECs have announced their intention to implement CLASS signaling. Most
will do so on a piecemeal basis over a number of years. During that transition
period, tracking which customers have dual signaling and which only have
stutter signaling will be difficult for the telephone companies from both an
administrative and a technical standpoint. Distributing dual signal VMWIs to
all customers regardless of which signaling standard they are currently
receiving would eliminate the need for such tracking as well as the need to
upgrade customers' VMWIs when their switching is upgraded. The Company
believes that when marketing to the RBOCs and LECs the ability to support dual
signaling is a significant competitive advantage.

The Company also believes the type of power source a VMWI uses is often an
important competitive feature. One of the Company's key MessageAlert products,
the MessageAlert 300, is powered by batteries and can operate for over a year
on one set of four "AA" batteries under normal operating conditions. This
approach can be advantageous because telephones are often not located near
power outlets and because the VMWI will cease to operate in the event of a
power outage. Other competitors' products are powered by the current in the
telephone line. While convenient, most large telephone companies disfavor this
approach because such devices may adversely affect telephone service when they
go off-hook to recharge their visual indicator circuit. In addition, a device
connected to the public telephone network is not allowed under current FCC
regulations to go off hook periodically for any reason other than to dial a
number and use the network services.

CENTREX

Many businesses today rely on telephone company provided CENTREX services to
handle their call processing needs rather than owning and maintaining their
own telephone switches. CENTREX provides companies with most of the benefits
of an internal system, such as call transferring, extension dialing,
conference call capability and voice mail without the burdens of hardware
ownership. There are currently over 10 million CENTREX lines in service in the
United States, approximately 35% of which are in small businesses.

The Company believes that many telephone companies need an auto attendant
solution to offer their small business customers that will both sell CENTREX
service and extend the continued use of CENTREX as the business grows. A major
deficiency of CENTREX services for small businesses is that calls to a
business' main or 800 number generally must be answered by a human attendant
or they will go unanswered or be transferred into the business' general voice
mail mailbox. For many small businesses, their main and 800 numbers are
critical components of their operations yet they cannot afford to have a human
attendant available at all times. These businesses need some way to ensure
that all incoming calls are answered and properly routed. Some telephone
companies have attempted to add central office based auto-attendant features
to their CENTREX services. Such services have generally been expensive to
purchase and cumbersome to install and maintain. They have not been widely
accepted.

The Notify Technology Solution

The Company's Centrex Receptionist product, which was launched by an RBOC in
February 1998, responds to the needs of small businesses or work groups which
require an automated method of ensuring that incoming calls are answered and
properly routed using the features built into CENTREX. The Centrex
Receptionist is attached to the business' main or 800 number line and
functions as an automated substitute for a human receptionist. Incoming calls
are answered by the Centrex Receptionist which plays a custom greeting and
provides the caller with a set of options. These options can include
transferring the caller to a particular department, extension or person,
providing the caller with pre-recorded information (such as directions to the
business), or providing the caller with another set of menu options. The
caller responds to the Centrex Receptionist by pressing the buttons on their
touch-tone phone. If the caller chooses to be transferred to a specific
extension or person, the Centrex Receptionist works in conjunction with the
business' CENTREX service to ensure that the call is properly transferred.

The Company believes that its current Centrex Receptionist, which has two or
four ports for incoming telephone lines, can address the needs of most
businesses with two to 50 telephone lines. The Company also gains a new source
of revenue from customer support activities whereby Notify Technology
Corporation provides ongoing remote maintenance services such as new extension
additions, directory changes and related billable assistance. See "Business--
Research and Development."

BUSINESS STRATEGY

The Company's goal is to become a leading supplier of computer telephony
products to the business, SOHO, and residential marketplace. The Company's
strategy for achieving this objective includes the following key elements:

Position the MessageAlert as a "Bundled" Product

The Company intends to encourage RBOCs and LECs to provide the Company's
MessageAlert product to their customer as part of their voice mail service at
no additional charge or at a subsidized price. The Company believes that
recent reductions in the cost to manufacture its MessageAlert products will
allow it to offer the products to RBOCs and LECs at a price where the expected
revenues from an increased retention rate for voice mail subscribers will be
sufficient to justify bundling it with their voice mail services.

Incorporate Proprietary Technology in New Products

The Company believes the proprietary technology in its MessageAlert and
Centrex Receptionist products can be leveraged to provide new and enhanced
telephony products for the business and SOHO market. For example, the
technology in the MessageAlert can be used to provide Caller-ID and Call
Waiting Caller-ID. The Company is also developing a product that will provide
remote email access via the telephone. See "Business--Research and
Development."

Develop Telephone Company and Related Distribution Channels:

The Company has established and is in the process of establishing OEM and
joint marketing relationships with the RBOCs and large LECs for its
MessageAlert and auto attendant product lines. In addition, the Company
believes that many of the RBOCs' and LECs' authorized resellers would also be
appropriate resellers of its products. Though establishing these channels
requires a substantial amount of up-front time and effort, the Company
believes that, if it is able to develop credibility in these channels, it will
be able to use them to sell all of its products including its Centrex
Receptionist and future products.

Expand into International Markets:

The Company believes there is a significant market for its products in
European and Pacific Rim countries. Many of the telephone companies in these
countries are just now introducing voice mail to their residential customers.
By working with telephone companies as they begin implementation, the Company
believes it can increase the possibility that its products will become a
standard part of voice mail service in those countries. In addition, in those
countries where CENTREX service is available or planned, the Company intends
to use the telephone company, as well as other distributors, as a channel for
its Centrex Receptionist product.

The Company's strategy includes plans for substantial growth in the 1998 and
1999 fiscal years which could place a significant strain on its limited
personnel, financial, management and other resources. In order to manage its
planned growth, the Company will need to significantly expand its product
development, sales and marketing capabilities and personnel. In addition, the
Company will need to adapt its financial planning, accounting system, and
management structure to accommodate such growth if it occurs. A failure by the
Company to properly anticipate or manage its growth, if any, could adversely
affect its business, operating results and financial conditions. In the last
quarter of fiscal 1996, the Company over-estimated its growth rate and, as a
result, built-up excessive inventories of certain products and components.
There can be no assurance that the Company will not experience similar or more
severe difficulties in the future.

PRODUCTS

MessageAlert:

Introduced in January 1996, the MessageAlert 300 was the first battery
powered stutter and CLASS compatible VMWI on the market. The Company has
applied for a patent on the MultiSense Technology incorporated in it which
enables it to work with both signaling standards. In addition the MessageAlert
is the first VMWI to include Autosensing Line Voltage Calibration ("ALVC").
ALVC allows the MessageAlert to perform in a wide range of consumer
environments by causing it to calibrate itself automatically to whatever
voltage is present on the telephone line. This adaptability reduces the
likelihood that a customer will need telephone company support to install the
product. The MessageAlert is marketed by the Company and certain

telephone companies under the name "MessageAlert" and by certain other
telephone companies under their own names. In addition, the Company markets a
version of the MessageAlert, "MessageAlert PBX," which is specifically adapted
for PBX environments.

Below is a table listing certain features of the MessageAlert and the
benefits the Company believes those features bring to end user and telephone
companies:

FEATURES END USER BENEFIT TELEPHONE COMPANY BENEFIT
- -------- ---------------- -------------------------

MultiSense Detection Reliable indication of messages Customers use service more
Autosense line voltage Reliability Works in almost all environments
Battery Power No AC adapter--no need for an outlet Easy acceptance by the customer
Less desktop cabling mess
Low Cost Easily affordable Quicker, broader market penetration
Attractive Design Pleasing to have in living or work areas Provides a physical presence including
"brand" name
Post-it(R) Notes Holder Added functionality Opportunities for pad-based promotions

Centrex Receptionist

The Centrex Receptionist is a stand-alone unit which 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 which 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 messages and voice name directories using a
touch tone telephone. It also has password protection for all administrative
programming. The current Centrex Receptionist model supports two or four
incoming CENTREX lines.

Below is a table listing certain features of the Centrex Receptionist and
the benefits the Company believes those features bring end users and telephone
companies.

FEATURES END USER BENEFIT TELEPHONE COMPANY BENEFIT
- -------- ---------------- -------------------------

Works in a CENTREX Enhances their CENTREX service Increased CENTREX customer acquisition
Environment and retention
Two Levels of Menus More efficient call routing Works for different size businesses
Name Directory and More flexible call processing Competitive feature for CENTREX
Extension Dialing competing against PBX
Daily Call Statistics Allows tracking of call volumes, Statistics can be used to justify additional
types of calls, etc. CENTREX trunk lines
Voice Prompts for Set-up Easy to configure Reduces customer support
Large Memory Capacity Allows for 30 minutes of recording Provides solution for a range of business
time of information applications
72 Hour Battery Back-up Saves all configuration information Reduces customer support and enhances
during power failure CENTREX reliability
System Copy/Back-up Simple disaster recovery or duplication Enhances CENTREX reliability
of system

To date, the Company has received only limited revenue from the sale of its
products. While the Company believes that its products are commercially
viable, developing products for the consumer and business marketplaces is
inherently difficult and uncertain. The Company does not believe its sales to
date are sufficient to determine whether or not there is meaningful consumer
or business demand for its products. The Company intends to devote a
significant portion of the proceeds of the Offering to its sales and marketing
efforts and to promote consumer and business interest in its products. There
can be no assurance that such efforts will be successful or that significant
market demand for the Company's products will ever develop.

In order to reduce the manufacturing costs, limit the power consumption and
otherwise enhance the operation of its products, the Company has from time to
time redesigned its products. The Company expects that in the future it will
engage in similar redesigns of its products. In addition, the Company is in
the process of developing new, similarly complex products. Though the Company
extensively tests its products before marketing them, any new, redesigned or
current product may contain a design flaw which is undetected by the Company's
testing procedures. For example, in August 1996, the Company recalled 6,500 of
an earlier version of its MessageAlert product as a result of a design flaw
and, in November 1996, the Company recalled 14,000 of its MessageAlert product
also as a result of a design flaw. The direct cost to re-work and repair the
defective products in these instances was approximately $29,000 and $13,000,
respectively. In addition, the Company relies on subcontractors to manufacture
and assemble its products. Though the Company has quality control procedures
designed to detect manufacturing errors, there can be no assurance that the
Company will identify all defective products. The Company believes that
reliable operation will be an important purchase consideration for both its
consumer and business customers. A failure by the Company to detect and
prevent a design flaw or a widespread product defect could materially
adversely affect the sales of the affected product and the Company's other
products and materially adversely affect the Company's business, financial
condition and operating results.

SALES, MARKETING AND DISTRIBUTION

The Company's domestic and international marketing and sales activities for
the MessageAlert to date have been focused on direct sales to large telephone
companies. The MessageAlert has been either private labeled or joint marketed
by GTE Communication Systems Corporation, Pacific Bell, BellSouth Corporation,
Ameritech Corporation, Century Telephone Enterprises Inc., Commonwealth
Telephone Company, Puerto Rico Telephone Company, Standard Telephone Company
and Aliant Communications, Inc. Except with respect to Pacific Bell and
Ameritech, the Company's relationship with these companies has not been
reduced to a formal agreement or contract and none of these companies are
obligated to purchase any product from the Company. The Company manufactures
product based on purchase orders and forecasts of purchases received from
RBOCs and LECs. The Company believes large telephone companies typically do
business in this manner and does not intend to seek long-term contractual
commitments from its telephone company customers.

Qualifying its product and developing the marketing relationships necessary
to enter into the foregoing relationships took substantially longer than the
Company originally anticipated. RBOCs and LECs tend to be hierarchical
organizations characterized by distributed decision-making authority and an
institutional reluctance to take risks. As a result, selling a product to or
entering into a marketing relationship with an RBOC or LEC is generally a
lengthy process. The Company believes its success, if any, will be largely
dependent on its ability to either sell its products to or enter into joint
marketing arrangements with the RBOCs and LECs. In particular, the Company
believes that its MessageAlert product can be sold profitably only if it is
sold to or in conjunction with the RBOCs and LECs. A failure by the Company to
develop significantly enhanced relationships with the RBOCs and LECs would
have a materially adverse effect on the Company's business and operating
results.

The Company is marketing the Centrex Receptionist to the same group of large
telephone companies it has targeted for the MessageAlert product. The Company
believes that having established itself 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, the
Company believes the Centrex Receptionist and the MessageAlert product can be
marketed together by the telephone companies to the business and SOHO market.

The Company is marketing its products outside North America by using sales
representatives from various countries. The Company has entered into a sales
representative agreement covering France and another covering the United
Kingdom, Germany, Netherlands, Spain, Sweden, and Switzerland.

TECHNICAL AND MARKETING SUPPORT

The Company has developed product collateral and marketing programs for the
Centrex Receptionist and MessageAlert products. The Company intends to expand
its ongoing marketing programs. These marketing programs will include
augmentation of collateral material, advertising and trade shows, supplemented
with public relations campaigns.

The Company provides back-up technical support to large telephone companies
and resellers. All technical support is performed by the Company's support
personnel. In the future, the Company's support organization will provide both
sales and technical support. Sales support consists of sales and marketing
training at the Company's home office training facility for its own sales
force and those of authorized resellers. The Centrex Receptionist requires
remote modem support by the Company's customer service group whenever the user
wants to add lines, make directory changes and perform system back-up; most of
which will be on a billable service arrangement.

RESEARCH AND DEVELOPMENT

Since its inception, the Company has incurred approximately $2,014,138 in
research and development expenses. The Company has had limited internal
engineering resources and uses contract engineering resources for a
significant portion of its research and development. The Company believes that
its future depends significantly on its ability to continue to enhance its
existing products and to develop new products, and the Company intends a
continued investment for research and development. The Company's research and
development efforts will be focused in three areas: cost reduction and feature
enhancement of the MessageAlert product line; expansion of the MessageAlert
architecture to create a combination Caller-ID/visual message waiting
indicator product; and completion of a remote telephone access to e-mail
product.

MANUFACTURING

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

The Company currently tests 100% of its products before shipping. It expects
to implement a sample testing program once a statistically sufficient history
has been established with respect to each of its manufacturing sources. The
MessageAlert and Centrex Receptionist products each have one-year replacement
warranties.

The Company subcontracts the manufacture of its board level assemblies to
third parties, and there can be no assurance that these subcontractors will be
able to support the manufacturing requirements of the Company. An inability to
obtain sufficient quantities of source components or subassemblies, or to
develop alternative

sources as required in the future, could result in delays or reductions in
product shipments or could force the Company to redesign its products, either
of which could materially adversely effect the Company's business and
operating results.

GOVERNMENTAL REGULATION AND INDUSTRY STANDARDS

COMPETITION

The Company currently has several direct competitors in the market for
VMWIs. Voicewaves, Inc. produces VoiceLite, a line-powered, stutter tone only
VMWI. Consumerware, Inc. produces VoiceMail Lite, a battery powered, stutter
tone only VMWI. The Company believes the retail store units of Southwestern
Bell Communications and GTE PhoneMarts stores are the only telephone companies
which market the VoiceMail Lite. SNI Innovation, Inc. produces VisuAlert, a
dual standard VMWI which requires an AC adapter. AASTRA TELECOM of Canada
produces Call Answer Lite, a dual standard VMWI which requires an AC Adapter.
The Company believes competition in the VMWI market is based on support of
signaling standards, type of power source, other features, price and quality.
The Company believes it competes favorably with respect to all of these
factors.

Certain manufacturers of competing VMWI products have greater financial,
technical and marketing resources than the Company. In addition, there are
several companies with substantially greater technical, financial and
marketing resources than the Company which could produce competing products.
These companies include telephone equipment manufacturers such as CIDCO
Incorporated, Intelidata, Inc., Northern Telecom Limited, and Lucent
Technologies Inc.

The Company has three direct competitors in the market for auto-attendant
products. Bogen Communications, Cobotyx Corporation, Inc. and SoloPoint, Inc.
produce auto-attendant products which have basic call answering and call
routing features but each is missing certain features such as multiple levels
of menus, pre-recorded system prompts, interactive voice response for
configuration, name directory functionality and call statistics. The Company
believes 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. The Company believes it
competes favorably with respect to all of these factors.

The Company also faces indirect competition from manufacturers of PC-based
call management systems. These systems are designed to provide voice mail
capability, auto-attendant features, and CENTREX-style functionality on a PC
platform. The cost of such systems is based on the price of the PC and
whatever additional hardware and software is required. There are many
companies that provide PC-based call management systems including Active Voice
Corporation, Altigen Communications, and Voice Systems Research, Inc. The
Company believes that by combining its Centrex Receptionist with a purchase of
CENTREX services, a business can achieve similar or better call management
services than from a PC-based system.

The Company expects that to the extent that the market for either of its
products develops, competition will intensify and new competitors will enter
the market. There can be no assurance that the Company will be able to compete
successfully against existing and new competitors as the market for its
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 the Company's business and results of operations.

PROPRIETARY RIGHTS

The Company relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical measures to establish
and protect its proprietary rights in its products. The Company has 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 Note holder. In addition, the Company filed a patent
application in July 1996 relating to the MultiSense technology used in the
MessageAlert product. The Company's MultiSense technology automatically
detects and reacts to either stutter or CLASS signaling. The Company intends
to continue to apply for patents, as appropriate, for its future technologies
and products.

There are few barriers to entry into the market for the Company's products,
and there can be no assurance that any patents applied for by the Company will
be granted or that the scope of the Company's patent or any patents granted in
the future will be broad enough to protect against the use of similar
technologies by the Company's competitors. There can be no assurance,
therefore, that any of the Company's competitors, some of whom have far
greater resources than the Company, will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Further, the Company intends to distribute its products in a
number of foreign countries. The laws of those countries may not protect the
Company's proprietary rights to the same extent as the laws of the United
States.

The Company has entered into a non-exclusive license agreement with Active
Voice Corporation ("Active Voice") pursuant to which the Company has agreed to
pay an up-front fee on sales of its MessageAlert product in exchange for
certain rights with respect to a patent issued to Active Voice covering
stutter dial tone detection.

EMPLOYEES

As of April 24 1998, the Company employed 16 persons of whom four were
engaged in research and development, two in manufacturing, seven in sales,
marketing, and customer support, and three in general administration and
finance. During fiscal 1998, the Company contemplates increasing its staff at
a pace consistent with the Company's business and growth, if any. None of the
Company's employees are currently represented by a labor union. The Company
considers its relations with its employees to be good.

The Company's success, if any, will be dependent on its ability to attract
and retain highly skilled technical personnel as well as marketing and sales
personnel. If the Company is 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 the
Company will be successful in retaining its key personnel and in attracting
and retaining the personnel it requires 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, 1999. 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.

LEGAL PROCEEDINGS

Potential Trademark Litigation

The Company received a letter in September from counsel to Airmedia, Inc.
("Airmedia") stating that Airmedia owns a federal trademark registration for
the mark "Notify." The letter claimed that the use of the name "Notify" in
connection with the sale of products or in an Internet domain name constitutes
an infringement of Airmedia's trademark rights. The Company has come to an
agreement with Airmedia to change the name of the Company to Notify Technology
Corporation and for the Company to refrain from using the mark "Notify" in
connection with the sale of its product in exchange for Airmedia to withdraw
its claim of infringement. This name change was ratified by the shareholders
of the Company at the Annual Shareholder Meeting on February 25, 1998.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
March 31, 1998, are as follows:

NAME AGE POSITION
- ---- --- --------

Paul F. DePond(1)....... 44 President, Chief Executive Officer andChairman of the Board of Directors
Gaylan I. Larson........ 57 Vice President of Operations and Director
Gerald W. Rice.......... 50 Chief Financial Officer and Secretary
Michael Ballard(1)(2)... 42 Director
Michael Smith(2)........ 51 Director
Andrew Plevin(1)........ 34 Director

- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Paul F. DePond, founder of the Company, has served as its President, Chief
Executive Officer and Chairman of the Board of Directors since the Company's
inception in August 1994. 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 the
Company 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 the Company 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 HewlettPackard 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 the Company since January 1996.
Mr. Ballard has been the Chief Executive Officer and Chairman of the Board of
Savannah Chanel Vineyards, Inc. Mr. Ballard also sits on the Board of
Directors of Telebit Corporation, a wholly owned subsidiary of Cisco Systems,
Inc. From October 1996 to November 1997, Mr. Ballard served as a product
director 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 of Operations of UUNet,
Inc., an internet service provider. From January 1986 to May 1993, Mr. Ballard
served as Chief Executive Officer of Telebit Corporation. Mr. Ballard received
his B.F.A. in 1978 from the University of Utah.

Michael Smith has served as a director of the Company since February 1996.
Since 1970, Mr. Smith has been the President and owner of COMAC, a literature
and product fulfillment company. Mr. Smith attended San Jose State University
from 1964 through 1969.

Andrew Plevin was elected as a director of the Company 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 the Underwriter. Mr. Plevin was
nominated to the Board of Directors pursuant to a requirement contained in the
underwriting agreement between the Company and the Underwriter for the
Company's IPO. The provision provides that the Underwriter shall have the
right to designate one director of the Company's Board of Directors for a
period of five years from the closing date of the Company's IPO.

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 the Company.

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

DIRECTOR COMPENSATION

Members of the Company's Board of Directors do not receive compensation for
their services as directors.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the fiscal year ended September 30, 1997, by (i) the
Company's Chief Executive Officer and (ii) the Company's most highly
compensated executive officers whose salary and bonus for such year exceeded
$100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

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)
- ------------------ ----- -------- ------ ------------ ---------- ---------- ------- ------------

Paul F. DePond.......... 1997 121,381 -- -- -- -- -- 8,673
Chief Executive Officer 1996 100,385 -- -- -- -- -- 7,146
David P. Yewell (2)..... 1997 102,204(3) -- -- -- -- -- 3,825
Vice President of Sales 1996 101,345(4) -- -- -- -- -- 1,987
& Marketing
Gaylan Larson........... 1997 112,446 -- -- -- -- -- 7,518
Chief Operations Offi- 1996 95,365 -- -- -- -- -- --
cer

- --------
(1) Represents payments of insurance premiums on behalf of the Named Executive
Officers.
(2) Mr. Yewell resigned from his position at the Company on August 8, 1997.
(3) Includes amounts paid as commissions.
(4) Includes amounts paid as consulting fees.

The following tables set forth certain information for the Named Executive
Officers with respect to grants and exercises in fiscal 1997 of options to
purchase Common Stock of the Company:

OPTION GRANTS IN LAST FISCAL YEAR

NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- ---- ----------- ------------ ---------- ----------

Paul F. DePond................... -- -- -- --
David P. Yewell.................. -- -- -- --
Gaylan Larson.................... -- -- -- --

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

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
- ---- ------------- -------- -------------- --------------- ----------- -------------

Paul F. DePond.......... -- -- 85,792 25,000 233,563 --
David P. Yewell......... -- -- -- -- -- --
Gaylan Larson........... -- -- -- -- -- --

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

STOCK OPTION PLAN

The Company's 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 200,000 shares of Common Stock are currently
reserved for issuance pursuant to the Stock Option Plan. As of March 31, 1998
the Company has granted options to purchase an aggregate of 37,875 shares of
Common Stock to nine employees and two non-employees at $1.625 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 the Company's 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 "performancebased 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 the Company's 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 the Company
with or into another corporation, a sale of substantially all of the Company's
assets or a like transaction involving the Company, 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, the Company entered into an employment agreement with Paul
DePond, the Company's President and Chief Executive Officer. The agreement
provides for a base salary of $130,000, which increases to $150,000 thirteen
months following the Offering, and a $50,000 bonus contingent on the Company's
attainment of certain performance milestones. In addition, if the Company is
sold while Mr. DePond is employed by the Company, Mr. DePond will receive a
bonus equal to 2% of the price at which the Company is sold.

In the event that the Company terminates 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 twentyfour (24) months.
In the event that the Company terminates 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 the Company's then existing
severance and benefits plans and policies.

In December 1996, the Company entered into employment agreements with Mr.
Larson, the Company's Vice President of Operations and Mr. Rice, the Company's
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 the board of directors of the Company.

In the event that the Company terminates 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 the Company terminates
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 the Company's 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 the Company by any person or
group; (ii) a change in a majority of the board of directors of the Company
occurring within a twoyear period; or (iii) the approval by the shareholders
of the Company of a transaction which would result in a transfer of more than
50% of the Company's voting power provided, however, that a public offering of
the Company's common stock does not constitute a change of control. The
agreements define "cause" as an act of dishonesty in connection with
employment; a conviction of a felony which will detrimentally affect the
Company's reputation or business; willful and gross misconduct injurious to
the Company; 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

The Company has adopted provisions in its Articles of Incorporation that
eliminate the personal liability of its directors for monetary damages arising
from a breach of their fiduciary duties in certain circumstances to the
fullest extent permitted by law and authorizes the Company to indemnify its
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.

The Company's bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by California law. The Company
has entered into indemnification agreements with its 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 the Company, 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
a director or officer of the Company where indemnification may be required or
permitted. The Company is 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 the Company
pursuant to the foregoing provisions, or otherwise, the Company has 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.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July 1996, pursuant to a Note Purchase Agreement, the Company issued
convertible promissory notes (the "Convertible Shareholder Notes") and five-
year warrants to purchase shares of the Company's Common Stock for an
aggregate purchase price of $932,125 to certain investors. The Convertible
Shareholder Notes were convertible into equity of the Company. Mr. Ballard, a
director of the Company, purchased a Convertible Shareholder Note in the
principal amount of $100,000 and the accompanying warrants for aggregate
consideration of $100,000. Mr. Smith, a director of the Company, purchased a
Convertible Shareholder Note in the principal amount of $50,000 and the
accompanying warrants for aggregate consideration of $50,000. In January 1997,
in connection with a restructuring of the Convertible Shareholder Notes, Mr.
Ballard converted his note into 22,804 shares of Common Stock and exchanged
his warrant for a warrant to purchase 6,528 shares of Common Stock at a price
of $0.25 per share and Mr. Smith converted his note into 11,402 shares of
Common Stock and exchanged his warrant for a warrant to purchase 3,264 shares
of Common Stock at a price of $0.25 per share.

In February 1997, the Company issued to Mr. DePond a 10% subordinated
promissory note with principal amount of $65,000 and warrants to purchase
11,535 shares of the Company's Common Stock at a price per share of $3.00 for
an aggregate purchase price of $65,000. These notes have been repaid in full,
substantially out of the proceeds of the Company's IPO.

In March 1997, the Company issued and sold 17 bridge units ("Bridge Units")
at $50,000 per unit to certain investors. Each Bridge Unit consisted of a
Bridge Note in the principal amount of $50,000 and Bridge Warrants to purchase
25,000 shares of Common Stock at a purchase price of $3.00 per share. The
Bridge Warrants automatically converted into warrants with identical terms as
the warrants sold in the Company's IPO and the Bridge Notes were repaid out of
the proceeds from the IPO. Paul DePond purchased one Bridge Unit in the Bridge
Financing. The Underwriter received certain fees in connection with the
placement of the Bridge Units. See "Use of Proceeds."

In April 1997, Michael Ballard, one of the Company's directors, loaned the
Company $200,000 in exchange for a note (the "Ballard Note") in the principal
amount of $200,000 and warrants to purchase 2,970 shares of the Company's
Common Stock at a price per share of $5.00. The Company repaid the Ballard
Note with a portion of the proceeds of the IPO. See "Use of Proceeds."

The Company has an ongoing business relationship with COMAC, a literature
and product fulfillment company owned by Michael Smith, its president and a
director of the Company. The Company uses COMAC, along with other fulfillment
companies, on a project by project basis to facilitate the distribution of its
products to telephone company customers. The Company has no contractual
obligation to use COMAC's services. In fiscal year 1997, the Company paid to
COMAC $97,835 in fees. During the first two quarters of fiscal 1998, the
Company paid to COMAC $56,485 in fees.

In August 1997 the Company issued a five-year warrant to purchase 24,752
shares of the Company's Common Stock with an exercise price of $5.00 per share
to Gerald W. Rice, the Company's Chief Financial Officer.

From August 1993 to November 1997, Mr. Andrew Plevein, a director of the
Board of Directors of the Company, served as Vice President of the
Underwriter. The Underwriter served as placement agent for the Company's 1997
Bridge Financing and as underwriter for the Company's IPO. In connection with
the Bridge Financing and IPO, the Underwriter received approximately
$1,150,500 in discounts, commission, and non-accountable expense allowances.
In addition, the Underwriter received an option to purchase 160,000 of the
units offered in the IPO, at a price per unit equal to 140% of the IPO price,
exercisable at any time, in whole or part, during the two year period
commencing August 28, 2000. Each unit offered in the IPO consisted of a share
of Common Stock of the Company and a warrant to purchase one share of Common
Stock of the Company at an exercise price of $6.50 per share.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its 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 the Company than could
be obtained from unaffiliated third parties.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998, (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) by
each of the Named Executive Officers, (iii) by each of the Company's
directors, and (iv) by all directors and executive officers as a group. The
Company believes 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.

NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED(1) PERCENTAGE (1)
- ------------------------------------ ---------------------------- --------------

Paul F. DePond(2).................. 491,731 13.6%
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Gaylan I. Larson................... 198,019 5.6
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Gerald W. Rice(3).................. 94,058 2.6
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Michael Ballard(4)................. 71,970 2.0
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Michael Smith(5)................... 54,269 1.5
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Andrew Plevin(6)................... 700 *
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
All directors and executive offi-
cers as a group (6 persons)....... 910,747 24.9

- --------
*Less than one percent.
(1) Applicable percentage of ownership is based on 3,540,226 shares of Common
Stock outstanding as of March 31, 1998 together with applicable options
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 warrants currently exercisable or exercisable within 60 days
after March 31, 1998 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 85,792 shares issuable upon exercise of currently exercisable
warrants.
(3) Includes 24,752 shares issuable upon exercise of currently exercisable
warrants.
(4) Includes 9,543 shares issuable upon exercise of currently exercisable
warrants.
(5) Includes 3,264 shares issuable upon exercise of currently exercisable
warrants.
(6) Includes 350 shares issuable upon exercise of currently exercisable
warrants.

ESCROW SECURITIES

In connection with the IPO, the holders of the Company's Common Stock and
warrants to purchase Common Stock placed 1,243,324 shares of the Company's
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 the Company's 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.
685,041 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. the Company's net income before provision for income taxes and exclusive
of any extraordinary earnings as audited and determined by the Company's
independent public accountants (the "Minimum Pretax Income") amounts to
at least $1.4 million for the fiscal year ending September 30, 1998 or
September 30, 1999;

2. the Minimum Pretax Income amounts to at least $2.3 million for the
fiscal year ending September 30, 2000;

3. the Minimum Pretax Income amounts to at least $3.4 million for the
fiscal year ending on September 30, 2001;

4. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 2002;

5. the Minimum Pretax Income amounts to at least $6.8 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 the Company's 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. the Company is acquired by or merged into another entity in a
transaction in which shareholders of the Company 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. 685,042 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 $2.3 million for the
fiscal year ending September 30, 1998 or September 30, 1999;

2. the Minimum Pretax Income amounts to at least $3.4 million for the
fiscal year ending on September 30, 2000;

3. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 2001;

4. the Minimum Pretax Income amounts to at least $5.6 million for the
fiscal year ending on September 30, 2002;

5. the Minimum Pretax Income amounts to at least $7.9 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 the Company's 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. the Company is acquired by or merged into another entity in a
transaction in which shareholders of the Company 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 the IPO.
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.

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 the Company, 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 the capital of the Company. The
Company expects that the release of the Escrow Securities to officers,
directors, employees and consultants of the Company, 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 the Company's 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 the Company will not affect the Company's total shareholders'
equity, it may have a negative effect on the market price of the Company's
securities.

The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter and should
not be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.

DESCRIPTION OF SECURITIES

UNITS

Each Unit consists of one share of Common Stock and one Warrant. Each
Warrant entitles the holder thereof to purchase one share of Common Stock. The
Common Stock and Warrants included in the Units are immediately transferable
separately upon issuance.

COMMON STOCK

The Company has 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 the Company, 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 will be, fully paid and
nonassessable.

REDEEMABLE WARRANTS

The following is a brief summary of certain provisions of the 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 between the Company
and American Stock Transfer and Trust Company. 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 Warrant is entitled, upon payment of the exercise price
of $6.50, to purchase one share of Common Stock. Unless previously redeemed,
the Warrants are exercisable at any time after issuance through August 26,
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 Warrants included in the Units are immediately
transferable separately from the Common Stock issued with such 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 Warrants are
subject to redemption by the Company, 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
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 Warrants by first class mail, postage prepaid,
upon 30 days' notice before the date fixed for redemption.

General

The 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 the Company's warrant agent (the "Warrant
Agent") with the Subscription Form on the reverse side of the certificate or
certificates completed and executed as indicated, accompanied by payment (in
the form of a certified or cashier's check payable to the order of the
Company) of the full exercise price for the number of Warrants being
exercised.

The 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 the Company's 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 Warrants offered hereby.

The Company is 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 Warrants will not possess any
rights as a shareholder of the Company unless and until he exercises the
Warrants.

Upon notice to the Warrant Holders, the Company has the right to reduce the
exercise price or extend the expiration date of the Warrants.

Current Prospectus and State Registration Required to Exercise Warrants

The Warrants included in the Units are detachable and separately tradeable.
Although the Units were not knowingly sold to purchasers in jurisdictions in
which the Units were not registered or otherwise qualified for sale,
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, the Company 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 the Company 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 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 Warrants then reside. Although the Company has undertaken to
use reasonable efforts to maintain the effectiveness of a current prospectus
covering the securities underlying the Warrants, no assurance can be given
that the Company 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 shares are not
qualified or exempt from qualification in the states in which the holders of
the Warrants then reside.

PREFERRED STOCK

The Company has 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 were outstanding upon the closing of the Offering and the

Company has 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. The 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 the Company.

UNIT PURCHASE OPTION

Upon the closing of the IPO, the Company granted to the Underwriter the Unit
Purchase Option to purchase up to 160,000 Units. The Units issuable upon
exercise of the Unit Purchase Option will be identical to the Units hereby
described. The Unit Purchase Option cannot be transferred, sold, assigned or
hypothecated for two years, except to any officer of the Underwriter or
members of the selling group or their officers. The Unit Purchase Option is
exercisable during the two-year period commencing August 28, 2000 at an
exercise price of $7.00 per Unit (140% of the initial public offering price)
subject to adjustment in certain events. The holders of the Unit Purchase
Option have certain demand and piggyback registration rights.

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 Warrant Agent for the
Warrants.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to August 28, 1997, there was no public market for the Common Stock.
Sale of a substantial number of shares of Common Stock into the public market
could adversely affect prevailing market prices for the Common Stock.

The Company has outstanding an aggregate of 3,540,226 shares of Common Stock
as of March 31, 1998. In addition to the 1,600,000 shares of Common Stock sold
at the IPO, there are 1,940,226 shares of Common Stock outstanding, all of
which are Restricted Securities under the Act. Approximately 1,068,656 of such
shares were eligible for sale immediately following the IPO without
restriction in reliance on Rule 144(k) under the Act. Beginning 90 days after
August 28, 1997, an additional 903,310 of such shares became eligible for sale
in the public market pursuant to Rule 144, subject to the volume and other
restrictions under such rule. However, holders of all of the outstanding
shares of Common Stock of the Company have agreed not to sell or otherwise
dispose of any securities of the Company without the Underwriter's prior
written consent for a period of 13 months from August 28, 1997. In addition
1,243,324 of such shares are Escrow Shares subject to the Escrow Agreement.
See "Principal Shareholders/Escrow Securities."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned shares for at least
one year (including the holding period of any prior owner except an affiliate)
is entitled to sell in "broker's transactions" or to market makers, within any
threemonth period, a number of shares that does not exceed the greater of: (i)
1% of the then outstanding shares of Common Stock (35,402 shares as of March
31, 1998) or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the sale. Sales under Rule 144
are also subject to the filing of a Form 144 with respect to such sale and
certain other limitations and restrictions. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the
ninety (90) days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, would be entitled to sell such
shares without having to comply with the manner of sale, volume limitation or
notice filing provisions described above.

Any employee of the Company who purchased his or her shares of Common Stock
pursuant to a written compensation plan or contract may be entitled to rely on
the resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provision of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144.

Holders of the Warrants included in the Units are entitled to purchase an
aggregate of 1,600,000 shares of Common Stock upon exercise of the Warrants at
any time during the five-year period following August 28, 1997, provided that
the Company satisfies certain securities registration requirements with
respect to the securities underlying the Warrants.

Up to 320,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Unit Purchase Option and the Warrants
contained in the Unit Purchase Option. Any and all of such shares of Common
Stock will be tradeable without restriction, provided that the Company
satisfies certain securities registration requirements in accordance with the
terms of the Unit Purchase Option. The Underwriter has demand and "piggyback"
registration rights with respect to the securities underlying the Unit
Purchase Option.

The Bridge Financing investors have agreed with the Company not to exercise,
sell, transfer, assign, hypothecate or otherwise dispose of their Public
Warrants for a period of one year following August 28, 1997. The Company has
agreed to register for resale on behalf of the Bridge Financing investors the
425,000 Public Warrants and the shares of Common Stock underlying such Public
Warrants upon expiration of such one-year period.

PLAN OF DISTRIBUTION

The price of the Common Stock offered hereby is based on the exercise price
of the Warrants as provided in the Warrant Agreement. Certain of the Company's
executive officers will participate in the sale of the Shares to holders upon
exercise of the Warrants. These participants, who will not receive any
compensation for these activities, will not be deemed to be brokers pursuant
to Rule 3(a)4-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and will merely ensure compliance with the Company's
obligations under the Warrant Agreement in connection with the issuance of the
Shares upon exercise of the Warrants.

American Stock Transfer & Trust Company, the Company's transfer agent, has
been designated as warrant agent (the "Warrant Agent") for the Warrants.
Pursuant to the Warrant Agreement, if at the time of the exercise of any
Warrant in respect of that Warrant (i) the market price of the Company's
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
Warrant to the Company shall, on behalf of the Company, pay from the proceeds,
a fee of 5% of the purchase price to the Underwriter. A portion of such fee
may be reallowed by the Underwriter to the dealer who solicited the exercise.
In the event that the above conditions are not met, the Company 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 Warrants. The Company will pay
all of the expenses incident to the Offering which are estimated to be less
than $570,000.

The Warrants may be exercised any time before the Expiration Date. Delivery
of Shares 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 the Company. 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 the Company's Common Stock which have been
registered for resale under the Securities Act as provided in the Underwriting
Agreement.

LEGAL MATTERS

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

EXPERTS

The financial statements of Notify Technology Corporation as of September
30, 1997 and for each of the two years in the periods ended September 30, 1996
and 1997, appearing in this Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has 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).

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

NOTIFY TECHNOLOGY CORPORATION

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Audited Financial Statements............................................... F-3
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

F-1

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, 1997, and the related statements of
operations, shareholders' equity (net capital deficiency), and cash flows for
the years ended September 30, 1996 and 1997. 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, 1997, and the results of its operations and its
cash flows for the years ended September 30, 1996 and 1997, in conformity with
generally accepted accounting principles.

San Jose, California
October 17, 1997

F-2

NOTIFY TECHNOLOGY CORPORATION

BALANCE SHEETS

SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents........................... $5,030,331 $3,749,371
Accounts receivable, net of allowance for doubtful
accounts of
$19,314 and $18,078, respectively.................. 436,905 86,251
Inventories......................................... 1,095,578 896,572
Other current assets................................ 13,029 20,975
---------- ----------
6,575,843 4,753,169
Property and equipment, net.......................... 113,739 113,219
Other assets......................................... 21,029 213,187
---------- ----------
$6,710,611 $5,079,575
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit...................................... $ 36,665 $ 11,665
Accounts payable.................................... 715,354 275,180
Other accrued liabilities........................... 229,762 297,032
Royalties payable................................... 64,333 --
Note payable to shareholder......................... 200,000 --
---------- ----------
Total current liabilities............................ 1,246,114 583,877
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,
3,547,214 and 3,540,226 shares issued and outstand-
ing at
September 30, 1997 and March 31, 1998, respective-
ly................................................. 3,547 3,540
Additional paid-in capital.......................... 8,942,916 8,942,575
Notes receivable from shareholders.................. (15,775) (11,600)
Accumulated deficit................................. (3,466,191) (4,438,817)
---------- ----------
Total shareholders' equity........................... 5,464,497 4,495,698
---------- ----------
Total liabilities and shareholders' equity.......... $6,710,611 $5,079,575
========== ==========

F-3

NOTIFY TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS

SIX-MONTH PERIOD
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------- ---------------------
1996 1997 1997 1998
------------ ------------ --------- ----------
(UNAUDITED)

Product sales............... $ 308,067 $ 3,735,773 $ 932,366 $1,272,470
Cost of sales............... 428,112 2,760,380 723,529 914,952
------------ ------------ --------- ----------
Gross profit (loss)......... (120,045) 975,393 208,837 357,518
Operating costs and ex-
penses:
Research and development... 537,902 745,063 313,243 731,173
Sales and marketing........ 549,916 666,930 298,253 267,728
General and administrative. 440,089 633,584 307,802 440,736
------------ ------------ --------- ----------
Total operating costs and
expenses................... 1,527,907 2,045,577 919,298 1,439,637
------------ ------------ --------- ----------
Loss from operations........ (1,647,952) (1,070,184) (710,461) (1,082,119)
Interest expense............ (32,811) (199,133) (57,757) (2,420)
Other income and (expense),
net........................ 23,544 16,761 (1,477) 111,913
------------ ------------ --------- ----------
Net loss before extraordi-
nary item................. (1,657,219) (1,252,556) (769,695) (972,626)
Extraordinary item loss from
early extinguishment of
bridge notes............... -- (130,354) -- --
------------ ------------ --------- ----------
Net loss.................... $ (1,657,219) $ (1,382,910) $(769,695) $ (972,626)
============ ============ ========= ==========
Basic and diluted net loss
per share before extraordi-
nary item.................. $ (10.71) $ (2.63) $ (3.18) $ (0.42)
============ ============ ========= ==========
Basic and diluted net loss
per share.................. $ (10.71) $ (2.91) $ (3.18) $ (0.42)
============ ============ ========= ==========
Weighted average shares used
in computing net loss
per share.................. 154,694 475,448 242,395 2,297,023
============ ============ ========= ==========
Pro forma net loss per
share..................... $ (3.18) $ (1.71) $ (1.27)
============ ============ =========
Weighted average shares used
in computing pro forma net
loss per share............. 519,992 809,290 607,693
============ ============ =========

F-4

NOTIFY TECHNOLOGY CORPORATION

STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

TOTAL
CONVERTIBLE NOTES SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE EQUITY (NET
---------------------- ------------------- PAID-IN FROM ACCUMULATED CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS DEFICIT DEFICIENCY)
---------- ---------- --------- -------- ---------- ------------ ----------- -------------

Balances at September
30, 1995............... 1,000,000 $ 100,000 848,804 $ 42,865 $ -- $(19,800) $ (426,062) $ (302,997)
Issuance of Series B
convertible preferred
stock for cash at $0.50
per share.............. 3,500,000 1,750,000 -- -- -- -- -- 1,750,000
Repurchases of common
stock.................. -- -- (32,590) (1,646) -- 2,500 -- 854
Repayments of notes
receivable from
shareholders........... -- -- -- -- -- 12,800 -- 12,800
Issuances of common
stock at $0.05 per
share in exchange for
note receivable and
cash................... -- -- 68,911 17,400 -- (13,150) -- 4,250
Net loss................ -- -- -- -- -- -- (1,657,219) (1,657,219)
---------- ---------- --------- -------- ---------- -------- ----------- ----------
Balance at September 30,
1996................... 4,500,000 1,850,000 885,125 58,619 -- (17,650) (2,083,281) (192,312)
Repayments of notes
receivable from
shareholders........... -- -- -- -- -- 4,075 -- 4,075
Issuances of common
stock to employees..... -- -- 33,057 12,200 -- (9,200) -- 3,000
Repurchases of common
stock from shareholder. -- -- (27,722) (7,000) -- 7,000 -- --
Issuances of common
stock pursuant to
conversion of
convertible promissory
notes and accrued
interest............... -- -- 165,694 761,476 -- -- -- 761,476
Issuance of bridge
warrants............... -- -- -- 116,875 -- -- -- 116,875
Conversion of no par
common stock to $0.001
par common stock....... -- -- -- (941,114) 941,114 -- -- --
Issuance of common
shares pursuant to
initial public offering
(net of expenses)...... -- -- 1,600,000 1,600 6,152,533 -- -- 6,154,133
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 1,849,109 -- -- --
Option purchased by
underwriter............ -- -- -- -- 160 -- -- 160
Net loss................ -- -- -- -- -- -- (1,382,910) (1,382,910)
---------- ---------- --------- -------- ---------- -------- ----------- ----------
Balance at September 30,
1997................... -- -- 3,547,214 3,547 8,942,916 (15,775) (3,466,191) 5,464,497
Repurchases of common
stock from shareholder
(unaudited)............ -- -- (7,012) (7) (347) 4,175 -- 3,821
Proceeds from exercise
of warrants
(unaudited)............ -- -- 24 0 6 -- -- 6
Net loss (unaudited).... -- -- -- -- -- -- (972,626) (972,626)
---------- ---------- --------- -------- ---------- -------- ----------- ----------
Balance at March 31,
1998 (unaudited)....... -- $ -- 3,540,226 $ 3,540 $8,942,575 $(11,600) $(4,438,817) $4,495,698
========== ========== ========= ======== ========== ======== =========== ==========

F-5

NOTIFY TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS

SIX-MONTH
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
------------------------ ---------------------
1996 1997 1997 1998
----------- ----------- --------- ----------
(UNAUDITED)

CASH FLOWS USED IN OPERATING
ACTIVITIES
Net loss..................... $(1,657,219) $(1,382,910) $(769,695) $ (972,626)
Adjustments to reconcile net
loss to net cash used in op-
erating activities:
Depreciation and amortiza-
tion........................ 23,132 38,038 15,353 24,696
Deferred financing charges
and accretion related to
bridge notes................ -- 232,375 18,479 --
Conversion of accrued in-
terest on convertible
notes to common stock..... -- 29,351 29,351 --
Changes in operating assets
and liabilities:
Accounts receivable....... (130,814) (302,223) (181,523) 350,654
Inventory................. (560,080) (515,649) (76,445) 199,008
Other current assets...... (3,156) (25,293) (310,079) (200,104)
Accounts payable.......... 93,051 598,557 316,256 (440,174)
Other accrued liabilities. 200,428 29,046 7,854 2,937
----------- ----------- --------- ----------
Net cash used in operating
activities.................. (2,034,658) (1,298,708) (950,449) (1,035,611)
----------- ----------- --------- ----------
CASH FLOWS USED IN INVESTING
ACTIVITIES
Expenditures for property and
equipment................... (88,566) (58,874) (41,088) (24,175)
----------- ----------- --------- ----------
CASH FLOWS PROVIDED BY FI-
NANCING ACTIVITIES
Proceeds from issuance of
preferred stock............. 1,450,000 -- 3,000 --
Proceeds from issuance of
common stock................ 5,104 3,000 -- --
Proceeds from issuance of
convertible notes payable... 807,125 125,000 125,000 --
Net proceeds from bridge
notes....................... -- 734,500 734,500 --
Repayment of bridge note pay-
able........................ -- (850,000) -- --
Advances under line of cred-
it.......................... 50,000 44,000 150,000 --
Repayments under line of
credit...................... -- (57,335) (200,000) (25,000)
Payments on repurchase of
unvested stock.............. -- -- -- (354)
Proceeds from notes payable
to shareholders............. -- 265,000 65,000 --
Payments on notes payable to
shareholders................ (45,000) (295,000) (5,000) (200,000)
Payments of notes receivable
from shareholders........... 12,800 4,075 325 4,175
Proceeds from promissory
note........................ -- 175,000 -- --
Repayment of promissory note. -- (175,000) -- --
Proceeds from initial public
offering, net............... -- 6,154,133 -- --
Proceeds from exercise of
warrants.................... -- -- -- 5
Proceeds from purchase of un-
derwriter warrant........... -- 160 -- --
----------- ----------- --------- ----------
Net cash provided by (used
in) financing activities.... 2,280,029 6,127,533 872,825 (221,174)
----------- ----------- --------- ----------
Net increase (decrease) in
cash and cash equivalents... 156,805 4,769,951 (118,712) (1,280,960)
Cash and cash equivalents at
beginning of period......... 103,575 260,380 260,380 5,030,331
----------- ----------- --------- ----------
$ 260,380 $ 5,030,331 $ 141,668 $3,749,371
=========== =========== ========= ==========
NONCASH FINANCING ACTIVITIES
Common stock issued for notes
receivable from sharehold-
ers......................... $ 13,150 $ 9,200 $ 9,200 --
=========== =========== ========= ==========
Conversion of convertible
notes payable to preferred
stock....................... $ 300,000 $ -- $ -- $ --
=========== =========== ========= ==========
Conversion of convertible
preferred stock to common
stock....................... $ -- $ 1,850,000 $ -- $ --
=========== =========== ========= ==========
Common stock retired for
notes receivable from share-
holders..................... $ 2,500 $ 7,000 $ -- $ --
=========== =========== ========= ==========
Conversion of convertible
stock payable and accrued
interest to common stock.... $ -- $ 761,476 $ 761,476 $ --
=========== =========== ========= ==========
Value ascribed to warrants
issued in conjunction with
private placement........... $ -- $ 116,875 $ 116,875 $ --
=========== =========== ========= ==========
Supplemental disclosure of
cash flow information
Cash paid for interest....... $ 8,817 $ 71,140 $ 3,948 $ 12,182
=========== =========== ========= ==========

F-6

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 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.

INTERIM RESULTS

The accompanying balance sheet as of March 31, 1998 and the statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
the six-month periods ended March 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 adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of interim
periods. The data disclosed in these notes to the financial statement for
these periods is also unaudited.

STOCK SPLIT

In January 1997, the board of directors approved a reverse stock split of
one-for-5.05 of all outstanding shares of common stock and changed the
conversion ratio of preferred stock to one share of common stock for every
5.05 preferred shares. All common share and per share information included in
the accompanying financial statements has been retroactively adjusted to give
effect to the stock split as well as the change in the preferred stock
conversion ratio. Additionally, in conjunction with the Company's public
offering described below, the Company converted its no par common stock to
common stock with par value of $0.001 per share.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. 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.

INVENTORIES

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

SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------

Raw materials........................................ $ 509,277 $540,296
Work-in-process...................................... 255,607 184,793
Finished goods....................................... 330,694 171,483
---------- --------
$1,095,578 $896,572
========== ========

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.

F-7

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

REVENUE RECOGNITION

Product sales are recognized upon product shipment. In fiscal 1996, three
customers accounted for 30%, 18% and 16% of sales. In fiscal 1997, one
customer accounted for 70% of sales and two customers accounted for 62% and
22% of sales in the six month period ended March 31, 1998.

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 such losses have been within
management's expectations. One customer accounted for 74% and three customers
accounted for 31%, 24% and 19% of accounts receivable at September 30, 1997
and March 31, 1998, respectively.

NOTES PAYABLE

The carrying amounts of the Company's note payable approximates its fair
value. The fair value of the Company's note payable is estimated using
discounted cash flow analysis, based on the Company's incremental borrowing
rates for similar types of borrowing arrangements.

STOCK OPTIONS

The Company accounts for its stock option plan in accordance with provisions
of the Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), that provides an alternative to
APB 25. The Company will continue to account for its employee stock plans in
accordance with the provisions of APB 25 with footnote disclosures of the
material impact of SFAS 123. The number of stock options granted in fiscal
year ended 1997 are not material, therefore, the effect of applying the SFAS
123 fair value based method to the Company's option grants would not result in
pro forma net loss materially different from historical amounts reported.
Therefore, such pro forma information specified in SFAS 123 are not separately
presented herein. Future pro forma net income results may be materially
different from actual amounts reported.

NET LOSS PER SHARE

Net loss per share is computed using the weighted-average number of shares
of common stock outstanding during the periods presented. Potential common
shares are excluded from the computation as their effect is

F-8

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

antidilutive. In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share. Statement 127 replaced the previously
reported primary and fully diluted earnings per share, with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilute effects of options, warrants, and convertible
securities. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements. The weighted average number of common shares used in the 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. This standard will require
that an enterprise display an amount representing total comprehensive income
for the period. SFAS 130 will be effective for fiscal year 1999. The Company
does not expect the adoption of SFAS 130 to have a significant impact on the
Company's reported results of operations.

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

2.PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------

Furniture and office equipment...................... $175,856 $200,032
Leasehold improvements.............................. 2,246 2,246
-------- --------
178,102 202,278
Less accumulated depreciation and amortization...... (64,363) (89,059)
-------- --------
$113,739 $113,219
======== ========

3.FINANCING ARRANGEMENTS

PRIVATE PLACEMENT

In March 1997, the Company completed a private placement of an aggregate of
$850,000 principal amount of notes ("bridge notes") and 425,000 warrants
("bridge warrants") in which it received net proceeds of

F-9

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

approximately $735,000 (after expenses of issuance). The bridge notes were
repaid, together with interest which accrued at the rate of 10% per annum,
upon the closing of the public offering discussed below. Each bridge warrant
automatically converted upon the closing date of the public offering into one
Class A warrant which is identical in all respects to the Class A warrant sold
in the public offering, except that purchasers of the bridge notes that
acquired the bridge warrants have agreed not to exercise their warrants for a
period of one year from August 28, 1997 and not to sell publicly their
warrants except as provided in certain lock-up provisions which expire one
year after August 28, 1997. The fair value of the bridge warrants, amounting
to approximately $117,000, together with the cost of the issuance of bridge
notes, approximately $115,000, were treated as additional interest expense
over the term of the bridge notes. Upon repayment of the notes, the
unamortized portion of the value ascribed to the warrants and the debt
issuance costs of approximately $130,000 were recorded as an extraordinary
item.

OTHER FINANCIAL ARRANGEMENTS

During fiscal 1997 and 1996, the Company received proceeds of $932,125 from
the issuance of convertible notes and warrants including $150,000 of proceeds
received from two directors. The notes accrued interest at the rate of 8% per
annum and were due and payable in June 1997 unless earlier converted. In
January 1997, the Company restructured certain convertible notes whereby
holders of an aggregate of $732,125 in principal amount of convertible notes
converted their notes and accrued interest into 165,694 shares of common stock
of the Company at a price per share of approximately $4.55 and exchanged their
warrants for new warrants to purchase an aggregate of 48,272 shares of the
Company's common stock at a price of $0.25 per share. Holders of the remaining
$200,000 in principal of convertible notes were repaid from proceeds of the
Company's public offering and retain warrants to purchase an aggregate of
7,920 shares of common stock at an exercise price of $5.05 per share.

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 public offering. The shareholder also received a
warrant to purchase 11,535 shares of common stock of the Company at $3.00 per
share.

In April 1997, the Company issued a $200,000 promissory note to a
shareholder which accrues interest at 10% per annum and was due and repaid 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.

The Company maintains a credit facility with a financial institution which
allows for maximum borrowings of up to $50,000 at an interest rate of 9.5% per
annum. The loan agreement terminates upon the repayment of all principal and
interest due. The Company had borrowings of approximately $36,665 and $11,665
outstanding under this facility at September 30, 1997 and March 31, 1998,
respectively.

In August 1997, the Company issued to an investment partnership a 10%
promissory note with a principal amount of $175,000 which was repaid from the
proceeds of the Company's public offering.

4.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 year
ended September 30, 1998 and 1999 are $91,000 and $48,000, respectively.

F-10

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

Rent expense totaled $44,000, $73,000 and $49,000 for the years ended
September 30, 1996 and 1997 and the six month period ended March 31, 1998,
respectively.

5.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.

WARRANTS

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, 1997, 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
with terms of up to 10 years. A total of 200,000 shares of the Company's
common stock are reserved for issuance under the Plan. During fiscal 1997, the
Company granted 17,500 options at $4.75 per share. 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. None of the options granted are exercisable as of
September 30, 1997. The options had a weighted-average remaining contractual
life of approximately 9.75 years as of September 30, 1997.

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 ended 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 public offering. Any securities remaining in escrow on September
30, 2003 will be forfeited, which securities will then be contributed to the

F-11

NOTIFY TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT MARCH 31, 1998 AND FOR THE SIX-MONTH

PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

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.

6.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 to this fulfillment company
$4,349, $97,835 and $56,485 during fiscal 1996 and 1997 and the six months
ended March 31, 1998, respectively.

7.INCOME TAXES

There were no provisions for federal or state income taxes for 1996 and 1997
as the Company incurred operating losses and there can be no assurance that
the Company will realize the benefit of the net operating loss carryforwards.

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:

SEPTEMBER 30,
----------------------
1996 1997
--------- -----------

Deferred tax assets:
Net operating loss carryforwards.................... $ 800,000 $ 1,279,000
Research credit carryforwards....................... 10,000 35,000
Other temporary differences......................... 45,000 75,000
--------- -----------
Total differed tax assets........................... 855,000 1,389,000
--------- -----------
Valuation allowance.................................. (855,000) (1,389,000)
--------- -----------
Net deferred tax assets............................. $ -- $ --
========= ===========

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 $432,000 and $534,000 for fiscal years 1996 and 1997,
respectively.

As of September 30, 1997, the Company had net operating loss carryforwards
of approximately $3,140,000 for federal and California tax purposes, which
will expire in years 2002 through 2012. As of September 30, 1997, the Company
also had research and development tax credit carryforwards of approximately
$20,000 and $23,000, respectively, for federal and California tax purposes.
The credits will expire in 2011 through 2012, 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.

F-12

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"). The Company's Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into
indemnification agreements with its 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 the Company, among other things, to
indemnify its 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.

ITEM AMOUNT
---- --------

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)................................................ 520,000
--------
Total.............................................................. $570,000
========

--------
(1) This fee is payable to the Underwriter if the exercise of the Warrants
is solicited and certain other certain conditions are met. See "Plan of
Distribution."

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, the Company issued and sold to
fourteen of its employees or consultants 805,000 shares of its 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.

II-1

(2) In October 1995, the Company issued and sold a total of 3,500,000 shares
of its Series B Preferred Stock at a purchase price of $0.50 per share for an
aggregate consideration of $1,750,000 to thirtyfour investors. In connection
with the financing, the Company issued warrants to purchase 200,000 shares of
its Common Stock at an exercise price of $1.00 per share to certain of the
participants in the financing. No public advertising or solicitation was
conducted and no brokers or dealers were used. The Company prepared a detailed
offering memorandum which described the Company's plan of operations,
discussed the risks relating to the offering, and included the financial
statements of the Company. This offering memorandum was distributed to a total
of 36 potential investors of whom 34 eventually purchased securities. The
Company believes that all of the investors were either "Accredited Investors"
as that term is defined in Regulation D of the Securities Act or were
reasonably financially sophisticated, capable of evaluating the risks
associated with investing in an early stage technology company, financially
able to withstand a total loss of their investment and had a pre-existing
relationship with the Company or one or more of its officers and directors.
The sale and issuance of these securities was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.

(3) In March 1996, the Company issued and sold a warrant to purchase 20,000
shares of its Common Stock at an exercise price of $1.00 per share to a
financial institution in connection with a loan and security agreement. The
sale and issuance of these securities was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.

(4) In June 1996, the Company issued and sold to certain of its 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 Common Stock of the Company equal to 20% of
the principal amount of the Convertible Shareholder Notes divided by the price
per share of the Company's next equity financing at a price per share equal to
the price per share of the Company's next equity financing (the "Shareholder
Warrants"). The Convertible Shareholder Notes bore an interest rate of 8% per
annum and were convertible into equity of the Company at a price equal to the
price per share of the Company's 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.

(5) In January 1997, the Company 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 Common Stock of the Company
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 the
Company's 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 the IPO or until
April 30, 1997 and exchanged their Shareholder Warrants for warrants to
purchase an aggregate of 7,920 shares of 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.

(6) In February 1997, the Company issued to its Chief Executive Officer a
10% subordinated promissory note with principal amount of $65,000 and warrants
to purchase 11,535 shares of the Company's 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.

(7) In March 1997, the Company issued and sold 17 bridge units ("Bridge
Units") at $50,000 per unit. Each Bridge Unit consisted of a oneyear $50,000
promissory note bearing 10% interest and warrants to purchase 25,000 shares of
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 the IPO. All of the purchasers of the Bridge Units were
"accredited investors" as that term is defined in 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.

II-2

(8) In April 1997, the Company issued to one of its directors a 10%
subordinated promissory note with a principal amount of $200,000 and warrant
to purchase 2,970 shares of the Company's 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.

(9) In August 1997, the Company issued to Sutton Partners, L.P., the limited
partners of which are the grandchildren of the sole stockholder of the
Underwriter, a 10% promissory note with a principal amount of $175,000. The
issuance of the Sutton Note was exempt from the registration requirements of
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

1.1* Form of Underwriting Agreement.
3.1* Articles of Incorporation of Registrant, as amended to date.
3.2* Restated Articles of Incorporation of Registrant to become effective
upon the closing of
the IPO.
3.3* Bylaws of Registrant, as amended to date.
4.1* Form of Warrant Agreement.
4.2* Form of Underwriter's Unit Purchase Option.
4.3* 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 the Company
Paul DePond (as amended).
10.2* Employment Agreement dated as of March 1, 1997 between the Company
Gaylan Larson (as amended).
10.3* Employment Agreement dated as of March 1, 1997 between the Company
and Gerald Rice (as amended).
10.5* Form of Indemnification Agreement.
10.6* Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant (as amended).
10.7* Registrant's 1997 Stock Plan.
10.8* Form of Lockup Agreement (as amended).
10.9* Lease between Registrant and C.C. Poon.
10.10*+ Nonexclusive Technology License Agreement between Registrant and
Active Voice Corporation dated April 30, 1997.
23.1 Consent of Independent Auditors.
23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part
of Exhibit 5.1).
24.1* Power of Attorney.
27 Financial Data Schedule.

--------
(*) Previously filed.
+ Confidential treatment has been requested 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.

II-3

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) 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-4

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 Post-
Effective Amendment No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
California, on June 30, 1998.

NOTIFY CORPORATION

By: /s/ Gerald W. Rice
----------------------------------
Gerald W. Rice
Chief Financial Officer

SIGNATURE TITLE DATE
--------- ----- ----

*
- --------------------- President, Chief Executive Officer June 30, 1998
Paul F. DePond and Chairman (Principal Executive Officer)

/s/ Gerald W. Rice Chief Financial Officer June 30, 1998
- --------------------- (Principal Financial and Accounting Officer)
Gerald W. Rice

*
- --------------------- Vice President, Operations and Director June 30, 1998
Gaylan Larson

*
- --------------------- Director June 30, 1998
Michael Ballard

*
- --------------------- Director June 30, 1998
Andrew Plevin

*
_____________________ Director June 30, 1998
Michael Smith

/s/ Gerald W. Rice
By:
--------------------------
Attorney-in-Fact

II-5

EXHIBIT INDEX

1.1* Form of Underwriting Agreement.
3.1* Articles of Incorporation of Registrant, as amended to date.
3.2* Restated Articles of Incorporation of Registrant to become effective
upon the closing of the IPO.
3.3* Bylaws of Registrant, as amended to date.
4.1* Form of Warrant Agreement.
4.2* Form of Underwriter's Unit Purchase Option.
4.3* 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 the Company
Paul DePond (as amended).
10.2* Employment Agreement dated as of March 1, 1997 between the Company
Gaylan Larson (as amended).
10.3* Employment Agreement dated as of March 1, 1997 between the Company and
Gerald Rice (as amended).
10.5* Form of Indemnification Agreement.
10.6* Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant (as amended).
10.7* Registrant's 1997 Stock Plan.
10.8* Form of Lock-up Agreement (as amended).
10.9* Lease between Registrant and C.C. Poon.
10.10*+ Nonexclusive Technology License Agreement between Registrant and
Active Voice Corporation dated April 30, 1997.
23.1 Consent of Independent Auditors.
23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part of
Exhibit 5.1).
24.1* Power of Attorney.
27 Financial Data Schedule.

- --------
(*) Previously filed.