Filed Pursuant to Rule 424(b)(3)
Registration No. 333-75895
PROSPECTUS SUPPLEMENT
DATED MAY 24, 1999
(To Prospectus dated April 8, 1999, as amended by Prospectus Supplement dated
May 6, 1999)
NOTIFY TECHNOLOGY CORPORATION
425,000 SHARES OF COMMON STOCK AND
425,000 CLASS A WARRANTS
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This Prospectus Supplement together, with the Prospectus and Prospectus
Supplement listed above, is to be used by certain holders of the
above-referenced securities or by their transferees, pledgees, donees or
their successors in connection with the offer and sale of the above
referenced securities.
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The following information is added to the Prospectus:
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements
NOTIFY TECHNOLOGY CORPORATION
BALANCE SHEET
March 31,
1999
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,801,069
Accounts receivable 146,612
Inventories 1,084,868
Prepaid assets 56,160
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Total current assets 5,088,709
Property and equipment, net 125,125
Other assets 113,777
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Total assets $ 5,327,611
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 164,963
Accrued liabilities 441,456
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Total current liabilities 606,419
Shareholders' equity:
Common stock 4,399
Additional paid-in capital 12,000,297
Retained earnings (7,283,504)
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Total shareholders' equity 4,721,192
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Total liabilities and shareholders' equity $ 5,327,611
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See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS SIX-MONTH PERIODS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Product sales $ 280,510 $ 209,444 $ 506,854 $ 1,272,470
Cost of sales 168,906 148,915 281,206 914,952
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Gross profit 111,604 60,529 225,648 357,518
Operating expenses:
Research & development 294,011 403,552 621,385 731,173
Sales and marketing 170,305 121,099 357,294 267,728
General and administrative 258,339 227,662 484,627 440,736
----------- ----------- ----------- -----------
Total operating expenses 722,655 752,313 1,463,306 1,439,637
----------- ----------- ----------- -----------
Loss from operations (611,051) (691,784) (1,237,658) (1,082,119)
Other (income) and expense, net (17,132) (50,221) (37,908) (109,492)
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Net loss $ (593,919) $ (641,563) $(1,199,750) $ (972,627)
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----------- ----------- ----------- -----------
Basic and diluted net loss per share $ (0.23) $ (0.28) $ (0.49) $ (0.42)
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----------- ----------- ----------- -----------
Weighted average shares outstanding 2,586,004 2,297,606 2,440,715 2,297,023
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See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
SIX-MONTH PERIOD
ENDED MARCH 31,
1999 1998
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(Unaudited)
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(1,199,750) $ (972,627)
Adjustments to reconcile net loss to cash used in
Operating activities:
Depreciation and amortization 32,050 24,695
Changes in operating assets and activities:
Accounts receivable (57,744) 350,654
Inventories (256,544) 199,008
Prepaid assets 78,263 (200,104)
Accounts payable (69,217) (440,174)
Accrued liabilities 121,081 2,937
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Net cash used in operating activities (1,351,861) (1,035,611)
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Expenditures for property & equipment (31,817) (24,175)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,060,000 --
Repayments under line of credit -- (25,000)
Payments on repurchase of unvested stock -- (354)
Proceeds from exercise of options 1,981 --
Proceeds from exercise of warrants 1,403 5
Payments on note payable to shareholder -- (200,000)
Repayments of notes receivable from shareholders 3,750 4,175
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Net cash provided by (used in) financing activities 3,067,134 (221,174)
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Net decrease in cash and cash equivalents 1,683,456 (1,280,960)
Cash and cash equivalents at beginning of period 2,117,613 5,030,331
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Cash and cash equivalents at end of period $ 3,801,069 $ 3,749,371
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See accompanying notes to unaudited financial statements
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NOTIFY TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS, (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Notify Technology
Corporation (referred to as "we", "us" and "our" unless the context otherwise
requires), have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions of Regulation
S-B Item 310(b) and Article 10 of Regulation S-X. The balance sheet as of March
31, 1999, and the statements of operations for the three-month periods ended
March 31, 1999 and 1998 and the statements of cash flows for the six-month
periods ended March 31, 1999 and 1998 are unaudited but include all adjustments
(consisting only of normal recurring adjustments), which we consider necessary
for a fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Although we believe that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto included in our Annual Report on Form 10-KSB for the year
ended September 30, 1998.
Results for any interim period are not necessarily indicative of results
for any other interim period or for the entire year.
2. 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 antidilutive in
accordance with the Financial Accounting Standards Board Statement No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. The weighted average number of common shares used in the net loss per
share calculation was reduced by the common stock, and common stock equivalents
placed in escrow in connection with the our initial public offering.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
4. CASH EQUIVALENTS
Cash equivalents consist mainly of money market funds and commercial paper
that are highly liquid financial instruments that are readily convertible to
cash. We have not incurred losses related to these instruments. As of March 31,
1999, we had no material investments in debt or equity securities.
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NOTIFY TECHNOLOGY CORPORATION
5. INVENTORIES
Inventories consist principally of raw materials and subassemblies, which
are stated at lower of cost (first-in, first-out) or market.
March 31,
1999
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Raw Materials $ 490,514
Work In Process 455,847
Finished Goods 138,507
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$ 1,084,868
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6. INCOME TAXES
Due to the our loss position, there was no provision for income taxes for
the three month and six month periods ended March 31, 1999 and 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I - Item 1 of this
Quarterly Report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the our Annual Report on Form 10-KSB for the year ended
September 30, 1998.
RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Revenue consists of gross revenue less product returns. Sales of the
Centrex Receptionist represented 58% of our revenue in the three month period
ended March 31, 1999 compared to 14% in the three month period ended March 31,
1998. Sales of MessageAlert product represented the 42% of our revenue in the
three month period ended March 31, 1999 compared to 86% in the three month
period ended March 31, 1998. Revenue for the three month period ended March 31,
1999 increased to $280,510 from $209,444 for the three month period ended March
31, 1998. Revenue was up from the previous year due to growth in Centrex
Receptionist sales. Sales to telephone companies consisted of 87% and 52% of
revenue for the three-month periods ended March 31, 1999 and 1998, respectively.
In addition, two customers accounted for 56% and 20% of sales in the three month
period ended March 31, 1999 and four customers accounted for 35%, 17%, 17% and
13% of sales in the three month period ended March 31, 1998.
A substantial portion of our revenue in the three-month period ended March
31, 1999 was derived from continuing, non-promotional telephone company programs
selling the Centrex Receptionist. In contrast, in the three-month period ended
March 31, 1998, a substantial portion of our revenue was derived from the sale
of products in connection with telephone company promotional programs utilizing
our MessageAlert product. As the timing and size of promotional programs using
our MessageAlert products or our new Call Manager caller-ID products is
uncertain, we anticipate we will continue to experience substantial variances in
quarterly revenue.
In addition, we believe that domestic telephone companies have in aggregate
decreased their purchases of telephone adjunct devices aimed solely at Voice
Mail customer acquisition. In contrast, based upon requests for quotations from
telephone companies, we believe this trend is not affecting the purchase of
telephone adjuncts devices to support caller-ID programs. A continuation of this
trend would have a material adverse effect on our Voice Mail-only product
business, which would have an adverse effect on our operating results and
financial condition.
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NOTIFY TECHNOLOGY CORPORATION
Cost of sales consists primarily of the cost to manufacture our products.
Cost of sales increased to $168,906 in the three month period ended March 31,
1999 from $148,915 for the three month period ended March 31, 1998. This
increase was the result of increased sales of the Centrex Receptionist product
line. Our gross margin performance increased to 39.8% in the three month period
ended March 31, 1999 compared to 28.9% in the three month period ended March 31,
1998. This improvement was the result of higher gross margins associated with
our Centrex Receptionist product line versus lower margins associated with
volume sales of the MessageAlert product line.
Research and development expense consists primarily of personnel costs,
contract engineering expense, development tooling, and supply expenses. Research
and development expense decreased to $294,011 for the three month period ended
March 31, 1999 from $403,552 for the three month period ended March 31, 1998.
The design cycle of the Call Manager product line generated heavier outside
design, R&D materials and tooling expense in the three month period ended March
31, 1998 versus the deployment expenses that occurred in the three month period
ended March 31, 1999.
Sales and marketing expense consists primarily of personnel, travel costs
and sales commissions related to our sales and marketing efforts. Sales and
marketing costs increased to $170,305 for the three month period ended March 31,
1999 from $121,099 for the three month period ended March 31, 1998 due to an
increase in the size of the customer service department to support the Centrex
Receptionist product line and our participation in the Consumer Electronics Show
(CES) in January 1999. Unlike the MessageAlert product line, the Centrex
Receptionist product is remotely programmed by Notify customer service and
requires ongoing support.
General and administrative expense consists of general management and
finance personnel costs, occupancy expense, accounting expense and legal
expense. General and administrative expenses increased to $258,339 for the three
month period ended March 31, 1999 from $227,662 for the three month period ended
March 31, 1998. The change was the result of increased legal and public
accounting expenses and an increase in executive compensation.
SIX-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Sales of the Centrex Receptionist represented 65% of our revenue in the six
month period ended March 31, 1999 compared to 4% in the six month period ended
March 31, 1998. Sales of MessageAlert product represented the 35% of our revenue
in the six month period ended March 31, 1999 compared to 96% in the six month
period ended March 31, 1998. Revenue for the six month period ended March 31,
1999 decreased to $506,854 from $1,272,470 for the six month period ended March
31, 1998. Revenue was down from the previous year due to the lack of telephone
company voice mail promotions utilizing the our MessageAlert product similar to
one that generated $787,189 of the $1,272,470 in revenue that occurred in the
six month period ended March 31, 1998. Sales to telephone companies consisted of
87% and 65% of revenue for the six month periods ended March 31, 1999 and 1998,
respectively. In addition, two customers accounted for 69% and 9% of sales in
the six month period ended March 31, 1999 and two customers accounted for 62%
and 22% of sales in the six month period ended March 31, 1998.
Cost of sales decreased to $281,206 in the six month period ended March 31,
1999 from $914,952 for the six month period ended March 31, 1998. This decrease
was the result of decreased sales of the MessageAlert product line. Our gross
margin performance increased to 44.5% in the six month period ended March 31,
1999 compared to 28.1% in the six month period ended March 31, 1998. This
improvement was the result of higher gross margins associated with our Centrex
Receptionist product line versus the lower margin associated with high volume
sales of the MessageAlert product line.
Research and development expense decreased to $621,385 for the six month
period ended March 31, 1999 versus $731,173 for the six month period ended March
31, 1998. The design cycle of the Call Manager product line generated heavier
outside design, R&D materials and tooling expense in the six month period ended
March 31, 1998 versus the deployment expenses that occurred in the six month
period ended March 31, 1999.
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NOTIFY TECHNOLOGY CORPORATION
Sales and marketing costs increased to $357,294 for the six month period
ended March 31, 1999 compared to $267,728 for the six month period ended March
31, 1998 due to an increase in the size of the customer service department to
support the Centrex Receptionist product line. Part of the increase was also due
to travel expense and participation in the Consumer Electronics Show (CES) in
January 1999.
General and administrative expense consists of general management and
finance personnel costs, occupancy expense, accounting expense and legal
expense. General and administrative expenses increased to $484,627 for the six
month period ended March 31, 1999 from $440,736 for the six month period ended
March 31, 1998. The change was the result of increased printing and telephone
expense offset somewhat by reduced legal and accounting expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities increased to $723,398 for the three month
period ending March 31, 1999 from $578,820 for the three month period ending
March 31, 1998. Cash used in operating activities for the three month period
ending March 31, 1999 was primarily related to operations and inventories
purchases offset somewhat by an advance payment from a customer. The cash used
in operating activities for the three month period ended March 31, 1998 was
primarily related to operations, inventory purchases and pay-down of accounts
payable offset largely by collections of receivables generated in the three
month period ended December 31, 1997.
Cash used in operating activities increased to $1,383,677 for the six month
period ending March 31, 1999 from $1,059,786 for the six month period ending
March 31, 1998. Cash used in operating activities for the six month period
ending March 31, 1999 was primarily related to operations and inventories
purchases offset somewhat by an advance payment from a customer. The cash used
in operating activities for the six month period ended March 31, 1998 was
primarily related to operations and pay-down of accounts payable offset largely
by collections of receivables generated in the four month period ended January
31, 1998.
We believe research and development spending will continue at or above the
current level as improvement and further development of existing and new
products continues. We also anticipate that the existing cash and cash
equivalents will enable us to maintain our current operations through at least
September 1999.
In March 1999, we sold to David Brewer 850,000 shares of common stock and
warrants to purchase 1,344,444 shares of common stock for an aggregate
consideration of $3,060,000. The warrants consisted of four warrants to purchase
155,800 shares of common stock at $3.60 per share and one warrant to purchase
721,244 shares of common stock at $3.60 per share. Each of the four warrants
expires upon the earlier of September 3, 2000 or 30 days after we meet certain
product sales or revenue milestones. If we achieve these milestones, we
anticipate that Mr. Brewer will choose to exercise the warrants and we will
receive as much as $2.2 million in additional funding. However, there can be no
assurances that we will meet such milestones or that Mr. Brewer will, in fact,
exercise the warrants.
In connection with the sale of the common shares and warrants to Mr.
Brewer, we agreed to issue additional warrants to Mr. Brewer if we sell shares
of common stock in a capital raising transaction at a price below $3.60 per
share prior to the earlier of (i) March 3, 2002 or (ii) our calling our
outstanding Class A warrants.
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NOTIFY TECHNOLOGY CORPORATION
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.
We have developed a three-phase program to limit or eliminate Y2K
exposures. Phase I is to identify those systems, applications and third-party
relationships that have exposure to Y2K disruptions in operations. Phase II is
the development and implementation of action plans to achieve Y2K compliance in
all areas prior to the end of 1999. Also included in Phase II is the development
of contingency plans which would be implemented should Y2K compliance not be
achieved in order to minimize disruptions in operations. Phase III is the final
testing or equivalent certification of testing of each major area of exposure to
ensure compliance. We intend to complete all phases before the end of 1999.
We have identified three major areas determined to be critical for
successful Y2K compliance: Area 1, which included financial, research and
development and administrative informational systems applications reliant on
system software; Area 2, which includes research, development and quality
applications reliant on computer programs embedded in microprocessors; and Area
3, which includes third-party relationships which may be affected by Area 1 or
Area 2 exposures, which exist in other companies.
With respect to Area 1 we are conducting an internal review and contacting
all software suppliers to determine major areas of Y2K exposure. In research,
development and quality applications (Area 2), we are working with equipment
manufacturers to identify exposures. With respect to Area 3, we plan to evaluate
our reliance on third parties in order to determine whether their Y2K compliance
will adequately assure uninterrupted operations.
We have not yet completed Phase I of the Y2K program with respect to all
three of the major areas. We believe that we rely on systems, applications and
third-party relationships that, if not Y2K compliant prior to the end of 1999,
could have material adverse impact on business, financial condition and results
of operations. Because we have not completed Phase II contingency planning, we
cannot describe what action we would take in any of the areas should Y2K
compliance not be achievable in time.
As of March 31, 1999, we have not identified any costs related to
replacement or remediation and testing of our Area 1 computer information
systems. Not having completed Phase I and Phase II evaluations, at this time we
have no basis for estimating the potential cost of our Y2K compliance programs.
The funds for these costs will be part of our cash flow from operations and
capital expenditures.
The cost of the Year 2000 project is not expected to have a material effect
on our financial condition or results of operations unless the ability of
vendors to supply product for us is interrupted. Any interruption of product
supply in conjunction with obligations to deliver product for customer
promotional programs could have a detrimental affect on the results of
operations. The cost to us would be directly related to the size and timing of
any such interrupted program. We will be making special efforts to avoid such an
occurrence but there cannot be any assurance that we will obtain the cooperation
of vendors and customers to prevent such an event.
Based on the currently available information, we do not believe that the
Year 2000 will pose significant operational problems; however, it is uncertain
to what extent we may be affected by such matters. In addition, there can be no
assurance that the failure to ensure year 2000 capability by a supplier or
another third party would not have a material effect on us.
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NOTIFY TECHNOLOGY CORPORATION
FORWARD LOOKING STATEMENTS
Statements in this report regarding product development efforts, capital
resources, and future business activities are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the safe harbors created thereby. Actual results could differ materially from
these forward-looking statements as a result of the following factors: business
conditions and growth in the telecommunications industry and general economics,
both domestic and international; lower than expected customer orders and timing
of actual orders; the timing and extent to which telephone companies adopt,
initiate and promote programs involving the our products; competition from other
suppliers of telephony adjunct devices; changes in product mix or distribution
channels; technological difficulties and resource constraints encountered in
developing new products; and additional factors discussed from time to time in
our public reports filed with the Securities and Exchange Commission.
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