##### Table of Contents

---

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-KSB



(Mark one)



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



For the Fiscal Year Ended September 30, 2003



or



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



Commission File Number 000-23025



---



NOTIFY TECHNOLOGY CORPORATION

(Name of small business issuer in its charter)

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



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



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



None



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



Units



Common Stock



Class A Warrants



---



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



Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x



State issuers revenues
for its most recent fiscal year.    $8,340,750



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on December 19, 2003, was approximately $839,541. Shares of Common Stock
held by officers and directors and their affiliated entities have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive for other purposes.



The number of shares outstanding of Registrants common stock, $0.001
par value at September 30, 2003 was 5,833,678 shares.



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



DOCUMENTS INCORPORATED BY REFERENCE



Part III of this Form 10-KSB incorporates certain information by reference from the Registrants definitive proxy statement for the 2003 Annual Meeting of Shareholders. Except with respect to the information
specifically incorporated herein by reference, the proxy statement is not deemed to be filed as a part hereof.



---



---

##### Table of Contents

PART I



FORWARD LOOKING STATEMENTS



THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS 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, INCLUDING STATEMENTS THAT INCLUDE THE WORDS BELIEVES, EXPECTS, ANTICIPATES OR SIMILAR EXPRESSIONS. FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, THOSE ITEMS IDENTIFIED WITH THE ASTERISK (*) SYMBOL. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE READER SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO HEREIN, THE FACTORS SET FORTH UNDER THE CAPTION RISK FACTORS. WE CAUTION THE READER,
HOWEVER, THAT THESE FACTORS MAY NOT BE EXHAUSTIVE.



ITEM 1. Description of
Business



Notify Technology Corporation (also referred to
as we, us and our unless the context otherwise requires) was incorporated in the state of California in August 1994. We are an innovative communications application service provider of wireline and wireless
messaging services and a supplier of innovative call and message notification products and services. In fiscal 2001, we developed a voice mail notification product for a customer that used a combination of server based software and a modified
version of our Call Manager caller-id adjunct device. This Visual Got Mail Solution generated most of our revenue in fiscal 2002 and 2003. Simultaneously, we have been developing wireless products centered around notification but extending into
other wireless email features. Both product lines are being sold today with the Visual Got Mail Solution generating greater revenue. We currently sell our products through both direct sales and OEM relationships with major telephone companies and
2way wireless carriers.



Our business is primarily focused in
two different markets; the wireline CPE (Customer Premise Equipment, i.e. Voice Mail notification devices) market and the 2way wireless market. Substantially all of our revenue in fiscal 2003 was derived from wireline based products that provide
voicemail notification to voicemail customers of a long distance telephone company. Our second focus is directed at the 2way wireless market providing products spanning from consumer to enterprise environments. Our vision is to provide mobile
wireless email and personal information management (PIM) notification, access, and management across a variety of 2way devices and 2way networks. Our 2way wireless family of products is called NotifyLink. Our wireline or legacy product is the Visual Got Mail Solution for voice mail
notification. Our Visual Got Mail solution product incorporates caller-id, call waiting caller-id, and telephone company voice mail notification into one CPE device with an associated monthly service for voicemail notification. We discontinued our
Centrex Receptionist product in late fiscal 2003 and currently contract to provide service on our outstanding Centrex Receptionist service contracts.



Products



Visual Got Mail Solution



Our Visual Got Mail Solution is designed to provide Voice Mail notification services to customers. Our revenues to date have consisted principally of sales to AT&T in connection with its local voice mail telephone service in more than
eighteen states. The Visual Got Mail Solution, designed for telephone company deployment as a service offering, includes a scalable carrier class server infrastructure that we host and a Call Manager telephone adjunct that we manufacture and sell.
The Visual Got Mail Solution integrates our caller-id technology with a unique method of voice mail notification into a single device that can fit in the palm of your hand.



2



---

##### Table of Contents

NotifyLink



The NotifyLink Enterprise product can be deployed on many 2way devices from manufacturers such as Research In Motion, Palm, Handspring, Kyocera, Samsung,
and others. NotifyLink Enterprise is a server based product designed for businesses for both Novell Groupwise and Microsoft Exchange systems. The NotifyLink Enterprise solution is device and network agnostic and provides a centralized management solution for small and large organizations with many mobile users desiring e-mail and PIM access
and management featuring over-the-air updating of calendar information on many devices. The IT administrator or user can configure the software by specifying the e-mail accounts that the user needs to access with the users wireless device,
setting any filters to screen notification, and designating the type of wireless device and its associated address. In addition, the IT administrator or user can tailor the information contained in the wireless e-mail notification header
that is sent to the users wireless device. The header information can include options such as account, sender, subject, date and time, attachment names, attachment sizes, partial body text, and remaining character count. Our
Enterprise product is being increasingly used on devices that employ both voice and data where NotifyLink is used on the data side of the device. Although our wireless NotifyLink products have not sold in the volume anticipated in fiscal 2003 and
did not account for significant revenue during the fiscal year ended September 30, 2003, sales activity in the form of inquiries, test evaluations and final contracts has increased with particular strength in the Novell GroupWise market*. The
Company cannot know if this trend will continue but the activity is encouraging.



Centrex Receptionist



The Centrex Receptionist
was a stand-alone unit that provided the Centrex customer with automatic call answer and transfer capability 24 hours a day, 7 days a week. We sold the Centrex Receptionist for several years but discontinued the product in July of fiscal 2003 as the
market was very small and we are concentrating our product efforts toward the Visual Got Mail Solution and our wireless products.



Sales, Marketing and Distribution



We are expanding our customer base through several channels. We have an inside sales force that handles leads from our Corporate Website, 2way wireless
carriers and 2way device manufacturers. Carriers that we have relationships with include WebLink Wireless, SkyTel, MetroCall, Arch Wireless and PageNet Canada. We also receive referrals from Verizon Wireless, AT&T Wireless, T-Mobile Wireless,
Cingular Wireless and Nextel Wireless. Another channel is based on referrals from 2way device manufacturers such as Palm, Inc., Handspring, and Kyocera Wireless. Additional leads come from referrals from Novells Cool Solutions Web site. One advantage of our solution is centered on our ability to support
Novells wireless email system called GroupWise. To date, we have received only limited revenue from our NotifyLink referral and reseller channel partners, and we will receive revenue from these channel partners only to the extent that they successfully resell or
refer our products and services to interested customers.



Our
Visual Got Mail Solution provides revenue from both sales of adjunct equipment and providing ongoing Voice Mail notification services to the users of our long distance telephone customer. Service revenue is based on the monthly active installed base
of Voice Mail users and varies as the installed base changes. The installed base has grown from 150,000 at September 30, 2002 to in excess of 340,000 voice mail users by September 30, 2003. Our technology is proprietary and only our adjunct products
will interface with our server center. We expect to continue to provide adjunct devices and Visual Got Mail Solution service based on a customer backlog of 148,000 devices as of September 30, 2003.* Our Visual Got Mail Solution sales were made to
one long distance telephone customer in fiscal 2003. The Visual Got Mail Solution program was changed by our customer in June 2003 from a giveaway of the CPE to all new voice mail subscribers to the sale and marketing of the CPE to new voice mail
subscribers. As a result, our revenue for the Visual Got Mail Solution decreased to $614,820 in the three-month period ended September 30, 2003 compared to $2,259,100 in the prior three-month period ended June 30, 2003. We expect the revenue will
continue at the reduced level.* There can be no assurance that our customer will use the Visual Got Mail Solution.



3



---

##### Table of Contents

The traditional sales activities for our Call Manager products and Centrex Receptionist products were
direct sales to large telephone companies. Our hardware products are privately labeled. We manufacture products based on purchase orders received from our long distance telephone customer. The Visual Got Mail Solution and Centrex Receptionist
product lines accounted for 95% and 2% of total revenues in fiscal 2003, respectively. Historically, significant portions of our revenue have been concentrated in a small number of customers. For example, one customer accounted for 95% of sales for
the year ended September 30, 2003. The same customer accounted for 83% sales for the fiscal year ended September 30, 2002.



Technical and Marketing Support



We have developed product collateral and marketing programs for the NotifyLink products. This marketing program includes regional user meetings, trade
shows and web site marketing.



We provide back-up technical
support to large resellers of all of our products. Our Visual Got Mail Solution requires a hosting center and the appropriate support to maintain up-time requirements.



Research and Development



We incurred $990,355 and $1,074,817 in research and development expenses in fiscal 2003 and 2002, respectively. The decrease reflects cost saving
activities that included personnel reductions during fiscal 2003. Our development efforts are primarily devoted to software development. Our software engineering development is located in our offices in Canfield, Ohio. We believe that our future
success, if any, depends significantly on our ability to continue to enhance our existing wireless products and to develop new products and, therefore, we intend to continue to incur research and development costs. We expect that our research and
development efforts will be focused in wireless software as our wireline products are mature and we have discontinued selling the Centrex Receptionist.



Manufacturing



We use offshore turnkey manufacturing to produce our Call Manager that is a component in our Visual Got Mail Solution. To the extent possible, we use
standard parts and components for our products although some components are custom designed and/or are available only from a single source or limited sources.



Governmental Regulation and Industry Standards



Our products must comply with a variety of regulations and standards including regulations and standards set by the Federal Communications Commission,
Underwriters Laboratories, National Registered Testing Laboratories, and Bell Communications Research. If we enter international markets, we will be required to comply with whatever governmental regulations and industry standards exist in those
markets. Additional legislative or regulatory changes are possible. A failure by us to comply with existing regulations and standards or to adapt to new regulations and standards could have a material adverse effect on our business and operating
results.



Competition



We believe that we do not currently have any competition with a product the
same as our Visual Got Mail Solution. We do compete with an alternate solution to Voice Mail notification that does not involve an adjunct or CPE but does involve contracting with local telephone companies to provide voice mail notification. We
believe our Visual Got Mail Solution competes favorably with respect to this other form of Voice Mail notification when utilized by long distance telephone companies.



We expect that to the extent the market for any of our products develops, competition will intensify and new competitors
will enter the market. There can be no assurance that we will be able to compete successfully against



4



---

##### Table of Contents

existing and new competitors as the market for our products evolves and the level of competition increases. A failure to compete successfully against
existing and new competitors would have a materially adverse effect upon our business and results of operations.



Proprietary Rights



We regard various features and design aspects of our products as proprietary and we rely primarily on a combination of patent and trademark laws and
employee and third-party nondisclosure agreements to protect our proprietary rights. We have been issued a patent covering the design of our MessageAlert products, and a patent covering the MultiSense technology used in our MessageAlert product. We
have also applied for patents on our Visual Got Mail technology. We intend to continue to apply for patents, as appropriate, for our future technologies and products. There are few barriers to entry into the market for our products, and there can be
no assurance that any patents we apply for will be granted or that the scope of our patents or any patents granted in the future will be broad enough to protect us against the use of similar technologies by our competitors. There can be no
assurance, therefore, that any of our competitors, some of whom have far greater resources than we do, will not independently develop technologies that are substantially equivalent or superior to our technology.



On May 17, 2001, Research In Motion Limited, the maker of the
Blackberry hand-held computer, announced that it had been issued a patent on its Blackberry single mailbox integration. Generally, the patent relates to Research In Motions proprietary system and method of redirecting information
between a host computer system, and a mobile communications device while maintaining a common electronic address between the host system and the mobile device. Research In Motion also announced that it had filed a complaint against Glenayre
Technologies, Inc. for, among other items, patent and trademark infringement. Our intellectual property counsel has reviewed the patent and issued an opinion to us opining that version 4.0 of our Desktop software does not infringe on Research In
Motions patent.Nevertheless, no assurances can be given that Research In Motion will not bring an action against us for a patent infringement or similar claim, or if any such claim is brought, the eventual results thereof.



We may be involved from time to time in litigation to determine the
enforceability, scope and validity of any of our proprietary rights or of third parties asserting infringement claims against us. These claims could result in substantial cost to us and could divert our management and technical personnel away from
their normal responsibilities.



In November of 2003, NCR
Corporation and Notify Technology Corporation entered into a non-exclusive license agreement that allows us to offer certain product features on our Enterprise product that are covered by a patent held by NCR. This agreement requires a royalty
payment on Enterprise revenue subject to the patent.



We have
entered into a non-exclusive license agreement with Active Voice Corporation (Active Voice) for the right to use patented technology held by Active Voice Corporation pursuant to which we have paid an up-front fee on our sales of products
that contain stutter dial tone detection.



We have also entered
into a royalty agreement with Uniden America Corporation allowing Uniden to incorporate our VMWI technology into Unidens Products for a per unit fee. Royalty revenue from this agreement was $34,625 and $131,686 in fiscal 2003 and 2002,
respectively.



Employees



As of September 30, 2003, we employed twenty-one persons of whom ten were
engaged in research and development, three in operations, four in sales, marketing, and customer support, and four in general administration and finance. Twenty of these employees are employed on a full-time basis. None of our employees are
currently represented by a labor union. We consider our relations with our employees to be good.



5



---

##### Table of Contents

Our success, if any, will be dependent on our ability to attract and retain highly skilled technical
personnel as well as marketing and sales personnel. If we were unable to hire the necessary personnel, the development of new products and enhancements to current products would likely be delayed or prevented. Competition for highly skilled
technical, managerial, sales, and marketing personnel is intense. There can be no assurance that we will be successful in retaining our key personnel and in attracting and retaining the personnel we require for expansion.



RISK FACTORS



Most of our Revenue is Derived from the Sale of a Single Solution to a Single Customer



For the fiscal year ended September 30, 2003, 95% of our revenue came from
the sale of our Visual Got Mail solution to a single competitive provider of local phone services. Practically all of these revenues are derived from sales of our Visual Got Mail Solution. In June 2003, the customer changed their marketing program
from a giveaway to a sale of the CPE portion of our product and our revenues declined markedly from the quarter ended June 30, 2003. As we have discontinued our traditional Call Manager and our Centrex Receptionist products and it is difficult to
predict the growth, if any, of our NotifyLink Enterprise product, we expect our revenue for the next two quarters and possibly longer will be largely dependent on our ability to continue selling to our long distance telephone customer. Although as
of September 30, 2003, we had a backlog in CPE orders of approximately $2,375,000 from this customer, there can be no assurance that we will receive additional orders from this customer. In addition, a significant portion of reported revenue and a
disproportionate amount of the operating profit related to the Visual Got Mail Solution is derived from our provision of fulfillment services and subscription services. If, for whatever reason, this customer is not able to sell its services to its
customers at the rate implied in the historical growth of its installed base of voice mail users, or the contractual rate we charge per user is renegotiated down, our revenue, operating profit and financial condition would be materially adversely
affected. In addition, this customer could at any time decide to decrease its sales efforts with respect to local phone service, cease to promote or provide voice mail services or use an alternative to our Visual Got Mail Solution. In such an event,
we would have no alternative distribution channel for our Visual Got Mail Solution and our revenue, operating results and financial condition would be materially adversely affected.



Because of Our Financial Condition and Our Business Plans, Our Financial Statements Disclose That There is Substantial Doubt as to Our
Ability to Continue as a Going Concern and Accordingly Our Business Has a High Risk of Failure



We are currently researching and developing new products and enhancements to existing products. Due to our present financial condition and our business
plans, there is substantial doubt as to our ability to continue as a going concern. To date, our NotifyLink product line has not provided significant contributions to our revenues and our Visual Got Mail Solution sales are highly concentrated in one
customer. The success of our business operations will depend upon our ability to obtain further financing until such time, if ever, as there is favorable market acceptance for our new wireless software products. It is not possible for us to predict
with assurance the outcome of these matters. If we are unable to obtain further financing and profitable operations from our new software wireless products, then our business will fail.



Exercise of redemption rights by our preferred shareholders would have a material adverse effect on our financial condition as well as
our business and operations.



Holders of our outstanding
Series A Preferred Stock have the right to require us to redeem any unconverted shares of Series A Preferred Stock at any time and from time to time during the period from July 20, 2003 to July 25, 2004. The per share redemption price is $10.00 plus
any accrued dividends. The holders of Series A Preferred Stock have the option to receive the redemption price in cash or in shares of our common stock; provided, however, that we are not obligated to pay the redemption price in cash unless our
Board of Directors unanimously approves such payment in cash, If all holders of outstanding Series A Preferred as of September 30, 2003 elected to redeem, the aggregate redemption price would total $4,610,000. If we fail to pay the entire



6



---

##### Table of Contents

redemption price for a cash redemption that is unanimously approved by our Board of Directors, the redemption price will be increased by five percent (5%)
for each thirty (30) day period (and for a pro rata percentage for any portion thereof) during which we fail to make such payment, subject to certain periods during which we can cure our default.



If the holders of Series A Preferred Stock choose to receive the redemption
price in shares of common stock, each holder of Series A Preferred Stock requesting redemption will receive that number of shares of common stock equal to (x) the aggregate redemption price owed to him divided by (y) the redemption conversion price,
which is the greater of (i) the average closing bid price for a defined period of twenty (20) trading days and (ii) $0.50 per share. We may pay the redemption price in shares of our common stock, only if the shares of common stock are registered for
resale under the Securities Act pursuant to an effective registration statement or may be sold without any volume or similar restriction and/or limitation under Rule 144 pursuant to Rule 144(k) of the Securities Act. If the shares of common stock do
not meet this condition, the redemption conversion price will automatically be reduced by five percent (5%) and the redemption price increased by five percent (5%) for each thirty (30) day period (and for a pro rata percentage for any portion
thereof) during which we are unable to satisfy the condition, subject to certain periods during which we can cure our default.



We do not currently have sufficient available cash to redeem any shares of preferred stock in cash, and we do not expect to have such funds at any time in
the near future. Any redemption elections by preferred shareholders would have a material adverse effect on our financial condition. In the event of such elections, we would be required to pay the redemption price in the form of shares of our common
stock, which would result in dilution to existing common shareholders. In addition, we would be required to provide for the registration of the redemption shares, and there can be no assurances that we can get the SEC to declare a registration
statement effective within the required time periods, if at all. As noted above, failure to have an effective registration statement covering the newly issued shares results in additional accruing penalties. In any event, we expect any redemption
elections by preferred shareholders will have an adverse effect on the trading price of our common stock. We expect that any redemption election by preferred shareholders would require our Board of Directors to consider various strategic
alternatives, including bankruptcy or recapitalizations that could adversely affect the rights of our existing shareholders.



We Have a Limited Operating History and a History of Losses, Moreover, There is No Assurance of Future Profitability



We commenced operations in August 1994 and through January 1996 were engaged
primarily in research and development. We made a decision in January 2000 to develop and sell software applications for the 2way wireless data market. Accordingly, we have a limited operating history, and we face all of the risks and uncertainties
encountered by early-stage companies. For the fiscal years ended September 30, 2002, 2001, 2000, 1999, and 1998, we incurred net losses of $1,741,752, $3,337,612, $3,526,452, $3,123,284 and $2,617,561 respectively. We incurred a net loss of
$1,100,475 for fiscal 2003 and as of September 30, 2003, we had an accumulated deficit of $22,420,327 and working capital of $179,750. We anticipate having a negative cash flow from operating activities in future quarters and years. We also expect
to incur further operating losses in future quarters and years until such time, if ever, as there is a substantial increase in orders for our products and product sales generating sufficient revenue to fund our continuing operations. There can be no
assurance that sales of our products will ever generate significant revenue, that we will ever generate positive cash flow from our operations or that we will attain or thereafter sustain profitability in any future period.



If We Are Unable To Market Our Wireless Software Products and Achieve Industry Acceptance
Quickly, We Could Lose Existing and Potential Customers and Our Sales Would Decrease



Although most of our current revenue comes from our wireline Visual Got Mail Solution, our wireless products play a significant role in our plans for future growth. We need to market our new wireless software products
on a timely basis to keep pace with technological developments, emerging industry standards, and the



7



---

##### Table of Contents

growing needs of our sophisticated customers. We intend to extend the offerings under our product family primarily through our NotifyLink product line.
However, we may experience difficulties in marketing these new products, and our inability to timely and cost-effectively introduce them and future enhancements, or the failure of these new products or enhancements to achieve market acceptance,
could seriously harm our business. Life cycles of wireless software products are difficult to predict, because the market for such products is new and evolving and characterized by rapid technological change, frequent enhancements to existing
products and new product introductions, changing customer needs and evolving industry standards. The introduction of competing products that employ new technologies and emerging industry standards could render our products and services obsolete and
unmarketable or shorten the life cycles of our products and services. The emergence of new industry standards might require us to redesign our products. If our products are not in compliance with industry standards that become widespread, our
customers and potential customers may not purchase our products.



If the
Market for Wireless Data Communications Devices Does Not Grow, We May Not Successfully Sell Our NotifyLink Products



The overall market for wireless data communications devices has experienced significant growth in recent years. The success of our NotifyLink Internet
Edition and Standard Edition products depends upon this growth. There can be no assurance that the market for wireless software products will continue to grow, that firms within the industry will adopt our software products for integration with
their wireless data communications solutions, or that we will be successful in independently establishing product markets for our wireless software products. In fact, our sales and marketing efforts over the last year have not resulted in
significant sales of our NotifyLink products. If the various markets in which our software products compete fail to grow, or grow more slowly than we currently anticipate, or if we were unable to establish product markets for our new software
products, our business, results of operation and financial condition would be materially adversely affected.



We May Be Unable to Generate the Capital Necessary to Support Our Planned Level of Research and Development Activities or to Manufacture and Market Our Products



At September 30, 2003, we had an accumulated deficit of $22,420,327 and
incurred a net loss of $1,100,475 for the year ended September 30, 2003. Our working capital at that date was only $179,750. Our recently developed products will need to attain favorable market acceptance in order for us to be able to continue our
research and development activities and to fund operating expenses at current levels. We discontinued our Centrex Receptionist product line in July 2003 as the demand was so small and we reduced our headcount by two employees associated with the
service of the Centrex Receptionist. Regardless, because our NotifyLink wireless product line has not provided significant contributions to our revenues to date, the success of our business operations will depend upon our ability to obtain further
financing until such time, if ever, as there is favorable market acceptance for our new wireless software products. Obtaining additional financing will be subject to a number of factors including market conditions, investor acceptance of our
business plan, and investor sentiment. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are unable to raise additional financing, we will have to significantly reduce
our spending, delay or cancel planned activities or substantially change our current corporate structure. In such an event, we intend to implement expense reduction plans in a timely manner. However, these actions would have material adverse effects
on our business, results of operations, and prospects, resulting in a possible failure of our business.



Our Quarterly Operating Results May Vary



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



| |  | the continued commitment of our long distance customer to the voice mail business underlying our voice mail notification business;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| |  | our level of research and development;
| | - | --------------------------------------



8



---

##### Table of Contents

| |  | our sales and marketing activities;
| | - | -----------------------------------



| |  | announcements by us or our competitors;
| | - | ---------------------------------------



| |  | size and timing of orders from customers;
| | - | -----------------------------------------



| |  | new product introductions by us or our competitors;
| | - | ---------------------------------------------------



| |  | licensing costs of additional patent conflicts; and
| | - | ---------------------------------------------------



| |  | price erosion.
| | - | --------------



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



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



Our Products May Not Be Accepted



We sold our first Centrex Receptionist in March 1998, the first Call Manager product in April 1999 and announced the first sales of our e-mail version of
our Visual Got Mail products in November 1999. We also announced the launch of our new NotifyLink web based service and our NotifyLink Desktop products in November 2000 followed by the introduction of our voice mail version of our Visual Got Mail
Solution in April 2001. To date, we have received only limited revenue from the sale of these products. While we have experienced some success with our Visual Got Mail Solution in fiscal 2002 and fiscal 2003, we are limited by having one customer.
We also believe that our wireless products are commercially viable, but developing products for the consumer and business marketplaces is inherently difficult and uncertain. We do not believe our sales to date are sufficient to determine whether or
not there is meaningful consumer or business demand for our products.



We intend to devote resources to sales and marketing efforts of the NotifyLink product line and to promote general consumer and business interest in our products. There can be no assurance that such efforts will be successful or that
significant market demand for our products will ever develop.



We Depend on
Limited Number of Potential Customers and Need to Develop Marketing Channels



Currently, our Voice Mail notification CPE and service revenue is highly dependant on one customer. Also, we participate in informal referral arrangements with several wireless carriers, 2way wireless device
manufacturers and one net ware company for the sale of our NotifyLink products and services where our products assist in the sale of their products. We have a limited direct sales force to sell our NotifyLink products and services to eventual users
and we rely upon both formal and informal referral arrangements to provide leads for our NotifyLink Enterprise products. To date, most of our referral arrangements are informal and we will receive referrals only to the extent that our referral
partners successfully refer our products and services to potential users. There can be no assurance that we will ever sell our NotifyLink products and services to end users or that we will ever receive any referrals from our informal arrangements.
Our Enterprise solution product is relatively new and no significant sales have yet been established.



Although we have sold significant quantities of our Call Manager as part of our Visual Got Mail Solution, we are highly dependant on one customer. We have
discontinued our traditional Call Manager and Centrex



9



---

##### Table of Contents

Receptionist products. To date, we have sold our Visual Got Mail Solution product to one long distance telephone company. If we fail to maintain a
significant relationship with the our current customer, our business and operating results would be materially adversely affected.



We are expanding our distribution channels for our wireless products by participating in industry events, training programs for telephone and wireless
carrier sales representatives and presenting at Novell Groupwise user meetings across the United States. We also have limited international sales as opportunities present themselves. Our management will need to expend time and effort to develop
these channels. We are also changing our customer profile from volume sales to a limited number of large customers to relatively small sales to a large number of individual customers and we have begun expanding our internal sales force in response.
Because our marketing efforts have been largely focused on developing relationships for wireline products, our management has had only limited experience in selling wireless with the new customer profile. We may not be able to adapt our traditional
marketing and distribution programs to expand our distribution channels and any marketing efforts undertaken by or on behalf of us may not be successful.



Our Products May Suffer from Defects



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



Our Visual Got Mail Solution product incorporates a combination of reasonably sophisticated computer chip design, electric circuit design, software
programming and telephony technology. We have devoted substantial resources to researching and developing each of these elements. In order to reduce the manufacturing costs, expand the feature sets and otherwise enhance the operation of our
products, we have from time to time redesigned our products. We expect that in the future we may engage in similar redesigns of our products. Though we extensively test our products before marketing them, any new, redesigned or current product may
contain design flaws that we would not detect through our testing procedures. In addition, we rely on subcontractors to manufacture our products. Though we have quality control procedures designed to detect manufacturing errors, there can be no
assurance that we will identify all defective products. We believe that reliable operation will be an important purchase consideration for both our consumer and business customers. A failure by us to detect and prevent a design flaw or a widespread
product defect could materially adversely affect the sales of the affected product and our other products and materially adversely affect our business, financial condition and operating results.



We Face Significant Competition



We believe the market for our wireless products is highly competitive and
that competition is likely to intensify. In the market for wireless e-mail notification and management software, we indirectly compete with Research In Motion Limited, Infowave Software, Inc, Wireless Knowledge, Extended Systems, Synchrologic, Visto
and Good Technology.



Our Visual Got Mail Solution indirectly
competes with a single alternate Voice Mail notification service offered only by Local Exchange Carriers.



There are several companies with substantially greater technical, financial and marketing resources than we have that could produce competing products.
These companies include wireless software providers such as Infowave Software, Inc, Wireless Knowledge, Extended Systems, Synchrologic, Visto and Good Technology. We expect that to the extent that the market for our products develops, competition
will intensify and new competitors will enter the market. We may not be able to compete successfully against existing and new



10



---

##### Table of Contents

competitors as the market for our products evolves and the level of competition increases. A failure to compete successfully against existing and new
competitors would materially adversely affect our business and results of operations.



Delisting from the Nasdaq SmallCap Market May Affect the Liquidity of Our Trading Market and the Market Price of Our Common Stock



Since September 4, 2002, our common stock has been quoted on the Over-the-Counter Bulletin Board. Our shareholders could find it difficult to dispose of
or to obtain accurate quotations as to the market value of our common stock. In addition, delisting may make our common stock ineligible for use as, or make our common stock substantially less attractive as, collateral for margin and purpose loans,
for investment by financial institutions under their internal policies or state legal investment laws, as consideration in the financing of future acquisitions of businesses or assets by us, and for issuance by us in future capital raising
transactions any of which could cause the market price of our common stock to decrease. Delisting subjects our common stock to the penny stock rules contained in Section 15(g) of the Securities Exchange Act of 1934.



We Depend on Key Executives



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



Our Intellectual Property May Not Be Adequately Protected and We May Infringe the Rights
of Others



We regard various features and design aspects
of our products as proprietary and rely primarily on a combination of patent and trademark laws and employee and third-party nondisclosure agreements to protect our proprietary rights. We have been issued a patent covering the design of our
MessageAlert products, and a patent covering the MultiSense technology used in our MessageAlert product. We have also applied for patents on our Visual Got Mail technology. We intend to continue to apply for patents, as appropriate, for our future
technologies and products. There are few barriers to entry into the market for our products, and there can be no assurance that any patents we apply for will be granted or that the scope of our patents or any patents granted in the future will be
broad enough to protect us against the use of similar technologies by our competitors. There can be no assurance, therefore, that any of our competitors, some of whom have far greater resources than we do, will not independently develop technologies
that are substantially equivalent or superior to our technology.



In November of 2003, NCR Corporation and Notify Technology Corporation entered into a non-exclusive license agreement that allows us to offer certain product features on our enterprise product that are covered by a patent held by NCR. This
agreement requires a royalty payment on all enterprise revenue subject to the patent.



On May 17, 2001, Research In Motion Limited, the maker of the Blackberry hand-held computer, announced that it had been issued a patent on its Blackberry single mailbox integration. Generally, the patent
relates to Research In Motions proprietary system and method of redirecting information between a host computer system, and a mobile communications device while maintaining a common electronic address between the host system and the mobile
device. Research In Motion also announced that it had filed a complaint against Glenayre Technologies, Inc. for, among other items, patent and trademark infringement. Our intellectual property



11



---

##### Table of Contents

counsel has reviewed the patent and issued an opinion to us opining that version 4.0 of our Desktop software does not infringe on Research In Motions
patent.Nevertheless, no assurances can be given that Research In Motion will not bring an action against us for a patent infringement or similar claim, or if any such claim is brought, the eventual results thereof.



We may be involved from time to time in litigation to determine the
enforceability, scope and validity of any of our proprietary rights or of third parties asserting infringement claims against us. These claims could result in substantial cost to us and could divert our management and technical personnel away from
their normal responsibilities.



We May Not Be Able to Obtain Critical
Components from Our Suppliers



Currently, we are able to
obtain many key components used in our products only from single or limited sources. We do not have long term supply contracts with these or any other component vendors and purchase all of our components on a purchase order basis. Component
shortages may occur and we may not be able to obtain the components we need in a timely manner and on a commercially reasonable basis. In particular, the microcontroller that forms the core of our Call Manager that is a key component in our Visual
Got Mail Solution is manufactured only by Epson Electronics America, Inc. From time to time, the semiconductor industry has experienced extreme supply constraints. If we are unable to obtain sufficient quantities of microcontrollers from Epson
Electronics America, Inc., our business and operating results would be materially adversely effected.



We utilize an offshore manufacturer to manufacture our products and this manufacturer may not be able to support our manufacturing requirements. If we are
unable to obtain sufficient quantities of sole-source components or subassemblies, or to develop alternate sources, we could experience delays or reductions in product shipments or be forced to redesign our products. Each of these scenarios could
materially adversely affect our business and operating results.



Our
Products May Not Comply with Government Regulations and Industry Standards



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



Our Stock Price May be Volatile



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



Our Charter Provisions May Discourage Acquisition Bids



Our Articles of Incorporation gives our board of directors the authority to issue an aggregate of 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions,
including



12



---

##### Table of Contents

voting rights for these shares, without any further vote or action by our shareholders. The rights of the holders of our common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisition and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.



Our Articles of Incorporation Limit the Liability of Officers and Directors and We Have Entered into Indemnification Agreements with Them



Our Articles of Incorporation eliminate, in certain circumstances, the
liability of our directors for monetary damages for breach of their fiduciary duties as directors. We have also entered into indemnification agreements with each of our directors and officers. Each of these indemnification agreements provides that
we will indemnify the indemnitee against expenses, including reasonable attorneys fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by them in connection with any civil or criminal action or
administrative proceeding arising out of their performance of duties as a director or officer, other than an action instituted by the director or officer. These indemnification agreements also require that we indemnify the director or other party
thereto in all cases to the fullest extent permitted by applicable law. Each indemnification agreement permits the director or officer that is party thereto to bring suit to seek recovery of amounts due under the indemnification agreement and to
recover the expenses of such a suit if they are successful.



ITEM 2.
Description of Property



Our principal executive offices
are located at 1054 South DeAnza Boulevard, Suite 105, San Jose, California 95129. These facilities consist of approximately 3,900 square feet of office space pursuant to a lease that expires March 31, 2006. We have a second location at 6570 Seville
Drive, Canfield, Ohio 44406 that houses an engineering group and customer support for the Eastern United States. The Ohio facility consists of approximately 5,000 square feet of office space pursuant to a lease that expires in October 2006.



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



ITEM 3. Legal Proceedings



We are not a party to any litigation.



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



No matters were submitted to a vote by security holders during the fourth quarter of fiscal 2003.



13



---

##### Table of Contents

PART II



ITEM 5. Market for Common Equity and Related Stockholder Matters



(a) Market for Common Equity.



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



The quarterly high and low bid prices of our common stock during fiscal 2003 and the quarterly high and low sales prices of our common stock for fiscal
2002 are as follows:



NTFY Common Stock



|                                     |  | High |       | Low
|------------------------------------ |  | ---- | ----- | ---
|Fiscal Year Ended September 30, 2003 |  |      |       |    
|Fourth Quarter                       |  | $    | 0.310 |    
|Third Quarter                        |  | $    | 0.580 |    
|Second Quarter                       |  | $    | 0.400 |    
|First Quarter                        |  | $    | 0.170 |    
|                                     |  |     
|Fiscal Year Ended September 30, 2002 |  |      |       |    
|Fourth Quarter                       |  | $    | 0.450 |    
|Third Quarter                        |  | $    | 0.750 |    
|Second Quarter                       |  | $    | 0.820 |    
|First Quarter                        |  | $    | 0.900 |    



These quotations
reflect inter-dealer prices, without retail mark-up, mark- down or commission, and may not represent actual transactions. The quarterly high and low bid prices of our common stock during fiscal 2003 were provided by Bloomberg L.P.



(b) Holders.



As of December 10, 2003, there were approximately 93 holders of record of our common stock.



(c) Dividends.



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



(d) Equity Compensation Plans



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



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



Overview



We were incorporated in the state of California in August 1994. We are an
innovative communications application service provider of wireline and wireless messaging services. We are also a supplier of innovative



14



---

##### Table of Contents

solutions to maximize the convenience and utility of electronic communication by providing customers with flexible solutions that are neither network nor
device dependant. We currently sell our products direct or through OEM relationships with 2way wireless service providers, 2way wireless device manufacturers, major telephone companies and telephone equipment distributors.



We completed our initial public offering in September 1997, with net proceeds
of approximately $6.2 million. Prior to our initial public offering, our working capital requirements were met through the sale of equity and debt securities and, to a lesser extent, product revenue and a line of credit. We have sustained
significant operating losses in every fiscal period since inception and expect to incur substantial quarterly operating losses in the future. Our limited operating history makes the prediction of future operating results difficult if not impossible.
Future operating results will depend on many factors, including the demand for our products, the level of product and price competition, our ability to expand our existing distribution channels and to create new distribution channels, and our
ability to develop and market new products and control costs. There can be no assurance that our revenue will grow or be sustained in future periods or that we will ever achieve profitability.



Results of Operations



Revenue



Revenue consists primarily of gross revenue from the sale of telephony equipment and service income related to our Visual Got Mail Solution and the
Centrex Receptionist Product. The revenue from these service contracts is recognized on a straight line basis over the term of the contract. Revenue for the fiscal year ended September 30, 2003 from the sale of products other than service increased
to $7,089,228 from $2,946,060 for the fiscal year ended September 30, 2002. Revenue for the fiscal year ended September 30, 2003 from the sale of service increased to $1,216,897 from $404,174 for the fiscal year ended September 30, 2002.



For the fiscal year ended September 30, 2003, 95% of our revenue came from
the sale of our Visual Got Mail Solution to a single competitive provider of local phone services. Practically all of these revenues are derived from sales of our Visual Got Mail Solution. In June 2003, the customer changed their marketing program
from a giveaway to a sale of the CPE portion of our product and our revenues declined markedly from the quarter ended June 30, 2003.



The Centrex Receptionist revenue decreased because telephone companies emphasized the sale of KEY Systems as an alternative to selling our
Centrex products. We are no longer selling the Call Manager product in its original configuration, but we utilize the hardware design in our Visual Got Mail Solution that requires the imbedded Caller-id technology as part of the overall solution. We
also discontinued the Centrex Receptionist as the revenue on the product did not justify the cost to maintain the product line. Revenue for fiscal year 2003 included royalty revenue of $34,625 compared to $131,686 in fiscal year 2002 from our
multi-sense/stutter-dial patent. The revenue from our NotifyLink products has not comprised a significant portion of our total revenue to date.



We sell products in the United States to a long distance telephone company, 2way wireless carriers, regional bell operating companies and local exchange
carriers. Our hardware products are private labeled. We manufacture based on purchase orders received from our long distance telephone customer. The Visual Got Mail Solution and Centrex Receptionist product lines accounted for 95% and 2% of total
revenues in fiscal 2003, respectively. The Visual Got Mail Solution and Centrex Receptionist product lines accounted for 83% and 6% of revenues in fiscal 2002, respectively. Historically, significant portions of our revenue have been concentrated in
a small number of customers. For example, AT&T accounted for 95% of sales for the year ended September 30, 2003 and 83% of sales for the fiscal year ended September 30, 2002.



15



---

##### Table of Contents

Cost of Sales



Cost of sales consists primarily of the cost to manufacture our products. Cost of sales increased to $6,353,819 in the fiscal year ended September 30,
2003 from $1,867,549 in the fiscal year ended September 30, 2002. This increase was the result of Visual Got Mail Solution shipments and the cost of hosting the related service. The cost of the Visual Got Mail Solution service was significantly
increased by a one time event when our hosting provider began charging us for long distance fees not previously incurred. Moving our hosting services to a facility owned by our primary customer eliminated the long distance fees but approximately
$659,000 in fees were incurred before the move was completed in April 2003. We entered an agreement with our primary customer for a cash advance to help in meeting our short-term cash needs. The agreement ties the pay back of the advance to future
CPE purchases by our customer.



The gross margin decreased to
24% in fiscal 2003 from 46% in fiscal 2002. This decrease in gross margin primarily occurred because of the product mix change to a high volume of low margin CPE sales related to the Visual Got Mail Solution versus a higher mix of Centrex
Receptionist product sales in fiscal 2002. The charge of $659,000 had an additional negative impact of 8% in gross margin for fiscal 2003.



We recognized $124,975 of deferred income on Centrex Receptionist product in September that represented uninstalled product that had exceeded its shelf
life and was no longer eligible for return. The cost of sales of these particular units eliminated the remaining book value of inventory on the balance sheet, resulting in zero inventory net of reserves as of September 30, 2003.



Research and Development



Research and development expense consists principally of personnel costs and
supply expenses. Research and development expense decreased to $990,355 for the fiscal year ended September 30, 2003 from $1,074,817 for the fiscal year ended September 30, 2002. The reduction was the result of minimal hardware development in fiscal
2003 and a reclassification of personnel to operations to support our Visual Got Mail Solution. We expect to continue our investment in research and development in order that we may complete the products under development and enhance our current
products.*



Sales and Marketing



Sales and marketing expense consists primarily of personnel, consulting and
travel costs and sales commissions related to our sales and marketing efforts. Sales and marketing expenses decreased to $462,255 for the fiscal year ended September 30, 2003 from $644,514 for the fiscal year ended September 30, 2002. This decrease
was attributable primarily to the decrease in personnel, travel and a change in our commission structure. The sales support of our Visual Got Mail Solution requires little travel. The NotifyLink product line requires greater participation in
marketing events throughout the United States.



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



General and Administrative



General and administrative expense consists of general management and finance personnel, occupancy costs, professional fees and other general corporate
expenses. General and administrative expenses decreased to $1,487,966 for fiscal 2003 from $1,673,506 for fiscal 2002. This decrease is due to lower consulting expense, rent reductions and audit cost reductions. This was offset by higher
compensation and medical insurance costs.



16



---

##### Table of Contents

Income Taxes



There was no provision for federal or state income taxes in fiscal 2002 or 2003 as we incurred net operating losses. We expect to incur a net operating
loss in future quarters and years. As of September 30, 2003, we had federal and state net operating loss carryforwards of approximately $18,000,000 and $5,000,000, respectively. The net loss carryforwards and certain research and development tax
credit carryforwards will expire in tax years 2004 through 2023, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal
Revenue Code of 1986, as amended (the Code), and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits carryforwards before full utilization. For financial reporting purposes,
deferred tax assets primarily related to the net operating carryforwards recognized under Financial Accounting Standard No. 109, Accounting for Income Taxes, has been fully offset by a valuation allowance.



Release of Escrow Securities



In connection with our initial public offering, many of our shareholders,
including current officers, directors and employees, placed a substantial portion of our securities then held by them into an escrow account. These securities will be released from escrow if the Company is sold at a share price above certain values
in excess of $12.00 prior to December 31, 2003. Upon any release from this escrow of any securities owned by our officers, directors, consultants or employees, we would be required to record compensation expense for financial reporting purposes. We
do not expect that any of these shares will be released from escrow.



Liquidity and Capital Resources



During fiscal
2003, we financed our operations through a combination of gross margin from sales of product and services and existing cash balances. Our ability to fund our recurring losses from operations depends upon the continuation of the current Visual Got
Mail Solution program and our success in the wireless e-mail notification and wireless e-mail notification market solutions. We had a backlog of 148,000 Visual Got Mail Solution units as of September 30, 2003 for our Visual Got Mail Solution which
we expect to fulfill at a rate determined by the success of our customers sales program. We do not believe that our existing cash balances are sufficient to fund our operations through September 30, 2004 and will have to secure additional
financing or restructure our business in order to reduce costs. In October 2002, we entered into a credit facility arrangement of $750,000 that will allow us to continue to purchase our Visual Got Mail Solution inventory, but is not intended to fund
operations through September, 30 2004.



At September 30, 2003,
we had cash and cash equivalents and restricted cash of $992,805. Of this amount, $436,000 is recorded as restricted cash, which is collateral for outstanding letters of credit to our suppliers issued in connection with commitments to purchase
additional inventory of $432,900.



Over the last three years,
we have financed our operations primarily through sales of equity and debt securities and bank lines of credit. In the fiscal years ended September 30, 2003 and 2002, the net cash used in operating activities equaled $383,209 and $2,101,860,
respectively. The net cash used in operations in fiscal 2003, consisted primarily of the net loss of $1,100,475 offset by a decrease in net operating assets of $592,445 and by depreciation of $116,579. The major causes of the decrease in net
operating assets was a reduction of inventory of $399,596, proceeds from a customer advance of $324,428 and a decrease in accounts receivable of $56,047 offset by a decrease in accounts payable of $317,876. We anticipate that we will have a negative
cash flow from operating activities in future quarters and years.



Net cash used in investing activities changed from an outflow of $677,778 in fiscal 2002 to an inflow of $257,216 in fiscal 2003 due to a decrease in restricted cash of $415,300 partially offset by purchases of property and equipment of
$160,259. The restricted cash was used to purchase inventory and we reduced purchases of inventory at the end of the fiscal year as the demand for the CPE portion of our Visual Got Mail Solution decreased.



17



---

##### Table of Contents

Short-term Borrowings



In September 2002, we entered into a purchase order assignment agreement with a financial institution that allows for the assignment of purchase orders up
to $750,000. Borrowings bear interest at 4% above the prime rate (4.0% at September 30, 2003) plus a set up fee of 2.75% and a daily maintenance fee of 0.09166% and are collateralized by substantially all of our assets. Borrowings are repaid either
directly by our customers or by us upon receipt of payment from customers. At September 30, 2003, the outstanding balance under this agreement was $162,750 and the amount available was $587,250. This agreement is for an initial term of twelve months
and will continue thereafter for successive twelve months renewal terms unless either party terminates the agreement.



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



Critical Accounting Policies and Estimates



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



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



We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). Under
SAB 101, revenue is recognized when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed or determinable and
collectibility is reasonably assured. The Company recognizes revenues at time of shipment of its products and sales are recorded net of discounts and returns.



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



Inventories are recorded at the lower of cost or market on a first-in, first-out basis. Write-downs of inventories to market value are based upon obsolescence, as well as assumptions about future demand and market
conditions.



We generally warrant our products for a specific
period of time, usually one year, against material defects. We provide for the estimated future costs of warranty obligations in costs of goods sold when the related revenue is recognized. The accrued warranty costs represent our best estimate at
the time of sale of the total costs that we will incur to repair or replace product parts, which fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as
well as current information on repair costs. Actual warranty costs could differ from the estimate amounts. On a quarterly basis, we review the accrued balances and update the historical warranty cost trends. If we were required to accrue additional
warranty cost in the future, it would negatively affect operating results.



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



18



---

##### Table of Contents

ITEM 7. Financial Statements



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



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



None.



ITEM 8A. Controls and Procedures



(a) Evaluation of disclosure controls and procedures.



Our chief executive officer and our chief financial officer, after evaluating
our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (the Exchange Act) Rules 13a-15(e) and 15-d-15(e)) have concluded that as of the end of the period covered by this Annual Report on Form
10-KSB, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.



(b) Changes in internal controls.



There were
no changes in our internal controls, our financial reporting or in other factors that occurred during the period covered by this Annual Report on Form 10-KSB that could significantly affect our internal controls over financial reporting, nor were
there any significant deficiencies or material weaknesses in our internal controls over financial reporting. As a result, no corrective actions were required or undertaken.



19



---

##### Table of Contents

PART III



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



The information concerning our directors required by this Item is
incorporated herein by reference from our definitive proxy statement to be filed within 120 days of the end of our fiscal year pursuant to General Instruction E(3) of Form 10-KSB in connection our 2003 Annual Meeting of Shareholders (Proxy
Statement) under the heading Proposal One  Election of Directors.



The information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from our Proxy Statement under the heading Compliance with Section 16(a) of the Securities Exchange
Act of 1934.



Executive Officers and Key Employees



Our executive officers and key employees and their ages as of September 30,
2003 are as follows:



|Name                 |  | Age |  | Position                                       
|-------------------- |  | --- |  | -----------------------------------------------
|Executive Officers:  |  |     |  |                                                
|Paul F. DePond       |  | 50  |  | Chief Executive Officer, President and Chairman
|Gaylan I. Larson     |  | 63  |  | Vice President, Operations                     
|Gerald W. Rice       |  | 55  |  | Chief Financial Officer and Secretary          
|Rhonda Chicone Shick |  | 39  |  | Vice President of Product Development          



Biographical information for
executive officers:



Paul F. DePond, our founder,
has served as our President, Chief Executive Officer and Chairman of our board of directors since our inception in August 1994. From September 1992 through May 1994, Mr. DePond served as Vice President of Corporate Marketing at Telebit Corporation,
a supplier of high speed modems and dialup remote access products. From January 1991 through September 1992, Mr. DePond served as Vice President of Marketing at Alantec Corporation, a manufacturer of networking products.



Gaylan I. Larson has served as our Vice President of Operations since
August 1994. From January 1991 to August 1994, Mr. Larson was Chief Operating Officer of SportSense, Inc., a manufacturer of golf training equipment. Prior to SportSense, Mr. Larson served as General Manager of the Data Systems Division of Hewlett
Packard Company, a company with which he had an 18 year relationship.



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



Rhonda Chicone Shick has served as our Vice President of Product Development since July 2001. From October 2000 to
July 2001, Ms. Shick served as our Director of Engineering and from October 1999 to October 2000, she served as our Engineering Manager. From January 1999 to October 1999, Ms. Schick served as one of our senior software engineers. From September
1996 to January 1999, she served as President of Tech-Xpress Enterprises, Inc.



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 our board of
directors. There are no family relationships between any of our directors or executive officers.



20



---

##### Table of Contents

Code of Ethics



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



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



We
intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics by posting such information on our website, at the address and location specified above.



ITEM 10. Executive Compensation



The information required by this Item is incorporated herein by reference
from our Proxy Statement under the heading Executive Compensation.



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



The information required by this Item is incorporated herein by reference from our Proxy Statement under the headings Security Ownership of Certain
Beneficial Owners and Management and Equity Compensation Plan Information.



ITEM 12. Certain Relationships and Related Transactions



The information required by this Item is incorporated herein by reference from our Proxy Statement under the heading Certain Relationships and
Related Transactions.



ITEM 13. Exhibits and Reports on Form 8-K.



(a) Exhibits



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



21



---

##### Table of Contents

|       | 
|------ | 
|4.1.1  | 
|       | 
|4.1.2  | 
|       | 
|4.2    | 
|       | 
|4.3    | 
|       | 
|4.4    | 
|       | 
|10.1.1 | 
|       | 
|10.1.2 | 
|       | 
|10.1.3 | 
|       | 
|10.1.4 | 
|       | 
|10.1.5 | 
|       | 
|10.2   | 
|       | 
|10.3.1 | 



22



---

##### Table of Contents

|       | 
|------ | 
|10.3.2 | 
|       | 
|10.3.3 | 
|       | 
|10.3.4 | 
|       | 
|10.3.5 | 
|       | 
|10.4   | 
|       | 
|10.5   | 
|       | 
|10.6   | 
|       | 
|10.7+  | 
|       | 
|10.8.1 | 
|       | 
|10.8.2 | 
|       | 
|10.8.3 | 



23



---

##### Table of Contents

|        | 
|------- | 
|10.9    | 
|        | 
|10.10   | 
|        | 
|10.11   | 
|        | 
|10.12.1 | 
|        | 
|10.12.2 | 
|        | 
|10.13   | 
|        | 
|10.14   | 
|        | 
|10.15   | 
|        | 
|14.1    | 
|        | 
|23.1    | 
|        | 
|23.2    | 
|        | 
|24.1    | 
|        | 
|31.1    | 
|        | 
|31.2    | 
|        | 
|32.1    | 

---

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



(b) Reports on Form 8-K



(1) On August 12, 2003, we furnished a report on Form 8-K under Item 5 reporting the financial results of our fiscal quarter ended June 30, 2003.



ITEM 14. Principal Accountant Fees and Services



The information required by this item is incorporated herein by reference
from our proxy statement under the heading Proposal Two Ratification of Appointment of Independent Auditors.



24



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, duly authorized, in the City of San Jose, California, on the 22 day of December, 2003.



|                         |  |  |  | NOTIFY TECHNOLOGY CORPORATION
|------------------------ |  |  |  | -----------------------------
|                         |  |  | 
|Dated: December 22, 2003 |  |  |  | By:                          
|                         |  |  |  |                              



POWER OF ATTORNEY



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



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



|Signature                             |  | Title                                                                         |  | Date             
|------------------------------------- |  | ----------------------------------------------------------------------------- |  | -----------------
|                                      |  |                                                                              
|/S/    PAUL
DEPONDPaul
DePond         |  | President, Chief Executive Officer and Chairman (Principal Executive Officer) |  | December 22, 2003
|                                      |  |                                                                              
|/S/    GERALD
RICEGerald Rice         |  | Chief Financial Officer (Principal Financial and Accounting Officer)          |  | December 22, 2003
|                                      |  |                                                                              
|/S/    MICHAEL
BALLARDMichael
Ballard |  | Director                                                                      |  | December 23, 2003
|                                      |  |                                                                              
|/S/    DAVID
BREWERDavid
Brewer       |  | Director                                                                      |  | December 23, 2003
|                                      |  |                                                                              
|/S/    ANDREW
PLEVINAndrew
Plevin     |  | Director                                                                      |  | December 23, 2003
|                                      |  |                                                                              
|/S/    HAROLD
BLUEHarold Blue         |  | Director                                                                      |  | December 23, 2003
|                                      |  |                                                                              
|/S/    INDER
TALLURInder
Tallur       |  | Director                                                                      |  | December 23, 2003



25



---

##### Table of Contents

Notify Technology Corporation



Financial Statements



Years ended September
30, 2003 and 2002



Contents



|Reports of Independent Auditors    |  | F-2
|---------------------------------- |  | ---
|                                   | 
|Audited Financial Statements:      |  |    
|                                   | 
|Balance Sheet                      |  | F-4
|Statements of Operations           |  | F-5
|Statements of Shareholders Equity |  | F-6
|Statements of Cash Flows           |  | F-7
|Notes to Financial Statements      |  | F-8



F-1



---

##### Table of Contents

Report of 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, 2003, and the related statements of operations,
shareholders equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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, 2003, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.



As discussed in Note 1 to the financial statements, the Companys recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Managements plans as to these matters are also described in Note 1. The 2003 financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/    Burr, Pilger & Mayer
LLP



Palo Alto, California

November 4, 2003



F-2



---

##### Table of Contents

Report of Independent Auditors



The Board of Directors and Shareholders

Notify
Technology Corporation



We have audited the accompanying
statements of operations, shareholders equity, and cash flows of Notify Technology Corporation as of September 30, 2002. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Notify
Technology Corporation for the year ended September 30, 2002, in conformity with accounting principles generally accepted in the United States.



As discussed in Note 1 to the financial statements, the Companys recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Managements plans as to these matters are also described in Note 1. The 2002 financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/    ERNST & YOUNG
LLP



San Jose, California

October 31, 2002



F-3



---

##### Table of Contents

Notify Technology Corporation



Balance Sheet



September 30, 2003



|Assets                                                                                                                                                                                                                                         |  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Current assets:                                                                                                                                                                                                                                |  |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                      |  | $ | 556,805     |  
|Restricted cash                                                                                                                                                                                                                                |  |   | 436,000     |  
|Accounts receivable, net of allowance for doubtful accounts of $2,000                                                                                                                                                                          |  |   | 528,927     |  
|Other current assets                                                                                                                                                                                                                           |  |   | 101,406     |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Total current assets                                                                                                                                                                                                                           |  |   | 1,623,138   |  
|                                                                                                                                                                                                                                               | 
|Property and equipment, net                                                                                                                                                                                                                    |  |   | 247,168     |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Total assets                                                                                                                                                                                                                                   |  | $ | 1,870,306   |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Liabilities and Shareholders Equity                                                                                                                                                                                                           |  |   |             |  
|Current liabilities:                                                                                                                                                                                                                           |  |   |             |  
|Short term borrowings                                                                                                                                                                                                                          |  | $ | 162,750     |  
|Current portion of capital lease obligations                                                                                                                                                                                                   |  |   | 13,725      |  
|Accounts payable                                                                                                                                                                                                                               |  |   | 108,948     |  
|Accrued payroll and related liabilities                                                                                                                                                                                                        |  |   | 141,792     |  
|Deferred revenue                                                                                                                                                                                                                               |  |   | 438,137     |  
|Customer advances                                                                                                                                                                                                                              |  |   | 417,986     |  
|Other accrued liabilities                                                                                                                                                                                                                      |  |   | 160,050     |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Total current liabilities                                                                                                                                                                                                                      |  |   | 1,443,388   |  
|                                                                                                                                                                                                                                               | 
|Long term portion of capital lease obligations                                                                                                                                                                                                 |  |   | 31,195      |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Total liabilities                                                                                                                                                                                                                              |  |   | 1,474,583   |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Commitments and contingencies (Note 7)                                                                                                                                                                                                         |  |   |             |  
|Shareholders equity:                                                                                                                                                                                                                          |  |   |             |  
|Preferred stock, $0.001 par value, 5,000,000 shares authorized                                                                                                                                                                                 |  |   |             |  
|Series A convertible redeemable preferred stock, $0.001 par value, 900,000 shares designated and 461,000 shares issued and
outstanding at September 30, 2003; redemption amount and liquidation preference of $5,532,000 at September 30, 2003 |  |   | 993,742     |  
|Common stock, $0.001 par value, 30,000,000 shares authorized, 5,833,678 shares issued and outstanding at September 30,
2003                                                                                                                    |  |   | 5,834       |  
|Additional paid-in capital                                                                                                                                                                                                                     |  |   | 21,816,474  |  
|Accumulated deficit                                                                                                                                                                                                                            |  |   | (22,420,327 | )
|                                                                                                                                                                                                                                               |  |   |             |  
|Total shareholders equity                                                                                                                                                                                                                     |  |   | 395,723     |  
|                                                                                                                                                                                                                                               |  |   |             |  
|Total liabilities and shareholders equity                                                                                                                                                                                                     |  | $ | 1,870,306   |  
|                                                                                                                                                                                                                                               |  |   |             |  



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



F-4



---

##### Table of Contents

Notify Technology Corporation



Statements of Operations



|                                                             |  | Years Ended September 30, |           
|------------------------------------------------------------ |  | ------------------------- | ----------
|                                                             |  | 2003                      |           
|Revenues:                                                    |  |                           |           
|Product sales                                                |  | $                         | 7,089,228 
|Service revenue                                              |  |                           | 1,216,897 
|Royalty revenue                                              |  |                           | 34,625    
|                                                             |  |                           |           
|Total revenue                                                |  |                           | 8,340,750 
|                                                             |  |                          
|Cost of sales:                                               |  |                           |           
|Product cost                                                 |  |                           | 5,375,808 
|Service cost                                                 |  |                           | 978,011   
|                                                             |  |                           |           
|Total cost of sales                                          |  |                           | 6,353,819 
|                                                             |  |                           |           
|Gross profit                                                 |  |                           | 1,986,931 
|                                                             |  |                          
|Operating costs and expenses:                                |  |                           |           
|Research and development                                     |  |                           | 990,355   
|Sales and marketing                                          |  |                           | 462,255   
|General and administrative                                   |  |                           | 1,487,966 
|                                                             |  |                           |           
|Total operating costs and expenses                           |  |                           | 2,940,576 
|                                                             |  |                           |           
|Loss from operations                                         |  |                           | (953,645  
|                                                             |  |                          
|Interest (income) expense, net                               |  |                           | 146,830   
|                                                             |  |                           |           
|Net loss                                                     |  | $                         | (1,100,475
|                                                             |  |                           |           
|Basic and diluted net loss per share                         |  | $                         | (0.24     
|                                                             |  |                          
|Weighted-average shares used in computing net loss per share |  |                           | 4,568,510 





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



F-5



---

##### Table of Contents

Notify Technology Corporation



Statements of Shareholders Equity



|                                                         |  | ConvertibleRedeemablePreferred Stock |   |  | Common Stock |           | Additional Paid-InCapital |        | Notes ReceivablefromShareholders |        |   | AccumulatedDeficit |  |   | TotalShareholdersEquity | 
|-------------------------------------------------------- |  | ------------------------------------ | - |  | ------------ | --------- | ------------------------- | ------ | -------------------------------- | ------ | - | ------------------ |  | - | ------------------------ | 
|                                                         |  | Shares                               |   |  | Amount       |           |                           | Shares |                                  | Amount |   |                    |  |  
|Balance at September 30, 2001                            |  | 501,000                              |   |  | $            | 1,079,967 |                           |        | 5,286,593                        |        | $ | 5,287              |  | $ | 21,724,525               | 
|Proceeds from exercise of warrants                       |  |                                      |   |  |              |           |                           |        | 147,085                          |        |   | 147                |  |   | 1,324                    | 
|Conversion of preferred stock to common stock            |  | (35,000                              | ) |  |              | (75,447   | )                         |        | 350,000                          |        |   | 350                |  |   | 75,097                   | 
|Deferred compensation relating to grant of stock options |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   | 4,800                    | 
|Net loss and comprehensive net loss                      |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 
|                                                         |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 
|Balance at September 30, 2002                            |  | 466,000                              |   |  | $            | 1,004,520 |                           |        | 5,783,678                        |        | $ | 5,784              |  | $ | 21,805,746               | 
|                                                         |  |                                      |   |  |              |           |                           |       
|Conversion of preferred stock to common stock            |  | (5,000                               | ) |  |              | (10,778   | )                         |        | 50,000                           |        |   | 50                 |  |   | 10,728                   | 
|Forgiveness of shareholder loan                          |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 
|Net loss and comprehensive net loss                      |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 
|                                                         |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 
|Balance at September 30, 2003                            |  | 461,000                              |   |  | $            | 993,742   |                           |        | 5,833,678                        |        | $ | 5,834              |  | $ | 21,816,474               | 
|                                                         |  |                                      |   |  |              |           |                           |        |                                  |        |   |                    |  |   |                          | 





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



F-6



---

##### Table of Contents

Notify Technology Corporation



Statements of Cash Flows



|                                                                            |  | Years Ended September 30, |           
|--------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                            |  | 2003                      |           
|Operating activities                                                        |  |                           |           
|Net loss                                                                    |  | $                         | (1,100,475
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                           |           
|Depreciation and amortization                                               |  |                           | 116,579   
|Loss from sale of fixed assets                                              |  |                           | 5,742     
|Stock-based compensation                                                    |  |                           |          
|Forgiveness of shareholder loan                                             |  |                           | 2,500     
|Changes in operating assets and liabilities:                                |  |                           |           
|Accounts receivable, net                                                    |  |                           | 56,047    
|Inventories                                                                 |  |                           | 399,596   
|Other current assets                                                        |  |                           | (19,979   
|Accounts payable                                                            |  |                           | (317,876  
|Accrued liabilities                                                         |  |                           | 405,191   
|Deferred revenue                                                            |  |                           | 69,466    
|                                                                            |  |                           |           
|Net cash used in operating activities                                       |  |                           | (383,209  
|                                                                            |  |                           |           
|Investing activities                                                        |  |                           |           
|Expenditures for property and equipment                                     |  |                           | (160,259  
|Increase (decrease) in restricted cash                                      |  |                           | 415,300   
|Proceeds from sale of fixed assets                                          |  |                           | 2,175     
|                                                                            |  |                           |           
|Net cash provided by (used in) investing activities                         |  |                           | 257,216   
|                                                                            |  |                           |           
|Financing activities                                                        |  |                           |           
|Net proceeds from short term loans                                          |  |                           | 162,750   
|Proceeds from exercise of options and warrants                              |  |                           |          
|Payments on capital lease                                                   |  |                           | (6,608    
|                                                                            |  |                           |           
|Net cash provided by financing activities                                   |  |                           | 156,142   
|                                                                            |  |                           |           
|Net increase (decrease) in cash and cash equivalents                        |  |                           | 30,149    
|Cash and cash equivalents at beginning of year                              |  |                           | 526,656   
|                                                                            |  |                           |           
|Cash and cash equivalents at end of year                                    |  | $                         | 556,805   
|                                                                            |  |                           |           
|Supplemental disclosure of non-cash transactions:                           |  |                           |           
|Conversion of preferred stock to common stock                               |  | $                         | 10,778    
|Equipment purchased under capital lease                                     |  | $                         | 51,528    
|Supplemental disclosure of cash flow information:                           |  |                           |           
|Cash paid for interest                                                      |  | $                         | 137,857   
|Cash paid for income taxes                                                  |  | $                         | 2,000     



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



F-7



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements



September 30,
2003



1. Business and Basis of Presentation



Notify Technology Corporation (the Company or Notify), incorporated in
California in 1994, is a communications service and software provider for wireline and wireless notification and messaging services. The Company is also a supplier of innovative call and message notification products and services.



The Company has incurred net losses since inception and may incur net
losses and negative cash flow from operations for at least the next two or three years. The Company incurred losses of $1,100,475 and $1,741,752 for the years ended September 30, 2003 and 2002, respectively. The Company has an accumulated deficit of
$22.4 million as of September 30, 2003. During fiscal 2003, the Company financed its operations through a combination of short term borrowings, the sale of its products and existing cash balances. These conditions raise substantial doubt about the
Companys ability to continue as a going concern.



The
Companys ability to fund its recurring losses from operations depends upon the continuation of its current Visual Got Mail Solution program, its success in its wireless e-mail notification and wireless e-mail notification market solutions,
and/or raising other sources of financing. Management does not believe that its existing cash balances are sufficient to fund its operations through September 30, 2004. Management plans to seek additional financing, restructure its business in order
to reduce costs and potentially seek the sale or licensing of certain technologies, however, there can be no assurance that management will be successful in implementing such plans. The sale of additional equity or debt securities may result in
additional dilution to existing shareholders. If additional funds are raised through the issuance of equity or debt securities, these securities could have rights that are senior to existing shareholders and could contain covenants that would
restrict operations. Any additional financing may not be available in amounts or on terms acceptable to the Company, if at all.



2. Summary of Significant Accounting Policies



Use of Estimates



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



Cash and Cash Equivalents and Restricted Cash



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



The Company has $436,000 of outstanding letters of credit to our suppliers related to a commitment to purchase additional
inventory. The letters of credit are collateralized by a money market account of $436,000, which is recorded as restricted cash.



Accounts Receivable/ Allowance for Doubtful Accounts



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



F-8



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



Inventories



Inventories are stated at the lower of cost or market on a first-in, first-out basis. The Company provides inventory allowances based on excess and
obsolete inventories determined primarily by future demand forecasts. At September 30, 2003, the carrying value of the inventory was zero.



Property and Equipment



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



Long-Lived
Assets



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



Income Taxes



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



Advertising Costs



Advertising costs are expensed as incurred. Advertising costs were $3,069 for the year ended September 30, 2003 and none for the year ended September 30,
2002.



Revenue Recognition



The Company recognizes revenue on sales of call and message notification
products when the product is delivered, title has transferred, and no obligations remain. Service income is recognized on a straight-line basis over the period of the service agreement. Revenue from royalty agreements is recognized on receipt of
payment.



Deferred revenue relates to (i) products where title
has transferred and payment has been received but the product has not been delivered to the customer; (ii) service revenue that is being recognized over the period of the service agreement; and (iii) products that have been delivered and are pending
installation and configuration, at which time title transfers to the customer.



Shipping and Handling Costs



The Company
includes fees billed to customers relating to shipping and handling in net sales. Shipping and handling costs are classified as a component of cost of sales.



F-9



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



Research and Development



Based on the Companys software development process, the time period between the establishment of technological
feasibility and completion of the hardware component and the release of the product is short and capitalization of internal development costs has not been material to date.



Concentration of Credit Risk



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



The Company performs
ongoing credit evaluations and generally requires no collateral. The Company maintains reserves for credit losses, and such losses have been within managements expectations. As of September 30, 2003, one customer accounted for 92% of accounts
receivable and 100% of the customer advances. Revenue from one customer accounted for 95% and 83% of total revenues for fiscal years ended September 30, 2003 and 2002, respectively.



The Company utilizes an offshore manufacturer to manufacture the products and this manufacturer may not be able to support
the manufacturing requirements. If the Company is unable to obtain sufficient quantities of sole-source components or subassemblies, or to develop alternate sources, the Company could experience delays or reductions in product shipments or be forced
to redesign its products. Each of these scenarios could materially adversely affect the Companys business and operating results.



Stock-Based Compensation



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



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



F-10



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



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



|                                                                                                                                    |  | Fiscal Years |           
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------
|                                                                                                                                    |  | 2003         |           
|Net loss, as reported                                                                                                               |  | $            | (1,100,475
|Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects                            |  |              |          
|Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax
effects |  |              | (949,373  
|                                                                                                                                    |  |              |           
|Pro forma net loss                                                                                                                  |  | $            | (2,049,848
|                                                                                                                                    |  |              |           
|Net loss per shareBasic and diluted:                                                                                               |  |              |           
|As reported                                                                                                                         |  | $            | (0.24     
|                                                                                                                                    |  |              |           
|Pro forma                                                                                                                           |  | $            | (0.45     
|                                                                                                                                    |  |              |           



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



|                         |  | 2003 |      |   | 2002 |  
|------------------------ |  | ---- | ---- | - | ---- | -
|Expected dividend yield  |  |      | 0.00 | % |      |  
|Risk-free interest rate  |  |      | 3.25 | % |      |  
|Expected volatility      |  |      | 139  | % |      |  
|Expected life (in years) |  |      | 4    |   |      |  
|Fair value at grant date |  | $    | 0.19 |   |      | $



The company recognized
$0 and $4,800 of compensation expense in fiscal 2003 and in fiscal 2002, respectively, related to the grant of options to nonemployees.



Net Loss Per Share



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



The weighted average number of common shares used
in the net loss per share calculation was reduced by 1,233,870 shares of common stock placed in escrow in connection with the Companys initial public offering. Options to purchase 3,284,451 and 2,152,055 shares of common stock and warrants to
purchase 2,136,988 and 6,134,401 of common stock were outstanding at September 30, 2003 and 2002, respectively, but were not included in the computation of diluted net loss per share as the effect would be antidilutive.



Recent Accounting Pronouncements



In January 2003, the Financial Accountings Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at



F-11



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



risk for the entity to finance its activities without additional subordinated financial support from other parties. During October 2003, the FASB issued
Staff Position 46-6 which is effective for financial statements issued after October 9, 2003, and provides a broad deferral of the latest date by which all entities must apply FIN 46 to certain variable interest entities, to the first reporting
period ending after December 15, 2003. The Company believes that the adoption of FIN 46 will not have a material impact on the financial position or results of operations of the Company.



In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 requires that certain financial instruments, which under previous guidance could be accounted for as equity, be classified as liabilities in the statement of
financial position. Mandatorily redeemable financial instruments are subject to the provisions of SFAS 150 for the first fiscal period beginning after June 15, 2003. The Company adopted SFAS 150 on July 1, 2003 with no impact to its financial
position or results of operations.



3. Property and Equipment



Property and equipment consist of the following:



|                                               |  | September 30,2003 |         
|---------------------------------------------- |  | ----------------- | --------
|Furniture and office equipment                 |  | $                 | 561,104 
|Software                                       |  |                   | 40,690  
|Leasehold improvements                         |  |                   | 2,246   
|                                               |  |                   |         
|                                               |  |                   | 604,040 
|Less accumulated depreciation and amortization |  |                   | (356,872
|                                               |  |                   |         
|                                               |  | $                 | 247,168 
|                                               |  |                   |         



Property and equipment
includes $51,528 of office equipment under capital lease with accumulated amortization of $5,715 at September 30, 2003.



Depreciation expense was $116,579 and $107,562 for the years ended September 30, 2003 and 2002, respectively.



4. Short-term Borrowings



In September 2002, the Company entered into a purchase order assignment
agreement with a financial institution that allows for the assignment of purchase orders up to $750,000. Borrowings bear interest at 4% above the prime rate (4.0% at September 30, 2003) plus a set up fee of 2.75% and a daily maintenance fee of
0.09166% and are collateralized by substantially all of the Companys assets. Borrowings are repaid either directly by the Companys customers or by the Company upon receipt of payment from customers. At September 30, 2003, the outstanding
balance under this agreement was $162,750 and the amount available was $587,250. This agreement is for an initial term of twelve months and will continue thereafter for successive twelve months renewal terms unless either party terminates the
agreement.



Note 5. Capital Lease Obligations



During the year ended September 30, 2003, The Company entered into three
capital lease agreements for office equipment totaling $51,528, with principal and interest (6.0%) payment due monthly.



F-12



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



Future minimum lease payments under the lease are as follows:



|For the year ending September 30,           |  |   |         |  
|------------------------------------------- |  | - | ------- | -
|2004                                        |  | $ | 16,047  |  
|2005                                        |  |   | 16,047  |  
|2006                                        |  |   | 10,929  |  
|2007                                        |  |   | 5,129   |  
|2008                                        |  |   | 1,569   |  
|                                            |  |   |         |  
|Total minimum lease payments                |  |   | 49,721  |  
|Less: amount representing interest          |  |   | (4,801  | )
|                                            |  |   |         |  
|Present value of net minimum lease payments |  |   | 44,920  |  
|Less: current portion                       |  |   | (13,725 | )
|                                            |  |   |         |  
|                                            |  | $ | 31,195  |  
|                                            |  |   |         |  



Note 6. Guarantees



Indemnification Agreements



The Company enters into standard indemnification arrangements in our
ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally our business partners or
customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual anytime after the
execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.



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



Product Warranty



The Company warrants its products for a specific period of time, generally twelve months, against material defects. The Company provides for the estimated
future costs of warranty obligations in cost of sales when the related revenue is recognized. The accrued warranty costs represents the best estimate at the time of sale of the total costs that the Company expects to incur to repair or replace
product parts, which fail while still under warranty. The amount of accrued estimated warranty costs are primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, the
Company reviews the accrued balances and updates the historical warranty cost trends. The following table reflects the change in the Companys warranty accrual during fiscal year 2003:



|Warranty accrual, beginning of year |  | $ | 36,957  |  
|----------------------------------- |  | - | ------- | -
|Charged to cost of sales            |  |   | 17,897  |  
|Actual warranty expenditures        |  |   | (37,797 | )
|                                    |  |   |         |  
|Warranty accrual, end of year       |  | $ | 17,057  |  
|                                    |  |   |         |  



F-13



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



7. Commitments and Contingencies



The Company currently occupies two facilities under operating leases. The San Jose, California facility lease expires in
March 2006 and the Canfield, Ohio facility lease expires in October 2006.



Future minimum lease payments are approximately as follows:



|Years ending September 30, |  |   |        
|-------------------------- |  | - | -------
|2004                       |  | $ | 170,397
|2005                       |  |   | 177,470
|2006                       |  |   | 57,195 
|                           |  |   |        
|Total                      |  | $ | 405,062
|                           |  |   |        



Facility rent expense
totaled approximately $225,000 and $282,000 for the years ended September 30, 2003 and 2002, respectively.



At September 30, 2003, the Company has $436,000 of outstanding letters of credit to our suppliers related to a commitment to purchase additional
inventory. The letters of credit are collateralized by a money market account of $436,000, which is recorded as restricted cash.



8. Shareholders Equity



Preferred Stock



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



Convertible Redeemable Preferred Stock



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



The balance sheet reflects the discount or beneficial conversion feature present in the Series A preferred stock. The discount represents the fair value
of the conversion ratio at below fair market value of the underlying common stock on the date of closing and the fair value of warrants issued in connection with the issuance of the Series A preferred stock. The discount was recognized as a return
to the preferred shareholders (similar to a dividend) over the minimum period of time in which the preferred shareholders can realize the return, which is immediately for the preferred shareholders. The discount was accreted to additional paid-in
capital on the September 30, 2001 financial statements.



Each
share of Series A preferred stock is initially convertible into the Companys common stock at a conversion ratio of $1.00 per common share. The Series A preferred stock is convertible into common stock at any time upon the election of the
holder. Furthermore, the Series A preferred stock shall automatically convert



F-14



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



into common stock upon either the closing of a secondary public offering in excess of $25,000,000 at a price per share in excess of $2.00 or if the closing
bid price for the common stock is in excess of $2.00 for a period of 20 consecutive trading days. Each share of Series A preferred stock shall entitle the holder thereof to that number of votes on all matters submitted to a vote of the shareholders
of the Company equal to the number of shares of common stock into which the Series A preferred stock can be converted.



At any time, and from time to time, on or after July 20, 2003 but before July 26, 2004, upon a written request of at least 10% of the then outstanding
shares of Series A preferred stock, the Company must redeem the requested number of shares of Series A preferred stock at a redemption price equal to $10.00 plus accrued dividends. The requesting holders must request that the Company redeem at least
the lesser of 50,100 shares or all of the outstanding shares. The Company shall have the option to pay the redemption price in cash or in shares of common stock. If the Company chooses to pay the redemption price in shares of common stock, the value
assigned to each share of common stock shall be the greater of (i) the average closing bid price on the OTC Bulletin Board for the twenty (20) trading days preceding the redemption request and (ii) $0.50 per share.



Each Series A preferred stock is entitled to receive upon the liquidation of
the Company in preference to holders of common stock, an amount equal to $12 per share, and shall thereafter share ratably, on an as-if-converted-basis, with all other holders of the Companys securities entitled to participate in the
distribution of the Companys assets.



In connection with
the offering of Series A preferred stock, the Company issued options to purchase 9.2685 units at a price per unit of $100,000 to the placement agent. Each unit consists of 10,000 shares of Series A preferred stock convertible into an aggregate of
100,000 shares of common stock with a warrant to purchase 35,000 shares of common stock. The option to purchase units expires in July 2008. The warrant is exercisable at any time through July 2008 at a price of $1.00 per common stock. The
preferred stock was valued at $1.45 per share while the warrants were valued at $1.38 per share. At September 30, 2003, all of these options were outstanding.



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



During fiscal 2003, 5,000 shares of Series A preferred stock
was converted to 50,000 shares of common stock. During fiscal 2002, 35,000 shares of Series A preferred stock was converted to 350,000 shares of common stock.



Common Stock



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



|                                       |  | September 30,2003
|-------------------------------------- |  | -----------------
|Convertible redeemable preferred stock |  | 4,610,000        
|1997 Stock Option Plan                 |  | 3,629,662        
|Warrant agreements                     |  | 2,136,988        
|                                       |  |                  
|                                       |  | 10,376,650       
|                                       |  |                  



In November 2000, the
Company issued 376,865 shares of common stock and issued warrants to purchase 188,424 shares of common stock to a group of private investors, which included a director of the Company, for consideration of $1.2 million, net of issuance costs. Of
these warrants, 38,458 were exercised in July 2001, 7,690 expired on August 8, 2001 and 67,293 expired on November 5, 2001.



F-15



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



On July 20, 2001, an additional 337,439 warrants to purchase common stock were issued under the
anti-dilution terms of the November 2000 private placement. In June and August 2002, 147,085 of these warrants were exercised.



Warrants to Purchase Common Stock



At September 30, 2003, the Company had the following warrants outstanding:



| |  | Warrants to purchase 74,983 shares of common stock issued in the November 2000 private placement with an exercise price of $1.00 per share. The warrants expire on November 14, 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Warrants to purchase 190,354 shares of common stock issued under the anti-dilution terms of the November 2000 private placement with an exercise price of $0.01 per share. The
warrants expire on July 20, 2004.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



1997 Stock Option Plan



In January 1997, the Company adopted the 1997 Stock Plan (the Plan), which provides for the granting of stock options to
employees, officers, consultants, and directors of the Company. Stock options are granted at fair market value on the date of grant with terms of up to ten years. Under the Plan, a total of 3,629,662 shares of the Companys common stock are
reserved for issuance. Under the terms of these option grants, the options commence vesting upon the first anniversary of the date of employment and continue to vest ratably over the remainder of the four-year vesting period. Certain grants of
options to employees after the initial grant of options to employees vest over three years. The following table summarizes stock option activity:



|                              |  | Shares Available for Grant |                 |  | Options Outstanding
|----------------------------- |  | -------------------------- | --------------- |  | -------------------
|                              |  |                            | Number ofShares |  |                    
|Balance at September 30, 2001 |  | 765,940                    |                 |  | 1,613,722          
|Authorized                    |  | 750,000                    |                 |  |                   
|Granted                       |  | (670,834                   | )               |  | 670,834            
|Cancelled                     |  | 132,501                    |                 |  | (132,501           
|                              |  |                            |                 |  |                    
|Balance at September 30, 2002 |  | 977,607                    |                 |  | 2,152,055          
|Authorized                    |  | 500,000                    |                 |  |                   
|Granted                       |  | (1,200,000                 | )               |  | 1,200,000          
|Cancelled                     |  | 67,604                     |                 |  | (67,604            
|                              |  |                            |                 |  |                    
|Balance at September 30, 2003 |  | 345,211                    |                 |  | 3,284,451          
|                              |  |                            |                 |  |                    



F-16



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



The following table summarizes outstanding and exercisable options at September 30, 2003:



|                |  | Options Outstanding         |  | Options Exercisable                  
|--------------- |  | --------------------------- |  | -------------------------------------
|Exercise Prices |  | Number ofOptionsOutstanding |  | Weighted-AverageRemainingLife inYears
|$0.250          |  | 1,200,000                   |  | 9.85                                 
|$0.320  $0.690 |  | 586,042                     |  | 8.07                                 
|$0.800  $0.906 |  | 15,144                      |  | 6.13                                 
|$1.600  $2.375 |  | 1,053,000                   |  | 7.74                                 
|$2.750  $3.875 |  | 188,890                     |  | 6.90                                 
|$6.125  $7.656 |  | 32,000                      |  | 6.01                                 
|$8.813          |  | 209,375                     |  | 6.39                                 
|                |  |                             |  |                                      
|                |  | 3,284,451                   |  | 8.37                                 
|                |  |                             |  |                                      



Escrow Securities



In connection with the Companys initial public offering in August
1997, holders, who held Founders stock or who acquired the Companys common stock in prior private offerings, agreed to place 1,233,870 of their shares into escrow. The securities were to be released to the holders in the event specified levels
of pretax income are achieved for the years ending through September 30, 2003, or if the Company is acquired by or merged into another entity in a transaction in which shareholders receive a specified consideration. Any securities remaining in
escrow on December 31, 2003 will be forfeited, which securities will then be contributed to the Companys capital.



In the event that the securities in escrow are released, the Securities and Exchange Commission has adopted the position that the release of the
securities in escrow 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
securities in escrow on the date of release and will result in a material charge to operations. At September 30, 2003, the Company had not attained any of the specified earnings or market price levels. Therefore, all escrowed securities are still
being held in trust by the Companys transfer agent.



9. Income Taxes



Due to operating losses, there is no provision for income
taxes for 2003 or 2002. The expected statutory tax benefit of 34% is offset by the inability to recognize an income tax benefit from the net operating losses.



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



|                                     |  | Year EndedSeptember 30,2003 |           
|------------------------------------ |  | --------------------------- | ----------
|Deferred tax assets:                 |  |                             |           
|Net operating loss carryforwards     |  | $                           | 6,700,000 
|Research credit carryforwards        |  |                             | 596,000   
|Capitalized research and development |  |                             | 229,000   
|Other temporary differences          |  |                             | 165,000   
|                                     |  |                             |           
|Total deferred tax assets            |  |                             | 7,690,000 
|Valuation allowance                  |  |                             | (7,690,000
|                                     |  |                             |           
|Net deferred tax assets              |  | $                           |          
|                                     |  |                             |           



F-17



---

##### Table of Contents

Notify Technology Corporation



Notes to Financial Statements(Continued)



Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of
which are uncertain. Accordingly, a valuation allowance in an amount equal to the net deferred tax asset has been established to reflect these uncertainties. The change in the valuation allowance was a net increase of $1,128,000 and $302,000 for
fiscal years 2003 and 2002, respectively.



As of September 30,
2003, the Company had net operating loss carryforwards of approximately $18,000,000 and $5,000,000 for Federal and California tax purposes, which will expire in the years 2004 through 2023. As of September 30, 2003, the Company also had research and
development tax credit carryforwards for federal and California tax purposes of approximately $382,000 and $264,000, respectively. The credits will expire in the years 2011 through 2023, if not utilized. Utilization of the net operating losses and
tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses and tax credit carryforwards before full utilization.



10. Industry Segment, Customer, and Geographic Information



The Company has one operating segment by which management evaluates performance. The Company sells its products within the United States primarily to long
distance carriers, regional bell operating companies and local exchange carriers.



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



11. Subsequent Events



In November 2003, the Company entered into a non-exclusive agreement with NCR Corporation (NCR) that allows the Company to offer certain product features on the Companys Enterprise product that are covered under a patent held by NCR.
The agreement requires the Company to pay NCR a quarterly royalty payment based on a percentage of the Companys revenue on the Enterprise product or a minimum amount, whichever is greater. The agreement has a cap on the maximum royalty due
over the life of the agreement subject to change in the event of a change in ownership of the Company. The Company may terminate the agreement if the product subject to the patent is no longer sold, subject to a termination penalty. The agreement
expires when the patent expires.



F-18



---

##### Table of Contents

EXHIBIT INDEX



|       | 
|------ | 
|3.1.1  | 
|       | 
|3.1.2  | 
|       | 
|3.1.3  | 
|       | 
|3.1.4  | 
|       | 
|3.2    | 
|       | 
|4.1.1  | 
|       | 
|4.1.2  | 
|       | 
|4.2    | 
|       | 
|4.3    | 
|       | 
|4.4    | 
|       | 
|10.1.1 | 
|       | 
|10.1.2 | 
|       | 
|10.1.3 | 



---

##### Table of Contents

|       | 
|------ | 
|10.1.4 | 
|       | 
|10.1.5 | 
|       | 
|10.2   | 
|       | 
|10.3.1 | 
|       | 
|10.3.2 | 
|       | 
|10.3.3 | 
|       | 
|10.3.4 | 
|       | 
|10.3.5 | 
|       | 
|10.4   | 
|       | 
|10.5   | 



---

##### Table of Contents

|        | 
|------- | 
|10.6    | 
|        | 
|10.7+   | 
|        | 
|10.8.1  | 
|        | 
|10.8.2  | 
|        | 
|10.8.3  | 
|        | 
|10.9    | 
|        | 
|10.10   | 
|        | 
|10.11   | 
|        | 
|10.12.1 | 
|        | 
|10.12.2 | 
|        | 
|10.13   | 
|        | 
|10.14   | 
|        | 
|10.15   | 
|        | 
|14.1    | 
|        | 
|23.1    | 
|        | 
|23.2    | 



---

##### Table of Contents

|     | 
|---- | 
|24.1 | 
|     | 
|31.1 | 
|     | 
|31.2 | 
|     | 
|32.1 | 

---

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