<PAGE>

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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------
                                 FORM 10-KSB/A
                               (Amendment No. 1)

(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, 2000

                                       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 jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                      Identification 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. $4,219,703

   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 26, was approximately $7,587,000. 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, 2000 was 4,887,058 shares.

   Portions of our proxy statement for our Annual Meeting of Shareholders to be
held on March 8, 2001 are incorporated by reference into Part III of this Annual
Report on Form 10-KSB.

   Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

 INTRODUCTORY NOTE

        This amendment on Form 10-KSB/A amends and supersedes Items 6 and 7 of
the Registrant's Annual Report on Form 10-KSB for the year ended September 30,
2000, as filed on December 29, 2000, and is being filed to revise certain
disclosures in Item 6. Management's Discussion and Analysis or Plan of Operation
and Item 7. Financial Statements in such Annual Report.

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 wireless and wireline
messaging services. We are also a supplier of innovative call and message
notification products and services and currently sell our products through OEM
relationships with major telephone companies, telephone equipment distributors,
Internet service providers and two-way wireless service providers.

   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

   Our revenue has been derived from the sale of our Call Manager, Centrex
Receptionist and MessageAlert products. Revenue consists primarily of gross
revenue from the sale of telephony equipment and service income related to 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, 2000 increased to $4,219,703 from $1,836,142
for the fiscal year ended September 30, 1999. Revenue increased $2,113,358 from
the previous year due to the introduction of the Call Manager product line in
the third quarter of fiscal 1999 and $90,511 due to growth in Centrex
Receptionist sales offset by a $265,575 decline in sales of the MessageAlert
product. We do not expect our MessageAlert products to be a significant source
of revenue in fiscal 2001. Revenue from our Call Manager and Centrex product
lines increased due to sales to telephone companies for their customer
acquisition programs using Call Manager products during the first half of fiscal
2000. Despite the revenue growth in fiscal 2000 over the prior year, sales for
our Call Manager and Centrex Receptionist products declined from $2,395,098 in
the first half of the fiscal 2000 to $1,266,707 in the second half of fiscal
2000. We believe the decline in revenue for Call Manager products in the second
half of fiscal 2000 was due to our telephone company customers reducing their
use of adjunct products as a marketing tool. Centrex Receptionist revenue
decreased because telephone companies emphasized the sale of "KEY Systems" as an
alternative to selling our Centrex products. There can be no assurance that this
decline in revenue from our Call Manager and Centrex products will not continue
in fiscal 2001.

   We sell products in the United States primarily to regional bell operating
companies and local exchange carriers. The Call Manager and Centrex Receptionist
product lines accounted for 69% and 20%, respectively of total revenues in
fiscal 2000. The same two product lines products accounted for 34% and 41%,
respectively of total revenues in fiscal 1999. Significant portions of our
revenue have been concentrated in a small number of customers although not
necessarily the same customers each year. For example, four customers accounted
for 23%, 22%, 17% and 15% of sales for the fiscal year ended September 30, 1999,
and two customers accounted for 55% and 11% of sales for the fiscal year ended
September 30, 1999. Two of these customers had significant sales in both years.
<PAGE>

 Cost of Sales

    Cost of sales consists primarily of the cost to manufacture our products.
Cost of sales increased to $3,657,121 in the fiscal year ended September 30,
2000 from $1,721,029 in the fiscal year ended September 30, 1999. This increase
was the result of increased sales of our products for use in telephone company
promotional programs. Our gross margins were impacted by inventory write-downs
in both fiscal 2000 and fiscal 1999. Despite the significant inventory write-
downs recorded in the fourth quarter, our gross margin increased to 13% in
fiscal 2000 from 6% in fiscal 1999. The write-downs in fiscal 2000 were $330,000
related to raw materials and work-in-process for our Call Manager product line
and $170,000 related to work-in-process inventory for our Centrex Receptionist
product line. We experienced a lower demand for our caller-id units in customer
promotional programs during the third fiscal quarter that was repeated in the
fourth fiscal quarter. Based on this continuing trend, the Company revised its
fiscal 2001 sales forecast for its caller-id product line, which led to a
determination that there was excess inventory at September 30, 2000 resulting in
the inventory write-down. Simultaneously, a sales pattern change by our largest
customer for the Centrex Receptionist toward an emphasis on key-systems sales
versus Centrex service resulted in reduced demand for the Centrex Receptionist.
Consequently, the Company revised its 2001 sales forecast for its Centrex
Receptionist product line, which led to the determination that there was excess
inventory at September 30, 2000 resulting in the inventory write-down.

   The inventory write-down in fiscal 1999 consisted of $250,000 related to raw
materials and finished goods for our MessageAlert product line that was replaced
by our Call Manager product line and $119,000 related to certain Call Manager
finished goods. The Call Manager product line was introduced in the second
quarter of fiscal 1999. The Company paid expedite charges to its third party
manufacturer in the third quarter of fiscal 1999 to achieve accelerated
deployment of Call Manager with the goal of gaining market acceptance and
sufficient performance history to qualify for other sales opportunities. The
cost of the inventory including the expedite charges exceeded the market price
of the product, therefore the Company wrote-down the inventory to market at June
30, 2000. The accelerated deployment of the Call Manager product line resulted
in a significant decrease in demand for our MessageAlert product line in the
third and fourth quarters of fiscal 1999. Consequently, the Company revised its
2000 sales forecast for its MessageAlert product line, which led to the
determination that there was excess inventory at September 30, 2000.

 Research and Development

   Research and development expense consists principally of personnel costs,
contract design services and supply expenses. Research and development expense
increased to $1,459,911 for the fiscal year ended September 30, 2000 from
$1,361,792 for the fiscal year ended September 30, 1999. This increase was
primarily the result of adding more development resources at our Ohio site to
support the further development of Visual Got Mail and NotifyLink, our entry
into the two-way wireless messaging market. We expect to continue this level of
research and development activity but there can be no assurance that these
products will by accepted by the market.

   We expect that our investment in research and development will continue at,
or near, the current level for fiscal 2001 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 increased to $1,209,993 for the fiscal year ended
September 30, 2000 from $837,334 for the fiscal year ended September 30, 1999.
This increase was attributable primarily to the increase in salaries caused by
our hiring additional employees, the increase commission costs on increased
sales and the increase in show expense.

   We anticipate that sales and marketing expenses will increase significantly
in future quarters as we hire additional sales and customer support personnel
and attempt to expand our existing and create new distribution channels.
<PAGE>

 General and Administrative

   General and administrative expense consists of general management and finance
personnel, occupancy costs and professional fees and other general corporate
expenses. General and administrative expenses increased to $1,570,323 for the
fiscal year ended September 30, 2000 from $1,136,779 for the fiscal year ended
September 30, 1999. These increases were primarily the result of additional
rent, legal, accounting and corporate expense and increases in executive
salaries. We expect that we will need to hire additional accounting and
financial personnel in order to support anticipated growth.

 Income Taxes

   There was no provision for federal or state income taxes in fiscal 1999 or
2000 as we incurred net operating losses. We expect to incur a net operating
loss in future quarters and years. As of September 30, 2000, we had federal and
state net operating loss carryforwards of approximately $10,000,000 and
$6,000,000, respectively. The net loss carryforwards and certain research and
development tax credit carryforwards will expire in tax years 2003 through 2020,
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 the event any Escrow Securities owned by security holders of the
Registrant who are officers, directors, consultants or employees of the
Registrant are released from escrow, compensation expense will be recorded for
financial reporting purposes. Therefore, in the event we attain any of the
earnings required for the release of the Escrow Securities, the release would be
treated, for financial reporting purposes, as compensation expense to the
Registrant. Accordingly, we will, in the event of the release of the Escrow
Securities, recognize during the period that the earnings or stock price
thresholds are met a substantial non-cash charge to earnings that would increase
our loss or reduce or eliminate earnings, if any, at such time. The amount of
this charge will be equal to the aggregate market price of such Escrow
Securities at the time of release from escrow. Although the amount of
compensation expense recognized by us will not affect our total shareholders'
equity or cash flow, it may cause a reduction in the market price of our
securities.
<PAGE>

Liquidity and Capital Resources

   Our financial statements are prepared and presented on a basis assuming we
continue as a going concern. The report of our independent auditors on our
financial statements for the year ended September 30, 2000 includes an
explanatory paragraph with respect to our ability to continue as a going
concern. We had an accumulated deficit of $12.7 million at September 30, 2000
and incurred a net loss of $3.5 million for the year ended September 30, 2000.
Our recently developed products will need to attain favorable market acceptance
to continue our research and development activities and fund operating expenses
at current levels. Our ability to fund our operations in fiscal 2001 depends
upon the success of our new products and/or raising additional financing. There
can be no assurance that our new products will attain favorable market
acceptance or that we will be able to raise additional financing. If we are
unable to attain our revenue goals or raise additional financing, significant
reductions in spending and the delay or cancellation of planned activities or
more substantial restructuring of our organization may be necessary. In such an
event, we intend to implement expense reduction plans in a timely manner to
enable us to meet our cash requirements through at least September 30, 2001.
These actions would have material adverse effects on our business, results of
operations, and prospects.

   At September 30, 2000, we had cash and cash equivalents and restricted cash
of $1,076,493. Of this amount, $764,698 is recorded as restricted cash, which is
securing outstanding letters of credit to our suppliers issued in connection
with commitments to purchase additional inventory of $687,000.

   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, 2000 and 1999, the net cash used in operating
activities equaled $2,627,174 and $2,868,342, respectively. The net cash used in
operations in fiscal 2000, consisted primarily of the net loss of $3,526,452
offset by depreciation and amortization of $257,676 and a decrease in net
operating assets of $641,602. The major causes of the decrease in net operating
assets was a reduction in accounts receivable of $265,698 due to lower sales in
the fourth quarter of fiscal 2000 compared to the fourth quarter of fiscal 1999,
and an increase in revenue that was deferred in accordance with our revenue
recognition policy. We anticipate that we will have a negative cash flow from
operating activities in future quarters and years.

   Net cash used in investing activities increased from $183,022 in fiscal 1999
to $913,214 in fiscal 2000 due to the recording of the restricted cash noted
above, partially offset by a reduction in expenditures for property and
equipment from $183,022 in fiscal 1999 to $148,516 in fiscal 2000.

   In March 1999, we sold to David Brewer 850,000 shares of common stock and
issued warrants to purchase 1,344,444 shares of common stock for an aggregate
consideration of $3,043,360. The warrants consisted of four warrants to purchase
155,800 shares of common stock at $3.60 per share and one warrant to purchase
721,244 shares of common stock at $3.60 per share. Each of the four warrants
originally expired upon the earlier of September 3, 2000 or 30 days after we
meet certain product sales or revenue milestones. On October 13, 1999, David
Brewer executed two of the warrants for a total of 311,600 shares of common
stock and the Company received $1.1 million. At the same time, we renegotiated
the two remaining warrants to restate the milestone on one and extend both
warrants until March 1, 2001 or 30 days after we meet certain product sales or
revenue milestones. One of these warrants was exercised by Mr. Brewer in
February 2000 for a total of 155,800 shares of common stock and the Company
received $0.6 million. We did not achieve the final milestone and unless we
re-negotiate the final warrant, it will expire on March 31, 2001. However, there
can be no assurances that we will re-negotiate this milestone or that Mr. Brewer
will, in fact, exercise the warrant.

   In connection with the sale of the common shares and warrants to Mr. Brewer,
we agreed to issue additional warrants to Mr. Brewer if we sell shares of common
stock in a capital raising transaction at a price below $3.60 per share prior to
the earlier of (i) March 3, 2002 or (ii) our calling our outstanding Class A
warrants. In November 2000, we sold in a private offering, shares of common
stock at a price of $3.25 per share. Mr. Brewer agreed to waive his right to
receive additional warrants that was created by this dilutive issuance of common
stock, and we agreed to change the exercise price of each of his 877,044
outstanding warrants from $3.60 to $3.25.

   In November 2000, we sold to a private group of nine (9) investors, which
included Mr. Andrew Plevin, a director of Notify Technology Corporation, 376,865
shares of common stock and issued warrants to purchase an aggregate of 188,424
shares of common stock for an aggregate consideration of $1,224,820. The
exercise price for each of the warrants is $3.25 per share of common stock.
Warrants to purchase an aggregate of 94,212 shares of common stock expire nine
months from the closing date and warrants to purchase an aggregate of 94,212
shares of common stock expire three years from the closing date. We granted the
shareholders certain demand registration with respect to such shares. The
exercise of any such rights could involve substantial expense to us.
<PAGE>

ITEM 7. Financial Statements

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

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

   (a) Exhibits


3.1        Restated Articles of Incorporation of Registrant. (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)
3.2        Amended and Restated Bylaws of Registrant. (incorporated herein by
           reference to Exhibit (3.2) to Post-Effective Amendment No. 4 to the
           Registrant's Registration Statement on Form SB-2, Reg. No. 333-23369,
           filed on April 18, 2000)
4.1        Form of Warrant Agreement. (incorporated herein by reference to
           Exhibit (4.1) to Amendment No. 1 to the Registrant's Registration
           Statement on Form SB-2, Reg. No. 333-23369, filed on May 29, 1997)
10.1       Employment Agreement dated as of August 1, 1997 between Registrant
           and Paul DePond. (incorporated herein by reference to Exhibit (10.1)
           to Amendment No. 2 to the Registrant's Registration Statement on Form
           SB-2, Reg. No. 333-23369, filed on August 15, 1997)
10.2       Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
           as of August 1, 1997 between Registrant and Paul DePond.
           (incorporated herein by reference to Exhibit (10.2) to Post-Effective
           Amendment No. 4 to the Registrant's Registration Statement on
           Form SB-2, Reg. No. 333-23369, filed on April 18, 2000)
10.3       Employment Agreement dated as of August 1, 1997 between Registrant
           and Gaylan Larson. (incorporated herein by reference to Exhibit
           (10.2) to Amendment No. 2 to the Registrant's Registration Statement
           on Form SB-2, Reg. No. 333-23369, filed on August 15, 1997)
10.4       Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
           as of August 1, 1997 between Registrant and Gaylan Larson.
           (incorporated herein by reference to Exhibit (10.4) to Post-Effective
           Amendment No. 4 to the Registrant's Registration Statement on
           Form SB-2, Reg. No. 333-23369, filed on April 18, 2000)
10.5       Employment Agreement dated as of August 1, 1997 between Registrant
           and Gerald Rice. (incorporated herein by reference to Exhibit (10.3)
           to Amendment No. 2 to the Registrant's Registration Statement on Form
           SB-2, Reg. No. 333-23369, filed on August 15, 1997)
10.6       Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
           as of August 1, 1997 between Registrant and Gerald Rice.
           (incorporated herein by reference to Exhibit (10.6) to Post-Effective
           Amendment No. 4 to the Registrant's Registration Statement on
           Form SB-2, Reg. No. 333-23369, filed on April 18, 2000)
10.7       Form of Indemnification Agreement. (incorporated herein by reference
           to Exhibit (10.5) to the Registrant's Registration Statement on Form
           SB-2, Reg. No. 333-23369, filed on March 14, 1997)
10.8       Escrow Agreement by and between Registrant, the American Stock
           Transfer & Trust Company and certain security holders of the
           Registrant, as amended. (incorporated herein by reference to Exhibit
           (10.6) to Amendment No. 2 to the Registrant's Registration Statement
           on Form SB-2, Reg. No. 333-23369, filed on August 15, 1997)
10.9       Registrant's 1997 Stock Plan, as amended. (incorporated herein by
           reference to Exhibit (10.9) to Post-Effective Amendment No. 4 to the
           Registrant's Registration Statement on Form SB-2, Reg. No. 333-23369,
           filed on April 18, 2000)
10.10      Lease between Registrant and C.C. Poon. (incorporated herein by
           reference to Exhibit (10.9) to Amendment No. 1 to the Registrant's
           Registration Statement on Form SB-2, Reg. No. 333-23369, filed on May
           29, 1997)
10.11+     Nonexclusive Technology License Agreement between Registrant and
           Active Voice Corporation dated April 30, 1997. (incorporated herein
           by reference to Exhibit (10.10) to Amendment No. 2 to the
           Registrant's Registration Statement on Form SB-2, Reg. No. 333-23369,
           filed on August 15, 1997)
10.12      Securities Purchase Agreement dated as of March 4, 1999 between
           Registrant and David A. Brewer. (incorporated herein by reference to
           Exhibit (10.11) to Post-Effective Amendment No. 3 to the Registrant's
           Registration Statement on Form SB-2, Reg. No. 333-23369, filed on
           April 2, 1999)
10.13      Amendment No. 1 dated October 7, 1999 to Securities Purchase
           Agreement dated as of March 4, 1999 between Registrant and David
           Brewer. (incorporated herein by reference to Exhibit (10.12) to the
           Registrant's Annual Report on Form 10-K for the fiscal year ended
           September 30, 1999, filed on December 28, 1999.
10.14 *    Amendment No. 2 dated October 26, 2000 to Securities Purchase
           Agreement dated as of March 4, 1999 and as amended on October 7, 1999
           between Registrant and David Brewer.
10.15      Form of Underwriter's Unit Purchase Option. (incorporated herein by
           reference to Exhibit (4.2) to Amendment No. 1 to the Registrant's
           Registration Statement on Form SB-2, Reg. No. 333-23369, filed on May
           29, 1997)
10.16      Stock Option Agreement dated November 11, 1999 between Registrant and
           Dane Russell. (incorporated herein by reference to Exhibit (10.15) to
           Post-Effective Amendment No. 4 to the Registrant's Registration
           Statement on Form SB-2, Reg. No. 333-23369, filed on April 18, 2000)
10.17 *    Securities Purchase Agreement dated November 8, 2000 by and among the
           Registrant and the purchasers listed on Exhibit A thereto.
23.1.      Consent of Ernst & Young LLP, Independent Auditors
24.1  *    Power of Attorney
27.1  *    Financial Data Schedule

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

+   Confidential treatment has been granted with respect to portions of this
    exhibit.
*   Previously filed
<PAGE>

                                   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 30th day of April, 2001.

                                          Notify Technology Corporation

Dated: May 4, 2001                              /s/ Paul F. DePond
                                          By: ---------------------------------
                                                       Paul F. DePond
                                               President and Chief Executive
                                                          Officer

   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.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----
<S>                                     <C>                           <C>
         /s/ Paul F. DePond             President, Chief Executive    May 4, 2001
--------------------------------------  Officer and Chairman
             Paul DePond                (Principal Executive
                                        Officer)

         /s/ Gerald W. Rice             Chief Financial Officer       May 4, 2001
--------------------------------------  (Principal Financial and
             Gerald W. Rice             Accounting Officer)

        /s/ Gaylan Larson*              Vice President, Operations    May 4, 2001
--------------------------------------  and Director
            Gaylan Larson

       /s/ Michael Ballard*             Director                      May 4, 2001
--------------------------------------
           Michael Ballard

                                        Director

--------------------------------------
             David Brewer

                                        Director

--------------------------------------
            Andrew Plevin

*  by:  Gerald W. Rice

--------------------------------------
   Gerald W. Rice, Attorney-in-Fact
</TABLE>
<PAGE>

                         Notify Technology Corporation

                             Financial Statements

                    Years ended September 30, 2000 and 1999

                                   Contents

<TABLE>
<S>                                                                          <C>
Report of Independent Auditors.............................................. F-2
Balance Sheet............................................................... F-3
Statements of Operations.................................................... F-4
Statements of Shareholders' Equity.......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>

                                      F-1
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Notify Technology Corporation

   We have audited the accompanying balance sheet of Notify Technology
Corporation as of September 30, 2000, and the related statements of operations,
shareholders' equity, and cash flows for the years ended September 30, 2000 and
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

   We conducted our audits in accordance with 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 financial position of Notify Technology Corporation
at September 30, 2000, and the results of its operations and its cash flows for
the years ended September 30, 2000 and 1999, 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 and reduction in liquidity 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 2000 financial statements do not
include any adjustments that might result from this uncertainty.

                                          /s/ Ernst & Young LLP

San Jose, California
October 25, 2000, except for Note 8,
as to which the date is December 14, 2000

                                      F-2
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                                 BALANCE SHEET

                                                                  September 30,
                                                                      2000
                                                                  -------------

                                    ASSETS

Current assets:
  Cash and cash equivalents...................................... $    311,795
  Restricted cash................................................      764,698
  Accounts receivable, net of allowance for doubtful accounts of
   $15,000.......................................................      411,334
  Inventories....................................................      502,660
  Other current assets...........................................       50,686
                                                                  ------------
    Total current assets.........................................    2,041,173
Property and equipment, net......................................      276,115
                                                                  ------------
                                                                  $  2,317,288
                                                                  ============
                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable............................................... $    302,573
  Deferred revenue...............................................      452,690
  Other accrued liabilities......................................      296,340
  Accrued payroll and related....................................      151,762
                                                                  ------------
    Total current liabilities....................................    1,203,365
Commitments and contingencies
Shareholders' equity:
  Preferred stock, $0.001 par value, 5,000,000  shares
   authorized, none issued and outstanding.......................           --
  Common stock, $0.001 par value, 15,000,000 shares authorized,
   4,887,058 shares issued and outstanding at September 30,
   2000..........................................................        4,887
  Additional paid-in capital.....................................   13,845,024
  Notes receivable from shareholders.............................       (2,500)
  Accumulated deficit............................................  (12,733,488)
                                                                  ------------
    Total shareholders' equity...................................    1,113,923
                                                                  ------------
    Total liabilities and shareholders' equity................... $  2,317,288
                                                                  ============

                            See accompanying notes.

                                      F-3
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                           STATEMENTS OF OPERATIONS

                                                    Years Ended September 30,
                                                    -------------------------
                                                       2000          1999
                                                    -----------   -----------

Product sales.....................................  $ 4,219,703   $ 1,836,142
Cost of sales.....................................    3,657,121     1,721,029
                                                    -----------   -----------
Gross profit......................................      562,582       115,113
Operating costs and expenses:
  Research and development........................    1,459,911     1,361,792
  Sales and marketing.............................    1,209,993       837,334
  General and administrative......................    1,570,323     1,136,779
                                                    -----------   -----------
Total operating costs and expenses................    4,240,227     3,335,905
                                                    -----------   -----------
Loss from operations..............................   (3,677,645)   (3,220,792)
Other income and expense, net.....................      151,193        97,508
                                                    -----------   -----------
Net loss..........................................  $(3,526,452)  $(3,123,284)
                                                    ===========   ===========
Basic and diluted net loss per share..............  $     (0.99)  $     (1.11)
                                                    ===========   ===========
Weighted average shares used in computing net loss
 per share........................................    3,568,503     2,801,410
                                                    ===========   ===========

                            See accompanying notes.

                                      F-4
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                      STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                Notes
                                               Common Stock     Additional    Receivable                                 Total
                                             -----------------    Paid-In        From       Deferred   Accumulated   Shareholders'
                                              Shares    Amount    Capital    Shareholders Compensation   Deficit        Equity
                                             ---------  ------  -----------  ------------ ------------ ------------  -------------
<S>                                          <C>        <C>     <C>          <C>          <C>          <C>           <C>
Balance at September 30, 1998..............  3,541,569  $3,542  $ 8,945,417    $(11,397)   $      --   $ (6,083,752)  $ 2,853,810
Repurchases of common stock from
 shareholder...............................     (2,784)     (3)      (1,117)         --           --             --        (1,120)
Repayment of notes receivable from
 shareholders..............................         --      --           --       4,371           --             --         4,371
Proceeds from exercise of options and
 warrants..................................     14,392      14        8,029          --           --             --         8,043
Issuance of common shares pursuant to
 private offering, net of issuance costs...    850,000     850    3,043,360          --           --             --     3,044,210
Deferred compensation relating to grant
 of stock options..........................         --      --      167,462          --     (167,462)            --            --
Amortization of deferred compensation......         --      --           --          --       50,774             --        50,774
Net loss and comprehensive net loss........         --      --           --          --           --     (3,123,284)   (3,123,284)
                                             ---------  ------  -----------    --------    ---------   ------------   -----------
Balance at September 30, 1999..............  4,403,177   4,403   12,163,151      (7,026)    (116,688)    (9,207,036)    2,836,804
Repurchases of common stock from
 shareholder...............................     (1,820)     (2)        (663)        665           --             --            --
Repayment of notes receivable from
 shareholder...............................         --      --           --       3,861           --             --         3,861
Proceeds from exercise of options and
 warrants..................................    485,701     486    1,726,083          --           --             --     1,726,569
Change in fair value of non-employee stock
 options...................................         --      --      (43,547)         --       43,547             --            --
Amortization of deferred compensation......         --      --           --          --       73,141             --        73,141
Net loss and comprehensive net loss........         --      --           --          --           --     (3,526,452)   (3,526,452)
                                             ---------  ------  -----------    --------    ---------   ------------   -----------
Balance at September 30, 2000..............  4,887,058  $4,887  $13,845,024    $ (2,500)   $      --   $(12,733,488)  $ 1,113,923
                                             =========  ======  ===========    ========    =========   ============   ===========
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                           STATEMENTS OF CASH FLOWS

                                                     Years Ended September 30,
                                                     -------------------------
                                                        2000          1999
                                                     -----------   -----------

Operating activities
Net loss............................................ $(3,526,452)  $(3,123,284)
Adjustments to reconcile net loss to net cash used
 in operating activities:
  Depreciation and amortization.....................     184,535       151,689
  Amortization of deferred compensation.............      73,141        50,774
  Changes in operating assets and liabilities:
    Accounts receivable.............................     265,698      (588,164)
    Inventory.......................................      31,807       293,857
    Other assets....................................      89,893       (47,822)
    Accounts payable................................    (116,843)      185,236
    Other current liabilities.......................     (81,643)      209,372
    Deferred revenue................................     452,690            --
                                                     -----------   -----------
Net cash used in operating activities...............  (2,627,174)   (2,868,342)

Investing activities

Expenditures for property and equipment.............    (148,516)     (183,022)
Increase in restricted cash.........................    (764,698)           --
                                                     -----------   -----------
Net cash used in investing activities...............    (913,214)     (183,022)

Financing activities

Proceeds from exercise of options and warrants......   1,726,569         8,043
Proceeds from issuance of common stock..............          --     3,044,210
Repayments of notes receivable from shareholders....       3,861         4,371
Payments on repurchase of unvested stock............          --        (1,120)
                                                     -----------   -----------
Net cash provided by financing activities...........   1,730,430     3,055,504
                                                     -----------   -----------
Net increase (decrease) in cash and cash
 equivalents........................................  (1,809,958)        4,140
Cash and cash equivalents at beginning of period....   2,121,753     2,117,613
                                                     -----------   -----------
Cash and cash equivalents at end of period.......... $   311,795   $ 2,121,753
                                                     -----------   -----------

Supplemental disclosure of cash flow information
Cash paid for interest.............................. $     2,929   $        --
                                                     ===========   ===========

                            See accompanying notes.

                                      F-6
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                         NOTES TO FINANCIAL STATEMENTS
                              September 30, 2000

1. Fiscal 2001 Financing

   During fiscal 2000, Notify Technology Corporation (the Company) financed its
operations through a combination of its existing cash balances and the proceeds
from the exercise of warrants. The Company's recurring losses from operations
and reduction in liquidity raise substantial doubt about its ability to continue
as a going concern.

   The Company's ability to fund its recurring losses from operations depends
upon its success in shifting its product focus into wireless e-mail notification
and wireless e-mail notification market solutions, and/or raising other sources
of financing. Management expects to enter into several arrangements that will
produce increased revenue from new products during fiscal 2001. The Company also
continues to pursue other sources of additional financing, including equity
financing. If the Company is successful in selling these new products and/or
raising other sources of financing, it believes that it will be able to finance
its operations during fiscal 2001 (see Note 8).

   The 2000 financial statements do not include any adjustments that might
result should the Company not be able to finance its expected level of future
expenditures.

2. Summary of Significant Accounting Policies

 Organization and Business

   The Company is a communications service and software provider for wireline
and wireless notification and messaging services. The Company is also a supplier
of call and message notification products and services.

 Cash and Cash Equivalents

   The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company is exposed to
credit risk in the event of default by the financial institutions to the extent
of amounts recorded on the balance sheet.

 Inventories

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

                                                                   September 30,
                                                                       2000
                                                                   -------------

      Raw materials...............................................   $ 76,662
      Work-in-process.............................................    197,062
      Finished goods..............................................    228,936
                                                                     --------
                                                                     $502,660
                                                                     ========

 Property and Equipment

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

                                      F-7
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

 Revenue Recognition

     The Company recognizes revenue on sales of call and message notification
products when the product is shipped, 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 is pending shipment 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.

  Research and Development

     Costs to develop the Company's products are expensed as incurred in
accordance with the Statement of Financial Accounting Standards No. 2,
"Accounting for Research and Development Costs," which establishes accounting
and reporting standards for research and development costs.

     The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," which requires
capitalization of certain software development costs once technological
feasibility for the software component is established and research and
development activities for the hardware component are completed. Based on the
Company's 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.

 Use of Estimates

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

 Concentration of Credit Risk

     The Company 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, 2000, two
customers accounted for 50% and 19% of accounts receivable.

 Stock Options

     The Company accounts for its stock option plan in accordance with
provisions of the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), because the Company believes the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

 Net Loss Per Share

     The weighted average number of common shares used in the net loss per share
calculation was reduced by the common stock and potential common shares placed
in escrow in connection with the Company's initial public offering. Options to
purchase 505,535 and 123,760 shares of common stock were outstanding at
September 30, 2000 and 1999, respectively, but were not included in the
computation of diluted net loss per share as the effect would be antidilutive.

 Effect of New Accounting Pronouncements

 SAB 101

     In December 1999 and during fiscal 2000, the staff of the Securities and
Exchange Commission issued and amended Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). SAB 101 is effective
for the Company in the fourth quarter of fiscal 2001. The Company does not
believe that SAB 101 will have any impact on its revenues and results of
operations.

 FIN 44

     In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--An Interpretation of APB Opinion

                                       F-8
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

No. 25" (FIN 44). FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of the previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The Company does not expect the application of FIN 44 to have a
material impact on the Company's financial position or results of operations.

3. Property and Equipment

   Property and equipment consist of the following:

                                                                  September 30,
                                                                      2000

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

      Furniture and office equipment..............................   $ 459,600
      Software....................................................      41,774
      Leasehold improvements......................................       2,246
                                                                     ---------
                                                                       503,620

      Less accumulated depreciation and amortization..............    (227,505)
                                                                     ---------
                                                                     $ 276,115
                                                                     =========



4. Commitments and Contingencies

   The Company currently occupies a facility under an operating lease, which
expires in March 2001 and contains renewal options to extend the lease term for
one two-year period. Future minimum payments under this lease for the year ended
September 30, 2001 are $75,000.

   Rent expense totaled $173,000 and $146,000 for the years ended September 30,
2000 and 1999, respectively.

   At September 30, 2000, the Company had $764,698 of outstanding letters of
credit to its suppliers related to a commitment to purchase additional inventory
of $687,000. The letters of credit are secured by a money market account of
$764,698, which is recorded as restricted cash.

5. 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 5,000,000 shares of
preferred stock in one or more series with such designation, rights,
preferences, and limitations as the Board of Directors may determine, including
the consideration to be received, the number of shares comprising each series,
dividend rates, redemption provisions, liquidation preferences, redemption and
fund provisions, conversion rights, and voting rights, all without the approval
of the holders of common stock.

                                      F-9
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

 Common Stock

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

                                                                 September 30,
                                                                      2000
                                                                 -------------

      1997 Stock Option Plan..................................       682,370
      Warrant agreements......................................     3,065,430
                                                                   ---------
                                                                   3,747,800
                                                                   =========



   In connection with an offering to the public in August 1997 (the Offering),
the Company granted an underwriter an option to purchase up to 160,000 units
(consisting of one share of common stock and one Class A warrant), exercisable
at $7.00 per unit, commencing in August 2000 and expiring in August 2002.

 Warrants to Purchase Common Stock

   In October 1999, the Company received proceeds of $1,121,760 from the
exercise of two warrants to purchase 311,600 shares of common stock issued in
connection with the March 1999 private placement of common stock. In connection
with the exercise, the product sales and revenue milestones and the expiry date
of two other warrants, each to purchase 155,800 shares of common stock issued in
connection with the March 1999 private placement were modified such that the
warrants expire upon the earlier of March 31, 2001 or 30 days after the Company
meets the revised product sales or revenue milestones. On February 16, 2000, the
Company received proceeds of $560,880 from the exercise of one of these
warrants. The Company did not meet the revenue milestone related to the
remaining warrant.

   At September 30, 2000, 2,025,000 Class A warrants issued in connection with
the Offering and other financings were outstanding. Each Class A warrant
entitles the holder to purchase one share of common stock at an exercise price
of $6.50, subject to adjustment, at any time through August 2002. Under certain
circumstances, the warrants are subject to redemption by the Company at $0.05
per warrant on 30 days written notice.

   In addition, at September 30, 2000, two warrants to purchase 155,800 and
721,244 shares of common stock at an exercise price of $3.60 issued in
connection with the March 1999 private placement were outstanding. The warrant
to purchase 155,800 shares of common stock expires on March 31, 2001 and the
warrant to purchase 721,244 shares of common stock expires in March 2003. In
connection with the private placement, the Company also agreed to issue
additional warrants if it sells shares of common stock in a capital raising
transaction at a price below $3.60 per share prior to the earlier of (i) March
30, 2002 or (ii) the date on which the Company calls the outstanding Class A
warrants.

   In addition, at September 30, 2000, 163,386 warrants to purchase shares of
the Company's common stock, issued in connection with various financings were
outstanding. These warrants are exercisable at any time at prices ranging from
$0.25 to $5.05 per share and expire at dates ranging through April 2002.

   At September 30, 2000, warrants to purchase common stock included 972,334 and
24,752 warrants held by three directors and one officer, respectively.

                                      F-10
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

 1997 Stock Option Plan

   In January 1997, the Company adopted the Notify Corporation 1997 Stock Plan
(the Plan), which provides for the granting of stock options to employees,
officers, consultants, and directors of the Company. Stock options are granted
at fair market value on the date of grant with terms of up to ten years. Under
the Plan, a total of 700,000 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.

   The following table summarizes stock option activity:

                                                                   Options
                                                                 Outstanding
                                                              ------------------
                                                   Shares               Weighted
                                                Available For Number of Average
                                                    Grant      Shares    Price
                                                ------------- --------- --------

   Balance at September 30, 1998.............      144,125      54,000  $ 2,742
     Grants..................................     (171,000)    171,000  $ 4,062
     Cancellations...........................       94,063     (94,063) $ 2,743
     Exercises...............................          --       (7,177) $ 0,906
                                                  --------     -------
   Balance at September 30, 1999.............       67,188     123,760  $ 4,672
     Authorized..............................      500,000         --
     Grants..................................     (455,000)    455,000  $ 7,204
     Cancellations...........................       64,647     (64,647) $ 6,561
     Exercises...............................          --       (8,578) $ 1,194
                                                  --------     -------
   Balance at September 30, 2000.............      176,835     505,535  $ 6,677
                                                  ========     =======



   The following table summarizes outstanding and exercisable options at
September 30, 2000:

                        Options Outstanding               Options Exercisable
                   ----------------------------------   -----------------------
                                                                     Weighted
                                   Weighted         Number of         Average
                    Number of       Average          Options         Remaining
      Exercise       Options       Remaining       Exercisable       Exercise
       Prices      Outstanding   Life in Years       Shares            Price
      --------     -----------   -------------     -----------       ---------
       $0.906         35,394         7.71            26,374           $0.906
       $2.750         28,000         9.87               375           $2.750
       $3.500          6,000         9.76              --             $3.500
       $3.781         14,141         8.40             8,099           $3.781
       $3.875         54,000         9.80             1,167           $3.875
       $5.594          8,000         9.27              --             $5.594
       $6.125          6,000         9.46              --             $6.125
       $6.375         57,000         9.14              --             $6.375
       $7.188         21,000         9.21              --             $7.188
       $7.344         16,000         8.68             5,292           $7.344
       $7.656         13,000         9.00             3,250           $7.656
       $7.750          5,000         8.86             1,458           $7.750
       $7.906          2,000         8.67             2,000           $7.906
       $8.813        240,000         9.39            40,832           $8.813
                   -----------                     -----------
                     505,535         9.24            88,847           $6.677
                   -----------                     -----------

                                     F-11
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

   The weighted average fair value of options granted was $6.02 in 2000 and
$3.35 in 1999.

 Stock-Based Compensation

   The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock on
the date of grant, no compensation expense is recognized.

   SFAS 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options granted
subsequent to September 30, 1995 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: a weighted
average expected life of the option of four years; risk-free interest rates of
6.0%; dividend yields of 0.0%; and volatility factors of the expected market
price of the Company's common stock of 133% and 136% for 2000 and 1999,
respectively.

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

                                                         2000         1999
                                                      -----------  -----------
   Net loss:
     As reported..................................... $(3,526,452) $(3,123,284)
     Pro forma.......................................  (4,044,930)  (3,173,000)
   Basic and diluted net loss per share:

     As reported..................................... $     (0.99) $     (1.11)
     Pro forma.......................................       (1.13)       (1.13)



   The effects of applying SFAS 123 pro forma disclosures are not likely to be
representative of the effects on net income or loss of future years.

   The Company recognized compensation expense of $73,000 and $51,000 in fiscal
2000 and 1999, respectively, related to the grant of options to non employees.

 Escrow Securities

   In connection with the Offering, holders of the Company's common stock agreed
to place 1,242,985 of their shares into escrow, and holders of certain warrants
agreed to place warrants to purchase 126,759 shares of common stock into escrow.
The securities will be released to the holders in the event specified levels of
pretax income are achieved for the years ended September 30, 1998 to 2003 or if
the Company is acquired by or

                                     F-12
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

merged into another entity in a transaction in which shareholders receive a
specified consideration. Any securities remaining in escrow on September 30,
2003 will be forfeited, which securities will then be contributed to the
Company's capital. The pretax income levels are subject to proportionate
adjustment upon the issuance of certain securities subsequent to the Company's
initial public offering.

   In the event that the escrowed securities are released, the Securities and
Exchange Commission has adopted the position that the release of escrowed
securities to officers, directors, employees, and consultants of the Company
will be compensatory and, accordingly, will result in compensation expense for
financial reporting purposes. The expense will equal the fair value of the
escrowed securities on the date of release and will result in a material charge
to operations. At September 30, 2000, the Company had not attained any of the
specified earnings or market price levels.

6. Income Taxes

   Due to operating losses, there is no provision for income taxes for 2000 or
1999. 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:

                                                         Years Ended September
                                                                  30,
                                                         ----------------------
                                                            2000        1999
                                                         ----------  ----------

   Deferred tax assets:
     Net operating loss carryforwards................    $3,900,000  $3,000,000
     Research credit carryforwards...................       211,000     150,000
     Other temporary differences.....................       824,000     350,000
                                                         ----------  ----------
       Total deferred tax assets.....................     4,935,000   3,500,000
   Valuation allowance...............................    (4,935,000) (3,500,000)
                                                         ----------  ----------
   Net deferred tax assets...........................    $      --   $      --
                                                         ==========  ==========



   Realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation allowance in
an amount equal to the net deferred tax asset has been established to reflect
these uncertainties. The change in the valuation allowance was a net increase of
$1,435,000 and $1,176,000 for fiscal years 2000 and 1999, respectively.

   As of September 30, 2000, the Company had net operating loss carryforwards of
approximately $10,000,000 and $6,000,000 for federal and California tax
purposes, which will expire in years 2003 through 2020. As of September 30,
2000, the Company also had research and development tax credit carryforwards for
federal and California tax purposes of approximately $150,000 and $80,000,
respectively. The credits will expire in years 2010 through 2019, if not
utilized. Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in the expiration of
net operating loss and tax credit carryforwards before full utilization.

                                     F-13
<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)
                              September 30, 2000

7. 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 regional bell operating companies and local exchange carriers. Two products
accounted for 69% and 20% of total revenues in fiscal 2000. The same two
products accounted for 34% and 41% in fiscal 1999. Two customers accounted for
55% and 11%, and 22% and 11% of sales for the years ended September 30, 2000 and
1999, respectively. Two other customers accounted for 23% and 17% of net sales
for the year ended September 30, 2000.

8. Subsequent Events

   In November 2000, the Company sold in a private offering 376,865 shares of
common stock and issued warrants to purchase 188,424 shares of common stock for
an aggregate consideration of $1,224,820. The warrants consisted of one set of
warrants to purchase 94,212 shares of common stock at $3.25 per share expiring
in August 2001 and one set of warrants to purchase 94,212 shares of common stock
at $3.25 per share expiring in November 2003. In the event the Company issues
equity securities in a financing for an amount of $250,000 or more at a price
per share less than the price per share in this offering, the exercise price of
the outstanding warrants will be reduced to the price per share at which such
equity securities were sold and the Company will issue additional warrants to
purchase common stock with an exercise price of $0.01 and a term of three years.
The warrants will be exercisable into a number of shares of common stock
determined by the price per share and number of shares issued in the financing.

                                     F-14
<PAGE>

                                 EXHIBIT INDEX

3.1       Restated Articles of Incorporation of Registrant. (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)

3.2       Amended and Restated Bylaws of Registrant. (incorporated herein by
          reference to Exhibit (3.2) to Post-Effective Amendment No. 4 to the
          Registrant's Registration Statement on Form SB-2, Reg. No. 333-23369,
          filed on April 18, 2000)

4.1       Form of Warrant Agreement. (incorporated herein by reference to
          Exhibit (4.1) to Amendment No. 1 to the Registrant's Registration
          Statement on Form SB-2, Reg. No. 333-23369, filed on May 29, 1997)

10.1      Employment Agreement dated as of August 1, 1997 between Registrant and
          Paul DePond. (incorporated herein by reference to Exhibit (10.1) to
          Amendment No. 2 to the Registrant's Registration Statement on Form SB-
          2, Reg. No. 333-23369, filed on August 15, 1997)

10.2      Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
          as of August 1, 1997 between Registrant and Paul DePond. (incorporated
          herein by reference to Exhibit (10.2) to Post-Effective Amendment No.
          4 to the Registrant's Registration Statement on Form SB-2, Reg. No.
          333-23369, filed on April 18, 2000)

10.3      Employment Agreement dated as of August 1, 1997 between Registrant and
          Gaylan Larson. (incorporated herein by reference to Exhibit (10.2) to
          Amendment No. 2 to the Registrant's Registration Statement on Form SB-
          2, Reg. No. 333-23369, filed on August 15, 1997)

10.4      Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
          as of August 1, 1997 between Registrant and Gaylan Larson.
          (incorporated herein by reference to Exhibit (10.4) to Post-Effective
          Amendment No. 4 to the Registrant's Registration Statement on Form SB-
          2, Reg. No. 333-23369, filed on April 18, 2000)

10.5      Employment Agreement dated as of August 1, 1997 between Registrant and
          Gerald Rice. (incorporated herein by reference to Exhibit (10.3) to
          Amendment No. 2 to the Registrant's Registration Statement on Form SB-
          2, Reg. No. 333-23369, filed on August 15, 1997)

10.6      Amendment No. 1 dated February 23, 2000 to Employment Agreement dated
          as of August 1, 1997 between Registrant and Gerald Rice. (incorporated
          herein by reference to Exhibit (10.6) to Post-Effective Amendment No.
          4 to the Registrant's Registration Statement on Form SB-2, Reg. No.
          333-23369, filed on April 18, 2000)

10.7      Form of Indemnification Agreement. (incorporated herein by reference
          to Exhibit (10.5) to the Registrant's Registration Statement on Form
          SB-2, Reg. No. 333-23369, filed on March 14, 1997)

10.8      Escrow Agreement by and between Registrant, the American Stock
          Transfer & Trust Company and certain security holders of the
          Registrant, as amended. (incorporated herein by reference to Exhibit
          (10.6) to Amendment No. 2 to the Registrant's Registration Statement
          on Form SB-2, Reg. No. 333-23369, filed on August 15, 1997)

10.9      Registrant's 1997 Stock Plan, as amended. (incorporated herein by
          reference to Exhibit (10.9) to Post-Effective Amendment No. 4 to the
          Registrant's Registration Statement on Form SB-2, Reg. No. 333-23369,
          filed on April 18, 2000)

10.10     Lease between Registrant and C.C. Poon. (incorporated herein by
          reference to Exhibit (10.9) to Amendment No. 1 to the Registrant's
          Registration Statement on Form SB-2, Reg. No. 333-23369, filed on May
          29, 1997)

10.11+    Nonexclusive Technology License Agreement between Registrant and
          Active Voice Corporation dated April 30, 1997. (incorporated herein by
          reference to Exhibit (10.10) to Amendment No. 2 to the Registrant's
          Registration Statement on Form SB-2, Reg. No. 333-23369, filed on
          August 15, 1997)

10.12     Securities Purchase Agreement dated as of March 4, 1999 between
          Registrant and David A. Brewer. (incorporated herein by reference to
          Exhibit (10.11) to Post-Effective Amendment No. 3 to the Registrant's
          Registration Statement on Form SB-2, Reg. No. 333-23369, filed on
          April 2, 1999)

10.13     Amendment No. 1 dated October 7, 1999 to Securities Purchase Agreement
          dated as of March 4, 1999 between Registrant and David Brewer.
          (incorporated herein by reference to Exhibit (10.12) to the
          Registrant's Annual Report on Form 10-K for the fiscal year ended
          September 30, 1999, filed on December 28, 1999.

10.14 *   Amendment No. 2 dated October 26, 2000 to Securities Purchase
          Agreement dated as of March 4, 1999 and as amended on October 7, 1999
          between Registrant and David Brewer.

10.15     Form of Underwriter's Unit Purchase Option. (incorporated herein by
          reference to Exhibit (4.2) to Amendment No. 1 to the Registrant's
          Registration Statement on Form SB-2, Reg. No. 333-23369, filed on May
          29, 1997)

10.16     Stock Option Agreement dated November 11, 1999 between Registrant and
          Dane Russell. (incorporated herein by reference to Exhibit (10.15) to
          Post-Effective Amendment No. 4 to the Registrant's Registration
          Statement on Form SB-2, Reg. No. 333-23369, filed on April 18, 2000)

10.17 *   Securities Purchase Agreement dated November 8, 2000 by and among the
          Registrant and the purchasers listed on Exhibit A thereto.

23.1.     Consent of Ernst & Young LLP, Independent Auditors

24.1 *    Power of Attorney

27.1 *    Financial Data Schedule

____________

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