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                    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, 2001

                                      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 Identification No.)
of incorporation or organization)

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. [_]

   State issuer's revenues for its most recent fiscal year. $1,310,094

   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 November 30, 2001, was approximately $2,410,188. 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, 2001 was 5,286,593 shares.

   Portions of our proxy statement for our Annual Meeting of Shareholders to be
held on February 27, 2002 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]

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                                    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 wireless and wireline messaging services and a supplier of
innovative call and message notification products and services. We currently
sell our products through OEM relationships with major telephone companies,
telephone equipment distributors, Internet service providers and 2way wireless
carriers.

   Our focus is primarily 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 products are called Call Manager, Visual Got Mail, and
Centrex Receptionist. Our Call Manager products incorporate caller-id, call
waiting caller-id, and telephone company voice mail notification. We provide an
e-mail notification service with our Visual Got Mail technology and our Centrex
Receptionist product gives Centrex business customers a cost-effective means of
ensuring that incoming calls are properly routed even when a human attendant is
not available.

Products

  NotifyLink

   We launched the hosted version of our NotifyLink product line ("NotifyLink
Internet Edition") in December 2000. The NotifyLink Internet Edition product is
intended to provide the mobile "dial-up" e-mail user with access to and
management of the user's e-mail account. In July 2001, we launched two
NotifyLink Desktop Edition products targeted for the "always on" user who has a
continuous connection to the Internet. These desktop products are called
NotifyLink Desktop Professional Edition and Desktop Standard Edition.

   The NotifyLink Internet service provides users of Motorola's T900 Talkabout
Personal Information Communicator with wireless e-mail notification and
management. The wireless e-mail service works with most e-mail providers
including AOL, Yahoo, and all POP3 mail systems. Users are able to use the
NotifyLink Internet service with their existing e-mail accounts. Users register
for the service via a web based interface typically linked to a specific
carrier. To set up the NotifyLink Internet service, the user specifies each
e-mail account they want to monitor and sets any appropriate filters. The user
can tailor the notification by defining a "header" which contains information
about the e-mail, such as account, sender, subject, date and time,

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attachment names, attachment sizes, partial body text, and remaining character
count. Once registered, the NotifyLink Internet service checks all specified
e-mail accounts periodically. Users have the capability to perform "on-demand
checking" of any of their specified accounts at any time. Once the service
determines that a user has new e-mail, a notification is sent to the user in
the format of a defined "header". The user has the option to see "more" of the
e-mail body or "reply", "forward", or "delete" the e-mail and its corresponding
attachments from the T900.

   Our NotifyLink Standard Edition software provides users of Motorola's new
P935 Timeport(TM) and T900 Talkabout(TM) with wireless e-mail notification and
management. Owners of the Motorola PageWriter 2000x Personal Interactive
Communicator are able to take advantage of NotifyLink Standard or Plus Editions
once they upgrade their device Operating System to the new Motorola Wisdom(TM)
OS 4.0. A user can easily install our NotifyLink Standard or Plus Edition
software on a desktop computer that is connected to the Internet by a Cable,
DSL, or LAN/WAN service. The software is easy to use and quickly configured.
The user can configure the software by specifying the e-mail accounts that the
user wants 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 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.

   Once configured, the NotifyLink Standard or Plus Edition software will
forward the filtered e-mail in the format of the "header" that was chosen by
the user. Once the "header" is received on the T900 or P935 device, the user
will have the option to see "more" of the e-mail body or "reply", "forward", or
"delete" the e-mail and its corresponding attachments. Any action taken on the
new e-mail message by the user will cause the "InBox", "Sent Items", or
"Deleted Items" folders on the user's desktop to be updated to reflect the
action. Any e-mail message sent from the T900 or P935 by a user will display
the originating user's name and a memo notation that the message was forwarded
from the user's desktop e-mail address.

   Our most recent product offering incorporates the functionality of our
Desktop software in an enterprise version designed as a corporate solution to
e-mail notification. Key to the utility of this solution is the ability to
service multiple networks and multiple devices using the same enterprise
system. As a result, corporate IT managers are able to use a single system to
support a variety of devices and employees are able to use the device best
suited for their needs. We have not earned significant revenue from our Notify
Link products to date.

  Visual Got Mail

   The Visual Got Mail service is designed to eliminate residential, Small
Office Home Office, or SOHO, and business e-mail subscribers' frustration with
the traditional, inconvenient process of checking for e-mail. The Visual Got
Mail technology, designed for the telephone company or Internet Service
Provider deployment as a service offering, includes a scalable carrier class
server infrastructure, that we host or is hosted by the telephone company, and
the eView telephone adjunct. The eView integrates our caller-id technology with
the Visual Got Mail e-mail notification functionality. The eView integrates
caller-id, voice mail, and e-mail notification into a single device that can
fit in the palm of your hand. The eView displays the name and number of the
calling party and the e-mail "header" information, which contains the name of
the sender and the subject of the sender's message, for up to five e-mail
accounts. The eView displays up to twenty-five e-mail headers and indicates the
presence of any e-mail attachments. We have not earned significant revenue from
our Visual Got Mail service to date.

  Call Manager

   Our caller-id products incorporate our MessageAlert visual message waiting
indication technology and provide support for combinations of telephone company
services such as voice mail, caller-id, call waiting caller-id and deluxe call
waiting. Caller-id products are categorized as either "Type I" (calling name
and calling number

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only); "Type II" (Type I features plus call waiting caller-id) or "Type II.5"
(Type II plus deluxe call waiting). Type II and Type II.5 products support the
more sophisticated services offered by telephone service providers than the
"Type I" products more commonly on the market. Our Call Manager line of
products include all three types and are designed to support bundling of
services offered by the telephone service provider giving more functionality to
the end user and more revenue opportunity for the telephone service provider.

   We are no longer selling a generic caller-id product and are only selling
solutions based on our Visual Got Mail technology that utilize our caller id
technology as part of the overall solution.

  Centrex Receptionist

   Small businesses that use Centrex services generally must maintain a human
attendant to answer incoming calls, or the calls will go unanswered or be
transferred into the business' general voice mail mailbox. The Centrex
Receptionist is a stand-alone unit that provides the Centrex customer with
automatic call answer and transfer capability 24 hours a day, 7 days a week.
The Centrex Receptionist provides thirty minutes of recorded announcement time,
special after hours or holiday announcements, and nine main menu items. Each
main menu item supports nine selections that can be either a transfer to a
telephone number or an announcement. The Centrex Receptionist also provides
extension dialing, name directory services and call statistics. The unit has a
battery back-up that will last up to three days. The Centrex Receptionist is
remotely configured by our Customer Service but locally programmable by the
user for voice greetings and voice announcements using a touch tone telephone.
It has password protection for all administrative programming. The current
Centex Receptionist model supports two or four incoming Centrex lines.

Sales, Marketing and Distribution

   We are expanding our customer base by using 2way wireless carriers to market
our NotifyLink product line of services and software. NotifyLink Internet
service can be used by all major ReFLEX carriers - 2way messaging carriers
which include WebLink Wireless, SkyTel, MetroCall, Arch Wireless, PageNet TSR
Wireless, and Bell Mobility. We have entered into agreements with three
wireless carriers and one 2way wireless device manufacturer for the sale of our
NotifyLink products and services. We have no direct sales force to sell our
NotifyLink products and rely on our four customers to resell our NotifyLink
products and services to users. In addition, we have granted Motorola the
exclusive right, with the exceptions of WebLink Wireless and PageNet Canada, to
resell the editions of our NotifyLink software that are compatible with
Motorola's current two paging devices to wireless carriers. To date, we have
received only limited revenue from our four NotifyLink customers, and we will
receive revenue from these customers only to the extent that they successfully
resell our products and services to users.

   The Visual Got Mail product line provides revenue from both sales of adjunct
equipment and supplying ongoing Visual Got Mail services to users. Service
revenue may be direct through our own service centers or indirect through
customer owned and maintained service centers. Our technology is proprietary
and only our adjunct products or products licensed through us will interface
with the server centers. We have signed marketing agreements with Cincinnati
Bell, Sprint, and AT&T WorldNet. We expect to continue to market the Visual Got
Mail service, or derivatives of this product, to traditional large telephone
companies.

   The traditional sales activities for our products, the Call Manager products
and the Centrex Receptionist, have been focused on direct sales to large
telephone companies. Our hardware products have been either private labeled or
joint marketed by GTE Communication Systems Corporation, Pacific Bell,
Southwestern Bell Telephone Company, BellSouth Corporation, Ameritech
Corporation, Century Telephone Enterprises Inc and Altell Telephone System.
Except with respect to Pacific Bell, Southwestern Bell and Ameritech
Corporation, our relationship with these companies has not been reduced to a
formal agreement or contract and none of these companies is obligated to
purchase any products from us. We manufacture products based on purchase orders
and forecasts of purchases received from Regional Bell Operating Companies, or
RBOCS, and Local Exchange

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Carriers, or LECs. We believe large telephone companies typically do business
in this manner and we do not intend to seek long-term contractual commitments
from our telephone company customers. We sell products in the United States
primarily to RBOCs and LECs. The Call Manager and Centrex Receptionist product
lines accounted for 34% and 20% of total revenues in fiscal 2001, respectively.
The same two product lines products accounted for 69% and 20% of total revenues
in fiscal 2000, respectively. Significant portions of our revenue have been
concentrated in a small number of customers. For example, one customer
accounted for 36% and 22% of sales for the years ended September 30, 2001 and
2000, respectively. Two other customers accounted for 26% and 12% of sales for
the fiscal year ended September 30, 2001, while three other customers accounted
for 23%, 17% and 15% of sales for the fiscal year ended September 30, 2000.

   We are marketing the Centrex Receptionist to the same group of large
telephone companies we have targeted for the eView and Call Manager products.
We have entered into contracts with three major telephone companies to sell our
Centrex Receptionist through their ongoing customer premise equipment channels.
We believe that we have established ourselves as a qualified supplier or joint
marketing partner with respect to the Centrex Receptionist.

   To date, we have sold our products to five of the seven RBOCs and twelve of
the 20 largest LECs. Although we have experienced a significant decline in our
legacy products during fiscal 2001, our strategy is to encourage these
companies to bundle our products with their services as both a consumer
acquisition tool and to increase retention of new service subscribers. In
addition, we intend to encourage telephone companies and their authorized
resellers that focus on selling Centrex services to also market our Centrex
Receptionist as an enhancement to the basic Centrex service.

Technical and Marketing Support

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

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

Research and Development

   We incurred $1,075,482 and $1,459,911 in research and development expenses
in fiscal 2001 and 2000, respectively. The significant reduction in expenses is
due to our changing of our development strategy from hardware development to
software development and our moving our research and development activities
from California to Ohio. We believe that our future success, if any, depends
significantly on our ability to continue to enhance our existing products and
to develop new products and, therefore, we intend to continue to incur
substantial research and development costs. We expect that our research and
development efforts will be focused in two areas: continued development of our
2way wireless service and related software and the incorporation of our
technology into complimentary products.

Manufacturing

   We use offshore turnkey manufacturing to produce our Call Manager and e-View
products. 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.

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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. In addition, the U.S.
telecommunications market is evolving rapidly in part due to recently enacted
laws revamping the telecommunications regulatory structure. Additional
legislative or regulatory changes are possible. A failure by 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 direct competition for our
NotifyLink Internet Edition service or NotifyLink Desktop products for ReFLEX
2way devices. However, in the market for wireless e-mail notification and
management software, we indirectly compete with Research In Motion Limited and
Infowave Software, Inc.

   We believe that we do not currently have any direct competition for our
Visual Got Mail technology. There are several indirect competitors that include
Landel Telecom and CIDCO Incorporated. These companies produce products that
provide e-mail notification as well as limited e-mail access. All of these
products require a relatively expensive device that consists of a multi-line
character display and a keyboard. We believe our Visual Got Mail technology
competes favorably with respect to any of these indirectly competing products.

   We believe that we have no direct competitors in the market for Centrex
auto-attendant products. Indirect competition exists from Central Office based
services, PBX hardware installed on the end user's site and various PC based
software systems. These alternate solutions do not always use Centrex lines and
therefore do not stimulate Centrex service sales.

   We expect that to the extent that the market for any of our products
develops, competition will intensify and new competitors will enter the market.
There can be no assurance that we will be able to compete successfully against
existing and new competitors as the market for our products evolves and the
level of competition increases. A failure to compete successfully against
existing and new competitors would have a materially adverse effect upon our
business and results of operations.

Proprietary Rights

   We 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

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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.

   We have entered into a non-exclusive license agreement with Active Voice
Corporation ("Active Voice") pursuant to which we have paid an up-front fee on
sales of 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 $158,909
and $97,281 in fiscal 2001 and 2000, respectively.

Employees

   As of September 30, 2001, we employed thirty-one persons of whom fifteen
were engaged in research and development, two in operations, ten in sales,
marketing, and customer support, and four in general administration and
finance. We contemplate increasing our staff at a pace consistent with our
business and growth. None of our employees are currently represented by a labor
union. We consider our relations with our employees to be good.

   Our success, if any, will be dependent on our ability to attract and retain
highly skilled technical personnel as well as marketing and sales personnel. If
we 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.

Executive Officers

   The following sets forth information with regard to our executive officers
as of September 30, 2001:

   Paul F. DePond, founder of Notify Technology Corporation, has served as our
President, Chief Executive Officer and Chairman of our board of directors since
our inception in August 1994.

   Gaylan I. Larson has served as our Vice President of Operations and as one
of our directors since August 1994.

   Gerald W. Rice has served as our Chief Financial Officer and Secretary since
August 1994.

   Rhonda 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.

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                                 RISK FACTORS

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. Most of the products developed during
this period have matured and currently have limited sales. We entered a new
development period 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, 2000, 1999, and
1998, we incurred net losses of $3,526,452, $3,123,284 and $2,617,561
respectively. We incurred a net loss of $3,337,612 for fiscal 2001 and as of
September 30, 2001, we had an accumulated deficit of $19,578,100 and working
capital of $3,068,584. 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

   Due to market changes in the telephone communications industry, including
telephone company mergers and re-organizations, we have changed our product
emphasis away from telephony adjunct services towards wireless software
products. We need to market our new wireless software products on a timely
basis to keep pace with technological developments, emerging industry
standards, and the 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 addition, if a number of ReFLEX carriers should go out of
business, we would have more difficulty selling our NotifyLink products to the
fewer remaining ReFLEX carriers. 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.

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

   At September 30, 2001, we had an accumulated deficit of $19.6 million and
incurred a net loss of $3.3 million for the year ended September 30, 2001. 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. However, 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, Units and Class A warrants to be volatile.
Operating results may vary as a result of many factors, including the following:

   . our level of research and development;

   . our sales and marketing activities;

   . announcements by us or our competitors;

   . size and timing of orders from customers;

   . new product introductions by us or our competitors; and

   . price erosion.

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

   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 new 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. To
date, we have received only limited revenue from the sale of these products.
While we believe that our wireless products are commercially viable, developing
products for the consumer and business marketplaces is inherently difficult and
uncertain. We do not believe our sales to date are sufficient to determine
whether or not there is meaningful consumer or business demand for our products.

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   We intend to devote significant resources to sales and marketing efforts and
to promote 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, we have entered into agreements with three wireless carriers and
one 2way wireless device manufacturer for the sale of our NotifyLink products
and services. We have no direct sales force to sell our NotifyLink products and
services to eventual users and we rely entirely upon our four customers to
resell our NotifyLink products and services to users. In addition, we have
granted Motorola the exclusive right to resell the editions of our NotifyLink
software, which are compatible with Motorola's current two paging devices, to
wireless carriers other than WebLink Wireless and PageNet Canada. To date, we
have received only limited revenue from our four NotifyLink customers, and we
will receive revenue from these customers only to the extent that they
successfully resell our products and services to users. In particular, we are
dependent on Motorola's willingness to promote the sales of our products
through the major wireless carriers. The success of our NotifyLink Internet
Edition web based product will be dependent on our ability to sell it to, or in
conjunction with, the seven largest 2way wireless carriers. Our NotifyLink
desktop software will be largely dependent on establishing a relationship with
large 2way wireless device manufacturers. There can be no assurance that we
will ever sell our NotifyLink products and services to additional 2way wireless
carriers or 2way wireless device manufacturers or that we will ever receive any
revenue from our existing customers.

   We believe that we can sell only limited quantities of our Call Manager and
Centrex Receptionist products in the future. To date, we have sold our wireline
products to five Regional Bell Operating Companies, or RBOCs, and twelve Local
Exchange Carriers, or LECs. It took us substantially longer than we originally
anticipated to qualify our wireline products and develop some of these
marketing relationships necessary to make these sales. We have experienced a
significantly reduced market for our Call Manager products. Our Centrex
Receptionist product is selling at a reduced level and we do not anticipate a
significant increase in Centrex Receptionist sales in future quarters. If we
fail to develop significantly enhanced relationships with the RBOCs and LECs,
our business and operating results would be materially adversely affected.

   We also intend to develop other distribution channels for our products by
including certain wireless device manufacturers, national wireless carriers and
potential development of internet service provider channels. Our management
will need to expend time and effort to develop these channels. Because our
marketing efforts have been largely focused on developing relationships with
RBOCs and LECs, our management has had only limited experience in selling our
products through these channels. We may not be able to implement this marketing
and distribution program 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 will consist of software and service 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.

   Many of our products incorporate 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
will engage in similar redesigns of our products. In addition, we are in the
process of developing new, similarly complex products. Though we extensively
test our products before

                                      10

<PAGE>

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 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 and Infowave Software, Inc. In the Caller-ID market, we compete
directly with TT Systems, Aastra Telecom of Canada and Thompson Consumer Inc.
Finally, our Visual Got Mail technology indirectly competes with several
companies, including Landel Telecom and CIDCO Incorporated. Some of these
companies have greater financial, technical and marketing resources than we do.
In addition, there are several companies with substantially greater technical,
financial and marketing resources than we have that could produce competing
products. These companies include telephone equipment manufacturers such as
Nortel, Inc. and Lucent Technologies, Inc. We expect that to the extent that
the market for our products develops, competition will intensify and new
competitors will enter the market. We may not be able to compete successfully
against existing and new competitors as the market for our products evolves and
the level of competition increases. A failure to compete successfully against
existing and new competitors would materially adversely affect our business and
results of operations.

Our Securities May be Delisted From the Nasdaq Stock Market

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

      1. either at least $2,000,000 in net tangible assets, a $35,000,000
   market capitalization or net income of at least $500,000 in the latest
   fiscal year or two of the last three fiscal years;

      2. at least 500,000 shares in the public float valued at $1,000,000 or
   more;

      3. a minimum common stock bid price of $1.00;

      4. at least two active market makers; and

      5. at least 300 holders of our common stock.

   For the period from September 30, 2000 through June 30, 2001, our net
tangible assets fell below $2,000,000. While our net tangible assets rose above
$2,000,000 after we completed a private placement of Series A Preferred Stock
and warrants in July 2001 for net proceeds of approximately $4,196,867, there
can be no assurance that we will be able to maintain net tangible assets in
excess of $2,000,000 or comply with all other Nasdaq listing requirements in
the future.

   Our common stock bid price is currently below $1.00. Although Nasdaq has
declared a temporary moratorium on delisting for failure to meet the $1.00
minimum bid price requirement, if the minimum bid price or our common stock is
below $1.00 for 30 consecutive trading days after the moratorium is lifted, our
common stock may be delisted. There can be no assurance that the bid price on
our common stock will increase to at least $1.00 or that we will be able to
maintain the minimum bid price requirement on our common stock in the future.

   If our securities were delisted from the Nasdaq SmallCap Market, trading, if
any, in our Units, common stock and Class A warrants would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or on
the National Association of Security Dealer's "Electronic Bulletin Board." As a
result, the number

                                      11

<PAGE>

of our securities which could be bought or sold would likely be reduced,
transactions in our securities might be delayed and the prices for our
securities might be lower than otherwise would be attained.

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.

   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.

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 and Visual Got Mail products is manufactured only by

                                      12

<PAGE>

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 offshore manufactures to manufacture our products and these
manufacturers 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 effect 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.

We May Not Be Able to Manage Our Planned Growth

   We plan to expand our business operations during fiscal year 2002. This
expansion could strain our limited personnel, financial, management and other
resources. In order to manage our planned growth, we will need to maintain our
product development program and expand our sales and marketing capabilities and
personnel. In addition, we will need to adapt our financial planning,
accounting systems and management structure to accommodate this growth if it
occurs. Our failure to properly anticipate or manage our growth, if any, could
adversely affect our business, operating results and financial condition.

Sales of Outstanding Shares May Hurt Our Stock Price

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

   . 1,315,819 shares of our common stock that are outstanding or that underlie
     warrants which were placed in an escrow in connection with our initial
     public offering.

   . The holder of an option to purchase 160,000 Units consisting of one share
     of common stock and one Class A warrant has demand and "piggy-back"
     registration rights covering our securities.

   . We have registered for resale 1,667,395 shares of outstanding common stock
     and 1,247,107 shares of common stock underlying outstanding warrants that
     were issued in March 1999 and November 2000.

   . We have registered for resale 8,132,820 shares of common stock that
     underlies our outstanding Series A preferred stock and warrants that were
     issued in July 2001.

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

Exercise of Outstanding Options and Warrants May Dilute Current Shareholders

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

   . 1,600,000 Class A warrants to purchase 2,096,000 shares of our common
     stock for $4.96 per share, issued in connection with our initial public
     offering, subject to adjustment in some circumstances;

   . 425,000 Class A warrants to purchase 556,750 shares of our common stock
     for $4.96 per share, issued in connection with our 1997 bridge financing;

                                      13

<PAGE>

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

   . additional warrants as of September 30, 2001 to purchase 113,514 shares of
     our common stock;

   . 1,613,722 options outstanding as of September 30, 2001 under our 1997
     Stock Plan, and subject to vesting requirements. 765,940 shares of our
     common stock are reserved for issuance under our 1997 Stock Plan;

   . warrants as of September 30, 2001 to purchase 721,244 shares of common
     stock at a price of $1.00 per share held by David Brewer;

   . warrants to purchase 142,276 shares of common stock at a price of $1.00
     held by various investors;

   . warrants to purchase 337,439 shares of common stock at a price of $0.01
     per share issued to various prior investors as an anti-dilution adjustment
     to our issuance of securities in our July 2001 private placement;

   . warrants to purchase an aggregate of 1,871,651 shares of common stock at a
     price per share of $1.00 issued in connection with our July 2001 private
     placement; and

   . options to purchase an aggregate of 9.2685 units at a price per unit of
     $100,000, each unit consisting of shares of Series A Preferred Stock
     convertible into an aggregate of 100,000 shares of common stock and a
     warrant to purchase 35,000 shares of common stock issued to the placement
     agent in our July 2001 private placement.

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

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 Net Income Will Be Decreased if the Escrow Securities Are Released

   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 we reach pre-tax earnings targets.
Upon the release from this escrow of any securities owned by our officers,
directors, consultants or employees, we will be required to record compensation
expense for financial reporting purposes. Accordingly, in any period in which
securities are released from this escrow, we will record a substantial non-cash
charge to earnings that will increase our loss or reduce or eliminate earnings,
if any, at that time. The amount of this charge will be equal to the aggregate
market price of the securities owned by directors, officers and employees which
are released from the escrow. Although the amount of compensation expense
recognized by us would not affect our total shareholders' equity or cash flow,
it may have a depressive effect on the market price of our securities.

                                      14

<PAGE>

California's Current Energy Crisis

   California is in the midst of an energy crisis that could disrupt the
conduct of sales, marketing, research and development, finance and other
operations at our headquarters facilities. In the event of an acute power
shortage, California has, on some occasions, implemented, and may in the future
continue to implement, rolling blackouts throughout California. We use third
party hosting sites, that have emergency back-up generators, for our critical
operations but we do not have sufficient back-up generating capacity or
alternate sources of power to keep our headquarters in full operation in the
event of a blackout. If blackouts interrupt our power supply, we would be
temporarily unable to continue full operations at our headquarters. Any such
interruption could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and could result in lost revenue, any of
which could substantially harm our business and results of operations.

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, 2003. 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 leased on a lease that expires in October 2006.

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 2001.

                                      15

<PAGE>

                                    PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters

(a) 1. Market for Common Equity.

   Since August 28, 1997, the effective date of our initial public offering,
our Common Stock, Class A Warrants and Units consisting of one share of Common
Stock and one Class A Warrant were listed on the Nasdaq SmallCap Market under
the symbols NTFY, NTFYW and NTFYU, respectively.

   The quarterly high and low sales prices of our Common Stock during the last
two fiscal years are as follows:

                               NTFY Common Stock

<TABLE>
<CAPTION>
                                                      Closing    Daily Average
                                      High    Low   Sales Prices Trading Volume
                                     ------- ------ ------------ --------------
<S>                                  <C>     <C>    <C>          <C>
Fiscal Year Ended September 30, 2001
   Fourth Quarter................... $ 1.740 $0.400    $0.430        13,070
   Third Quarter.................... $ 2.438 $1.230    $1.550        11,224
   Second Quarter................... $ 4.250 $1.938    $2.625        14,973
   First Quarter.................... $ 4.000 $1.813    $2.563        18,236
Fiscal Year Ended September 30, 2000
   Fourth Quarter................... $ 6.000 $2.625    $3.375        16,924
   Third Quarter.................... $ 7.875 $3.578    $3.813        18,640
   Second Quarter................... $10.875 $4.375    $7.813        69,687
   First Quarter.................... $ 8.438 $6.063    $6.063        34,837
</TABLE>

   The quarterly high and low sales prices of our Class A Warrants during the
last two fiscal years, are as follows:

                                NTFYW Warrants

<TABLE>
<CAPTION>
                                                     Closing    Daily Average
                                      High   Low   Sales Prices Trading Volume
                                     ------ ------ ------------ --------------
<S>                                  <C>    <C>    <C>          <C>
Fiscal Year Ended September 30, 2001
   Fourth Quarter................... $0.400 $0.170    $0.170         2,655
   Third Quarter.................... $0.563 $0.250    $0.320         3,195
   Second Quarter................... $1.438 $0.500    $0.688         6,088
   First Quarter.................... $1.438 $0.344    $0.813         6,836
Fiscal Year Ended September 30, 2000
   Fourth Quarter................... $1.813 $.0438    $1.250        10,683
   Third Quarter.................... $2.375 $0.813    $0.906         7,232
   Second Quarter................... $4.500 $1.375    $2.500        23,157
   First Quarter.................... $3.063 $1.938    $2.031        20,270
</TABLE>

                                      16

<PAGE>

   The quarterly high and low sales prices of our Units during the last two
fiscal years are as follows:

                                  NTFYU Units

<TABLE>
<CAPTION>
                                                      Closing    Daily Average
                                      High    Low   Sales Prices Trading Volume
                                     ------- ------ ------------ --------------
<S>                                  <C>     <C>    <C>          <C>
Fiscal Year Ended September 30, 2001
   Fourth Quarter................... $ 1.910 $0.800   $ 0.800          29
   Third Quarter.................... $ 3.188 $1.900   $ 1.910         150
   Second Quarter................... $ 6.000 $2.500   $ 4.063         252
   First Quarter.................... $ 4.500 $1.500   $ 3.250         261
Fiscal Year Ended September 30, 2000
   Fourth Quarter................... $ 7.500 $3.500   $ 4.250         136
   Third Quarter.................... $11.000 $3.250   $ 3.500          95
   Second Quarter................... $14.250 $6.750   $11.000         803
   First Quarter.................... $11.750 $8.125   $ 8.250         175
</TABLE>

   These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.

   Shareholders. As of December 13, 2001, there were approximately 90 holders
of record of our Common Stock and Class A Warrants.

   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.

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 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 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

   Our revenue has been derived primarily from the sale of our Call Manager and
Centrex Receptionist products. Revenue consists primarily of gross revenue from
the sale of telephony equipment and service income

                                      17

<PAGE>

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, 2001 decreased to $1,310,094
from $4,219,703 for the fiscal year ended September 30, 2000. Revenue decreased
$2,455,934 from the previous year due to a reduction in sales of the Call
Manager product line and decreased $555,795 due to a reduction in sales of the
Centrex Receptionist. We believe that the revenue from our Call Manager
decreased due to telephone companies reducing their use of adjunct products as
a marketing tool. 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 Call Manager on a stand alone basis,
but will sell solutions based on our Visual Got Mail technology that utilizes
the Caller-id technology as part of the overall solution. Revenue for fiscal
year 2001 included royalty revenue of $158,909 compared to $97,281 in fiscal
year 2000 from our multi-sense/stutter-dial patent. There can be no assurance
that the decline in revenue from our Call Manager and Centrex products will not
continue in fiscal 2002. We have not earned significant revenue from our Visual
Got Mail or Notify Link products to date.

   We sell products in the United States primarily to 2way wireless carriers,
regional bell operating companies and local exchange carriers. The Call
Manager, Centrex Receptionist and royalty revenue accounted for 34%, 20% and
12%, respectively of total revenues in fiscal 2001. The same three revenue
streams accounted for 69%, 20% and 2%, respectively of total revenues in fiscal
2000. Significant portions of our revenue have been concentrated in a small
number of customers although not necessarily the same customers each year. For
example, one customer accounted for 36% and 22% of sales for the years ended
September 30, 2001 and 2000, respectively. Two other customers accounted for
26%, and 12% of sales for the fiscal year ended September 30, 2001 while three
other customers accounted for 23%, 17%, and 15% of sales for the fiscal year
ended September 30, 2000.

   In November 2001, we received an order for our Call Manager product, which
is expected to generate approximately $1 million of revenue in the second half
of fiscal 2002.

  Cost of Sales

   Cost of sales consists primarily of the cost to manufacture our products.
Cost of sales decreased to $956,553 in the fiscal year ended September 30, 2001
from $3,657,121 in the fiscal year ended September 30, 2000. This decrease was
the result of decreased sales of the Call Manager product line and the Centrex
Receptionist product line. Included in cost of sales are inventory write-downs
of $400,000 in fiscal 2001, of which $200,000 was originally recorded as a loss
on a firm purchase commitment and $500,000 in fiscal 2000.

   Including the inventory write-downs our gross margin increased to 27% in
fiscal 2001 from 13% in fiscal 2000. Our gross margin, prior to the inventory
write downs increased to 58% for fiscal year 2001 compared to 25% in fiscal
year 2000. This improvement occurred because of increased royalty proceeds from
our stutter-dial patent and a higher concentration of Centrex Receptionist
sales and the sale of previously written down inventory, which increased the
gross margin by $70,615.

   The inventory write-downs in fiscal 2001 were related to raw materials and
work-in-process for our Call Manager product line. We experienced a lower
demand for our caller-id units in customer promotional programs during the
first fiscal quarter. Based on this continuing trend, we revised our fiscal
2001 sales forecast for our caller-id product line, which led to a
determination that there was excess inventory at December 31, 2000 resulting in
the $200,000 accrual for losses on firm purchase commitments. However, the
decline in Call Manger sales in the second fiscal quarter was greater than
originally anticipated and, accordingly, we revised downwards our sales
forecast for the remainder of fiscal 2001. This resulted in excess inventory at
March 31, 2001 when considering the inventory of Call Manager. Consequently, we
recorded an additional inventory write-down of $200,000 related to Call Manager
inventory.

   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

                                      18

<PAGE>

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, we revised our fiscal
2001 sales forecast for our 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, we revised our 2001 sales forecast for our Centrex
Receptionist product line, which led to the determination that there was excess
inventory at September 30, 2000 resulting in the inventory write-down.

  Research and Development

   Research and development expense consists principally of personnel costs,
contract design services and supply expenses. Research and development expense
decreased to $1,075,482 for the fiscal year ended September 30, 2001 from
$1,459,911 for the fiscal year ended September 30, 2000. This decrease was
primarily the result of reducing our engineering staff in California that
supported the development of hardware technology offset partially by our
increasing our development staff at our Ohio site to support the further
development of our NotifyLink software product line. The change in technology
emphasis eliminated development and testing costs associated with hardware
design and allowed us to expand in a geographical area that is economically
advantageous. We expect to continue investing in this area of research and
development 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 2002 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 $837,845 for the fiscal year ended
September 30, 2001 from $1,209,993 for the fiscal year ended September 30,
2000. This decrease was attributable primarily to the decrease in personnel,
commissions and show expense caused by our eliminating employees, the decrease
commission costs on decreased sales and the elimination of show expense. Our
move to our NotifyLink product line has changed our sales process as we
concentrate on our relationships with the various 2way wireless carriers and
device manufacturers.

   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.

  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 $1,912,394
for fiscal 2001 from $1,570,323 for fiscal 2000. This increase is primarily due
to higher legal and accounting expense related to the successful appeal against
a Nasdaq ruling to delist us from the Nasdaq Small Cap Market and other
regulatory matters, higher rent expense on our Californian facility, higher
printing expense related to our annual report to shareholders and proxies
related to our Special Meeting of Shareholders and an increase 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 2000 or
2001 as we incurred net operating losses. We expect to incur a net operating
loss in future quarters and years. As of September 30, 2001, we had

                                      19

<PAGE>

federal and state net operating loss carryforwards of approximately $13,000,000
and $7,000,000, respectively. The net loss carryforwards and certain research
and development tax credit carryforwards will expire in tax years 2004 through
2021, 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 our officers, directors,
consultants or employees 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 us. 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.

Liquidity and Capital Resources

   During fiscal 2001, we financed our operations through a combination of
existing cash balances, the sale of common stock, the sale of preferred stock
and the proceeds from the exercise of warrants and options. Our ability to fund
our recurring losses from operations depends upon our success in shifting our
product focus into wireless e-mail notification and wireless e-mail
notification market solutions, and/or raising other sources of financing.
Management has entered into several arrangements during fiscal 2001 and expects
to enter into additional arrangements during fiscal 2002 that will produce
increased revenue from these new products. We believe that our existing cash
balances are sufficient to fund our operations through at least September 30,
2002.*

   At September 30, 2001, we had cash and cash equivalents and restricted cash
of $3,587,179. Of this amount, $282,356 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 $282,356.

   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, 2001 and 2000, the net cash used in operating
activities equaled $2,932,427 and $2,627,174, respectively. The net cash used
in operations in fiscal 2001, consisted primarily of the net loss of $3,337,612
offset by depreciation and amortization of $125,275 and a decrease in net
operating assets of $279,910. The major causes of the decrease in net operating
assets was a reduction in accounts receivable of $296,556 due to lower sales in
the fourth quarter of fiscal 2001 compared to the fourth quarter of fiscal
2000, a decrease of $390,579 in inventory due to the shipment and write-down of
product not replaced by new inventories, offset by a decrease in accounts
payable and a decrease 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 changed from an outflow of $913,214 in
fiscal 2000 to an inflow of $472,587 in fiscal 2001 due to a lower expenditures
in fiscal 2001. Expenditures for property and equipment decreased from $148,516
in fiscal 2000 to $9,756 in fiscal 2001.

   On July 20, 2001, we completed a Preferred Stock and warrant financing in
which we sold shares of Series A Preferred Stock convertible into an aggregate
of 5,010,000 shares of Common Stock and warrants to

                                      20

<PAGE>

purchase an aggregate of 1,753,500 shares of Common Stock at an exercise price
of $1.00 per share. The proceeds from the financing, net of the placement
agent's commission, were approximately $4,509,000.

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.

                                      21

<PAGE>

                                   PART III

ITEM 9. Management

   The information regarding the identification and business experience of our
directors under the caption "Nominees and Vote Required" under the main caption
"PROPOSAL NO. 1 - ELECTION OF DIRECTORS" IN OUR DEFINITIVE 2002 Proxy Statement
for the annual meeting of shareholders to be held, as filed with the Securities
and Exchange Commission within 120 days after the end of our fiscal year ended
September 30, 2001, is incorporated herein by this reference. For information
regarding the identification and business experience of our executive officers,
see "Executive Officers" in Item I of this Annual Report on Form 10-KSB.
Information concerning filing requirements applicable to our executive officers
and directors under the caption "COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934" in our 2002 Proxy Statement is incorporated
herein by this reference.

ITEM 10. Executive Compensation

   The information under the captions "Compensation of Directors" and
"EXECUTIVE COMPENSATION" in our 2002 Proxy Statement is incorporated herein by
this reference.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

   The information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" in our 2002 Proxy Statement is incorporated herein by
this reference.

ITEM 12. Certain Relationships and Related Transactions

   The information under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in our 2002 Proxy Statement is incorporated herein by this
reference.

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

(a) Exhibits

<TABLE>
<C>    <S>
 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 (3.1.1) to the
       Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on
       August 14, 2001)

 3.1.4 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) 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)
</TABLE>

                                      22

<PAGE>

<TABLE>
<C>  <S>
 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)

 4.2 Form of warrant issued to subscribers in connection with the Registrant's July 2001 private placement.
     (incorporated herein by reference to Exhibit (4.1) to the Registrant's Current Report on Form 8-K, filed
     on July 23, 2001)

 4.3 Form of option issued to the placement agent in connection with the Registrant's July 2001 private
     placement. (incorporated herein by reference to Exhibit (4.2) to the Registrant's Current Report on
     Form 8-K, filed on July 23, 2001)

 4.4 Form of warrant underlying the option issued to the placement agent in connection with the Registrant's
     July 2001 private placement. (incorporated herein by reference to Exhibit (4.3) to the Registrant's
     Current Report on Form 8-K, filed on July 23, 2001)

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 Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997 between
     Registrant and Paul DePond, as amended by Amendment No. 1 to Employment Agreement dated as of
     February 23, 2000. (incorporated herein by reference to Exhibit (10.2) to the Registrant's Quarterly
     Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)

10.4 Amendment No. 3 dated October 11, 2001 to Employment Agreement dated as of August 1, 1997
     between Registrant and Paul DePond, as amended by Amendment No. 1 to Employment Agreement
     dated as of February 23, 2000 and Amendment No. 2 to Employment Agreement dated as of June 29,
     2001.

10.5 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)

10.6 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)

10.7 Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997 between
     Registrant and Gaylan Larson, as amended by Amendment No. 1 to Employment Agreement dated as of
     February 23, 2000. (incorporated herein by reference to Exhibit (10.3) to the Registrant's Quarterly
     Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14, 2001)

10.8 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)

10.9 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)
</TABLE>

                                      23

<PAGE>

<TABLE>
<C>    <S>
10.10  Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Gerald Rice, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000. (incorporated herein by reference to Exhibit (10.4) to the Registrant's
       Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14,
       2001)

10.11  Amendment No. 3 dated October 11, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Gerald Rice, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000 and Amendment No. 2 to Employment Agreement dated as of June 29,
       2001.

10.12  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)

10.13  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)

10.14  Registrant's 1997 Stock Plan, as amended. (incorporated herein by reference to Exhibit (10.1) to the
       Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on
       August 14, 2001.). (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)

10.15  Lease between Registrant, and Ching C.,C. Poon and Jenny M. Poon. (incorporated herein by
       reference to Exhibit (10.59) to the Registrant's Quarterly Report on Form 10-QSB for the quarterly
       period ended June 30, 2001, filed on August 14, 2001.) 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+ 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)

10.17  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)

10.18  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-KSB for the fiscal year ended September 30, 1999, filed
       on December 28, 1999)

10.19  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. (incorporated herein
       by reference to Exhibit (10.14) to the Registrant's Annual Report on Form 10-KSB for the fiscal year
       ended September 30, 2000, filed on December 29, 2000)

10.20  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)

10.21  Securities Purchase Agreement dated November 8, 2000 by and among the Registrant and the
       purchasers listed on Exhibit A thereto. (incorporated herein by reference to Exhibit (10.17) to the
       Registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000, filed on
       December 29, 2000)

10.22  Registration Rights Agreement, dated as of July 20, 2001 by and among the Registrant and the
       subscribers set forth therein. (incorporated herein by reference to Exhibit (10.1) to the Registrant's
       Current Report on Form 8-K, filed on July 23, 2001)
</TABLE>

                                      24

<PAGE>

<TABLE>
<C>   <S>

10.23 Form of Registration Rights Agreement, dated as of July 20, 2001 by and among the Registrant and
      Commonwealth Associates, L.P. (incorporated herein by reference to Exhibit (10.2) to the Registrant's
      Current Report on Form 8-K, filed on July 23, 2001)

23.1  Consent of Ernst & Young LLP, Independent Auditors.

24.1  Power of Attorney (see page 26).
</TABLE>
--------
+ Confidential treatment has been granted with respect to portions of this
  exhibit.

(b) Reports on Form 8-K

   On July 23, 2001, Registrant filed a Report on Form 8-K under Item 5
reporting its completion of a private Preferred Stock and warrant financing in
which the Registrant sold shares of Series A Preferred Stock convertible into
an aggregate of 5,010,000 shares of Common Stock and warrants to purchase an
aggregate of 1,753,500 shares of Common Stock at an exercise price of $1.00 per
share.

                                      25

<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 21st day of December, 2001.

<TABLE>
<S>                      <C>
                         NOTIFY TECHNOLOGY CORPORATION
Dated: December 21, 2001
                                       /s/ PAUL F. DEPOND
                         By: -----------------------------------------
                                         Paul F. DePond
                             President and Chief Executive Officer
</TABLE>

                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Paul F. DePond, Gerald W. Rice and Henry P.
Massey, Jr. 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 F. DEPOND President, Chief Executive Officer December 21, 2001
------------------   and Chairman (Principal
  Paul F. DePond     Executive Officer)

 /s/ GERALD RICE   Chief Financial Officer (Principal December 21, 2001
------------------   Financial and Accounting
   Gerald Rice       Officer)

/s/ GAYLAN LARSON  Vice President, Operations and     December 21, 2001
------------------   Director
  Gaylan Larson

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

------------------ Director
   David Brewer

                                      26

<PAGE>

    Signature                   Title                      Date
    ---------                   -----                      ----

/s/ ANDREW PLEVIN              Director              December 21, 2001
-----------------
  Andrew Plevin

 /s/ HAROLD BLUE               Director              December 21, 2001
-----------------
   Harold Blue

-----------------              Director
Travis L. Provow


                                      27

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                             FINANCIAL STATEMENTS
                    Years ended September 30, 2001 and 2000

                                   Contents

<TABLE>
<S>                                <C>
Report of Independent Auditors.... F-2

Audited Financial Statements

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 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, 2001, and the related statements of operations,
shareholders' equity, and cash flows for the years ended September 30, 2001 and
2000. 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, 2001, and the results of its operations and its
cash flows for the years ended September 30, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

San Jose, California
October 31, 2001

                                      F-2

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                                 BALANCE SHEET
                              September 30, 2001

<TABLE>
<S>                                                                                           <C>
Assets
Current assets:
   Cash and cash equivalents................................................................. $  3,304,823
   Restricted cash...........................................................................      282,356
   Accounts receivable, net of allowance for doubtful accounts of $15,000....................      114,778
   Inventories...............................................................................      112,081
   Other current assets......................................................................       48,674
                                                                                              ------------
       Total current assets..................................................................    3,862,712
Property and equipment, net..................................................................      160,595
                                                                                              ------------
       Total assets.......................................................................... $  4,023,307
                                                                                              ============
Liabilities and shareholders' equity
Current liabilities:
   Accounts payable.......................................................................... $    163,888
   Deferred revenue..........................................................................      263,963
   Other accrued liabilities.................................................................      249,979
   Accrued payroll and related liabilities...................................................      116,298
                                                                                              ------------
       Total current liabilities.............................................................      794,128

Commitments and contingencies

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 501,000 shares issued and outstanding at September 30, 2001; redemption
     amount and liquidation preference of $6,012,000 at September 30, 2001...................    1,079,967
   Common stock, $0.001 par value, 30,000,000 shares authorized, 5,286,593 shares issued and
     outstanding at September 30, 2001.......................................................        5,287
   Additional paid-in capital................................................................   21,724,525
   Notes receivable from shareholders........................................................       (2,500)
   Accumulated deficit.......................................................................  (19,578,100)
                                                                                              ------------
       Total shareholders' equity............................................................    3,229,179
                                                                                              ------------
       Total liabilities and shareholders' equity............................................ $  4,023,307
                                                                                              ============
</TABLE>

See accompanying notes.

                                      F-3

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Years Ended September 30,
                                                                  ------------------------
                                                                     2001         2000
                                                                  -----------  -----------
<S>                                                               <C>          <C>
Revenues:
   Product sales and service revenue............................. $ 1,151,185  $ 4,122,422
   Royalty revenue...............................................     158,909       97,281
                                                                  -----------  -----------
       Total revenue.............................................   1,310,094    4,219,703
Cost of sales:
   Product cost..................................................     556,553    3,157,121
   Inventory write downs.........................................     400,000      500,000
                                                                  -----------  -----------
       Total cost of sales.......................................     956,553    3,657,121
Gross profit.....................................................     353,541      562,582
Operating costs and expenses:
   Research and development......................................   1,075,482    1,459,911
   Sales and marketing...........................................     837,845    1,209,993
   General and administrative....................................   1,912,394    1,570,323
                                                                  -----------  -----------
       Total operating costs and expenses........................   3,825,721    4,240,227
                                                                  -----------  -----------
Loss from operations.............................................  (3,472,180)  (3,677,645)
Other income and expense, net....................................     134,568      151,193
                                                                  -----------  -----------
       Net loss..................................................  (3,337,612)  (3,526,452)
Deemed beneficial conversion dividend on Series A preferred stock  (3,507,000)          --
                                                                  ===========  ===========
Loss attributable to common shareholders......................... $(6,844,612) $(3,526,452)
Basic and diluted net loss per share............................. $     (1.72) $     (0.99)
Weighted-average shares used in computing net loss per share.....   3,983,131    3,568,503
</TABLE>

See accompanying notes.

                                      F-4

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                      STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                            Convertible
                                                             Redeemable                                        Notes
                                                          Preferred Stock      Common Stock    Additional    Receivable
                                                         ------------------ -----------------   Paid-In         from
                                                         Shares    Amount    Shares    Amount   Capital     Shareholders
                                                         ------- ---------- ---------  ------  -----------  ------------
<S>                                                      <C>     <C>        <C>        <C>     <C>          <C>
Balance at September 30, 1999...........................      -- $       -- 4,403,177  $4,403  $12,163,151    $(7,026)
Repurchases of common stock from shareholder............      --         --    (1,820)     (2)        (663)       665
Repayment of notes receivable from shareholder..........      --         --        --      --           --      3,861
Proceeds from exercise of options and warrants..........      --         --   485,701     486    1,726,083         --
Deferred compensation relating to grant of stock options      --         --        --      --      (43,547)        --
Amortization of deferred compensation...................      --         --        --      --           --         --
Net loss and comprehensive net loss.....................      --         --        --      --           --         --
                                                         ------- ---------- ---------  ------  -----------    -------
Balance at September 30, 2000...........................      --         -- 4,887,058   4,887   13,845,024     (2,500)
Issuance of common shares pursuant to private offering,
 net of issuance costs of $15,603.......................      --         --   349,995     350    1,209,397         --
Proceeds from exercise of options and warrants..........      --         --    49,540      50       46,204         --
Issuance of convertible preferred stock pursuant to
 private offering, net of issuance costs of $813,133.... 501,000  1,079,967        --      --           --         --
Fair value of warrants to purchase convertible preferred
 stock issued in connection with the private offering...      --         --        --      --    1,251,851         --
Fair value of warrants to purchase convertible preferred
 stock issued to placement agent in connection with the
 private offering.......................................      --         --        --      --    1,702,000         --
Fair value of warrants to purchase convertible preferred
 stock issued to investment fund in connection with the
 private offering.......................................      --         --        --      --      163,049         --
Deemed beneficial conversion dividend on Series A
 convertible preferred stock............................      --         --        --      --    3,507,000         --
Net loss and comprehensive net loss.....................      --         --        --      --           --         --
                                                         ------- ---------- ---------  ------  -----------    -------
Balance at September 30, 2001........................... 501,000 $1,079,967 5,286,593  $5,287  $21,724,525    $(2,500)
                                                         ======= ========== =========  ======  ===========    =======
</TABLE>
<TABLE>
<CAPTION>



                                                                                        Total
                                                           Deferred   Accumulated   Shareholders'
                                                         Compensation   Deficit        Equity
                                                         ------------ ------------  -------------
<S>                                                      <C>          <C>           <C>
Balance at September 30, 1999...........................  $(116,688)  $ (9,207,036)  $ 2,836,804
Repurchases of common stock from shareholder............         --             --            --
Repayment of notes receivable from shareholder..........         --             --         3,861
Proceeds from exercise of options and warrants..........         --             --     1,726,569
Deferred compensation relating to grant of stock options     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...........................         --    (12,733,488)    1,113,923
Issuance of common shares pursuant to private offering,
 net of issuance costs of $15,603.......................         --             --     1,209,747
Proceeds from exercise of options and warrants..........         --             --        46,254
Issuance of convertible preferred stock pursuant to
 private offering, net of issuance costs of $813,133....         --             --     1,079,967
Fair value of warrants to purchase convertible preferred
 stock issued in connection with the private offering...         --             --     1,251,852
Fair value of warrants to purchase convertible preferred
 stock issued to placement agent in connection with the
 private offering.......................................         --             --     1,702,000
Fair value of warrants to purchase convertible preferred
 stock issued to investment fund in connection with the
 private offering.......................................         --             --       163,048
Deemed beneficial conversion dividend on Series A
 convertible preferred stock............................         --     (3,507,000)           --
Net loss and comprehensive net loss.....................         --     (3,337,612)   (3,337,612)
                                                          ---------   ------------   -----------
Balance at September 30, 2001...........................  $      --   $(19,578,100)  $ 3,229,179
                                                          =========   ============   ===========
</TABLE>

See accompanying notes.

                                      F-5

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Years Ended September 30,
                                                                            ------------------------
                                                                               2001         2000
                                                                            -----------  -----------
<S>                                                                         <C>          <C>
Operating activities
Net loss................................................................... $(3,337,612) $(3,526,452)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization...........................................     125,275      184,535
   Amortization of deferred compensation...................................          --       73,141
   Changes in operating assets and liabilities:
       Accounts receivable.................................................     296,556      265,698
       Inventory...........................................................     390,579       31,807
       Other current assets................................................       2,012       89,893
       Accounts payable....................................................    (138,685)    (116,843)
       Other current liabilities...........................................     (81,825)     (81,643)
       Deferred revenue....................................................    (188,727)     452,690
                                                                            -----------  -----------
          Net cash used in operating activities............................  (2,932,427)  (2,627,174)
Investing activities
Expenditures for property and equipment....................................      (9,755)    (148,516)
Increase (decrease) in restricted cash.....................................     482,342     (764,698)
                                                                            -----------  -----------
          Net cash provided by (used in) investing activities..............     472,587     (913,214)
Financing activities
Proceeds from exercise of options and warrants.............................      46,254    1,726,569
Proceeds from issuance of common stock, net of issuance costs..............   1,209,747           --
Proceeds from issuance of preferred stock, net of issuance costs...........   4,196,867           --
Repayments of notes receivable from shareholders...........................          --        3,861
                                                                            -----------  -----------
          Net cash provided by financing activities........................   5,452,868    1,730,430
                                                                            -----------  -----------
Net increase (decrease) in cash and cash equivalents.......................   2,993,028   (1,809,958)
Cash and cash equivalents at beginning of year.............................     311,795    2,121,753
                                                                            -----------  -----------
Cash and cash equivalents at end of year................................... $ 3,304,823  $   311,795
                                                                            ===========  ===========
Supplemental disclosure of cash flow information
Cash paid for interest..................................................... $        --  $     2,929
</TABLE>

See accompanying notes.

                                      F-6

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                         NOTES TO FINANCIAL STATEMENTS
                              September 30, 2001

1. Organization and Business

   Notify Technology Corporation (the Company) 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.

   During fiscal 2001, the Company financed its operations through a
combination of its existing cash balances, the sale of common stock, the sale
of preferred stock, and the proceeds from the exercise of warrants and options.

   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 has entered into several arrangements
during fiscal 2001 and expects to enter into additional arrangements during
fiscal 2002 that will produce increased revenue from these new products. The
Company believes that its current cash balances are sufficient to fund its
operations through at least September 30, 2002.

2. Summary of Significant Accounting Policies

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 lower of actual cost, on a first-in, first-out
basis, or market and consist of the following:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                                     2001
                                                                 -------------
<S>                                                              <C>
Work-in-process.................................................   $ 53,342
Finished goods..................................................     58,739
                                                                   --------
                                                                   $112,081
                                                                   ========
</TABLE>

   The Company recorded inventory write-downs of $400,000 and $500,000 in
fiscal 2001 and 2000, respectively. These write-downs were due to a significant
decrease in forecasted sales in the first half of fiscal 2001 and in the second
half of fiscal 2000, and were based on inventory levels and purchase
commitments in excess of expected demand.

Property and Equipment

   Property and equipment are stated at cost and are depreciated or amortized
on a straight-line basis on the lesser of the estimated useful lives of the
assets 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)



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

   Shipping and handling costs are classified as a component of cost of sales.

Research and Development

   Costs to develop the Company's products are expensed as incurred in
accordance with 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 accounting
principles generally accepted in the United States 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, 2001, two
customers accounted for 49% and 16% of accounts receivable.

Stock Options

   The Company accounts for stock option grants in accordance with the
intrinsic value method because the Company believes the alternative fair value
accounting requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under the intrinsic value method no
compensation expense is recognized when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant.

                                      F-8

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



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 1,613,722 and 505,535 shares of common stock were outstanding at
September 30, 2001 and 2000, respectively, but were not included in the
computation of diluted net loss per share as the effect would be antidilutive.

3. Property and Equipment

   Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                               September 30,
                                                   2001
                                               -------------
<S>                                            <C>
Furniture and office equipment................   $ 426,899
Software......................................      44,702
Leasehold improvements........................       2,246
                                                 ---------
                                                   473,847
Less accumulated depreciation and amortization    (313,252)
                                                 ---------
                                                 $ 160,595
                                                 =========
</TABLE>

4. Commitments and Contingencies

   The Company currently occupies two facilities under an operating lease. The
lease on its San Jose, California facility expires in March 2003. Future
minimum payments under this lease for the years ending September 30, 2002 and
2003 are $235,740 and $129,657, respectively. The lease on the Company's
Canfield, Ohio facility expires in October 2006. Future minimum payments under
this lease for the year ending September 30, 2002 and for each of the following
four years ending September 30, are $68,412 and $71,387 per annum, respectively.

   Rent expense totaled $242,000 and $173,000 for the years ended September 30,
2001 and 2000, respectively.

   At September 30, 2001, the Company had $282,356 of outstanding letters of
credit to its suppliers related to a commitment to purchase additional
inventory. The letters of credit are secured by a money market account of
$282,356, 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 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.

                                      F-9

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



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 September 30, 2001 balance sheet also 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 has been accreted to additional paid-in capital on
the September 30, 2001 balance sheet.

   Each share of Series A preferred stock is initially convertible into the
Company's common stock at a conversion ratio of $1.00. 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
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 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.

   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 was
issued 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 will be exercisable at any
time through July 2008 at a price of $1.00.

   The Company also issued in connection with the offering of Series A
preferred stock a warrant to purchase 118,151 shares of common stock to an
investment fund in connection with the investment funds commitment to purchase
Series A preferred stock for the amount of the differences between $5 million
and the aggregate amount of money invested by all other investors in the
financing.

Common Stock

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

<TABLE>
<CAPTION>
                                                                 September 30,
                                                                     2001
                                                                 -------------
<S>                                                              <C>
Convertible redeemable preferred stock..........................   5,010,000
1997 Stock Option Plan..........................................   2,379,662
Warrant agreements..............................................   6,462,293
                                                                  ----------
                                                                  13,851,955
                                                                  ==========
</TABLE>

                                     F-10

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   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.

   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 1 share of common stock and 1 Class A warrant (see below)),
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 expiration
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 expired upon the earlier of March 31, 2001 or 30 days after
the Company meets the revised product sales or revenue milestones. In February
2000, the Company received proceeds of $560,880 from the exercise of one of
these warrants. The remaining warrant expired on March 31, 2001, as the Company
did not meet the revenue milestone.

   At September 30, 2001, the Company had the following warrants outstanding:

   . 2,025,000 Class A warrants to purchase 2,652,750 shares of common stock
     issued in connection with the Offering and other financings were
     outstanding. Each Class A warrant initially entitled the holder to
     purchase one share of common stock at an exercise price of $6.50. The
     terms of the Class A warrants were adjusted as a result of the July 2001
     private placement to an exercise price of $4.96, and a conversion ratio of
     1.31 shares of common stock. Each Class A warrant remains 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.

   . A warrant to purchase 721,244 shares of common stock at an initial
     exercise price of $3.60 issued in connection with a March 1999 private
     placement was outstanding and which expires in March 2003. In connection
     with the March 1999 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 connection with the July 2001 financing,
     the warrant holder waived the right to receive additional warrants and the
     exercise price of the 721,244 warrants was reduced from $3.60 to $1.00.

   . 142,276 warrants to purchase shares of the Company's common stock, issued
     in connection with the November 2000 private placement were outstanding.
     The warrants consist of one set of warrants to purchase 67,293 shares of
     common stock expiring in November 2001 and one set of warrants to purchase
     74,983 shares of common stock expiring in November 2003, both with an
     initial exercise price of $3.25 per share. In the event that 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 of the November 2000
     offering, the exercise price of the outstanding warrants will be reduced
     to the price per share at which such equity securities are 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 the number of shares issued in the financing. As a
     result of the July 2001 financing, the exercise price of the 142,276
     warrants was reduced from $3.25 to $1.00 and the Company issued an
     additional 337,439 warrants to purchase shares of the Company's common
     stock as an antidilution adjustment. These 337,439 warrants are
     exercisable at any time at a price of $0.01 per

                                     F-11

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


     share and expire in July 2004. In July 2001, the Company received proceeds
     of $38,458 from the exercise of 38,458 warrants issued in connection with
     the November 2000 financing.

   . Warrants to purchase 1,753,500 and 118,151 shares of common stock at an
     exercise price of $1.00 issued in connection with the July 2001 private
     placement to the placement agent and an investment fund, respectively were
     outstanding. 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.

   . 113,514 warrants to purchase shares of the Company's common stock, issued
     in connection with various previous financing, 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. In June 2001,
     the Company received $2,805 from the exercise of 8,374 warrants issued in
     connection with previous financings.

At September 30, 2000, warrants to purchase common stock included 810,006 and
24,752 warrants held by three directors and one officer, respectively.

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 2,400,000 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:

<TABLE>
<CAPTION>


                                          Options Outstanding
                                          --------------------
                               Shares                Weighted-
                              Available   Number of   Average
                              for Grant    Shares      Price
                              ----------  ---------  ---------
<S>                           <C>         <C>        <C>
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
   Authorized................  1,700,000         --
   Grants.................... (1,223,000) 1,223,000   $1.763
   Cancellations.............    112,105   (112,105)  $6.146
   Exercises.................         --     (2,708)  $0.906
                              ----------  ---------
Balance at September 30, 2001    765,940  1,613,722   $3.018
                              ==========  =========
</TABLE>

                                     F-12

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   The following table summarizes outstanding and exercisable options at
September 30, 2001:

<TABLE>
<CAPTION>
                    Options Outstanding          Options Exercisable
                ---------------------------- ----------------------------
                 Number of  Weighted-Average  Number of
                  Options    Remaining Life    Options   Weighted-Average
Exercise Prices Outstanding     in Years     Exercisable Exercise Prices
--------------- ----------- ---------------- ----------- ----------------
<S>             <C>         <C>              <C>         <C>
 $0.800-$0.906      39,144        7.47          27,457        $0.882
 $1.600-$2.375   1,058,000        9.74         270,833        $1.603
 $2.750-$3.875     228,682        8.96          76,595        $3.145
 $5.594-$7.656      72,896        8.08          48,670        $6.795
    $8.813         215,000        8.39         104,895        $8.813
                 ---------                     -------
                 1,613,722        9.32         528,450        $3,699
                 =========                     =======
</TABLE>

   The weighted average fair value of options granted was $2.999 in 2001 and
$6.02 in 2000.

Stock-Based Compensation

   The Company has elected to follow the intrinsic value method of accounting
for its employee stock options because, as discussed below, the alternative
fair value method of accounting requires the use of option valuation models
that were not developed for use in valuing employee stock options. Under the
intrinsic value method, 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.

   Pro forma information regarding net income and earnings per share is
required as if the Company had accounted for its employee stock options granted
subsequent to September 30, 1995 under the fair value method. The fair value of
the options was estimated at the date of grant using a Black-Scholes option
valuation model with the following assumptions: a weighted-average expected
life of the option of 4 years; risk-free interest rate of 6.0%; dividend yield
of 0.0%; and volatility factors of the expected market price of the Company's
common stock of 131% and 133% for 2001 and 2000, 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:

<TABLE>
<CAPTION>
                                         2001         2000
                                      -----------  -----------
<S>                                   <C>          <C>
Net loss:
   As reported....................... $(6,844,612) $(3,526,452)
   Pro forma.........................  (7,861,506)  (4,044,930)
Basic and diluted net loss per share:
   As reported.......................       (1.72)       (0.99)
   Pro forma.........................       (1.97)       (1.13)
</TABLE>

                                     F-13

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



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

   The Company recognized no compensation expense in fiscal 2001 and $73,000 in
fiscal 2000 related to the grant of options to nonemployees.

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 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 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 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, 2001, 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 2001 or
2000. 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:

<TABLE>
<CAPTION>
                                          Year Ended
                                         September 30,
                                             2001
                                         -------------
<S>                                      <C>
Deferred tax assets:
   Net operating loss carryforwards.....  $ 4,942,000
   Research credit carryforwards........      266,000
   Capitalized research and development.      107,000
   Other temporary differences..........      945,000
                                          -----------
       Total deferred tax assets........    6,260,000
Valuation allowance.....................   (6,260,000)
                                          -----------
       Net deferred tax assets..........  $        --
                                          ===========
</TABLE>

   Realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation allowance in
an amount equal to the net deferred tax asset has been established to reflect
these uncertainties. The change in the valuation allowance was a net increase
of $1,325,000 and $1,435,000 for fiscal years 2001 and 2000, respectively.

                                     F-14

<PAGE>

                         NOTIFY TECHNOLOGY CORPORATION

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   As of September 30, 2001, the Company had net operating loss carryforwards
of approximately $13,000,000 and $7,000,000 for federal and California tax
purposes, which will expire in the years 2003 through 2021. As of September 30,
2001, the Company also had research and development tax credit carryforwards
for federal and California tax purposes of approximately $190,000 and $120,000,
respectively. The credits will expire in the years 2011 through 2021, 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.

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 34% and 20% of total revenues in fiscal 2001. The same two
products accounted for 69% and 20% of total revenues in fiscal 2000. One
customer accounted for 36% and 22% of sales for the years ended September 30,
2001 and 2000, respectively. Two other customers accounted for 26% and 12% of
sales for the year ended September 30, 2001, while three other customers
accounted for 23%, 17%, and 15% of sales for the year ended September 30, 2000.

                                     F-15

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<C>    <S>
 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 (3.1.1) to the
       Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on
       August 14, 2001)

 3.1.4 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) 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)

 4.2   Form of warrant issued to subscribers in connection with the Registrant's July 2001 private
       placement. (incorporated herein by reference to Exhibit (4.1) to the Registrant's Current Report on
       Form 8-K, filed on July 23, 2001)

 4.3   Form of option issued to the placement agent in connection with the Registrant's July 2001 private
       placement. (incorporated herein by reference to Exhibit (4.2) to the Registrant's Current Report on
       Form 8-K, filed on July 23, 2001)

 4.4   Form of warrant underlying the option issued to the placement agent in connection with the
       Registrant's July 2001 private placement. (incorporated herein by reference to Exhibit (4.3) to the
       Registrant's Current Report on Form 8-K, filed on July 23, 2001)

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   Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Paul DePond, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000. (incorporated herein by reference to Exhibit (10.2) to the Registrant's
       Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14,
       2001)

10.4   Amendment No. 3 dated October 11, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Paul DePond, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000 and Amendment No. 2 to Employment Agreement dated as of June 29,
       2001.
</TABLE>

<PAGE>

<TABLE>
<C>    <S>
10.5   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)

10.6   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)

10.7   Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Gaylan Larson, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000. (incorporated herein by reference to Exhibit (10.3) to the Registrant's
       Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14,
       2001)

10.8   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)

10.9   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)

10.10  Amendment No. 2 dated June 29, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Gerald Rice, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000. (incorporated herein by reference to Exhibit (10.4) to the Registrant's
       Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on August 14,
       2001)

10.11  Amendment No. 3 dated October 11, 2001 to Employment Agreement dated as of August 1, 1997
       between Registrant and Gerald Rice, as amended by Amendment No. 1 to Employment Agreement
       dated as of February 23, 2000 and Amendment No. 2 to Employment Agreement dated as of June 29,
       2001.

10.12  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)

10.13  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)

10.14  Registrant's 1997 Stock Plan, as amended. (incorporated herein by reference to Exhibit (10.1) to the
       Registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2001, filed on
       August 14, 2001.). (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)

10.15  Lease between Registrant, and Ching C.,C. Poon and Jenny M. Poon. (incorporated herein by
       reference to Exhibit (10.59) to the Registrant's Quarterly Report on Form 10-QSB for the quarterly
       period ended June 30, 2001, filed on August 14, 2001.) 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+ 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)

10.17  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)
</TABLE>

<PAGE>

<TABLE>
<C>   <S>
10.18 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-KSB for the fiscal year ended September 30, 1999, filed on
      December 28, 1999)

10.19 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. (incorporated herein
      by reference to Exhibit (10.14) to the Registrant's Annual Report on Form 10-KSB for the fiscal year
      ended September 30, 2000, filed on December 29, 2000)

10.20 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)

10.21 Securities Purchase Agreement dated November 8, 2000 by and among the Registrant and the
      purchasers listed on Exhibit A thereto. (incorporated herein by reference to Exhibit (10.17) to the
      Registrant's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2000, filed on
      December 29, 2000)

10.22 Registration Rights Agreement, dated as of July 20, 2001 by and among the Registrant and the
      subscribers set forth therein. (incorporated herein by reference to Exhibit (10.1) to the Registrant's
      Current Report on Form 8-K, filed on July 23, 2001)

10.23 Form of Registration Rights Agreement, dated as of July 20, 2001 by and among the Registrant and
      Commonwealth Associates, L.P,. (incorporated herein by reference to Exhibit (10.2) to the
      Registrant's Current Report on Form 8-K, filed on July 23, 2001)

23.1  Consent of Ernst & Young LLP, Independent Auditors.

24.1  Power of Attorney (see page 26).
</TABLE>
--------
+ Confidential treatment has been granted with respect to portions of this
  exhibit.