<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB/A
                                  (Mark One)
           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended March 31, 2001

                                      OR

         [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            For the transition period from __________ to __________


                        Commission File Number 0-24742


                           U.S. Wireless Corporation
              (Exact name of Company as specified in its charter)


             Delaware                                   13-3704059
  (State or other jurisdiction of        (I.R.S. Employer Identification No.)
  Incorporation or organization)

           2303 Camino Ramon, Suite 200, San Ramon, California 94583
              (Address of principal executive offices)       (Zip Code)

                                (925) 327-6200
               (Company's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
      Title of each class       Name of each exchange on which registered
      -------------------       -----------------------------------------

                                     NONE

          Securities registered pursuant to Section 12(g)of the Act:

                         Common Stock, $.01 par value
                               (Title of Class)

Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [_] No [X]

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Company'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 [_].

The aggregate market value of the voting stock (consisting of Common Stock, par
value $.01 per share) held by non-affiliates on May 25, 2001 was approximately
$46,093,791 based upon the closing bid price for such Common Stock on said date
($2.91), as reported on the NASDAQ National Market System. On such date, there
were 23,506,135 shares of Company's Common Stock outstanding.



ITEM 7.   FINANCIAL STATEMENTS

   See attached financial statements.
<PAGE>

                                  SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, we have
duly caused this report to be signed on its behalf by the undersigned; thereunto
duly authorized this the 23rd day of August 2001.


                   U.S. WIRELESS CORPORATION


                  By: \s\ Dennis Francis
                     ----------------------------------------
                        Dennis Francis
                     Chief Executive Officer



                By: \s\ Donald Zerio
                   ------------------------------------------
                  Donald Zerio
                  Chief Financial Officer
<PAGE>

      In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company, in the
capacities and on the dates indicated.

<TABLE>


             Date               Signature                                   Title
             ----               ---------                                   -----
<S>                             <C>                                         <C>

                                 \s\ Dennis Francis              Chief Executive Officer
---------------------------------------------------------
                                     Dennis Francis


                                 \s\ Dale Stone                  President and Chief Operating
---------------------------------------------------------        Officer and Director
                                     Dale Stone


                                 \s\ Louis Golm                  Chairman of the Board of Directors
---------------------------------------------------------
                                     Louis Golm


                                 \s\ Barry West                  Director
---------------------------------------------------------
                                     Barry West


                                 \s\ David Robkin                Director
---------------------------------------------------------
                                     David Robkin


                                 \s\ James Eisenstein            Director
---------------------------------------------------------
                                     James Eisenstein
</TABLE>
<PAGE>

Report of Independent Certified Public Accountants


To the Board of Directors and Stockholders
U.S. Wireless Corporation and Subsidiaries
San Ramon, California


We have audited the accompanying consolidated balance sheet of U.S. Wireless
Corporation and Subsidiaries (the "Company") as of March 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' (deficit)
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Wireless
Corporation and Subsidiaries at March 31, 2001 and 2000 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's current cash position is projected to
sustain the Company only through the third quarter of fiscal year 2002. To date,
the Company has earned insignificant revenues. The Company's shares have been
halted from trading, thereby reducing the Company's ability to raise equity
capital. These factors combined with other matters mentioned in Note 2 raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



                                    BDO SEIDMAN, LLP


San Francisco, California
July 6, 2001
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Balance Sheets



<TABLE>
<CAPTION>


<S>                                                                                     <C>            <C>
March 31,                                                                                       2001           2000
--------------------------------------------------------------------------------------------------------------------

Assets

Current Assets

    Cash and cash equivalents                                                           $ 13,830,793   $  5,311,209
    Costs and earnings in excess of billings (Note 4)                                        138,432        110,746
    Other current assets                                                                      25,662          9,969
--------------------------------------------------------------------------------------------------------------------
Total Current Assets                                                                      13,994,887      5,431,924
--------------------------------------------------------------------------------------------------------------------
Equipment And Fixtures (Note 6)                                                            2,783,910      1,299,193

Less Accumulated Depreciation                                                             (1,684,239)      (978,210)
--------------------------------------------------------------------------------------------------------------------
Equipment And Fixtures, net                                                                1,099,671        320,983
--------------------------------------------------------------------------------------------------------------------
Network Infrastructure Construction in Progress (Notes 2 and 6)                            7,732,624              -

Other Assets (Note 5)                                                                         85,361        151,300
--------------------------------------------------------------------------------------------------------------------
Total Assets                                                                            $ 22,912,543   $  5,904,207
====================================================================================================================




March 31,                                                                                       2001           2000
--------------------------------------------------------------------------------------------------------------------

Liabilities And Stockholders' (Deficit) Equity

Current Liabilities
    Notes payable, current portion (Note 6)                                             $  7,594,503   $          -
    Accounts payable                                                                       5,726,197        507,534
    Accrued expenses                                                                         782,842         77,089
    Accrued payroll taxes                                                                    945,700        530,000
    Dividends payable                                                                      1,323,172         50,055
    Accrued litigation settlement costs (Note 11)                                          9,422,290              -
    Capital lease obligations, current portion (Note 10)                                      14,663         11,059
--------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                                 25,809,367      1,175,737

Notes payable, Less Current Portion (Note 6)                                                 312,544              -

Capital Lease Obligations, Less Current Portion (Note 10)                                     15,140         33,156
--------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                         26,137,051      1,208,893
--------------------------------------------------------------------------------------------------------------------

Commitments, Contingencies and Subsequent Events (Notes 2, 10, 11, 12 and 13)

Stockholders' (deficit) equity (Notes 6, 8, 9, 11 and 12)
    Series A preferred stock, convertible, 6% cumulative, $.01 par value,
       300,000 shares authorized; 20,000 shares issued and outstanding at March
       31, 2000 (liquidation preference of $400,000)                                               -            200
    Series B preferred stock, convertible, $.01 par value, 60,000 shares authorized;
       38,400 shares issued and outstanding at March 31, 2000 (liquidation
       preference of $3,840,000)                                                                   -            384
    Series C preferred stock, convertible, 6.5% cumulative, $.01 par value 150,000
       shares authorized; 112,500 issued and outstanding at March 31, 2001
       (liquidation preference of $23,732,000)                                                 1,125              -
    Common stock, $.01 par value, 40,000,000 shares authorized, 21,373,335 and
       17,100,658 shares issued and outstanding; 1,566,720 and 1,615,680 of which
       are subject to vesting                                                                213,734        171,007
    Additional paid-in capital                                                            71,287,726     46,446,973
    Common stock subscribed                                                                        -         64,476
    Accumulated deficit                                                                  (74,727,093)   (41,987,726)
--------------------------------------------------------------------------------------------------------------------
Total Stockholders' (Deficit) Equity                                                      (3,224,508)     4,695,314
--------------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' (Deficit) Equity                                    $ 22,912,543   $  5,904,207
====================================================================================================================
</TABLE>

              See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Operations

<TABLE>
<CAPTION>


<S>                                                     <C>            <C>
      Years ended March 31,                                     2001           2000
------------------------------------------------------------------------------------

Net revenues (Note 4)                                   $    212,262   $    249,178
                                                        ------------   ------------
Costs and expenses:
   Cost of revenues (Note 4)                                 274,844        265,445
   Research and development (Note 3)                      12,134,259      3,497,435
   Operating expenses                                     10,410,255      5,174,145
                                                        ------------   ------------
Total costs and expenses                                  22,819,358      8,937,025
                                                        ------------   ------------

Loss from operations                                     (22,607,096)    (8,687,847)

Other income (expense):
   Interest income, net                                      740,846        495,638
   Litigation settlement costs (Note 11)                  (9,600,000)            --
   Equity in loss of joint venture (Note 5)                       --       (390,208)
   Equity in loss of Mantra (Note 5)                              --       (127,235)
   Loss from unauthorized stock issuances (Note 12)               --     (5,331,114)
                                                        ------------   ------------
Net loss                                                 (31,466,250)   (14,040,766)

Dividends on Preferred Stock                              (1,273,117)    (3,691,848)
                                                        ------------   ------------
Net loss attributable to common shares                  $(32,739,367)  $(17,732,614)
                                                        ============   ============
Basic and diluted loss per common share
                                                              $(1.67)        $(1.42)
                                                        ============   ============

Weighted average number of common shares outstanding      19,639,932     12,445,253
                                                        ============   ============
</TABLE>



              See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity


<TABLE>

                                               Series A Preferred Stock     Series B Preferred Stock    Series C Preferred Stock
                                                                          ----------------------------------------------------------
Notes 6, 8, 9, 11 and 12                         Shares        Amount         Shares        Amount        Shares        Amount
------------------------------------------------------------------------------------------------------------------------------------

Balances, March 31, 1999                        70,000       $     700         50,000    $      500            -       $        -
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>          <C>             <C>           <C>
Amortization of unearned compensation                -               -              -             -            -                -
Common stock subscription                            -               -              -             -            -                -

Issuance of stock in connection with private
placement, including compensation expense of
$295,100                                             -               -         10,000           100            -                -
Conversion of preferred stock                  (50,000)           (500)       (21,600)         (216)           -                -

Retirement of non-vested, forfeited shares related
to minority interest acquisition                     -               -              -             -            -                -
Exercise of common stock options                     -               -              -             -            -                -

Other common stock sales, including compensation
expense of $41,791                                   -               -              -             -            -                -
Compensation related to stock option grants to
employees and consultants                            -               -              -             -            -                -

Vesting of shares related to
minority interest acquisition                        -               -              -             -            -                -
Increase in investment in joint venture              -               -              -             -            -                -
Unauthorized issuances of common stock               -               -              -             -            -                -
Deemed dividend for Series B Preferred Stock         -               -              -             -            -                -
Dividends on preferred stock                         -               -              -             -            -                -
Net loss                                             -               -              -             -            -                -
------------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 2000                        20,000             200         38,400           384            -                -
Conversion of preferred stock                  (20,000)           (200)       (38,400)         (384)           -                -
Issuance of subscribed common shares                 -               -              -             -            -                -
Retirement of non-vested, forfeited shares related
to minority interest acquisition                     -               -              -             -            -                -
Exercise of common stock options                     -               -              -             -            -                -
Compensation related to stock option grants to
employees and consultants                            -               -              -             -            -                -
Issuance of stock for legal settlements              -               -              -             -            -                -
Issuance of warrants in conjunction
with promissory note                                 -               -              -             -            -                -
Issuance of Series C preferred stock in connection
with private placement                               -               -              -             -      112,500            1,125
Dividends on preferred stock                         -               -              -             -            -                -
Net loss                                             -               -              -             -            -                -
====================================================================================================================================
Balances, March 31, 2001                             -       $       -              -    $        -      112,500       $    1,125
====================================================================================================================================
</TABLE>

              See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                              Common Stock          Additional     Unearned
Notes 6, 8, 9, 11 and 12                                   Shares      Amount    Paid-in Capital  Compensation
---------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>         <C>            <C>
Balances, March 31, 1999                                 13,556,188   $ 135,563   $ 32,504,598     $ (244,958)
Amortization of unearned compensation                            --          --             --        244,958
Common stock subscription                                        --          --             --             --
Issuance of stock in connection with private
placement, including compensation expense of $295,100       278,400       2,784      1,568,826             --

Conversion of preferred stock                             2,498,982      24,990        (24,274)            --
Retirement of non-vested, forfeited shares related
to minority interest acquisition                           (413,103)     (4,131)            --             --

Exercise of common stock options                            366,960       3,669        847,280             --
Other common stock sales, including compensation
expense of $41,791                                          169,254       1,692        640,100             --
Compensation related to stock option grants to
employees and consultants                                    15,000         150      1,356,636             --
Vesting of shares related to
minority interest acquisition                                    --          --         71,585             --
Increase in investment in joint venture                          --          --        331,578             --

Unauthorized issuances of common stock                      628,977       6,290      5,590,644             --
Deemed dividend for Series B Preferred Stock                     --          --      3,560,000             --
Dividends on preferred stock                                     --          --             --             --
Net loss                                                         --          --             --             --
---------------------------------------------------------------------------------------------------------------
Balances, March 31, 2000                                 17,100,658     171,007     46,446,973             --

Conversion of preferred stock                             3,975,593      39,756        (39,172)            --
Issuance of subscribed common shares                         29,989         300         64,176             --
Retirement of non-vested, forfeited shares related
to minority interest acquisition                            (73,501)       (735)           735             --

Exercise of common stock options                            240,596       2,406        723,611             --
Compensation related to stock option grants to
employees and consultants                                        --          --      2,277,155             --

Issuance of stock for legal settlements                     100,000       1,000        340,667             --
Issuance of warrants in conjunction
with promissory note                                             --          --        415,700             --
Issuance of Series C preferred stock in connection
with private placement                                                              21,057,881
Dividends on preferred stock                                     --          --             --             --
Net loss                                                         --          --             --             --
---------------------------------------------------------------------------------------------------------------
Balances, March 31, 2001                                 21,373,335   $ 213,734   $ 71,287,726     $       --
---------------------------------------------------------------------------------------------------------------
</TABLE>

         See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                            -------------------    -------------------------------
                                                                 Common Stock         Accumulated
Notes 6, 8, 9, 11 and 12                                          Subscribed             Deficit         Total
-------------------------------------------------------------------------------    -------------------------------
<S>                                                   <C>        <C>                  <C>            <C>
Balances, March 31, 1999                                         $         --         $(24,291,605)  $  8,104,798
Amortization of unearned compensation                                      --                   --        244,958
Common stock subscription                                              64,476                   --         64,476
Issuance of stock in connection with private
placement, including compensation expense of $295,100                      --                   --      1,571,710
Conversion of preferred stock                                              --                   --             --
Retirement of non-vested, forfeited shares related
to minority interest acquisition                                           --                   --         (4,131)
Exercise of common stock options                                           --                   --        850,949
Other common stock sales, including compensation
expense of $41,791                                                         --                   --        641,792
Compensation related to stock option grants to
employees and consultants                                                  --                   --      1,356,786
Vesting of shares related to
minority interest acquisition                                              --                   --         71,585
Increase in investment in joint venture                                    --                   --        331,578
Unauthorized issuances of common stock                                     --                   --      5,596,934
Deemed dividend for Series B Preferred Stock                               --           (3,560,000)            --
Dividends on preferred stock                                               --              (95,355)       (95,355)
Net loss                                                                   --          (14,040,766)   (14,040,766)
-------------------------------------------------------------------------------    -------------------------------
Balances, March 31, 2000                                               64,476          (41,987,726)     4,695,314
Conversion of preferred stock                                              --                   --             --
Issuance of subscribed common shares                                  (64,476)                  --             --
Retirement of non-vested, forfeited shares related
to minority interest acquisition                                           --                   --             --

Exercise of common stock options                                           --                   --        726,017
Compensation related to stock option grants to
employees and consultants                                                  --                   --      2,277,155

Issuance of stock for legal settlements                                    --                   --        341,667
Issuance of warrants in conjunction
with promissory note                                                       --                   --        415,700
Issuance of Series C preferred stock in connection
with private placement                                                     --                   --     21,059,006
Dividends on preferred stock                                               --           (1,273,117)    (1,273,117)
Net loss                                                                   --          (31,466,250)   (31,466,250)
-------------------------------------------------------------------------------    -------------------------------
Balances, March 31, 2001                                         $         --         $(74,727,093)  $ (3,224,508)
-------------------------------------------------------------------------------    -------------------------------
</TABLE>

         See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years ended March 31,                                                       2001             2000
----------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                                $(31,466,250)  $(14,040,766)
Adjustments to  reconcile  net  loss  to  cash  used  for  operating
activities:
   Loss due to unauthorized share issuances                                       --      5,331,114
   Stock based compensation expense                                        2,277,155      2,072,535
   Depreciation and amortization                                             706,029        542,000
   Non cash litigation settlement charges                                    341,667             --
   Non cash interest expense                                                  72,747             --
   Equity in losses of joint venture and Mantra                                   --        517,443
   Purchased research and development and compensation
   expense related to minority interest acquisition                               --         67,454

Increase (Decrease) from changes in assets and liabilities:
   Costs and earnings in excess of billings                                  (27,686)      (110,746)
   Other current assets                                                      (15,693)        (7,646)
   Other assets                                                               65,939       (118,000)
   Accounts payable                                                        6,468,663        171,993
   Accrued expenses                                                          705,753         77,089
   Accrued litigation settlement costs                                     9,422,290             --
   Accrued payroll taxes                                                     415,700        530,000
                                                                        ------------   ------------
          Net cash used for operating activities                         (11,033,686)    (4,967,530)
                                                                        ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equipment and fixtures                                     (1,484,717)      (437,154)
   Capitalized construction in progress                                   (7,732,624)            --
   Advances to Mantra                                                             --        (69,114)
   Other                                                                          --       (142,818)
                                                                        ------------   ------------
          Net cash used for investing activities                          (9,217,341)      (649,086)
                                                                        ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of preferred stock,
   net of offering costs                                                  21,059,006      1,000,000
   Proceeds from promissory note                                           7,000,000             --
   Proceeds from common stock subscribed                                          --         64,476
   Collection of stock subscription                                               --      2,300,000
   Proceeds from issuance of common shares                                        --      1,005,001
   Proceeds from exercise of common stock options                            726,017        854,479
   Preferred dividends paid                                                       --        (45,300)
   Payments on capital lease obligations                                     (14,412)       (39,119)
                                                                        ------------   ------------
         Net cash provided by financing activities                        28,770,611      5,139,537
                                                                        ------------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       8,519,584       (477,079)
Cash and cash equivalents, beginning of year                               5,311,209      5,788,288
                                                                        ------------   ------------
Cash and cash equivalents, end of year                                  $ 13,830,793   $  5,311,209
                                                                        ============   ============

Supplemental disclosure of cash flow information:
   Income taxes paid                                                    $      3,786   $     12,160
                                                                        ============   ============
   Interest paid                                                        $    396,782   $      8,949
                                                                        ============   ============
</TABLE>

Schedule of non-        During fiscal 2001, the Company refinanced $1,250,000 in
cash investing and      accounts payable to a major vendor by entering into an
financing activities    unsecured note agreement with this vendor (See Note 5).

                        During fiscal 2001 and 2000, $1,273,117 and $50,055 of
                        dividends were accrued on the Company's preferred stock
                        but were not paid in cash.

                        During fiscal 2001, 20,000 shares of Series A Preferred
                        Stock were converted into 135,593 shares of common stock
                        and 38,400 shares of Series B Preferred Stock were
                        converted into 3,840,000 shares of common stock.

U.S. Wireless Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<PAGE>

                 During fiscal 2001, warrants to purchase common stock valued at
                 $415,700 were issued in conjunction with a promissory note
                 agreement.

                 During fiscal 2000, 50,000 shares of Series A Preferred Stock
                 were converted into 338,982 shares of common stock and 21,600
                 shares of Series B Preferred Stock were converted into
                 2,160,000 shares of common stock. In addition, 352,952 shares
                 of common stock were issued upon the cashless exercise of stock
                 options; however, these issuances were later determined to be
                 unauthorized stock issuances as described in Note 12.

                 During fiscal 2000, the Company entered into capital leases for
                 equipment with a cost totaling $44,215.

                 In connection with the issuance of the Series B Preferred Stock
                 in fiscal 2000, the Company recorded a deemed dividend of
                 $3,560,000 as a result of a beneficial conversion feature (see
                 Note 9).

                 As of March 31, 1999, the Company had $2,300,000 in stock
                 subscription receivables related to the sale of 23,000 shares
                 of its Series B preferred stock. Such receivables were
                 collected in full in April 1999.

         See accompanying notes to consolidated financial statements.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


Note 1 - Summary of Accounting Policies

Organization and Business

U.S. Wireless Corporation ("The Company") is headquartered in San Ramon,
California, and was incorporated in the State of Delaware in February 1993. The
Company develops high-performance, network-based location systems (known as the
RadioCamera system) designed to enable wireless carriers and others to provide
their customers with value-added, location-based services and applications,
including: enhanced 911, live-navigation assistance, enhanced 411, and asset and
vehicle tracking.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a remaining
maturity of three months or less on the date of acquisition to be cash
equivalents.

As of March 31, 2001 and 2000, substantially all of the Company's cash and cash
equivalents were in excess of the federally insured limits.

Equipment and fixtures

Equipment and fixtures are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the respective
assets, generally two to five years. Maintenance and repairs are charged to
operations as incurred and improvements are capitalized.

Network Infrastructure Construction in Progress

Network infrastructure construction in progress represents capitalized costs
relating to the Company's network infrastructure, including $160,030 of
capitalized interest as of March 31, 2001. Depreciation of these assets will
begin once the location network is placed into service, which is currently
anticipated during the first half of fiscal year 2002. The Company has
significantly decreased its spending on the buildout of the network
infrastructure pending additional financing.

Long-Lived Assets

Long-lived assets are evaluated for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, and
comparable sales value, as appropriate. Assets to be held and used affected by
such impairment loss are depreciated or amortized at their new carrying amount
over the remaining estimated useful life; assets to be sold or otherwise
disposed of are not subject to further depreciation or amortization. In
determining whether impairment exists, the Company compares estimated
undiscounted future cash flows to the carrying value of the asset.


U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements
<PAGE>

Income taxes

The Company uses the liability method of accounting for income taxes. Deferred
income tax assets and liabilities are recognized based on the temporary
differences between the financial statement and income tax basis of assets,
liabilities and carryforwards using enacted tax rates. Valuation allowances are
established for deferred tax assets to the extent of the likelihood that the
deferred tax assets may not be realized.

Stock-based compensation

The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. Under this
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Companies are permitted to continue to account for employee
stock-based transactions under Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, but are required to disclose pro
forma net income (loss) and earnings (loss) per share as if the fair value
method had been adopted. The Company has elected to continue to account for
employee stock-based compensation under APB No. 25.

Research and development

Research and development costs that do not have alternative future uses are
expensed as incurred, in accordance with SFAS No. 2 Accounting for Research and
Development Costs.


Net loss per share

Basic earnings (loss) per share is computed by dividing net loss attributable to
common shares, by the weighted average number of common shares outstanding
during each period. The weighted average common shares are exclusive of the
contingent unvested shares related to the Labyrinth purchase (Note 2). Diluted
earnings (loss) per share is similar to basic earnings (loss) per share, except
that the weighted average number of common shares outstanding is increased to
reflect the dilutive effect of potential common shares, such as those issuable
upon the exercise of stock options or warrants, contingent shares and the
conversion of preferred stock, as if they had been issued.

For each period presented, there is no difference between basic and diluted loss
per common share, as the effects of the exercise of common stock options, the
conversion of preferred stock, and the issuance of any contingent shares related
to the acquisition of the minority interest of Labyrinth are anti-dilutive,
given the net loss recorded in each year presented. The following shares were
excluded from the computation of diluted earnings per share since their effect
would be antidilutive:

                                        Number of Shares Convertible
                                  ----------------------------------------------
Fiscal Year                                  2001          2000
--------------------------------------  ----------------------------------------

Options                                   7,537,527     6,279,871
Preferred A Stock                                 -       135,593
Preferred B Stock                                 -     3,840,000
Preferred C Stock                         1,247,115             -
Contingent Shares Subject to Vesting      1,566,720     1,615,680
--------------------------------------  ----------------------------------------
                                         10,351,362    11,871,144
======================================  ========================================

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements

Revenue Recognition

The Company accounts for revenue from long-term contracts under the percentage
<PAGE>

of completion method, measured by comparing total costs incurred to date to
estimated total costs at completion.

Segment Reporting

The Company is organized in a single operating segment for purposes of making
operating decisions and assessing performance. The chief executive officer (the
chief operating decision maker), evaluates performance, makes operating
decisions, and allocates resources based on financial data consistent with the
presentation in the accompanying consolidated financial statements.

Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses,
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual amounts could differ from those estimates.


Recent accounting pronouncements

In June 1998 and June 1999, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133. These
statements require companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
133 will be effective for the Company's fiscal year ending March 31, 2002.
Management believes that the adoption of these statements will not have a
significant impact on the Company's financial position or results of operations.

In December 1999, the SEC staff released Staff Accounting Bulletin ("SAB") No.
101, Revenue Recognition in Financial Statements. SAB No. 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. SAB No. 101 was adopted by the Company during the
fourth quarter of fiscal 2001, and did not have a material impact on the
Company's financial results.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.

Note 2 - Going Concern

At March 31, 2001, the Company had cash and cash equivalents of approximately
$13.8 million. Based on management's estimates, capital resources are expected
to meet cash requirements through the second quarter of fiscal 2002 for the
continuation of research, development, and field trials. Wireless carriers have
delayed, relative to the Company's initial expectations, implementation of the
FCC's E911 mandate, which would have required the carriers to be able to
determine and report the location of callers beginning in October 2001. This
delay has impacted the Company's ability to generate revenue from the
investments made in the technology. Given the unlikely prospects for short-term
carrier contracts, the Company accelerated its development and marketing efforts
in positioning itself as a leader in the traffic/transportation business. While
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


the Company has made substantial progress in this regard, it does not expect to
generate sufficient revenues to sustain on-going operations. Based on
management's belief that the FCC will push the carriers to implement E911
solutions quickly and the Company's recent success in demonstrating a viable
traffic product, the Company believes that it will be in a position to realize a
number of contracts that will justify the further build-out of the RadioCamera
location network. Should this occur, the Company would need significant
additional financing for network deployment and to fund its on-going operations
in fiscal 2002. Given the capital intensity of a nationwide build-out, the
Company is actively assessing alternative strategies and partnerships that would
defray some or all of this cost.

Due to the unforeseen dismissal of the CEO in May 2001 and as a result the
Company's decision to restate certain transactions in its prior historical
financial statements (Note 12), the Company received a letter of determination
halting its current trading on the Nasdaq exchange. As a result, the Company was
delayed and compromised in its fund raising activity. In lieu of raising public
equity, the Company is developing plans for private equity and/or strategic
investment financing.

To address this issue, the Company has initiated discussions with potential
strategic partners that have the capacity and capability to support the
technology and operation of the RadioCamera Network and are in a position to
fund continuing operations until sufficient revenues can be generated from the
anticipated carrier and traffic industry contracts. In the event that the
Company is unable to secure a strategic partner or investor, the Company plans
to seek bridge financing until contracts materialize and/or a strategic
partnerships is secured. Our auditor has stated in its report that substantial
doubt exists about our ability to continue as a going concern. The financial
statements do not include any adjustments that might result from this
uncertainty.

Note 3 - Acquisition of Minority Interest

In January 1998, the Company submitted Exchange Offer Agreements (the "Exchange
Offer") to stockholders representing the 49% minority interest in Labyrinth,
increasing the Company's ownership to 100%. Pursuant to the terms of the
Exchange Offer, the Company exchanged 4,498,200 shares of its common stock for
490,000 shares of common stock of Labyrinth. The Exchange Offer provides that
the shares of the Company's common stock will vest subject to the following
vesting schedule:

(i)   20% of shares vest one year from issuance.

(ii)  40% of shares shall vest upon successful completion and operation of the
      Company's primary product in a major market.

(iii) 40% of the shares shall vest when the Company achieves cumulative sales of
      $15 million.

As of March 31, 2001 and 2000, an aggregate of 2,561,156 shares of the Company's
common stock have vested, as defined by the Exchange Offer.

During fiscal 2000 the Company recorded in-process research and development of
$30,294 and compensation expense of $41,291 related to the vesting of 36,353
shares to an employee-shareholder.

As of March 31, 2001, there are 1,566,720 shares (793,152 held by employees)
remaining to vest upon achievement of the third and final milestone. As a result
of a legal settlement, in April 2000, a total of 367,200 shares relating to the
third milestone were canceled and replaced by an equal number of newly issued
shares (see Note 11).

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements
<PAGE>

Note 4 - Costs and earnings in excess of billings

This account represents costs and earnings in excess of billings on a contract
with a state government agency to provide traffic flow information. The total
contract amount is $461,440 and completion occurred during the fiscal year ended
March 31, 2001. The remaining balance was billed in May 2001. The revenues under
this contract represented all of the revenues earned in fiscal years 2001 and
2000.


Note 5 - Other Assets

Other assets consist of the following:

March 31,                                                       2001       2000
--------------------------------------------------------------------------------

   Lease deposits                                             $85,361   $ 25,035
   Prepaid registration fees                                        -    118,000
   Investment in Mantra Technologies, Inc.                          -      8,265
    Investment in Wireless Technology, Inc.                         -          -
--------------------------------------------------------------------------------
   Total                                                      $85,361   $151,300
--------------------------------------------------------------------------------


The Company's investment in Wireless Technology, Inc. ("WTI") represents an
investment in a joint venture with Anam Instruments, Inc. to develop and
manufacture a Code Division Multiple Access ("CDMA") interface for the
RadioCamera. The Company has an 11% interest in the joint venture which is being
accounted for under the equity method of accounting due to the existence of
significant influence by the Company on the operations of WTI.

The Company retains sole ownership of the developed technology. WTI, in return,
receives the right to manufacture and market the CDMA version of the RadioCamera
throughout Korea, Asia and Australia. WTI will be required to pay the Company a
royalty for each product sold, exclusive of product sales to the Company, based
upon commercially acceptable terms that have yet to be determined. The Company
will be required to pay WTI a similar royalty for each product sold by the
Company which has not been manufactured by WTI. The Company also agrees to use
WTI as its preferred supplier of the CDMA version of the RadioCamera subject to
WTI being able to provide the product on competitive terms. In fiscal 2001, the
Company entered into a purchase commitment with WTI for CDMA radio cameras and
related parts in the amount of $1.6 million. Of this amount, $800,000 has been
incurred as of March 31, 2001, and the remaining amount is contingent upon WTI
delivering a working model of the CDMA version of the RadioCamera.

During fiscal years 2001 and 2000, the Company received $0 and $534,000,
respectively, for reimbursements for ongoing research and development expenses
of the product incurred by the Company unrelated to the reimbursable amount
noted above. These reimbursements were recorded as a reduction of research and
development expense.

During fiscal 2000, the Company recognized its equity in the net losses in WTI
which totaled $390,208. In fiscal 2001, no losses have been recognized as the
value of the investment was written down to zero as of March 31, 2000. Mantra
Technologies ("Mantra") was a former subsidiary of the Company that developed
network management systems. Due to a recapitalization in fiscal 1999, the
Company's ownership was reduced to 44% and this investment has therefore been
accounted for under the equity method of accounting since that time. The Company
recognized its equity in the net losses of Mantra of $8,265 and $127,235 for
fiscal 2001 and 2000, respectively. Mantra ceased operations during fiscal 2000.


U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


Note 6 - Notes Payable

In March 2001, the Company entered into an unsecured note payable agreement to
<PAGE>

refinance its accounts payable balance with a major vendor in the amount of
$2,000,000, of which $750,000 was paid upon signing the agreement. The remaining
balance of $1,250,000 accrues interest at 9.0% per annum, and is payable in
$100,000 installments of principal and interest, beginning in June 2001 and
ending in July 2002.


In September 2000, the Company entered into agreements with Hewlett Packard
Credit Corporation ("HPCC"), a subsidiary of Hewlett Packard Company ("HP"),
including a Note and Warrant Purchase Agreement, Promissory Note, Warrant
Agreement, Registration Rights Agreement, Consulting Agreement, Project
Agreement and Business Alliance Agreement. At the closing the Company received
the proceeds of a $7,000,000 promissory note, which are to be used primarily for
HP services and equipment in the construction of its initial network operating
center. The note is due in its entirety on September 21, 2003 and accrues
interest at 10.5%, payable quarterly. The note is collateralized by
substantially all of the Company's equipment and fixtures, including network
operating center equipment.

In connection with the issuance of the promissory note, the Company granted HPCC
a warrant to purchase up to a maximum of an aggregate of 41,990 shares of common
stock at an exercise price of $16.67. The Company valued the warrant using the
Black-Scholes option valuation model to be approximately $415,700 based on a
three year life, a risk free interest rate of 6.5% and a 100% volatility factor.
The value of the warrants was recorded as paid in capital and as a discount to
the promissory note. The discount is being amortized to interest expense on a
method that approximates the effective interest method. Interest expense on the
note, including amortization of discount of $72,748, was $463,818 for the year
ended March 31, 2001, of which $160,030 was capitalized to network
infrastructure. The effective interest rate on the note is approximately 13% per
annum and the unamortized discount is $342,953 at March 31, 2001.

Although the promissory note is not payable until September 2003, the Company is
in technical default of certain covenants of the promissory note agreement, and
is currently in negotiations with HPCC to cure the events of default.
Accordingly, the note payable has been classified as a current liability in the
consolidated balance sheet.


Note 7 - Income Taxes

The major components of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
March 31,                                                    2001          2000
-----------------------------------------------------------------------------------
<S>                                                     <C>            <C>
Deferred tax assets:
   Net operating loss carryforwards                     $ 14,596,000   $ 6,496,000
   Litigation settlement costs                             4,045,000             -
   Accrued expenses                                          495,000       260,000
   Research and development tax credit carryforwards         966,000       966,000
   Stock-based compensation                                  802,000       786,000
   Other                                                     665,000       513,000
-----------------------------------------------------------------------------------
Gross deferred tax assets                                 21,569,000     9,021,000

Deferred tax liabilities:
   State income taxes                                     (1,127,000)     (498,000)
-----------------------------------------------------------------------------------
Net deferred tax assets before valuation allowance        20,442,000     8,523,000
Valuation allowance                                      (20,442,000)   (8,523,000)
-----------------------------------------------------------------------------------
Net deferred tax assets                                 $          -   $         -
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


At March 31, 2001 and 2000, the Company established a 100% valuation allowance
for the net deferred tax assets because management could not determine that it
was more likely than not that the deferred tax assets could be realized. The
increase in valuation allowance totaled $11,919,000 and $4,957,000 for fiscal
2001 and 2000, respectively. As of March 31, 2001, approximately $2,001,000 of
the valuation allowance relates to deferred tax assets for which subsequently
recognized tax benefits will be allocated directly to additional paid in capital
as they relate to stock option transactions.

As of March 31, 2001, the Company has Federal net operating loss carryforwards
(NOLS) totaling approximately $38,055,000, which expire at various times through
2021. For State purposes, the Company has NOLS totaling approximately
$18,753,000, which expire at various times through 2010. Utilization of a
portion of the NOLS may be limited pursuant to Internal Revenue Code Section 382
due to ownership changes because they were acquired in connection with the
purchase of Labyrinth. Also, should significant changes to the existing
ownership of the Company occur, the annual amount of NOL carryforward available
for future use would be further limited.

In addition, the Company has approximately $524,000 and $442,000 of Federal and
State research and development tax credit carryforwards. The Federal credits
expire at various times through 2020.

A reconciliation of income taxes computed at the federal statutory tax rate to
income tax expense at the effective income tax rate is as follows:



Years Ended March 31,                                            2001     2000
-------------------------------------------------------------------------------

Federal statutory income tax (benefit) rate                    (34.0)%  (34.0)%
Increases (decreases) resulting from:
State tax benefit, net of federal liability                     (3.9)%   (4.9)%
Non deductible loss from unauthorized stock issuances              - %   12.9 %
Research and development tax credit carryforwards                  - %   (3.7)%
Net change in valuation allowance                               37.9 %   28.5 %
Other                                                              - %    1.2 %
-------------------------------------------------------------------------------

Effective income tax (benefit) rate                               (-)%     (-)%
-------------------------------------------------------------------------------


Note 8 - Stockholders' (Deficit) Equity

During fiscal 2000, the Company sold 318,400 shares of common stock to employee,
officers and directors. Included in this amount are 40,000 shares which have
been recharacterized as unauthorized share issuances as disclosed in Note 12. In
addition 86,600 shares were sold to two entities that were included in the
Company's investigation as described in Note 12. Accordingly, the issuance of
these shares have also been classified as unauthorized stock issuances in these
financial statements. In connection with this sale the Company recorded non-cash
stock compensation expense of $295,100.


Preferred Stock - Private Placements

Series A - All of the outstanding shares of Series A Preferred Stock have been
converted to common as of March 31, 2001. The Series A preferred stock carried a
cumulative dividend at the rate of 6% per annum, payable in cash or shares of
Series A upon the earlier of redemption or conversion to common shares. Holders
of the Series A had the right to convert into shares of common stock at the rate
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


of $2.95 per share, at any time commencing from issuance. The shares of Series A
had no voting rights and carried a liquidation preference of $20 per share.

The Company recorded dividends on the Series A of $40,504 and $95,355 during
fiscal years 2001 and 2000, respectively, of which $90,559 was unpaid as of
March 31, 2001.

Series B - All of the outstanding shares of Series B Preferred Stock have been
converted to common as of March 31, 2001. Each share of Series B carried a
liquidation preference of $100 per share and was convertible into 100 shares of
common stock. The Series B shareholders were also entitled to elect one member
to the Company's Board of Directors.

The Company recorded a deemed dividend of $3,560,000 in fiscal 2000 related to
the beneficial conversion price to common stock of $1.00 per share, which was at
discount from the trading price of the Company's stock at the date of
investment.

Series C Preferred Stock

In May 2000, the Company authorized 150,000 shares of Series C Preferred Stock
with a $.01 par value. In June 2000, the Company completed the sale of 112,500
shares of the $.01 par value Series C Preferred Stock at a price of $200 per
share to American Tower Corporation (ATC). Proceeds of the Series C Preferred
Stock, net of offering costs of approximately $1,441,000 were $21,059,006. This
issue has a stated liquidation preference of $200 per share plus unpaid and
accrued dividends, and is senior to all common stock. It is redeemable by the
Company at a per share redemption price of $200 plus unpaid and accrued
dividends at any time upon the earlier of June 1, 2004 or the date after the
closing price for the Company's Common Stock has been at least $45 for a
consecutive thirty-day period. Dividends are cumulative and payable semi-
annually beginning June 1, 2000 at an annual rate of 6.5% per share. Each share
of Series C Preferred Stock will convert into the number of shares of common
stock equal to the liquidation value of $200 divided by the initial conversion
price of $19.03 at any time at the holder's option. The Series C Preferred
Shareholders have the right to vote on all matters voted on by the stockholders
except the election the Board of Directors. However, they are allowed to elect
one member of the Board of Directors until at least 50% of the shares of Series
C Preferred Stock have been converted into shares of Common Stock. The Series C
Preferred Stockholders are entitled to that number of votes equal to the number
of shares of Common Stock that such holder is entitled to receive upon
conversion of such of Series C Preferred Stock. The Series C Preferred
Stockholders have the right to receive the kind and amount of securities or
property receivable by common shareholders upon a consolidation, merger, sale or
share exchange.


Note 9 - Stock Options and Stock Awards

The Company issues non-qualified common stock options to its employees, officers
and directors, and to certain consultants performing services for the Company.
Options granted to employees generally vest over three or four years, and expire
five to ten years from the date of grant, or three to six months following
termination of employment. In April 2001, the Company extended the term of all
outstanding employee options from five years to ten years. Included in the
options extended were 2.25 million options held by the Company's former Chief
Executive Officer (see Note 12). Options granted to consultants generally vest
immediately upon performance of the services required, or upon completion of a
funding transaction (where the options are issued to placement agents), or over
three years. These options typically expire three-to-five years from the date of
grant.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


The following table summarizes transactions pursuant to the Company's
non-qualified stock option agreements:

<TABLE>
<CAPTION>
                                                                                 Weighted
                                                                         Average Exercise
                                                                          Price Per Share                               Outstanding
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                                            <C>
March 31, 1999                                                                   $ 2.28                                   4,950,500

    Granted                                                                       15.55                                   2,671,500
    Exercised                                                                      2.29                                    (719,912)
    Cancelled                                                                      2.66                                    (622,217)
------------------------------------------------------------------------------------------------------------------------------------

March 31, 2000                                                                     7.89                                   6,279,871

    Granted                                                                       16.49                                   1,717,418
    Exercised                                                                      2.87                                    (307,262)
    Cancelled                                                                      5.25                                    (152,500)
------------------------------------------------------------------------------------------------------------------------------------

March 31, 2001                                                                   $10.19                                   7,537,527
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



Options outstanding and exercisable by exercise price at March 31, 2001 were as
follows:

<TABLE>
<CAPTION>
                                                               Outstanding                                      Exercisable
                                          -------------------------------------------------------   --------------------------------
                                                                                        Weighted                        Weighted
                                                                      Remaining         Average                         Average
              Range Of                    Outstanding At March   Contractual Period     Exercise    Exercisable At
           Exercise Prices                      31, 2001              In Years           Price      March 31, 2001    Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                    <C>                    <C>         <C>               <C>
            $        2.00 -     3.49                4,039,041           2.27             $  2.10      3,716,884       $      2.07
                     3.50 -    11.28                1,012,086           4.33                4.94        494,589              4.72
                    11.29 -    25.00                1,268,650           4.33               20.11        152,987             25.06
                    30.95 -    46.63                1,217,750           4.60               31.04        253,834             30.97
=================================================================================================   ================================
            $        2.00 -    46.63                7,537,527           3.27             $ 10.19      4,618,294       $      4.71
=================================================================================================   ================================
</TABLE>

At March 31, 2000, 4,267,705 options were exercisable at a weighted average
exercise price of $2.37 per share.

In December 1997, the Company adopted the Senior Management Incentive Plan (the
"Plan"). The Plan provides for the issuance of up to an aggregate of 500,000
shares of the Company's common stock upon exercise of stock options and other
rights to officers, key employees, and consultants. As of March 31, 2001, no
stock options, or other rights, have been issued under the Plan.

Under SFAS 123, "Accounting for Stock Based Compensation", compensation
associated with stock options issued to consultants is measured based on the
estimated fair value of services received by the Company, or the fair value of
the options issued by the Company, whichever is more reliably measurable. The
Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes model with the following weighted average assumptions for
grants in fiscal years 2001 and 2000, respectively: no dividend yield for any
year; expected volatility of 135% and 111%; risk-free interest rates of
approximately 5.5% and 6.0%; and expected lives of 3.0 and 4.0 years.

The Company issued 152,400 and 689,000 options to consultants and recorded
$107,212 and $302,204 in related compensation expense for fiscal years 2001 and
2000, respectively.

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements
<PAGE>

If the Company had accounted for all options under the fair value provisions of
SFAS 123, the Company's net loss would have increased to the following proforma
amounts: fiscal 2001 - $46,889,333 and $2.39 per share, fiscal 2000 -
$19,050,793 and $1.53 per share. The weighted average estimated fair value of
the options granted was $11.92 and $19.74 per share during fiscal 2001 and 2000,
respectively.


Note 10 - Commitments and Contingencies


Operating leases

The Company leases office facilities in California and Virginia under non-
cancelable operating leases which expire at various dates through December 2005.
The Virginia lease contains a one-year renewal provision and provides for a
security deposit in the form of a $100,000 letter of credit, which was delivered
to the landlord in fiscal 2001. Both leases also contain base rent escalation
provisions. The Company also leases various rooftop-testing facilities.

At March 31, 2001, aggregate future minimum lease payments due under non-
cancelable operating leases with terms greater than one year, excluding
commitments due under the ATC master license agreement (see below), are as
follows:


Year ending March 31,                                                     Amount
--------------------------------------------------------------------------------

2002                                                 $                   889,300
2003                                                                     531,200
2004                                                                     484,400
2005                                                                     195,900
--------------------------------------------------------------------------------

Total minimum lease payments                         $                 2,100,800
================================================================================

Rent expense was $969,966 and $314,190 for fiscal years 2001 and 2000,
respectively.


Capital leases

The Company leases equipment under a non-cancelable capital lease which expires
in March 2003. At March 31, 2001, aggregate future minimum lease payments due
under capital leases are as follows:

Year ending March 31,                                                    Amount
--------------------------------------------------------------------------------

2002                                                       $             17,600
2003                                                                     17,600
--------------------------------------------------------------------------------

                                                                         35,200
Less amounts representing interest                                       (5,397)
--------------------------------------------------------------------------------

Total future minimum lease payments, net                                 29,803
Less current portion due within one year                                (14,663)
--------------------------------------------------------------------------------
Long-term portion of capital lease obligations             $             15,140
--------------------------------------------------------------------------------


Equipment, improvements, and fixtures include equipment under capital leases of
$44,215 and $44,215, and accumulated amortization of $23,951 and $1,842 as of
March 31, 2001 and 2000, respectively.


U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


License Agreements
<PAGE>

Concurrent with the Series C private placement in May 2000, the Company entered
into two agreements with ATC and its operating entities: a master license
agreement and services agreement. Under the terms of the agreements, ATC will
provide site licenses and services in connection with the Company's network
build-out. Under the terms of the master license agreement, the Company is
required to license a minimum of 1,000 tower facilities over a period of three
years at rates starting at $450 per month for each facility. The license fee
will be increased at a rate of 5% per year, beginning in the third year. If ATC
has 10,000 tower facilities available by December 31, 2000, the Company will
license 150 sites prior to the end of the first year, an additional 300 sites
prior to the end of the second year and an additional 550 sites prior to the end
of the third year. This commitment will increase in the event that the Company
meets certain market milestones and ATC satisfies certain tower building or
acquisition milestones. The term of the agreement is three years and contains
certain commitment penalties if the Company does not meet the minimum 1,000
tower licenses as specified in the agreement. The penalties are also contingent
on performance by ATC as to certain tower availability requirements.  The
commitment penalty is $7,200 per site per year for each year of the initial term
of the site license agreements, applicable to each site below the minimums
specified in the agreements. The term of each site license will be five years
and will be extended for additional five-year periods unless the Company elects
to terminate and so notifies ATC. Under the services agreement, ATC will provide
network build-out services, including radio frequency design, radio frequency
engineering, site identification, site acquisition and development, site zoning
and permitting, site construction and installment management, and component
purchases.


Future minimum annual payments due under the ATC master license agreement for
commitment penalties, provided the Company is required by the terms of the
agreement to enter into tower licenses and fails to perform said obligation, is
as follows for years ended March 31:


Year ending March 31,                                                     Amount
--------------------------------------------------------------------------------

2002                                         $                         1,080,000
2003                                                                   3,240,000
2004                                                                   7,200,000
2005                                                                   7,200,000
2006                                                                   7,200,000
Thereafter                                                            10,080,000

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

Total minimum penalty payments               $                        36,000,000
--------------------------------------------------------------------------------

As of May 31, 2001, the first anniversary of the Company's master license
agreement with ATC, the Company had not licensed any towers and therefore may
have become subject to penalties pursuant to the master license agreement.
Potential penalties against the Company could total $1,080,000 payable within 30
days of May 31, 2001.  As of August 19, 2001, the Company has not confirmed
ATC's compliance with the tower availability requirement specified in the
license agreement.  No penalties have been paid to date.

401(k) Plan

The Company sponsors a 401(k) Plan (the "Plan") covering eligible employees of
the Company. Employees are eligible to participate in the Plan after completing
one month of service. The Company's contributions to the Plan are discretionary,
and are determined on a plan year-end basis which is December 31. The Company
did not make contributions to the Plan during fiscal 2001 or 2000.

Note 11 - Legal Matters

On April 4, 2001, the Company reached a settlement agreement with two
consultants and certain related entities (the "Consultants") who had filed a
lawsuit against the Company, the CEO and the General Counsel in June 2000. As a
result of the settlement agreement, the Company recorded a charge in the fourth


U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements

quarter of fiscal 2001 of approximately $6.0 million, which includes cash
payments of $1.5 million to be made during fiscal 2002.

In May 2000, the Company had commenced an action in California state court
against the Consultants for failure to perform under the terms of a consulting
agreement. The Company was seeking to recover damages, restricted stock and
stock options issued to the Consultants pursuant to a restricted stock agreement
<PAGE>

and stock option agreements granting the Consultants a total of 918,000 shares
of restricted stock, 550,800 of which had previously vested, and options to
purchase 1.2 million shares of the Company's common stock, 1.1 million of which
had not been exercised. In June 2000, the Consultants brought an action in
federal court in California against the Company, the CEO and its General Counsel
claiming the Company had breached its obligations under the restricted stock and
stock option agreements. Thereafter, the Company brought its previous state
claims as a counterclaim in the federal action and dismissed the state action.

During March 2001, the parties engaged in settlement negotiations which led to
the settlement agreement on April 4, 2001. Under the terms of the settlement
agreement, the Company will make cash payments as follows: $500,000 on April 16,
2001; and $333,333 on each of July 1, 2001 and December 31, 2001, and will issue
1,032,800 shares of its common stock to the Consultants. The Company agreed to
relinquish its claims against the 918,000 shares of restricted stock previously
issued and the options to purchase 1.1 million shares of the Company's stock
previously granted and to waive the exercise price with respect to the stock
options. The parties agreed to release all claims and proceedings against each
other. The Company has accrued $6.0 million related to this matter at March 31,
2001.

During fiscal 2000, two former employees, Mr. Mati Wax ("Wax") and Mr. Abraham
Bar ("Bar"), filed suit against the Company seeking lost wages, stock options
and unvested common stock as a result of their terminations. These former
employees were also Labyrinth employee-shareholders (Note 3). During the third
quarter of fiscal 2001, the Company recorded a provision for litigation
settlement costs in the amount of $1,250,000, based upon the estimated loss to
be incurred from these actions. The accrual was recorded because the actions had
been settled in principal, pending the negotiation of the final terms and
conditions of the settlement agreement. Subsequently, negotiations broke down
over the final terms and conditions of the settlement agreement. On July 6,
2001, the American Arbitration Association rendered its award in the Wax case.
The Company plans to appeal the award to the California Superior Court. The
Company has attempted to reach a settlement with Mr. Bar, but has been
unsuccessful to date. The Bar case has been set for arbitration in November
2001.

As a result of the award issued in the Wax case, the Company has accrued an
additional $2,000,000 as litigation settlement costs during the fourth quarter
ended March 31, 2001 to increase the reserve for its potential estimated
liabilities for the Wax and Bar cases.

During fiscal 2001, a former board member filed an action in California State
Court against the Company, its CEO, and its General Counsel claiming that the
Company had breached its stock option agreement with the former director. During
the third quarter of fiscal 2001, the Company entered into a settlement
agreement with the former director and recorded a provision for litigation
settlement costs of $350,000, representing the fair value of the stock that the
Company agreed to give the former director pursuant to the settlement agreement.

The Company was served on May 1, 2001 with an action for breach of guaranty
arising out of an alleged personal guaranty of the obligations of PlayCo Toys,
Inc. ("PlayCo"), a subsidiary of American Toys, Inc., the predecessor of U.S.
Wireless, Inc. The complaint alleges that PlayCo breached a lease obligation to
Foothill Marketplace, which now seeks in excess of $500,000 in damages and
attorneys fees. The Company is currently investigating the matter and is not
currently able to estimate the possibility of loss, if any.

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements


During July, 2001, several shareholder actions were filed against the Company
arising out of recent announcements by the Company concerning the removal of the
CEO and resignation of the General Counsel amid allegations of wrongdoing. The
Company is not currently able to estimate the possibility of loss or range of
loss, if any, for these actions.

Note 12 - Related Party Transactions and March 31, 2000 Restatement

In May 2001, the Company announced that it had completed an investigation that
resulted in the termination of the Company's former Chief Executive Officer and

<PAGE>


the resignation of the Company's former General Counsel. The investigation
revealed several transactions in which stock or options to purchase common stock
had been issued to various entities without evidence of Board of Directors
approval of the transactions, or evidence that the Company had received
consideration for the issuance of the stock and options. In addition, the
Company concluded that based on the evidence obtained, it was likely that the
Company's former Chief Executive Officer and former General Counsel had
beneficial interests in many, and possibly all of, the entities in question.

As a result of the investigation, the Company determined that certain
transactions had been improperly recorded in the Company's historical financial
statements either as compensation expense or as offering costs related to
financing activities, based upon representations by the Company's former Chief
Executive Officer and former General Counsel. In addition, the Company
determined that these transactions had not been properly disclosed as related
party transactions.

The transactions in question involved the issuance of 212,725 shares of common
stock during fiscal year 2000 and options to purchase 450,000 shares of common
stock during fiscal years 1997, 1999 and 2000 (150,000 options were issued in
each fiscal year). The Company issued an additional 63,300 shares in fiscal year
2000 for which payment was received but for which the issuance was unauthorized.
The options were all subsequently exercised in fiscal year 2000, resulting in
the issuance of 352,952 shares of common stock.

Upon further analysis of the transactions described above, the issuances of
stock and stock options that were the subject of the investigation were
determined to have been unauthorized stock issuances. Accordingly, the Company
has recorded a non-cash loss from unauthorized stock issuances during the year
ended March 31, 2000, measured based on the fair market value of the net shares
of common stock issued as of the date of issuance. In addition, the Company has
also recorded non-cash stock compensation of $407,603 and certain payroll tax
liabilities of $530,000 in the year ended March 31, 2000 for other transactions
that were reevaluated by management in connection with the investigation.

A former Board member, who resigned from the board in November 2000, is the
managing director of Ocean Castle Investors, LLC a consultancy firm which the
Company has used for investor relations services. As payment for those services
the Company issued 50,000 options to Ocean Castle Investors during fiscal 2000.
These options have an exercise price of $2.00 per share and expire during 2002.
The fair value of these options totaling $41,207 was included in operating
expenses.

The former Board member is also the Chief Executive Officer and Chairman of the
Board of Global Technologies, Inc. which purchased 30,000 shares of the Series B
Preferred Stock during fiscal year 1999, which was subsequently converted to
3,000,000 shares of common stock during fiscal year 2000.
<PAGE>

U.S. Wireless Corporation and Subsidiaries
Notes to Consolidated Financial Statements



Note 13 - Subsequent Events (unaudited)

On July 12, 2001, the Company reached a settlement agreement with the Company's
former CEO, who agreed to resign from the Company's Board of Directors and to
return approximately 758,000 shares to the Company.