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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB
                                  (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 [X] No [_]

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.
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                                    PART I

ITEM 1.   DESCRIPTION OF BUSINESS

Our Market Opportunity

There are in excess of 110 million wireless subscribers in the U.S. today and
that number is projected to rise to over 185 million by 2005. Wireless carriers
competing for this growing subscriber base are exploring new ways to
differentiate their services and increase average revenue per unit. We believe
that location-based wireless services will be a leading new revenue opportunity
for wireless carriers. In addition, wireless subscribers are demanding access
to, and are willing to pay their carriers for, the same data available to wired
telephone users and, increasingly, to wired and wireless Internet users. The
1999 Strategis Group Report estimates an $8 billion per year market for wireless
location services, excluding E-911 capabilities, such as roadside assistance,
location-sensitive billing, E-411 and traffic and intelligent transportation
systems. The report estimates that 47 million subscribers will be using these
services by 2004.

We have developed a network-based proprietary technology to locate mobile
telephone subscribers by recognizing the pattern of the radio waves radiating
from the subscribers' handsets. Based on the results of our field trial in
Billings, Montana, which we completed in August 1999, and a demonstration to the
National Emergency Number Association (NENA) in Seattle during March 2001, our
location technology was deemed to meet or exceed the Phase II requirements of
the FCC's wireless E-911 mandate. We plan to deploy a location network based on
our proprietary technology and operate it as a service bureau, enabling us to
enjoy substantial operating leverage by providing wireless location information
to multiple wireless carriers and other customers for multiple applications.

Our technology is also well suited to a range of transportation applications.
These include traffic management services for public agencies, telematics or
traveler information services for commercial markets and other vehicle location
related uses. Initially, we will focus on providing traffic content services to
government agencies to assist them in monitoring and managing roadway congestion
in markets where we have received Department of Transportation (DOT) contracts.
The networks funded by these contracts then will provide a base to support
commercial traffic and vehicle location services. UBS Warburg estimates a $7
billion market for traffic data services in the US by 2010 and a $47 billion per
year worldwide market for telematics.

As contracts for E911 services are secured, US Wireless will provide location
data to enable the carriers to meet their FCC Mandate (see below). Over time, we
anticipate that we will be able to expand our service offerings and market
coverage to provide a variety of location services to wireless carriers and
others. While these applications are evolving, we anticipate that our service
offerings will include the following:

   Carrier Services

   .   E-911: Our network will provide wireless carriers with location
       information that satisfies the accuracy requirements of the FCC 911
       mandate.
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   .   Carrier Network Applications: Over time, we will offer wireless carriers
       other value-added services, such as monitoring the performance of their
       networks, determining under-performance or changes in their networks'
       coverage and location-based billing.

   .   E-411 and other information services: Location-based information services
       and applications that are related to the mobility of the end user (i.e.
       turn-by-turn directions, real-time traffic information and localized
       directory assistance). Additionally, the network could provide an
       opportunity for advertisers to sell to customers that are geographically
       proximate to their products and services.

   .   Fleet Management and Asset Tracking: Our technology will allow carriers
       to provide their customers with accurate, real-time information about the
       location of their fleets, freight and related equipment.

   Transportation Services

   .   Traffic Management: Our network will provide Federal, State and local
       governmental agencies with the information needed to manage traffic
       flows, to monitor roadway congestion, and to support a variety of
       planning and management activities.

   .   Telematics: Our network will provide motorists with time-dependent
       traffic and roadway information. Examples of such in-car, telematic
       services include route guidance, in-car traffic alerts, concierge
       functions, dynamic re-routing and similar services targeted at commuters.
       We plan to provide these services as a wholesale business.

FCC Mandate

Recent actions by the FCC are driving the market opportunity for wireless
location technology. Unlike phone calls placed from wireline telephones, it is
not possible to determine the location of the caller for calls for emergency
assistance from wireless phones. In response to this public safety issue, the
FCC has issued a series of orders since July 1996, requiring wireless carriers
to provide the caller's telephone number and originating cell site and/or sector
of a 911 call to qualified requesting Public Safety Answering Points (PSAPs)
within six months of their request.

The wireless carriers' obligations to identify and report E-911 calls are
becoming more complex. Commencing in 2001, wireless carriers must be able to
pinpoint and report the location of all 911 callers within specified accuracy
requirements, known as the Phase II requirements became effective. Wireless
carriers were required to file reports with the FCC by October 1, 2000
describing their plans for achieving E-911 compliance, including their choice of
technology and implementation plan. Many of the leading national carriers,
including Verizon, Cingular, AT&T Wireless and others had indicated their
intention to use network based technologies, with some companies specifically
identifying US Wireless's unique pattern matching solution as a technology of
choice. Since this FCC reporting requirement, three major carriers have
requested waivers from strict compliance with the mandate's deadlines. Two of
these waivers were related to carriers that have or will adopt GSM technology,
for which the carriers cited the unavailability of an adequate location
solution; while the third carrier utilizes a proprietary technology. All the
carriers seeking waivers were requesting longer schedules to implement a handset
or hybrid-handset location solution.

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Timing Requirements

Carriers choosing a network-based solution, like ours, must:
   .   provide E-911 services to 50% of subscribers within six months of the
       request by a local PSAP but not sooner than October 1,2001; and

   .   provide E-911 service to 100% of subscribers within 18 months of the
       request by a local PSAP.

Carriers choosing a handset-based solution must:
   .   begin selling and activating E-911 handsets by March 1, 2001;

   .   ensure that 50% of newly activated handsets are E-911 capable by October
       1,2001; and

   .   ensure that 95% of newly activated handsets are E-911 capable by October
       1,2002.

The schedule for carriers providing a handset-based solution is independent of
requests by PSAPs for location services. However, if a local PSAP does request
E-911 service, the carrier must assure that 100% of all newly activated handsets
are E-911 compliant within six months of that request. PSAPs have been
authorized to make these requests beginning April 1, 2001. Following such a
request, within two years or by December 31, 2004, whichever is later, each and
every handset in operation must be E-911 capable. This requires that a carrier
electing a handset-based solution must either replace its subscribers' old
handsets or upgrade them.

Accuracy Requirements

The FCC's accuracy requirements also differ for network-based and handset-based
solutions. For network-based solutions, such as ours, the carrier must be able
to identify the caller's location within 100 meters for at least 67% of calls,
and within 300 meters for 95% of calls. For handset-based solutions, the carrier
must be able to identify the caller's location within 50 meters for 67% of
calls, and within 150 meters for 95% of calls.

On March 31, 2000, the FCC published guidelines for testing and verifying the
accuracy of E-911 wireless location systems. In these guidelines, the FCC
described empirical predictions and statistical approaches for verifying
compliance with the FCC's accuracy standards. The FCC also indicated that in
addition to providing a first fix location, there is an added benefit during the
initial 30 seconds of the call to obtain additional location information to
refine the mobile's position.

Waivers and Modifications

Various wireless carriers have submitted requests for waivers from the Phase II
requirements of the FCC mandate, and other parties have subsequently filed
comments with the FCC regarding waivers. The FCC is reviewing the issue of
waivers and/or modifications of its mandate in an ongoing public forum.

Given the FCC's recent actions and with the growing number of wireless
subscribers who attach importance to personal safety, we expect that the need
for and awareness of E-911 services will continue to increase demand for E-911
services. In addition, in October 1999, the U.S. Congress

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passed the Wireless Communications and Public Safety Act, which designates 911
as the universal number across the nation for reporting an emergency and
requesting assistance from both wireline and wireless telephones. The Act also
grants wireless communications companies, wireless users and personal safety
answering points the same immunity and liability protection granted in similar
circumstances to wireline 911 services.

Business Strategy

Our objective is to deploy and operate a wireless location network that supports
the needs of wireless carriers and other customers and provides other value-
added services. Our strategy is to do the following:

Rapidly deploy our location network for traffic content and E911. We believe
that we are the only company to have successfully tested an E-911 solution in an
end-to-end trial within FCC mandated requirements. We intend to continue testing
our solution during the remainder of the year in the Washington D.C., San
Francisco, and Seattle metro areas. Upon securing governmental traffic contracts
or E911 contracts, we plan to begin rolling out our network to provide services
in these markets for the DOTs and carriers. Based on the growing acceptance of
our traffic content services by the DOTs, we believe that we will deploy
networks sooner than our competition, thus providing a significant advantage in
providing a broad range of wireless location services. To the extent possible,
we plan to focus early deployments on the top 30 metropolitan areas since these
are also the areas with the most significant traffic problems. To market and
develop these services, we created a transportation subsidiary, Compass
Services.

Establish close-knit relationships with leading nationwide carriers. We intend
to focus on the wireless carrier as our primary customer. A key contributor to
our development has been our ability to establish relationships with leading
wireless carriers in the industry. To date, we have undertaken technology trials
with Verizon, Nextel Communications, AT&T Wireless, Cingular Wireless and
Western Wireless, for each to evaluate the effectiveness of our location
technology. We believe that in the event a carrier selects our system to provide
some or all of its E-911 services, we will be well positioned to market
additional location-based service applications to that carrier.

Create and capitalize on the substantial operating leverage resulting from our
service bureau. A key component of our strategy is our service bureau model.
This model will allow our users to obtain wireless location information without
making costly investments in infrastructure or replacing handsets. In addition,
we will be able to spread the cost of our network over a larger customer base,
permitting us to offer location services to our customers at a lower price than
we could offer to any single customer. For this reason, we are seeking to design
our solution in a manner that will be compatible with all current wireless
technologies and protocols. As a result, once we complete the roll-out of our
network, we will be in a position to serve all U.S. carriers, including
nationwide carriers, and all handsets, including roamers. We believe that this
will be attractive to carriers because existing GPS solutions have line of sight
limitations typical of satellite-based technologies and can only support roamers
in similar networks served by a GPS-based system. As our national footprint is
built, our service bureau will enable us to:

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   .   sell multiple services to each carrier, beginning with E-911 service,
       adding additional carrier network applications, such as location-based
       billing, and ultimately adding subscriber-driven location-sensitive
       applications;

   .   support various carrier network applications for multiple network and
       regional carriers;

   .   provide customized applications that will allow a carrier to create
       tailored services for its customer base; and

   .   offer applications such as traffic content services and telematics to
       non-carrier customers.

Provide an innovative solution for monitoring traffic flow and congestion. We
plan to adapt our wireless location network to provide an accurate and cost-
effective method for monitoring traffic flow. We believe that the current
technologies for collecting traffic data have significant shortcomings,
including limited coverage areas, high maintenance costs and excessive failure
rates. Because of the growing number of cellular users and our ability to
continuously monitor the calls on the roadways, we believe that our location
network can provide meaningful real-time traffic data. We have already entered
into agreements with the States of Maryland and Virginia on a trial basis to
provide traffic data, and we intend to continue to market our innovative
solution to the intelligent transportation systems community. We recently signed
a contract that will use our network for traffic based services in the San
Francisco Bay Area and bids have been submitted to other jurisdictions. These
contracts will support the costs of the build-out of our wireless location
network and serve as a platform for additional services. Traffic monitoring can
be accomplished with a less dense network than is required for E-911 allowing
market entry at lower cost while preserving the potential for serving E911 by
simply augmenting the installed network.

Opportunistically pursue and develop strategic relationships. To execute our
strategy, we will seek to form strategic relationships with leading
telecommunications service providers, networking and data processing firms for
network operating center build-outs, content and application service providers
to distribute our location-based information, and tower firms for site leasing.
We have entered into a master license agreement and services agreement with
American Tower Corporation, an owner and operator of broadcast transmission
towers in the United States. Under this agreement, we are obligated to license
between 1,000 to 2,500 tower facilities during a three-year term and also
receive network build-out services, including radio frequency design and site
construction and installment management.

Services

We believe that our service bureau model will enable rapid implementation of
wireless location information and mobility content services to multiple carrier
and non-carrier customers. While these applications are evolving, we anticipate
that our service offerings will include the following:

Carrier Services

E-911. We have developed proprietary technology and we will initiate our network
deployment upon successful completion of our field trials on a market-by-market
basis, beginning with those markets where we first enter into at least one
agreement with a wireless carrier to enable the carrier

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to meet the FCC mandate. Our network will provide a turnkey system for these
carriers in order to enable them to locate wireless E-911 callers and to deliver
calls and relevant caller location data to the appropriate emergency center. We
will be able to customize our E-911 service for each carrier and operating
environment and integrate our service with a wide range of existing wireless and
wireline infrastructures, as well as data delivery mechanisms. We anticipate
that our E-911 service will serve as the platform for additional value-added
service offerings just as our E-911 services may build on deployments aimed at
other services, including traffic.

Carrier Network Applications. Our carrier network applications will also enable
wireless carriers to monitor the performance of their radio frequency networks
and to detect under-performance or changes in their networks' coverage. Because
we monitor performance by tracking actual calls rather than by using special
drive test equipment, carriers are not required to incur additional capital
expenditures. Our technology could eliminate or substantially reduce the need to
drive test coverage zones for wireless network maintenance, the current method
of locating network service problems. Because this process normally takes
carriers between six and 12 months under current methodologies, we can offer a
much more cost-effective and timesaving method of monitoring performance.
Additionally, our system will detect changes or holes in a carrier's network in
real time. By allowing carriers to discover and repair holes in coverage quickly
and efficiently, our system will increase carriers' revenues by helping to
eliminate dropped calls and calls that are not able to be placed, due to lack of
service.

Furthermore, the location data that we provide will enable carriers to
differentiate rate plans by caller location and thus customize customer billing.
Carriers will be able to offer reduced rate plans for subscribers making
wireless calls from predetermined zones, such as the home or office, thereby
creating incentives for subscribers to increase usage of wireless services.

E-411 and other information services. As prices of basic wireless services have
declined, wireless carriers are increasingly seeking to expand their value-added
service offerings. Our network will allow carriers to provide location-based
information that is targeted to the mobile end user. Our ability to locate and
track a user will enable us to provide services such as turn-by-turn directions,
real-time traffic information and localized directory assistance. We will also
be able to utilize our platform to enable advertisers to use our network to
target specific customer segments selectively based on a caller's current
location. Our network will provide businesses with the location of callers,
which may then be used to trigger the delivery of tailored advertising, such as
coupons or promotional material for retailers in close proximity to the caller
(i.e. a caller at a shopping mall may receive coupons of retailers in that
mall).

Transportation Services

Traffic Content. As a result of the increase in traffic congestion on roadways
and the inability of traditional transportation solutions to effectively monitor
and manage traffic, federal and state governments have been seeking alternative
solutions to address this problem. In response, the transportation industry has
developed new approaches to monitor and manage traffic, including a technology-
based set of solutions collectively called intelligent transportation systems
(ITS). Traditional traffic monitoring systems typically utilize video camera
detection systems and other non-intrusive detection devices, such as microwave,
infrared, ultrasonic and magnetic detectors and inductive loop detectors buried
under roadways to collect traffic data. However, in general these systems can
capture only information relating to traffic volume, and its velocity in a
limited

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area. In addition, current detection systems are expensive to maintain and often
exhibit high failure rates, especially in adverse weather. Further, deployment
has been slow with most urban expressways and arterials having no sensors of any
kind. Unlike traditional detection devices, our location technology tracks
wireless phones used in all vehicles. We believe that this technique offers a
cost-effective method to collect accurate traffic data in real-time and across
all major roads. Our wireless location network will collect detailed data
relating to traffic volume and speed from all roadways in a coverage area and
our data results are in digital format, making it easier to integrate with
service and product offerings on the Internet, and in wireless and other
networks.

To date, we have focused our efforts at developing traffic applications on a
contract in the Washington DC area that is funded by the Maryland and Virginia
Departments of Transportation. This contract, which totaled approximately
$461,000, is substantially complete. We will seek to expand this trial to a
larger coverage area within the two states as they continue to evaluate our
system.

To date, we have won bids on several additional transportation projects. We
joined with PB Farradyne Inc., to submit a winning bid on the San Francisco Bay
Area Metropolitan Transportation Commission's TravInfo Project. Our portion of
the proposal is approximately $5 million over a 5-year period which should
commence during the year ending March 31. In addition, we joined with Iteris to
submit and win a bid to the San Diego Association of Governments (SANDAG) for a
regional traffic information system. Iteris has yet to complete negotiations on
their prime contract, however, and the specific terms for our portion of the
work may change. We also recently received notice of an award to install a
traffic information system along I-17 in the Phoenix metropolitan area. We
expect to complete negotiations and sign a contract over the summer of 2001. We
are also part of a team headed by Castle Rock Consultants to provide rural
traveler information services to the states of Vermont, New Hampshire, and
Maine. This effort is in its planning stages so the timing and scale of our
participation is uncertain. In addition, we have submitted bids to other state
DOTs for traffic management services. At this time, we do not know if we will
succeed in any of these bids or when contracts will be awarded.

Telematics. This is a broad business that includes the provision of traffic,
navigation, and related traveler information. Much of this is incorporated into
information systems, safety devices, and related communication systems for use
both in automobiles and as part of trip planning. The market has begun to
develop rapidly, with most automobile OEMs providing some form of in-vehicle
navigation systems and other information systems. General Motor's OnStar is but
one example. These systems can support a variety of services that include route
guidance, in-car traffic alerts, concierge functions, dynamic re-routing and
similar services targeted at commuters. We plan to partner with key firms in the
Telematics industry to provide time-dependent traffic information. We have begun
to share data and to develop joint products with many of these firms, although
we do not expect to receive revenues until we have deployed our system in
several major metropolitan areas. In this regard, we plan to serve as a
traffic data wholesaler.

Fleet Management and Asset Tracking. We also plan to utilize our network to
provide fleet management services to trucking and other commercial vehicle
operations, including package delivery, taxi services and emergency, transit and
maintenance fleets. Current systems in the commercial vehicle operations
business utilize the global positioning system and require capital investments
in equipment that is installed in the vehicles, which is expensive to implement
and operate. We plan to sell these services to wireless carriers and others. To
date, fleet management

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services have focused on the inter-city trucking market because of the cost and
the inability of the global positioning system to work effectively in an urban
environment. We plan to utilize our location technology to provide fleet
management customers with the ability to obtain accurate, real-time information
on the location of freight and related equipment. In addition, our wireless
location network will support a broad array of asset-tracking services within
the intermodal freight market and other businesses.

Competition

We face intense competition in the market for wireless location-based
technologies. As a result of the FCC mandate, this market is receiving increased
attention, and a number of companies are seeking to develop wireless location
services and products. We believe the principal factors on which companies will
compete in this market are reliability, network coverage, ease of use and price.
Based on the results of our trials, we believe our service will compare
favorably to available alternatives. However, the pace of innovation in the
wireless communications industry is rapid, and we cannot ensure that our service
will achieve or maintain competitiveness with available alternatives in the
future.

   Carrier Services

Angle of Arrival and Time Difference of Arrival. These two network-based
technologies rely on triangulation methods, which require multiple sites to
receive signals from a caller to fix the caller's position. Angle of arrival
systems measure the angle at which the signals arrive at wireless base stations,
while time difference of arrival systems measure the time at which the signals
arrive. Both systems then take the information and triangulate the position of
the caller. To date, companies such as TruePosition, Inc., Grayson Wireless,
Cell-Loc, KSI (acquired by TruePosition) and SigmaOne have proposed angle of
arrival or time difference of arrival location solutions.

However, the use of triangulation can introduce errors in the location
estimation process because most wireless networks are designed to preclude
multiple sites from receiving a caller's signal in order to limit co-channel
interference. In addition, because these systems require line of sight to two or
more base stations, angle of arrival and time difference of arrival systems have
demonstrated their best performance in open areas with a number of visible base
stations and have been less effective in dense urban areas. They are also at a
disadvantage in sparsely populated areas where it is difficult for signals to
reach two base stations.

Global Positioning System. The global positioning system also relies on a form
of triangulation, but it triangulates a caller's location from four or more
satellites rather than terrestrial base stations. The accuracy of the global
positioning system has been further enhanced by the development of differential
global positioning systems, which involve the use of fixed earth based
transmitters that assist receivers in more accurately measuring their position.
Companies such as SiRF, SnapTrack, (acquired by Qualcomm,) and Integrated Data
Communications (now called Airbiquity) focus on providing the global positioning
system-assisted location solutions.

The main benefits of using the global positioning system include widespread
location coverage, minimal operating costs to the carrier, and potential for a
high degree of accuracy. However, a critical disadvantage of the global
positioning system is that it requires a clear view to four or more satellites.
Although this enables the global positioning system to function well in rural
and

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suburban areas where a clear view exists, it limits the ability to operate
successfully in densely populated metropolitan areas or indoors, where tall
buildings and urban canyons prevent that access. In addition, because the global
positioning system is a handset-based solution, handsets will require costly
modifications to become enabled with positioning capabilities, including
installation of a separate antenna to receive a satellite signal and a chipset
to process the signal. To date, we are not aware of a commercially available
global positioning system handset.

Transportation Services. Most of our transportation services compete with firms
that provide other sources of traffic data. These markets have been in existence
for some time. In addition to traditional sources of traffic data (magnetic loop
detectors and video cameras, for example), there are many new technologies that
have been used to collect information. Most traffic data are provided via
systems purchased by public agencies. These are well funded and buy equipment
from an established group of firms and then rely on an established group of
systems engineers to install and operate these systems. While we may often team
with these systems engineers (PB Farradyne; Post Buckley; and so forth) they
also have their own business interests in pursuing public business. Our ability
to compete in these markets is uncertain. While the pace of deployment is slow,
over time they will provide a competing base of traffic information.

Several firms have begun to develop their own traffic data. These often combine
public sector information with private networks of sensors. While we believe
that our technology offers a significant improvement over these systems, some of
these other firms are better financed and better established than we are.
Examples include Traffic.com (recently renamed Mobility Technology) and
TrafficMaster. TrafficMaster had been developing a European traffic network and
recently has begun to expand into the United States. Other market leaders
include Metro/Tele-Atlas, a consortium of Westwood One and Tele-Atlas a major
producer of navigable maps. We hope to develop each of these firms as customers
for our traffic data, however, we can make no guarantees that we will be
successful.

In time, floating car data derived from vehicles equipped with GPS and
navigation systems could provide direct competition. Several automobile firms,
including General Motors and its OnStar system, have announced plans to exploit
this source of data. We believe that our traffic data are consistent with
floating car systems and better in some key aspects noted below.

Our RadioCamera System. We believe that our location technology has distinct
competitive advantages over both the network-based and global positioning system
assisted solutions, including the following:

 .  Immune to lack of line of sight. RadioCamera thrives in densely populated
   urban areas where line of sight to cell sites is rare and it is difficult to
   triangulate a caller's location.

 .  Performs well in rural environments. Our technology can operate using only a
   single site in order to identify the location of a call, making it also
   well-suited for rural environments where cells are not close to one another.

 .  Continuous tracking. RadioCamera provides tracking capabilities as well as
   initial location. Unlike other network based solutions and handset solutions
   that use the control channel to transmit one-time location information, our
   system works on a voice channel transmission that is active throughout a
   call, allowing the caller's location to be traced

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   continuously.

 .  Minimal infrastructure adaptation. Our system adapts to the current cellular
   infrastructure and, unlike the global positioning system, does not require
   alteration to either the base station infrastructure or subscriber handsets.
   In addition, compared to the time difference of arrival and angle of arrival
   systems, our system will require minimal data back-haul. We also believe that
   due to the time difference of arrival and angle of arrival systems
   requirement of seeing multiple sites, they will need additional site
   deployments in order to obtain the same coverage as provided by the
   RadioCamera system.

 .  Less stringent calibration requirements. Unlike the angle of arrival and the
   time difference of arrival systems that require strict timing calibration and
   the use of calibrated antenna arrays, our system requires only periodic drive
   tests to update databases of locations and their associated signal patterns.

Despite competing technologies, we expect to generate revenue from carriers that
select global positioning system solutions by offering to support the carriers'
roamer traffic. We will also be able to market a variety of our applications to
these carriers including location services for legacy handsets and coverage for
those portions of their markets, such as the dense urban areas, where the global
positioning system-based solutions will perform poorly. Thus, even when the
global positioning system solutions reach significant coverage, there should be
revenue opportunities for us.

In the field of fleet management and asset-tracking, current technologies
typically utilize costly global positioning system devices. These devices are
often too expensive for many fleet operators and we believe that our technology
will enable carriers to offer their customers tracking services without
requiring them to make capital investments or replace their handsets. Success in
this market, however, will require developing interfaces with existing firms and
establishing partnerships.

   Transportation Services

We believe that our RadioCamera system also has distinct advantages over our
competitors in the intelligent transportation systems community. Our competitors
typically use conventional technologies to monitor traffic, such as magnetic
loop detectors buried in the road, side-view radars and video cameras in
stationary positions and in aircraft. However, these technologies have
significant limitations including high failure rates of the loop detectors in
adverse weather conditions, high maintenance costs and limited coverage areas.
On the other hand, transportation agencies are familiar with their use. Although
we will have to overcome barriers to entry because our technology is new and not
yet widely accepted by the intelligent transportation systems community, we
believe that we will be able to win bids for state-funded projects because of
our ability to provide accurate traffic data in a cost effective manner. In many
cases engineering firms work as system integrators that bring together the
necessary parties to submit bids to governmental agencies. We have partnering
relationships with several of these consulting firms, such as Iteris, PB
Farradyne and Post Buckley. For certain projects, we may compete with the same
consulting firms that we partner with for other projects. Responding to these
public bids can be costly, requires long periods of time and may have onerous

                                       11
<PAGE>

requirements. Increasingly we are submitting bids on our own. There is no
assurance that this strategy will succeed.

In general, we market our technology based on several advantages:

   .   Scalable: that is, it can cover all major routes: expressways; most
       arterial streets; plus other key links;

   .   Granular: it provides information on all parts of these roads, not just
       at pre-selected points;

   .   Flexible: it can adapt to special events that may clog normally quiet
       roadways or traffic jams that spill over and create new patterns;

   .   Timely: it can be available in near real time (one minute delays or less)
       across the full network;

   .   Statistical: it provides the quantitative detail needed to support
       reliable short-term forecasts of speed and travel time; and

   .   Cost-Effective: either because it is inherently low cost or because costs
       can be shared across several markets.

In addition, in the field of telematics, automakers are increasingly building
devices into automobiles to provide motorists with a new channel of
communications. General Motors, for example, stated that they intend to pre-wire
all of their vehicles for the OnStar system. We plan to partner with firms in
order to provide in-car services to motorists. To date, we have proposed
revenue-sharing arrangements with Iteris and Traffic Station.

Technology

The core of our RadioCamera system is our patented location identification
technology. This technology uses pattern recognition as its fundamental means of
locating a wireless caller. When a wireless subscriber initiates a call, radio
waves radiate from the caller's handset to a base station. These radio waves are
subject to multiple reflections and obstructions from both man-made and natural
structures in the environment. As a result of this interference, a multipath
transmission is created in which the phone's transmitted signal arrives at a
base station with a radio frequency pattern or signature that is unique to the
caller's location. Through a market calibration process, the RadioCamera system
recognizes these signatures or patterns and associates them with the specific
locations from which they originated. The system learns the signature patterns
and logs them into a reference database, and is able to identify calls coming
from the same location by their similar multipath signatures.

                                       12
<PAGE>

The process uses technically sophisticated algorithms and computational methods
for pattern matching, although it does not require extensive data processing
equipment in providing the location information quickly. The process is
illustrated in the chart below:


                                   [CHART]


1. A call placed from a mobile phone emits radio signals.

2. The signals bounce off buildings and other obstacles, reaching their
   destination (the base station) via multiple paths.

3. At the base station, the RadioCamera system analyzes the unique
   characteristics of the signal, including its multipath pattern.

4. The network compares the radio fingerprint to a database of previously
   patterned locations.

5. By matching the radio frequency pattern of the caller's signal with the
   database of known patterns, the network identifies the caller's geographic
   location.


Rather than creating complex procedures to neutralize the multipath encountered
in all markets, and particularly in dense urban markets, our technology uses the
natural multipath resulting from multiple reflections and obstructions to create
robust signatures that our network can accurately correlate to specific
locations.

Our location technology has enjoyed a number of years of field trials under a
diverse range of market conditions. These tests have confirmed that the pattern
matching technique:

   .   can be used consistently across all tested analog and digital wireless
       transmission standards;

   .   is consistent in its ability to accurately estimate caller location under
       varied environmental and topographical conditions;

   .   does not materially change over time and the calibration tables
       (multipath signature libraries) need only be updated once or twice per
       year; and

   .   is applicable to both stationary and moving users, in both indoor and
       outdoor environments.

                                       13
<PAGE>

     In each of these tests, our solution has exceeded the FCC's accuracy
     requirements, as shown in the following chart:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                          Annapolis
                      Oakland,          Billings,         Junction,    Baltimore,                                        Seattle,
Location                 CA                MT                MD            MD         Washington, DC    Washington, DC      WA
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>             <C>                 <C>          <C>            <C>               <C>              <C>
Dates of Trial        1997 -          1997 - 1999          1998 -        1998 -        2000 - present   2000 - present    2000 -
                      present                              2000          2000                                             2001
------------------------------------------------------------------------------------------------------------------------------------
Terrain               Dense           Rural & Light        Suburban      Dense         Mixed urban &    Highway           Urban
                      Urban           Urban                              Urban         suburban
------------------------------------------------------------------------------------------------------------------------------------
Base Units in Trial     9                   5                 3            8              10               6              14
------------------------------------------------------------------------------------------------------------------------------------
Carrier Technology    AMPS,           AMPS                 AMPS          AMPS,         iDEN             AMPS & IS-136     IS-136
                      CDMA,                                              CDMA
                      iDen
                      TDMA
------------------------------------------------------------------------------------------------------------------------------------
67% Accuracy/(1)(2)/  69 meters       84 meters            78 meters     81 meters     121 meters       86meters          61 meters
------------------------------------------------------------------------------------------------------------------------------------
PSAP Integration      N/A             Completed August     N/A           N/A           N/A              N/A               N/A
                                      1999
------------------------------------------------------------------------------------------------------------------------------------
Participants          GTE             US WEST,             Verizon       Verizon       Nextel           Cingular          AT&T
                      Wireless,       XYPOINT, Nortel                                  Communications,                    Wireless,
                      Nextel          Networks, Western                                Cingular                           NENA
                                      Wireless, Williams
                                      Communications,
                                      Billings 911 Center
                                      and the Montana
                                      911 Program
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     _________________
         (1)   The FCC requires accuracy within 100 meters on 67% of calls and
               300 meters on 95% of calls.

         (2)   The accuracy of these measurements were monitored by various
               participants.

     The Billings, Montana deployment, which we completed in August 1999, was an
     end-to-end simulated E-911 trial designed to continuously update the
     caller's location. The trial demonstrated our system's ability to
     continuously locate multiple wireless calls originating within the greater
     Billings, Montana area. The system identified each caller's phone number,
     location coordinates and nearest street address. The information was then
     sent to the PSAP, where it was displayed on an electronic map on an
     operator's workstation. The RadioCamera base unit continuously updated the
     location information, allowing the PSAP to monitor the caller's location
     throughout the call. According to the final report issued by the State of
     Montana on May 22, 2000, the performance of our location technology
     exceeded the Phase II requirements of the FCC's E-911 mandate.

     In Seattle, WA we completed a rigorous evaluation of the RadioCamera system
     in March 2001, in which all performance was independently monitored,
     evaluated and reported by the National Emergency Number Association (NENA).
     Testing was performed over an 11-day period, with a test region of
     approximately 2 square miles, including the downtown Seattle area. Over
     16,000 location fixes were evaluated and resulted in a reported performance
     accuracy of 61 meters for 67% of the fixes, and 295 meters for 95% of the
     fixes. This performance is completely in compliance with that specified by
     the FCC for network-based location solutions.

                                       14
<PAGE>

We are continuing to test and refine our system in order to improve accuracy,
reliability and overall performance. Our trial in the Washington,
D.C./Maryland/Virginia metropolitan area includes the build-out of a network
operating center in San Ramon, CA, which will eventually service markets
nationwide and provide the platform for launching additional services such as
intelligent transportation systems, carrier network and location-based
applications in addition to E-911 services.

Network Architecture/Network Deployment

We are planning the construction of a state-of-the-art network that initially
will serve 100 markets. Once complete, the network will consist of approximately
11,000 RadioCamera base units, each connected to the network with a 128
Kbytes/second frame relay link, sixty T-3 links, and two fully redundant network
operating centers. The diagram below illustrates the basic network architecture:

                                    [CHART]


Each RadioCamera base unit is connected by a 128K link to a point of presence in
a given market or region. The average distance between each RadioCamera base
unit and the point of presence is approximately three to five miles. We estimate
that we will have sixty points of presence across the country to serve all 100
markets, with certain points of presence serving more than one market. From the
point of presence, the data will be transmitted to the network operating center
by a T-3 link. Each point of presence simultaneously transmits fully redundant
data to a second network operating center. Based on geography, a given network
operating center will be the primary network operating center for a given point
of presence and the other, by default, becomes the redundant network operating
center.

                                       15
<PAGE>

While the RadioCamera base units collect the multipath radio signature, the data
and network operating centers perform the complex computations that convert this
signature to a latitude and longitude position. The data center houses all
mission-critical service delivery infrastructure equipment, including all
necessary processing and storage equipment. The data center equipment consists
of a mixture of machines utilizing the UNIX, Windows 2000 and Windows NT
operating systems. The data center also houses the equipment used to support
enterprise functions, such as billing, AP/AR, LAN, email, etc. Development
servers are also housed in the data center for use by US Wireless engineers when
developing enhancements or adding features to the system. The data center and
network operating center were designed and deployed jointly by US Wireless and
Hewlett Packard

Research and development

We presently maintain a staff of over 25 scientists, engineers and data
processing professionals who have been drawn from leading laboratories and
universities worldwide. To date, the majority of our expenditures have been
focused on developing prototypes, validating concepts, conducting alpha and beta
trials with leading carriers, and deploying the San Ramon data center and NOC.
We have conducted numerous trials by jointly working with many of the major
wireless carriers.

In the future, we intend to concentrate our internal research and development
activities in further improving the accuracy and reliability of the location
system, as well as extending functionality to support a broader range of
potential wireless customers. Specifically, we plan to:

   .   Complete development of the latest revision of the RadioCamera Rev B unit
       to support enhanced capacity and reliability and at a reduced cost;

   .   complete the development of a GSM version of the RadioCamera system for
       the US and European markets;

   .   complete the development and test of RadioCamera modifications to support
       operation in the US and European PCS bands;

   .   complete the development of the Air Link Monitor (ALM) to enhance
       performance of Traffic Monitoring services and 911 services for TDMA
       customers;

   .   complete development and interoperability testing of the interfaces
       between the RadioCamera system and the client's infrastructure; and

   .   create customized location sensitive commercial applications.

We will be leveraging on the core competency of our strategic relationship
partners for providing the networking and data processing tools that we will
need to create a turnkey solution. As such, our research and development will be
focused on optimizing the cost, accuracy and reliability of our location
determination capabilities.

                                       16
<PAGE>

Patents, proprietary rights and licenses

We believe our most significant asset is our intellectual property. We rely on a
combination of patent, copyright, trademark and trade secret protection laws and
non-disclosure agreements to establish and protect our proprietary rights. We
have been issued 10 patents and we have an additional 10 patent applications
pending. We cannot assure that patents will issue from any pending applications
or, if patents do issue, that claims allowed will be sufficiently broad to
protect our technology. We have filed one international patent application under
the Patent Cooperation Treaty, or "PCT", with the World Intellectual Property
Organization, which patent covers the principles included in our issued and
allowed patents. We also own one U.S. trademark registration for the
RadioCamera. Any of our current or future patents or trademarks may be
challenged, invalidated, circumvented or rendered unenforceable, and the rights
granted under the patents and trademarks may not provide sufficient proprietary
protection or commercial advantage to us. Moreover, our patents may not preclude
competitors from developing equivalent or superior products and technology.

We also rely upon trade secrets, know-how, continuing technological innovations
and licensing opportunities to develop and maintain our competitive position.
Others may independently develop equivalent proprietary information or otherwise
gain access to or disclose our information. It is our policy to require our
employees, some contractors, consultants, directors and parties to collaborative
agreements to execute confidentiality agreements upon the commencement of such
relationships with us. However, we cannot assure that these agreements will
provide meaningful protection of our trade secrets or adequate remedies in the
event of unauthorized use or disclosure of such information or that our trade
secrets will not otherwise become known or be independently discovered by our
competitors.

Our commercial success may also depend in part on our not infringing the
proprietary rights of others and not breaching technology licenses that cover
technology we use in our products. Third-party patents may require us to develop
alternative technology or to alter our products or processes, obtain licenses or
cease some of our activities. If any such licenses are required, we may be
unable to obtain such licenses on commercially favorable terms, if at all. Our
inability to obtain licenses to any technology that we may require to
effectively deploy or market our products and services could have a material
adverse effect on our business. We may have to resort to potentially costly
litigation to enforce any patents issued or licensed to us or to determine the
scope and validity of third-party proprietary rights.

Employees

As of June 20, 2001, the Company had 67 full time employees, five of whom are
executive officers. Of the remaining employees, 25 comprise the engineering
staff, 14 are field operations personnel and the remaining 23 are business
development, marketing and administrative functions.

Risk Factors

Investing in our common stock involves risks. You should carefully consider the
risks and uncertainties described below before making an investment decision.

                                       17
<PAGE>

Our current liabilities are greater than our current assets, and therefore we
will require substantial additional financing in order to continue operations.

Our auditor has included a paragraph in its report stating that substantial
doubt exists regarding our ability to continue as a going concern.

We have incurred net losses since our inception. We anticipate that our net
losses will increase significantly during the ongoing build-out of our wireless
location network and our preparation for the commercial launch of our network.
We have not begun commercial operations in any market and, therefore, have
limited revenues to fund expenditures.

Even after we commence commercial operations, we will require significant
additional funds to cover our cash requirements before we generate sufficient
cash flow from operations to cover our expenses. The funds we actually require
to complete the deployment and commercialization of our wireless location
network and to fund operating losses may vary materially from our estimates if
we incur unanticipated costs or alter our plans in order to respond to changes
in competitive or other market conditions. For example, we may incur additional
building and site leasing costs, require substantially more management and other
personnel, and or increase our marketing and promotional expenditures in order
to accelerate our growth. We would likely incur many of those expenses in
advance of any payments received from wireless carriers or other revenues.
Further, we may decide to use a portion of our cash resources to license,
acquire or invest in new products, technologies or businesses that we consider
complementary to our business.

We plan to raise future funds by selling debt or equity securities, or both, and
by obtaining loans or other credit lines from banking or other financial
institutions and through vendor financing. Any sale of equity or
equity-convertible securities could be dilutive to existing holders of our
common stock. We anticipate that a significant portion of this financing will
consist of debt financing, which could require us to operate in a highly
leveraged environment. We may not be able to raise any funds or obtain loans on
favorable terms or at all. Our ability to obtain the financing we require
depends on many factors, including: future market conditions; our success or
lack of success in developing, implementing and marketing our services; our
future creditworthiness; and restrictions contained in agreements with our
investors or lenders. Our failure to obtain additional financing could result in
the delay or abandonment of some or all of our development or expansion plans,
which could have a material adverse affect on our business and prospects.

There are pending legal actions against the Company that could result in damage
awards against the Company.

Legal actions currently pending against the Company include: a wrongful
termination action by Mah Way, which recently resulted in an arbitration award
against the Company; the wrongful termination action by Abraham Bar, which is to
be arbitrated in November 2001; the breach of guarantee action by Foothill
Marketplace; and recently filed shareholder suits.  The cumulative result of
these actions could be multiple damage awards against the Company, which would
deplete our funds available for execution of our business plan and threaten the
financial position of the Company.

                                       18
<PAGE>

Trading of our stock on the Nasdaq National Stock Market and Frankfurt Exchange
has been halted and we have received a delisting notice from Nasdaq.

Trading in our stock on the Nasdaq National Stock Market was halted on Monday
May 29 in response to our announcement that Oliver Hilsenrath had been
terminated as Chief Executive Officer. The Nasdaq Listing Committee cited
delinquent SEC filings and public interest concerns as the reasons for the
trading halt as well as the justification for the delisting letter that the
Company received from Nasdaq shortly thereafter. The Company has appealed the
determination and a hearing was held on July 12 by the Nasdaq hearing panel. No
determination has been made as of yet by the panel concerning the continued
listing of the Company. We cannot assure you that trading in the Company's stock
will be reinstated by Nasdaq in the near future, if at all or that our stock
will be traded on any other market. The inability of the Company to have its
stock traded on Nasdaq or other exchange could impair its liquidity and result
in loss of value as well as impair the ability of the Company to attract
required investment.

We might suffer from fallout in relation to the resignation of David S. Klarman
and the removal of Dr. Oliver Hilsenrath and subsequent shareholder suits.

As a result of the recently disclosed actions of the Company's former Chief
Executive Officer, Oliver Hilsenrath, and its former General Counsel, David S.
Klarman, relating to previously undisclosed related-party transactions, in which
the Company made unauthorized cash payments and unauthorized stock and stock
option issuances to entities that we believe are under the control of either or
both of Oliver Hilsenrath and David Klarman, the Company's reputation for
integrity with vendors, customers, stock purchasers, stock exchanges and the
public at large might suffer, leading to loss of business opportunities,
revenues and/or decline in stock value. We are taking great measures to prevent
the spread.

We have not begun commercial operations and the overall demand for our
location-based services is uncertain, which may make it difficult for you to
evaluate our business prospects.

Our activities to date have consisted primarily of the research, development and
testing of our wireless location technology and the financing of our operations,
and we have not commenced any commercial operations. As a result, we have no
meaningful historical financial information for you to evaluate. You should
consider the likelihood of our success in light of the problems, expenses and
delays frequently encountered by developing businesses. In addition, we are
offering new services in a new and rapidly evolving industry. We cannot assure
you that a market will develop for our services or that we will be successful in
launching or managing our commercial operations. We will continuously review our
business plan in light of various factors, including perceived opportunities,
actual experiences in the marketplace, availability of financial and other
resources, and overall economic and/or competitive considerations, and we may
from time to time change, refine or redirect our business plan based on these
reviews.

If we are unable to establish relationships with wireless carriers to provide
them with our location-based services, our business may not succeed.

Our business strategy contemplates our entering into an agreement with at least
one wireless carrier in each of our targeted markets to provide our
location-based services. We have undertaken, or are in the process of
undertaking, joint technology trials with several wireless carriers, in order
for them to evaluate the effectiveness of our location system. To date, we have
not entered into any commercial agreements with any wireless carriers. We cannot
assure you that we will be able to enter into commercial agreements with any
wireless carriers before we begin deploying our wireless location network or at
all. Our position as a service bureau may limit our ability to enter into
relationships with carriers who may be more interested in obtaining and directly
using our technology. In addition, even if carriers are interested in
participating in our service bureau, they may require substantial control over
the use of our location technology. Our failure to develop and establish
contracts with wireless carriers would severely impair our ability to implement
our

                                       19
<PAGE>

business plan. In addition, if we are unable to establish these contracts, we
may not be able to obtain the additional financing needed to deploy our wireless
location network.

We face risks that are unique to the intelligent transportation systems
industry.

The risks of operating in the intelligent transportation systems industry
include the following:

     .    We will have to overcome barriers to entry. Historically, governmental
          agencies have relied on fixed point source detection sources, such as
          pressure stamps or video surveillance cameras, for analysis of roadway
          conditions. Because our location technology is new and not widely
          accepted by the intelligent transportation systems community, we must
          convince the governmental agencies that our wireless location network
          provides a more accurate and cost-effective method for monitoring
          traffic flow than historical methods. In addition, government agencies
          typically purchase and control their monitoring equipment. In our case
          we are offering to provide the government with the data instead of the
          equipment. The internal policies of these agencies may make it
          difficult to persuade them to do business with us. Our failure to
          convince our target governmental agencies that our wireless location
          network offers them better information at a lower cost that their
          historical detection systems could adversely affect our business and
          prospects.

     .    Most of our contracts will be fixed price contracts, which may cause
          our profit margins to fluctuate significantly. We anticipate that most
          of our contracts with governmental agencies will be fixed price
          contracts. Because of the nature of fixed price contracts, we may be
          unable to recover unanticipated costs incurred in excess of our
          budgeted costs. As a result, our inability to accurately estimate our
          projected costs could adversely affect our profit margins.

     .    There may be substantial delays in completing a government-funded
          project. We may experience substantial delays in obtaining,
          negotiating and performing government contracts because, typically,
          these contracts involve competitive bidding, qualification
          requirements, performance bond requirements, delays in funding,
          budgetary constraints, extensive specification development, and
          compliance with strict government agency regulations. Any delays in
          the completion of our projects could adversely affect our business and
          prospects.

Our success depends on our ability to develop or have third parties develop
content for our customers.

We expect to develop, or have developed for us, specific applications and
product offerings for our customers. In addition, we anticipate that many
products will require that we coordinate with and obtain consents from the
carriers in order to distribute the mobility content to the end user. We cannot
assure you that third parties will work with us to develop applications to
provide or distribute location information and mobility content. Even if these
third parties agree to work with us, we cannot be certain that they will be able
to develop the applications that we or end users desire, that we will be able to
integrate their existing systems with our network or that we will be successful
in negotiating favorable terms. We may have to devote our resources to
developing our

                                       20
<PAGE>

own software applications in order to distribute content to our customers. Our
inability to work effectively with third party application developers and
content providers could adversely affect our business and prospects.

Demand for our services may be limited if personal safety answering points do
not request E-911 service.

Under the Federal Communications Commission (FCC) mandate, wireless carriers do
not have to implement network-based location solutions unless a personal safety
answering point requests E-911 service. To date, approximately 10% of personal
safety answering points have requested Phase I E-911 service pursuant to which
the personal answering safety point would be informed of the originating cell
site and telephone number of a wireless caller. We cannot assure you that
personal safety answering points will make Phase II E-911 service requests in
the future or that any such request will require the accuracy specified by the
FCC mandate. In fact, their ability to do so may be influenced by the
significant costs they will have to incur to upgrade their systems and the
availability of government and carrier funding to mitigate those costs. If
personal safety answering points do not request E-911 service or delay their
request for E-911 service, then our business and prospects may be materially and
adversely affected. Consequently, we may be in a position when we build our
wireless location network of needing to satisfy carriers of our commitment to
provide wireless location information before personal safety answering points
request Phase II E-911 service. As a result, there could be a significant delay
between the time we make the expenditures necessary to build our wireless
location network in a given market and the time we begin to earn revenues in
that market.

We are subject to evolving government regulation that could cause us to change
our business plans.

Presently there is a limited market for location-based technologies within the
wireless industry. With the mandate of the FCC requiring carriers to locate
cellular subscribers dialing E-911, the market for location-based technologies
for wireless systems may expand. However, the FCC may revise or amend this
mandate, which could delay or eliminate the necessity for implementation of
Phase II E-911 service or render our wireless location technology incapable of
satisfying the requirements. In addition, if the FCC modifies its accuracy
requirements, we cannot assure you that we will be able to comply with the
amended requirements.

If we are unable to deploy our wireless location network rapidly, our ability to
compete could be limited.

Our business strategy contemplates the rapid and cost-effective deployment of
our wireless location network at a pace that is satisfactory to the wireless
carriers and meets the FCC mandate. The successful completion of our wireless
location network will depend, among other things, upon our ability to accomplish
the following, in a timely manner, at reasonable costs and on satisfactory terms
and conditions:

     .    assure our technology can support the traffic we expect to be carried
          on a nationwide wireless location network;

                                       21
<PAGE>

     .    obtain the services of independent contractors to install and provide
          engineering support for the design and building of our wireless
          location network and our network operating centers;

     .    manage the construction of our wireless location network;

     .    obtain the use of facilities and other infrastructure, such as towers,
          for the build-out of our wireless location network and communication
          systems for the delivery of data; and

     .    integrate our wireless location network with the networks of wireless
          carriers and other third parties.

Each stage of the network build-out can take from several weeks to several
months and can be affected by factors beyond our control. We may be unable to
build and operate our wireless location network in any particular market in
accordance with our current plans and schedules. A significant delay in
completing, or our inability to complete, our wireless location network may
result in the termination of relationships with wireless carriers, which could
have a material adverse effect on our business and prospects.

We will depend on third parties to deploy our nationwide wireless location
network, which may affect our ability to meet our deployment schedule.

We will depend on third parties to carry out our network deployment. If any of
these parties have difficulty performing, or is unable to perform, its
obligations in accordance with our schedule and estimated costs, we could face
delays in the deployment of our wireless location network and incur
unanticipated expenses.

Equipment suppliers. The rapid deployment of our wireless location network will
substantially increase the quantity of RadioCamera equipment and other network
and radio equipment that we will need in a relatively short time period. To
date, we have required only limited quantities of this equipment, purchased over
longer periods of time. Additionally, certain component parts, such as those
that are custom designed, require advanced purchasing to ensure availability
when needed. Our failure to order these components in a timely manner may cause
delays in product availability. We cannot assure you that we will continue to be
able to obtain adequate quantities of the components used in our RadioCamera
equipment and other network hardware, or that we will obtain these components
when we expect. Even though we have entered into equipment purchase agreements
with manufacturers and suppliers, those companies may fail to deliver sufficient
quantities of their products to us in accordance with our schedule.

Engineers and technicians. Our limited staff of scientists, engineers and
technicians is not adequate to design, install, construct and provide
engineering support for our wireless location network outside of the limited
testing area that we have constructed to date. In building our wireless location
network, we intend to rely on independent contractors to develop and implement
network design tools for use in designing our location network and to provide
radio frequency design, radio frequency engineering, site identification, site
acquisition and development, site zoning and permitting, site construction and
installment management, and component purchasing services for us. We cannot
assure you that we will be able to engage the services we need within the time
required or that any such third party contractors will meet their commitments to
us.

                                       22
<PAGE>

Tower companies and other site leasing firms. In building out our network in our
first 100 markets, we estimate that we will require space in approximately
11,000 towers or rooftop facilities. Our success depends on our ability to
obtain use of towers and rooftop facilities and other necessary sites for the
build-out of our network. Given the number of facilities required for our
network, we cannot assure you that there will be a sufficient number of towers
to support the build-out of our wireless location network or that we will be
able to obtain access to specific parts of towers that we will need in order to
effectively cover all frequency bands utilized by wireless carriers. In
addition, we could face delays in obtaining access to towers if tower companies
need local governmental zoning and other approvals in order to maintain their
towers. We cannot assure you that we will be able to timely negotiate leases
with the tower companies or that the tower companies will provide us with
leasing arrangements on favorable terms, if at all.

Data Transport. We will have to enter into agreements with communications,
networking and data processing firms in order to obtain access to high-speed
data transmission facilities in order to transmit the information received from
the RadioCamera base units to our regional data centers and network operating
centers. We anticipate requiring additional expertise in integrating each of the
data links to the network.

Our success depends on the performance and reliability of our wireless location
network.

Even if we build our wireless location network in a timely and cost effective
manner, our success will also depend on the operational performance and
reliability of our network. Our business model depends on our ability to create
a system which is capable of supporting multiple carriers that use a variety of
wireless technologies and multiple applications. We may be unable to accomplish
these goals. In addition, other companies and carriers may also seek to build
their own similar networks or purchase systems from our competitors to own and
operate their own location networks.

We may experience performance and reliability problems with our network
infrastructure during our initial stages of commercial operation. In addition,
the performance of our network could be adversely affected by conditions outside
our control such as extreme weather conditions, physical damage, tampering or
other breaches of security. We will also face challenges in providing effective
customer service. Our wireless location network may not fulfill the expectations
of the users of our network. Any inability to satisfactorily address and resolve
performance issues that affect customer acceptance of location network services
could delay or adversely affect the successful commercialization of our location
network and our business and financial prospects.

We may be unable to effectively manage our planned rapid growth, which could
harm our business.

Our planned expansion will place significant strains on our personnel, financial
and other resources, and our financial reporting and information technology
systems. Our ability to manage our growth will be particularly dependent on
achieving the following objectives:

     .    expanding, training and managing our employee base, including
          attracting and retaining highly skilled personnel;

                                       23
<PAGE>

     .    managing sales, advertising, customer support, billing and collection
          functions of our business;

     .    developing internally or outsourcing the design and implementation of
          operational and financial systems such as billing and information
          management; and

     .    controlling our expenses related to the development of our network and
          expanding commercial services.

We may be unable to achieve any of these objectives, and as a result, our
business and prospects could be materially and adversely affected.

We may be unable to protect our intellectual property rights, which could
adversely affect our business and financial prospects.

We believe that our intellectual property is our most significant asset. We have
filed 18 patent applications with the U.S. Patent and Trademark Office, have 3
issued patents and have received notices of allowance for 4 additional patent
applications. Our 11 pending patent applications may not be granted and our
patents may not be sufficiently broad to protect our technology. Further, any of
our patents or trademarks may be challenged, invalidated, circumvented or
rendered unenforceable, and those patents or trademarks may not provide us with
significant benefits. Moreover, our patents may not preclude competitors from
developing equivalent or superior products and technology.

In addition, although we require all of our executive officers and senior
management to enter into non-disclosure and non-competition agreements, many
states, including California where we are based, do not acknowledge some
provisions commonly contained in non-disclosure agreements and some types of
restrictive non-competition covenants. It is therefore possible that a court
will find that the non-competition clauses in our employment agreements are not
enforceable.

We may be unable to use certain intellectual property developed by other
parties, which could adversely affect our business and financial prospects.

Our commercial success may also depend on our not infringing the proprietary
rights of others or not breaching technology licenses that cover technology we
use in our products. Third-party patents may require us to develop alternative
technology or to alter our products or processes, obtain licenses or cease some
of our activities. If we are unable to obtain, on favorable terms or at all,
licenses to any technology that we may require to effectively deploy or market
our products and service, our business could be harmed. In addition, there is a
growing trend within our industry for companies to obtain patents on business
methods or procedures. This type of patent is a relatively new development and
the scope and enforceability of these types of patents remain open to questions.
The U.S. Patent and Trademark Office has initiated new procedures to handle the
heavy influx of applications relating to business method "inventions," and
further developments are likely before stability is achieved in this area of
patent and technology law. This creates additional uncertainty for us in
conducting business in this changing legal environment.

                                       24
<PAGE>

Changes in technology could adversely affect us.

The wireless communications and information services industries are subject to
rapidly changing technology, new product innovations and evolving industry
standards. We may be unable to keep pace with the technological developments in
the telecommunications industry or to implement or change our services or
product offerings to meet new demands within our industry. If we do not develop
and introduce innovative products and services in a timely manner, our business
and prospects may be adversely affected.

Our competitors may have more resources or other advantages that may make it
difficult for us to compete effectively.

The emerging market for location-based technologies is highly competitive. Under
the FCC mandate, carriers may use either handset-based or network-based
technologies, or a combination of these technologies may be used to meet the E-
911 requirement. Network-based solutions include our RadioCamera system, as well
as triangulation systems. Handset-based solutions are predominantly those using
the global positioning system. Some telecommunications infrastructure
manufacturers, such as Qualcomm, are developing alternative location
technologies. In addition, Qualcomm recently acquired our competitor, SnapTrack,
in order to better position itself in the emerging location technologies market.
In the event telecommunications service providers seek to use solutions provided
by their infrastructure providers, even if our technology is superior, our
operations may be adversely affected. In addition, carriers currently have until
October 1, 2000 to select their Phase II E-911 service and even longer periods
to implement this service. No such selection has been made to date.

Our other competitors include detection device manufacturers, engineering firms
and consulting agencies that provide advanced management and traveler
information systems in the intelligent transportation systems industry, third
party applications and content providers in the E-411 and telematics markets,
and global positioning system-based companies for fleet management and asset-
tracking. Many of our current or possible competitors have greater financial,
technical and marketing resources, longer operating histories and greater name
recognition than we possess. If we are unable to compete effectively with other
companies, our business and prospects would be impaired.

Concerns that mobile communications may invade the individual's right to privacy
may discourage the use of our products and services.

A general concern regarding location technologies is that information about an
individual's location may be exploited for commercial purposes without the
consent of the individual. Although the RadioCamera system identifies the
position of radio signatures, or energy flow, it does not have access to a
caller's identity, or any personal content regarding the caller. The
identification information resides at the carrier's switch, and is only
accessible with the carrier's consent. The actual or perceived risk of privacy
violations in the marketplace could adversely affect us through:

     .    a reduction in wireless carriers adopting a location capability due to
          their fear of a reduction in subscribers;

                                       25
<PAGE>

     .    a lack of subscriber interest in location-based services;

     .    apprehension by applications and content providers to offer or develop
          services and/or applications; or

     .    reduced financing available to the mobile communications industry.

We depend on a limited number of key personnel and the failure to attract and
retain qualified employees could affect our ability to conduct business.

We depend upon the personal efforts and abilities of our executive officers and
senior management. The ability to retain these executives and to attract and
retain other qualified executives, sales personnel and technicians is critical
to our ongoing success. Our planned expansion will require us to expand our
management, sales, technical and administrative staff. Competition for employees
in our industry is intense, and we may be unable to attract and retain the
employees we need to execute our business plan.


ITEM 2.   DESCRIPTION OF PROPERTY

The Company's executive offices are located at 2303 Camino Ramon, Suite 200, San
Ramon, California 94583. In December 2000, the Company amended its existing
lease with Annabel Investment Company to increase the office space under lease
at this location to approximately 18,200 square feet and to extend the term of
the lease to December 31, 2005.

The Company leases office space in Reston, Virginia and Seattle, Washington near
its deployed test sites. The Reston location is sublet from Landmark Systems
Corporation for approximately 7,700 square feet for a term of two years through
March 2002 with an option to extend the term for a third year. In February 2001,
the Company entered into a lease with Doncaster Investments NV, Inc. for
approximately 600 square feet of office space located in Seattle, Washington.
The current lease term expires February 28, 2002.

We currently lease an aggregate of 38 rooftop antenna sites, of which 15 are
located in the Washington DC/Maryland/Virginia metro area, 14 are located in
Seattle, Washington and 9 are located in the San Francisco/Oakland, California
area. Lease terms vary from a month to month

                                       26
<PAGE>

basis to periods of up to 3 years. In addition, we have the right to license
space on 1,000 towers and sites owned by American Tower Corporation (which
number can be increased if certain milestones are satisfied by both parties) at
preferential pricing. See "Business-Strategic Relationships" for more
information regarding the American Tower licensing agreement.


ITEM 3.   LEGAL PROCEEDINGS

In the December 31, 2000 10-QSB, the Company disclosed that it had reached a
settlement agreement with Mati Wax, its former Chief Technology Officer, and
Abraham Bar, its former Vice President - Signal Processing. Following the
disclosure, Abraham Bar retracted his consent to the settlement and thereafter
reinstated the arbitration proceeding against the Company for wrongful
termination. The Company attempted to reach final resolution by increasing its
offer to Mr. Bar, but the offer was rejected. The Bar matter has been set for
arbitration in November 2001. Bar's breach of the settlement agreement between
the three parties had the result of voiding the agreement as to Wax and the
Company as well. Mati Wax then requested that the American Arbitration
Association proceed to issue an award in the matter. On July 6, 2001, the
arbitrator issued his award in the case, with total damages of $2.7 million
assessed against the Company. The Company plans to appeal the award.

As of July 13, 2001, at least six shareholder suits, styled as class action
lawsuits, against the Company had been announced in press releases, though we
have not yet been served with a complaint. To date, the only known plaintiff
among the various actions is Daniel l. Hendricks. The Company believes that
other suits are pending. Of the suits announced thus far, each is filed in the
Northern District of California Federal Court and asserts violations of federal
securities laws resulting from the Company's recent restatement of its
historical financial statements necessitated by the findings of the Audit
Committee's investigation into actions by the Company's former CEO, Oliver
Hilsenrath, and its former General Counsel, David Klarman. The shareholder's
actions seek unspecified damages.

In April 2001, suit was filed against the Company in the California Superior
Court of San Bernardino County by Foothill Marketplace seeking damages against
the Company for breach of an alleged third party lease guarantee agreement,
which was allegedly entered into by American Toys Inc., the Company's
predecessor. The purported lease guarantee was given by American Toys to
Foothill Marketplace as a third party guarantee of payment of rent obligations
by American Toy's then subsidiary, Play Co. Toys, Inc. Foothill Marketplace is
seeking $500,000 in damages.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

                                       27
<PAGE>

                                    PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the Nasdaq National Market under the symbol
"USWC." Prior to its listing on the Nasdaq National Market on April 23, 2000,
our common stock was quoted on the SmallCap Market. The following table sets
forth:

     .    the high and low closing prices per share of our common stock as
          reported by the market makers for our common stock on the Nasdaq
          SmallCap Stock Market during the period from April 1, 1999 through
          April 23, 2000; and

     .    the intraday high and low sales prices per share of our common stock
          as reported on the Nasdaq National Market for the period April 24,
          2000 through May 25, 2001.

           --------------------------------------------------------------------
                                                  High                  Low
           --------------------------------------------------------------------
            Fiscal Year 2000
           --------------------------------------------------------------------
            First Quarter                       $   4.8               $   1.6
           --------------------------------------------------------------------
            Second Quarter                          4.4                   3.1
           --------------------------------------------------------------------
            Third Quarter                          23.1                   3.9
           --------------------------------------------------------------------
            Fourth Quarter                        52.50                 14.75
           --------------------------------------------------------------------

           --------------------------------------------------------------------
            Fiscal Year 2001
           --------------------------------------------------------------------
            First Quarter                       $ 31.56               $ 10.25
           --------------------------------------------------------------------
            Second Quarter                        20.25                 12.13
           --------------------------------------------------------------------
            Third Quarter                         19.81                  3.25
           --------------------------------------------------------------------
            Fourth Quarter                         7.43                  2.25
           --------------------------------------------------------------------

           --------------------------------------------------------------------
            Fiscal Year 2002
           --------------------------------------------------------------------
            First Quarter through May 25*       $  5.00               $  2.00
           --------------------------------------------------------------------

* Trading in our stock on the Nasdaq National Stock Market was halted on May 29,
2001 and has not resumed as of July 16, 2001 (see "Risk Factors"). Nasdaq has
notified the Company that it has appended the fifth character "E" to our trading
symbol to reflect that the Company's SEC filings were delinquent.

Closing prices reflect prices between dealers, do not include resale mark-ups,
markdowns, or other fees or commissions, and do not necessarily represent actual
transactions.

As of March 31, 2001, there were 168 holders of record of our common stock,
though we believe that there are over 8,700 stockholders who hold their shares
in street name. As of March 31, 2001, there were 21,373,335 shares of our common
stock outstanding, including unvested shares totaling 1,566,720. On May 25,
2001, the last reported sales price of our common stock on the Nasdaq National
Market was $2.91 per share.

DIVIDENDS

We have not declared any cash dividends on our common stock over the past two
years. From February through April 2000, we paid $95,355 in accumulated
dividends, upon conversion of the

                                       28
<PAGE>

shares of Series A Preferred Stock. In accordance with the rights and
preferences of our Series C Preferred Stock, the holders have the right to a
6.5% annual dividend paid semi-annually each January 1 and June 1. The dividend
is payable in cash or in kind for a period of four years at our option, and
thereafter until converted, payable in cash. We are precluded from issuing a
dividend on any junior securities in the event the dividend on the Series C
preferred stock is not paid. We currently intend to retain future earnings, if
any, to finance operations and the expansion of our business. Our board of
directors will determine whether to pay, and the amount of, any dividends on our
common stock. That determination will depend on a number of factors, including
our earnings, capital requirements and overall financial condition. The terms of
the Series C preferred stock and future preferred stock issued by us or any
agreements governing our indebtedness may restrict our ability to declare and
pay cash dividends on our common stock.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Statements contained herein that are not historical facts may be considered
forward looking information with respect to plans, projections or future
performance as defined under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risk and uncertainties,
which could cause actual results to differ materially from those projected.

Results of Operations:

Revenues

During the fiscal years ended March 31, 2001 and 2000, the Company recorded
revenues of $212,262 and $249,178, respectively from a contract with the
Maryland, Virginia and U.S. Departments of Transportation ("Maryland Contract"),
under which we provided transportation data on selected roadways on a trial
basis. The Maryland Contract has been completed and all revenues and costs
associated with the contract have been recognized as of March 31. 2001. No other
revenues were recognized during the fiscal years ended March 31, 2001 and 2000.

In April 2001, the Company agreed to deploy its RadioCamera(TM) wireless
location network in the San Francisco Bay Area to provide live traffic and
congestion information for motorists as part of the Metropolitan Transportation
Commission's ("MTC") TravInfo program. The Company is expected to receive up to
$4.6 million over five years from this contract. The test phase of this project
is scheduled for completion during the Company's fiscal 2002 third quarter and
subsequent build-out of the coverage areas will occur thereafter upon successful
completion of the test phase. Revenue will begin to be recorded under this
contract upon successful completion of the test phase of the project. Phase 1 of
the five phases of the project is scheduled for completion during the Company's
fiscal fourth quarter of 2002. The Company has received notice of the acceptance
of bids on certain other transportation projects, from which no revenues are
expected to be earned until final contracts are signed and work begins.

                                       29
<PAGE>

The Company continues to work with certain wireless carriers in an effort to
secure contracts to provide E-911 services in accordance with the FCC mandate.
The FCC mandate requires wireless carriers that choose a network based solution
to provide E-911 services by October 1, 2001 for coverage areas where requests
for services have been made by local PSAPs (personal safety answering points).
Certain wireless carriers have made formal requests to the FCC to obtain waivers
and/or delays to the required service date of October 1, 2001. As of March 31,
2001 it is uncertain whether such waivers or delays will be granted by the FCC.

                                       30
<PAGE>

Cost of Revenues

Cost of revenues were $274,844 and $265,445 for the years ended March 31, 2001
and 2000, respectively. Cost of revenues represent the direct costs associated
with the Maryland Contract. Total costs associated with the Maryland Contract
exceeded total revenues by $78,849. The Maryland Contract was entered into by
the Company with little or no expectation of profit as an opportunity to
demonstrate its capabilities to provide real-time traffic data to the Maryland,
Virginia and U.S. Departments of Transportation and other potential customers of
the Company's RadioCamera(TM) network.

Research and Development Expenses

Research and development ("R&D") expenses totaled $12,134,259 for the fiscal
year ended March 31, 2001 as compared to $3,497,435 for the prior fiscal year.
The increase is primarily the result of increased personnel, consulting and
other costs related to hardware development of the RadioCamera(TM) system. The
increase in R&D expenses was also due to development costs associated with an
increase in deployed RadioCamera sites and the Company's planned data center and
network operating system.

R&D expenses for the fiscal year ended March 31, 2000 of $3,497,435 decreased
from $4,866,292 for the same period of 1999. The decrease was primarily due to
lower stock compensation expense and in-process R&D charges associated with the
vesting of Labyrinth shares recorded in 1999.

Operating Expenses

Operating expenses totaled $10,410,255 for the fiscal year ended March 31, 2001
as compared with $5,174,145 for the prior fiscal year. The increase was
primarily due to an increase in employees, including an increase in executive
management personnel, and related salaries, benefits and stock compensation
costs. Operating expenses also increased due to an increase in the Company's
field trials and deployment activities, including site acquisition costs related
to the expansion of RadioCamera sites along the Washington DC beltway and
Seattle, Washington areas and the initial RadioCamera site deployment in the San
Francisco Bay Area for the MTC TravInfo project. These costs include personnel,
contractor, depreciation and overhead costs and additional costs associated with
the Company's new east coast offices located in Reston, Virginia.

Operating expenses increased to $5,174,145 for the year ended March 31, 2000
from $2,491,560 for the year ended March 31, 1999. This increase was primarily
due to an increase in employee costs, including stock compensation, and an
increase in field trial activities including commencement of an ORT in the
Maryland/Washington DC/Virginia Metro area.

                                       31
<PAGE>

Interest Income (Expense), Net

Net interest income for the year ended March 31, 2001 was $740,846 compared with
$495,638 for the prior fiscal year. The increase was due to an increase in
interest income from higher cash and cash equivalent balances on-hand during the
year from the proceeds totaling approximately $21,000,000 received from the
issuance of the Series C Preferred Stock and borrowings under a promissory note
with Hewlett Packard Credit Corporation ("HP") totaling $7,000,000. This
increase in interest income was partially offset by interest expense recorded on
the HP promissory note. Interest expense on the HP note was $303,800 including
amortization of debt discount, net of interest capitalized to network
infrastructure of $160,030.

Interest income for the year ended March 31, 2000 was $495,638 as compared with
$310,074 for fiscal 1999 reflecting an increase in cash balances generated from
the private sale of equity securities in fiscal 2000.

Other Expense

Included in other expense for the fiscal year ended March 31, 2001 is a
provision of $9,600,000 for litigation settlement costs related to four separate
legal matters, including $8,000,000 recorded in the Company's fourth quarter as
further disclosed in note 12 to the consolidated financial statements.

During the fiscal year ended March 31, 2000, the Company incurred a loss from
unauthorized stock issuances totaling $5,331,114, as described in Note 12 to the
consolidated financial statements.

Other expense for the fiscal year ended March 31, 2000 also includes equity in
losses of the Company's former subsidiary, Mantra Technologies ("Mantra"), and
the Company's joint venture, Wireless Technology, Inc. ("WTI"). Mantra has
subsequently been liquidated and the Company's investment in WTI has been
written down to zero as a result of the equity in losses recorded, therefore no
expense was recorded in fiscal 2001.

Net Loss/Net Loss Per Share

The Company incurred a net loss attributable to common shares of $32,739,367
($1.67 per share) for the fiscal year ended March 31, 2001, as compared to
$17,732,614 ($1.42 per share) for the fiscal year ended March 31, 2000. The net
loss for fiscal 2001 includes $1,232,613 of cumulative dividends on the Series C
Preferred Stock and $40,504 of cumulative dividends on the Series A Preferred
Stock. The net loss attributable to common shares for fiscal 2000 includes
$3,560,000 of deemed dividends with respect to Series B Preferred Stock issuance
and $131,848 of cumulative dividends on the shares of Series A Preferred Stock.
The deemed dividends on the Series B Preferred Stock are the result of issuing
the preferred stock with a conversion price to acquire shares of our Common
Stock at a discount from the trading price.

Liquidity and Capital Resources

At March 31, 2001, the Company had cash and cash equivalents of $13.8 million,
representing the remaining funds received primarily from sales of securities in
the June 2000 private

                                       32
<PAGE>

placement offering of Series C Preferred Stock in which the Company raised net
proceeds of approximately $21 million. Additional funds were also generated near
the end of September 2000 as the result of a $7,000,000 promissory note with
Hewlett-Packard Credit Corporation.

Based on management's estimates, our capital resources are expected to meet cash
requirements through the second quarter of fiscal 2002 for the continuation of
research, development, and field trials. The carriers have delayed, relative to
our initial expectations, implementation of the FCC's E911 mandate. This has
impacted our, and the industry's as a whole, 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 the Company has made substantial progress in this regard, it
does not expect to generate sufficient revenues to sustain on-going operations
without the funds from additional equity investment. Our auditor has determined
that substantial doubt exists about our ability to continue as a going concern.
Based on our belief that the FCC will push the carriers to implement E911
solutions quickly and our 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 our on-going operations in fiscal
2002. 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 Company's Chief Executive Officer in May
2001 and as a result the Company's decision to restate certain transactions in
its prior historical financial statements, the Company received a letter of
determination halting its current trading on the Nasdaq exchange. As a result,
the Company has delayed and compromised in its fund raising activities. 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 we are
unable to secure a strategic partner or investor, the Company plans to seek
bridge financing until contracts materialize and/or strategic partnerships are
secured.

Cash flows used in operating activities for the fiscal year ended March 31, 2001
were $11.0 million. This includes significant non-cash adjustments to the net
loss of $31.5 million for the period of approximately $2.3 million for stock
based compensation and $0.7 million for depreciation and amortization. In
addition, the net cash flows from operating activities were reduced by changes
in working capital, primarily increases in accounts payable of $6.5 million,
accrued expenses of $0.7 million, accrued litigation settlement costs of $9.4
million and accrued payroll taxes of $0.4 million. The increase in accounts
payable and accrued expenses as compared to the prior year period is primarily a
result of an increase in purchases of goods and services from vendors and
contractors associated with deployment activities, the timing of payments, and
the accrual of litigation settlement costs at March 31, 2001.

Investing activities for the fiscal year ended March 31, 2001 include the
purchase of equipment of approximately $9.2 million, primarily for the purchase
of RadioCameras and related equipment, data and network operating equipment and
capitalized network deployment costs.

                                       33
<PAGE>

During the fiscal year ended March 31, 2001, the Company began the initial
deployment of RadioCamera networks in Seattle, Washington and the San Francisco
Bay Area and its Network Operating and Data Centers in San Ramon, California. In
addition, the Company continued its expansion of sites in the Washington D.C.
area including expansion of deployed sites around the Washington D.C Beltway. As
of March 31, 2001, the Company had a total of 19 operational sites in the
Washington D.C. area. The Company has a total of 14 sites deployed in the
Seattle, Washington area and is in process of expanding its deployed sites in
the San Francisco Bay Area from 3 to 12 sites in connection with the MTC
TravInfo project test phase. The Company has incurred approximately $7.7 million
of costs, including equipment, installation and related consulting, that it has
capitalized as network infrastructure construction progresses in connection with
the deployment of additional network sites and its data center and network
operating center. However, the Company has significantly decreased its spending
on the buildout of the network infrastructure pending additional financing. The
Company anticipates that it will require at least $1.1 million to place its
network infrastructure into service.

In September 2000, the Company entered into agreements with Hewlett Packard
Credit Corporation ("HPCC"), a subsidiary of Hewlett Packard Company ("HP"),
inclusive of a Note and Warrant Purchase Agreement, Promissory Note, Warrant
Agreement, Registration Rights Agreement, Consulting Agreement, Project
Agreement and Business Alliance Agreement. At the closing we received the
proceeds of a $7,000,000 promissory note, which funds are to be used primarily
for HP services and equipment in the construction of our initial network
operating center. The note is due in its entirety on September 21, 2003 and
accrues interest at 10.5%, payable quarterly.  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 at default. Accordingly, the note
payable has been classified as a current liability in the consolidated balance
sheet.

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 options 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
includes $72,787 for the fiscal year ended March 31, 2001 related to
amortization of discount on the note.

Recently Issued Accounting Standards

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

                                       34
<PAGE>

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 No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
interpretive guidance on the recognition, presentation and disclosure of revenue
in the financial statements. The Company adopted SAB 101 during the fourth
quarter of fiscal year 2001. The adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations.


Net Operating Loss Carryforwards

As of March 31, 2000, the Company has Federal net operating loss carryforwards
(NOLS) totaling approximately $17,482,000, which expire at various times through
2020. For State purposes, the Company has NOLS totaling approximately
$8,472,000, which expire at various times through 2005. 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 carryforwards 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.
Management has chosen to record a 100% valuation allowance against the net
deferred tax assets, principally related to the NOLS, as realization is
evaluated as uncertain at this time.



ITEM 7.   FINANCIAL STATEMENTS

     See attached financial statements.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

Since March 2000, BDO Seidman LLP has been engaged as our certifying auditors to
audit our financial statements for the years ending March 31, 2000 and March 31,
2001. The Company did not consult with BDO Seidman, LLP on any matters prior to
their retention. Our decision to change auditors reflects the expansion of our
operations and our desire to have an auditing firm that has national and
international capabilities. We dismissed Haskell & White LLP as our auditors,
which firm had audited our financial statements for the years ended March 31,
1996 through 1999. The change in accountants was not due to any discrepancies or
disagreements between us and Haskell & White, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. The former accountants' reports on our financial statements for the
years ended March 31, 1996 through 1999 did not contain any adverse opinions or
disclaimers of opinion; nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.

                                       35
<PAGE>

                                   PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

The following sets forth certain information regarding our directors and
executive officers as of July 16, 2001:

Name                          Age  Position
----                          ---  --------

Dennis Francis/(2)/           49   Chief Executive Officer and Director
Dale Stone                    53   President, Chief Operating Officer and
                                    Director
Richard Mudge                 55   President - Compass Services/(3)/
Donald Zerio                  41   Chief Financial Officer
Jan Klein                     50   Vice President - Business and Market
                                    Development
Louis Golm/(1)/               59   Chairman of the Board of Directors
Barry West/(2)/               55   Director
David Robkin/(1)(2)(4)/       51   Director
James Eisenstein/(1)(5)/      42   Director

___________________________________
(1)      Member of Audit Committee of the Board of Directors.
(2)      Member of Compensation Committee of the Board of Directors.
(3)      Compass Services is wholly owned subsidiary of the Company.
(4)      Elected by the holders of Series B Preferred Stock in December 2000.
(5)      Elected by the holder of Series C Preferred Stock.


Dennis Francis has served as Chief Executive Officer since May 26, 2001 and as a
director since December 1997. Prior to his election to the board, he worked for
the Company as a consultant starting in December 1996. From May 2000 through
March 2001, Mr. Francis served as Senior Vice President - Network Operations and
Engineering for TeraBeam Networks. From May 1999 until May 2000, he served as
Vice President of New Wireless Technology Support at AT&T Wireless. From
September 1992 through May 1999, Mr. Francis was the Chief Technology Officer of
Vanguard Cellular Services, Inc. prior to its acquisition by AT&T Wireless. Mr.
Francis is the former chairman of the Nortel Technology Officers Council and
former chairman of the Chief Technology Officer's Council of the Cellular
Telecommunications Industry Association for four years. He graduated from the
University of Texas at Arlington, Texas with a B.S. in Industrial Engineering.
He has also pursued graduate studies in Business and Economics.

Dale Stone has served as President, Chief Operating Officer and a director since
March 15, 2000. From June 1998 until May 1999, Mr. Stone served as Senior Vice
President and General Manager of Qualcomm's Wireless Infrastructure Division and
thereafter continued to serve on the Division's senior leadership team after
Ericsson acquired the unit in May 1999. From 1991 until 1997, Mr. Stone was a
member of the senior management of AT&T Bell Labs, and at the time of his
departure he was Vice President of Services Development. He is a Fellow of both
AT&T and Bell Labs and holds several patents in circuit design and wireless
network services. Mr. Stone received the AT&T Consumer Services Malcolm
Baldridge Award, the highest award

                                       36
<PAGE>

given for managerial excellence in the U.S. Mr. Stone holds a B.S. in Electrical
Engineering from the Massachusetts Institute of Technology and an M.S. in
Electrical Engineering from Stanford University. He also completed the Executive
Program at Darden.

Dr. Richard Mudge has served as the President of Compass Services, a wholly
owned subsidiary, since April 2000. He was a co-founder of Apogee Research,
Inc., and served as its President from 1986 until 1994 and Chairman of the Board
from 1994 until 1997, when it merged with Hagler Bailly. Dr. Mudge then served
as Senior Vice President and Managing Director of Hagler Bailly's transportation
practice until April 2000. From 1975 to 1986, Dr. Mudge served in the
Congressional Budget Office, where he was Chief of the Infrastructure Investment
Group from 1983, and directed the organization's advice to Congress on
transportation. He is a member of the ITS America Coordinating Council, and
chairs the organization's Committee on Benefits Evaluation and Costs. He also
serves on several technical committees sponsored by the Transportation Research
Board, an arm of the National Academy of Sciences. Dr. Mudge holds a Ph.D. and
an M.A. in Regional Economics from the University of Pennsylvania, and an
undergraduate degree in Geography from Columbia College.

Donald Zerio has served as Chief Financial Officer of the Company since July
2001, having previously served as Vice President - Finance since September 2000.
He has more than 18 years of financial management experience, having held
positions at various technology companies, including Ascend Communications,
Linear Technology and Conner Peripherals. Prior to joining U.S. Wireless, Mr.
Zerio was vice president of finance at Petstore.com. Prior to that, he was Vice
President and Corporate Controller of Ascend Communications, a developer and
manufacturer of wide area network solutions, Internet access and backbone
network equipment for telecommunications carriers and Internet service
providers, acquired by Lucent Technologies. Mr. Zerio was International
Controller of Linear Technology, a manufacturer of high-performance analog
integrated circuits, and assistant corporate controller of Conner Peripherals, a
manufacturer of computer disk drives and information storage products, which was
acquired by Seagate Technology. He began his career in the audit practice at
Price Waterhouse. Mr. Zerio received a Bachelor of Science degree in Accounting
from the University of Connecticut. He is a member of the American Institute of
Certified Public Accountants.

Jan Klein has served as Vice President, Business and Market Development since
January 1, 2000. Mr. Klein previously provided consulting services to us from
May 1999 until December 1999 through DaVinci Solutions, LLC, a company he
founded in January 1999. From March 1996 until March 1998, he served as Vice
President of Geotek Communications, Inc. From March 1994 until March 1996, he
served as the head wireless telecommunications analyst at Dean Witter Reynolds.
From August 1977 until March 1994, Mr. Klein was with AT&T, where he held a
variety of management positions in sales, marketing, operations and finance, and
he managed AT&T's commercial business accounts in New York. At the time of his
departure from AT&T, he was Financial Planning Director - PCS. Mr. Klein also
headed the finance team that executed the 1994 acquisition of McCaw Cellular by
AT&T. Mr. Klein holds a B.S. in Aerospace Engineering from Pennsylvania State
University, an M.B.A. from George Washington University, an Executive MBA from
Cornell University and completed an accounting certification program at the
University of Pittsburgh. He is a Certified Public Accountant in New Jersey, and
has held a NASD Series 7 license.

                                       37
<PAGE>

Louis Golm has served as a director since January 2000 and as Chairman of the
Board since May 2001. Mr. Golm is an independent consultant and senior advisor
to the telecommunications and information management industries. Until 1999, he
served as President of AirTouch International, the international division of
AirTouch Communications - a wireless communications business. Vodafone Group Plc
merged with AirTouch in 1999 to form Vodafone AirTouch, the world's largest
wireless communications company. Lou joined AirTouch in 1997 from AT&T where he
was President and CEO of AT&T-Japan. He was elected to this position in 1994 and
was instrumental in successfully growing this $2 billion business. The
businesses he led in Japan are now organized as subsidiaries of AT&T, Lucent
and NCR. Prior to his assignment in Japan, Lou held a series of senior
management positions at AT&T. From 1991 to 1994, he headed AT&T's business sales
force with revenues exceeding $17 billion and an employee force in excess of
10,000 people. He started his career with AT&T in 1964. Lou serves on the Boards
of Directors of CLARITI Telecommunications International, as Vice Chairman,
Quanta Services, SBS Technologies, US Wireless, and Grupo TelCA Internacional.
He also serves as a director of Kirusa and is a founder of this high technology
start-up company. Further he is a director of the Japan Society of Northern
California. Lou graduated from the University of Denver in 1963 and earned an
MBA from the same university in 1964. He graduated with a Master of Science in
Management from the Massachusetts Institute of Technology (MIT) in 1980 as a
Sloan Fellow.

Barry West has served as a director since May 1998. Since March 1996, Mr. West
has served as Vice President and Chief Technology Officer of Nextel
Communications, Inc. Prior to that, Mr. West served in various senior positions
with British Telecom for more than thirty-five years, most recently as Director
of Value-Added Services and Corporate Marketing at Cellnet, a cellular
communications subsidiary of British Telecom.

David Robkin has served as a director since December 2000. He was elected by
unanimous written consent of the stockholders of our Series B Preferred Stock.
Mr. Robkin is a founder and principal of Liberty Venture Partners, a
Philadelphia-based venture capital fund, with investments in wireless services
and enabling technology, Internet technology and services, and healthcare. Prior
to forming Liberty Ventures, Mr. Robkin was a partner at Grant Thornton, an
international accounting and consulting firm. Preceding his tenure with Grant
Thornton, Mr. Robkin was managing partner of AG Epstein Company, a leading
Philadelphia based accounting and consulting firm, which merged with Grant
Thornton. Mr. Robkin received his bachelor of business administration from
Temple University and is a member of the American Institute of Certified Public
Accountants and the Pennsylvania Institute of Certified Public Accountants. He
currently serves on the boards of rSchool.com and LAGOS, Inc., and has
previously served on the boards of TicketsLive Corporation (now Tickets.com) and
CMPEExpress.com (now Cyberian Outpost.com).

James S. Eisenstein has served as a director since May 31, 2000. He was
appointed by American Tower Corporation in accordance with the terms and
conditions of American Tower Corporation's investment and purchase of the shares
of our Series C Preferred Stock. Mr. Eisenstein currently serves as the
Executive Vice President-Corporate Development with American Tower Corporation,
a position that he has held since he helped found American Tower Corporation in
the summer of 1995. From 1990 to 1995, he was Chief Operating Officer of Amaturo
Group Ltd., a broadcast company operating 11 radio stations and four
broadcasting towers. Mr. Eisenstein serves on the Board of Directors of the
Personal Communications Industry Association, the leading international trade
association representing the wireless communications industry.

Provisions Governing the Board of Directors

Terms of Directors

                                       38
<PAGE>

All directors, with the exception of Mr. Eisenstein and Mr. Robkin, who were
appointed in accordance with the terms and conditions of the Series C and Series
B Preferred Shares, respectively, hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified. Vacancies
on the Board of Directors may be filled by the remaining directors. Officers are
elected annually by, and serve at the discretion of, the Board of Directors.

Under the terms of the Series B Preferred Stock, the holder of Series B
Preferred Stock have the right to elect one director to the Board of Directors
until such time as i) all shares of Series B Preferred stock have been converted
to shares of Common Stock and ii) at least 50% of such converted shares Common
Stock have been resold by the original holder.

During March and April of 2000, the Company converted all outstanding shares of
Series B Preferred Stock into shares of Common Stock. As of February 15, 2001,
over 50% of such shares of Common Stock had been resold by the original holder.
Accordingly the holders of the Series B preferred stock and the Common Stock
issued upon conversion thereof no longer carry a special right to elect a
director.

Under the terms of the Series C preferred Stock, the holders of the Series C
shall have the right to elect one director to the Board of Directors until such
time as 50% of the shares of Series C Preferred Stock have been converted into
shares of Common Stock.

Limitation of Liability

As permitted under Delaware Corporation Law, our certificate of incorporation
eliminates the personal liability of our directors or any of our shareholders
for damages for breaches of their fiduciary duty as directors. As a result of
the inclusion of such provision, stockholders may be unable to recover damages
against directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties. The inclusion of
this provision in our certificate of incorporation may reduce the likelihood of
derivative litigation against directors and other types of shareholder
litigation. In addition, we have executed indemnification agreements with all
officers and directors providing indemnification to the fullest extent of the
law.

Directors' Compensation

Directors do not currently receive any cash compensation for services rendered
to us in their capacities as directors. Pursuant to the terms of their
respective stock option agreements with us, directors elected by our common
shareholders receive options to purchase shares of our common subject to vesting
schedules. See "Principal Stockholders".

                                       39
<PAGE>


ITEM 10.    EXECUTIVE COMPENSATION

Summary of Compensation

The following table shows for the fiscal years ended March 31, 2001, 2000 and
1999 compensation awarded or paid to, or earned by, our chief executive officer
and our most highly compensated officers, referred to as the "Named Executive
Officers":


                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                       Long-Term
                                                                                                     Compensation
                                                                                                     ------------
                                                                                                        Awards
                                                                                                     ------------
                                                                          Annual                   Shares of Common
                                                                       Compensation                Stock Underlying
                                                                       ------------
                                                                                                                         All Other
Name and Principal Position                                  Year     Salary             Bonus         Options         Compensation
---------------------------------                            ----     ------             -----         -------         ------------
<S>                                                          <C>     <C>                 <C>           <C>             <C>
Dr. Oliver Hilsenrath/(9)/                                   2001    $273,000              --               --          $1,350/(2)/
   Chief Executive Officer                                   2000     198,000              --          750,000/(1)/     $1,620/(2)/
(until May 25, 2001)                                         1999     130,000              --               --           1,620/(2)/

Dale Stone                                                   2001    $240,000              --               --              --
   President and Chief Operating Officer                     2000      20,000/(3)/         --          500,000/(4)/         --

Dr. Richard Mudge                                            2001     140,000              --          150,000/(5)/         --
   President, Compass Services

Donald Zerio                                                 2001      75,000/(3)/         --          160,000 /(6)/        --
   Vice President, Finance

Jan Klein                                                    2001     150,000              --           25,000              --
   Vice President, Marketing and Business Development        2000      33,750/(3)/     10,000/(8)/     135,000/(7)(8)/      --

David S. Klarman/(9)/                                        2001     135,000              --               --              --
   Vice President, General Counsel and Secretary             2000      83,000              --           75,000/(7)/         --
    (until March 6, 2001)                                    1999      60,000              --                               --
</TABLE>
_____________________

(1)  Pursuant to an extension of his employment agreement, Dr. Hilsenrath
     received an option to purchase 750,000 shares of common stock.
(2)  Represents the payment of approximately $1,620 for a life insurance and
     disability policy for the benefit of Dr. Hilsenrath's beneficiaries.
(3)  Reflects portion of the year worked. Messrs. Zerio, Stone and Klein
     commenced employment with the Company in October 2001, March 2000 and
     December 1999, respectively.
(4)  Mr. Stone was granted an option to purchase 400,000 shares of common stock,
     vesting over four years, 1/4 each year with the first portion vesting on
     the first anniversary of his agreement. Mr. Stone also received a grant of
     100,000 shares of common stock, to vest over a four-year term, commencing
     with the initial 25% or 25,000 shares vesting on the first anniversary of
     the date of grant.
(5)  Dr. Mudge was granted 150,000 options, vesting over three years.
(6)  Mr. Zerio was granted 160,000 options, vesting over four years.
(7)  Mr. Klarman and Mr. Klein were granted options to purchase 75,000, and
     125,000 shares of common stock, respectively, vesting over the three-year
     term of their agreements.
(8)  Jan Klein received a bonus in March 2000, which included $10,000 and the
     grant of an option to purchase 10,000 shares of common stock, vesting over
     a three-year period.
(9)  As a result of an investigation undertaken by the Audit Committee of the
     Company's board of directors, the Company now suspects that Messrs.
     Hilsenrath and Klarman were affiliated with several entities to which the
     Company paid compensation for services without receiving any services in
     return (see Item 12- Related Parties)

                                       40
<PAGE>

Compensation Pursuant to Plans

The following table contains information concerning the stock option grants made
to each of the Named Executive Officers during the fiscal year ended March 31,
2001:

                              Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                Individual Grants
                      --------------------------------------------------------------------------------------------------------------
                                 Number of
                                 Shares of                   % of Total
                                Common Stock                   Options
                                 Underlying                   Granted to                  Exercise
                                  Options                      Employees                 Price per                Expiration
          Name                    Granted                       In 2001                    Share                     Date
----------------------     ----------------------       ----------------------     ----------------------    ----------------------
<S>                        <C>                          <C>                        <C>                       <C>
Richard Mudge(1)(3)             150,000                           9.6%                    $30.94               April 9, 2010
Donald Zerio(2)                 160,000                          10.3                      14.38               October 1, 2010
Jan Klein(2)                     25,000                           1.6                      13.50               August 15, 2010
</TABLE>

-------------------
(1)      Vesting at the rate of 1/3 per year.
(2)      Vesting at the rate of 1/4 per year.
(3)      Vesting of 50,000 shares underlying the option may be accelerated in
         the event that the employee meets certain board-designated performance
         milestones.


Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

<TABLE>
<CAPTION>
                                                                         Number of Shares of
                                                                            Common Stock
                                                                       Underlying Unexercised             Value of Unexercised
                                 Shares of                                   Options at                  In-the-Money Options at
                               Common Stock                                Fiscal Year-End                Fiscal Year-Ended(1)
                                 Acquired              Value    -----------------------------------  ------------------------------
                                on Exercise          Realized   Exercisable      Unexercisable        Exercisable      Unexercisable
                             ----------------       ----------  -----------------------------------  -------------------------------
<S>                            <C>                   <C>        <C>              <C>                 <C>              <C>
Dr. Oliver Hilsenrath                       0                0     1,687,500         562,200           $1,410,000     $           0
Dale Stone                                  0                0       100,000         300,000                    0                 0
Richard Mudge                               0                0             0         150,000                    0                 0
David Klarman                          30,000          373,564       225,000               0              156,800                 0
Jan Klein                                   0                0       101,250          58,750               14,250             4,750
</TABLE>

-------------------
(1)    Value of unexercised options at fiscal year-end is based on the fair
       market value of our common stock at March 31, 2001 ($2.94) (based on the
       closing sale price reported on the Nasdaq National Market on that date)
       minus the exercise price of the option.

Senior Management Incentive Plan

In December 1997, the Board of Directors and our stockholders adopted the Senior
Management Incentive Plan (the "Management Plan"). The Management Plan provides
for the issuance of up to an aggregate of 500,000 shares of common stock upon
exercise of stock options and other rights to executive officers, key employees,
and consultants.

The adoption of the Management Plan was prompted by the desire to provide the
board with sufficient flexibility regarding the forms of incentive compensation,
which we will have at our disposal in rewarding executive officers, key
employees, and consultants who render significant

                                      41

<PAGE>

services to us. Pursuant to the Management Plan, the Board of Directors intends
to offer equity ownership in U.S. Wireless to such persons through the grant of
stock options and other rights, to enable us to attract and retain qualified
personnel without unnecessarily depleting our cash reserves. The Management Plan
is designed to augment our existing compensation programs and is intended to
enable us to offer a personal interest in our growth and success through awards
of either shares of common stock or rights to acquire shares of common stock.

The Management Plan is intended to attract and retain key executive management
personnel whose performance is expected to have a substantial impact on our
long-term profit and growth potential by encouraging and assisting those persons
to acquire equity in U.S. Wireless. A total of 500,000 shares of our common
stock will be reserved for issuance under the Management Plan. It is anticipated
that awards made under the Management Plan will be subject to three-year vesting
periods, although the vesting periods are subject to the discretion of the
Administrator.

Unless otherwise indicated, the Management Plan is administered by the
compensation committee of the Board of Directors (the board or such committee
shall be referred to in the following description as the "Administrator"). In
accordance therewith, all issuance's under the Management Plan will be approved
by such committee. Subject to the specific provisions of the Management Plan,
the Administrator will have the discretion to determine the recipients of the
awards, the nature of the awards to be granted, the dates such awards will be
granted, the terms and conditions of awards and the interpretation of the
Management Plan, except that any award granted to any of our employees who is
also a director shall also be subject, in the event the persons serving as
members of the Administrator of the Management Plan at the time such award is
proposed to be granted do not satisfy the requirements regarding the
participation of "disinterested persons" set forth in Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to the approval of an auxiliary committee consisting of not less than two
individuals who are considered "disinterested persons" as defined under Rule
16b-3. As of the date hereof, we have not yet determined who will serve on such
auxiliary committee, if one is required. The Management Plan generally provides
that, unless the Administrator determines otherwise, each option or right
granted under the plan shall become exercisable in full upon certain "change of
control" events as described in the Management Plan, or subject to any right or
option granted under the Management Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure, or otherwise), the Administrator will
make appropriate adjustments to such plans and the classes, number of shares and
price per share of stock subject to outstanding rights or options. The
Management Plan may be amended by action of the board of directors, except that
any amendment which would increase the total number of shares subject to such
plan, extend the duration of such plan, materially increase the benefits
accruing to participants under such plan, or change the category of persons who
can be eligible for awards under such plan, must be approved by the affirmative
vote of a majority of stockholders entitled to vote. The Management Plan permits
awards to be made thereunder until November 2004.

Directors who are not otherwise employed by us will not be eligible for
participation in the Management Plan. The Management Plan provides for four
types of awards: stock options, incentive stock rights, stock appreciation
rights (including limited stock appreciation rights) and restricted stock
purchase agreements.
                                       42

<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of July 16, 2001 information regarding the
beneficial ownership of our common stock and common stock equivalents by (i)
each person who we know to be a beneficial owner of 5% or more of our
outstanding common stock; (ii) each of our directors and Named Executive
Officers; and (iii) all of our executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                Shares of Common Stock or                 Percentage of Beneficial
Beneficial Owner                                             Common Stock Equivalents/(1)/ /(2)/              Ownership/(3)/
<S>                                                          <C>                                        <C>
Dennis Francis                                               120,000/(4)/                                                 *
Dale Stone                                                   125,000/(5)/                                                 *
Richard Mudge                                                 50,000/(6)/                                                 *
Donald Zerio                                                      --                                                      *
Jan Klein                                                    101,250/(7)/                                                 *
Louis Golm                                                    16,667/(8)/                                                 *
Barry West                                                   120,000/(9)/                                                 *
David Robkin                                               1,250,000/(10)/                                             4.3%
James S. Eisenstein                                           12,500/(11)/                                                *
Dr. Oliver Hilsenrath                                      5,543,804/(12)/                                              22%
Janvrin Holdings/Ryburn Ltd./Corossger/(2)/                2,500,040/(13)/                                            10.6%
Directors and executive officers
as a group (9 persons)/(4)/ /(10)/                         7,359,221                                                  28.7%
</TABLE>

-----------------
     *Less then 1% of 23,504,435 shares

(1)  Unless otherwise stated herein, this table is based upon information
     supplied by directors, executive officers and principal stockholders and
     Schedules 13D and 13G filed with the Securities and Exchange Commission.
     Unless otherwise indicated below, the persons named in the table have sole
     voting and investment power with respect to all shares beneficially owned
     by them, subject to community property laws where applicable. For purposes
     of this table, shares held by stockholders include any shares held as
     tenants in common or joint tenants with spouses. Percentages are based on a
     total of shares of common stock outstanding on July 16, 2001 and shares of
     common stock outstanding, adjusted in accordance with the rules promulgated
     by the Securities and Exchange Commission. In computing the number of
     shares beneficially owned by a person and the percentage ownership of that
     person, shares of common stock subject to options held by that person that
     are exercisable within 60 days of the date of this table and shares of
     common stock issuable to that person upon conversion of convertible
     preferred stock that is convertible within 60 days of the date of this
     table are also deemed outstanding. These shares, however, are not deemed
     outstanding for the purpose of computing the percentage ownership of any
     other person.

(2)  The percentage ownership is calculated by dividing the number of shares
     beneficially owned by the sum of (i) the total outstanding shares of common
     stock of the Company, and (ii) the number of shares of common stock that
     such person has the right to acquire within 60 days, whether by exercise of
     options or warrants. The percentage ownership does not reflect shares
     beneficially owned by virtue of the right of any person, other than the
     person named and affiliates of the person, to acquire them within 60 days,
     whether by exercise of options or warrants.

(3)  Does not include (i) the shares of common stock issuable upon the
     conversion of 112,500 shares of Series C Preferred stock or the shares of
     Series C Preferred Stock issuable in accordance with the dividend on said
     shares or the shares of common stock into which those dividend shares may
     be convertible, or (ii) any shares of common stock issuable underlying any
     outstanding warrants or options issued by us.

(4)  Includes 40,000 shares directly and a fully vested option for 100,000
     shares at $4.00 per share.

                                       43
<PAGE>

(footnotes continued from previous page)

(5)  Includes 100,000 vested options out of a total option to purchase 400,000
     shares of common stock, vesting at the rate of 1/4 per year, with the
     possibility of the acceleration of 100,000 shares underlying the option in
     the event the Company achieves board-declared incentives and 25,000
     restricted shares out of a total grant of 100,000 shares, whereby Mr. Stone
     shall receive 25,000 shares of common stock on each one-year anniversary of
     the date of grant, until fully issued.

(6)  Includes 50,000 vested options out of a total option to purchase 150,000
     shares, vesting at 1/3 per year, at an exercise price of $30.94.

(7)  Includes 59,000 shares issuable upon the exercise of vested options that
     were transferred from DaVinci Solutions LLC to Mr. Klein pursuant to the
     terms of his employment agreement. See "Item 9 Employment Agreements." Does
     not include 77,000 shares issuable pursuant to option agreements, which are
     not yet vested.

(8)  Includes 16,667 vested options out of a total option to purchase 50,000
     shares, vesting equally over three years, at an exercise price of $11.20.

(9)  Includes 20,000 shares held directly, and 100,000 vested options out of a
     total option grant of 100,000 shares at an exercise price of $4.00.

(10) Mr. Robkin claims beneficial ownership of the 1,000,000 shares held by
     Liberty Ventures, along with 250,000 shares held in the name of Sylvia
     Robkin. Pursuant to his serving on the Board of Directors, Mr. Robkin was
     granted an option to purchase 50,000 shares, vesting over 9 years. Mr.
     Robkin's address is: 1 Commerce Sq., 6005 Market St., Philadelphia PA
     19103.

(11) Includes 12,500 vested options out of a total option grant of 50,000
     shares, vesting in equal portions over three years, at an exercise price of
     $19.00. Does not include the shares of common stock issuable upon the
     conversion of the 112,500 shares of Series C Preferred stock or the shares
     of Series C Preferred Stock issuable in accordance with the dividend on
     said shares or the shares of common stock into which those dividend shares
     may be convertible, owned by American Tower Corporation, of which Mr.
     Eisenstein is the Executive Vice President - Corporate Development and does
     not have or share investment of voting power over the shares of series C
     preferred stock held by American Tower Corporation. Accordingly, Mr.
     Eisenstein disclaims beneficial ownership of the shares held by American
     Tower Corporation.

(12) Includes 793,152 shares held by Oliver Hilsenrath directly and 3,063,152
     shares held in the name of Oliver Hilsenrath Family Investments Ltd., of
     which Dr. Hilsenrath is the trustee and his family members are the
     beneficiaries. Includes 1,687,500 shares of common stock, issuable upon the
     exercise of a vested option and 793,152 shares issued in connection with
     the Labyrinth merger which are not vested and subject to a vesting
     schedule. Pursuant to a settlement agreement between the Company and Oliver
     Hilsenrath, Mr. Hilsenrath has agreed to return approximately 758,000
     shares to the Company. (see Item 12 - "Related Party Transactions"). Oliver
     Hilsenrath's address is: 5151 Blackhawk Dr., Danville CA 94506

(13) The Company is of the belief that these entities are under common control.
     The address of each of these entities is: Jardine House, 1 Wesley St., St.
     Helier JE4 8CD, Jersey, Channel Islands.

                                       44
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions Involving Former Executive Officers


Audit Committee Investigation into Activities of David Klarman and Oliver
-------------------------------------------------------------------------
Hilsenrath.  As a result of an investigation conducted by the Audit Committee of
-----------
the Company's Board of Directors we believe that Dr. Hilsenrath and/or Mr.
Klarman may be affiliated with a number of offshore entities to which we (i)
made cash payments; (ii) issued shares of Common Stock and/or (iii) granted
options to purchase shares of Common Stock. Most of these entities are foreign
companies for which information concerning ownership and control of such
entities is unavailable. We have no documentation that would provide a bona fide
business reason for the Company to have engaged in these transactions, we have
no evidence that these transactions received Board approval and we have no
record of any consideration received by us in connection with such transactions
other than the forfeiture of options as part of the cashless exercises of the
unauthorized options. As a result of the findings of the Audit Committee's
investigation, the Company demanded and received David Klarman's resignation and
terminated Dr. Hilsenrath's employment. Further, pursuant to an agreement
between the Company and Oliver Hilsenrath dated July 12, 2001, Oliver Hilsenrath
resigned from the Company's Board of Directors and agreed to return
approximately 758,000 shares to the Company (see "Settlement Agreement with
Oliver Hilsenrath"). During the entire time period that these transactions took
place the two senior executive officers of the Company were Dr. Hilsenrath and
Mr. Klarman. The aggregate amount of cash payments made by the Company from
August 1997 through January 2000 with respect to these unexplained transactions
is approximately $446,000. The aggregate number of shares of Common Stock issued
(including the exercise of granted options) by the Company from July 1998
through December 1999 in connection with these transactions is approximately
628,977 shares. As of June 4, 2001, an aggregate of 311,512 shares of Common
Stock are held of record by three of these entities and no options to purchase
shares of Common Stock remain outstanding. The following is a discussion of the
transactions engaged in by the Company during the previous two fiscal years with
entities that the Executive Committee has concluded, as a result of the special
investigation, are likely to be affiliated with Oliver Hilsenrath and/or David
Klarman:

Telecom Associates.  From August 1997 through January 2000, the Company made
-------------------
monthly payments, via wire transfer, of $12,000 to Telecom Associates Ltd., a
British Virgin Islands corporation. The total amount distributed to Telecom
Associates was $348,000 ($84,000 in FY 1998; $144,000 in FY 1999; $120,000 in FY
2000). We believe that either David Klarman or Oliver Hilsenrath or both has a
beneficial ownership interest in Telecom Associates. Neither has ever disclosed
any affiliation between himself and Telecom Associates to the Company's Board of
Directors and continues to deny that any affiliation exists.

Biskara/KS Legal.  In July 1999, the Company issued 88,016 shares to Biskara
-----------------
Ltd., a British Virgin Islands corporation ("Biskara") pursuant to a "cashless
exercise" in full settlement of an option agreement dated July 31, 1996 to
purchase 150,000 shares of common stock at $2.00 per share. On October 21, 1997,
Biskara changed its name to "KS Legal." The Company further wire transferred
$5,000 monthly payments to KS Legal from June 1997 through January 2000. We
believe that David Klarman has a beneficial ownership interest in Biskara/KS
Legal, which was not disclosed in any reports of beneficial ownership with the
Securities and Exchange

                                       45
<PAGE>

Commission. David Klarman never disclosed any affiliation between himself and
Biskara/KS Legal to the Company's Board of Directors and continues to deny that
any affiliation exists.

Silicon Valley Investment Partners, Inc. ("SVIP").  On August 4, 1999, the
-------------------------------------------------
Company issued 43,300 shares to SVIP under the employee private placement of
1999, in contravention of the Board of Directors' directive limiting sales to
directors, employees and management of the Company. We have no record of the
Company having received any consideration for such share issuance. The market
value of these shares was $345,172 (based upon closing sale price on the day
prior to the date of issuance). We believe that either David Klarman or Oliver
Hilsenrath, or both, has a beneficial ownership interest in SVIP and the shares
of the Company owned by SVIP, which was not disclosed in any reports of
beneficial ownership with the Securities and Exchange Commission. Neither David
Klarman nor Dr. Hilsenrath ever disclosed any affiliation between himself and
SVIP to the Company's Board of Directors and both continue to deny that any
affiliation exists.

Borazon Ltd. Borazon Ltd., a British Virgin Islands corporation, also received
------------
shares under the employee private placement of 1999. On August 4, 1999, we
issued 43,300 shares to Borazon. We have no record of the Company having
received any consideration for such share issuance. The market value of these
shares was $345,172 (based upon closing sale price on the day prior to the date
of issuance). We believe that either David Klarman or Oliver Hilsenrath, or
both, has a beneficial ownership interest in Borazon which was not disclosed in
any reports of beneficial ownership with the Securities and Exchange Commission.
Neither David Klarman nor Oliver Hilsenrath ever disclosed any affiliation
between himself and Borazon to the Company's Board of Directors and both
continue to deny that any affiliation exists.

Craiglands/IDS Telecom Investment Group. On May 1, 1999, the Company granted
----------------------------------------
Craiglands Ltd., a British Virgin Islands corporation, an option to purchase
150,000 shares at $2.50 per share, purportedly as compensation for fundraising
activities during the Company's 1999 private placement (Series B). The fair
market value of these options at grant date, $162,000, was recorded as offering
costs. On December 31, 1999, the entire 150,000 option grant was exercised in
full through a "cashless exercise" transaction, resulting in the issuance by the
Company of 130,520 shares to IDS Telecom Investment Group (fka Craiglands).
According to the Company's transfer agent's records, these shares remain in the
name of IDS Telecom as of the date of this report.

On May 17, 1999, the Company issued 149,425 shares to Craiglands purportedly as
compensation for fundraising activities during the Company's 1999 private
placement (Series B). The fair market value of these shares at grant date,
$244,000, was recorded as offering costs.

We believe that Oliver Hilsenrath and/or David Klarman are affiliated with
Craiglands/IDS Telecom and that Craiglands/IDS Telecom's transactions in the
Company's stock were not disclosed in any reports of beneficial ownership with
the Securities and Exchange Commission. Neither Dr. Hilsenrath nor David Klarman
ever disclosed any affiliation between himself and Craiglands and/or IDS Telecom
Investment Group to the Company's Board of Directors and both continue to deny
that any affiliation exists.

Eldoret/MSD Investment Advisors, Inc.  On July 1, 1998, the Company granted
-------------------------------------
Eldoret Ltd., a British Virgin Islands corporation, an option to purchase
150,000 shares at $2.00 per share, purportedly as compensation for fundraising
activities during the Company's 1998 private

                                       46
<PAGE>

placement. The fair market value of these options at grant date, $230,966, was
recorded as offering costs related to the Company's 1998 private placement. On
December 31, 1999, the entire 150,000 option grant was exercised in full through
a "cashless exercise" transaction, resulting in the issuance by the Company of
134,416 shares to MSD Investment Advisors, which was formerly named Eldoret.
According to the records of the Company's transfer agent, these shares remain in
the name of MSD Investment Advisors as of the date of this submission.

We believe that Oliver Hilsenrath and/or David Klarman are affiliated with
Eldoret/MSD Investment Advisors and that Eldoret/MSD Investment Advisors'
transactions in the Company's stock were not disclosed in any reports of
beneficial ownership with the Securities and Exchange Commission. Neither Dr.
Hilsenrath nor David Klarman ever disclosed any affiliation between himself and
Eldoret and/or MSD Investment Advisors, Inc. to the Company's Board of Directors
and both continue to deny that any affiliation exists.

2000 Private Placement

In June 2000, we consummated a private placement offering of our securities, in
which we sold 112,500 shares of our Series C Preferred Stock to American Tower
Corporation ("ATC"). The holders of the Series C Preferred Stock have the right
to elect one member of our board of directors. The Series C Preferred
Stockholders elected Jim Eisenstein as their appointee. At the same time as we
sold Series C Preferred Stock to ATC, we entered into a Master Lease Agreement
("MLA") and a Services Agreement with ATC.

Under the terms of the three-year master lease agreement, ATC will provide site
licenses and services in connection with our network build-out and we have
committed to license a minimum of 1,000 tower facilities over the term of the
agreement. We have committed to license a minimum of 1,000 tower facilities at
preferential rates, which commitment could increase to 2,500 sites in the event
that we meet certain market milestones and American Tower satisfies certain
tower building or acquisition milestones. If ATC has 10,000 tower facilities
available by December 31, 2000, we agreed to 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. If the
conditions of the master license agreement are met, we are required to pay for
the above licenses whether we use the facilities or not.

Under the terms of the Service Agreement, ATC shall have a right of first
refusal, subject to a competitive bid, to provide to us in each new market all
services relating to radio frequency design and engineering, site
identification, site acquisition and development, site zoning and permitting,
site construction and installation management, component purchases and equipment
installation. ATC shall further supply us with parts and components for the
construction of our RadioCamera sites.

                                       47
<PAGE>

                                    PART IV

ITEM 13.

All exhibits to this Form 10-KSB, except those designated with an asterisk (*)
which are filed herewith, have previously been filed with the Commission, as
referenced, and pursuant to 17 C.F.R. Section 230.411 are incorporated by
reference herein.

    3.2.1   Amended and Restated Certificate of Incorporation of the Company
            (incorporated by reference from our Annual Report on Form 10-KSB for
            the fiscal year ended March 31, 1999 (the "1999 Form 10-KSB"))
    3.2.2   Certificate of Amendment of the Certificate of Incorporation of we
            (incorporated by reference from the 1999 Form 10-KSB)
    3.2.3   Certificate of Amendment of the Certificate of Incorporation of we
            (incorporated by reference from the 1999 Form 10-KSB)
    3.2.4   Certificate of Designation of the Series C Preferred Stock which we
            filed on May 17, 2000.
      3.4   By-Laws of the Company (incorporated by reference from our
            Registration Statement on Form SB-2 dated March 28, 1994 under File
            No. 33-68306-NY (the "1994 Form SB-2"))
    3.4.1   Amendment to the By-Laws dated November 25, 1997 (incorporated by
            reference from our Annual Report on Form 10-KSB for the fiscal year
            ended March 31, 1998 (the "1998 Form 10-KSB"))
      3.5   Form of Common Stock Certificate (incorporated by reference from the
            1994 Form SB-2).
    3.6.2   Form of Series C Preferred Stock Certificate.
    10.74   Form of Employment Agreement with Dr. Oliver Hilsenrath
            (incorporated by reference from our Report on Form 8-K dated July
            11, 1996).
    10.77   Amended Employment Agreement with Dr. Oliver Hilsenrath 1997
            (incorporated by reference from our Annual Report on Form 10-KSB for
            the fiscal year ended March 31, 1997 (the "1997 Form 10-KSB"))
    10.89   Employment Agreement with Jan Klein dated January 1, 2000
            (incorporated by reference from the Form 10-KSB dated June 29,
            2000).
    10.90   Master License Agreement with American Tower Corporation dated May
            31, 2000 (incorporated by reference from the Form 10-KSB dated June
            29, 2000).
    10.91   Services Agreement with American Tower Corporation dated May 31,
            2000 (incorporated by reference from Form 10-KSB dated June 29,
            2000).
    10.92   Business Alliance Agreement between the Company and Hewlett Packard
            Company (incorporated by reference from Form 10-QSB dated November
            13, 2000).
    10.93   Purchase Agreement between the Company and Hewlett Packard Credit
            Corporation (incorporated by reference from Form 10-QSB dated
            November 13, 2000).
    10.94   Consulting Agreement between the Company and Hewlett Packard Company
            (incorporated by reference from Form 10-QSB dated November 13,
            2000).
   *10.95   MOU dated as of July 11, 2001 between the Company and Oliver
            Hilsenrath
   *10.96   Voting Agreement as of July 12, 2001 between the Company and Oliver
            Hilsenrath
     16.1   Letter on Change in Certifying Accountant (incorporated by reference
            from the Form 8-K dated March 15, 2000)

                                       48
<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 16/th/ day of July 2001.


                           U.S. WIRELESS CORPORATION


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



                       By: \s\ Donald Zerio
                          ___________________________________
                          Donald Zerio
                          Chief Financial Officer



         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>
<CAPTION>
                 Signature                                    Title                               Date
                 ---------                                    -----                               ----
<S>                                              <C>                                         <C>
             \s\ Dennis Francis                  Chief Executive Officer                     July 16, 2001
------------------------------------------
               Dennis Francis


               \s\ Dale Stone                  President and Chief Operating Officer         July 16, 2001
------------------------------------------
                 Dale Stone                    and Director


               \s\ Louis Golm                  Chairman of the Board of Directors            July 16, 2001
------------------------------------------
                 Louis Golm


               \s\ Barry West                  Director                                      July 16, 2001
------------------------------------------
                 Barry West


              \s\ David Robkin                 Director                                      July 16, 2001
------------------------------------------
                David Robkin


            \s\ James Eisenstein               Director                                      July 16, 2001
------------------------------------------
              James Eisenstein
</TABLE>

                                       49
<PAGE>

                                      U.S. Wireless Corporation and Subsidiaries



                                               Consolidated Financial Statements
                                     For the Years Ended march 31, 2001 and 2000




                                      F-1
<PAGE>

                                      U.S. Wireless Corporation and Subsidiaries
                                                               Table of Contents



<TABLE>
<S>                                                                                       <C>
Reports of Independent Certified Public Accountants                                                   F-3

Consolidated Financial Statements
     Consolidated Balance Sheets                                                               F-4 to F-5
     Consolidated Statements of Operations                                                            F-6
     Consolidated Statements of Stockholders'
     (Deficit) Equity                                                                          F-7 to F-9
     Consolidated Statements of Cash Flows                                                   F-10 to F-12
     Notes to Consolidated Financial Statements                                              F-13 to F-27
</TABLE>

                                      F-2
<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

                                      F-3
<PAGE>

                                      U.S. Wireless Corporation and Subsidiaries
                                                     Consolidated Balance Sheets




<TABLE>
<CAPTION>
March 31,                                                                                               2001                   2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                         <C>
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
====================================================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                                      U.S. Wireless Corporation and Subsidiaries
                                                     Consolidated Balance Sheets

<TABLE>
<CAPTION>
March 31,                                                                                              2001                   2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                    <C>
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.

                                      F-5
<PAGE>

                                      U.S. Wireless Corporation and Subsidiaries
                                           Consolidated Statements of Operations
<TABLE>
<CAPTION>

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


                                      F-6
<PAGE>


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

<TABLE>
<CAPTION>
                                                  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
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>         <C>            <C>         <C>           <C>
Balances, March 31, 1999                           70,000       $     700          50,000    $      500            -    $        -
------------------------------------------------------------------------------------------------------------------------------------
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.

                                      F-7

<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.


                                      F-8
<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>
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.

                                      F-9
<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)
</TABLE>

                                      F-10
<PAGE>

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

<TABLE>
<S>                                                                              <C>              <C>
   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.

                        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

                                      F-11
<PAGE>

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


                               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.

                                     F-12
<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.

                                     F-13
<PAGE>

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


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.

                                     F-14
<PAGE>

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


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:

<TABLE>
<CAPTION>

                                                                            Number of Shares Convertible
                                                           --------------------------------------------------------------------
Fiscal Year                                                                    2001                  2000
---------------------------------------------------------------------  ---------------------------------------------------------
<S>                                                                    <C>                     <C>
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
=====================================================================  =========================================================
</TABLE>

Revenue Recognition

The Company accounts for revenue from long-term contracts under the percentage
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.


                                     F-15
<PAGE>

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


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
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

                                     F-16
<PAGE>

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


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).

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.


                                     F-17
<PAGE>

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


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.


                                     F-18
<PAGE>


                                      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
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.

                                      F-19
<PAGE>

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



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>

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.

                                      F-20
<PAGE>


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



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:

<TABLE>
<CAPTION>

Years Ended March 31,                                                                     2001             2000
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>
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                                                       (-)%             (-)%
============================================================================= ================================================
</TABLE>

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
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.

                                      F-21
<PAGE>

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


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.

                                      F-22
<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.

                                      F-23
<PAGE>

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


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.

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, are as follows:


<TABLE>
<CAPTION>
Year ending March 31,                                                             Amount
----------------------------------------------------------------------------------------
<S>                                                  <C>
2002                                                 $                           889,300
2003                                                                             531,200
2004                                                                             484,400
2005                                                                             195,900
----------------------------------------------------------------------------------------

Total minimum lease payments                         $                         2,100,800
========================================================================================
</TABLE>

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

                                      F-24
<PAGE>

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


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:

<TABLE>
<CAPTION>
Year ending March 31,                                                                                                 Amount
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>
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
============================================================================================================================
</TABLE>

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.

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
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
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.

                                      F-25
<PAGE>

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


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.

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.

                                      F-26
<PAGE>

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


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
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.

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.
                                      F-27