SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

   
                                 FORM 10-KSB/A-2
    
(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, 1997

                                       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 O-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)

            2694 Bishop Drive, Suite 213, San Ramon, California 94583
               (Address of principal executive offices) (Zip Code)

                                 (510) 830-8801
                (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)

                         Common Stock Purchase Warrants
                                (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 [X].

         The  Company  had no revenues  from  operations  during the fiscal year
ended March 31, 1997.

         The aggregate  market value of the voting stock  (consisting  of Common
Stock,  par value $.01 per  share)  held by  non-affiliates  on June 2, 1997 was
approximately  $10,756,969,  based upon the average closing bid and asked prices
for such Common Stock on said date ($4.53),  as reported by a market  maker.  On
such date, there were 7,325,245 shares of Company's Common Stock outstanding.



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

General

         The  Company was  originally  organized  in February  1993 as a holding
company to acquire a majority interest in Playco.  Historically,  through August
15, 1996,  the Company's  results of operations  and  financial  condition  have
related  primarily to those of Playco.  Effective  August 15, 1996,  the Company
spun-off its ownership of Playco Common Stock to the Company's  stockholders and
recorded a dividend for the net book value of the  spin-off.  With the July 1996
acquisitions  of 51% of Labyrinth and Mantra,  the Company  changed its business
focus.  As discussed in Item 1, Labyrinth is in the business of researching  and
developing cellular  infrastructure  products while Mantra is in the business of
developing  software  to  enhance  human  interaction  with  computers,  and  in
particular, of gathering and analyzing data from such sources as the Internet.

         Due to the Company's change in focus, the results of operations for the
year ended March 31, 1997, which primarily  reflect the activities of a research
and  development  company,  are  not  directly  comparable  to  the  results  of
operations  for the year ended  March 31,  1996,  which  reflect  the results of
operations from a retailer. Additionally, as operations for the year ended March
31, 1997 did include some results of operations  from Playco and the start-up of
operations  for  Labyrinth and Mantra,  the results of  operations  for the year
ended March 31, 1997 are not an indication of any future results of operations.

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

Results of Operations:

Year Ended March 31, 1997 as Compared to the Year Ended March 31, 1996

   
                  Through March 31, 1997, the Company  recorded no revenues from
the operations of Labyrinth and Mantra. ^During fiscal year ended March 31, 1996
and through August 15, 1996 of the fiscal year ended March 31, 1997, the Company
recorded its majority  ownership  interest in the  operations of Playco.  As the
^Company's investment in Playco was spun-off to the Company's shareholders,  the
Company's  interest  in the net  losses for  Playco  for  fiscal  1997  totaling
$1,010,312 were recorded as losses from discontinued  operations.  Likewise, the
activities  of  Playco  previously   reported  in  the  Company's  statement  of
operations for fiscal 1996 were reclassified to reflect a loss from discontinued
operations  of  $2,328,827.  Summary  details  of the losses  from  discontinued
operations follow below.

     On a continuing  operations  basis,  the Company had operating  expenses of
$1,051,822 for the
    



<PAGE>
   
year ended March 31, 1997.  Such  expenses  consisted of payroll and  facilities
costs  associated  with the start-up of operations  of Labyrinth and Mantra,  as
well as professional fees and utilities costs.  Operating  expenses for the year
ended March 31, 1996 aggregated $412,723 and related primarily to the activities
of the parent company, known as American Toys at the time.

         For the year ended March 31, 1997, compensation expense associated with
the issuance of 2,641,500 Common Stock options to employees and 1,550,000 common
stock options to consultants totaled $731,535.  In addition,  Labyrinth recorded
compensation  expense of $^64,000  in  connection  with the  issuance of 151,000
shares of its common stock to its officers and key employees.

         ^For the year ended March 31, 1997, the Company  incurred  research and
development   expenses  of  $2,656,371.   Such  amount  includes  the  Company's
expenditures to further the development of its products and includes  $2,250,000
of excess cost over the basis of the Labyrinth and Mantra assets  acquired which
has been characterized as purchased research and development costs.

         For the year ended March 31, 1997,  the Company had interest  income of
$137,152 as compared to $18,417 for the year ended March 31, 1996.  The increase
in interest income is the result of (i) higher cash balances  resulting from the
Company's  and  Labyrinth's  July 1996 private  placement of 600,000  shares and
79,000 shares of Common Stock,  respectively,  which resulted in net proceeds of
$1,458,000  and  $948,000,  respectively,  and (ii) the  exercise  of  3,250,000
options to purchase  Common Stock between July and December 1996 which  resulted
in additional capital of $3,992,483 being contributed to the Company. Interest ^
expense  previously  reported in the statement of operations  for the year ended
March 31,  1996  related to the  operations  of Playco  and,  as such,  has been
reclassified and included in the loss from discontinued operations.
    

         During the year ended March 31, 1997, the Company changed its method of
accounting  for the  minority  stockholders'  interest  in Playco.  The  Company
changed from one method of accounting  which records the total amount of the net
proceeds received from Playco's equity  transactions as the minority interest to
a more  generally  accepted  method which  reflects  the minority  interest as a
percentage of the net assets of Playco.  The change in  accounting  for minority
interest is recorded as a cumulative effect of a change in accounting  principle
which had the effect of reducing  minority  interest by  $2,413,973,  increasing
additional  paid in capital by  $2,873,408,  and increasing the net loss for the
year ended March 31, 1997 by $459,435.

   
         During the year ended March 31, 1997, the Company recorded an aggregate
loss from discontinued  operations of $1,010,312.  Such amount represents losses
from the  operations of Playco prior to the spin-off date of August 15, 1996 and
is  comprised  of net sales of  $5,024,338,  costs and  expenses of  $6,170,999,
interest  expense of  $238,171  and a  reduction  of the loss from the  minority
interest in Playco's net losses of $374,520.  As noted above,  the activities of
Playco  previously  reflected in the statement of operations  for the year ended
March 31, 1996 have been  reclassified and reflected as a loss from discontinued
operations of $2,328,827.  Such amount is comprised of net sales of $21,230,853,
costs and expenses of $24,238,410,  interest expense of $535,158 and a reduction
of the loss from the minority interest of $1,213,888.
    





<PAGE>
   
As a result of the above,  the  Company  recorded a net loss of  ^$,353,857,  or
$0.85 per share,  for the year ended  March 31,  1997  compared to a net loss of
$2,876,733, or ^$3.47 per share, for the year ended March 31, 1996.
    

Research and Development - Future Operations

   
         During the year ended March 31, 1997, the Company incurred research and
development expenses of approximately  ^$406,000,  net of the purchased research
and development  costs of $2,250,000.  The Company expects that the research and
development  stage  of both  Labyrinth's  and  Mantra's  planned  products  will
continue for  approximately  twelve months while testing of the planned products
may require an  additional  six to twelve  months.  Thus,  the Company  does not
expect Labyrinth or Mantra to earn any significant  revenues from operations for
at least eighteen months. As such, management estimates research and development
expenditures for the year ending March 31, 1998 will
    
approximate $610,000.  Research and development activities, as well as operating
and marketing  expenses,  are expected to be financed with funds raised  through
Labyrinth's  private  placement and Labyrinth's and Mantra's sale of 51% of each
of its outstanding common stock to the Company.

Liquidity and Capital Resources:

         As of March 31, 1997, the Company had working capital of $5,166,493 and
cash equivalents of $5,328,781. Such funds resulted primarily from the Company's
and  Labyrinth's  July 1996  private  placements  and the  exercise of 3,250,000
Common Stock options.

Trends Affecting Liquidity, Capital Resources, and Operations

         As discussed above, the nature of the Company's operations has changed.
While it once was a holding company for a retailer,  it is now a holding company
for research and  development  companies.  As such,  management is currently not
aware of any trends that may affect its  liquidity,  capital  resources,  and/or
operations.

         However, the Company's future operations could be adversely affected if
the Company's timetable for the developing,  marketing, and manufacturing of its
planned  products  exceeds  available  capital  resources.  The primary  initial
expenses associated with the commencement of Labyrinth's and Mantra's operations
are  expected  to  include  officer  and  key  employee  salaries.  Furthermore,
additional  financing may be required to complete product  development and begin
product  marketing.  Management  expects the limited  resources  of the Company,
Labyrinth,  and  Mantra,  as  well as the  required  continuation  of  research,
development,  and testing for approximately  twelve to eighteen months, to cause
significant strain on the Company's technical, financial, and other resources.

Inflation and Seasonality

         Inflation and seasonality are currently not expected to have a material
effect on the Company's liquidity, capital resources, or operating activities.





<PAGE>
New Accounting Pronouncement:

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards ("SFAS") No. 128 Earnings Per Share
("EPS"). SFAS No. 128 requires all companies to present "basic" EPS and, if they
have a complex capital structure, "diluted" EPS. Under SFAS No. 128, "basic" EPS
is computed by dividing income  (adjusted for any preferred stock  dividends) by
the weighted  average  number of common  shares  outstanding  during the period.
"Diluted" EPS is computed by dividing  income  (adjusted for any preferred stock
or convertible stock dividends and any potential income or loss from convertible
securities) by the weighted average number of common shares  outstanding  during
the period  plus the number of  additional  common  shares  that would have been
outstanding if any dilutive potential common stock had been issued. The issuance
of  antidilutive  potential  common  stock  should  not  be  considered  in  the
calculation.  In addition,  SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial  statements  issued for
periods ending after December 15, 1997.  Thus, the Company  expects to adopt the
provisions of this statement in fiscal year 1998. Management does not expect the
adoption of this  pronouncement  to have a  significant  impact on the Company's
financial statements.

ITEM 7.           FINANCIAL STATEMENTS

         See attached financial statements.




<PAGE>
                                   SIGNATURES

   
         In accordance with Section 13 or 15(d) of the Exchange Act, the Company
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized this 15th day of September, 1997.
    


                                                       U.S. WIRELESS CORPORATION


                                                   By: \s\ Dr. Oliver Hilsenrath
                                                           Dr. Oliver Hilsenrath
                                                         Chief Executive Officer



         In accordance  with the Exchange Act, 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>
   
<S>                                               <C>                                  <C> 
\s\ Dr. Oliver Hilsenrath                         Chief Executive Officer              ^September 15, 1997
-------------------------------                   ------------------
Dr. Oliver Hilsenrath                             President and Director               Dated



\s\ David Tamir                                   Director                             ^September 15, 1997
    
David Tamir                                                                            Dated



   
\s\ Regina Gindin                                 Director                             September 15, 1997
    
Regina Gindin                                                                          Dated
</TABLE>

<PAGE>

                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES


                                    CONTENTS
<TABLE>
<CAPTION>



                                                                         Page


<S>                                                                           <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ...............        F - 2


CONSOLIDATED BALANCE SHEET .......................................        F - 3


CONSOLIDATED STATEMENTS OF OPERATIONS ............................        F - 5


   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ..................        F - 7
    


CONSOLIDATED STATEMENTS OF CASH FLOWS ............................        F - 9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .......................        F - 13

</TABLE>





<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





To the Board of Directors and Stockholders

U.S. Wireless Corporation and Subsidiaries



We have audited the  accompanying  consolidated  balance sheet of U.S.  Wireless
Corporation,  formerly  known as American  Toys,  Inc.,  and  Subsidiaries  (the
"Company")  as of March 31,  1997 and the  related  consolidated  statements  of
operations, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1997. 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  generally   accepted  auditing
standards.  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,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of the Company as of March 31, 1997,
and the results of its  operations  and its cash flows for each of the two years
in the period  ended March 31,  1997,  in  conformity  with  generally  accepted
accounting principles.















   
                                                             HASKELL & WHITE LLP
    

                                                    Certified Public Accountants

                                                               Newport Beach, CA

May 30, 1997, except for the
last sentence of Note 6.a)
   
which is as of June 16, 1997
and Note 10 which is as of
September 12, 1997
    
                                      F - 2

<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 1997
<TABLE>
<CAPTION>

                                                      ASSETS
Current assets

<S>                                                                   <C>       
     Cash and cash equivalents ..............................         $5,328,781
     Other current assets ...................................              3,500
         Total current assets ...............................          5,332,281
Equipment, improvements and fixtures, net ...................            281,211
                                                                      ^^^^^^^^^^
Other assets ................................................              4,667
   
         Total assets .......................................        ^$5,618,159
                                                                      ==========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                      F - 3
<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 1997
<TABLE>
<CAPTION>


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

<S>                                                                <C>         
     Accounts payable and accrued expenses .....................   $    140,550
     Obligations under capital leases, current .................         25,238
         Total current liabilities .............................        165,788
Obligations under capital leases, noncurrent ...................         45,427
         Total liabilities .....................................        211,215
Minority interest in subsidiaries ..............................      1,529,534
Commitments (Notes 8 and 9)

Stockholders' equity
     Common Stock, $.01 par value, 40,000,000 shares authorized,
         10,031,250 shares issued and outstanding ..............        100,312
     Additional paid-in capital ................................     20,493,262
     Unearned compensation .....................................     (1,277,918)
     Stock subscription receivable .............................     (1,569,483)
     Accumulated deficit .......................................^   (13,868,763)
         Total stockholders' equity ............................      3,877,410
         Total liabilities and stockholders' equity ............^   $  5,618,159
</TABLE>
    
          See accompanying notes to consolidated financial statements.



                                      F - 5



<PAGE>

                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>

                                                                                                   1997                1996
                                                                                                   ---------------    ----------



   
<S>                                                                                                 <C>                 <C>
Net sales .....................................................                                    $^--                 $--
    
Cost and expenses
   
     ^Operating expenses ......................................                                    1,051,822             412,723
     Stock and stock options issued as compensation ...........                                    1,335,535             153,600
     Research and development, including write-off of excess of
       cost over net assets acquired (Note 10) ................                                    2,656,371             _
     Interest (income) ........................................                                     (137,152)            (18,417)
                                                                                                -----------    ----------------
         Total costs and expenses .............................                                    4,906,576             547,906
                                                                                              -----------    ----------------

Loss before minority interest in net losses of continuing
     subsidiaries,  income tax (expense) benefit, discontinued
     operations and cumulative effect of a change in accounting
     principle ................................................                                   (4,906,576)           (547,906)
Minority interest in net losses of  continuing subsidiaries ...                                       22,466                --
                                                                                               -----------    ----------------
    
Loss before income tax (expense) benefit,
     discontinued operations and cumulative
   
     effect of a change in accounting principle ...............                                ^(4,884,110)             (547,906)
    
Income tax (expense) benefit ..................................                                         --                  --
Loss before discontinued operations and
    cumulative effect of a change in

   
     accounting principle .....................................   ^                            (4,884,110)              (547,906)
                                                                                                 -----------    ----------------
    
Discontinued operations (Note 2)
   
     Loss from operations of Playco prior to spin-off .........                                ^(725,380)               (2,328,827)
     Loss on disposal of Playco ...............................                                ^(284,932)               --
        Total discontinued operations ........................                                 ^(1,010,312)             (2,328,827)
    
Loss before cumulative effect of a change in accounting
   
     principle ................................................                                ^(5,894,422)             (2,876,733)
Cumulative effect of a change in accounting principle .........                                   (459,435)               --
                                                                                             -----------    ----------------
Net loss ......................................................                                $^(6,353,857)            $(2,876,733)
                                                                                               ===========    ================
    
</TABLE>
          See accompanying notes to consolidated financial statements.



                                      F - 6



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>

                                                                                   1997       1996
                                                                                ------------  ----------


<S>                                                                                <C>        <C>           
Loss per common equivalent share
     Loss before discontinued operations and cumulative effect
   
     of a change in accounting principle .....................                    ^(0.66)     $       (0.66)
     Discontinued operations .................................                     (0.13)             (2.81)
    
     Cumulative effect of a change in accounting principle ...                     (0.06)             --
                                                                               ---------   -------------
   
     Net loss per common equivalent share ....................                    ^(0.85)     $       (3.47)
                                                                                 =========   =============
    
Weighted average number of common shares outstanding .........                    7,443,419           828,891
                                                                              =========   =============
Pro forma amounts assuming the new minority
     interest accounting method is applied retroactively
   
     Net loss ................................................                  $^            $       (3,336,168)
                                                                                 =========   =============
     Net loss per common equivalent share ....................                  $^(0.79)      $       (4.02)

                                                                                  =========   =============
    
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F - 7



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>



                                                      Additional                        Stock                        Total
                                     Common Stock     Paid-in        Unearned           Subscription Accumulated     Stockholders'
                              Shares     Amount       Capital        Compensation       Receivable   Deficit         Equity




<S>               <C>         <C>        <C>          <C>            <C>                <C>          <C>             <C>       
Balances at April 1, 1995     753,995    $7,540       $5,774,590     $-                 $    -       $(3,874,126)    $1,908,004

Sale of common shares         56,250     562          273,938        -                  -            -               274,500

Issuance of shares as
consideration for services
provided to the Company       15,000     150          153,450        -                  -            -               153,600

Issuance of shares in
connection with exercise
of special warrant            68,750     688          549,312        -                  -            -               550,000

Net loss for the year ended
March 31, 1996                -          -            -              -                  -            (2,876,733)     (2,876,733)
                                                      
Balances at March 31, 1996    893,995    8,940        6,751,290      -                  -            (6,750,859)     9,371

Spin-off of Playco as
dividend                      -          -            -              -                  -            (731,964)       (731,964)

Cancellation of stock
subscription receivable
and accrued interest          (68,750)   (688)        (549,312)      -                  -            (32,083)        (582,083)
</TABLE>

                                       F-7



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996

                                   (Continued)
<TABLE>
<CAPTION>



                                                            Additional                   Stock                        Total
                                 Common Stock               Paid-in       Unearned       Subscription    Accumulated  Stockholders'
                              Shares        Amount          Capital       Compensation   Receivable      Deficit      Equity
<S>                           <C>           <C>             <C>            <C>           <C>             <C>            <C>    
Issuance  of Common Stock
options for compensation      -              -              2,009,453      (1,277,918)    -              -              731,535

Exercise of common
stock options                 3,250,000      32,500         3,959,983      -              -              -              3,992,483

Private placement of
Common Stock, net of
offering costs of             $42,000        600,000        6,000          1,452,000      -              -              1,458,000

Common Stock issued for
acquisition                   2,250,000      22,500         2,227,500      -              -              -              2,250,000

Stock subscription receivable 3,106,005      31,060         1,768,940      -              (1,569,483)    -              230,517

Cumulative effect of a
change in accounting principle -             -              2,873,408      -              -              -              2,873,408

Net loss for the year ended
   
March 31, 1997                 -             -              -              -              -              ^(6,353,857)   (6,353,857)
                                                        
Balances at March 31, 1997    10,031,250     $100,312       $20,493,262    $(1,277,918)   $(1,569,483)   ^$(13,868,763) $3,877,410
</TABLE>

    

                                       F-8

<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996

                Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>

                                                                                     1997                1996
                                                                                ---------------    ----------

Cash flows from operating activities
   
<S>                                                                             <C>              <C>         
     Net loss ......................................................            $^               $(2,876,733)
    
     Adjustments to reconcile net loss to net
       cash used for operating activities:
         Cumulative effect of a change in accounting principle .....            459,435                      --
   
          Loss on discontinued operations ..........................            1,010,312                 2,328,827
         Depreciation ..............................................            18,481                         _
         Amortization ..............................................            6,542                    78,508
         ^Write-off of excess of cost over net assets acquired .....            2,250,000                         _
         Minority interest in net losses of  continuing subsidiaries            (22,466)                        _
    
         Issuance of Common Stock for
   
           compensation and services ...............................            ^604,000                   153,600
    
         Issuance of Common Stock options for compensation
           and services ............................................            731,535                      --
         Write-down of stock subscription receivable ...............            230,517                      --

   
         Increase (decrease) from change in assets and liabilities:
    
   
     ^Other current assets .........................................            (3,500)                  125,837

           Deposits and other assets ...............................            (4,667)                   99,401

           Accounts payable and accrued expenses ...................            ^140,550                   (21,876)

           ^Decrease in net assets of discontinued operations ......            (1,404,294)               (1,236,226)
                                                                                -----------               -----------
    
                  Net cash used for operating activities ...........            (2,337,412)               (1,348,662)
                                                                       
Cash flows from investing activities
   
     Equipment, improvements and fixtures acquired .................            ^(229,027)                      --

     Equipment, improvements and fixtures acquired
       by discontinued operations ..................................            (159,193)                 (340,311)
                  Net cash used for investing activities ...........            (388,220)                 (340,311)
    
</TABLE>

                                       F-9
<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                1997            1996
                                                                ---------------    ----------

Cash flows from financing activities
<S>                                                              <C>            <C>      
     Repayment to stockholders ............................      (381,430)      (217,723)
   
     Proceeds from affiliates .............................          --                ^        173,402
    
     Proceeds from issuance of Common Stock ...............     6,398,483        274,500
   
     ^Net cash provided by financing activities
       of discontinued operations .........................     1,962,179      1,132,965
    
                  Net cash provided by financing activities     7,979,232      1,363,144

Net increase (decrease) in cash ...........................     5,253,600       (325,829)
Cash and cash equivalents at beginning of year ............        75,181        401,010
                                                                             -----------    -----------
Cash and cash equivalents at end of year ..................   $ 5,328,781    $    75,181
                                                                            ===========    ===========

</TABLE>

                                                       F-10

<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996




<TABLE>
<CAPTION>

                                                                                     1997                1996
                                                                                ---------------    ----------



Supplemental disclosure of cash flow information:

<S>                                                                                <C>            <C>        
     Interest paid .............................................................   $   166,453    $   464,832

     Income taxes paid .........................................................   $      --      $    15,821



Schedule of non-cash financing activities:

As  discussed  in Note 1, the  Company  spun-off  its shares of Playco in August
1996. This non-cash event had the following  effects on the Company's  financial
statements:



     Decrease in accounts receivable ...........................................   $   286,793

     Decrease in merchandise inventories .......................................     8,002,320

     Decrease in other current assets ..........................................       152,801

     Decrease in equipment, improvements and fixtures, net .....................     1,793,833

     Decrease in deferred financing costs ......................................       393,699

     Decrease in deposits and other assets .....................................        57,285

     Decrease in accounts payable and accrued expenses .........................    (4,683,291)

     Decrease in notes payable .................................................    (4,868,884)

     Decrease in deferred rent liability .......................................      (177,112)

     Decrease in minority interest .............................................       358,520

     Decrease in preferred stock ...............................................      (584,000)

     Net equity of Playco ......................................................      (731,964)
</TABLE>

As discussed in Note 1, in connection  with the Company's  acquisition  of a 51%
interest in  Labyrinth  Communications  Technologies  Group,  Inc.,  the Company
issued 2,250,000 shares of Common Stock.

As discussed  in Note 9, the Company  exchanged  3,106,005  shares of its Common
Stock for 400,000  shares of Multimedia  Concepts  International,  Inc.'s Common
Stock.  Subsequent  to March 31,  1997,  the  Company  negotiated  the return of
2,706,006  shares of its Common  Stock in exchange for the return of the 400,000
shares of Multimedia  Concepts  International,  Inc. Common Stock. In connection
these transactions,  the Company recorded a stock subscription receivable in the
amount of $1,569,483 and a current year expense of $230,517.

During the year ended March 31, 1997,  the Company issued options to purchase an
aggregate of 2,641,500  shares of Common Stock to employees.  In connection with
these  issuances,  the Company  recorded  compensation  expense of $271,535  and
unearned compensation of $1,277,918.

                                      F-11

<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996

Schedule of non-cash financing activities (continued):

During the year ended March 31, 1997, the Company issued  1,550,000 Common Stock
options to consultants. In connection with these issuances, the Company recorded
compensation expense of $460,000.

During the year ended  March 31,  1997,  the Company  canceled a $550,000  stock
subscription receivable and $32,083 of related accrued interest.

During the year ended March 31, 1997,  the Company  entered into capital  leases
for office equipment that totaled $70,665.

During the year ended March 31, 1996,  the Company  issued  15,000 shares of its
Common Stock as  consideration  for services and recorded  related  compensation
expense of $153,600.

During the year ended March 31, 1996,  the Company  issued  68,750 shares of its
Common Stock as a result of the exercise of a special warrant.



                                      F-12



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   FOR THE YEARS ENDED MARCH 31, 1997 AND 1996







1.       ORGANIZATION



   
         U.S.  Wireless  Corporation,  (the  "Company") was  incorporated in the
         State of Delaware on February 12, 1993.  On July 31, 1996,  the Company
         consummated  a  stock  purchase  agreement  and  acquired  51%  of  the
         outstanding   shares  of  common  stock  of  Labyrinth   Communications
         Technologies  Group, Inc.  "Labyrinth",  whereby 20% of the shares were
         acquired  for  $2,000,000  from  Labyrinth  and an  additional  31% was
         acquired  from the  principle  stockholder  of Labyrinth  for 2,250,000
         shares  of the  Company's  Common  Stock.  Upon  consummation  of  this
         acquisition,   the  founding  shareholder  of  Labyrinth,   Dr.  Oliver
         Hilsenrath,  was appointed the Company's  President and Chief Executive
         Officer.  Labyrinth  is a  development  stage  company  engaged  in the
         research  and  development  of  wireless  communications  hardware  and
         software technology. (Note 10)



         On July 31,  1996,  the  Company  also  consummated  an  agreement  and
         acquired 51% of the  outstanding  common stock of Mantra  Technologies,
         Inc.  ("Mantra")  and an option to  acquire  the  remaining  49% of the
         outstanding  shares of common stock for an aggregate  purchase price of
         $500,000.  Pursuant to the terms of the agreement,  the Company has the
         right  to  acquire  the  remaining  49% of the  outstanding  shares  of
         Mantra's common stock in exchange for an aggregate  1,000,000 shares of
         the Company's  Common  Stock.  In order for the Company to exercise its
         options,  the closing  bid price of its Common  Stock must have been at
         least  $5.00 for the 30  trading  days  prior to the date of  exercise.
         Mantra  is  a  development  stage  company  which  is  engaged  in  the
         development  of an advanced  user  interface for the Internet and other
         databases. (Note 10)
    



         Prior to the acquisitions of Labyrinth and Mantra,  the Company,  which
         was formerly known as American Toys, Inc., was the majority stockholder
         of Play Co. Toys & Entertainment Corp.  ("Playco"),  a California-based
         toy retailer.  On June 1, 1996,  the then majority  stockholder  of the
         Company,  United Textiles & Toys Corporation,  formerly known as Mister
         Jay  Fashions   International  Inc.  ("Mister  Jay"),  a  publicly-held
         Delaware  Corporation,  authorized and consented to the spin-off of the
         shares  of  common  stock  of  Playco  owned  by  the  Company  to  the
         stockholders  of the Company as of the record date of August 15,  1996.
         Additionally,   the  Company,   as  majority   stockholder  of  Playco,
         authorized  the  conversion of its 1 share of Series D preferred  stock
         owned into  1,157,028  shares of Playco's  common  stock,  based on the
         average  closing bid price  ($1.21) of  Playco's  shares for the period
         from March 1, 1996 to May 31, 1996.



         Pursuant to a special meeting of the  shareholders on May 31, 1996, the
         Company  effected,  as of April 17, 1996, a one-for-four  reverse stock
         split. The consolidated  financial  statements give retroactive  effect
         for this one-for-four reverse stock split.



                                                            F-13





<PAGE>
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a)       Consolidated financial statements

                  The consolidated financial statements for the year ended March
                  31,  1997,  include the  accounts of the  Company,  Labyrinth,
                  Mantra,  and Playco  through the  spin-off  date of August 15,
                  1996. The consolidated financial statements for the year ended
                  March 31, 1996 include the accounts of the Company and Playco.
                  All significant  intercompany  balances and transactions  have
                  been eliminated in consolidation.

                  ^
   
         b)       Discontinued operations

                  The   spin-off  of  Playco  has  been   accounted   for  as  a
                  discontinued operation and, accordingly, its operating results
                  have been segregated and reported as  discontinued  operations
                  in the accompanying  consolidated statements of operations and
                  cash  flows for each of the  years  ended  March 31,  1997 and
                  1996.  There are no net assets  related to Playco  included in
                  the  accompanying  consolidated  balance sheet as of March 31,
                  1997.

                  Summary information related to the discontinued  operations of
                  Playco  for the  years  ended  March  31,  1997 and 1996 is as
                  follows:

                                        1997           1996
          
Net sales ...........................   $  5,024,338    $ 21,230,853
    Costs and expenses ..............      6,170,999      24,238,410
Interest expense ....................        238,171         535,158
                                        ------------    ------------
             Net loss before minority
                interest in losses ..     (1,384,832)     (3,542,715)

Minority interest in losses .........        374,520       1,213,888
                                        ------------    ------------

Loss from discontinued operations ...   $ (1,010,312)   $ (2,328,827)
                                        ============    ============



         c)      Cash and cash equivalents
    

                  The Company considers all highly liquid investments  purchased
                  with a  maturity  of  three  months  or  less  on the  date of
                  acquisition to be cash equivalents.
   
         d)      Equipment, improvements and fixtures

                  Equipment,  improvements  and  fixtures  are recorded at cost.
                  Depreciation   and   amortization   are  provided   using  the
                  straight-line  method over the estimated  useful lives (3 - 15
                  years)  of the  related  assets.  Leasehold  improvements  are
                  amortized  over the lesser of the  related  lease terms or the
                  estimated  useful lives of the  improvements.  Maintenance and
                  repairs are charged to operations as incurred.
    

                                      F-14
<PAGE>
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         e)       Income taxes

                  The  Company  accounts  for income  taxes in  accordance  with
                  Statement  of   Financial   Accounting   Standards   No.  109,
                  "Accounting  for Income  Taxes," which requires the use of the
                  "liability   method"   of   accounting   for   income   taxes.
                  Accordingly,   deferred   tax   liabilities   and  assets  are
                  determined  based  on the  difference  between  the  financial
                  statement  and tax  bases of  assets  and  liabilities,  using
                  enacted  tax  rates  in  effect  for  the  year in  which  the
                  differences are expected to reverse.  Current income taxes are
                  based on the  year's  income  taxable  for  federal  and state
                  income tax reporting purposes.

         f)       Accounting for employee stock options

                  In October 1995,  the  Financial  Accounting  Standards  Board
                  issued Statement of Financial  Accounting  Standards  ("SFAS")
                  No.  123,   "Accounting  for  Stock-Based   Compensation."  In
                  conformity  with the  provisions  of SFAS No. 123, the Company
                  has  determined  that it will not  change  to the  fair  value
                  method  presented by SFAS No. 123 and will  continue to follow
                  Accounting  Principle Board Opinion No. 25 for measurement and
                  recognition of employee stock-based transactions.  The Company
                  has adopted the "disclosure only" requirements of SFAS No.
                  123 in fiscal year 1997.

         g)       Software development costs

                  Costs incurred in the research and development of new software
                  products   are  expensed  as  incurred   until   technological
                  feasibility   has  been   established.   After   technological
                  feasibility  is   established,   any   additional   costs  are
                  capitalized in accordance  with SFAS No. 86,  "Accounting  for
                  the Cost of Computer  Software to Be Sold, Leased or Otherwise
                  Marketed." The establishment of technological  feasibility and
                  the  ongoing   assessment  of  recoverability  of  capitalized
                  software  development costs require  considerable  judgment by
                  management  with respect to certain  external  factors such as
                  anticipated  future  revenues,  estimated  economic  life  and
                  changes in software  and  hardware  technologies.  No software
                  development costs have been capitalized  during the year ended
                  March 31, 1997.

         h)       Net loss per share

                  Net loss per share is based upon the weighted  average  number
                  of  outstanding  common shares  during the year.  Common Stock
                  equivalents have been excluded from the computation  since the
                  results would be anti-dilutive.

         i)       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>
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         j)       Concentration of credit risk

                  As of March 31,  1997,  the Company had cash on deposit with a
                  financial  institution  that  exceeded the  federally  insured
                  limit by $3,047,096.

         k)       Reclassifications

                  Certain  amounts as of and for the year ended  March 31,  1996
                  have  been   reclassified  for  presentation   purposes.   The
                  reclassifications  have no effect on the  Company's  financial
                  position or results of operations as previously reported.

         l)       New Accounting Pronouncement

                  In February 1997,  the Financial  Accounting  Standards  Board
                  issued SFAS No. 128, Earnings Per Share ("EPS").  SFAS No. 128
                  requires  all  companies  to present  "basic" EPS and, if they
                  have a complex  capital  structure,  "diluted" EPS. Under SFAS
                  No. 128,  "basic" EPS is computed by dividing income (adjusted
                  for any preferred  stock  dividends)  by the weighted  average
                  number  of  common  shares   outstanding  during  the  period.
                  "Diluted" EPS is computed by dividing income (adjusted for any
                  preferred  stock  or  convertible   stock  dividends  and  any
                  potential income or loss from  convertible  securities) by the
                  weighted  average number of common shares  outstanding  during
                  the period plus the number of  additional  common  shares that
                  would have been  outstanding if any dilutive  potential Common
                  Stock had been issued. The issuance of anti-dilutive potential
                  Common Stock should not be considered in the  calculation.  In
                  addition, SFAS No. 128 requires certain additional disclosures
                  relating  to EPS.  SFAS No.  128 is  effective  for  financial
                  statements  issued for periods ending after December 15, 1997.
                  Thus,  the  Company  expects to adopt the  provisions  of this
                  statement in fiscal year 1998.  Management does not expect the
                  adoption of this  pronouncement to have significant  impact on
                  the Company's financial statements.

3.       CHANGE IN ACCOUNTING PRINCIPLE


         During the first  quarter of the  Company's  fiscal  year,  the Company
         changed its method of accounting for the minority shareholders interest
         in Playco.  The Company  changed  from one method of  accounting  which
         records the total amount of the net  proceeds  received  from  Playco's
         equity  transactions  as the  minority  interest  to a  more  generally
         accepted method which reflects the minority interest as a percentage of
         the net  assets of  Playco.  The  change  in  accounting  for  minority
         interest is recorded as a cumulative  effect of a change in  accounting
         principle,  which  had the  effect of  reducing  minority  interest  by
         $2,413,973,  increasing  additional  paid-in-capital  by $2,873,408 and
         increasing  the net loss for the year ended March 31, 1997 by $459,435.
         The consolidated financial statements have not been restated to reflect
         this  accounting  change;  however,  pro forma  information,  as if the
         change were made retroactively,  is shown on the consolidated statement
         of operations.

                                      F-16

<PAGE>
4.       EQUIPMENT, IMPROVEMENTS AND FIXTURES, NET

         Equipment,  improvements  and  fixtures,  net,  at  March  31,  1997  ^
consisted of the following:



                                                  1997 ^



Furniture, fixtures and equipment                 $ 299,692

   
                                                    299,692
    

Less accumulated depreciation and amortization    (18,481) ^

                                                  $ 281,211



Equipment, improvements and fixtures include equipment under capital
leases of $70,665 and no accumulated amortization as of March 31, 1997.



                                                            F-17





<PAGE>
 5.      INCOME TAXES

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

                                                1997       1996
                                              ------     ------



Federal statutory income tax (benefit) rate      (34.0)%    (34.0)%

Increases (decreases) resulting from:

     Non-deductible expenses ..............        6.7        2.0

     Net change in valuation allowance ....       27.3       32.0
                                              ------     ------

Effective income tax benefit rate .........   -%         - %



         The income tax effects of  significant  items  comprising the Company's
         net deferred income tax assets and liabilities as of March 31, 1997 and
         1996 are as follows:

                                                       1997           1996
                                                -----------    -----------



Inventories .................................   $      --      $   (57,883)

AMT tax credits .............................          --          (23,260)

Accrued expenses ............................          --          (17,816)

Valuation allowance .........................          --           98,959

Current portion of deferred tax liabilities .   $      --      $      --
                                                ===========    ===========





Depreciation and amortization ...............   $    15,639    $   246,185

Net operating loss carryforwards ............    (1,192,326)    (1,958,123)

Deferred rent liability .....................          --          (79,447)

Unearned compensation .......................      (542,479)          --

Valuation allowance .........................     1,719,166      1,791,385
                                                -----------    -----------

Long-term portion of deferred tax liabilities   $      --      $      --
                                                ===========    ===========



         At March 31, 1996, a significant portion of the deferred tax assets and
         deferred tax liabilities  resulted from Playco.  At March 31, 1997, the
         deferred tax assets and liabilities result from the Company,  Labyrinth
         and  Mantra.  The  Company  has  federal  and state NOLs  approximating
         $3,387,784 and $659,492,  respectively.  The federal NOL  carryforwards
         expire  between  the years 2009 and 2012.  The state NOL  carryforwards
         expire in the year  2002.  Utilization  of a portion of the NOLs may be
         limited on Section 382 of the  Internal  Revenue  Code due to ownership
         changes.



         At March  31,  1997  and  1996,  a 100%  valuation  allowance  has been
         provided to reduce the Company's net deferred tax assets for the amount
         by which  the  deferred  tax asset  related  to NOLs  exceeded  the net
         deferred tax liability resulting from all other temporary  differences.
         The Company has  provided  the  allowance  since  management  could not
         determine  that it was "more  likely than not" that the benefits of the
         deferred tax assets would be realized.


                                      F-19

6.       STOCKHOLDERS' EQUITY

         a)       Sale of shares

                  On June 16,  1995,  pursuant to an amendment to Form S-8 filed
                  with the Securities and Exchange  Commission (the "SEC"),  the
                  Company  terminated  its original  option to purchase  150,000
                  shares of Common Stock at $4.25.  Such amendment  included the
                  registration of 150,000 and 75,000 new options,  respectively,
                  to the Company's  former President and to a former Director at
                  an exercise price of $1.00 per share. Such shares were granted
                  on June 2, 1995.  During  June  1995,  all such  options  were
                  exercised and the Company received $225,000 as payment for the
                  56,250  post-split  common  shares.  On the  grant  date,  the
                  average market value of the Company's shares was approximately
                  $1.22  per  share.  Accordingly,   the  Company  has  recorded
                  compensation expense in the amount of $49,500 which represents
                  the excess of the fair market value over the exercise price of
                  such options on the grant date.


                  On August 11, 1995, the Company filed Amendment #2 to Form S-8
                  clarifying  the date of grant with  respect to the new 225,000
                  options registered in Amendment No. 1 to Form S-8.

                  On  August  24,  1995,  pursuant  to a Form  S-8  Registration
                  Statement  filed with the SEC, the Company  registered  30,000
                  post-split  common shares  underlying  options to issue Common
                  Stock of the Company.  In  connection  therewith,  the Company
                  issued  15,000  shares of Common Stock to two  consultants  as
                  consideration  for  services.  On the grant date,  the average
                  market value of the Company's shares was  approximately  $2.56
                  per  share.  Accordingly,   the  Company  recorded  consulting
                  expense in the amount of  $153,600  ($2.56 x 60,000  pre-split
                  common  shares)  since such  consulting  contracts  expired on
                  November 8, 1995.



                  During  July 1996,  the  Company  commenced  and  completed  a
                  private placement of its Common Stock,  whereby it offered and
                  sold 600,000  shares of its Common Stock.  The gross  proceeds
                  received  from  the  sale  were  $1,500,000.   Simultaneously,
                  Labyrinth  consummated a private placement of its Common Stock
                  whereby it sold 79,000 shares for aggregate  gross proceeds of
                  $948,000.





                                                            F-14





<PAGE>
6.       STOCKHOLDERS' EQUITY (continued)

         a)       Sale of shares (continued)

                  In July 1996,  pursuant to a Form S-8  Registration  Statement
                  filed with the SEC, the Company registered 3,250,000 shares of
                  Common Stock underlying options held by the
                  Company's former President. All shares except 1,000,000 have a
                  restrictive  legend.  The 3,250,000  options were exercised by
                  the former  President  between July 1996 and December 1996 for
                  an aggregate  of  $3,992,483.  On June 16,  1997,  the Company
                  filed an amendment to the S-8 registration  deregistering  the
                  resale of the remaining 2,250,000 shares.



         b)       Cancellation of stock subscription receivable



                  On October 27, 1995,  Mister Jay exercised its right  pursuant
                  to the  terms  of a  special  warrant  and  purchased  275,000
                  pre-split common shares at $2.00 per share and issued a twelve
                  month  promissory note for $550,000 bearing interest at 8% per
                  annum.  The note,  accrued  interest  totaling $32,083 and the
                  related  shares  of  Common  Stock  were  canceled  by  mutual
                  agreement in July 1996.


7.       STOCK OPTIONS

         During the year ended March 31, 1997,  the Company  issued Common Stock
         options to its employees and to various consultants performing services
         for the Company.  Options  granted to employees  vest over three years,
         expire  five  years  from the date of grant  and have  exercise  prices
         ranging from $2 to $5 per share.  Substantially  all options granted to
         consultants vest immediately,  expire five years from the date of grant
         and have exercise prices ranging from $2 to $4 per share. The number of
         options issued and outstanding at March 31, 1997 are as follows:



Options outstanding, beginning of period         --

Granted ................................    7,441,500

Canceled ...............................         --

Exercised ..............................   (3,250,000)



Options outstanding, end of period .....    4,191,500



Options exercisable, end of period .....    1,550,000





                                                            F-20





<PAGE>
7.       STOCK OPTIONS (continued)



         The difference  between the exercise price and the fair market value of
         the options  issued to employees on the dates of grant is accounted for
         as unearned  compensation  and  amortized  to expense  over the related
         vesting period. During fiscal 1997, $1,549,453 of unearned compensation
         was  recorded,  of which  $271,535 was amortized to expense as of March
         31, 1997.



         Compensation   expense   associated   with  stock  options   issued  to
         consultants  is  measured  based on the  estimated  value  of  services
         received by the Company.  During fiscal 1997,  $460,000 of compensation
         expense was recorded in connection with these stock options.



         As discussed in Note 2.f),  the Company  follows  Accounting  Principle
         Board  Opinion  No. 25 for  measurement  and  recognition  of  employee
         stock-based  transactions.   Had  the  Company  elected  to  adopt  the
         measurement  and  recognition  provisions  of SFAS No. 123, the Company
         would have  incurred an  additional  $751,226  in related  compensation
         expenses.  The pro forma net loss under the  provisions of SFAS No. 123
         is $(4,955,083) and the pro forma net loss per common  equivalent share
         is $(0.67).



8.       COMMITMENTS

         a)       Operating lease

                  The Company leases office facilities in San Ramon,  California
                  under a  non-cancelable  operating  lease.  The lease requires
                  minimum monthly payments of $8,916 and expires in August 1999.
                  At March 31, 1997, aggregate future minimum lease payments due
                  under this lease are as follows:



Year ending

 March 31,



                         1998   $106,987

                         1999     44,578
                                --------



 Total minimum lease payments   $151,565
                                ========



                  Rent expense  related to the operating  lease  discussed above
                  was $75,173 for the year ended March 31, 1997.



                                      F-21


<PAGE>
8.       COMMITMENTS (continued)

         b)       Capital leases



                  The Company leases various equipment under two  non-cancelable
                  capital  leases.  Minimum monthly rental payments are $512 and
                  $2,011,  respectively,  and the leases expire in January 2000.
                  Principal   payments   pursuant  to  these  lease   agreements
                  aggregate  $70,665,  of which  $25,238  is due during the year
                  ended March 31,  1998.  At March 31,  1997,  aggregate  future
                  minimum lease payments due under these leases are as follows:





                                     Year ending

                                     March 31,



                              1998   $ 30,283

                              1999     30,283

                              2000     25,235
                                     --------



                                       85,801

Less amounts representing interest    (15,136)



                                        $ 70,665



9.       RELATED PARTY TRANSACTIONS

         a)       Employment agreements



                  The  Company  has a five-year  employment  agreement  with its
                  President  that  provides for an annual salary of $160,000 and
                  annual  increases  of 15% per annum.  Upon  execution  of this
                  agreement,  the  President  was  granted an option to purchase
                  1,500,000  shares of the Company's  Common Stock for $2.00 per
                  share.  No such options  were  exercised as of March 31, 1997.
                  The agreement  provides for a two year non-compete period upon
                  termination  of the  President's  employment  and provides for
                  severance  compensation  in the  amount  of  three  times  the
                  aggregate annual compensation paid to the President during the
                  preceding  calendar year. The Company's  President is also the
                  President and sole Director of both Labyrinth and Mantra.



                                                            F-22





<PAGE>
9.       RELATED PARTY TRANSACTIONS (continued)

         a)       Employment agreements (continued)

                  The Company also has three-year employment agreements with its
                  Chief Technology  Officer and General Counsel that provide for
                  annual  salaries of $100,000 and  $120,000,  respectively.  In
                  addition,  an aggregate of 250,000  options to purchase shares
                  of the  Company's  Common Stock at $2.00 per share were issued
                  in connection with these agreements.  The options vest equally
                  over a three-year  period and have  five-year  lives.  No such
                  options were vested or exercised as of March 31, 1997.



                  On June 1, 1996, the Company's former President entered into a
                  five-year  employment  agreement.  Pursuant to the  employment
                  agreement, the former President shall not receive
                  any monetary  compensation  during the term. As consideration,
                  the  Company's  former  President was granted stock options to
                  purchase  1,000,000  shares of Common Stock at $1.00 per share
                  for five years and  2,250,000  shares of Common Stock at $1.33
                  per share exercisable until December 31, 1996. As discussed in
                  Note 6.a) all such options were  exercised  during fiscal year
                  1997.



         b)       Investment in Multimedia Concepts International, Inc.



                  On June 28, 1996, European Venture Corp. ("EVC"), an affiliate
                  of the Company's former  President,  entered into an option to
                  acquire  3,106,005  shares of the  Company's  Common Stock for
                  $1,800,000  or for an exchange  for  400,000  shares of Common
                  Stock of Multimedia  Concepts  International,  Inc.  ("MCII"),
                  which shares shall not be subject to the distribution.  During
                  July 1996,  EVC  exercised  its option and acquired  3,106,005
                  shares in exchange for 400,000 shares of Common Stock of MCII.



                  Subsequent  to  year-end,   EVC  returned   2,706,006  of  the
                  Company's  shares  and the  Company  returned  all of the MCII
                  shares  due to a decline in the value of the MCII  shares.  At
                  March 31, 1997, the Company has recorded a stock  subscription
                  receivable in the amount of $1,569,483 in connection  with the
                  return of 2,706,006 shares of its Common Stock.  Additionally,
                  the  Company  has  expensed  $230,517  in fiscal  1997 for the
                  shares of Common Stock that were not returned.





   
10.     CORRECTION/RESTATEMENT

         The acquisition of Labyrinth and Mantra,  discussed in Note 2, resulted
         in an  amount  paid in  excess  of the  basis of net  assets  acquired,
         assumed to be goodwill, of $2,250,000 which was originally  capitalized
         in the  consolidated  balance  sheet.  As Labyrinth and Mantra are both
         development  activities,  it was  determined  that the excess  purchase
         price  should  have  been   characterized  as  purchased  research  and
         development costs and, therefore, written off in
    



                                                            F-23





<PAGE>
   
10.      CORRECTION/RESTATEMENT (continued)



               accordance with Statement of Financial  Accounting  Standards No.
          2. The accompanying

         consolidated  financial  statements  have been  restated to expense the
         $2,250,000  concurrent  with the  acquisition  of Labyrinth and Mantra.
         Previously   issued   financial   statements   reflected   $100,000  of
         amortization  of the excess of cost over basis of net assets  acquired.
         The accompanying financial statements for the year ended March 31, 1997
         have  been  restated  to  recognize  the  write-off  of the  additional
         $2,150,000  which  increased  the  net  loss  for  the  year  from  the
         previously  reported  $4,203,857 (or $0.56 per share) to $6,353,857 (or
         $0.85 per share)  and  resulted  in a  corresponding  reduction  of the
         previously reported balances of total assets and stockholders' equity.
    









                                                            F-24





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