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, 1998

                                       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)

            2303 Camino Ramon, Suite 200, 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)

     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, 1998.

     The aggregate market value of the voting stock (consisting of Common Stock,
par  value  $.01  per  share)  held by  non-affiliates  on  March  31,  1998 was
approximately  $18,878,566,  based upon the average closing bid and asked prices
for such Common Stock on said date ($2.81),  as reported by a market  maker.  On
such date, there were 11,823,331 shares of Company's Common Stock outstanding.



<PAGE>
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.

                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

General

         US Wireless  Corporation  (the "Company") was organized in the State of
Delaware  in  February  1993.  In July 1996,  the  Company  acquired  51% of the
outstanding  shares  of  common  stock  of each  of  Mantra  Technologies,  Inc.
("Mantra") and Labyrinth  Communication  Technologies Group, Inc. ("Labyrinth"),
both Delaware  corporations formed in July and June 1996,  respectively,  by Dr.
Oliver  Hilsenrath.  In January 1998 the Company  submitted an exchange offer to
the  Labyrinth  stockholders,  who approved the exchange in March 1998, at which
time Labyrinth  merged with and into the Company.  All references to the Company
include its subsidiary, Mantra.

The Company

         The   Company   designs,   develops   and  markets   wireless   network
infrastructure products for the emerging wireless location services marketplace.
The  Company's   products  will  allow  wireless  service  providers  to  render
geolocation,  or the ability to  pinpoint  the  geographic  location of a mobile
telephone  subscriber anywhere within a wireless network.  The Company's current
focus is to  design  and  develop  products  targeted  at the  emerging  E-9-1-1
marketplace, a subset of the wireless location services industry.  Additionally,
the Company seeks to offer,  or provided the  technology  enabling,  value added
services such as E-4-1-1  information  services,  database  management,  network
management services,  asset/vehicle  tracking and a variety of other geolocation
applications.

         The Company's products are based on management's  extensive  experience
in array processing (antenna radio signal processing),  as well as the Company's
proprietary  Location  Radio  Fingerprinting  (LRF)  technology.  The  Company's
initial product, the RadioCamera(TM),  is the first of several products designed
to add functionality to wireless networks by providing geolocation capabilities.
Presently,  the  Company is engaged in Beta  testing of its AMPS  version of the
RadioCamera and has begun the development of TDMA and CDMA modifications,  which
are scheduled for testing by year end.

History

     Prior to the acquisitions of Labyrinth and Mantra in July 1996, the Company
was a holding  company  and the parent  company of Playco  Toys &  Entertainment
Corp.  ("Playco"),  a retailer of  children's  toys and hobby items.  In October
1996,  the  Company  filed an  amendment  to its  Certificate  of  Incorporation
changing  its name  from  American  Toys,  Inc.  to U.S.  Wireless  Corporation.
Simultaneously  with its name change, its trading symbol was changed from "ATOY"
to "USWC." In August 1996,  pursuant to the authorization of the Company's Board
of  Directors  and the  consent of its then  majority  stockholder,  the Company
distributed  its  ownership  of Playco to its  shareholders,  thereby  divesting
itself entirely of its ownership interest in Playco

         Consolidation of Labyrinth Communication Technologies Group, Inc.

         In March 1998 the Company  consummated the merger of Labyrinth with and
into the Company,  pursuant to its December 1997 stockholders  meeting, at which
the  stockholders  approved a proposal to acquire the remaining 49% of Labyrinth
in exchange for an aggregate of 4,498,200  shares of the Company's Common Stock.
The issuance of the shares is subject to a vesting schedule, as follows: (i) 20%
of the shares issued vest one year from  issuance;  (ii) an additional  40% vest

<PAGE>
upon the  successful  completion  and operation of the  RadioCamera in its first
major market; and (iii) the remaining 40% vest when the Company reaches sales of
$15,000,000.  In addition  to the above  vesting  schedule,  the  management  of
Labyrinth is subject to an additional vesting schedule, in accordance with their
employment contracts and restricted share agreements,  which were simultaneously
amended in accordance  with the exchange  offer,  whereby the shares  underlying
(i)-(iii) above vest at the rate of 1/3 each year.

Wireless Communications Industry Overview

         Over the past  decade,  there has been a rapid  growth in the  wireless
communication  industry, with a proliferation of "cellular" telephones and other
wireless communication  devices.  Originally associated with a wealthy and elite
segment of the population,  these devices are now available to and utilized by a
wide cross section of consumers. This rapid market growth has been stimulated by
increasingly  affordable wireless services and handsets,  a favorable regulatory
environment, and growing competition among service providers.

         The  Strategis  Group,  Inc.,  a  telecommunications  consulting  firm,
estimated  that  the  number  of  wireless  subscribers  in the  United  States,
including  cellular,  PCS and ESMR, would increase from approximately 46 million
at the end of 1996 to  approximately  102 million by the end of 2000. By the end
of 1997,  the number of  subscribers  in the United  States had already  reached
approximately 55 million, or 20% of the population.

     To accommodate  the increased  consumer demand for wireless  services,  the
industry has aggressively continued its buildup of wireless infrastructure,  and
commenced in the usage of more efficient standards such as TDMA, CDMA, GSM, ESMR
and PCS. The  introduction of these  standards into the market has  additionally
served as a selling point for manufacturers and service providers in the already
extremely competitive arena of telecommunications.

         The  competitive  environment  in  telecommunications  is  increasingly
forcing network providers to differentiate their offerings. As network providers
strive  to  capture  or  maintain  market  share  and  stimulate  usage,  it  is
anticipated that the service providers, either themselves or through third party
value added service providers, must offer as standard features many valued added
services  that were once  offered as premium  applications.  These  applications
include  emergency  E-9-1-1  service,   enhanced  4-  1  (caller-location  based
information services),  asset tracking,  vehicle location,  data base management
and network management.  Once deployed, the Company anticipates that value added
services  facilitated by location  sensitive  applications have the potential to
further  expand the market  for  wireless  communications  by  allowing  service
providers to increase revenue-generating traffic on their networks.

Wireless Enhanced 9-1-1 Industry Background

     With over 20% of the U.S. population using wireless telephones,  the number
of emergency calls from wireless devices to 9-1-1 is dramatically increasing. In
1996,  the average  daily number of wireless  calls to emergency  9-1-1  totaled
approximately  83,000  nationwide.  By the turn of the  century,  this number is
expected to top 130,000  calls per day,  approaching  the daily  number of 9-1-1
calls initiated from traditional wire-line networks.

         As the  number of  wireless  telephone  calls to PSAPs  (Public  Safety
Answering Points,  i.e. regional emergency call centers) increase  dramatically,
PSAPs are reporting an increasing number of challenges that impede their ability
to assist people in  emergencies  when receiving  emergency  calls from wireless
handsets.  Problems  include an increasing  volume of calls, as well as response
time for emergency personnel.

         When a  dispatcher  receives  an  emergency  call  from  a  traditional
wire-line  telephone,  the address and call back number of the calling party are
displayed  directly  in  front  of  the  dispatcher,  who  merely  confirms  the
information.  The typical time a dispatcher  spends confirming the location of a
wire-line call is five to 10 seconds.  In contrast,  when an emergency  operator
receives a wireless call, the location and callback  number of the caller is not
immediately  available,  and PSAP  dispatchers  regularly  spend  up to  several
minutes on each call,  attempting to establish a location.  Wireless callers are
often unsure of their exact location, especially at night, or when the trauma of
an accident or emergency has reduced  cognizance.  The dispatcher must therefore
stay on the line longer.  This process can be further  complicated if the caller
is  moving  at the time of the  emergency  call.  When the  location  cannot  be
determined, multiple response units must be dispatched to find the caller.
<PAGE>
Government Regulations

         As a result of these and other safety  issues,  the wireless  industry,
the PSAPs and members of the E-9-1-1  community  and the FCC began joint efforts
in mid-1994 to solve the technological and policy hurdles in providing  location
information  for wireless 9-1-1 calls. In June 1996, the FCC issued a Report and
Order in  Docket  94-102,  formalizing  certain  performance  requirements,  and
implementing a schedule for wireless service providers to establish  geolocation
capabilities.  In so doing,  the FCC ordered that the deployment and integration
of wireless E-9-1-1 features and functions be accomplished in two phases:

         Phase I.

         The first  phase  requires  wireless  service  providers  to report the
callback number and originating  cell site and/or sector of a 9-1-1 call to PSAP
operators.  The mandate  requires  that  commencing  in October  1997,  wireless
service  providers  initiate  action to comply  with  Phase I, and  develop  the
ability to provide callback numbers and cell or sector  origination  information
to any qualified PSAP within their coverage zone who requests such  information.
The service  provider  must commence  providing  such  information  to qualified
requesting PSAPs within six months of the PSAP's request. Service providers have
commenced  the  implementation  of  products in order to meet Phase I of the FCC
mandate,  and it appears that carriers are actively  proceeding with the Phase I
implementation.  Several  carriers are implementing  their own solutions,  while
others are contracting with independent  providers to enable this functionality.
The FCC has decreed that service providers not meeting the mandate  requirements
will be subject to fines,  sanctions  and possible  loss of operating  rights in
terms of access to spectrum.

         Phase II.

         The second phase requires  wireless  service  providers to pinpoint and
report to the PSAPs the location of all 9-1-1 callers  within an accuracy of 125
meters in 67% of all  cases,  using  root mean  square  techniques.  The FCC has
mandated completion of Phase II by October 1, 2001.

         The Phase I and Phase II  requirements  apply only if a PSAP capable of
receiving  and  utilizing  the data  associated  with the service  has  formally
requested the service, and a mechanism (legislation) for recovering the costs of
the service is in place.  For Phase I, it is required that the wireless  service
providers initiate action to comply by October 1997, whereas for Phase II, it is
required  that  wireless  service  providers  have the  ability to  provide  the
required data by October 1, 2001.

RadioCamera and the LRF Technology Solution

         The  Company's  network  systems  use the  reflected  propagation  of a
subscriber's radio signals toward the base station in processing calls. Although
the mobile  telephone  user rarely has a clear line of site to the base station,
the call is successfully  carried from the user's handset to the processing base
station by multiple  reflections.  The signals  "bounce" off buildings and other
obstacles which hinder the line of sight from the caller to the base station. In
this manner,  an array of reflected signals reaches the base station by indirect
paths.  This array of reflections is known by the term  "multipath," and alludes
to the multiple paths that transport the signal.

         The LRF technology  developed by the Company enables wireless  networks
to learn the  location-related  behavior of a subscriber's  radio  signals,  and
correlates  this  behavior with physical  locations in the coverage  area.  This
local behavior is dependent  primarily on the  propagation  pattern of the radio
signal through multipath rays. Because the RadioCamera  technology keys to radio
wave  fronts,  as  opposed to the  modulated  content  of the radio  waves,  the
Company's  management  believes  that  it can  quickly  develop  LRF  technology
compatible with all leading analog and digital wireless standards.


<PAGE>
         Unlike  other   location-based   technologies   being  developed,   LRF
technology  does not require a direct line of sight to the caller from  multiple
base  stations.  As the  multipath  mechanism  which  transports  the calls from
various  locations  to a base  station  is  complex,  each  signal  has a unique
signature or  "fingerprint,"  which is particular  to a certain  location and is
well suited for learning,  recording and reusing.  The RadioCamera  learns these
"fingerprint"  patterns  and  logs  them  into  a  reference  database,  thereby
identifying  calls  coming  from the same  location by their  similar  multipath
fingerprint.  Thus, after a certain amount of training,  a network equipped with
LRF technology can correlate radio signals with the origin of the call.

         The  information   generated  by  each  RadioCamera  is  downloaded  to
centralized  database hubs, which can then route the geolocation  information to
PSAPs and  other  service  providers.  Thus,  the  RadioCamera  provides  a cost
effective and high  performance  geolocation  solution with a unique strength in
the metropolitan areas.  Further, the RadioCamera is packaged as a standard rack
mounted unit that integrates into existing wireless network base stations.

Testing and Evaluation

         The Company  has  completed  the basic  design and  development  of the
RadioCamera and is presently testing the AMPS version in accordance with testing
and evaluation programs. Additionally, the Company has commenced the development
of TDMA and CDMA  modifications  for the  RadioCamera in order to offer location
services for these standards.  Since the initial development of the RadioCamera,
the Company has  conducted  and  continues  to conduct  extensive  lab and field
testing to refine its  performance.  The Company is currently  conducting  field
trials within the Western Wireless network in Billings, Montana; within the Bell
Atlantic  Mobile  wireless  network in Baltimore,  Maryland;  and on two Company
operated test sites in Oakland,  California.  The RadioCamera  currently exceeds
the location  determining  accuracy required by Phase II of the FCC mandate.  To
date,  the Company is not aware of any  network  based  systems  which have been
successfully tested or are currently being tested in Metropolitan areas.

         In July 1997, the Company signed a joint product  evaluation  agreement
with Western Wireless to test the RadioCamera in urban and suburban environments
within the Western Wireless network in Billings,  Montana.  The initial testing,
which began in August 1997,  has been  successful and has continued and expanded
to  additional  cell  sites.  The  current  trial  will  include an "end to end"
demonstration  of the  RadioCamera's  functionality,  from the  location  of the
caller, to the delivery of the location information at the PSAP.

         In  December  1997,  the  Company  entered  into a  testing  evaluation
agreement  with Bell  Atlantic  Mobile to integrate the  RadioCamera  within its
wireless  network  in  Baltimore,   Maryland.   It  is  anticipated  that  these
RadioCameras  will be tested  with  local  PSAPs.  Initial  testing  in the Bell
Atlantic Mobile network has been successful.

     During the ongoing  field  trials,  the  Company  has  deployed an advanced
version of its RadioCamera software, which includes all the components necessary
to locate a cellular  call,  from call setup  monitoring to tracking the call in
progress.  Currently  accommodating the analog standard, the most recent version
of the RadioCamera is upgradable to accommodate the additional standards of CDMA
and TDMA.  Current goals include the demonstration of fully  operational  caller
location  systems in Baltimore  and  Billings,  demonstrating  the  performance,
feasibility and functionality of the system.


Services beyond E-9-1-1

         By  providing  geolocation  data to  wireless  service  providers,  the
Company  believes  it will  enable a  variety  of value  added  services.  These
include:

         Database Management and Services.  The Company anticipates  maintaining
regional  and   national   RadioCamera   hubs  which  will   provide   real-time
location-based  information  for wireless  service  providers who have purchased
RadioCameras  for  their  networks.  The  Company  plans to charge  the  service
provider a monthly fee per subscriber for this service.
<PAGE>
         Network Management Services.  Network management services to be offered
by the Company consist of using subscriber location information processed by the
RadioCamera to assess failures and/or outages in the service  provider  network.
The  RadioCamera  eliminates the need for "drive testing" in the coverage zones,
which is one of the  current  methods for  locating  network  service  problems.
Industry  sources  estimate  that wireless  service  providers  currently  spend
millions of dollars annually in attempting to maintain their wireless  networks.
The Company believes the real-time information obtained from RadioCamera systems
will  be  well  suited  to  providing  wireless  service  providers  with a more
efficient  and  cost-effective  solution  to  network  management,  as  well  as
geographical billing and fraud control.

         E-4-1-1.  Location-based  information  may be  provided  to third party
information  centers such as 4-1-1 call  centers.  The call  centers  could then
assist mobile telephone  subscribers by providing  information which is relevant
to the  location  of the  caller.  For  example,  navigation  assistance  may be
provided  to  the  caller  who  requests  the  fastest  route  to  a  particular
destination,  accounting  for traffic  conditions.  A  road-weary  traveler  may
request a list of the  nearest  hotels  within a  particular  price  range.  The
stranded  motorist could benefit from directions to the nearest gas station,  or
information  regarding the nearest towing service,  especially one that uses the
same location-based information to find the stranded motorist.

     Vehicle Location/Asset Tracking. Location-based information may be provided
to resellers of location  services such as the tracking of vehicles or assets in
the field.  Presently,  commercially  operating  tracking systems are capable of
locating  vehicles/assets  within a several  mile  perimeter.  Most systems also
require the addition of  independent  infrastructure  that can cost thousands of
dollars. The Company believes the  cost-effectiveness  of the RadioCamera system
will allow for more  detailed  information  without  significantly  changing the
existing infrastructure equipment.

Business Strategy

         The  Company's  business  focus and strategy is to address the emerging
marketplace  for E-9-1-1 and related value added  location-based  services.  The
Company is in the final stages of beta testing the  RadioCamera  in  preparation
for its commercial  deployment.  The Company's  objectives  include  obtaining a
significant  share of the  location-based  services market by  implementing  the
following strategies:

         Target  RadioCamera  systems  to  wireless  service  providers  and the
PSAP's.  The Company plans to focus its primary  sales and marketing  efforts on
wireless service providers and the PSAP's,  the main targets of the FCC mandate.
The Company  intends to  continue  its  cooperation  with the  wireless  service
providers and enter into additional pilot testing  relationships that will prove
concept  and  functionality,   thereby   eliminating   commercialization   risks
associated with the RadioCamera system.

         Eventually,  the Company  expects to attract  customers  through both a
direct sales effort and indirect  sales  channels by offering (i) an  integrated
geolocation  solution  that does not require  modification  of existing  network
infrastructure,  (ii) a validated  technology that is effective in both suburban
and  urban  environments  and that  possesses  capabilities  which  surpass  the
requirements  set forth by the FCC mandate,  (iii) high  quality and  responsive
customer service, and (iv) competitive pricing. The Company intends to diversify
its potential  applications by utilizing alternative operating standards such as
TDMA, GSM and ESMR,  and to this end has begun the  development of TDMA and CDMA
modifications, which are expected to be tested by the end of the year.

         A direct sales approach  involves  identifying  the specific  operating
strategy of a wireless service provider, building a RadioCamera integration plan
supported by the unique differentiating  elements of the product,  performing an
in-network  demonstration,  and ultimately obtaining a commitment and building a
joint roll-out plan.


<PAGE>
     Indirectly  distribute   RadioCamera  systems  through  collaboration  with
network  systems   integrators.   Network  systems   integrators  are  companies
contracted  by the wireless  service  providers to design,  construct  and later
support  their  networks.  The Company is exploring  relationships  with network
integrators  that would design  wireless  base station  infrastructure  with the
inclusion of the RadioCamera system.

         Develop   and   maintain   strategic    relationships   with   wireless
infrastructure  equipment  manufacturers  and the public safety  community.  The
wireless  communications  infrastructure market is comprised of a limited number
of large equipment  manufacturers.  The Company is engaged in active discussions
with wireless network infrastructure  manufacturers to integrate the RadioCamera
within network infrastructure systems. In turn, these systems may be sold to the
wireless  service  providers  as  integrated  units  which  provide  geolocation
capability.  Future plans call for the  licensing  of software  upgrades as they
become available.

         Provide  superior  systems  support and rapid  deployment.  The Company
believes  that  providing a high level of service  and support is a  competitive
advantage in  developing  key  customer  relationships.  The Company  intends to
assist  wireless  service  providers in installing,  integrating,  operating and
maintaining  RadioCamera  systems  by  setting up an  Integration  and  Logistic
Support ("ILS") team to offer turnkey services. The Company also intends to take
advantage of the  RadioCamera's  standardized  architecture in helping customers
rapidly implement  RadioCamera  systems within existing wireless  infrastructure
networks. The Company believes that rapid deployment will allow it to become one
of the first  significant  competitors in the marketplace for wireless  location
services.  This should enable a level of market  penetration  which will further
enhance the Company's cost advantage,  attract additional customers,  and expand
the Company's brand recognition and reputation.


Exploit future growth opportunities in the location-based services industry. The
Company  believes  the emerging  marketplace  for E-9-1-1  presents  substantial
opportunities for growth, and a launching pad to additional value added services
through  geolocation.  After  establishing  a strong  presence  in the  domestic
market,  the Company intends to selectively enter mature  international  markets
which  seek to offer  geolocation  capabilities.  In  addition,  the  Company is
actively  focusing on the  emerging  market for  wireless  location  services by
developing  applications aimed at value added services such as emergency E-9-1-1
service, enhanced 4-1-1, asset tracking,  vehicle location, data base management
and network management.

     Maintain technological  leadership in geolocation  technology.  The Company
intends to pursue further technological advances through continued investment in
research and development.  The Company seeks to maintain its technological  lead
by  continuing  to  refine  its  software  to allow  for  increased  geolocation
capabilities  such as heightened  resolution and improved  accuracy and tracking
capabilities.   The  Company  will  continue  to  leverage  these  technological
advancements  into  additional  location-  sensitive  markets,  as well as other
related commercial applications.

         The  Company is required to comply with a wide range of state and local
rules and  regulations  applicable  to its  business.  The  ability to adapt the
Company's  product  lines to  comply  with the  broad  current  and  anticipated
federal,  state and local  regulatory  network is essential,  and may be costly.
Failure  to  comply  with such  regulations  may have an  adverse  effect on the
Company's operations.

Customer Service, Support and Training

         The Company  believes the  responsiveness  and expertise of its service
support  organization will be essential to developing and maintaining  long-term
relationships  with  customers  who  require  uninterrupted   operation  of  the
Company's products. To facilitate its customers,  the Company intends to develop
an integrated logistics Services "ILS" team to assist wireless service providers
with the  installation,  integration,  operation and  maintenance of RadioCamera
systems.  Additionally,  the ILS  team  is  expected  to (i)  provide  pre-  and
post-sales  engineering  services,  (ii) create a technical  assistance  center,
(iii)  provide  support  and service by  telephone,  and (iv) offer a variety of
engineering  services  such as  customer  application  design  review,  protocol
development, product training, performance testing and field support.
<PAGE>
Research and Development

         Management believes the Company's success will depend on its ability to
develop and introduce, in a timely fashion, new products and enhancements to its
existing  products.  In the past,  the Company has made, and intends to continue
making  significant  investments in product and technological  development.  The
Company obtains product  development  input through  extensive  interaction with
potential  customers,  as well as through internal  monitoring of consumer needs
and careful observation of changes in the marketplace.

         The  Company is  focusing  its  development  efforts on  enhancing  the
functionality of the RadioCamera.  This includes developing methods and products
to allow for the adaptation of the RadioCamera to additional wireless standards,
the development of additional related software applications, and the improvement
of third-party application integration.

     The Company  believes it is important for the  RadioCamera  to be available
for all the  different  wireless  standards  such as TDMA,  CDMA,  GSM and ESMR.
Wireless service providers,  infrastructure  manufacturers and industry entrants
are quickly adapting to offer value added services as their customer bases begin
shifting  toward improved  formats.  The Company has commenced the development a
number of digital cellular and ESMR  adaptations for the  RadioCamera,  which it
expects to expand during 1998 and 1999,  including the  development  of TDMA and
CDMA modifications, which are expected to be completed by year end.

         The Company is currently deploying and evaluating  commercial prototype
units of the  RadioCamera  with  wireless  service  providers  through its field
trials. To this end, the Company is (i) completing the design,  construction and
testing of a manufacturing  plan for a commercialized  model of the RadioCamera;
(ii) testing in active base stations; (iii) engaging in marketing and developing
relationships   and   strategic   alliances   with   infrastructure    equipment
manufacturers and network systems integrators.

Intellectual Property

         The Company  believes its most  significant  asset is its  intellectual
property.  The Company has filed numerous patent applications and has received a
"notice of  allowance"  from the Patent and trademark  office,  as to one of its
principal patents.  This essentially means the examiner has approved the claims,
and a patent will be granted.

         The Company also relies on a combination of trade secret, copyright and
trademark laws and employee and third-party non-disclosure agreements to protect
its intellectual property. The Company also limits access to and distribution of
proprietary  information.  There can be no assurance that the steps taken by the
Company to protect its intellectual  property rights will be adequate to prevent
misappropriation  of the  Company's  technology  or  preclude  competitors  from
independently developing such technology. Furthermore, there can be no assurance
that in the future,  third parties will not assert  infringement  claims against
the Company or with  respect to its products for which the Company has agreed to
indemnify  certain of its customers.  In the event a third party were successful
in an  infringement  claim  against  the  Company,  the  Company may have to pay
substantial royalties or damages,  remove that product from the marketplace,  or
expend substantial  amounts in order to accordingly  modify the product,  any of
which results could have a material effect on the Company's business,  financial
condition and results of operations.

         The Company relies on common law  trademarks for use of  "RadioCamera".
The Company has filed "intent to use" applications to register this trademark in
the  United  States.  The  Company  has one year  from the  filing  date to file
trademark applications showing use of the trademarks.  There can be no assurance
that  such  trademarks  will be  registered,  or that if  registered,  they will
adequately be protected against infringement.


<PAGE>
         In the event the Company were to become engaged in  litigation,  either
as a  result  of a  claimed  infringement  by  the  Company  or as a  result  of
infringement by a third party on the Company's  technology or trademarks,  there
can be no assurance that the Company will be able to fund such litigation or, if
able to do so, that it will prevail.

Competition

         There are a number of  competitors  to the  Company's  products  in the
geolocation  marketplace.  Through its  research of the market,  the Company has
found that each competitor utilizes one of three  technologies:  Time Difference
of Arrival ("TDOA"),  Angle of Arrival ("AOA") and the Global Positioning System
("GPS").  These  competitors  can be categorized  into two main groups:  network
based solutions, and subscriber assisted solutions.

     Network based solutions. Network based solutions do not require subscribers
to be equipped with  dedicated  geolocation  equipment;  they rely solely on the
network for the geolocation process. Besides the RadioCamera and LRF technology,
TDOA and AOA  systems  are  proposed  for this  application.  Both of the latter
technologies are based on line of sight  triangulation,  unlike the RadioCamera,
which is a single site radio location system.

         Line of sight triangulation requires that an unobstructed line of sight
be available  between the  subscriber's  location and the multiple base stations
involved  in the  process of  triangulation.  Due to their  reliance  on line of
sight,  an immediately  obvious  shortcoming of both the TDOA and AOA systems is
their inability to function well in dense urban  environments  where the line of
sight is obstructed by high rise  buildings,  etc.  Another  drawback to systems
involving  triangulation  is the reliance upon multiple  sites to accomplish the
process of triangulation. For sufficiently accurate results, more than two sites
are required for both AOA and TDOA systems.  More sites involved translates into
greater expense for equipment and maintenance at each base station.

         Companies such as  TruePosition,  Inc. and CelLoc,  Inc. are developing
TDOA equipment. TDOA is based on measuring the time delay of the wireless signal
between  three to four base  stations,  and  transporting  these  signals  to an
aggregation  site where the location is  computed.  TDOA systems can only locate
callers at the setup of the call by utilizing the control  channel,  or the call
setup channel.  The reason for keeping the geolocation session to a minimum when
using TDOA is the potential  cost of  transmitting  consistent  signals  between
three to four base stations,  which can be substantially more expensive than the
cost of processing the cellular call itself.

         AOA systems  are being  developed  by  companies  such as KSI Inc.  and
Accucom.  AOA systems  require the  subscriber to maintain  direct line of sight
with a minimum of two base  stations in order to calculate  the angle of arrival
to the base stations,  and thus compute their intersection.  AOA is based on the
addition of calibrated  antenna arrays to cellular base stations.  The direction
finding  computations  used  in  AOA  products  are  especially  sensitive,  and
vulnerable in multipath  environments.  They are thereby likely to perform worse
than  TDOA in the  presence  of  reflections.  The  Company  is not aware of any
commercial testing of an AOA system within a wireless network.

         Subscriber  Assisted  Solutions.  Subscriber assisted solutions require
mobile  telephone  subscribers to carry a dedicated  piece of equipment in order
for the geolocation  process to function.  Of all subscriber assisted solutions,
the GPS  system  is the most  significant  and  well  known.  Companies  such as
Magellan Systems  Corporation,  Trimble Navigation Ltd. and SnapTrack,  Inc. are
developing  GPS  solutions  to be  incorporated  in vehicles and  handsets.  The
individual  subscribers,  as well as the service  providers,  who supplement the
handset purchase price, would have to pay more for handsets with added dedicated
equipment. Additionally, this would require all handset manufacturers to include
GPS in all handsets  manufactured.  The Company  believes the cost and logistics
involved in equipping tens of millions of wireless  subscribers  with GPS phones
make GPS an  unlikely  solution  to the  9-1-1  mandate.  However,  the  Company
believes  GPS will  capture a portion of the market that is  agreeable to larger
handsets, high end automobile units and some commercial fleets.
<PAGE>
         The Company  believes  its solution has a  competitive  advantage  over
potential competition for the following reasons:

     RadioCamera  adapts to the current  cellular  infrastructure,  and does not
require alteration to either the base station  infrastructure or subscriber hand
sets.

     RadioCamera  requires  only one base  station  site to process the caller's
signal.

     RadioCamera   provides   initial  location  as  well  as  ongoing  tracking
capabilities.

     RadioCamera thrives both in dense urban environments where line of sight to
base  stations  is rare,  as well as in light rural areas where line of sight to
base stations is common.

     RadioCamera  meets  and  surpasses  the  performance  and  time  to  market
requirements of the FCC mandate.

Employees

         As of June 30,  1998,  the Company  employed 37 persons full time, 3 of
which are executive  officers.  Of these employees,  22 composed the engineering
staff,  9 are lab  technicians  and field  operations  personnel,  and 6 were in
support functions.

Business of Mantra Technologies, Inc.

General

     Mantra Technologies,  Inc. ("Mantra") was founded by Dr. Oliver Hillsenrath
in July 1996, as a software  development company dedicated to the enhancement of
human  computer  interaction.  Mantra  develops  and provides  advanced  website
features and services in the areas of:

User profiling for ad targeting, content targeting and community building

     Personalization,  to help web sites develop a one-to-one  relationship with
their customers

     Automated categorization, to help websites reduce editorial effort required
in managing directories

     Advanced browsing,  providing powerful  next-generation forms of navigation
on our customers' websites.

   These services are enabled by unique, patent-pending technology that provides
industry-leading  precision and recall  performance  in a small  footprint,  low
resource requirement package.

Industry Overview

         The  Information  retrieval  industry  is a rapidly  growing  industry,
headed by the rise of the  Internet.  The Internet  has become a new  mass-media
channel,  that exposes tens of millions of people to existing  public or private
data-bases,  causing the  industry  to  recognize  the  Internet as the new main
channel for  information  search and  retrieval.  The technology the Internet is
based on, both at the networking layer and the information  indexing techniques,
has forced the industry to re-design legacy databases and/or their interfaces to
be compatible with the new mass-media channel.

<PAGE>
         In contrast to  hierarchical  or  relational  databases,  the  Internet
indexing model was designed to accommodate a chaotic system of resources. On the
Internet new resources  are added daily and old ones are removed,  all without a
notice and without a supervising  body. That means indexing such a system has to
be done both  randomly and with enough  flexibility  to absorb  inconsistencies,
false entries and a wide variety of resource types.

         The dominant indexing technique for text content utilizes extraction of
the most "important" words out of each text-based resource and then indexes that
resource according to the words extracted. Thus, retrieving the resource demands
that the system be queried with the same words it used to index the resource.

         That means a person needs to have some  proficiency when trying to find
a  resource,  and often basic  proficiency  is not  enough.  Since the  indexing
systems  are not  linear,  there can be many  results to a single  query - up to
hundreds of thousands of results,  which the query issuing  person has to filter
before the desired resource is found.

Corporate Overview

     Advanced  navigation  services  is  an  under-explored   market.   Existing
navigation  outsourcers - search/portal players - compete with their outsourcing
"customers"  for  eyeballs  and will not  aggressively  drive up the  site's  ad
impressions.  The site's internal  development efforts are highly constrained by
limited development resources.

     Traditional navigation capabilities such as keyword search, manually edited
page layouts and editorial webguides are increasingly insufficient as the amount
and complexity of content grows.  We believe this new niche will develop rapidly
as MANTRA makes the services  available,  and three separate  trends continue to
drive demand for our services:
<TABLE>
<CAPTION>

<S>                                                                 <C>
        Trend                                                       Increasing demand for:
--------------------------------------------------------------------------------------------------------------------
1       Growth in the size and complexity of content                Better navigation
--------------------------------------------------------------------------------------------------------------------
2       Increasing  competition among content, portal               Differentiating services and capabilities
        and consumer services and capabilities
--------------------------------------------------------------------------------------------------------------------
3       Growing  number of advanced technologies required           Outsourcing of advanced
        to produce and maintain a competitive                       technology components of the site

</TABLE>


The Product

     The  current  product  is  based on a  Context  Synthesis  Engine  that was
designed,  developed and patented by Mantra Technologies.  The engine is able to
extract  areas of  interest  from a set of one or more  documents,  initiate  an
adaptive search on any indexed database of documents,  analyze the results,  and
determine  their  relevance to the set of areas of interest  extracted  from the
original set of documents. The relevant documents are then categorized according
to topics (areas of interest) and presented to the user.

     The  engine  operates  in two  ways.  The  first  is a  direct  interaction
initiated by the user. The second is an autonomous  background process to enable
both consumer and site-based applications.

Competition

Competition to Mantra occurs in several forms:

     Our customer's internal development teams, who may believe they can provide
advanced navigation without our technologies; and

<PAGE>
     Text analysis players, such as Aptex, Sovereign Hill and Autonomy.

     Outsourced navigation players such as Excite, Lycos and Yahoo.


ITEM 2.           DESCRIPTION OF PROPERTY

         On July 1997,  the  Company  entered in to a building  lease  agreement
("the Lease") with Annabel Investment Company, a California partnership, for the
lease of  executive  office  space at 2303 Camino  Ramon,  Suite 200, San Ramon,
California  94583.  Pursuant to the Lease, the Company  maintains  approximately
12,000  square feet of executive  office space at a total cost of  approximately
$250,000 per annum. The Lease, effective for a term of five (5) years, commenced
on December  1997, and continues  through  January 2002.  Simultaneous  with the
execution of this Lease, the Company's lease for its prior office  facilities at
2694 Bishop Drive was terminated.

         The  Company  also leases two rooftop  testing  facilities  in downtown
Oakland,  California,  for which it pays on each  rental  $500 per  month.  Both
leases are terminable by either party at any time upon notice. In addition,  the
Company  has  an  offices  within  the  Western  Wireless's  and  Bell  Atlantic
facilities in Billings,  Montana, and Annapolis,  Maryland,  respectively,  from
which it  coordinates  its joint testing  efforts.  The Company  believes  these
existing  facilities  are adequate to meet its current  needs and that  suitable
additional or  alternative  space will be available on  commercially  reasonable
terms as needed.

ITEM 3.           LEGAL PROCEEDINGS

         The Company is not a party to any material  litigation and is not aware
of any threatened  litigation  that would have a material  adverse effect on its
business.

         The  Company  was a  codefendant  in an  action  commenced  by a former
landlord of Playco (a former  subsidiary  of the  Company)  who alleged  that as
guarantor of the respective  leases  executed  between Playco and the landlords,
the Company was  obligated  under the terms of Playco's  leases to the landlords
for Playco's breach of the leases.  The action has been settled,  whereby Playco
has agreed to pay an aggregate of $147,000 over a period of time. Playco assumed
the costs of the Company's  defense in the action and has executed and delivered
to the Company an  indemnification  agreement,  indemnifying  the Company in the
event a judgment  is rendered  against  it. In the event that Playco  cannot pay
expenses and  settlement,  or any judgment  amount for which it is found liable,
the Company as guarantor would become liable for any amounts unpaid by Playco.



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

         During the fourth  quarter of the fiscal year ended March 31, 1998,  no
matter was submitted to a vote of security holders,  through the solicitation of
proxies or otherwise.

         On  June  24,  1998,  the  Company  held  a  special   meeting  of  its
stockholders,  during  which the  stockholders  authorized  an  amendment to the
Company's   certificate  of  incorporation,   authorizing  1,000,000  shares  of
preferred stock,  designated as the Series A preferred  stock,  with such rights
and preferences as to be determined by the corporation's board of directors. The
Company's board of directors and management sought stockholder  approval at such
time, as its financing was imminent,  and it was essential  that  management was
able to act in an expeditious  manner.  See Item 5. Market for Common Equity and
Related Stockholder Matters - 1998 Private Placement."


<PAGE>
                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   
     The Company's  Common Stock is quoted on the SmallCap  Market of the Nasdaq
Stock Market. The following table sets forth representative high and low closing
price for the  Common  Stock as  reported  by a market  maker for the  Company's
Securities  during the period from July 1, 1996 through  June 30, 1998.  Closing
prices and closing bid prices  reflect prices  between  dealers,  do not include
resale mark-ups, mark-downs or other fees or commissions, and do not necessarily
represent actual transactions.      <TABLE> <CAPTION>

                           Common Stock
Calendar Period                     Low                High

        1996
<S>                                 <C>                <C>
07/01/96 - 09/30/96                 1 1/2              7
10/01/96 - 12/31/96                 3                  4 1/2

        1997
01/01/97 - 03/31/97                 3 1/4              6 3/8
04/01/97 - 06/03/97                 2 1/2              4 3/4
07/01/97 - 09/30/97                 3 9/16             4 1/8
10/01/97 - 12/31/97                 2 3/4              4 13/32

        1998
01/01/98 - 03/31/98                 2 1/2              3 7/8
04/01/98 - 06/30/98                 2 11/32            3 5/8
-----------------------
</TABLE>

         As of May,  1998,  there  were 73  holders  of record of the  Company's
Common Stock,  although the Company believes that there are approximately  1,400
additional  beneficial  owners of shares of Common Stock held in street name. As
of June 30, 1998,  there were  11,823,331  shares of the Company's  Common Stock
outstanding.

1998 Private Placement

         In March 1998 the Company  commenced an undertaking to raise additional
capital  in a private  offering  through  Gerard  Klauer  Mattison  & Co.,  Inc.
("GKM"),  as placement  agent. On June 25, 1998 the Company  completed a private
offering  of its  securities,  in which the  Company  raised  gross  proceeds of
$5,139,312  through  the sale of  shares  of  Common  Stock  and  shares  of the
Company's Series A Preferred Stock, inclusive of the conversion of $2,500,000 in
debentures,  in  accordance  with their terms.  The shares of Series A Preferred
Stock carry a cumulative  dividend at the rate of 6% per annum,  payable in cash
or shares of Series A Preferred Stock, at the Company's  option.  Holders of the
Series A Stock have the right to convert  each share into shares of Common Stock
at a conversion  price of $2.95 per share, at any time,  commencing 90 days from
issuance. The shares of Series A Preferred Stock have no voting rights and carry
a liquidation  preference of $20.00 per share. The Company may redeem the Series
A Preferred  Stock,  upon the  earlier of three years from  issuance or when the
closing price for the Company's Common Stock has been at least $8.00, for any 30
consecutive day period.  Included in the private  offering was the conversion by
debenture  holders of the  Company  of  $2,500,000  principal  amount of secured
debentures.

         The Company agreed to file a registration statement with the Securities
and  Exchange  Commission  within  60 days of the  closing  of the  offering  to
register the shares of Common Stock and shares of Common  Stock  underlying  the
Series A Preferred  Stock sold in the offering.  Subscription  funds received in
the Offering were placed in an escrow  account,  with Gotham Bank of New York as
the Escrow Agent, until accepted by the Company. On June 24, 1998, the Company's
stockholders approved an amendment to the Company's certificate of incorporation
authorizing  1,000,000  shares of  Preferred  Stock,  subject  to the rights and
preferences  being determined by the Company's board of directors.  The board of
directors  authorized  the  issuance  of up to  300,000  shares of the  Series A
Preferred Stock.

<PAGE>
         The proceeds of the offering are to enable the  Corporation to continue
the  implementation  of its business plan for the  development and deployment of
the  RadioCamera,  and more  specifically,  to enable the Corporation to produce
several hundred RadioCameras for its expanded testing operations,  as well as to
design and develop  modifications for the RadioCamera for the different cellular
standards such as CDMA, TDMA, PCS, etc.

     GKM received  $150,000 as a commission  on the net proceeds of the offering
and warrants to purchase 220,000 shares of the Company's  Common Stock,  110,000
shares at $4.00 per share and 110,000 at $5.00 per share,  exercisable for three
and five years,  respectively.  See "Item 4.  Submission of Matters to a Vote of
Security Holders."

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.  In March 1998, in accordance  with the terms of an exchange  offer,  the
Company  acquired the remaining 49% of  Labyrinth,  at which time  Labyrinth was
merged with and into the Company.

         Due to the Company's change in focus, the results of operations for the
year ended March 31, 1998, 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,  1997,  which  reflect  the results of
operations from a retailer from April 1996 to July 1996.

         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, 1998 as Compared to the Year Ended March 31, 1997

         During the years ended March 31, 1998 and 1997, the Company recorded no
revenues from operations, as the Company's products are still under development.

         Costs and expenses totaled $4,036,657 for the year ended March 31, 1998
as compared to total costs and expenses of  $4,906,576  for the year ended March
31,  1997.  The overall  decrease in costs and  expenses is  primarily  due to a
decrease  in amounts  written-off  as excess  cost over net assets  acquired  of
$1,773,448  and a  decrease  in  stock  based  compensation  of  $692,738.  Such
decreases  more than offset an increase in research  and  development  costs and
expenses of $1,337,844 and an increase in operating expenses of $320,493.

     During the year ended March 31, 1998,  the Company  recorded a write-off of
$476,552  of the  excess  of cost  over  basis  of the net  assets  acquired  in
connection  with its  acquisition  of the 49%  minority  interest of  Labyrinth.
During  the year  ended  March 31,  1997,  the  Company  recorded  a  $2,250,000
write-off  of the  excess  of cost  over  basis of the net  assets  acquired  in
connection with its original acquisition of the 51% interest in Labyrinth.

         Stock based compensation  totaled $642,797 for the year ended March 31,
1998 and is  comprised of  amortization  of unearned  compensation  of $516,480,
$115,744 of compensation  expense related to 200,000 common stock options issued
to consultants  and  compensation  expense of $10,572 related to the issuance of
594,000  common stock options to  employees.  For the year ended March 31, 1997,
the Company  recorded  stock based  compensation  of  $1,335,535  related to the
issuance of 2,641,500  common stock options to employees and consultants and the
issuance of 151,000 shares of Labyrinth's common stock to employees.

<PAGE>
         Research and  development  costs and expenses for the years ended March
31, 1998 and 1997, were $1,744,215 and $406,371,  respectively. Such increase is
directly  related to an  increase  in the number of  employees  and  consultants
retained  by  the  Company  to  further  the  development  of  the  RadioCamera.
Furthermore,  the  increase  reflects  the fact that the current  year  contains
twelve months of research and development activity while the prior year contains
activity  from  July  1997,  which  was  the  original  acquisition  date of the
Company's interest in Labyrinth and Mantra.

     Operating  expenses  increased from $1,051,822 for the year ended March 31,
1997 to  $1,372,315  for the year  ended  March  31,  1998.  Such  increase  was
primarily  the result of an increase in the number of Company  employees and the
fact that the prior year contains  operating  activity from July 1997, which was
the original acquisition date of the Company's interest in Labyrinth and Mantra.

         For the year ended March 31, 1998, the Company earned  interest  income
of $199,222 as compared to $137,152 for the year ended March 31, 1997.  Although
average cash balances were lower  throughout  the current year,  the increase in
interest income resulted from the fact that cash balances were earning  interest
during all twelve months of the current year.

     Minority  interest in net losses of subsidiaries  totaled  $844,092 for the
year ended March 31, 1998 and  $22,466 for the year ended March 31,  1997.  Such
increase is  directly  related to an  increase  in the number of  employees  and
consultants  retained by Labyrinth to further the  development  of  RadioCamera.
Furthermore,  the  increase  reflects  the fact that the  Company  acquired  its
original interest in Labyrinth and Mantra in July 1997.

         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 $6,409,170 and a
reduction  of the loss from the  minority  interest  in  Playco's  net losses of
$374,520.

         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.

         As a  result  of  the  above,  the  Company  recorded  a  net  loss  of
$3,192,565,  or a net loss of $0.37 per share, for the year ended March 31, 1998
compared to a net loss of  $6,353,857,  or a net loss of $0.85 per share for the
year ended March 31, 1997.

Research and Development - Future Operations

         During the year ended March 31, 1998, the Company incurred research and
development expenses of approximately $1.7 million. The Company expects that the
Company will continue its research and  development  in order to develop a fully
operational  location  system for  deployment and to develop  modifications  for
additional  standards during the next 12 months.  The anticipates the deployment
of its first fully  operational  location system within the next 6 to 12 months,
depending on the needs and requirements of the wireless industry. Therefore, the
Company does not expect to earn any significant  revenues from operations for at
least  the next 6 to 12  months.  As such,  management  estimates  research  and
development  expenditures  for the year ending  March 31, 1999 will  approximate
$3,000,000.  Research  and  development  activities,  as well as  operating  and
marketing  expenses,  are expected to be financed with funds raised  through the
Company's recent private offering.

<PAGE>
Liquidity and Capital Resources

     As of March 31, 1998,  the Company had working  capital of  $2,442,781  and
cash and cash equivalents of $2,285,750.  Such funds resulted primarily from the
Company's  and  Labyrinth's  July 1996  private  placements  and the exercise of
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,  and a holding  company for
research and  development  companies  for most of the year ended March 31, 1998,
the Company is currently a development  stage  company that is developing  value
added technologies and services for the wireless industries. 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  continuing
expenses associated with the development of the RadioCamera product are expected
to  include  officer,  key  employee  and  consultant   salaries.   Furthermore,
additional  financing may be required to complete product  development and begin
product marketing.  Management expects the limited resources of the Company,  as
well as the  required  continuation  of research,  development,  and testing for
approximately  twelve  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.

Recently Issued Accounting Standards

     In June 1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting
Comprehensive  Income." This statement  establishes  standards for reporting and
display of comprehensive income and its components  (revenues,  expenses,  gains
and losses) in an entity's  financial  statements.  This  statement  requires an
entity to  classify  items of other  comprehensive  income by their  nature in a
financial  statement and display the accumulated  balance of other comprehensive
income separately from retained earnings and additional  paid-in-capital  in the
equity  section of a statement  of financial  position.  This  pronouncement  is
effective  for fiscal years  beginning  after  December 15, 1997 and the Company
expects to adopt the provision of this statement in fiscal year 1999. Management
does not expect this statement to significantly  impact the Company's  financial
statements.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an  Enterprise  and  Related   Information."   This  statement  requires  public
enterprises  to  report  financial  and  descriptive   information  about  their
reportable operating segments, and establishes standards for related disclosures
about  product  and  services,  geographic  areas,  and  major  customers.  This
pronouncement  is effective for fiscal years  beginning  after December 15, 1997
and the Company expects to adopt the provisions of this statement in fiscal year
1999.  Management  does not expect this  statement to  significantly  impact the
Company's financial statements. Year 2000

     The  Company  does not  believe  that the impact of the year 2000  computer
issue will have a significant  impact on its  operations or financial  position.
Furthermore,  the  Company  does  not  believe  that  it  will  be  required  to
significantly  modify its internal computer systems or products  currently under
development.  However,  if  internal  systems do not  correctly  recognize  date
information  when the year changes to 2000,  there could be an adverse impact on
the Company's  operations.  Furthermore,  there can be no assurance that another
entity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.

<PAGE>
ITEM 7.           FINANCIAL STATEMENTS

         See attached financial statements.


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

         On August 15, 1996,  the Board of  Directors of the Company  authorized
the Company's Executive Officers to interview and engage a new auditing firm for
the Company.  This  resolution  was enacted in order for the Company to have its
auditors in closer proximity to its executive offices.  On October 24, 1996, the
Company  dismissed  Scarano  &  Lipton,  P.C.  as its  auditors.  The  change in
accountants  was not  due to any  discrepancies  or  disagreements  between  the
Company and Scarano & Lipton,  P.C. on any matter of  accounting  principles  or
practices,  financial statement disclosure,  or auditing scope or procedure. The
former accountants'  reports on the Company's financial statements for the years
ended  March  31,  1995  and  1996  did not  contain  any  adverse  opinions  or
disclaimers of opinion;  nor were they qualified or modified as to  uncertainty,
audit scope, or accounting principles.

         Effective as of November 20, 1996, the Company  engaged Haskell & White
LLP  Certified  Public  Accountants  as its  certifying  auditors  to audit  the
Company's  financial  statements  for the year ended March 31, 1998. In December
1996, the Company engaged Haskell & White LLP to reaudit the Company's financial
statements for the year ended March 31, 1996.



<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 Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>

         NAME                                                          AGE              POSITION

<S>                                                                    <C>              <C>
         Dr. Oliver Hilsenrath (1), (2)                                41               President, Chief Executive
                                                                                        Officer and Director

         Dr. Mati Wax                                                  51               Chief Technology Officer

         David Klarman                                                 33               Vice President, General
                                                                                        Counsel, Secretary, and Treasurer

         Dennis Francis(1), (2)                                        47               Director

         David Tamir(2)                                                54               Director

         Barry West(1)                                                 53               Director
         ---------------------
</TABLE>

         (1)  Member of Audit Committee
         (2)  Member of Compensation Committee

     Dr. Oliver Hilsenrath has served as President,  Chief Executive Officer and
Director  of the  Company  since July 31,  1996.  Since  their  inceptions,  Dr.
Hilsenrath  served as President,  Chief  Executive  Officer and sole director of
both  Labyrinth  and Mantra.  Upon th4e  Company's  merger with  Labyrinth  Dr.,
Hilsenrath remains President & CEO and a director of the Company. Dr. Hilsenrath
remains  the  President  and sole  director  of  Mantra.  Dr.  Hilsenrath  was a
co-founder  and served  from 1992  through  1996 as Senior  Vice  President  and
General  Manager  of Geotek  Communications,  Inc.,  an  international  wireless
carrier with networks in the United States, United Kingdom and Germany. Prior to
that,  Dr.  Hilsenrath  served as Chief  Engineer  of the secure  communications
division of RAFAEL,  Israel.  Dr.  Hilsenrath  received his Ph.D. in information
theory from Technion -  Polytechnical  Institute of Israel and has worked in the
wireless communications industry for 20 years.

     Dr.  Mati Wax has served as Chief  Technology  Officer of the  Company  and
Labyrinth  since August 1996.  From 1985 to 1996,  Dr. Wax served as head of the
Signal  Processing  Center at  RAFAEL.  From 1984  through  1985,  Dr. Wax was a
visiting scientist with IBM Research Laboratories. Dr. Wax received his Ph.D. in
electrical  engineering from Stanford  University in 1985. While at Stanford Dr.
Wax founded the smart antenna group and received the fellowship of the IEEE.

     David  Klarman has served as General  Counsel and  Secretary of the Company
since  September  1996.  He was elected  Vice  President  in  December  1997 and
Treasurer in June 1998.  In  September  1996,  Mr.  Klarman  formed  Klarman and
Associates,  a law firm  specializing in corporate and securities law. From July
1994 to August 1996, Mr. Klarman was an associate with Lampert & Lampert,  a law
firm  specializing  in corporate and securities  law. From February 1991 to July
1994, Mr. Klarman was an associate with Goldstein, Axelrod & DiGioia, a law firm
specializing  in  corporate  and  securities  law.  Mr.  Klarman  holds  a Juris
Doctorate from Yeshiva University, Benjamin N. Cardozo School of Law and a B.S.
in Finance from the University of Maryland.

<PAGE>
     David  Tamir has served as a Director  of the Company  since  August  1996.
Since  September  1995,  Mr. Tamir has also served as General  Manager of GeoNet
Israel Limited,  a subsidiary of Geotek  Communications,  Inc. From July 1992 to
September 1995, Mr. Tamir was President of Powerspectrum  Technology  Limited, a
subsidiary of Geotek  Communications,  Inc.  From 1990 to 1992,  Mr. Tamir was a
representative  of  RAFAEL,  Israel.  Mr.  Tamir  holds  BS  and MS  degrees  in
Electrical Engineering from Technion - Polytechnical  Institute of Israel and an
MBA degree from Hebrew University.

     Dennis  Francis  was  elected  to the  Company's  Board in  December  1997.
Previously,  he served as a  consultant  to the  Company  since  December  1996,
providing  technical  support  services.  Mr.  Francis also served for over five
years as  Executive  Vice  President  and Chief  Technology  Officer of Vanguard
Cellular Systems, Inc., a cellular  communications service provider. Mr. Francis
is the current chairman of the Nortel Technology Officers Council and has served
on the CTIA Chief  Technology  Officers  Council  for four  years.  Mr.  Francis
graduated  from the  University  of Texas at  Arlington,  Texas  with a B.S.  in
Industrial Engineering.

     Barry West has served as a Director  of the Company  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 five  years,  most  recently as
Director of Value-Added  Services and Corporate Marketing at Cellnet, a cellular
communications subsidiary of British Telecom.

     All Directors 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.

     As permitted under Delaware  Corporation Law, the Company's  certificate of
incorporation  eliminates the personal liability of the Directors to the Company
or any of its  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 which
constitute  negligence  or gross  negligence  or that are in  violation of their
fiduciary duties.  The inclusion of this provision in the Company's  certificate
of  incorporation  may reduce the  likelihood of derivative  litigation  against
Directors and other types of shareholder  litigation.  In addition,  the Company
has  executed  indemnification   agreements  with  all  officers  and  directors
providing  indemnification  to  the  fullest  extent  of  the  law.  Significant
Employees

     Abraham  Bar has served as Vice  President  of Hardware  Engineering  since
October 1996. From 1993 to 1996, Mr. Bar served as an independent  consultant in
the areas of hardware and software for companies such as Embedded Systems,  Inc.
From  1989  to  1993,  Mr.  Bar was a  co-founder  and  served  as  Director  of
Applications  for  Electronics  For  Imaging,  Inc.  Mr. Bar has also  served as
Engineering  Manager for Silvar Lisco Daisy Systems,  Inc. and Hardware Designer
and Design Manager for Scitex Corp. He has an MSEE from Technion - Polytechnical
Institute of Israel.

     Ravi Rajapakse has served as Vice President of Software  Development  since
January  1997.  From 1992 to December  1996, he served with  Ventritex,  Inc. as
Engineering  Manager of Software Design. From 1987 to 1992, he served as Manager
of Design and Development of Buxco Electronics, Inc. Mr. Rajapakse holds an M.S.
Degree in Computer Engineering from Rensselaer  Polytechnic Institute and a B.S.
Degree in Electrical  Engineering  from the University of Cambridge,  Cambridge,
U.K.





<PAGE>
Compliance with Section 16(a) of the Exchange Act

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  Officers,  Directors,  and persons who  beneficially own
more than ten percent of a registered class of the Company's  equity  securities
to file reports of securities  ownership and changes in such  ownership with the
Securities and Exchange Commission  ("SEC").  Officers,  Directors,  and greater
than ten percent beneficial owners also are required by rules promulgated by the
SEC to furnish  the Company  with  copies of all Section  16(a) forms they file.
Based solely upon requests for information of the Company's Officers, Directors,
and greater than ten percent  shareholders,  during fiscal 1997, the Company has
been  informed  that all  Officers,  Directors,  or  greater  than  ten  percent
shareholders  have filed such reports as are required pursuant to Section 16(a).
The Company has no basis to believe that any required filing by any of the above
indicated individuals has not been made.

ITEM 10.          EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

         The following  provides  certain  information  concerning  all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to,  earned by, or paid by the Company  during the year ended March 31, 1998 and
1997 to each of the named Executive Officers of the Company.

                           Summary Compensation Table

                               Annual Compensation
<TABLE>
<CAPTION>

(a)                                          (b)              (c)               (d)              (e)               (f)
Name and Principal                                                                                Options/         Other Annual
Position                                    Year(1)           Salary($)         Bonus($)          SARS             Compensation

<S>                                         <C>               <C>               <C>               <C>              <C>       
Dr. Oliver Hilsenrath                       1998              160,000           -                 -                -
President and                               1997              106,667(2)        -                 1,500,000(3)     $5,572(4)
Chief Executive Officer

David Klarman                               1998              120,000           -                 -                -
Vice President,                             1997               70,000           -                 150,000(3)       -
General Counsel and Secretary

Dr. Mati Wax                                1998              100,000           -                 -                -
Chief Technology Officer                    1997               66,667           -                 100,000(3)       -

Abraham Bar                                 1998              100,000 (5)       -                 100,000(3)       -
Vice President                              1997              100,000           -                 -                -
of Hardware

Ravi Rajapakse                              1998              100,000           -                 100,000(3)       -
Vice President                              1997               90,000           (6)               -                -
of Software Design
-----------------------------
</TABLE>

     (1) No  compensation  was paid to any officer of the Company  prior to July
31, 1996.
   
     (2)  Reflects the portion of the year worked based on salaries of $160,000,
$120,000,   and  $100,000  for  Dr.  Hilsenrath,   Mr.  Klarman,  and  Dr.  Wax,
respectively.

     ( 3) Pursuant to their employment agreements, Dr. Hilsenrath, Dr. Wax . Mr.
Klarman,  Mr. Bar and Mr.  Rajapakse  received  options to  purchase  1,500,000,
100,000, 150,000, 100,000 and 100,000, respectively, shares of Common Stock. See
"Employment and Consulting Agreements."

<PAGE>
     ( 4) Includes (i) the payment of $509 per month for  automobile  allowance,
and (ii) the payment of approximately  $1,500 per annum for a life insurance and
disability  policy  for  the  benefit  of Dr.  Hilsenrath's  beneficiaries.  See
"Employment  and  Consulting  Agreements."

     (5) Base  Salary  was  increased  to  $110,000  as of  January  1, 1998

     (6)  Reflects  the  portion of the year  worked for  Labyrinth,  based on a
salary of $100,000.
    



<PAGE>
               AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>


====================================================================================================================================

(a)                              (b)                    (c)                      (d)                       (e)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                           Value of
                                                                                 Number of                 Unexercised
                                                                                 In-The-Money              Options/SAR's
                                                                                 Unexercised               at FY-End ($)
                                                                                 Options/SAR's             Exercisable/
                                 Shares Acquired on                              Exercisable/              Unexercisable (1)
                                 Exercise (#)           Value Realized ($)       Unexercisable             -----------------
                                 ------------           ------------             -------------
Name

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

<S>                                    <C>                      <C>              <C>                       <C>
Dr. Oliver Hilsenrath                  -                        -                1,500,000/0               1,215,000/0
====================================================================================================================================
------------------------------------------------------------------------------------------------------------------------------------

David Klarman                          -                        -                50,000/100,000            40,500/81,000
====================================================================================================================================

Dr. Mati Wax                           -                        -                50,000/50,000             40,500/40,500
------------------------------------------------------------------------------------------------------------------------------------

Abraham Bar                            -                        -                33,333/66,667             10,333/20,667
------------------------------------------------------------------------------------------------------------------------------------

Ravi Rajapakse                         -                        -                33,333/66,667             0/0
====================================================================================================================================
</TABLE>


     (1) Based upon the  closing  price for the Common  Stock on March 31,  1998
($2.81), as reported by a market maker.



<PAGE>
Employment and Consulting Agreements

         In April 1997, the Company amended the five year  employment  agreement
it entered into  originally  with Dr.  Hilsenrath in July 1996.  Pursuant to the
terms of the agreement as amended, Dr. Hilsenrath is Chief Executive Officer and
President  of the  Company  and was the  President  and  sole  Director  of both
Labyrinth and Mantra.  Dr. Hilsenrath remains the President and sole director of
Mantra. The agreement, as amended, provides for an annual salary of $160,000 and
increases of 15% per annum for each year  remaining  in the  original  five year
term. Upon execution,  the Company granted Dr.  Hilsenrath an option to purchase
1,500,000  shares of Common Stock at an exercise  price of $2.00 per share.  The
Company provides Dr. Hilsenrath with an automobile allowance.  In addition,  the
Company  shall  maintain  during  the full term  hereof and at its sole cost and
expense,  a life  insurance  policy  on Dr.  Hilsenrath  in the face  amount  of
$1,000,000 payable to his designee. This policy shall include provisions for the
payment of up to 18 months of salary to Dr.  Hilsenrath  in the event that he is
disabled.  Upon the conclusion of this agreement,  all right, title and interest
in  the  policy  shall  be  transferred  to Dr.  Hilsenrath,  and  he  shall  be
responsible  for any premiums due after such transfer.  The agreement  restricts
Dr.  Hilsenrath  from competing with the Company for a period of two years after
the  termination  of  his  employment.  The  agreement  provides  for  severance
compensation to be paid to Dr.  Hilsenrath if his employment with the Company is
terminated or if there is a decrease in his responsibilities or duties following
a change in control of the Company. The severance  compensation shall be made in
one payment equal to three times the aggregate annual  compensation  paid to Dr.
Hilsenrath  during the preceding  calendar year. In the event the Company wishes
to obtain Key Man life  insurance  on the life of Dr.  Hilsenrath,  he agrees to
cooperate  with the Company in completing any  applications  necessary to obtain
such  insurance and in promptly  submitting to such  physical  examinations  and
furnishing such information as any proposed insurance carrier may request.

         In August  1996,  the  Company  entered  into a three  year  employment
agreement with Mr. Klarman,  pursuant to which Mr. Klarman  receives a salary of
$120,000  per annum and was  granted  an option to  purchase  150,000  shares of
Common  Stock at an exercise  price of $2.00 per share,  subject to a three year
vesting  schedule.  The employment  agreement  provides that Mr. Klarman will be
General  Counsel and Secretary of the Company.  The agreement also  acknowledges
that Mr.  Klarman  shall  have the right to  represent  non-competing  companies
during the term of the agreement.

         In July  1996,  Dr.  Mati  Wax  entered  into a three  year  employment
agreement with the Company, pursuant to which Dr. Wax serves as Chief Technology
Officer  and  receives a salary of  $100,000  per annum,  the option to purchase
100,000 shares of Common Stock at an exercise price of $2.00 per share,  subject
to a three year  vesting  schedule.  As of January  1998 the Company and Dr. Wax
amended the employment  agreement in accordance  with the Company's  merger with
Labyrinth. The amended employment agreement provides for the exchange his 50,000
restricted  shares  of  Labyrinth's  common  stock  for  459,000  shares  of the
Company's Common Stock, subject to a vesting schedule. Additionally, the amended
agreement  provides for the  extension of the  agreement on a yearly basis until
the shares have vested. See "Business - Consolidation of Labyrinth Communication
Technologies Group, Inc."

         In July 1996, the Company entered into three year consulting agreements
with Ryburn  Limited and  Crossgar  Limited,  wherein said  companies  agreed to
render  services  in  introducing   the  Company  to  potential   customers  and
facilitating  relationships  with such  companies  in the United  States and the
Middle East,  initiating  strategic alliances and joint ventures,  and providing
investment  and  business  consulting  and  advisory  services  to the  Company,
including  the  location,  evaluation,  structuring  and  financing  of business
activities.  The  only  compensation  given  for the  services  rendered  by the
consultants is the five year options to purchase 1,000,000 and 200,000 shares of
Common  Stock at $2.00 per share,  granted by the Company to Ryburn  Limited and
Crossgar Limited, respectively.

<PAGE>
         In December  1996,  the Company  entered  into a three year  consulting
agreement with Dennis  Francis,  Vice President of Vanguard  Cellular  Financial
Corp.,  to provide  technical  assistance  in the  development  of the Company's
products.  Mr. Francis  received a five year option to purchase 50,000 shares of
Common Stock at $4.00 per share.

         In January 1997,  Ravi Rajapaske  entered into a three year  employment
agreement  with  Labyrinth.  The  agreement  was  amended  in January  1998,  in
accordance  with the merger of Labyrinth with and into the Company,  pursuant to
which the agreement was transferred to the Company and Mr. Rajapakse became Vice
President of Software Design.  Mr.  Rajapakse  receives a salary of $100,000 per
annum,  and was granted an option to purchase  100,000 shares of Common Stock at
an exercise price of $4.00 per share,  subject to a three year vesting schedule.
The  amended  employment  agreement  provides  for the  exchange  of his  20,000
restricted  shares  of  Labyrinth's  common  stock  for  183,600  shares  of the
Company's Common Stock, subject to a vesting schedule. Additionally, the amended
agreement  provides for the  extension of the  agreement on a yearly basis until
the shares have vested. See "Business - Consolidation of Labyrinth Communication
Technologies Group, Inc."

         In October  1996,  Abraham  Bar  entered  into a three year  employment
agreement  with  Labyrinth.  The  agreement  was  amended  in January  1998,  in
accordance  with the merger of Labyrinth with and into the Company,  pursuant to
which the  agreement  was  transferred  to the  Company  and Mr. Bar became Vice
President of Hardware  Design.  Mr. Bar receives a salary of $110,000 per annum,
and was  granted  an option to  purchase  100,000  shares of Common  Stock at an
exercise price of $2.50 per share, subject to a three year vesting schedule. The
amended  employment  agreement  provides for the exchange his 25,000  restricted
shares of Labyrinth's  common stock for 229,500  shares of the Company's  Common
Stock,  subject  to a vesting  schedule.  Additionally,  the  amended  agreement
provides for the  extension of the  agreement on a yearly basis until the shares
have  vested.   See  "Business  -  Consolidation   of  Labyrinth   Communication
Technologies Group, Inc."

         In January  1997,  the  Company  entered  into a three year  consulting
agreement  with  Spencer  Corporation,  wherein  said  company  agreed to render
services in Europe to  facilitate  relationships  with  potential  customers and
initiate strategic  alliances and to provide investment and business  consulting
and  advisory  services to the  Company,  including  the  location,  evaluation,
structuring and financing of business  activities.  The only compensation  given
for the services  rendered by the  consultant  is a five year option to purchase
100,000 shares of Common Stock at $2.50 per share.

     On  August  12,  1997,  the  Company  entered  into a two  year  consulting
agreement  with  DAEHO  Merchandising  Inc.,  Seoul,  Korea,  whereby  DAEHO was
retained to perform consulting  services including (i) introducing,  initiating,
and  engaging  in the  process  of  facilitating  relationships  with  potential
customers  and  strategic  partners  and  (ii)  initiating  and  coordinating  a
manufacturing  effort  for the  RadioCamera  in Asia.  As  compensation  for the
services rendered, DAEHO will receive a commission, in cash or in kind, based on
any consummated  transactions as referred to in (i) above,  and 3% of the actual
price paid by the Company for the manufacture of each  RadioCamera  purchased by
the Company in accordance with (ii) above.

Senior Management Incentive Plan

     In  December  1997,  the Board of  Directors  and the  stockholders  of the
Company 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 to the Company.

     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 the Company will have at its disposal in rewarding  Executive
Officers,  key employees and consultants who render significant  services to the
Company.  Pursuant to the  Management  Plan,  the Board of Directors  intends to
offer to such persons equity ownership in the Company through the grant of stock
options and other rights,  to enable the Company to attract and retain qualified
personnel  without  unnecessarily  depleting the Company's  cash  reserves.  The
Management  Plan is  designed  to augment the  Company's  existing  compensation
programs  and is intended to enable the Company to offer a personal  interest in
the Company's growth and success through awards of either shares of Common Stock
or rights to acquire shares of Common Stock.

                                       
<PAGE>
     The  Management  Plan is  intended  to attract  and  retain  key  executive
management  personnel whose performance is expected to have a substantial impact
on the  Company's  long-term  profit and growth  potential  by  encouraging  and
assisting  those  persons to acquire  equity in the Company.  A total of 500,000
shares of 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 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 employee of the Company
who is also a Director  of the Company  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 ") 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,  the  Company  has 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 a 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 would  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 the  Company  will  not be
eligible for  participation in the Management Plan. The Management Plan provides
for four  types  of  awards:  stocks  options,  incentive  stock  rights,  stock
appreciation rights (including limited stock appreciation rights) and restricted
stock purchase agreements.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                           AND MANAGEMENT

         The  following  table sets forth  information  as of June 30, 1998 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including  any  "group"  as  that  term  is used  in  Section  13(d)(3)  of the
Securities  Exchange Act of 1934, as amended) known by the Corporation to be the
owner of more  than 5% of the  outstanding  shares of  Common  Stock;  (ii) each
Director;  and  (iii) all  Officers  and  Directors  as a group.  At that  date,
11,823,331 shares of Common Stock were outstanding.






<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------

Name and  Address                               Amount and Nature of                   % of outstanding
of Beneficial Owner                             Beneficial Ownership (1)               shares owned (2)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                                         <C>
Dr. Oliver Hilsenrath (3)
c/o U.S. Wireless Corp.                                 5,732,880(1)                                43.0%
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
--------------------------------------------------------------------------------------------------------------------------
David Tamir (4)
c/o U.S. Wireless Corp.                                     33,334                                     *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
--------------------------------------------------------------------------------------------------------------------------
Barry West (5)
c/o U.S. Wireless Corp.                                         --                                     *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
--------------------------------------------------------------------------------------------------------------------------
Dennis Francis (6)
c/o U.S. Wireless Corp.                                     50,000                                     *
2303 Camino Ramon, Suite 213
San Ramon, CA 94583
--------------------------------------------------------------------------------------------------------------------------
Janvrin Holdings Limited(7)
Jardine House                                              918,000                                   7.8%
1 Wesley Street
St. Helier, Jersey
JE4 8UD
--------------------------------------------------------------------------------------------------------------------------
Officers and Directors as a group
(4 persons) (1) - (6)                                    6,788,316                                  57.0%
--------------------------------------------------------------------------------------------------------------------------
         -------------------
</TABLE>

         *Less than 1%.

     (1) Unless otherwise noted, all of the shares shown are held by individuals
or entities  possessing  sole voting and  investment  power with respect to such
shares.  Shares not outstanding but deemed  beneficially  owned by virtue of the
right of a person to acquire  them  within 60 days,  whether by the  exercise of
options or warrants,  are deemed outstanding in determining the number of shares
beneficially owned by such person or group

     (2) The  "Percentage  Beneficially  Owned" is  calculated  by dividing  the
"Number of Shares  Beneficially  Owned" by the sum of (i) the total  outstanding
shares  of Common  Stock of the  Corporation,  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 Beneficially Owned" 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.

(footnotes continued from previous page)

     (3) Includes  1,500,000 shares of Common Stock,  issuable upon the exercise
of an option  granted  pursuant to Dr.  Hilsenrath's  employment  agreement  and
1,982,880   shares  issued  in  connection   with  the  merger  with   Labyrinth
Communication  Technologies  Group,  Inc.,  subject to a vesting  schedule.  See
"Certain Relations and Related Transactions."

<PAGE>
     (4) Includes shares issuable upon the exercise of options  currently vested
and exercisable,  equal to 1/3 of the options  granted.  The options vest at 1/3
intervals per year.

     (5) Does not include  100,000  shares  issuable upon the grant of an option
which  option  vested  at the rate of 1/3 per  annum,  no  portion  of which has
vested.

     (6)  Represents  shares  issuable  upon the  exercise of options  currently
vested and exercisable.

     (7) Includes  1,830,000 shares which have vested and 734,400 shares subject
to a vesting schedule in connection with the merger with Labyrinth Communication
Technologies Group, Inc.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

General

         In June 1996,  the  Corporation's  Board of Directors,  pursuant to the
consent of the then majority  stockholder of the  Corporation,  distributed  the
shares  of  common  stock  of  Playco  held by the  Corporation  ("the  spin-off
distribution"). In addition, the Corporation, as majority stockholder of Playco,
prior to, but in  contemplation  of the spin-off  distribution,  authorized  the
conversion of Playco's Series D Preferred  Stock owned by the  Corporation  into
1,157,028  shares of Playco's  common stock.  This  conversion  was based on the
average  closing bid price ($1.21) of Playco's shares for the 90 day period from
March 1, 1996 to May 31, 1996.

Merger of Labyrinth

         In March 1998 the  Corporation  consummated the merger of its 51% owned
subsidiary, Labyrinth Communication Technologies Group, Inc. ("Labyrinth"), into
the Corporation.  In December 1997, the stockholders of the Corporation approved
a proposal  to  acquire  the  remaining  49% of  Labyrinth  in  exchange  for an
aggregate of 4,498,200 shares of the  Corporation's  Common Stock,  subject to a
vesting schedule,  as follows:  (i) 20% of the shares issued shall vest one year
from issuance;  (ii) an additional 40% shall vest upon the successful completion
and  operation  of the  RadioCamera  in its first  major  market;  and (iii) the
remaining 40% shall vest when the Corporation  reaches sales of $15,000,000.  In
addition to the above vesting  schedule,  the management of Labyrinth is subject
to  an  additional  vesting  schedule,   in  accordance  with  their  employment
contracts, whereby the shares underlying (i)-(iii) above vest at the rate of 1/3
each year.

   
         See "Executive Compensation-Employment and Consulting Agreements" for a
discussion of the  compensation  arrangements the Company has with its Executive
Officers and consultants.
    
<PAGE>
                                     PART IV

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

         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.

 <TABLE> 
<CAPTION>

<S>                        <C> 
2.1               -        Stock Purchase Agreement Among the Company, Labyrinth Communications Technologies Group, Inc., dated
                              July 10, 1996  (incorporated  by  reference to the
                           indicated  exhibit  in the  Company's  Form 8-K dated
                           July 11, 1996).
2.2               -        Stock Purchase Agreement Among the Company, Mantra Technologies, Inc., and by reference to the indicated
                              exhibit in the Company's Form 8-K dated July 11, 1996).
3.1               -        Certificate of Incorporation of the Company filed February 12, 1993. (incorporated by reference to the
                              indicated exhibit in the Company's SB-2 Registration Statement File No. 33-68306-NY )
   
3.2               -        Amended and Restated Certificate of Incorporation of the Company filed on August 25, 1993. (incorporated
                              by reference to the indicated exhibit in the Company's SB-2 Registration Statement File No.
                              33-68306-NY)
3.4               -        By-Laws of the Company. (incorporated by reference to the indicated exhibit in the Company's SB-2
                              Registration Statement File No. 33-68306-NY)
3.5               -        Specimen Common Stock Certificate.
3.6*              -        Form of Series A Preferred Stock.
3.7*              -        Amended Certificate of Incorporation dated June 25, 1998.
4.7               -        Form of Option from Stockholders of Mantra Technologies, Inc., dated July 10, 1996  (incorporated by
                              reference to the indicated exhibit in the Company's Form 8-K dated July 11, 1996).
10.41             -        The 1993 Stock Option Plan  (incorporated by reference to the indicated exhibit in the Company's SB-2
                              Registration Statement File No. 33-68306-NY)
10.74             -        Form of Employment Agreement with Dr. Oliver Hilsenrath (incorporated by reference to the indicated 
                              exhibit in the Company's Form 8-K dated July 11, 1996).
10.75             -        Form of Stockholders Agreement for Labyrinth (incorporated by reference to the indicated exhibit in the 
                              Company's Form 8-K dated July 11, 1996).
10.76             -        S & S Engineering agreement. (incorporated by reference to the indicated exhibit in the Company's Form
                              10-KSB filed for the year ended March 31, 1997).
10.77             -        Amended Employment Agreement with Dr. Oliver Hilsenrath. (incorporated by reference to the indicated
                              exhibit in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.78             -        Employment Agreement with David Klarman (incorporated by reference to the indicated exhibit in the
                              Company's Form 10-KSB filed for the year ended March 31, 1997).
10.79             -        Employment Agreement with Dr. Mati Wax. (incorporated by reference to the indicated exhibit in the
                              Company's Form 10-KSB filed for the year ended March 31, 1997).
    
10.79(a)*         -        Amended Employment Agreement with Dr. Mati Wax.
   
10.81             -        Consulting Agreement with Dennis Frances. (incorporated by reference to the indicated exhibit in
                              the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.82             -        Consulting Agreement with Spencer Corporation. (incorporated by reference to the indicated exhibit in the
                              Company's Form 10-KSB filed for the year ended March 31, 1997).
10.83             -        Consulting Agreement with Ryburn Limited. (incorporated by reference to the indicated exhibit in the
                              Company's Form 10-KSB filed for the year ended March 31, 1997).
10.84             -        Consulting Agreement with Crossgar Limited. (incorporated by reference to the indicated exhibit in the
                              Company's Form 10-KSB filed for the year ended March 31, 1997).
10.85             -        Consulting Agreement with Pelican Investments Limited. (incorporated by reference to the indicated
                              exhibit in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.86             -        Consulting Agreement with DAEHO Merchandising, Inc. (incorporated by reference to the indicated exhibit
                              in the Company's Form 10-KSB filed for the year ended March 31, 1997).
10.87*            -        Amended Employment Agreement with Ravi Rajapakse
10.88*            -        Amended Employment Agreement with Abraham Bar
27.01*            -        Financial Data Schedule.
    

</TABLE>
<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 9th day of July, 1998.     


                                                       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                                   July 9, 1998
Dr. Oliver Hilsenrath                                         President and Director                                    Dated



\s\  David Tamir                                              Director                                                  July 9, 1998
David Tamir                                                                                                             Dated
    


\s\  Dennis Francis                                           Director                                                  July 9, 1998
Dennis Francis                                                                                                          Dated


   
\s\  Barry West                                               Director                                                  July 9, 1998
Barry West                                                                                                              Dated
    
</TABLE>




<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES


                                Table of Contents


<TABLE>
<CAPTION>

                                                                                                               Page


<S>                                                                                                               <C>
Report of Independent Certified Public Accountants                                                            F - 2

Consolidated Balance Sheets                                                                                   F - 3

Consolidated Statements of Operations                                                                         F - 4

Consolidated Statements of Stockholders' Equity                                                               F - 6

Consolidated Statements of Cash Flows                                                                         F - 8

Notes to Consolidated Financial Statements                                                                   F - 12


</TABLE>


                                       F-1


<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  sheets  of U.S.
Wireless  Corporation and Subsidiaries  (the "Company") as of March 31, 1998 and
1997 and the related consolidated statements of operations, stockholders' 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  generally  accepted  auditing
standards. Those standards require that we plan and perform the audits 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,
1998 and 1997,  and the  results  of its  operations  and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.







HASKELL & WHITE LLP
Certified Public Accountants



Newport Beach, California

     June 5, 1998, except for Note 11 which is as of June 25, 1998



                                      F - 2



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                                              March 31,
                                                                                                          1998        1997
                                                                                                     --------------- ----------
Current assets

<S>                                                                                                   <C>             <C>         
     Cash and cash equivalents ....................................................................   $  2,285,750    $  5,328,781
     Other current assets .........................................................................           --             3,500
         Total current assets .....................................................................      2,285,750       5,332,281


Equipment, improvements and fixtures, net .........................................................        399,896         281,211
Other assets ......................................................................................         25,035           4,667
                                                                                                      ------------    ------------
         Total assets .............................................................................   $  2,710,681    $  5,618,159
                                                                                                     ============    ============
</TABLE>

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                                March 31,

                                                                                                              1998            1997
                                                                                                      ------------    ------------
Current liabilities
<S>                                                                                                   <C>             <C>
     Accounts payable and accrued expenses ........................................................   $    252,708    $    140,550
     Obligations under capital leases, current ....................................................         15,192          25,238
                                                                                                      ------------    ------------
         Total current liabilities ................................................................        267,900         165,788
Obligations under capital leases, noncurrent ......................................................         39,118          45,427
                                                                                                      ------------    ------------
         Total liabilities ........................................................................        307,018         211,215
                                                                                                      ------------    ------------



Minority interest in subsidiaries .................................................................        195,305       1,529,534
                                                                                                      ------------    ------------
Commitments and contingencies (Note 9)

Stockholders' equity
 Common stock,  $.01 par value,  40,000,000  shares  authorized,  11,823,444 and
   10,031,250 shares issued and outstanding, respectively; 3,715,421 of
   which are subject to vesting at March 31, 1998 (Note 4) ........................................        118,234         100,312
     Additional paid-in capital ...................................................................     19,912,890      20,493,262
     Unearned compensation ........................................................................       (761,438)     (1,277,918)
     Stock subscription receivable ................................................................           --        (1,569,483)
     Accumulated deficit ..........................................................................    (17,061,328)    (13,868,763)
                                                                                                      ------------    ------------

         Total stockholders' equity ...............................................................      2,208,358       3,877,410
                                                                                                      ------------    ------------

         Total liabilities and stockholders' equity ...............................................   $  2,710,681    $  5,618,159
                                                                                                      ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F - 3
<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations
                   For the Years Ended March 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                             1998           1997
                                                             -----------    ----------

<S>                                                          <C>            <C>
Net sales ................................................   $      --      $      --
                                                             -----------    -----------
Cost and expenses

     Research and development, including write-off of
         excess of cost over net assets acquired .........     2,220,767      2,656,371
     Operating expenses ..................................     1,372,315      1,051,822
     Stock based compensation ............................       642,797      1,335,535
     Interest income .....................................      (199,222)      (137,152)
                                                             -----------    -----------
         Total costs and expenses ........................     4,036,657      4,906,576
                                                             -----------    -----------
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 ......................    (4,036,657)    (4,906,576)
Minority interest in net losses of continuing subsidiaries       844,092         22,466
                                                             -----------    -----------
Loss before income tax (expense) benefit,
     discontinued operations and cumulative
     effect of a change in accounting principle ..........    (3,192,565)    (4,884,110)
Income tax (expense) benefit .............................          --             --
Loss before discontinued operations and
     cumulative effect of a change in accounting principle    (3,192,565)    (4,884,110)
                                                             -----------    -----------
Discontinued operations (Note 2)
     Loss from operations of Playco prior to spin-off ....          --         (725,380)
     Loss on disposal of Playco ..........................          --         (284,932)
         Total discontinued operations ...................          --       (1,010,312)
Loss before cumulative effect of change in accounting
     principle ...........................................    (3,192,565)    (5,894,422)
Cumulative effect of a change in accounting principle ....          --         (459,435)
                                                             -----------    -----------
Net loss .................................................   $(3,192,565)   $(6,353,857)
                                                             ===========    ===========

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



                                      F - 4



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations
                   For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
                                                                          1998                1997
                                                                          ---------------    ----------



Basic and diluted loss per common equivalent share
     Loss before discontinued operations and
<S>                                                            <C>                        <C>
     cumulative effect of a change in accounting principle     $         (0.37)           $  (0.66)
     Discontinued operations .............................                --                 (0.13)
     Cumulative effect of a change in accounting principle                --                 (0.06)
                                                               -----------------        -----------
     Net loss per common equivalent share ................     $         (0.37)           $  (0.85)
                                                               =================        =============
     Weighted average number of common shares outstanding            8,580,354             7,443,419
                                                               =================        =============
Pro forma amounts assuming the new minority
     interest accounting method is applied retroactively
     Net loss ............................................     $    (3,192,565)$          (5,894,422)
                                                               =================        =============
     Basic and diluted loss per common share .............     $         (0.37)           $  (0.79)
                                                               =================        =============
</TABLE>




          See accompanying notes to consolidated financial statements.



                                      F - 5



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity
                   For the Years Ended March 31, 1998 and 1997

<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>
Balances at April 1, 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)
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
</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F - 6



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity
                   For The Years Ended March 31, 1998 and 1997
<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>
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, March 31, 1997 ....     10,031,250         100,312  20,493,262   (1,277,918)   (1,569,483)    (13,868,763)      3,877,410
Reacquisition of common
  stock upon return of MCII
  shares ....................     (2,706,006)        (27,060) (1,542,423)     --          1,569,483        --                --
Amortization of unearned
  compensation ..............           --              --          --        516,480         --           --               516,480
Issuance of common stock
  options for compensation ..           --              --       126,316      --              --           --               126,316
Acquisition of minority
  interest (Note 4) .........      4,498,200          44,982     835,735      --              --           --               880,717
Net loss for the year ended
  March 31, 1998 ............           --              --          --        --              --         (3,192,565)     (3,192,565)
Balances, March 31, 1998 ....     11,823,444       $ 118,234  $19,912,890  $(761,438)     $   --       $(17,061,328)   $  2,208,358
                                ============    ============  ============ ============   ============ ============    ============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                      F - 7



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                   For the Years Ended March 31, 1998 and 1997
                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                      1998           1997
                                                                      ------------   ----------
Cash flows from operating activities
<S>                                                                   <C>            <C>
     Net loss .....................................................   $(3,192,565)   $(6,353,857)
     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
         Depreciation and amortization ............................       231,150         25,023
         Write-off of excess of cost over net assets acquired .....       476,552      2,250,000
         Minority interest in net losses of continuing subsidiaries      (844,092)       (22,466)
         Amortization of unearned compensation ....................       516,480           --
         Issuance of common stock for compensation and
           services ...............................................          --          604,000
         Issuance of common stock options for compensation
           and services ...........................................       126,316        731,535
         Write-down of stock subscription receivable ..............          --          230,517
         Increase (decrease) from change in assets and liabilities:
           Other current assets ...................................         3,500         (3,500)
           Deposits and other assets ..............................       (20,368)        (4,667)
           Accounts payable and accrued expenses ..................       112,158        140,550
           Other ..................................................       (85,972)          --
           Decrease in net assets of discontinued
              operations ..........................................          --       (1,404,294)
                 Net cash used for operating activities ...........    (2,676,841)    (2,337,412)
                                                                      -----------    -----------
Cash flows from investing activities
     Equipment, improvements and fixtures acquired ................      (339,465)      (229,027)
     Equipment, improvements and fixtures acquired
       by discontinued operations .................................          --         (159,193)
                  Net cash used for investing activities ..........      (339,465)      (388,220)
                                                                      -----------    -----------
</TABLE>



          See accompanying notes to consolidated financial statements.



                                      F - 8



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                   For the Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>

                                                                      1998           1997
                                                                     -----------   ----------
Cash flows from financing activities
<S>                                                                      <C>
     Principal repayments on obligations under capital leases ....       (26,725)          --
     Repayment to stockholders ...................................          --         (381,430)
     Proceeds from issuance of common stock ......................          --        6,398,483
     Net cash provided by financing activities of discontinued
       operations ................................................          --        1,962,179
                  Net cash (used) provided by financing activities       (26,725)     7,979,232
                                                                     -----------    -----------


Net (decrease) increase in cash ..................................    (3,043,031)     5,253,600
Cash and cash equivalents at beginning of year ...................     5,328,781         75,181
                                                                     -----------    -----------
Cash and cash equivalents at end of year .........................   $ 2,285,750    $ 5,328,781
                                                                     ===========    ===========
Supplemental disclosure of cash flow information:
     Interest paid ...............................................   $      --      $   166,453
     Income taxes paid ...........................................   $      --      $      --
Schedule of non-cash investing and financing activities:
</TABLE>

     As discussed in Note 4, the Company  acquired the 49% minority  interest in
Labyrinth   Communications   Technology  Group,  Inc.  during  fiscal  1998.  In
connection  with the  acquisition,  the Company  issued 782,779 vested shares of
common stock. An additional  3,715,421 shares of common stock are held in escrow
pending vesting requirements.  During the year ended March 31, 1998, the Company
issued  594,000  stock  options  to  employees  and  200,000  stock  options  to
consultants.   In  connection  with  these   issuances,   the  Company  recorded
compensation  expense of $10,572 and  $115,744,  respectively.  During the years
ended  March 31, 1998 and 1997,  the Company  entered  into  capital  leases for
equipment that totaled $10,370 and $70,665, respectively.

          See accompanying notes to consolidated financial statements.



                                      F - 9



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                   For the Years Ended March 31, 1998 and 1997

Schedule of non-cash investing and financing activities (continued):

     As  discussed  in Note 10, the Company  exchanged  3,106,005  shares of its
common stock for 400,000  shares of Multimedia  Concepts  International,  Inc.'s
common stock.  During the fiscal year 1998, 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  as of March 31, 1997 and an expense of $230,517 in fiscal
1997.

     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  in fiscal year 1997.  During
fiscal year ended March 31,  1998,  the Company  amortized  $516,480 of unearned
compensation.

     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)

     As  discussed  in  Note  1,  in  connection  with  the  Company's  original
acquisition of a 51% interest in Labyrinth  Communications  Technologies  Group,
Inc., the Company issued  2,250,000 shares of common stock during the year ended
March 31, 1997.

     See accompanying notes to consolidated financial statements.



                                     F - 10



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                   For the Years Ended March 31, 1998 and 1997

Schedule of non-cash investing and financing activities:

     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.

          See accompanying notes to consolidated financial statements.



                                     F - 11



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                   For the Years Ended March 31, 1998 and 1997

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 4).

         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 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 modification for the Internet and other databases.

         Prior to the acquisitions of Labyrinth and Mantra,  the Company,  which
         was formerly known as American Toys, Inc., was the majority stockholder
         of Playco 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-12



<PAGE>
2.       Summary of Significant Accounting Policies

         a)       Consolidated financial statements

                  The consolidated financial statements for the year ended March
31,  1998,  include  the  accounts of the  Company,  Labyrinth  and Mantra.  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. 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 the year ended March
31, 1997. There are no net assets related to Playco included in the accompanying
consolidated balance sheet as of, or since, March 31, 1997.

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

Net sales .................................   $ 5,024,338
Costs and expenses ........................     6,170,999
Interest expense ..........................       238,171
Net loss before minority interest in losses    (1,384,832)
Minority interest in losses ...............       374,520
Loss from discontinued operations .........   $(1,010,312)
                                              ===========

         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 is
provided using the  straight-line  method over the estimated useful lives of the
related assets, which is two to five years.  Maintenance and repairs are charged
to operations as incurred.

2.       Summary of Significant Accounting Policies (continued)

         e)       Income taxes

     The Company  accounts  for income  taxes in  accordance  with  Statement of
Financial  Accounting Standards ("SFAS") 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 ("FASB") issued
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 adopted the "disclosure  only"
requirements of SFAS No. 123 in fiscal year 1997.



<PAGE>
         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 either of the years ended March 31, 1998 and
1997.

         h)       Net loss per share

     During the three-month  period ended December 31, 1997, the Company adopted
the  provisions  of SFAS No. 128,  "Earnings  Per  Share,"  which  requires  the
disclosure of "basic" and "diluted"  earnings  (loss) per share.  Basic earnings
(loss)

2.       Summary of Significant Accounting Policies (continued)

     per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding  during each period.  Diluted earning (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 or warrants and the  conversion  of preferred  stock,  as if they had been
issued.

     The  financial  statements  for the year  ended  March  31,  1997 have been
restated to reflect the effects of SFAS No. 128. However,  for both of the years
ended March 31, 1998 and 1997, there is no difference  between basic and diluted
loss per common share as the effects of the exercise of common stock options 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 for both
years.

         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.

         j)       Concentration of credit risk

     As of March 31, 1998 and 1997,  the  Company had amounts on deposit  with a
financial  institution  that exceeded the federally  insured limit by $1,519,478
and $3,047,096, respectively.

         k)       Recent accounting pronouncements

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income."  This  statement  establishes  standards  for  reporting and display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in an  entity's  financial  statements.  This  statement  requires  an entity to
classify  items of other  comprehensive  income by their  nature in a  financial
statement  and display the  accumulated  balance of other  comprehensive  income
separately from retained earnings and additional  paid-in-capital  in the equity
section of a statement of financial  position.  This  pronouncement is effective
for fiscal years  beginning  after December 15, 1997 and the Company  expects to
adopt the provision of this statement in fiscal year 1999.  Management  does not
expect  this  statement  to   significantly   impact  the  Company's   financial
statements.



<PAGE>
2.       Summary of Significant Accounting Policies (continued)

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an  Enterprise  and  Related   Information."   This  statement  requires  public
enterprises  to  report  financial  and  descriptive   information  about  their
reportable operating segments and establishes  standards for related disclosures
about  product  and  services,  geographic  areas,  and  major  customers.  This
pronouncement  is effective for fiscal years  beginning  after December 15, 1997
and the Company expects to adopt the provisions of this statement in fiscal year
1999.  Management  does not expect this  statement to  significantly  impact the
Company's financial statements.

3.       Change In Accounting Principle

     During the first  quarter of the year ended  March 31,  1997,  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.

4.       Acquisition of Minority Interest

     In January 1998,  the Company  submitted  Exchange  Offer  Agreements  (the
"Exchange Offer") to the stockholders  representing the 49% minority interest in
Labyrinth.  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 are 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
Labyrinth's primary product in a major market.

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

     In accordance  with the provisions of Accounting  Principles  Board ("APB")
Opinion  No. 16, and  interpretations  thereof,  this  acquisition  of  minority
interest has been accounted for using the purchase  method of accounting.  As of
March 31, 1998, 782,779 shares of the

4.       Acquisition of Minority Interest (Continued)

     Company's  common stock have vested,  as defined by the Exchange Offer, and
have been issued to the former Labyrinth  stockholders.  The remaining 3,715,421
shares of the Company's common stock provided for in the Exchange Offer have not
yet  vested  and are  currently  held in  escrow  until  vested.  Shares  of the
Company's  common stock that do not vest shall be cancelled  and returned to the
Company's treasury as unissued common stock.

     In connection with the acquisition  described  above,  the Company expensed
$476,552  during  the year  ended  March 31,  1998 as the cost over basis of net
assets  acquired  which  has  been   characterized  as  purchase   research  and
development  costs given the on-going  research and  development  activities  of
Labyrinth.  Such was  determined  as the  amount by which the fair  value of the
Company's common stock vested and issued to Labyrinth  stockholders,  determined
by management to be $996,460,  exceeded the minority  interest in the net equity
of Labyrinth on the date of acquisition of $519,908.



 
     When and if events (ii) and (iii)  detailed in the vesting  schedule  above
occur and additional  shares of the Company's common stock become vested and are
issued to the former Labyrinth stockholders,  the Company will record additional
noncash  charges to earnings  equal to the fair value of such shares on the date
of their  release,  which may have the effect of  significantly  increasing  the
Company's net loss or reducing or eliminating earnings, if any, at such time.

5.       Equipment, Improvements and Fixtures


<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                   For the Years Ended March 31, 1998 and 1997

         Equipment,   improvements  and  fixtures,  net  are  comprised  of  the
following at March 31:

                                                  1998          1997
                                                 ---------    ----------
Furniture, fixtures and equipment ............   $ 649,544    $ 299,692
Less accumulated depreciation and amortization    (249,648)     (18,481)
                                                 ---------    ---------
                                                 $ 399,896    $ 281,211
                                                 =========    =========


     Equipment, improvements and fixtures include equipment under capital leases
of $81,035 and $70,665 and  accumulated  amortization  of $24,419 and none as of
March 31, 1998 and 1997, respectively.


                                      F-13



<PAGE>
                   U.S. WIRELESS CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                   For the Years Ended March 31, 1998 and 1997


6.       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:  1998
1997

Federal   statutory   income  tax  (benefit)  rate  (34.0)%  (34.0)%   Increases
(decreases) resulting from:

     Non-deductible expenses ..............      5.4      6.7
     Net change in valuation allowance ....     28.6     27.3
                                              ----     ----
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, 1998 and 1997 are as
follows: 

<TABLE> 
<CAPTION>

                                                         1998                1997
                                                      ---------------    ----------

<S>                                                      <C>            <C>
Depreciation and amortization ........................   $   (12,990)   $   (15,639)
Net operating loss carryforwards .....................     1,475,163      1,192,326
Unearned compensation ................................       343,344        542,479
Valuation allowance ..................................    (1,805,517)    (1,719,166)
                                                         -----------    -----------

Long-term portion of deferred tax assets (liabilities)   $      --               $-
                                                         ===========    ===========
</TABLE>

     At March 31, 1998 and 1997, the deferred tax assets and liabilities  result
from the Company,  Labyrinth and Mantra.  The Company has federal and state NOLs
at March 31, 1998  approximating  $3,900,000 and $2,593,000,  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, 1998 and 1997, 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.

     The  Company,  Labyrinth  and Mantra  currently  file  separate  income tax
returns.  However, a short-year,  consolidated income tax return for the Company
and  Labyrinth  will be filed in the current year to reflect the purchase of the
minority interest in Labyrinth (Note 4).

7.       Stockholders' Equity

         a)       Sale of shares

     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.

<PAGE>
     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.

8.       Stock Options

     During the years ended March 31, 1998 and 1997,  the Company  issued common
stock options to its employees and to various  consultants  performing  services
for the Company.  Options granted to employees  generally vest over three years,
expire five years from the date of grant and have exercise  prices  ranging from
$2 to $5 per share.  Options granted to consultants  generally vest immediately,
expire five years from the date of grant and have exercise  prices  ranging from
$2 to $4.25 per share. The number of options issued and outstanding at March 31,
1998 are as follows:

Options outstanding, beginning of period    4,073,500
Granted ................................      794,000
Canceled ...............................     (118,500)
Exercised ..............................         --

Options outstanding, end of period .....    4,754,000

Options exercisable, end of period .....    2,593,986

8.       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.  During the year ended March 31,
1998, amortization of unearned compensation amounted to $516,480.

     Compensation expense 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 stock option  issued by the Company,  whichever is more
reliably  measurable.  During  fiscal  1998 and  1997,  $115,744  and  $460,000,
respectively,  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
$1,945,114 and $751,226 in related compensation  expenses during the years ended
March  31,  1998 and  1997,  respectively.  The pro  forma  net loss  under  the
provisions of SFAS No. 123 is $(5,137,679)  and  $(7,105,083)  and the pro forma
basic and diluted net loss per common  share is $(0.67) and $(0.95) for the year
ended March 31, 1998 and 1997, respectively.

<PAGE>
     The pro-forma information provided above was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:

                               1998       1997
                              -----    -------
Expected life (in years)       5.00      5.00
Risk free interest rate        6.50%     7.00%
Volatility .............      99.00%   175.00%
Dividend yield .........       0.00%     0.00%

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully transferable.  Because the Company's options have  characteristics
significantly different from those of trading options,  management believes that
the existing pricing models do not necessarily provide a reliable single measure
of the fair value of its  options.  In December  1997,  the Company  adopted the
Senior Management Incentive Plan (the "Pl "). 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.  Awards made  pursuant to the Plan will  generally  vest over three
year  periods.  As of March 31, 1998, no stock options or other rights have been
issued under the Plan.

9.       Commitments and Contingencies

         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
$20,368 and expires in January 2003. At March 31, 1998, aggregate future minimum
lease payments due under this lease are as follows:

                           March 31,
         1999     $        244,416
         2000              244,416
         2001              244,416
         2002              244,416
         2003              183,312
                  ----------------

         Total minimum lease payments       $        1,160,976


     Rent expense was $153,393  and $75,173,  respectively,  for the years ended
March 31, 1998 and 1997.

         b)       Capital leases

     The Company leases various equipment under  non-cancelable  capital leases.
Minimum  monthly rental  payments on capital leases range from $88 to $2,011 and
the related  leases expire at various  dates  through  August 2001. At March 31,
1998,  aggregate  future  minimum lease payments due under capital leases are as
follows:

                                                   March 31,
                                                   1999     $        34,486
                                                   2000              31,451
                                                   2001               2,714
                                                                     68,651
         Less amounts representing interest                         (14,341)
                                                            ----------------
         Total future minimum lease payments, net                    54,310
         Less current portion due within one year                   (15,192)
                                                            ----------------
         Noncurrent portion of obligation 
               under capital leases                          $        39,118
                                                             ===============




<PAGE>
9.       Commitments and Contingencies (continued)

         (c)      Year 2000

     The  Company  does not  believe  that the impact of the year 2000  computer
issue will have a significant  impact on its  operations or financial  position.
Furthermore,  the  Company  does  not  believe  that  it  will  be  required  to
significantly  modify its internal computer systems or products  currently under
development.  However,  if  internal  systems do not  correctly  recognize  date
information  when the year changes to 2000, there could be adverse impact on the
Company's  operations.  Furthermore,  there  can be no  assurance  that  another
equity's failure to ensure year 2000 capability would not have an adverse effect
on the Company.

10.      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, 1998.  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 Mantra.

     The Company  also has  three-year  employment  agreements  with its General
Counsel,  Chief Technology Officer,  Vice President of Hardware  Engineering and
Vice President of Software  Development.  Such agreements provide for individual
minimum annual salaries that range between $100,000 and $120,000 and provide for
an aggregate of 450,000 options to purchase shares of the Company's common stock
at $2.00 to $2.50 per share.  The options vest over three-year  periods and have
five-year lives. As of March 31, 1998, no options have been exercised.

     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 7.a) all such options  were  exercised  during the year ended
March 31, 1997.

10.      Related Party Transactions (continued)

         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 400,000  shares of common
stock of Multimedia Concepts International, Inc. ("MCII"). During July 1996, EVC
exercised  its option and  acquired  3,106,005  shares in  exchange  for 400,000
shares of common stock of MCII.

     During  the year  ended  March 31,  1998,  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.  Accordingly, as of March 31, 1997, the
Company 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  expensed  $230,517 in fiscal 1997 for the shares of
common stock that were not returned.



<PAGE>
11.      Subsequent Events

         a)       Convertible Secured Debentures

     In  May  1998,  the  Company  issued  $2,500,000  in  convertible   secured
debentures.  The debentures  were due to mature on the earlier of (i) August 21,
1998, subject to two automatic thirty day extensions,  (ii) upon consummation of
an offering (as defined) or (iii) an incurred  event of default as defined.  The
debentures  do not  accrue  interest  except,  in the  event the  second  30-day
extension  described above occurs,  the debentures  shall accrue interest at the
rate of 6% per annum. Such interest, if any, is payable at maturity. The Company
may prepay all or a portion of the outstanding principal and interest amounts at
any  time.  The  debentures  are  collateralized  by  substantially  all  of the
Company's  assets.  Upon  maturity as  reflected  in (i) or (ii) the  debentures
automatically  convert into either shares of the Company's  Common Stock or such
other security as the Company issues in its private  offering,  at the option of
the holder.  In the event the offering is not consummated  the principal  amount
and accrued  interest,  if any, on the debentures  convert into shares of common
stock.

     In the event the Company does not  commence an offering (as defined)  prior
to  maturity,  the  debentures  shall  automatically  convert into shares of the
Company's common stock at the ratio of $2.60 per share.

     In accordance with the Company's private offering, the debentures are to be
converted into shares of the Company's common stock. See Note 11.b).

         b)       Private Placement

                  On June 24,  1998,  the  Company's  stockholders  approved  an
amendment to the Company's  certificate of incorporation  authorizing  1,000,000
shares  of  Preferred  Stock,  subject  to  the  rights  and  preferences  being
determined  by  the  Company's  board  of  directors.  The  board  of  directors
authorized the issuance of up to 300,000 shares of the Series A Preferred Stock.

     On  June  25,  1998  the  Company  completed  a  private  offering  of  its
securities,  in which the Company raised gross proceeds  $5,139,312  through the
sale of shares of common  stock and shares of the  Company's  Series A Preferred
Stock,  inclusive of the  conversion of the  debentures.  The shares of Series A
Preferred Stock carry a cumulative dividend at the rate of 6% per annum, payable
in cash or shares of Series A Preferred Stock, at the Company's option.  Holders
of the Series A Stock have the right to convert each share into shares of common
stock at a conversion price of $2.95 per share, at any time,  commencing 90 days
from issuance.  The shares of Series A Preferred Stock have no voting rights and
carry a liquidation  preference of $20.00 per share.  The Company may redeem the
Series A Preferred Stock,  upon the earlier of three years from issuance or when
the closing  price for the Company's  common stock has been at least $8.00,  for
any 30  consecutive  day  period.  Included  in the  private  offering  was  the
conversion by debenture holders of the Company of $2,500,000 principal amount of
secured debentures.

     The Company agreed to file a registration statement with the Securities and
Exchange  Commission  within 60 days of the closing of the  offering to register
the shares of common  stock and shares of common stock  underlying  the Series A
Preferred Stock sold in the offering.

     The placement agent received a $150,000 as a commission on the net proceeds
of the offering and warrants to purchase  220,000 shares of the Company's Common
Stock,  110,000  shares  at $4.00  per share  and  110,000  at $5.00 per  share,
exercisable for three and five years, respectively.

                                      F-14