SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-2
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number O-24742
U.S. Wireless Corporation
(Exact name of Company as specified in its charter)
Delaware 13-3704059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2694 Bishop Drive, Suite 213, San Ramon, California 94583
(Address of principal executive offices) (Zip Code)
(510) 830-8801
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, $.01 par value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the Issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that Company was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
The Company had no revenues from operations during the fiscal year
ended March 31, 1997.
The aggregate market value of the voting stock (consisting of Common
Stock, par value $.01 per share) held by non-affiliates on June 2, 1997 was
approximately $10,756,969, based upon the average closing bid and asked prices
for such Common Stock on said date ($4.53), as reported by a market maker. On
such date, there were 7,325,245 shares of Company's Common Stock outstanding.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company was originally organized in February 1993 as a holding
company to acquire a majority interest in Playco. Historically, through August
15, 1996, the Company's results of operations and financial condition have
related primarily to those of Playco. Effective August 15, 1996, the Company
spun-off its ownership of Playco Common Stock to the Company's stockholders and
recorded a dividend for the net book value of the spin-off. With the July 1996
acquisitions of 51% of Labyrinth and Mantra, the Company changed its business
focus. As discussed in Item 1, Labyrinth is in the business of researching and
developing cellular infrastructure products while Mantra is in the business of
developing software to enhance human interaction with computers, and in
particular, of gathering and analyzing data from such sources as the Internet.
Due to the Company's change in focus, the results of operations for the
year ended March 31, 1997, which primarily reflect the activities of a research
and development company, are not directly comparable to the results of
operations for the year ended March 31, 1996, which reflect the results of
operations from a retailer. Additionally, as operations for the year ended March
31, 1997 did include some results of operations from Playco and the start-up of
operations for Labyrinth and Mantra, the results of operations for the year
ended March 31, 1997 are not an indication of any future results of operations.
Statements contained in this report which are not historical facts may
be considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
Results of Operations:
Year Ended March 31, 1997 as Compared to the Year Ended March 31, 1996
Through March 31, 1997, the Company recorded no revenues from
the operations of Labyrinth and Mantra. ^During fiscal year ended March 31, 1996
and through August 15, 1996 of the fiscal year ended March 31, 1997, the Company
recorded its majority ownership interest in the operations of Playco. As the
^Company's investment in Playco was spun-off to the Company's shareholders, the
Company's interest in the net losses for Playco for fiscal 1997 totaling
$1,010,312 were recorded as losses from discontinued operations. Likewise, the
activities of Playco previously reported in the Company's statement of
operations for fiscal 1996 were reclassified to reflect a loss from discontinued
operations of $2,328,827. Summary details of the losses from discontinued
operations follow below.
On a continuing operations basis, the Company had operating expenses of
$1,051,822 for the
<PAGE>
year ended March 31, 1997. Such expenses consisted of payroll and facilities
costs associated with the start-up of operations of Labyrinth and Mantra, as
well as professional fees and utilities costs. Operating expenses for the year
ended March 31, 1996 aggregated $412,723 and related primarily to the activities
of the parent company, known as American Toys at the time.
For the year ended March 31, 1997, compensation expense associated with
the issuance of 2,641,500 Common Stock options to employees and 1,550,000 common
stock options to consultants totaled $731,535. In addition, Labyrinth recorded
compensation expense of $^64,000 in connection with the issuance of 151,000
shares of its common stock to its officers and key employees.
^For the year ended March 31, 1997, the Company incurred research and
development expenses of $2,656,371. Such amount includes the Company's
expenditures to further the development of its products and includes $2,250,000
of excess cost over the basis of the Labyrinth and Mantra assets acquired which
has been characterized as purchased research and development costs.
For the year ended March 31, 1997, the Company had interest income of
$137,152 as compared to $18,417 for the year ended March 31, 1996. The increase
in interest income is the result of (i) higher cash balances resulting from the
Company's and Labyrinth's July 1996 private placement of 600,000 shares and
79,000 shares of Common Stock, respectively, which resulted in net proceeds of
$1,458,000 and $948,000, respectively, and (ii) the exercise of 3,250,000
options to purchase Common Stock between July and December 1996 which resulted
in additional capital of $3,992,483 being contributed to the Company. Interest ^
expense previously reported in the statement of operations for the year ended
March 31, 1996 related to the operations of Playco and, as such, has been
reclassified and included in the loss from discontinued operations.
During the year ended March 31, 1997, the Company changed its method of
accounting for the minority stockholders' interest in Playco. The Company
changed from one method of accounting which records the total amount of the net
proceeds received from Playco's equity transactions as the minority interest to
a more generally accepted method which reflects the minority interest as a
percentage of the net assets of Playco. The change in accounting for minority
interest is recorded as a cumulative effect of a change in accounting principle
which had the effect of reducing minority interest by $2,413,973, increasing
additional paid in capital by $2,873,408, and increasing the net loss for the
year ended March 31, 1997 by $459,435.
During the year ended March 31, 1997, the Company recorded an aggregate
loss from discontinued operations of $1,010,312. Such amount represents losses
from the operations of Playco prior to the spin-off date of August 15, 1996 and
is comprised of net sales of $5,024,338, costs and expenses of $6,170,999,
interest expense of $238,171 and a reduction of the loss from the minority
interest in Playco's net losses of $374,520. As noted above, the activities of
Playco previously reflected in the statement of operations for the year ended
March 31, 1996 have been reclassified and reflected as a loss from discontinued
operations of $2,328,827. Such amount is comprised of net sales of $21,230,853,
costs and expenses of $24,238,410, interest expense of $535,158 and a reduction
of the loss from the minority interest of $1,213,888.
<PAGE>
As a result of the above, the Company recorded a net loss of ^$,353,857, or
$0.85 per share, for the year ended March 31, 1997 compared to a net loss of
$2,876,733, or ^$3.47 per share, for the year ended March 31, 1996.
Research and Development - Future Operations
During the year ended March 31, 1997, the Company incurred research and
development expenses of approximately ^$406,000, net of the purchased research
and development costs of $2,250,000. The Company expects that the research and
development stage of both Labyrinth's and Mantra's planned products will
continue for approximately twelve months while testing of the planned products
may require an additional six to twelve months. Thus, the Company does not
expect Labyrinth or Mantra to earn any significant revenues from operations for
at least eighteen months. As such, management estimates research and development
expenditures for the year ending March 31, 1998 will
approximate $610,000. Research and development activities, as well as operating
and marketing expenses, are expected to be financed with funds raised through
Labyrinth's private placement and Labyrinth's and Mantra's sale of 51% of each
of its outstanding common stock to the Company.
Liquidity and Capital Resources:
As of March 31, 1997, the Company had working capital of $5,166,493 and
cash equivalents of $5,328,781. Such funds resulted primarily from the Company's
and Labyrinth's July 1996 private placements and the exercise of 3,250,000
Common Stock options.
Trends Affecting Liquidity, Capital Resources, and Operations
As discussed above, the nature of the Company's operations has changed.
While it once was a holding company for a retailer, it is now a holding company
for research and development companies. As such, management is currently not
aware of any trends that may affect its liquidity, capital resources, and/or
operations.
However, the Company's future operations could be adversely affected if
the Company's timetable for the developing, marketing, and manufacturing of its
planned products exceeds available capital resources. The primary initial
expenses associated with the commencement of Labyrinth's and Mantra's operations
are expected to include officer and key employee salaries. Furthermore,
additional financing may be required to complete product development and begin
product marketing. Management expects the limited resources of the Company,
Labyrinth, and Mantra, as well as the required continuation of research,
development, and testing for approximately twelve to eighteen months, to cause
significant strain on the Company's technical, financial, and other resources.
Inflation and Seasonality
Inflation and seasonality are currently not expected to have a material
effect on the Company's liquidity, capital resources, or operating activities.
<PAGE>
New Accounting Pronouncement:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 Earnings Per Share
("EPS"). SFAS No. 128 requires all companies to present "basic" EPS and, if they
have a complex capital structure, "diluted" EPS. Under SFAS No. 128, "basic" EPS
is computed by dividing income (adjusted for any preferred stock dividends) by
the weighted average number of common shares outstanding during the period.
"Diluted" EPS is computed by dividing income (adjusted for any preferred stock
or convertible stock dividends and any potential income or loss from convertible
securities) by the weighted average number of common shares outstanding during
the period plus the number of additional common shares that would have been
outstanding if any dilutive potential common stock had been issued. The issuance
of antidilutive potential common stock should not be considered in the
calculation. In addition, SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. Thus, the Company expects to adopt the
provisions of this statement in fiscal year 1998. Management does not expect the
adoption of this pronouncement to have a significant impact on the Company's
financial statements.
ITEM 7. FINANCIAL STATEMENTS
See attached financial statements.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 15th day of September, 1997.
U.S. WIRELESS CORPORATION
By: \s\ Dr. Oliver Hilsenrath
Dr. Oliver Hilsenrath
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company, in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
\s\ Dr. Oliver Hilsenrath Chief Executive Officer ^September 15, 1997
- ------------------------------- ------------------
Dr. Oliver Hilsenrath President and Director Dated
\s\ David Tamir Director ^September 15, 1997
David Tamir Dated
\s\ Regina Gindin Director September 15, 1997
Regina Gindin Dated
</TABLE>
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ............... F - 2
CONSOLIDATED BALANCE SHEET ....................................... F - 3
CONSOLIDATED STATEMENTS OF OPERATIONS ............................ F - 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY .................. F - 7
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................ F - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................... F - 13
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
U.S. Wireless Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of U.S. Wireless
Corporation, formerly known as American Toys, Inc., and Subsidiaries (the
"Company") as of March 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 1997,
and the results of its operations and its cash flows for each of the two years
in the period ended March 31, 1997, in conformity with generally accepted
accounting principles.
HASKELL & WHITE LLP
Certified Public Accountants
Newport Beach, CA
May 30, 1997, except for the
last sentence of Note 6.a)
which is as of June 16, 1997
and Note 10 which is as of
September 12, 1997
F - 2
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
Current assets
<S> <C>
Cash and cash equivalents .............................. $5,328,781
Other current assets ................................... 3,500
Total current assets ............................... 5,332,281
Equipment, improvements and fixtures, net ................... 281,211
^^^^^^^^^^
Other assets ................................................ 4,667
Total assets ....................................... ^$5,618,159
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
<S> <C>
Accounts payable and accrued expenses ..................... $ 140,550
Obligations under capital leases, current ................. 25,238
Total current liabilities ............................. 165,788
Obligations under capital leases, noncurrent ................... 45,427
Total liabilities ..................................... 211,215
Minority interest in subsidiaries .............................. 1,529,534
Commitments (Notes 8 and 9)
Stockholders' equity
Common Stock, $.01 par value, 40,000,000 shares authorized,
10,031,250 shares issued and outstanding .............. 100,312
Additional paid-in capital ................................ 20,493,262
Unearned compensation ..................................... (1,277,918)
Stock subscription receivable ............................. (1,569,483)
Accumulated deficit .......................................^ (13,868,763)
Total stockholders' equity ............................ 3,877,410
Total liabilities and stockholders' equity ............^ $ 5,618,159
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ----------
<S> <C> <C>
Net sales ..................................................... $^-- $--
Cost and expenses
^Operating expenses ...................................... 1,051,822 412,723
Stock and stock options issued as compensation ........... 1,335,535 153,600
Research and development, including write-off of excess of
cost over net assets acquired (Note 10) ................ 2,656,371 _
Interest (income) ........................................ (137,152) (18,417)
----------- ----------------
Total costs and expenses ............................. 4,906,576 547,906
----------- ----------------
Loss before minority interest in net losses of continuing
subsidiaries, income tax (expense) benefit, discontinued
operations and cumulative effect of a change in accounting
principle ................................................ (4,906,576) (547,906)
Minority interest in net losses of continuing subsidiaries ... 22,466 --
----------- ----------------
Loss before income tax (expense) benefit,
discontinued operations and cumulative
effect of a change in accounting principle ............... ^(4,884,110) (547,906)
Income tax (expense) benefit .................................. -- --
Loss before discontinued operations and
cumulative effect of a change in
accounting principle ..................................... ^ (4,884,110) (547,906)
----------- ----------------
Discontinued operations (Note 2)
Loss from operations of Playco prior to spin-off ......... ^(725,380) (2,328,827)
Loss on disposal of Playco ............................... ^(284,932) --
Total discontinued operations ........................ ^(1,010,312) (2,328,827)
Loss before cumulative effect of a change in accounting
principle ................................................ ^(5,894,422) (2,876,733)
Cumulative effect of a change in accounting principle ......... (459,435) --
----------- ----------------
Net loss ...................................................... $^(6,353,857) $(2,876,733)
=========== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Loss per common equivalent share
Loss before discontinued operations and cumulative effect
of a change in accounting principle ..................... ^(0.66) $ (0.66)
Discontinued operations ................................. (0.13) (2.81)
Cumulative effect of a change in accounting principle ... (0.06) --
--------- -------------
Net loss per common equivalent share .................... ^(0.85) $ (3.47)
========= =============
Weighted average number of common shares outstanding ......... 7,443,419 828,891
========= =============
Pro forma amounts assuming the new minority
interest accounting method is applied retroactively
Net loss ................................................ $^ $ (3,336,168)
========= =============
Net loss per common equivalent share .................... $^(0.79) $ (4.02)
========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-in Unearned Subscription Accumulated Stockholders'
Shares Amount Capital Compensation Receivable Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1995 753,995 $7,540 $5,774,590 $- $ - $(3,874,126) $1,908,004
Sale of common shares 56,250 562 273,938 - - - 274,500
Issuance of shares as
consideration for services
provided to the Company 15,000 150 153,450 - - - 153,600
Issuance of shares in
connection with exercise
of special warrant 68,750 688 549,312 - - - 550,000
Net loss for the year ended
March 31, 1996 - - - - - (2,876,733) (2,876,733)
Balances at March 31, 1996 893,995 8,940 6,751,290 - - (6,750,859) 9,371
Spin-off of Playco as
dividend - - - - - (731,964) (731,964)
Cancellation of stock
subscription receivable
and accrued interest (68,750) (688) (549,312) - - (32,083) (582,083)
</TABLE>
F-7
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Continued)
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-in Unearned Subscription Accumulated Stockholders'
Shares Amount Capital Compensation Receivable Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
options for compensation - - 2,009,453 (1,277,918) - - 731,535
Exercise of common
stock options 3,250,000 32,500 3,959,983 - - - 3,992,483
Private placement of
Common Stock, net of
offering costs of $42,000 600,000 6,000 1,452,000 - - 1,458,000
Common Stock issued for
acquisition 2,250,000 22,500 2,227,500 - - - 2,250,000
Stock subscription receivable 3,106,005 31,060 1,768,940 - (1,569,483) - 230,517
Cumulative effect of a
change in accounting principle - - 2,873,408 - - - 2,873,408
Net loss for the year ended
March 31, 1997 - - - - - ^(6,353,857) (6,353,857)
Balances at March 31, 1997 10,031,250 $100,312 $20,493,262 $(1,277,918) $(1,569,483) ^$(13,868,763) $3,877,410
</TABLE>
F-8
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1997 1996
--------------- ----------
Cash flows from operating activities
<S> <C> <C>
Net loss ...................................................... $^ $(2,876,733)
Adjustments to reconcile net loss to net
cash used for operating activities:
Cumulative effect of a change in accounting principle ..... 459,435 --
Loss on discontinued operations .......................... 1,010,312 2,328,827
Depreciation .............................................. 18,481 _
Amortization .............................................. 6,542 78,508
^Write-off of excess of cost over net assets acquired ..... 2,250,000 _
Minority interest in net losses of continuing subsidiaries (22,466) _
Issuance of Common Stock for
compensation and services ............................... ^604,000 153,600
Issuance of Common Stock options for compensation
and services ............................................ 731,535 --
Write-down of stock subscription receivable ............... 230,517 --
Increase (decrease) from change in assets and liabilities:
^Other current assets ......................................... (3,500) 125,837
Deposits and other assets ............................... (4,667) 99,401
Accounts payable and accrued expenses ................... ^140,550 (21,876)
^Decrease in net assets of discontinued operations ...... (1,404,294) (1,236,226)
----------- -----------
Net cash used for operating activities ........... (2,337,412) (1,348,662)
Cash flows from investing activities
Equipment, improvements and fixtures acquired ................. ^(229,027) --
Equipment, improvements and fixtures acquired
by discontinued operations .................................. (159,193) (340,311)
Net cash used for investing activities ........... (388,220) (340,311)
</TABLE>
F-9
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ----------
Cash flows from financing activities
<S> <C> <C>
Repayment to stockholders ............................ (381,430) (217,723)
Proceeds from affiliates ............................. -- ^ 173,402
Proceeds from issuance of Common Stock ............... 6,398,483 274,500
^Net cash provided by financing activities
of discontinued operations ......................... 1,962,179 1,132,965
Net cash provided by financing activities 7,979,232 1,363,144
Net increase (decrease) in cash ........................... 5,253,600 (325,829)
Cash and cash equivalents at beginning of year ............ 75,181 401,010
----------- -----------
Cash and cash equivalents at end of year .................. $ 5,328,781 $ 75,181
=========== ===========
</TABLE>
F-10
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ----------
Supplemental disclosure of cash flow information:
<S> <C> <C>
Interest paid ............................................................. $ 166,453 $ 464,832
Income taxes paid ......................................................... $ -- $ 15,821
Schedule of non-cash financing activities:
As discussed in Note 1, the Company spun-off its shares of Playco in August
1996. This non-cash event had the following effects on the Company's financial
statements:
Decrease in accounts receivable ........................................... $ 286,793
Decrease in merchandise inventories ....................................... 8,002,320
Decrease in other current assets .......................................... 152,801
Decrease in equipment, improvements and fixtures, net ..................... 1,793,833
Decrease in deferred financing costs ...................................... 393,699
Decrease in deposits and other assets ..................................... 57,285
Decrease in accounts payable and accrued expenses ......................... (4,683,291)
Decrease in notes payable ................................................. (4,868,884)
Decrease in deferred rent liability ....................................... (177,112)
Decrease in minority interest ............................................. 358,520
Decrease in preferred stock ............................................... (584,000)
Net equity of Playco ...................................................... (731,964)
</TABLE>
As discussed in Note 1, in connection with the Company's acquisition of a 51%
interest in Labyrinth Communications Technologies Group, Inc., the Company
issued 2,250,000 shares of Common Stock.
As discussed in Note 9, the Company exchanged 3,106,005 shares of its Common
Stock for 400,000 shares of Multimedia Concepts International, Inc.'s Common
Stock. Subsequent to March 31, 1997, the Company negotiated the return of
2,706,006 shares of its Common Stock in exchange for the return of the 400,000
shares of Multimedia Concepts International, Inc. Common Stock. In connection
these transactions, the Company recorded a stock subscription receivable in the
amount of $1,569,483 and a current year expense of $230,517.
During the year ended March 31, 1997, the Company issued options to purchase an
aggregate of 2,641,500 shares of Common Stock to employees. In connection with
these issuances, the Company recorded compensation expense of $271,535 and
unearned compensation of $1,277,918.
F-11
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
Schedule of non-cash financing activities (continued):
During the year ended March 31, 1997, the Company issued 1,550,000 Common Stock
options to consultants. In connection with these issuances, the Company recorded
compensation expense of $460,000.
During the year ended March 31, 1997, the Company canceled a $550,000 stock
subscription receivable and $32,083 of related accrued interest.
During the year ended March 31, 1997, the Company entered into capital leases
for office equipment that totaled $70,665.
During the year ended March 31, 1996, the Company issued 15,000 shares of its
Common Stock as consideration for services and recorded related compensation
expense of $153,600.
During the year ended March 31, 1996, the Company issued 68,750 shares of its
Common Stock as a result of the exercise of a special warrant.
F-12
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1. ORGANIZATION
U.S. Wireless Corporation, (the "Company") was incorporated in the
State of Delaware on February 12, 1993. On July 31, 1996, the Company
consummated a stock purchase agreement and acquired 51% of the
outstanding shares of common stock of Labyrinth Communications
Technologies Group, Inc. "Labyrinth", whereby 20% of the shares were
acquired for $2,000,000 from Labyrinth and an additional 31% was
acquired from the principle stockholder of Labyrinth for 2,250,000
shares of the Company's Common Stock. Upon consummation of this
acquisition, the founding shareholder of Labyrinth, Dr. Oliver
Hilsenrath, was appointed the Company's President and Chief Executive
Officer. Labyrinth is a development stage company engaged in the
research and development of wireless communications hardware and
software technology. (Note 10)
On July 31, 1996, the Company also consummated an agreement and
acquired 51% of the outstanding common stock of Mantra Technologies,
Inc. ("Mantra") and an option to acquire the remaining 49% of the
outstanding shares of common stock for an aggregate purchase price of
$500,000. Pursuant to the terms of the agreement, the Company has the
right to acquire the remaining 49% of the outstanding shares of
Mantra's common stock in exchange for an aggregate 1,000,000 shares of
the Company's Common Stock. In order for the Company to exercise its
options, the closing bid price of its Common Stock must have been at
least $5.00 for the 30 trading days prior to the date of exercise.
Mantra is a development stage company which is engaged in the
development of an advanced user interface for the Internet and other
databases. (Note 10)
Prior to the acquisitions of Labyrinth and Mantra, the Company, which
was formerly known as American Toys, Inc., was the majority stockholder
of Play Co. Toys & Entertainment Corp. ("Playco"), a California-based
toy retailer. On June 1, 1996, the then majority stockholder of the
Company, United Textiles & Toys Corporation, formerly known as Mister
Jay Fashions International Inc. ("Mister Jay"), a publicly-held
Delaware Corporation, authorized and consented to the spin-off of the
shares of common stock of Playco owned by the Company to the
stockholders of the Company as of the record date of August 15, 1996.
Additionally, the Company, as majority stockholder of Playco,
authorized the conversion of its 1 share of Series D preferred stock
owned into 1,157,028 shares of Playco's common stock, based on the
average closing bid price ($1.21) of Playco's shares for the period
from March 1, 1996 to May 31, 1996.
Pursuant to a special meeting of the shareholders on May 31, 1996, the
Company effected, as of April 17, 1996, a one-for-four reverse stock
split. The consolidated financial statements give retroactive effect
for this one-for-four reverse stock split.
F-13
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidated financial statements
The consolidated financial statements for the year ended March
31, 1997, include the accounts of the Company, Labyrinth,
Mantra, and Playco through the spin-off date of August 15,
1996. The consolidated financial statements for the year ended
March 31, 1996 include the accounts of the Company and Playco.
All significant intercompany balances and transactions have
been eliminated in consolidation.
^
b) Discontinued operations
The spin-off of Playco has been accounted for as a
discontinued operation and, accordingly, its operating results
have been segregated and reported as discontinued operations
in the accompanying consolidated statements of operations and
cash flows for each of the years ended March 31, 1997 and
1996. There are no net assets related to Playco included in
the accompanying consolidated balance sheet as of March 31,
1997.
Summary information related to the discontinued operations of
Playco for the years ended March 31, 1997 and 1996 is as
follows:
1997 1996
Net sales ........................... $ 5,024,338 $ 21,230,853
Costs and expenses .............. 6,170,999 24,238,410
Interest expense .................... 238,171 535,158
------------ ------------
Net loss before minority
interest in losses .. (1,384,832) (3,542,715)
Minority interest in losses ......... 374,520 1,213,888
------------ ------------
Loss from discontinued operations ... $ (1,010,312) $ (2,328,827)
============ ============
c) Cash and cash equivalents
The Company considers all highly liquid investments purchased
with a maturity of three months or less on the date of
acquisition to be cash equivalents.
d) Equipment, improvements and fixtures
Equipment, improvements and fixtures are recorded at cost.
Depreciation and amortization are provided using the
straight-line method over the estimated useful lives (3 - 15
years) of the related assets. Leasehold improvements are
amortized over the lesser of the related lease terms or the
estimated useful lives of the improvements. Maintenance and
repairs are charged to operations as incurred.
F-14
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e) Income taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the use of the
"liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are
determined based on the difference between the financial
statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are
based on the year's income taxable for federal and state
income tax reporting purposes.
f) Accounting for employee stock options
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." In
conformity with the provisions of SFAS No. 123, the Company
has determined that it will not change to the fair value
method presented by SFAS No. 123 and will continue to follow
Accounting Principle Board Opinion No. 25 for measurement and
recognition of employee stock-based transactions. The Company
has adopted the "disclosure only" requirements of SFAS No.
123 in fiscal year 1997.
g) Software development costs
Costs incurred in the research and development of new software
products are expensed as incurred until technological
feasibility has been established. After technological
feasibility is established, any additional costs are
capitalized in accordance with SFAS No. 86, "Accounting for
the Cost of Computer Software to Be Sold, Leased or Otherwise
Marketed." The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by
management with respect to certain external factors such as
anticipated future revenues, estimated economic life and
changes in software and hardware technologies. No software
development costs have been capitalized during the year ended
March 31, 1997.
h) Net loss per share
Net loss per share is based upon the weighted average number
of outstanding common shares during the year. Common Stock
equivalents have been excluded from the computation since the
results would be anti-dilutive.
i) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual amounts could differ from
those estimates.
F-15
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j) Concentration of credit risk
As of March 31, 1997, the Company had cash on deposit with a
financial institution that exceeded the federally insured
limit by $3,047,096.
k) Reclassifications
Certain amounts as of and for the year ended March 31, 1996
have been reclassified for presentation purposes. The
reclassifications have no effect on the Company's financial
position or results of operations as previously reported.
l) New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings Per Share ("EPS"). SFAS No. 128
requires all companies to present "basic" EPS and, if they
have a complex capital structure, "diluted" EPS. Under SFAS
No. 128, "basic" EPS is computed by dividing income (adjusted
for any preferred stock dividends) by the weighted average
number of common shares outstanding during the period.
"Diluted" EPS is computed by dividing income (adjusted for any
preferred stock or convertible stock dividends and any
potential income or loss from convertible securities) by the
weighted average number of common shares outstanding during
the period plus the number of additional common shares that
would have been outstanding if any dilutive potential Common
Stock had been issued. The issuance of anti-dilutive potential
Common Stock should not be considered in the calculation. In
addition, SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997.
Thus, the Company expects to adopt the provisions of this
statement in fiscal year 1998. Management does not expect the
adoption of this pronouncement to have significant impact on
the Company's financial statements.
3. CHANGE IN ACCOUNTING PRINCIPLE
During the first quarter of the Company's fiscal year, the Company
changed its method of accounting for the minority shareholders interest
in Playco. The Company changed from one method of accounting which
records the total amount of the net proceeds received from Playco's
equity transactions as the minority interest to a more generally
accepted method which reflects the minority interest as a percentage of
the net assets of Playco. The change in accounting for minority
interest is recorded as a cumulative effect of a change in accounting
principle, which had the effect of reducing minority interest by
$2,413,973, increasing additional paid-in-capital by $2,873,408 and
increasing the net loss for the year ended March 31, 1997 by $459,435.
The consolidated financial statements have not been restated to reflect
this accounting change; however, pro forma information, as if the
change were made retroactively, is shown on the consolidated statement
of operations.
F-16
<PAGE>
4. EQUIPMENT, IMPROVEMENTS AND FIXTURES, NET
Equipment, improvements and fixtures, net, at March 31, 1997 ^
consisted of the following:
1997 ^
Furniture, fixtures and equipment $ 299,692
299,692
Less accumulated depreciation and amortization (18,481) ^
$ 281,211
Equipment, improvements and fixtures include equipment under capital
leases of $70,665 and no accumulated amortization as of March 31, 1997.
F-17
<PAGE>
5. INCOME TAXES
The reconciliation of income taxes computed at the federal statutory
tax rate to income tax expense at the effective income tax rate is as
follows:
1997 1996
------ ------
Federal statutory income tax (benefit) rate (34.0)% (34.0)%
Increases (decreases) resulting from:
Non-deductible expenses .............. 6.7 2.0
Net change in valuation allowance .... 27.3 32.0
------ ------
Effective income tax benefit rate ......... -% - %
The income tax effects of significant items comprising the Company's
net deferred income tax assets and liabilities as of March 31, 1997 and
1996 are as follows:
1997 1996
----------- -----------
Inventories ................................. $ -- $ (57,883)
AMT tax credits ............................. -- (23,260)
Accrued expenses ............................ -- (17,816)
Valuation allowance ......................... -- 98,959
Current portion of deferred tax liabilities . $ -- $ --
=========== ===========
Depreciation and amortization ............... $ 15,639 $ 246,185
Net operating loss carryforwards ............ (1,192,326) (1,958,123)
Deferred rent liability ..................... -- (79,447)
Unearned compensation ....................... (542,479) --
Valuation allowance ......................... 1,719,166 1,791,385
----------- -----------
Long-term portion of deferred tax liabilities $ -- $ --
=========== ===========
At March 31, 1996, a significant portion of the deferred tax assets and
deferred tax liabilities resulted from Playco. At March 31, 1997, the
deferred tax assets and liabilities result from the Company, Labyrinth
and Mantra. The Company has federal and state NOLs approximating
$3,387,784 and $659,492, respectively. The federal NOL carryforwards
expire between the years 2009 and 2012. The state NOL carryforwards
expire in the year 2002. Utilization of a portion of the NOLs may be
limited on Section 382 of the Internal Revenue Code due to ownership
changes.
At March 31, 1997 and 1996, a 100% valuation allowance has been
provided to reduce the Company's net deferred tax assets for the amount
by which the deferred tax asset related to NOLs exceeded the net
deferred tax liability resulting from all other temporary differences.
The Company has provided the allowance since management could not
determine that it was "more likely than not" that the benefits of the
deferred tax assets would be realized.
F-19
6. STOCKHOLDERS' EQUITY
a) Sale of shares
On June 16, 1995, pursuant to an amendment to Form S-8 filed
with the Securities and Exchange Commission (the "SEC"), the
Company terminated its original option to purchase 150,000
shares of Common Stock at $4.25. Such amendment included the
registration of 150,000 and 75,000 new options, respectively,
to the Company's former President and to a former Director at
an exercise price of $1.00 per share. Such shares were granted
on June 2, 1995. During June 1995, all such options were
exercised and the Company received $225,000 as payment for the
56,250 post-split common shares. On the grant date, the
average market value of the Company's shares was approximately
$1.22 per share. Accordingly, the Company has recorded
compensation expense in the amount of $49,500 which represents
the excess of the fair market value over the exercise price of
such options on the grant date.
On August 11, 1995, the Company filed Amendment #2 to Form S-8
clarifying the date of grant with respect to the new 225,000
options registered in Amendment No. 1 to Form S-8.
On August 24, 1995, pursuant to a Form S-8 Registration
Statement filed with the SEC, the Company registered 30,000
post-split common shares underlying options to issue Common
Stock of the Company. In connection therewith, the Company
issued 15,000 shares of Common Stock to two consultants as
consideration for services. On the grant date, the average
market value of the Company's shares was approximately $2.56
per share. Accordingly, the Company recorded consulting
expense in the amount of $153,600 ($2.56 x 60,000 pre-split
common shares) since such consulting contracts expired on
November 8, 1995.
During July 1996, the Company commenced and completed a
private placement of its Common Stock, whereby it offered and
sold 600,000 shares of its Common Stock. The gross proceeds
received from the sale were $1,500,000. Simultaneously,
Labyrinth consummated a private placement of its Common Stock
whereby it sold 79,000 shares for aggregate gross proceeds of
$948,000.
F-14
<PAGE>
6. STOCKHOLDERS' EQUITY (continued)
a) Sale of shares (continued)
In July 1996, pursuant to a Form S-8 Registration Statement
filed with the SEC, the Company registered 3,250,000 shares of
Common Stock underlying options held by the
Company's former President. All shares except 1,000,000 have a
restrictive legend. The 3,250,000 options were exercised by
the former President between July 1996 and December 1996 for
an aggregate of $3,992,483. On June 16, 1997, the Company
filed an amendment to the S-8 registration deregistering the
resale of the remaining 2,250,000 shares.
b) Cancellation of stock subscription receivable
On October 27, 1995, Mister Jay exercised its right pursuant
to the terms of a special warrant and purchased 275,000
pre-split common shares at $2.00 per share and issued a twelve
month promissory note for $550,000 bearing interest at 8% per
annum. The note, accrued interest totaling $32,083 and the
related shares of Common Stock were canceled by mutual
agreement in July 1996.
7. STOCK OPTIONS
During the year ended March 31, 1997, the Company issued Common Stock
options to its employees and to various consultants performing services
for the Company. Options granted to employees vest over three years,
expire five years from the date of grant and have exercise prices
ranging from $2 to $5 per share. Substantially all options granted to
consultants vest immediately, expire five years from the date of grant
and have exercise prices ranging from $2 to $4 per share. The number of
options issued and outstanding at March 31, 1997 are as follows:
Options outstanding, beginning of period --
Granted ................................ 7,441,500
Canceled ............................... --
Exercised .............................. (3,250,000)
Options outstanding, end of period ..... 4,191,500
Options exercisable, end of period ..... 1,550,000
F-20
<PAGE>
7. STOCK OPTIONS (continued)
The difference between the exercise price and the fair market value of
the options issued to employees on the dates of grant is accounted for
as unearned compensation and amortized to expense over the related
vesting period. During fiscal 1997, $1,549,453 of unearned compensation
was recorded, of which $271,535 was amortized to expense as of March
31, 1997.
Compensation expense associated with stock options issued to
consultants is measured based on the estimated value of services
received by the Company. During fiscal 1997, $460,000 of compensation
expense was recorded in connection with these stock options.
As discussed in Note 2.f), the Company follows Accounting Principle
Board Opinion No. 25 for measurement and recognition of employee
stock-based transactions. Had the Company elected to adopt the
measurement and recognition provisions of SFAS No. 123, the Company
would have incurred an additional $751,226 in related compensation
expenses. The pro forma net loss under the provisions of SFAS No. 123
is $(4,955,083) and the pro forma net loss per common equivalent share
is $(0.67).
8. COMMITMENTS
a) Operating lease
The Company leases office facilities in San Ramon, California
under a non-cancelable operating lease. The lease requires
minimum monthly payments of $8,916 and expires in August 1999.
At March 31, 1997, aggregate future minimum lease payments due
under this lease are as follows:
Year ending
March 31,
1998 $106,987
1999 44,578
--------
Total minimum lease payments $151,565
========
Rent expense related to the operating lease discussed above
was $75,173 for the year ended March 31, 1997.
F-21
<PAGE>
8. COMMITMENTS (continued)
b) Capital leases
The Company leases various equipment under two non-cancelable
capital leases. Minimum monthly rental payments are $512 and
$2,011, respectively, and the leases expire in January 2000.
Principal payments pursuant to these lease agreements
aggregate $70,665, of which $25,238 is due during the year
ended March 31, 1998. At March 31, 1997, aggregate future
minimum lease payments due under these leases are as follows:
Year ending
March 31,
1998 $ 30,283
1999 30,283
2000 25,235
--------
85,801
Less amounts representing interest (15,136)
$ 70,665
9. RELATED PARTY TRANSACTIONS
a) Employment agreements
The Company has a five-year employment agreement with its
President that provides for an annual salary of $160,000 and
annual increases of 15% per annum. Upon execution of this
agreement, the President was granted an option to purchase
1,500,000 shares of the Company's Common Stock for $2.00 per
share. No such options were exercised as of March 31, 1997.
The agreement provides for a two year non-compete period upon
termination of the President's employment and provides for
severance compensation in the amount of three times the
aggregate annual compensation paid to the President during the
preceding calendar year. The Company's President is also the
President and sole Director of both Labyrinth and Mantra.
F-22
<PAGE>
9. RELATED PARTY TRANSACTIONS (continued)
a) Employment agreements (continued)
The Company also has three-year employment agreements with its
Chief Technology Officer and General Counsel that provide for
annual salaries of $100,000 and $120,000, respectively. In
addition, an aggregate of 250,000 options to purchase shares
of the Company's Common Stock at $2.00 per share were issued
in connection with these agreements. The options vest equally
over a three-year period and have five-year lives. No such
options were vested or exercised as of March 31, 1997.
On June 1, 1996, the Company's former President entered into a
five-year employment agreement. Pursuant to the employment
agreement, the former President shall not receive
any monetary compensation during the term. As consideration,
the Company's former President was granted stock options to
purchase 1,000,000 shares of Common Stock at $1.00 per share
for five years and 2,250,000 shares of Common Stock at $1.33
per share exercisable until December 31, 1996. As discussed in
Note 6.a) all such options were exercised during fiscal year
1997.
b) Investment in Multimedia Concepts International, Inc.
On June 28, 1996, European Venture Corp. ("EVC"), an affiliate
of the Company's former President, entered into an option to
acquire 3,106,005 shares of the Company's Common Stock for
$1,800,000 or for an exchange for 400,000 shares of Common
Stock of Multimedia Concepts International, Inc. ("MCII"),
which shares shall not be subject to the distribution. During
July 1996, EVC exercised its option and acquired 3,106,005
shares in exchange for 400,000 shares of Common Stock of MCII.
Subsequent to year-end, EVC returned 2,706,006 of the
Company's shares and the Company returned all of the MCII
shares due to a decline in the value of the MCII shares. At
March 31, 1997, the Company has recorded a stock subscription
receivable in the amount of $1,569,483 in connection with the
return of 2,706,006 shares of its Common Stock. Additionally,
the Company has expensed $230,517 in fiscal 1997 for the
shares of Common Stock that were not returned.
10. CORRECTION/RESTATEMENT
The acquisition of Labyrinth and Mantra, discussed in Note 2, resulted
in an amount paid in excess of the basis of net assets acquired,
assumed to be goodwill, of $2,250,000 which was originally capitalized
in the consolidated balance sheet. As Labyrinth and Mantra are both
development activities, it was determined that the excess purchase
price should have been characterized as purchased research and
development costs and, therefore, written off in
F-23
<PAGE>
10. CORRECTION/RESTATEMENT (continued)
accordance with Statement of Financial Accounting Standards No.
2. The accompanying
consolidated financial statements have been restated to expense the
$2,250,000 concurrent with the acquisition of Labyrinth and Mantra.
Previously issued financial statements reflected $100,000 of
amortization of the excess of cost over basis of net assets acquired.
The accompanying financial statements for the year ended March 31, 1997
have been restated to recognize the write-off of the additional
$2,150,000 which increased the net loss for the year from the
previously reported $4,203,857 (or $0.56 per share) to $6,353,857 (or
$0.85 per share) and resulted in a corresponding reduction of the
previously reported balances of total assets and stockholders' equity.
F-24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.01
FINANCIAL DATA SCHEDULE
This schedule contains summary information extracted from the Balance Sheet,
Statement of Operations, Statement of Cash Flows and Notes thereto incorporated
in Part I, Item 7, of this Form 10 - KSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 5,328,781
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,500
<PP&E> 299,692
<DEPRECIATION> (18,481)
<TOTAL-ASSETS> 5,618,159
<CURRENT-LIABILITIES> 165,788
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,877,410
<TOTAL-LIABILITY-AND-EQUITY> 5,618,159
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,906,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (1,010,312)
<EXTRAORDINARY> 0
<CHANGES> (459,435)
<NET-INCOME> (6,353,857)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
<PAGE>
</TABLE>
