SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-1
(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.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
U.S. Wireless Corporation ("the Company") is a Delaware corporation
organized 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. Unless the context requires, all references to the "Company"
include Labyrinth and Mantra.
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.
Reverse Stock Split
The Company held a special meeting of its stockholders on May 31, 1996,
at which meeting the stockholders approved a 1 for 4 reverse stock split of its
outstanding shares of Common Stock, reducing its issued and outstanding shares
of Common Stock from 3,575,980 shares to 893,995 shares. The record date for the
purpose of calculating the reverse split was April 17, 1996. Unless otherwise
specified, all references herein to shares and per share information give effect
to the reverse stock split.
Name Change and Spin-off
In June 1996, the Company's Board of Directors, pursuant to the consent
of its then majority stockholder, authorized the distribution to its
shareholders ("the Spin-off Distribution") of the shares of common stock of Play
Co. Toys & Entertainment Corp. ("Playco.") owned by the Company. In addition,
the Company, 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 Company 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.
In October 1996, the Company filed an amendment to its certificate of
incorporation changing its name from American Toys, Inc., to its present name.
Simultaneously, its trading symbol was changed from "ATOY" to "USWC." The name
change was effected due to the Company's change in direction.
Private Placements
In July 1996, the Company consummated a private placement ("the Private
Placement") of its securities. The Company offered 600,000 shares at a purchase
price of $2.50 per share for gross proceeds
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of $1,500,000. The proceeds of the offering were used for the Company's
acquisitions of Labyrinth and Mantra. Simultaneously, Labyrinth consummated a
private placement offering of an aggregate of 79,000 shares at $12.00 per share
for gross proceeds of $948,000.
Business of Labyrinth Communication Technologies Group, Inc.
General
In July 1996, the Company commenced the development of an
infrastructure product, the RadioCamera, for the cellular base station. The
RadioCamera is designed to provide value added services and features for
cellular networks. The Company has a development plan according to which these
services and features gradually will be introduced to the cellular networks.
These services and features include caller location finding and tracking,
autonomous network management, and caller location based improved trunking.
Industry Overview
In June 1996, the Federal Communications Commission adopted a report
and order establishing certain performance goals and timetables requiring
wireless service providers to be able to identify each caller's phone number and
physical location for the purpose of providing emergency services. See
"Government Regulations." This initiative, requiring service providers to obtain
location finding capabilities for 911 emergency services, has caused a number of
companies to dedicate research funding to solving the problem of developing a
location technology. As the industry attempts to solve this problem, management
believes that the industry ^ will contemplate additional uses for location
finding technology, as a means to increase revenues by offering additional value
added services to the wireless communications industry. The ^ Company has
knowledge of a number of companies competing to develop mobile location finding
technologies ^ for network-based applications, which apply mathematical
algorithms to RF signals. In addition, the Company is aware of other companies
which are seeking to build dedicated networks using different frequencies than
those of the current cellular standards and in the alternative satellite
tracking. There can be no assurances that the Company is familiar with all
companies developing technology to provide location finding capabilities, nor
can it give assurances that new entries in to the marketplace or alternate
technologies will not be developed.
See "Competition."
To the Company's knowledge the following are the current different
method formats of measurements being developed which use existing radio
frequency ("RF") signals to locate a caller, ^which include the following:
Time difference of arrival ("TDOA") of RF signals, 1 Direction or angle
of arrival ("AOA") of RF signals, 1 Amplitude or signal strength
measurements, 1 Polarization of signals, and 1 Phase of signal
measurements.
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TDOA and AOA are the primary techniques to triangulate the location of
the user, being developed by several of the Company's competition. Since most
companies use triangulation (the use of RF signals from two or more base
stations) to determine location, it is important that multiple cell sites be
able to communicate with the user's handset. For AOA systems, at least two cell
sites are required. For TDOA systems, three or more cell sites are usually
required for accurate location.
A major problem in urban environments is multipath signals. Multipath
occurs when multiple RF signals bounce off buildings and other solid objects,
resulting in the receipt of several different signals at the cell site from a
single caller. As there is rarely a line of sight from the user to the cell
site, in urban environments, reflected RF signals are beneficial in delivering
the call but can be detrimental to finding the user's location. Therefore, the
Company believes that, TDOA or AOA techniques typically experience difficulties
in pinpointing the location of the caller in urban environments, as there are
many conflicting angles and times for the RF signals received at the cell sites.
Other current technical solutions ^ the Company is familiar with can
locate the caller at the start of a call. These technologies cannot track the
caller if the caller moves from the original position after the time the call
was placed. These types of technical deficiencies do not provide the information
necessary for both 911 emergency services and for commercial location
applications. It is important for any location technology to be able to
continually track the user's location while a call is in progress.
Company Outlook
The Company's RadioCamera is designed to solve the multipath problem in
offering location finding services by taking various measurements of the RF
signals from any caller to a single cell site with a special focus on collecting
all multipath rays. The "fingerprint" collected in this fashion is then utilized
to reconstruct the location out of which the signals could have emerged in order
to locate the caller.
The Company is currently in the process of completing the research,
development, and initial testing of the RadioCamera prototype. Though the
Company does not presently have any contracts for the sale of RadioCameras,
simultaneously with its testing, it is marketing the RadioCamera and developing
distribution alternatives with potential strategic partners on how to commence
the rollout and operation of the RadioCamera. Notwithstanding the successful
completion of the testing of the RadioCamera, the rollout the RadioCamera will
be contingent on its ability to coordinate the implementation of the RadioCamera
with the service pro viders operations. See "Marketing and Distribution". The
Company's management believes that the Company will be able to rollout the
RadioCamera during fiscal 1998. To this end the Company is (i) completing the
design, construction, and testing of a second prototype of the RadioCamera,
which prototype will be used as a platform for mass production of the commercial
units; (ii) preparing the RadioCamera for testing in active base station and
independent sites; (iii) engaging in marketing and developing relationships and
strategic alliances with companies in the wireless industry for the anticipated
rollout of the RadioCamera and the formation of an operating company to offer
geolocation services; and (iv) developing a plan for manufacturing the
RadioCamera in anticipation of its rollout.
The Company currently believes that its has the funds necessary to continue
it operations for the
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next 24 months enabling it to complete its testing and commence its initial
production. The Company does not anticipate having revenues from operations for
approximately 12 months.
Initially, the RadioCamera is being developed for incorporation into
the cellular systems using the AMPS standard, which is the largest cellular
market in the United States, incorporating approximately 40 million subscribers
and approximately 30,000 base stations. In the near future, the Company plans to
modify the RadioCameras for use with PCS, GSM, CDMA, TDMA and other standards.
The RadioCamera
The RadioCamera is an independent system designed for either
incorporation into the infrastructure of a cellular base station or to be
operated on a stand alone basis. It is designed to perform two functions: (i) to
provide location finding information from the measurement of a hybrid signature
based on the RF signals from all cellular callers in a geographic area,
identifying the callers' locations on a continuous basis; and (ii) to improve
trunking efficiency in order to increase user capacity. The RadioCamera will
provide trunking efficiency by effectively managing the allocation of channels
provided by the antennas to the sectors in which there is demand; therefore, it
will apportion a station's capacity where it is needed, allowing capacity
changes as demand changes. The Company believes that such efficiency in
allocation shall enable each base station to significantly increase its
capacity.
The location finding technology combines algorithms developed by the
Company operating on the collected rays, including all direct and reflected rays
from any subscriber at any point in time, and matches such rays to an estimated
location of origination. This technology constantly determines the location of a
caller regardless of whether or not he makes a request for location.
Management believes that the advantage of this technology over TDOA and
AOA technologies is that it resolves the multipath problem of an urban
environment. Unlike TDOA or AOA technologies, the RadioCamera technology can
generate a user's location from a single site in an urban environment since it
uses multipath signals for its location detection ability. See "Industry
Overview." The system also tracks the geographical performance of the wireless
base station and can detect whether the base station's coverage is as desired or
whether it has shifted and is not providing coverage to an expected area of
coverage, thus providing an additional benefit, network management, and
substantially increasing and enhancing the network's operational efficiency.
Testing
The Company has commenced the testing of the RadioCamera in three
different locations in Northern California. The Company anticipates testing the
RadioCamera in operating base stations and on a stand alone basis within the
next few months. This preliminary testing is designed to determine the accuracy
of the RadioCamera in several operating environments, to refine the software and
hardware of the RadioCamera in an operating environment, and to monitor the
performance of the product. The Company expects testing to continue through the
end of calendar 1997.
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Supply and Manufacturing
The Company is presently reviewing alternatives to address anticipated
product demand. The Company believes that when the technology risk has been
eliminated, there will be a demand for the RadioCamera. Presently the Company is
performing the design and engineering of the manufacturing of the prototype of
the RadioCamera. This will be the model for the first RadioCamera manufactured
for integration and within the base stations of the commercial carrier. The
Company believes that these prototypes will be adjusted and modified during the
testing process to conform to base station integration and production
requirements. Simultaneously during the testing period, a manufacturing plan
will be developed for the mass production of the RadioCamera.
In April 1997, the Company submitted a proposal to the government of
Germany to receive a subsidy and grant for the purpose of building a
manufacturing plant in Rostock, Germany, as part of a redevelopment effort
undertaken by the German authority. The Company estimates that the manufacturing
facility will require a US $14 million investment. The proposal includes the
receipt of grants and a US $4.35 million long-term loan from the German
government. The loan will be secured by the facility.
There can be no assurance that an uninterrupted and adequate supply of
the RadioCamera will be available initially to meet demand. The Company believes
that there are a sufficient number of suppliers, vendors, and manufacturers
available to the Company at competitive prices and on competitive terms.
Marketing and Distribution
The Company plans to distribute the RadioCamera through sales (i)
directly to service providers; (ii) to companies offering or planning to offer
geo-location services; (iii) to OEM infrastructure manufacturers; and (iv) to
engineering firms developing and constructing base stations. Through its testing
process, the Company is developing strategic alliances and consummating
relationships with various companies referred to in items (i) - (iv) above. In
the alternative the Company may seek to operate the RadioCameras, either as
installed in existing cellular base stations or through the development of its
own network. The Company believes that by eliminating the technology risk
associated ^, through its testing process, there will develop a market for the
location finding technology produced by the RadioCamera, though no assurances
can be given.
In addition to sales of the RadioCamera, the Company anticipates
entering into strategic alliances and/or joint venture agreements to offer
geo-location services to the wireless communications industry. These services
will include 911 emergency, 411 information, wireless network management,
geographically sensitive billing, and in the future, advanced network management
and more advanced network applications. The Company can provide such services by
(i) accessing the location information produced by the RadioCameras; (ii)
transporting the information through a communications system to a hub for
coordination and integration of the information with other systems (i.e. mapping
system and informational service systems like 411 and 911); and (iii)
transporting and selling the information to (a) public safety answering points
("PSAP") with respect to 911 emergency services, (b) service providers,
<PAGE>
(c) geo-location service companies, and (d) end users. The additional functions
described above would require joint efforts between the Company and current
providers of such services or the development of each by the Company. The
Company is currently undertaking the process of developing relationships with
the cellular service providers and the companies which provide (i) the
transportation of information (ii) mapping and information service and (iii)
access to the PSAP's.
Business of Mantra
General
Mantra Technologies, Inc. was founded in July 1996 as a software
development company dedicated to the enhancement of human computer interaction.
In July 1996, it began the development of a self-driven research tool ("the
Research Tool") designed to access various databases to locate and collect
information based on a user interest profile. The Research Tool engages in a
self-driven daily process of creating and updating a user interest profile,
which process is performed by analyzing the data on a user's system. The user
profile is submitted to an index server search engine which searches the various
databases the user requests, and the information gathered by the tool is then
filtered for relevant materials. Finally, the relevant information and all
ancillary documents are downloaded into the system to be analyzed and filtered
for content, categorized and clustered into a useable format for the user.
The first version of this product is currently being developed and
tested for use as an Internet research tool. It studies the data stored on the
user's computer, determines the user's current areas of interest, and searches
for information which may be of value to the user on any indexed database (LAN,
local drives, Intranets, Internet, and paid information services which are
supported by the user), and retrieves and presents this information to the user
in a conveniently organized HTML document.
Industry Overview
Information retrieval is a rapidly growing industry. With the rise of
the Internet and the personal computer, users are constantly desiring greater
access to information, quicker and cheaper. Technology, though continuously
improving, has not been able to meet the increased demands of users. Speed of
transmissions, limitations of communications platforms, and differences in
programming have made research of these databases a tedious endeavor.
The Internet has become a new mass media channel that exposes tens of
millions of people to existing public and private databases. The technology the
Internet is based on, both at the networking layer and the information indexing
techniques, has forced the industry to redesign legacy databases and/or their
interfaces to be compatible with the new mass media channel. The Internet's
information indexing and distribution methodology has also become the model for
private local and wide area networks and Intranets.
As opposed to record based or relational databases, the
Internet/Intranet indexing model was designed to accommodate a chaotic system of
resources. On the Internet, new resources are added daily
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and old ones are removed, all without 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 variety of resource
types.
The only type of attempt to index the Internet was made by voluntary
and free service providers who operated complex systems of automated programs
that roamed the Internet and collected information. This type of activity is
done today by hundreds of non-profit organizations on the Internet or outside
it, with the same search-engine model emerging as the leading standard in
indexing text-based information. This text-based information indexing is not
only on the Internet, it is used with Intranets and anywhere text information is
being accumulated. This indexing technique for text-based material 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. This method of organizing text material is very flexible but
also introduces an array of problems. Searching for a resource in a very big
database is complex, there being many subtleties to using search words or search
strings.
Today, a person needs to have some proficiency in using these systems
when trying to find a resource, and more often than not, basic proficiency is
not enough. Since the indexing systems are not linear, there can be many results
to a single query, sometimes up to hundreds of thousands of results which the
query issuing person has to then filter based on his individual needs.
Based on the need for the accumulation of information and the need for
the ability to access it simply, a market for information retrieval products is
emerging and continuously developing. Users basically are looking for products
to perform one or more of the following functions:
1. To assist in the process of retrieving a resource from a query-based
database.
2. To submit a query to multiple search-engines for local or public
databases.
3. To automate retrieval of specific type of information the user has
designated.
4. To improve the accuracy of the query results.
5. To automatically filter out the less relevant results for a user query.
6. To relieve the users' need to acquire proficiency in resource search
techniques.
The available products that target this market can be divided into three
categories:
1. "Push Technology" - allows a person to state his field(s) of interest or
specific items of interest, and later actively sends the user updates about
resources to use or directly sends the desired information to the user.
2. "Multiple Search Engine Submission" - allows a user to form a fairly
simple query, submit this query to multiple search engines, and filter the
results.
3. "Search Engine Enhancements" - increase the indexing accuracy of the
search engine and deliver additional services to narrow the search and yield
fewer, more accurate results per query.
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Company Outlook
Until now, searching for information on databases (such as the
Internet) required the computer user to proficiently articulate a search string,
submit it to a search engine, manually filter the results, and thus expend
extensive amounts of time during this process. Mantra has developed the Research
Tool, which is designed to eliminate the time inefficiency and extensive cost of
other researching techniques.
Mantra has produced the first prototype of its Research Tool and is
engaging in testing and market research to complete the development of the
product and formulate a direction for its implementation in the industry.
Mantra's goal is to integrate the Research Tool into a client's operating system
as a module which learns and adjusts to the user's habits, needs, and interests,
thereby becoming a personal assistant to the user. The concept is to provide the
user, whether he is an employee of a large corporation or an individual at home,
with the ability to have a search engine search the Internet or other databases
for information helpful and necessary to the person's daily operations, all of
which is done in the background of the computer system without the user waiting
for results. The Research Tool is to be a learning and communicative
self-executing program which will give the user greater efficiency and
flexibility in performing daily necessary functions.
Mantra anticipates that additional versions of the initial prototype
shall be developed based upon the testing process. These versions shall include
a more robust set of features and will strive to be more closely integrated with
the user's system, conceptually residing between the application level and the
shell level. Whereas now the only information source used is the Internet, the
structure of the product is such that it will allow simple additions of
information modules allowing the software to interact with just about any
indexed information source. Its features will allow the product to be deployed
in a wide variety of working environments, providing the most value in research
intensive environments.
As part of the Company's development process, the Company studies the
possibilities of adding standardized tests, handwriting recognition and
analysis, and behavioral pattern recognition to the resource pool for future
products.
The Product
Mantra has produced the first prototype of its "Research Tool," which
is an innovative approach to information search and retrieval. The Research Tool
is a self-learning and adaptive tool which proactively anticipates a user's
needs and desires. The tool is set up to develop an evolving user profile to
search and access pertinent information. In addition, it has the versatile
ability to be utilized by submitting an individual document, or a portion of a
document, as the basis for the analysis and search. The user does not need to
come up with individual key words for the search. This system studies documents,
extracts the topics discussed in them, and searches the Internet, or other
available network resources, for relevant content. Once the user has accessed a
document of interest, the document can be submitted to the Research Tool while
the user returns to other duties. When the research is finished, the user can
access the relevant content found.
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The operational process of the Research Tool performs the following
functions: (i) it reviews and analyzes the documents in a user's computer to
produce a user interest profile, which is a part of the "MindStep" technology;
(ii) this profile is then downloaded into an index server search engine to
search the database, initially the Internet, to find relevant documents; (iii)
once matching documents and materials are found, the MindStep technology
reengages in analyzing the gathered information, discarding irrelevant
information so as to compile only information which is current and closely
associated to the user's profile; (iv) once this process is completed and
relevant documents are found, a process called "Infodam" engages to download all
the relevant materials to the user's computer for viewing by the user. MindStep
is the process of formulating a profile of a user's areas of interest from a set
of one or more documents (initiating an adaptive search on any indexed database
of documents) and analyzing the results to 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 process of presenting the information to the user is provided by
the Infodam technology which allows the computer to download onto the user's
hard drive the relevant information, as a background function, so that when the
user goes to retrieve the relevant information it is a quick process.
The Research Tool may also commence its process of researching
databases by a user's pro-active initiation of the process described above. The
direct interaction occurs when a user wants to research a specific topic. This
is done by delivering a document or set of documents into a special section of
the Research Tool, whereby an immediate search is requested. The research
assistant then sends the document through the analysis and retrieval process
described above.
The daily background analysis autonomously monitors the user's level of
interaction with the computer and waits for a period of inactivity which implies
the user is away from the computer. It then builds a profile of documents
accessed, modified, and created within a user-controlled number of days. The
documents contained in this profile should reflect the recent areas of interest
of the user. The documents may be e-mail messages, e-mail attachments, web pages
visited, documents created with any word processor, presentations, etc. All of
these documents are then fed into the MindStep engine, which identifies topics
discussed in this set of documents, merges similar topics to form more accurate
topic modules, and initiates its research. The result of this daily activity
will be an HTML page on the user's desktop which will contain links to the
relevant documents that were found, categorized according to topics.
Marketing and Distribution
The Company is currently undergoing studies to determine the most
appropriate vehicle for marketing the Mantra product. Management anticipates a
universal appeal of the product to include large and medium sized corporations,
and professional groups such as doctors and lawyers, individuals who
continuously search databases for the most recent information on certain topics
and every day Internet users. Management believes that the best approach to
marketing the product will fall under one of the two following categories:
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1. One approach is the mass commercialization, distribution, and
marketing of the product, which requires intense name
recognition and extensive distribution channels in putting the
product on retail shelves. This approach is capital intensive
and requires a bigger investment in building distribution
networks and service and support.
2. Another approach is the marketing of the product directly to
the biggest users and creating an impetus for the product
through licensing the software. This approach includes
engaging in strategic alliances with computer manufacturers,
Internet service providers, and other research oriented
systems. This method offers the most control regarding sales,
service, and support issues.
Competition
The cellular communications and research and informational services
industries, in general, are highly competitive, with a number of companies
competing to provide value added services. Existing and developing companies are
providing large budgets for research and development in these areas. Products
are continuously being introduced in to the marketplace as newer and better
versions are being developed.
Labyrinth
There are a number of companies offering value added wireless services.
Though the Company is competing with other smart antenna companies offering
products to increase the base stations' efficiency, the Company's primary
competitors are firms offering or seeking to offer network-based location
finding services. A network-based solution accesses operating base stations in
order to locate callers. Currently, the Company is familiar with various
network-based methods relying on TDOA and AOA techniques. The Company's
competitors include TruePosition, a division of The Associated Group, Inc.;
Lockheed Sanders, a wholly-owned subsidiary of Lockheed Martin Corporation;
E-Systems Company; KSI, Inc.; and AccuCom Wireless Services. The Company
believes that some of its competitors have greater marketing, customer support,
financial, and other resources than those of the Company.
Other location technologies being developed include dedicated
radiolocation networks which are built solely for location finding and global
positioning systems which are based on satellite tracking systems. The Company
does not believe that dedicated positioning systems or global tracking systems
have the cost efficiencies needed to replace the network-based systems as the
technology of choice. Since this area of wireless services is relatively new,
sparked by the requirement of the FCC to provide 911 emergency services with
location finding capability, most wireless and cellular service providers or
intended providers are in the development and testing stages of their products,
as is the Company.
Mantra
Though the Company is unaware of any company or product which is in
direct competition with the Company's Research Tool, there can be no assurances
that there are not any products which have been
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developed or which are in development. The Company is familiar with other
companies and products which perform some of the functions provided by the
Research Tool, including: (i) Push Technology products, for which there are the
following competitors: Pointcast, Inc., Marimba, Inc., BackWeb Technologies,
AgentSoft Ltd., Intermind Corporation, Lanacom Inc., and Autonomy; (ii) Multiple
Search Engine Submission products for which Symantec and WebCompass are the two
main competitors; and (iii) Search Engine Enhancement products for which ICE and
Live-Topics are the companies competitors.
The Company shall compete with such other companies on the basis of the
quality and efficiency of its products. Although the Company is confident that
the technology behind its products is sound, the Company cannot offer any
assurance that one or more of its competitors will not develop and market
products equal to or better than those marketed by the Company; nor can the
Company assure that other companies will not enter the marketplace or that other
companies will not produce and market products technologically superior to the
Company's.
Patents and Trademarks
Members of the Company filed a patent application on January 8, 1997,
regarding the RadioCamera and the Company's location finding technology, which
application is currently pending. Simultaneously with the filing of the patent
application, the individuals assigned any and all rights, title, and interest to
the patent to Labyrinth.
In June 1996, employees of Mantra filed a provisional patent with the
U.S. Patent and Trademark office with respect to the development of a personal
web map system. The filing of a provisional patent requires a full patent
application within one year of the filing of the provisional patent in order for
the date of the patent, if and when issued, to be the date of the filing of the
provisional patent. On March 28, 1997, employees of Mantra filed a patent
application, including the technology developed in the provisional patent, as
further developed. This patent is currently pending. The inventors subsequently
filed assignments, assigning any and all rights, title, and interest to the
patent, to Mantra.
There can be no assurance that patents will be issued pursuant to these
filings or that any particular aspect of the Company's technology will not be
found to infringe on the products or technologies of other companies or that
other companies will not infringe on the patents or technologies of the Company.
Dr. Hilsenrath and all employees of the Company have agreed in writing to assign
any and all rights, title and interest to patentable products produced by the
Company. All employees prior to the commencing of their employment are required
to execute non disclosure and confidentiality agreements, which include
representations that all technology developed during the course of their
employment is owned solely by the Company and that they agree to execute
assignments for all patents filed
The Company relies on common law trademarks for use of "RadioCamera,"
"MindStep," and "Infodam." The Company has filed intent to use applications to
register these trademarks 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 of 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
fund same, that it will prevail.
Government Regulations
The wireless communications industry is regulated by the Federal
Communications Commission ("FCC"). The FCC regulates and monitors the use of
radio waves which are apportioned to numerous uses for all frequencies of the
spectrum,. In September 1994, the FCC sought comment on a Notice of Rule making
(NPRM Docket 94-102) which proceeding addressed the issue of 911 emergency
services for advanced telecommunications technologies. On June 12, 1996, the FCC
adopted a Report & Order which establishes performance goals and timetables for
the identification of a wireless caller's phone number and physical location.
Under phase I of the order, wireless carriers must be able to identify the
telephone numbers of their subscribers and locate subscribers to the nearest
cell by April 1, 1998. Under phase II, wireless carriers must be able to locate
a 911 caller within 125 meters, in 67% of all cases, by October 1, 2001.
Additionally, the Company is required to comply with a wide range of
other state and local rules and regulations applicable to its business. The
ability to adapt the Company's product lines in order to comply with the current
and anticipated broad federal, state, and local regulatory network is essential
and may be costly. The failure to comply with such regulations may have an
adverse effect on the Company's operations.
ITEM 2. DESCRIPTION OF PROPERTY
On July 31, 1996, the Company entered a building lease agreement ("the
Lease") with Annabel Investment Company, a California partnership, for the lease
of executive office space at 2694 Bishop Drive, Suite 213, San Ramon, California
94583. Pursuant to the Lease, the Company maintains 2,549 square feet of
executive office space at a total cost of $50,980 per annum. The Lease,
effective for a term of three (3) years, commencing on August 23, 1996 and
continuing through August 23, 1999, was amended on November 11, 1996, to include
the rental of 2,667 additional square feet of office space (comprising Suite
250) at a cost of $56,007 per annum.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended March 31, 1997, no
matter was submitted to a vote of security holders, through the solicitation of
proxies or otherwise.
<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 bid quotes as reported by a market maker for the Company's Securities
during the period from January 1, 1995 through June 2, 1997, or their
expiration. Bid quotations 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 Warrants(1) Distribution Warrants(1)(2)
Calendar Period Low High Low High Low High
- --------------- --- ---- --- ---- --- ----
1995
<C> <C> <C> <C> <C> <C> <C> <C> <C>
01/01/95 - 03/31/95 9 48 7 26 2 1/2 25 1/2
04/01/95 - 06/30/95 2 16 21/32 1/8 7 1/2 1/8 4
07/01/95 - 09/30/95 12 1/4 12 1/4 3/4 3/4 1/4 1/4
10/01/95 - 12/31/95 14 36 1/8 1/2 1/8 1/4
1996
01/01/96 - 03/31/96 18 10 1/8 1/2 1/8 1/4
04/01/96 - 06/30/96 10 1/2 14
07/01/96 - 09/30/96 1 1/8 6 1/2
10/01/96 - 12/31/96 3 1/8 4 1/4
1997
01/01/97 - 03/31/97 31/4 6 1/4
04/01/97 - 06/03/97 23/4 4 13/16
- -----------------------
</TABLE>
(1) Unexercised Distribution Warrants and Public Warrants expired on March
28, 1996.
(2) The Warrants and Distribution Warrants began trading on June 14, 1994
upon the separation of the Units, and ceased trading on March 27, 1996 upon
their expiration.
(3) The Company's Units only traded from March 28, 1994 through June 14,
1994.
As of June 2, 1997, there were 44 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 905
additional beneficial owners of shares of Common Stock held in street name. As
of June 2, 1997, there were 7,325,245 shares of the Company's Common Stock
outstanding.
On July 31, 1996, the Company consummated a private placement offering
of an aggregate of 600,000 shares of its Common Stock at a purchase price of
$2.50 per share, for which the Company received gross proceeds of $1,500,000.
The proceeds of the offering were used to purchase the securities of Labyrinth
and Mantra in accordance with the acquisition. See "Business." The purchasers in
the offering received "piggy back" registration rights. At the same time,
Labyrinth consummated a private placement offering of an aggregate of 79,000
shares at $12.00 per share for gross proceeds of $948,000.
<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. ^ The Company recorded retail sales from
Playco of^ $21,230,853 ^ for the year ended March 31, 1996. The decrease in
sales is reflective of the August 1996 spin-off of the Company's majority
ownership in ^Playco. ^
Costs and expenses totaled $2,756,576 for the year ended March 31, 1997
as compared to total costs and expenses of $25,321,474 for the year ended March
31, 1996. As with sales, the overall decrease in costs and expenses is primarily
due to the ^ divestiture of ^the majority ownership of Playco. For the year
ended March 31, 1997, the Company ^and its current majority owned subsidiaries,
Labyrinth and Mantra, had Operating Expenses which totaled $1,542,193.
<PAGE>
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 $620,000 in connection with the issuance of 151,000
shares of its common stock to its officers and key employees.
The Company recorded $106,542 of amortization of the excess of cost
over basis of the net assets acquired, $100,000 of which was recorded as a
result of the Labyrinth acquisition in July 1996, for the year ended March 31,
1997. Such amortization is included in operating expenses.
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. ^The
^Company had no interest expense for the year ended March 31, 1997 ^compared to
$535,158 for the year ended March 31, 1996 ^. The decrease is a result of the
spin-off of Playco which incurred interest on its obligations with a finance
company.
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 a result of the above, the Company recorded a net loss of
$4,203,857, or $0.56 per share, for the year ended March 31, 1997 compared to a
net loss of $2,876,733, or $4.02 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 $410,000. 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
<PAGE>
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.
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 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,
Certified Public Accountants as its certifying auditors to audit the Company's
financial statements for the year ended March 31, 1997. In December 1996, the
Company engaged Haskell & White, 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>
Dr. Oliver Hilsenrath 40 President, Chief Executive Officer,
Director
Dr. Mati Wax 50 Chief Technology Officer
David Klarman 32 General Counsel and
Secretary
David Tamir 53 Director
Regina Gindin 45 Director
</TABLE>
Dr. Oliver Hilsenrath has been the President and Chief Executive Officer
and a Director of the Company since July 31, 1996. Since their inceptions, Dr.
Hilsenrath has been the Chief Executive Officer, President, and a Director of
both Labyrinth and Mantra. From 1992 through 1996, he was a Senior Vice
President, General Manager, and co-founder of Geotek Communications, Inc., an
international wireless carrier with networks in the United States, United
Kingdom, and Germany. Dr. Hilsenrath received his Ph.D. in information theory
from Technion-Polytechnical Institute of Israel. He has worked in the wireless
communications industry for twenty years.
Dr. Mati Wax has been the Chief Technology Officer of the Company and
Labyrinth since August 1996. From 1985 to 1996 he was the head of the Signal
Processing Center at RAFAEL. From 1984 through 1985 he was a visiting scientist
for IBM Research Laboratories. Dr. Wax received his Ph.D. in electrical
engineering from Stanford University in 1985. While at Stanford he founded the
smart antenna group, and received the fellow of IEEE.
David Klarman has been General Counsel and Secretary of the Company since
September 1, 1996. In August 1996, Mr. Klarman formed Klarman & Associates, a
law firm specializing in corporate and securities law with offices in New York,
New York and San Ramon, California. From July 1994 to August 1996, Mr. Klarman
was an associate with Lampert & Lampert, a New York law firm specializing in
corporate and securities law. Prior thereto, from February 1991 to July 1994, he
was an associate with
<PAGE>
Goldstein, Axelrod & DiGioia, also a New York law firm specializing in
corporate and securities law. Mr. Klarman was elected a member of the Board of
Directors of The Appletree Companies, Inc. in August 1996 and served as such
until April 1997. Mr. Klarman received a Juris Doctorate in 1990 from Yeshiva
University, Benjamin N. Cardozo School of Law and a B.S. in Finance from the
University of Maryland in 1986.
David Tamir has been a Director of the Company since August 1996. Since
September 1995, Mr. Tamir has been the General Manager of GeoNet Israel Limited,
a subsidiary of Geotek Communications, Inc. From July 1992 to September 1995,
Mr. Tamir was the President of Powerspectrum Technology Limited, a subsidiary of
Geotek Communications, Inc., a cellular-wireless communications corporation.
Prior thereto, from 1990 to 1992, Mr. Tamir was a representative of RAFAEL, the
defense branch of the Israeli government. Mr. Tamir received BS and MS degrees
in Electrical Engineering from Technion, the Israel Institute of Technology in
Haifa, and an MBA degree from Hebrew University.
Regina Gindin has been a Director of the Company since August 1996. Since
August 1994, Ms. Gindin has been an independent consultant for RBG Associates, a
consulting firm which provides management consulting services for strategic
business planning. From 1993 to August 1994, Ms. Gindin was the Senior Vice
President of Strategic Management and Corporate Communications for Conner
Peripherals, Inc. ("Conner"), computer peripheral manufacturer. Prior thereto,
from 1992 to 1993, Ms. Gindin was the acting Chief Financial Officer of such
corporation and prior to that, from 1988 to 1992, she was the Vice President of
Strategic Planning and Corporate Communications. Ms. Gindin received her MBA in
Business Administration from the Wharton School of Finance, University of
Pennsylvania. She is a Director of The American Jewish World Service. Ms. Gindin
is also an advisor to the marketing department of the Wharton School of Finance.
See "--Employment and Consulting Agreements."
The Directors of the Company are elected annually by the shareholders
and hold office until the next annual meeting of shareholders or until their
successors are elected and qualified. The Executive Officers are elected
annually by the Board of Directors, serve at the discretion of the Board of
Directors and hold office until their successors are duly elected and qualified.
Vacancies on the Board of Directors may be filled by the remaining 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.
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
<PAGE>
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, 1997 to
each of the named Executive Officers of the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(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 1997 106,667(2) - 1,500,000(3) $5,572(4)
President
Chief Executive Officer
David Klarman 1997 70,000 - 150,000(5) --
General Counsel and Secretary
Dr. Mati Wax 1997 66,667 - 100,000(6) --
Chief Technology Officer
- -----------------------------
</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 his employment agreement, Dr. Hilsenrath receive an option
to purchase 1,500,000 shares of Common Stock at $2.00 per share.
(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) In August 1996, the Company granted Mr. Klarman the option to purchase
150,000 shares of the Company's Common Stock at an exercise price of $2.00 per
share subject to a vesting schedule. See "Employment and Consulting Agreements."
(6) In July 1996, the Company granted Dr. Wax the option to purchase
100,000 shares of the Company's Common Stock at an exercise price of $2.00 per
share pursuant to a vesting schedule. See "Employment and Consulting Agreement."
The Company also issued Dr. Wax 50,000 restricted shares of Labyrinth's Common
Stock.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Individual Grants
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted Exercise or
Options/SAR's Employees in Base
Name Granted (1) Fiscal Year Price ($/SH) Expiration Date
- ---- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Dr. Oliver Hilsenrath 1,500,000 56.8 $2.00 06/30/01
David Klarman 150,000 5.7 $2.00 08/30/01
Dr. Mati Wax 100,000 3.8 $2.00 07/06/01
</TABLE>
The following table contains information with respect to employees of the
Corporation concerning options held as of March 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-The-Money
Options/SAR's Options/SAR's
Shares at FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable (1)
- ---- ------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Dr. Oliver Hilsenrath - - 1,500,000/0 3,000,000/0
David Klarman - - 0/150,000 0/300,000
Dr. Mati Wax - - 0/100,000 0/200,000
</TABLE>
(1) Based upon the closing price for the Common Stock on March 31, 1997
($4.00), as reported by a market maker.
<PAGE>
Employment and Consulting Agreements
In April 1997, the Company amended the five year employment agreement
it entered with Dr. Hilsenrath in July 1996. As amended, Dr. Hilsenrath remains
the Chief Executive Officer and President of the Company and the President and
sole Director of both Labyrinth and Mantra. The agreement, as amended, provides
for an annual salary of $160,000 and increases of 15% per annum for each year of
its 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 policy of life insurance on the life of 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 salary to Dr. Hilsenrath in the
event that Dr. Hilsenrath is disabled. Upon the conclusion of this agreement,
all right, title, and interest in the policy shall be transferred to Dr.
Hilsenrath, and Dr. Hilsenrath 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
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, Dr. Hilsenrath 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 is to receive a salary
of $120,000 per annum and the option to purchase 150,000 shares of the Company's
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 to 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 whereby as Chief Technology Officer of same, Dr. Wax
is to receive a salary of $100,000 per annum, the option to purchase 100,000
shares of the Company's Common Stock at an exercise price of $2.00 per share,
subject to a three year vesting schedule, and 50,000 restricted shares of
Labyrinth's common stock, subject to a three year vesting schedule.
In June 1996, the Company entered into a five year employment agreement
with Ilan Arbel pursuant to which Mr. Arbel was to be Vice President of Business
Development, a non-executive officer position, upon the Company's consummation
of the acquisitions of Labyrinth and Mantra. Mr. Arbel's sole compensation was
the grant of options to purchase 1,000,000 shares of Common Stock at $1.00 per
share for a period of five years and 2,250,000 shares at $1.33 per share,
exercisable until December 31, 1996. In July 1996 Mr. Arbel, exercised his
option to purchase 1,000,000 shares at $1.00 in full. Mr. Arbel exercised the
remaining options in August and December 1996. Pursuant to an S-8 registration
<PAGE>
statement, 1,000,000 shares were transferred. The S-8 registration statement has
been amended to deregister the sale of the remaining shares, all of which were
issued with restrictive legends.
^In July 1996 the Company entered into 3 year consulting agreements
with Ryburn Limited and Crossgar Limited, to render services in introducing the
Company to potential customers and facilitating relationships with such
companies in the United States and Middle East, initiating strategic alliances
and joint ventures, as well as providing investment and business consulting and
advisory services to the Corporation, inclusive of the location, evaluation,
structuring and financing of business activities. The only compensation for the
services rendered by the consultants are the five year options granted by the
Company to purchase 1,000,000 and 200,000 shares of Common Stock at $2.00 per
share, to each of Ryburn Limited and Crossgar Limited, respectively.
In December 1996, the Company entered into a 3 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, the Company entered into a 2 year consulting agreement
with Young Associates Limited, with Lord David Young as its principal, to render
services introducing the Corporation to owners of Beta sites, facilitating
relationships with potential customers and initiating strategic alliances. The
only compensation for the services rendered by Young Associates Limited is the
of a five year option to purchase 100,000 shares of Common Stock at $2.00 per
share, vesting at the rate of 1/4 (25,000 shares) per the expiration of every 6
month period commencing July 1, 1997, until fully vested. In addition, in the
event that the Company enters into a transaction with a company introduced to it
by Young Associates Limited, it is due a finders fee subject to a Lehman
formula.
In January 1997, the Company entered into a 3 year consulting agreement
with Spencer Corporation, to render services in Europe to facilitate
relationships with potential customers and initiating strategic alliances and to
provide investment and business consulting and advisory services to the
Corporation, inclusive of the location, evaluation, structuring and financing of
business activities. The only compensation for the services rendered by the
consultant is a five year option to purchase 100,000 share of Common Stock at
$2.50 per share.
In June 1997, the Company entered into a two year consulting agreement
with Gerard Klauer Mattison & Co., Inc. ("GKM"), an investment banking firm, for
services in facilitating relationships with potential customers and strategic
partners and for initiating, evaluating, recommending and providing strategic
analysis with respect to financing alternatives. As compensation for the
services, the Company granted to GKM options to purchase 100,000 shares of the
Company's Common Stock at $4.25 per share, subject to a vesting schedule of 1/2
of the shares underlying the option vesting upon issuance and 1/2 of the shares
vesting six months from issuance. The option shall be for a term of five years
commencing on the date of issuance. In addition, in the event that the Company
enters into a transaction with a company introduced to it by GKM, GKM is due a
finders fee subject to a Lehman formula.
<PAGE>
On August 12, 1997, the Company entered into a 2 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 would receive a commission, in cash or 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.
On August 12, 1997 the Company entered into a 2 year consulting
agreement with Regina Gindin, a member of the Company's board of directors,
pursuant to which Ms. Gindin was retained to perform consulting services
including (i) introducing and facilitating relationships with potential
customers and strategic partners and (ii) providing investment and business
consulting and advisory services related to corporate finance and other
financial services matters. The Company agreed to pay 2% of the gross proceeds
of any financing of $10,000,0000 and $20,000,000 , which fees are payable over a
12 month period from the transaction date (s). Additionally, Ms. Gindin shall
receive three year options to purchase an aggregate of 150,000 shares of Common
Stock, exerciseable subject to a vesting schedule, at the market price on the
date(s) of consummation of said offering(s), of each of the consummation of a
$10,000,000 and $20,000,000 capital funding. Upon the consummation of
transactions between Mantra and a strategic partner, facilitated by Ms. Gindin,
of up to four strategic partner, she shall receive 2.5 shares of Mantra for each
strategic partnership.
Stock Option Plan
During 1993, the Company adopted the Company's 1993 Stock Option Plan
("the Plan"). The Board believes that the Plan is desirable to attract and
retain executives and other key employees of outstanding ability. Under the
Plan, options to purchase an aggregate of not more than 37,500 shares of Common
Stock may be granted from time to time to key employees, Officers, Directors,
advisors, and independent consultants to the Company and its subsidiaries.
The Board of Directors is charged with the administration of the Plan
and is generally empowered to interpret the Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend same with the consent of the Optionee(s), determine the employees to whom
options are to be granted, and determine the number of shares subject to each
option and the exercise price thereof. The per share exercise price for
incentive stock options ("ISO's") will not be less than 100% of the fair market
value of a share of the Common Stock on the date the option is granted (110% of
fair market value on the date of grant of an ISO if the optionee owns more than
10% of the Common Stock of the Company).
Options will be exercisable for a term determined by the Board which
will not be less than one year. Options may be exercised only while the original
grantee has a relationship with the Company or with a subsidiary of the Company,
which latter relationship confers eligibility to be granted options, or at the
sole discretion of the Board, within ninety days after the original grantee's
termination. In the event of termination due to retirement, the Optionee, with
the consent of the Board, shall have the right to exercise
<PAGE>
his option at any time during the thirty-six month period following such
retirement. Options may be exercised up to thirty-six months after the death or
total and permanent disability of an Optionee. In the event of certain basic
changes in the Company, including a change in control of the Company as defined
in the Plan, in the discretion of the Board, each option may become fully and
immediately exercisable. ISO's are not transferable other than by will or by the
laws of descent and distribution. Options may be exercised during the holder's
lifetime only by the holder or his guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISO's with
the attendant tax benefits provided therefor pursuant to Sections 421 and 422A
of the Internal Revenue Code of 1986. Accordingly, the Plan provides that the
aggregate fair market value (determined at the time an ISO is granted) of the
Common Stock subject to ISO's exercisable for the first time by an employee
during any calendar year (under all plans of the Company and its subsidiaries)
may not exceed $100,000. The Board may modify, suspend, or terminate the Plan,
provided, however, that certain material modifications affecting the Plan must
be approved by the shareholders, and any change in the Plan that may adversely
affect an Optionee's rights under an option previously granted under the Plan
requires the consent of the Optionee.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of June 10, 1997
with respect to the beneficial ownership 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 Company to be the
owner of 5% or more of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group. Except as otherwise
indicated below, each named beneficial owner set forth herein has sole voting
power with respect to the shares of Common Stock listed opposite his name.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Name and Address Amount and % of outstanding]
of Beneficial Owner Nature of shares owned
Beneficial
Ownership
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Oliver Hilsenrath
c/o U.S. Wireless Corp. 3,750,000(1) 42.2%
2694 Bishop Drive, Suite 213
San Ramon, CA 94583
- -------------------------------------------------------------------------------------------------------------
United Textiles & Toys
Corporation 378,758 5.1%
448 West 16th Street
New York, New York 10011
- -------------------------------------------------------------------------------------------------------------
David Tamir (2)
c/o U.S. Wireless Corp. -- --
2694 Bishop Drive, Suite 213
San Ramon, CA 94583
- -------------------------------------------------------------------------------------------------------------
Regina Gindin (2)
c/o U.S. Wireless Corp.
2694 Bishop Drive, Suite 213 -- --
San Ramon, CA 94583
- -------------------------------------------------------------------------------------------------------------
Galit Capital Limited (3)
Tortola, British Virgin Islands 1,071,880 14.5%
- -------------------------------------------------------------------------------------------------------------
Amir Overseas Capital Limited(3)
Tortola, British Virgin Islands 750,000 10.1%
- -------------------------------------------------------------------------------------------------------------
ZOE Arbel Trust (3)
Tortola, British Virgin Islands 500,000 6.8%
- -------------------------------------------------------------------------------------------------------------
Officers and Directors as a group
(4 persons) (1) - (2) 3,750,000 42.2%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Footnotes from previous page
*Less than 1%.
(1) Includes 1,500,000 shares of Common Stock issuable upon the exercise of
an option granted pursuant to Dr. Hilsenrath's employment agreement.
(2) Does not include stock options to purchase an aggregate of 100,000
shares of Common Stock which vest 1/3 each year from grant, non of which are
presently vested or exercisable.
(3) Mr. Arbel, a former Officer and Director of the Company, exercised
options granted pursuant to an employment agreement and thereafter transferred
said shares to the referenced companies. Mr. Arbel denies beneficial ownership
of these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, the Company's Board of Directors, pursuant to the consent
of the then majority stockholder of the Company, distributed ("the Spin-off
Distribution") the shares of common stock of Playco owned by the Company. In
addition, the Company, 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 Company 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 ninety day period from March 1, 1996 to
May 31, 1996.
In June 1996, European Ventures Corp. ("EVC"), a British Virgin Islands
corporation of which Moses Mika at the time was the sole Officer, Director, and
stockholder, acquired 3,106,005 shares of the Company's Common Stock, par value
$.01, in exchange for 400,000 shares of common stock of Multimedia Concepts
International, Inc. ("Media"), a Delaware Corporation. The Company had the right
either to pay $1,800,000 for the shares or to transfer 400,000 shares of Media
to the Company. Mr. Mika is the father of Mr. Arbel, the former President and
Chief Executive Officer of the Company. The shares of Common Stock issued to EVC
were not eligible for the Spin-off Distribution of the Playco shares referred to
herein. In April 1997, the Company and EVC entered into an agreement to rescind
the transaction, and EVC returned 2,706,006 shares to the Company in exchange
for the 400,000 shares of Media. This transaction was consummated in May 1997.
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 amended Form 10-KSB, except those designated with
an asterisk (**) which are filed herewith, previously have been filed with the
Commission in connection with (i) the Company's Registration Statement on Form
SB-2, dated March 28, 1994, under file No. 33-68306-NY; or (ii) Form 8-K, dated
July 11, 1996, pursuant to 17 C.F.R. Section 230.411, and are incorporated by
reference herein. The exhibits designated with an (*) were filed with the
initial filing of this Form 10-KSB for the year ended March 31, 1997.
<TABLE>
<CAPTION>
<S> <C>
2.1 - Stock Purchase Agreement Among the Company, Labyrinth Communications
Technologies Group, Inc., and the stockholders of 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
the 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).
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.
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.
10.77* - Amended Employment Agreement with Dr. Oliver Hilsenrath.
10.78* - Employment Agreement with David Klarman
10.79* - Employment Agreement with Dr. Mati Wax.
10.80* - Consulting Agreement with Young Associates.
10.81* - Consulting Agreement with Dennis Frances.
10.82* - Consulting Agreement with Spencer Corporation.
10.83* - Consulting Agreement with Ryburn Limited.
10.84* - Consulting Agreement with Crossgar Limited.
10.85* - Consulting Agreement with Pelican Investments Limited.
<PAGE>
10.86** - Consulting Agreement with DAEHO Merchandising, Inc.
10.87** - Consulting Agreement with Regina Gindin.
21.01 - List of all Company Subsidiaries.
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 22nd day of August, 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 August 22, 1997
Dr. Oliver Hilsenrath President and Director Dated
\s\ David Tamir Director August 22, 1997
David Tamir Dated
\s\ Regina Gindin Director August 22, 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
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
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
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
Excess of costs over basis of net assets acquired, net of
accumulated amortization of $100,000 ....................... 2,150,000
Other assets .................................................... 4,667
Total assets ........................................... $7,768,159
</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 ....................................... (11,718,763)
Total stockholders' equity ............................ 6,027,410
Total liabilities and stockholders' equity ............ $ 7,768,159
============
</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 ........................................................ $^ 21,230,853
Cost and expenses
Cost of sales ............................................... ^ -- 15,132,895
Operating expenses .......................................... ^1,542,193 9,518,238
Stock and stock options issued as compensation .............. 1,351,535 153,600
Interest (income) expense and financing fees, net of interest
income of $18,417 in 1996 ............................... 137,152 516,741
Total costs and expenses ................................ 2,756,576 25,321,474
Loss before minority interest in net losses of subsidiaries,
income tax (expense) benefit ^, discontinued operations .... ^ ^
^ and cumulative effect of a change in accounting principle ...... (2,756,576) (4,090,621)
Minority interest in net losses of subsidiaries .................. 22,466 1,213,888
Loss before income tax (expense) benefit,
discontinued operations and cumulative
effect of a change in accounting principle .................. (2,734,110) (2,876,733)
Income tax (expense) benefit ..................................... -- --
Loss before ^discontinued operations and ^
cumulative effect of a change in
accounting principle ........................................ (2,734,110) (2,876,733)
Discontinued operations (Note 2)
Loss from operations of Playco prior to spin-off ............ (625,269) --
Loss on disposal of Playco .................................. (385,043) --
Total discontinued operations ........................... (1,010,312) --
Loss before cumulative effect of a change in accounting
principle ................................................... (3,744,422) (2,876,733)
Cumulative effect of a change in accounting principle ............ (459,435) --
Net loss $ (4,203,857) $(2,876,733)
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ----------
Loss per common equivalent share
Loss before ^discontinued operations and cumulative effect
<S> <C> <C>
^ of a change in accounting principle ..................................... $(0.37) $(3.47)
Discontinued operations ................................................... (0.13) --
Cumulative effect of a change in accounting principle ..................... (0.06) --
------------- -------------
Net loss per common equivalent share ...................................... $(0.56) $(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 .................................................................. $ (3,744,422)$ (3,336,168)
============= =============
Net loss per common equivalent share ...................................... $ (0.50)$ (4.02)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 10
<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>
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>
See accompanying notes to consolidated financial statements.
F - 11
<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 - - - - - (4,203,857) (4,203,857)
Balances at March 31, 1997 10,031,250 $100,312 $20,493,262 $(1,277,918) $(1,569,483) $(11,718,763) $6,027,410
</TABLE>
See accompanying notes to consolidated financial statements.
F - 13
<PAGE>
U.S. WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
1997 1996
Cash flows from operating activities
<S> <C> <C>
Net loss ..................................................... $(4,203,857) $(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 --
Depreciation and amortization ............................ 242,382 487,594
Amortization of excess of cost over net assets acquired .. 106,542 78,508
Minority interest in net losses of subsidiaries .......... (396,986) (1,213,888)
Issuance of Common Stock for
compensation and services .............................. 620,000 153,600
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,
net of the effects of spin-off of subsidiary:
Accounts receivable .................................... (165,207) 586,824
Merchandise inventories ................................ (1,743,239) 1,673,284
Other current assets ................................... 174,810 73,738
Deposits and other assets .............................. (4,667) 33,387
Accounts payable and accrued expenses .................. 1,632,146 (402,693)
Deferred rent liability ................................ (20,823) 57,717
----------- -----------
Net cash used for operating activities .......... (2,337,412) (1,348,662)
----------- -----------
Cash flows from investing activities
Equipment, improvements and fixtures acquired ................ (388,220) (340,311)
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 14
<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>
Payments on capital lease obligation ...................................... -- (42,045)
Borrowings under bank lines of credit ..................................... -- 1,092,361
Repayments under bank lines of credit ..................................... -- (3,466,852)
Borrowings under financing agreement ...................................... 1,465,859 5,637,392
Repayments under financing agreement ...................................... -- (2,234,367)
Payment of financing fees ................................................. -- (199,455)
Repayment to stockholders ................................................. (381,430) (217,723)
Proceeds from affiliates .................................................. -- 701,472
Payment of accrued dividends on subsidiary's
redeemable preferred stock .............................................. -- (18,982)
Redemption of subsidiary's Series B redeemable preferred
stock from Common Stock ................................................. -- (163,157)
Proceeds from issuance of Common Stock .................................... 6,398,483 274,500
Proceeds from issuance of preferred stock (Playco) ........................ 584,000 --
Redemption of Series B redeemable preferred stock (Playco) ................ (87,680) --
----------- -----------
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>
See accompanying notes to consolidated financial statements.
F - 16
<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)
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
</TABLE>
See accompanying notes to consolidated financial statements.
F - 18
<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.
See accompanying notes to consolidated financial statements.
F - 20
<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.
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.
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 - 21
<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.
For the year ended March 31, 1997, the Company recorded a loss
from operations of Playco prior to spin-off as discontinued
operations in the amount of $1,010,312. Such amount resulted
from revenues of $5,024,338, costs and expenses of $6,170,999,
interest expense of $238,171 and minority interest in the net
^ losses of Playco of $374,520 through the August 15, 1996
spin-off date. The Company has recorded no revenues from the
operations of Labyrinth and Mantra through March 31, 1997.
b) 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.
c) 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.
d) Excess of costs over basis of net assets acquired
Excess of costs over basis of net assets acquired is being
amortized on the straight-line method over a period of 15
years. The Company assesses whether there has been a permanent
impairment in the value of intangible assets by considering
factors such as estimated future revenues and product demand,
related competition and other economic factors. Management has
determined that no impairment adjustments have been necessary
to date.
F - 23
<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.
F - 25
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
F - 26
<PAGE>
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.
4. EQUIPMENT, IMPROVEMENTS AND FIXTURES, NET
Equipment, improvements and fixtures, net, at March 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Furniture, fixtures and equipment ...... $ 299,692 $ 2,918,621
Leasehold improvements ................. -- 542,785
Computerized inventory management system -- 484,074
Signs .................................. -- 265,959
Vehicles ............................... -- 104,912
299,692 4,316,351
Less accumulated depreciation
and amortization ....................... (18,481) (2,457,813)
$ 281,211 $ 1,858,538
</TABLE>
Equipment, improvements and fixtures include equipment under capital
leases of $70,665 and no accumulated amortization as of March 31, 1997.
See accompanying notes to consolidated financial statements.
F - 27
<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:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
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 ......... -% - %
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
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 $ -- $ --
=========== ===========
</TABLE>
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 - 28
<PAGE>
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 - 29
<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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
F - 31
<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 - 33
<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 - 35
<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.
.
F - 37
<PAGE>
Exhibit 10.86
Consulting Agreement with DAEHO Merchandising, Inc.
<PAGE>
August 12, 1997
Mr. S.C. Chon
DAEHO Merchandising Inc.
Rm 1004 Keo Yang Bldg. 51-8
Susong Dong, Chongro-Ku Seoul
Dear Mr. Chon:
Dear Mr. Chon:
This letter agreement confirms the understanding by the
parties hereto, U.S. Wireless Corporation, (the "Company") and DAEHO
Merchandising, Inc. ("DAEHO") pursuant to which the Company retains DAEHO to act
as a consultant to the Company under the terms and conditions set forth below.
1. In connection with the engagement hereunder, the Company hereby retains
DAEHO 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, by coordinating (a) the component
manufacturing (b) assembly and (c) testing, wherby, the Company would receive a
final product.
2. As compensation for the services described in paragraph 1(i) above, the
Company shall provide the following:
a. In the event that the Company consummates a transaction as
described in subparagraph 1 (i) above, initiated and facilitated by DAEHO, the
Company shall pay to DAEHO a fee equal 4% of the amount of the total
consideration paid in such transaction up to $1,000,000, 3% of the second
$1,000,000, 2% of the third $1,000,000, 1% of any consideration over $4,000,000.
Such fee shall be paid in cash or kind as may be negotiated between the parties,
subject to the closing of the transaction to which it relates, and shall only be
payable to such portion, if less than whole, of the transaction which has been
completed. In the event that the transaction relates to the sale of RadioCameras
or the operation of a joint venture company which provides geo-location
services, the fee shall be based on the net profit of the sales for the first 12
month period of the transaction.
b. In the event that the Company consummates a transaction as
described in subparagraph 1(ii) above, initiated, facilitated and coordinated by
DAEHO, the Company shall pay to DAEHO a fee equal to 3% of the actual price paid
by the Company for the manufacture of each RadioCamera purchased by the Company.
3. Pursuant to the terms of a non-disclosure and confidentiality agreement
to be executed and delivered in tandem to this agreement, DAEHO will hold in
confidence any confidential information which the Company provides to DAEHO.
DAEHO shall be an independent contractor and not an employee of the Company.
This Agreement shall not be construed to create between the Company and DAEHO a
relationship of principal, employer and employee, joint ventures, co-partners or
any other similar relationship, the existence of which is hereby expressly
denied by the Company and DAEHO. DAEHO is not an agent for the Company, except
as described herein and the Company is not an agent
<PAGE>
for DAEHO for any purpose whatsoever; and each such party has no right or
authority to assume or create any obligations, express or implied, on behalf or
in the name of the other party.
4. DAEHO shall not during the term of this agreement enter into or engage
in any business which is a direct competitor of the Company, unless:
a. Prior to DAEHO consulting with or becoming engaged by any
direct or indirect competitor of the Company, she gives the Company 10 days
prior written notice of such pending engagement and upon request of the Company
returns any and all materials supplied by the Company to DAEHO together with any
copies prepared by DAEHO or distributed by DAEHO, except as may be specifically
exempted in writing by the Company; and
b. Without prejudice to its obligations under sub-paragraph
(a) above, if DAEHO at any time has an interest in, or conflict of duty in
relation to, any transaction or matter which is the subject of services provided
to the Company, DAEHO agrees to notify the Company prior to such interest or
conflict arising.
5. This Agreement may not be transferred, assigned or delegated by DAEHO
without the prior written consent of the Company.
6. This Agreement is for a term of twenty-four (24) months and may be
terminated by either party upon notice to the other party. In the event that the
Company consummates a transaction as described in subparagraphs 1(i) and (ii),
within 12 months immediately following the termination of this Agreement, with
any party or entity introduced by DAEHO to the Company, the Company shall pay to
DAEHO the compensation with respect to such transaction, calculated in
accordance with such paragraph.
7. Any notices hereunder shall be sent to the Company and to DAEHO at their
respective addresses set forth above. Any notice shall be given by certified
mail, return receipt requested, postage prepaid, and shall be deemed to have
been given when deposited in the United States mail. Either party may designate
any other address to which notice shall be given, by giving written notice to
the other of such change of address in the manner herein provided.
8. This Agreement has been made in the State of California and shall be
construed and governed in accordance with the laws of the state of California
without giving effect to principles governing conflicts of law.
9. This Agreement contains the entire agreement between the parties, may
not be altered or modified, except in writing and signed by the party to be
charged DAEHO thereby, and supersedes any and all previous agreements between
the parties relating to the subject matter hereof.
10. This Agreement shall be binding upon the parties hereto, and their
respective heirs, legal representatives, administrators, successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written,
Very truly yours,
U.S. Wireless Corporation
By: _____________________________
Dr. Oliver Hilsenrath
Chief Executive Officer
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
Mr. S.C. Chon, DAEHO Merchandising, Inc.
<PAGE>
Exhibit 10.87
Consulting Agreement with Regina Gindin
<PAGE>
August 12, 1997
Ms. Regina Gindin
2000 Broadway
Suite 401
San Francisco, CA 94115
Dear Ms. Gindin:
This letter agreement confirms the understanding by the parties hereto,
U.S. Wireless Corporation, (the "Company"), Mantra Technologies, Inc.
("Mantra"), and Ms. Regina Gindin pursuant to which the Company retains Ms.
Regina Gindin to act as a consultant to the Company under the terms and
conditions set forth below.
2. In connection with the engagement hereunder, the Company hereby retains
Ms. Regina Gindin to perform consulting services including (i) introducing,
initiating and engaging in the process of facilitating relationships with
potential customers and strategic partners (ii) initiating, evaluating,
recommending and providing strategic analysis with respect to financing and
(iii) providing investment and business consulting and advisory services related
to corporate finance and other financial services matters. In furtherance of
items (i) - (iii) above, Ms. Regina Gindin shall assist the Company in
negotiating, advising and evaluating financing alternatives, with respect to the
timing, structure and pricing of any transaction. In addition, Ms. Regina Gindin
shall negotiate, advise and follow through consummation and implementation the
facilitation of relationships with strategic partners.
2. As compensation for the services described in paragraph 1 above, the
Company shall provide the following:
a. Upon the consummation of the raising of capital for the Company,
introduced and facilitated by Ms. Regina Gindin shall receive $200,000 if at
least $10,000,000 and $400,000 if at least $20,000,000 is raised. In the event
that a financing or an acquisition transaction is consummated by Mantra,
introduced and facilitated by Ms. Regina Gindin, Ms. Regina Gindin shall be
entitle to receive 2% of the value of the transaction, in cash or kind depending
on the transaction. For example, if the Company engages in an acquisition
whereby there is an exchange of shares, of which Mantra receives shares valued
at $5,000,000, Ms. Gindin would be entitled to receive shares valued at
$100,000. These fees shall be paid pursuant to an ongoing consulting services
agreement to be performed and paid over a 12 month period from the date(s) of
consummation of the financing(s). In the event that any financing is consummated
in segments over a period of time, the consulting arrangement shall be amended
to adjust accordingly to the time period of the funding. The compensation
provided herein may have to be adjusted, solely with respect to payment terms,
so as to not violate or cause the compensation being received by any underwriter
or placement agent, to be in excess of the compensation limitations of the
National Association of Securities Dealers, Inc.'s rules and regulations.
b. In addition to the compensation stated in (a) above, in the event the
Company consummates an equity financing transactions, facilitated by Ms. Regina
Gindin, the Company shall grant to Ms. Regina Gindin options to purchase an
aggregate of 300,000 shares of the Company's Common Stock, exerciseable at the
market price on the date(s) of consummation of said offering(s), whereby, Ms.
Regina Gindin shall have the right to receive an option to purchase 150,000
shares on the consummation of each of (i) an offering(s) in which the aggregate
gross proceeds is $10,000,000 and (ii) upon the consummation of an offering(s)
in which the aggregate proceeds provides an additional $10,000,000 in capital
funding. The options shall vest and become exerciseable over a 12 month period
commencing with
<PAGE>
the consummation of the offering(s) and shall remain exerciseable for a period
of three years from the date of grant.
c. With respect to the consummation of transactions in accordance with
subparagraph 1(i) above, for each strategic alliance consummated, with up to an
aggregate of 4 non-affiliated companies, between Mantra and a strategic partner,
Ms. Regina Gindin shall receive the following:
(i) 1 share of Common Stock of Mantra which shall be issued on the date
that a strategic partnership agreement, or similar agreement, is executed
between Mantra and the strategic partner; and
(ii) 1.5 shares of Common Stock of Mantra, upon receipt by the Company of
revenues from the strategic partnership of $5,000,000.
5. Pursuant to the terms of a non-disclosure and confidentiality agreement
to be executed and delivered in tandem to this agreement, Ms. Regina Gindin will
hold in confidence any confidential information which the Company provides to
Ms. Regina Gindin. Ms. Regina Gindin shall be an independent contractor and not
an employee of the Company. This Agreement shall not be construed to create
between the Company and Ms. Regina Gindin a relationship of principal, employer
and employee, joint ventures, co-partners or any other similar relationship, the
existence of which is hereby expressly denied by the Company and Ms. Regina
Gindin. Ms. Regina Gindin is not an agent for the Company, except as described
herein and the Company is not an agent for Ms. Regina Gindin for any purpose
whatsoever; and each such party has no right or authority to assume or create
any obligations, express or implied, on behalf or in the name of the other
party.
6. Ms. Regina Gindin shall not during the term of this agreement enter into
or engage in any business which is a direct competitor of the Company, unless:
a. Prior to Ms. Regina Gindin consulting with or becoming engaged by any
direct or indirect competitor of the Company, she gives the Company 10 days
prior written notice of such pending engagement and upon request of the Company
returns any and all materials supplied by the Company to Ms. Regina Gindin
together with any copies prepared by Ms. Regina Gindin or distributed by Ms.
Regina Gindin, except as may be specifically exempted in writing by the Company;
and
b. Without prejudice to its obligations under sub-paragraph (a) above, if
Ms. Regina Gindin at any time has an interest in, or conflict of duty in
relation to, any transaction or matter which is the subject of services provided
to the Company, Ms. Regina Gindin agrees to notify the Company prior to such
interest or conflict arising.
7. This Agreement may not be transferred, assigned or delegated by Ms.
Regina Gindin without the prior written consent of the Company.
8. This Agreement is for a term of twenty-four (24) months and may be
terminated by either party upon notice to the other party. In the event that the
Company consummates a transaction as described in subparagraph 1 for which
compensation is due as described in subparagraphs 2(b) and (c), within 12 months
immediately following the termination of this Agreement, with any party or
entity introduced by Ms. Regina Gindin to the Company, the Company shall pay to
Ms. Regina Gindin the compensation with respect to such transaction, calculated
in accordance with such paragraph.
9. Any notices hereunder shall be sent to the Company and to Ms. Regina
Gindin at their
<PAGE>
respective addresses set forth above. Any notice shall be given by certified
mail, return receipt requested, postage prepaid, and shall be deemed to have
been given when deposited in the United States mail. Either party may designate
any other address to which notice shall be given, by giving written notice to
the other of such change of address in the manner herein provided.
10. This Agreement has been made in the State of California and shall be
construed and governed in accordance with the laws of the state of California
without giving effect to principles governing conflicts of law.
11. This Agreement contains the entire agreement between the parties, may
not be altered or modified, except in writing and signed by the party to be
charged Ms. Regina Gindin thereby, and supersedes any and all previous
agreements between the parties relating to the subject matter hereof.
12. This Agreement shall be binding upon the parties hereto, and their
respective heirs, legal representatives, administrators, successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written,
Very truly yours,
U.S. Wireless Corporation
By: _____________________________
Dr. Oliver Hilsenrath
Chief Executive Officer
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
- --------------------------
Regina Gindin, an individual
<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> 7,768,159
<CURRENT-LIABILITIES> 165,788
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,027,410
<TOTAL-LIABILITY-AND-EQUITY> 7,768,159
<SALES> 5,024,338
<TOTAL-REVENUES> 5,024,337
<CGS> 3,429,395
<TOTAL-COSTS> 9,165,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 459,435
<NET-INCOME> (4,203,857)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
<PAGE>
</TABLE>
