---

# SECURITIES
AND EXCHANGE COMMISSION

# Washington, DC 20549

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# FORM 10-QSB

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[X]    Quarterly Report under Section 13 or Section
15(d) of the Securities Exchange Act 
    
              
          
      of 1934 for the quarterly period ended
December 31, 2001

[  ]    
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934

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Commission File Number 0-22848

# U.S. Wireless Data, Inc.
(Exact name of small business issuer as specified in its charter)

Delaware
(State of incorporation)

---

84-1178691
(IRS Employer
Identification No.)

750 Lexington Avenue, 20th FloorNew York, NY 10022
(Address of principal executive offices, including zip code)

(212) 750-7766
(Registrant's Telephone Number, including area code)

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Check whether the
issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety days.
Yes [X]     No [  ]

As of February
12, 2002, there were outstanding 12,256,544 shares of the Registrants
Common Stock ($0.01 par value per share).

Transitional Small
Business Disclosure Format.
Yes [  ]     No [X]

---

# U.S. WIRELESS
DATA, INC.
TABLE OF CONTENTS

Part I  FINANCIAL
INFORMATION            
            
            
            
            
        
                
        Page

`ITEM 1. Financial Statements

        Consolidated Balance Sheets as of
            December 31, 2001 and June 30, 2001................................     3

        Consolidated Statements of Operations for the three and six months
            ended December 31, 2001 and 2000...................................     4

        Consolidated Statements of Stockholders' Equity for the six
            months ended December 31, 2001.....................................     5

        Consolidated Statements of Cash Flows for the six months ended
            December 31, 2001 and 2000.........................................     6

         Pro forma Condensed Statement of Operations for the three
            and six moths ended December 31, 2000..............................   7-8

        Notes to Consolidated Financial Statements.............................  9-17

ITEM 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations and Risk Factors................... 17-36`

Part II  OTHER
INFORMATION

`ITEM 1. Legal proceedings......................................................    36
ITEM 2. Changes in securities and use of proceeds..............................    36
ITEM 3. Defaults upon senior securities........................................    36
ITEM 4. Submission of matters to a vote of security holders....................    36
ITEM 5. Other information......................................................    36
ITEM 6. Exhibits and Reports on Form 8-K ......................................    36`

---

# Part I  FINANCIAL
INFORMATION

ITEM 1. Financial
Statements

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

`December 31          June 30,
                                                                             2001               2001
                                                                         -----------          --------
ASSETS                                                                   (Unaudited)
Current assets:
     Cash and cash equivalents .....................................   $   9,070,000       18,205,000
     Accounts receivable, net of allowance for
        doubtful accounts of $112,000 and $55,000
        at December 31 and June 30, 2001, respectively .............       1,687,000        1,515,000
     Inventory, net ................................................       4,390,000        3,923,000
     Notes receivable ..............................................          88,000           87,000
     Other current assets ..........................................         560,000          472,000
                                                                       -------------    -------------
                 Total current assets ..............................      15,795,000       24,202,000
Property and equipment, net ........................................       2,538,000        2,818,000
Segregated cash ....................................................         712,000          769,000
Intangible assets, net .............................................      14,536,000       15,739,000
Other assets .......................................................          99,000           93,000
                                                                       -------------    -------------

                 Total assets ......................................   $  33,680,000    $  43,621,000
                                                                       =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ..............................................   $   2,711,000        2,258,000
     Accrued restructuring expense .................................       1,079,000        2,400,000
     Accrued liabilities ...........................................       1,661,000        1,538,000
     Other current liabilities .....................................          66,000          261,000
     Obligation under capital lease, current portion ...............       1,074,000          793,000
     Purchase price payable, current portion .......................         455,000        2,557,000
                                                                       -------------    -------------
                 Total current liabilities .........................       7,046,000        9,807,000

Deferred rent expense ..............................................         174,000          275,000
Accrued restructuring expense, less current portion ................       1,215,000             --
Other liabilities, less current portion ............................          79,000          109,000
Obligation under capital lease, less current portion ...............         409,000        1,074,000
Purchase price payable, long term portion ..........................            --            455,000
                                                                       -------------    -------------
                 Total liabilities .................................       8,923,000       11,720,000
                                                                       -------------    -------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, 25,000,000 shares authorized
        Series C convertible, at $.01 par value, liquidation value
        $10.00 per share, aggregating $49,224,000 and $55,145,000
        at December 31 and June 30, 2001, respectively; 8,450,000
        shares authorized, 4,922,410 and 5,514,475 issued and
        outstanding at December 31 and June 30, 2001, respectively..          49,000           55,000
   Common stock, 200,000,000 shares authorized at $.01 par value;
       12,934,355 and 11,478,419 shares issued and outstanding at
       December 31 and June 30, 2001, respectively .................         129,000          115,000
   Additional paid-in capital ......................................     142,863,000      142,873,000
   Unearned compensation ...........................................      (1,892,000)      (2,639,000)
   Accumulated deficit .............................................    (116,392,000)    (108,503,000)
                                                                       -------------    -------------
                 Total stockholders' equity ........................      24,757,000       31,901,000
                                                                       -------------    -------------

Total liabilities and stockholders' equity .........................   $  33,680,000    $  43,621,000
                                                                       =============    =============`

Accompanying
notes are an integral part of the financial statements

The above
statement gives retroactive effect to a 1 for 4 reverse stock split that was
effectuated on October 18, 2000.

---

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

`For the three months ended         For the six months ended
                                                          December 31,                     December 31,
                                                   --------------------------         ------------------------
                                                    2001               2000             2001              2000
Net revenues                                        ----               ----             ----              ----
Service revenue
     Activation fees .........................   $     72,000    $     49,000    $    142,000    $     63,000
     Monthly fees ............................        386,000         134,000         740,000         221,000
     Transaction fees ........................      1,535,000         137,000       2,858,000         176,000
     Other fees ..............................        124,000            --           298,000            --
                                                 ------------    ------------    ------------    ------------
          Total service fees .................      2,117,000         320,000       4,038,000         460,000

     Product sales ...........................        129,000          13,000         459,000          24,000
                                                 ------------    ------------    ------------    ------------
          Total revenue ......................      2,246,000         333,000       4,497,000         484,000
                                                 ------------    ------------    ------------    ------------
Cost of revenues
     Services ................................      1,350,000         240,000       2,666,000         338,000
     Product sales ...........................        109,000           9,000         337,000          17,000
     Inventory reserve .......................           --           (70,000)           --           (70,000)
                                                 ------------    ------------    ------------    ------------
          Total cost of revenue ..............      1,459,000         179,000       3,003,000         285,000
                                                 ------------    ------------    ------------    ------------
Gross profit .................................        787,000         154,000       1,494,000         199,000
                                                 ------------    ------------    ------------    ------------
Operating expenses
Selling, general and administrative
     (exclusive of non-cash compensation) ....      2,449,000       3,014,000       5,473,000       5,771,000
Non-cash compensation ........................        375,000         370,000         747,000         740,000
                                                 ------------    ------------    ------------    ------------
          Total selling, general and
             administrative ..................      2,824,000       3,384,000       6,220,000       6,511,000
Depreciation and amortization ................        860,000         364,000       1,735,000         453,000
Research and development .....................        390,000         564,000         888,000         958,000
Restructuring expense ........................           --              --           625,000            --
                                                 ------------    ------------    ------------    ------------
          Total operating expense ............      4,074,000       4,312,000       9,468,000       7,922,000

Loss from operations .........................     (3,287,000)     (4,158,000)     (7,974,000)     (7,723,000)
Interest income ..............................         70,000         551,000         233,000       1,178,000
Interest expense .............................        (82,000)           --          (174,000)           --
Other income .................................           --            60,000          64,000          70,000
Taxes ........................................        (33,000)           --           (38,000)           --
                                                 ------------    ------------    ------------    ------------
Net loss .....................................     (3,332,000)     (3,547,000)     (7,889,000)     (6,475,000)
                                                 ------------    ------------    ------------    ------------
Net loss available to common stockholders ....   $ (3,332,000)   $ (3,547,000)   $ (7,889,000)   $ (6,475,000)
                                                 ============    ============    ============    ============

Basic and diluted net loss per share ....... .   $      (0.27)   $      (0.36)   $      (0.67)   $      (0.71)
                                                 ============    ============    ============    ============
Weighted average common shares
     outstanding, basic and diluted ..........     12,545,000       9,947,000      11,737,000       9,147,000
                                                 ============    ============    ============    ============`

Accompanying
notes are an integral part of the financial statements

The above
statement gives retroactive effect to a 1 for 4 reverse stock split that was
effectuated on October 18, 2000.

---

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001
(Unaudited)

`Series C Preferred                  Common Stock
                                        ----------------------           ----------------------
                                        Shares           Amount          Shares          Amount
                                        -----            ------          ------          ------

Balance at July 1, 2000 .......       5,586,600    $      56,000        8,098,637   $   8,099,000

Exercise of stock warrants ....            --               --          1,572,000          16,000
Non cash compensation .........            --               --               --              --
Issuance of common stock and
 contingent consideration
 to CellGate ..................            --               --            563,000           6,000
Issuance of common stock and
 contingent consideration
 to NXT shareholders' .........            --               --          1,125,000          11,000
Conversion of Preferred C stock         (72,125)          (1,000)         119,782           1,000
Adjustment to reflect par and
 stated value change ..........            --               --               --        (8,018,000)
Net Loss ......................            --               --               --              --
                                     ----------       ----------       ----------      ----------
Balance at June 30, 2001 ......       5,514,475    $      55,000       11,478,419   $     115,000

Non cash compensation .........            --               --               --              --
Conversion of Preferred C Stock        (592,065)          (6,000)         987,186           9,000
Issuance of contingent
 consideration to  Cellgate ...            --               --            468,750           5,000
Net Loss ......................            --               --               --              --
                                     ----------       ----------       ----------      ----------
Balance at December 31, 2001 ..       4,922,410    $      49,000       12,934,355   $     129,000
                                     ==========       =========-       ==========      ==========

                                       Additional                                         Total
                                        Paid in        Unearned        Accumulated     Stockholders'
                                        Capital      Compensation        Deficit          Equity
                                       -----------   ------------      -----------     ------------

Balance at July 1, 2000 .......   $ 124,902,000    $  (4,119,000)   $ (89,246,000)     $  39,692,000

Exercise of stock warrants ....          47,000             --               --               63,000
Non cash compensation .........            --          1,480,000             --            1,480,000
Issuance of common stock and
 contingent consideration
 to CellGate ..................       3,605,000             --               --            3,611,000
Issuance of common stock and
 contingent consideration
 to NXT shareholders' .........       6,301,000             --               --            6,312,000
Conversion of Preferred C stock            --               --               --                 --
Adjustment to reflect par and
 stated value change ..........       8,018,000             --               --                 --
Net Loss ......................            --               --        (19,257,000)       (19,257,000)
                                    -----------      -----------      -----------        -----------
Balance at June 30, 2001 ......   $ 142,873,000    $  (2,639,000)   $(108,503,000)     $  31,901,000

Non cash compensation .........            --            747,000             --              747,000
Conversion of Preferred C Stock          (4,000)            --               --               (1,000)
Issuance of contingent
 consideration to  Cellgate ...          (6,000)            --               --               (1,000)
Net Loss ......................            --               --         (7,889,000)        (7,889,000)
                                    -----------      -----------      -----------        -----------
Balance at December 31, 2001 ..   $ 142,863,000    $  (1,892,000)   $(116,392,000)     $  24,757,000
                                    ===========      ===========      ===========        ===========`

Accompanying
notes are an integral part of the financial statements

The above
statement gives retroactive effect to a 1 for 4 reverse stock split that was
effectuated on October 18, 2000.

---

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

`For the six months ended December 31,
                                                                           ------------------------------------
                                                                             2001                     2000
                                                                             ----                     ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $ (7,889,000)            $ (6,475,000)
Adjustments to reconcile net loss to net cash used in
    operating activities:
         Depreciation and amortization ...............................    1,735,000                  453,000
         Bad debt expense ............................................       70,000                     --
         Deferred rent ...............................................     (101,000)                 108,000
         Non-cash consulting services and other ......................      747,000                  740,000
         Loss on asset disposal ......................................         --                      5,000
         Gain on sale of fixed assets ................................         --                     (1,000)
         Changes in current assets and liabilities:
               Accounts receivable ...................................     (242,000)                (741,000)
               Inventory .............................................     (467,000)              (1,029,000)
               Other current assets ..................................      (89,000)                (181,000)
               Other assets ..........................................       (6,000)                  60,000
               Accounts payable ......................................      453,000                 (288,000)
               Accrued liabilities ...................................      123,000                  737,000
               Accrued restructuring expense .........................     (106,000)                    --
               Other current liabilities .............................     (195,000)                 398,000
               Other liabilities, less current portion ...............      (30,000)                 108,000
                                                                       ------------             ------------
                     Net cash used in operating activities ...........   (5,997,000)              (6,106,000)
                                                                       ------------             ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of property and equipment ..........................     (200,000)              (1,493,000)
         Segregated cash .............................................       57,000                 (123,000)
         Net payment for purchase acquisition, net of cash acquired ..   (2,610,000)              (1,164,000)
         Proceeds from sales of equipment ............................         --                      2,000
         Notes receivable ............................................       (1,000)                  (4,000)
                                                                       ------------             ------------
                     Net cash used in investing activities ...........   (2,754,000)              (2,782,000)
                                                                       ------------             ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from exercise of warrants and options ..............         --                     61,000
         Payment of notes payable ....................................         --                   (690,000)
         Payments on obligations under capital lease .................     (384,000)                    --
                                                                       ------------             ------------
                     Net cash used in financing activities ...........     (384,000)                (629,000)
                                                                       ------------             ------------

Net decrease in cash .................................................   (9,135,000)              (9,517,000)

Cash and cash equivalents, beginning of period .......................   18,205,000               39,231,000
                                                                       ------------             ------------

Cash and cash equivalents, end of period ............................. $  9,070,000             $ 29,714,000
                                                                       ============             ============`

Accompanying
notes are an integral part of the financial statements

The above
statement gives retroactive effect to a 1 for 4 reverse stock split that was
effectuated on October 18, 2000.

---

## Unaudited Pro
Forma Information related to acquisitions

The following unaudited pro
forma information shows the results of the Company for the three and six months
ended December 31, 2000, as if the acquisitions of NXT Corporation and Cellgate
Technology, LLC occurred on July 1, 2000. The pro forma results of operations
are unaudited, have been prepared for comparative purposes only and do not
purport to indicate the results of operations which would actually have occurred
had the combinations been in effect on the date indicated or which may occur in
the future.

---

# U.S.
WIRELESS DATA, INC.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2000 (a)

`(Unaudited)    (Unaudited)    (Unaudited)     Cellgate          NXT        Combined
                                               U.S. Wireless     Cellgate         NXT         Pro Forma       Pro Forma    Pro Forma
                                                 Data, Inc.   Technologies LLC Corporation   Adjustments     Adjustments    Results
                                               -------------  ---------------- -----------   -----------     -----------   ---------

Net revenues .................................. $    333,000  $     20,000  $  1,339,000          --             --     $  1,692,000

Cost of revenues ..............................      179,000        10,000       945,000          --             --        1,134,000
                                                ------------  ------------  ------------  ------------   ------------   ------------
Gross profit ..................................      154,000        10,000       394,000          --             --          558,000
                                                ------------  ------------  ------------  ------------   ------------   ------------
Operating expenses
Selling, general and administrative ...........    3,378,000        30,000     1,063,000   177,000 (b)     22,000 (b)      4,670,000

Research and development ......................      564,000          --            --            --             --          564,000
Non cash compensation .........................      370,000          --            --            --             --          370,000
                                                ------------  ------------  ------------  ------------   ------------   ------------
Total operating expenses ......................    4,312,000        30,000     1,063,000       177,000         22,000      5,604,000
                                                ------------  ------------  ------------  ------------   ------------   ------------

Loss from operations ..........................   (4,158,000)      (20,000)     (669,000)     (177,000)       (22,000)    (5,046,000)

Interest income ...............................      551,000          --            --            --             --          551,000
Interest expense ..............................         --            --         (69,000)         --             --          (69,000)
Other income ..................................       60,000          --            --            --             --           60,000
                                                ------------  ------------  ------------  ------------   ------------   ------------

                                                  (3,547,000)      (20,000)     (738,000)     (177,000)       (22,000)    (4,504,000)
                                                ------------  ------------  ------------  ------------   ------------   ------------
Net loss available to common
  stockholders ................................ $ (3,547,000)  $ ( 20,000)  $   (738,000) $   (177,000)  $    (22,000)  $ (4,504,000)
                                                ============  ============  ============  ============   ============   ============

Basic and diluted net loss per share
   (after deduction of preferred
    stock dividends)
   Net loss available to common stockholders .. $      (0.36)        --             --            --             --     $      (0.45)
                                                ============  ============  ============  ============   ============   ============
Weighted average common shares
   outstanding basic and diluted ..............    9,947,000          --            --            --             --        9,947,000(c)
                                                ============  ============  ============  ============   ============   ============`

See notes to
unaudited Pro forma Condensed Consolidated financial statements

---

# U.S.
WIRELESS DATA, INC.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 2000

`(Unaudited)    (Unaudited)    (Unaudited)     Cellgate          NXT        Combined
                                               U.S. Wireless     Cellgate         NXT         Pro Forma       Pro Forma    Pro Forma
                                                 Data, Inc.   Technologies LLC Corporation   Adjustments     Adjustments    Results
                                               -------------  ---------------- -----------   -----------     -----------   ---------

Net revenues .................................. $    484,000  $     44,000  $  2,722,000          --             --         $  3,250,000

Cost of revenues ..............................      285,000       245,000     1,994,000          --             --            2,524,000
                                                ------------  ------------  ------------  ------------   ------------       ------------
Gross profit (loss) ...........................      199,000      (201,000)      728,000          --             --              726,000
                                                ------------  ------------  ------------  ------------   ------------       ------------

Operating expenses
Selling, general and administrative ...........    6,224,000       732,000     2,294,000       177,000(b)      22,000(b)       9,449,000

Research and development ......................      958,000          --            --            --             --              958,000

Non cash compensation expense .................      740,000          --            --            --             --              740,000
                                                ------------  ------------  ------------  ------------   ------------       ------------
Total operating expense .......................    7,922,000       732,000     2,294,000       177,000         22,000         11,147,000
                                                ------------  ------------  ------------  ------------   ------------       ------------

Loss from operations ..........................   (7,723,000)     (933,000)   (1,566,000)     (177,000)       (22,000)       (10,421,000)

Interest income ...............................    1,178,000         2,000          --            --             --            1,180,000

Interest expense ..............................         --            --        (139,000)         --             --             (139,000)

Other income ..................................       70,000          --            --            --             --               70,000
                                                ------------  ------------  ------------  ------------   ------------       ------------
                                                  (6,475,000)     (931,000)   (1,705,000)     (177,000)       (22,000)        (9,310,000)
                                                ------------  ------------  ------------  ------------   ------------       ------------
Net loss available to
 common stockholders .......................... $ (6,475,000) $   (931,000) $ (1,705,000) $   (177,000)  $    (22,000)      $ (9,310,000)
                                                ============  ============  ============  ============   ============       ============

Basic and diluted net loss per share
   Net loss available to
 common stockholders .......................... $      (0.71)         --            --            --             --         $      (1.02)
                                                ============  ============  ============  ============   ============       ============

Weighted average common shares
     Outstanding basic and diluted ............    9,147,000          --            --            --             --         9,147,000 (c)
                                                ============  ============  ============  ============   ============       ============`

See notes to
unaudited Pro forma Condensed Consolidated financial statements

---

# U.S. Wireless
Data, Inc.
Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Statements

|a) | U.S. Wireless Data, Inc. (USWD) acquired NXT Corporation
(NXT) on December 22, 2000, and the assets and assumed certain
liabilities of Cellgate Technologies LLC (Cellgate) on November 16, 2000. For
the purposes of the Unaudited Pro Forma Condensed Consolidated Statement of
Operations, information for NXT and Cellgate has been included from July 1, 2000
through their respective acquisition dates.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Represents the applicable amortization expense for intangible assets derived
from the NXT transaction. The intangible assets are being amortized on a
straight line basis and have been estimated by management to have a useful life
of four (4) to ten (10) years.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Represents
the applicable amortization expense for intangible assets derived from the
Cellgate transaction and consists of work force acquired, intellectual property
and goodwill, which are amortized on a straight line basis over four (4) years,
seven (7) years and ten (10) years, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) | Represents the weighted average number of common stock outstanding for the
period and 1,125,000 shares of USWDs common stock issued as a result of
the merger. This does not include 2,242,000 shares of common stock contingently
issuable two years from the date of closing depending on the average share price
of USWD common stock.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Represents U.S. Wireless weighted average number of shares of common stock
outstanding for the period and 562,500 shares issued as a result of the merger.
This does not include 468,750 shares of common stock issued on November 16, 2001
pursuant to the acquisition agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# U.S. WIRELESS
DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

## Note 1 - THE
COMPANY

U.S. Wireless Data, Inc.
(USWD or the Company) was incorporated in the state of
Colorado on July 30, 1991 and was reincorporated in the state of Delaware on
October 6, 2000. U.S. Wireless Data, Inc. is a premier provider of transaction
delivery and gateway services to the payments processing industry. The Company
provides credit card processors, merchant acquirers, banks, and their respective
sales organizations with turnkey wireless and other IP-based transaction
management services. The Company also provides those entities with proprietary
wireless enabling products designed to displace conventional telephone lines.
These products may be utilized by conventional card accepting retailers as well
as emerging card accepting market segments such as quick service restaurants
(fast foods), taxis and limousines, in-home service provider contractors,
delivery services, vending machines, sporting events, and outdoor markets. Our
products may also be used in conjunction with dial-up ATMs and PC-based
electronic cash registers and other types of integrated point-of-sale systems.

On October 6, 2000,
authorized capital was increased to 225,000,000 shares, 200,000,000 of which
were $.01 par value common stock and 25,000,000 of which were $.01 par value
preferred stock.

## Note 2 - BASIS
OF PRESENTATION

The Consolidated Balance
Sheets as of December 31, 2001 and June 30, 2001, the Consolidated Statements of
Operations for the three and six months ended December 31, 2001 and 2000, and
the Consolidated Statements of Cash Flows for the six months ended December 31,
2001 and 2000 have been prepared by the Company, without an audit. In the
opinion of management, all adjustments have been made, which include normal
recurring adjustments necessary to present fairly the consolidated financial
statements. Operating results for the three and six months ended December 31,
2001 are not necessarily indicative of the operating results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
provided are adequate to make the information presented not misleading. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in the Companys Annual Report for the year ended June 30, 2001 on
Form 10-KSB.

The common stock and per
share prices in the consolidated financial statements and related notes have
been retroactively adjusted to give effect to the 1 for 4 reverse stock split
that was effectuated on October 18, 2000.

Certain amounts in the
financial statements have been reclassified from prior period presentations. The
Company is currently evaluating the accounting relating to the Convertible
Preferred Stock offering completed in May 2000. There may be a reclassification
between accumulated deficit and additional paid in capital. There would be no
net impact on shareholders equity or the results of operations for any
period filed.

## Note 3 
BASIS OF CONSOLIDATION

The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary
NXT Corporation (NXT). All intercompany accounts and transactions
have been eliminated in consolidation.

## Note 4 
RECENT ACCOUNTING PRONOUNCEMENTS

In March 2000, the
Financial Accounting Standards Board (FASB) issued Interpretation
No. 44 (FIN 44), Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for the following issues: (1) the definition of
employee for purposes of applying Opinion 25, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (4) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000.
The Company elected to early adopt FIN 44 in March 2000.

In July 2001, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations. SFAS No. 141 requires the use of the purchase
method of accounting for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. The Company does not believe
that the adoption of SFAS 141 will have a significant impact on its financial
statements.

---

In July 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. The Company has not determined the impact, if
any, that this statement will have on its financial statements.

In July 2001, the FASB
issued SFAS No. 143, Accounting for Asset Retirement Obligations
which requires the recognition of a liability for an asset retirement obligation
in the period in which it is incurred. When the liability is initially recorded,
the carrying amount of the related long-lived asset is correspondingly
increased. Over time, the liability is accreted to its present value and the
related capitalized charge is depreciated over the useful life of the asset.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company is currently evaluating the impact of SFAS 143 on the financial
statements of the Company.

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standard on existing long-lived assets and plans to adopt the new
accounting standard in its financial statements for the fiscal year ending June
2003.

## Note 5 
ACQUISITIONS

## Cellgate Technologies
LLC

On November 16, 2000, the
Company acquired the assets and assumed certain liabilities of Cellgate
Technologies LLC (Cellgate), a Delaware limited liability company in
a cash and stock transaction. The acquisition was accounted for under the
purchase method of accounting and accordingly, the acquired assets and assumed
liabilities have been recorded at their estimated fair values. The purchase
price included $1,250,000 cash and 562,500 shares of the Companys Common
Stock, valued at the closing at an aggregate of $1,969,000 and additional
consideration.

In addition, the agreement
provided for the following: if the average Closing Price (as defined in the
Asset Purchase Agreement dated October 30, 2000) of the Companys Common
Stock for the twenty (20) consecutive trading days ending with the trading day
immediately preceding the one-year anniversary of the closing date is less than
$16.00 per share (as adjusted for any stock splits, stock dividends or similar
events), such additional consideration shall be an amount equal to: (i) the
number of the shares which have not previously been sold or transferred, subject
to certain exceptions, multiplied by (ii) the amount, if any, not to exceed
$10.00, by which such average Closing Price is less than $16.00. No less than
50% of such amount shall be paid in cash, and the balance shall be paid, at the
Companys option, in cash or shares of Common Stock having a value, based
on such average Closing Price provided that such average Closing Price for such
purposes shall not be less than $6.00 per share prior to the anniversary of the
closing. As a result, on November 16, 2001 and December 10, 2001, the Company
issued 468,750 shares of the Companys Common Stock and paid $2,812,500 in
cash. The operating results of Cellgate have been included in the consolidated
financial statements of the Company since the acquisition date. The Company
incurred approximately $475,000 of expenses related to this transaction, which
includes accounting fees, attorneys fees, investment banking fees and
other costs.

---

The purchase price was
calculated as follows:

`Cash paid                                                               $ 1,250,000
U.S. Wireless Data, Inc. Common Stock issued at closing
   valued at $3.50 per share                                              1,969,000
Maximum cash that may be paid in one (1) year discounted
   by 10% to present value                                                2,557,000
Maximum shares of U.S. Wireless Data, Inc. Common Stock that
   may be issued in one year valued at $3.50 per share                    1,642,000
Closing costs                                                               475,000
Fair value of assumed liabilities as of November 16, 2000 (a)             3,353,000
                                                                         ----------
Total purchase price                                                     11,246,000
Less fair value of tangible assets acquired (a)                          (2,707,000)
                                                                         ----------

Total amount of acquired intangible assets and goodwill                 $  8,539,000
                                                                          ==========`

(a) The fair value of
assets acquired and assumed liabilities were increased by $2,505,000 and
$2,223,000, respectively, to reflect recognition of inventory and an obligation
under capital leases.

The purchase price was
allocated, based on an independent third party valuation, as follows:

`Allocated       Useful
                                                            Value          Life
                                                          ---------       ------
Intellectual Property:
   AT&T Wireless IP technology                          $ 2,600,000          7
   CBF 2000 design and Tellus agreement                   1,700,000          7
   Cellgate gateway application                             200,000          7
   Cellgate enterprise system                               200,000          7
   ATM wireless solution                                  1,300,000          7
Acquired workforce                                          250,000          4
Fair value of tangible assets acquired                    2,707,000          4
Goodwill                                                  2,289,000         10
                                                         ----------
Total allocation of purchase price                      $11,246,000
                                                         ==========`

The valuation methodology
for intangible assets and intellectual property were based on the income and
cost approach.

## NXT Corporation

On December 22, 2000, the
Company acquired NXT Corporation (NXT) in a stock for stock
transaction, accounted for under the purchase method of accounting. The assets
acquired and the liabilities assumed have been recorded at their estimated fair
values as of the date of the acquisition. The shareholders of NXT, including
holders of certain phantom stock rights in NXT have exchanged their shares of
Common Stock of NXT and such rights, for an aggregate of 1,125,000 shares of
USWDs Common Stock valued at an aggregate of approximately $2,109,000. In
addition, under certain circumstances, depending on the price of the
Companys Common Stock, a maximum in cash, discounted by 10% to the present
value, of $455,000 from $500,000 and approximately 2,242,000 shares of the
Companys Common Stock, valued at $4,203,000 may be issued two (2) years
from closing based on the following: if the Daily Average Price (as defined in
the Asset Purchase Agreement dated December 13, 2000) of USWD Common Stock for
the twenty (20) consecutive trading days ending with the trading day immediately
preceding December 21, 2002 is less than $18.40 per share (as adjusted for any
stock splits, stock dividends or similar events). Such additional consideration
shall be an amount equal to: (i) the number of the original 1,125,000 shares
which have not previously been sold or transferred, subject to certain
exceptions, multiplied by (ii) the amount, if any, not to exceed $12.40, by
which such Daily Average Price is less than $18.40. Such additional
consideration shall be paid to the NXT shareholders in cash, to the extent of
10% of the amount of the additional consideration to be paid by USWD, provided
that the aggregate amount of cash paid will not exceed $455,000. Any balance of
consideration due shall be paid in shares of USWD Common Stock having value
equal to the Daily Average Price, provided however, that for such purposes, in
no event shall the value ascribed to USWD Common Stock be lower than $6.00 per
share.

---

In addition to the
1,125,000 shares of Common Stock, the Company also assumed options for
approximately 76,000 shares of its Common Stock, which were fully vested on
change of control, at exercise prices ranging from $7.50 to $33.07 per share.
The holders of such options may also be entitled, upon exercise of their
options, to additional consideration depending on the Daily Average Price of
USWD common stock for the twenty (20) consecutive trading days immediately
preceding December 21, 2002. The value was considered to be nominal, therefore,
not recorded.

In connection with the
merger, Paymentech, Inc. (Paymentech) and Merchant-Link, LLC,
NXTs two largest customers, agreed, subject to certain exceptions, to
maintain certain revenue levels of business with NXT over the next twelve (12)
months and twenty-four (24) months, respectively. Failure of either of these
parties to maintain such levels of business for any reason could materially
impair the value of the NXT acquisition. Paymentech, Inc. was a stockholder of
NXT and Merchant-Link, LLC is a wholly owned subsidiary of Paymentech, Inc.

In connection with the
merger, American Express Travel Related Services Company, Inc.
(AMEX), a stockholder of and service provider to NXT, agreed to
provide certain services at more favorable rates and the Company agreed that
AMEX shall be entitled to designate a person to serve as a member of its board
of directors for a period of two (2) years following the closing. The Company
also paid an aggregate amount of approximately $1,700,000 to AMEX and Paymentech
to retire certain indebtedness payable by NXT to AMEX and Paymentech other than
current trade payables. In addition, AMEX has provided the Company with $300,000
in business development funding. The Company incurred approximately, $1,055,000
of expenses related to this transaction, which includes accounting fees,
attorneys fees, investment banking fees and other costs. The operating
results of NXT have been included in the consolidated financial statements of
the Company since the acquisition date.

The purchase price was
calculated as follows:

`Shares of U.S. Wireless Data, Inc. Common Stock issued at closing,
   valued at $1.875 per share                                           $ 2,109,000
Maximum cash that may be paid in two years discounted
   by 10% to present value                                                  455,000
Maximum shares U.S. Wireless Data, Inc. Common Stock that
    may be issued in two years valued at $1.875 per share                 4,203,000
Closing costs                                                             1,055,000
Assumed liabilities as of December 22, 2000                               3,260,000
                                                                         ----------
Total purchase price                                                     11,082,000

Less the fair value of tangible assets acquired                          (2,976,000)
                                                                         ----------
Total amount of acquired intangible assets and goodwill                 $ 8,106,000
                                                                         ==========`

---

The purchase price was
allocated, based on an independent third party valuation, as follows:

`Allocated        Useful
                                                      Value           Life
                                                    ---------        ------
Intellectual Property:
   IP transaction switch                          $  2,400,000          6
   Customer relationships                            1,700,000          4
   Proprietary software                                864,000          5
   Tools & value added components                      190,000          6
Acquired workforce                                   1,300,000          5
Fair value of tangible assets acquired               2,976,000          5
Goodwill                                             1,652,000         10
                                                    ----------
Total allocation of purchase price                $ 11,082,000
                                                    ==========`

The valuation methodology
for intangible assets and intellectual property were based on the income and
cost approach. The purchase price for both acquisitions was recorded under EITF
97-15, Accounting for Contingency Arrangements Based on Security Prices in
a Purchase Business Combination, under which additional contingent
consideration will not affect the purchase price.

## Note 6 -
INVENTORY

`December 310,      June 30,
                                                    2001             2001
                                                    ----             ----

      Inventory consists of:
         Raw material                          $   112,000      $   239,000
         Work in process                            26,000           26,000
         Finished goods                          4,269,000        3,675,000
         Lower of cost or market reserve           (17,000)         (17,000)
                                                ----------       ----------
                                               $ 4,390,000      $ 3,923,000
                                                ==========       ==========`

The Company has established
a reserve to reflect the lower of cost or market value of the inventory as of
December 31, 2001 and June 30, 2001.

## Note 7 -
ACCRUED LIABILITIES

`December 31,     June 30,
                                                   2001          2001
                                               -----------      -------

Accrued liabilities consists of:
   Accrued compensation                       $ 1,098,000   $ 1,102,000
   Accrued professional fees                       57,000       149,000
   Accrued telecommunication expenses              85,000         --
   Accrued tax expense                             49,000         --
   Other                                          372,000       287,000
                                               ----------    ----------
         Total accrued liabilities            $ 1,661,000   $ 1,538,000
                                               ==========    ==========`

## Note 8 
ACCRUED RESTRUCTURING EXPENSE

USWD recorded pretax
charges totaling $2.4 million in the fourth quarter of fiscal year ended June
30, 2001, related to the consolidation of the Companys technical and
network operations for disposal of assets not used in the primary operations
facility and the estimated impact of vacating the unused facilities, net of
potential subleases.

---

As part of the
Companys consolidation of its technical and network operations and the
closure of our Bethesda, Maryland facility, a restructuring charge of $0.6
million was recorded in the first quarter of fiscal year 2002. The charge is
related to the cost of involuntary severance and related benefits for technical,
operations, engineering and administrative employees located in our Bethesda,
Maryland and Palmer Lake, Colorado facilities.

Provided below is an
analysis of the changes in the restructuring accrual;

## Accrued
restructuring expense:

`Balance at June 30, 2001                             $ 2,400,000
         Charges against accrual (Bethesda
              rent payments, severance and
              benefit payments)                                  (731,000)
         Additions to accrual (severance
              and benefits accrual)                               625,000
                                                               ----------
         Balance at December 31, 2001                           2,294,000
         Less current portion                                   1,079,000
                                                               ----------
         Balance at December 31, 2001
             Excluding current portion                        $ 1,215,000
                                                               ==========`

## Note 9 - NET
LOSS PER SHARE

Earnings (loss) per common
share (EPS) is computed using Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share. SFAS No. 128 establishes standards for
the computation, presentation, and disclosure of earnings per share. Basic per
share amounts are computed by dividing the net loss available to common
stockholders by the weighted average number of common shares outstanding during
the year. Diluted per share amounts incorporate the incremental shares issuable
upon the assumed exercise of the Companys stock options and warrants and
assumed conversion of convertible securities. Throughout fiscal year 2001 and
during the three and six months ended December 31, 2001, such incremental
amounts have been excluded from the calculation since their effect would be
anti-dilutive. Such stock options, warrants and conversions could potentially
dilute earnings per share in the future.

The following table
reconciles the number of basic weighted average shares of common stock
outstanding to the maximum diluted shares of common stock for the six months
ended December 31, 2001 and 2000.

---

## U.S. WIRELESS DATA INC.
CONSOLIDATED COMMON STOCK EQUIVALENTS
(Unaudited)

`As of December 31,
                                                         2001         2000
                                                         ----         ----

Weighted average common shares outstanding: ......   12,545,000    9,147,000
                                                     ----------   ----------
Private Placement @ $55.866 million
                Max offering .....................    8,204,000    9,311,000
                                                     ----------   ----------
Warrants
                   Investor warnts. 25% CS Shs ...    2,328,000    2,328,000
                Agent warrants 25% Units .........    2,328,000    2,328,000
                   Agent warnts. 25% CS Shs ......      582,000      582,000
                PJSC warrants 20% Comw Pref ......      466,000      466,000
                   PJSC warnts. 25% CS Shs .......      116,000      116,000
Warrants, various outstanding ....................      326,000      419,000
Warrants, executive ..............................    1,343,000    2,915,000
                                                     ----------   ----------
                                                      7,489,000    9,154,000
                                                     ----------   ----------
Employee options
                Outstanding, 1992 Option Plan ....      288,000      400,000
                Outstanding, 2000 Option Plan ....    2,857,000    1,197,000
                Outstanding, Non-Plan ............      338,000      505,000
                                                     ----------   ----------
                                                      3,483,000    2,102,000
                                                     ----------   ----------

                                                     ----------   ----------
Common stock to be distributed ...................    2,242,000    2,710,000
                                                     ----------   ----------

                Total Shares issued or issuable ..   33,963,000   32,424,000
                                                     ==========   ==========`

## Note 10 
STOCKHOLDERS EQUITY

On November 16, 2001,
468,750 shares were issued to Cellgate Technologies LLC in accordance with the
acquisition agreement (see Note 5 for further information).

During the six months ended
December 31, 2001, 592,065 shares of Series C preferred stock were converted
into 987,186 shares of common stock, in accordance with the Series C preferred
stock documents.

During the six months ended
December 31, 2001, 512,750 stock options were issued to employees with exercise
prices equal to the fair market value of the Companys common stock at the
date of grant.

For the six months ended
December 31, 2001, $747,000 was charged to compensation expense relating to
options issued to four Board Members granted on March 29, 2000.

---

## ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

## Special Note
Regarding Forward-Looking Statements

We may, in discussions of
our future plans, objectives and expected performance in periodic reports filed
by us with the Securities and Exchange Commission (or documents incorporated by
reference therein) and in written and oral presentations made by us, include
projections or other forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act
of 1934, as amended. Such projections and forward-looking statements are based
on assumptions, which we believe are reasonable but are, by their nature,
inherently uncertain. In all cases, results could differ materially from those
projected. Some of the important factors that could cause actual results to
differ from any such projections or other forward-looking statements are
discussed below, and in other reports filed by us under the Securities Exchange
Act of 1934.

## OVERVIEW

U.S. Wireless Data, Inc.
(USWD or the Company) is the premier provider of
transaction delivery and gateway services to the payments processing industry.
We provide credit card processors, merchant acquirers, banks, ATM deployment
companies, and their respective sales organizations with turnkey wireless and
other IP-based transaction management services. We also provide those entities
with proprietary wireless enabling products designed to displace conventional
telephone lines and to allow for card acceptance where such acceptance has
heretofore been too expensive or technologically unfeasible. These products and
services may be utilized by conventional card accepting retailers as well as
emerging card accepting market segments such as quick service restaurants (fast
foods), taxis and limousines, in-home service providers contractors, delivery
services, vending machines, sporting events, and outdoor markets. Our products
may also be used in conjunction with dial-up automatic teller machines
(ATMs) and PC-based electronic cash registers and other types of
integrated point-of-sale systems.

USWDs proprietary
technology provides a seamless interface between a merchants point of sale
and their credit card processor using a sophisticated and proprietary network
infrastructure, proprietary equipment, and unique message translation software
applications.

We have developed a
scalable and flexible technology platform that enables us to deliver a broad,
integrated suite of services to merchants, merchant acquirers, credit card
processors, ATM distributors and others. Generally, our services utilize
common core technology platforms within the same operational infrastructure. We
design our services to be highly flexible and customizable, enabling our
customers to select from among our broad range of wireless and wireline products
and services. We believe that one of our principal strengths is our internally
developed proprietary technology, which enables us to add new
distribution partners by employing a scalable architecture adapted specifically
to our Internet protocol-based infrastructure services. We help our wireline and
wireless customers build and maintain their brands by delivering services with
the look, feel and navigation features specific to their delivery platform and
format, including the growing number of emerging wireless devices. In addition,
USWD supports a variety of protocols that may be proprietary to different
wireless and wireline devices, enabling the end user to access the same services
across a variety of devices. Our more than 196 clients process the vast majority
of all point-of-sale (POS) transaction activity in the United States
and include: Bank of America, BuyPass, Cardservice International, CardSystems,
Concord EFS, First Data Merchant Services, First Horizon, Global Payments, Lynk
Systems, MSI, National Processing Company, Paymentech, Vital, and many others.

## RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000

## KEY METRICS

We utilize several basic
performance metrics to measure the progress of our operations. Some of the
metrics we rely upon include: (1) the number of resellers through which we sell
our various products and services; (2) the number of active sites processing
transactions through one or more of our hosts, including those that transmit via
wireless, satellite, dial-up and leased-line technology; (3) the number of
transactions processed through one or more of our hosts; (4) the number of units
of USWD equipment sold; and (5) EBITDA- Earnings before interest, taxes,
depreciation, amortization and other non-cash items.

---

## RESELLERS

As of December 31, 2001, we
had over 196 resellers under contract to sell our products and services as
compared to 75 contracts that were in place at December 31, 2000. As of December
31, 2001, more than 100 of these 196 resellers were actively engaged in the sale
of one or more of our products or services.

## ACTIVE SITES

## Synapse
Services

Active wireless sites have
grown to over 10,000 at December 31, 2001, an increase of 5,200 or over 109%
compared to the same six month period last year. Since June 30, 2001, we have
added over 4,900 new terminals or an increase of 72%. As of December 31, 2001 we
had over 7,700 merchants using Synapse.

## NXT Gateway
Services

Total active sites on the
NXT gateway as of December 31, 2001 were over 45,000 compared to 41,600 active
sites as of December 31, 2000, representing an increase of over 3,400, or 8%.
Since June 30, 2001, 1,100 total new active sites have been acquired.

## TRANSACTIONS

## Synapse
Services

Wireless transactions
processed for the three and six months ended December 31, 2001, were 1,075,000
and 2,072,000, respectively, an increase of over 580,000 or 118% and 1,260,000
or 155% from the same periods last fiscal year. This was due to an increase in
active wireless sites and transactions per terminal.

## NXT Gateway
Services

Our NXT Gateway Service Host
utilizes traditional narrowband/dedicated networks (ie: dial lines and
leased-line circuits) to deliver transactions between merchants and processors.
Total transactions for the three and six months ended December 31, 2001 were 137
million and 275 million, respectively, compared to 115 million and 231 million
for the same periods in fiscal year 2001, an increase of over 22 million, or 19
%, and 44 million transactions, or 19%, respectively.

## EQUIPMENT SALES

Unit sales for the three
and six months ended December 31, 2001 were 373 and 1,474, respectively, as
processors and merchant acquirers continue to market the Synapse Adapters for
resale to retail merchants, and the Synapse Enabler, for conversion of taxi
meters, vending machines and other integrated devices to accept credit cards
wirelessly.

## REVENUE

We derive revenue primarily
from two sources: service fees and equipment sales. Service fees consist of: (a)
one-time, non-refundable service activation fees; (b) wireless and landline fees
for transactions delivered on wireless, broadband and narrowband networks
through one or more of our hosts; (c) monthly fees for providing online, real
time reports; (d) monthly minimum subscription fees; and (e) software
development fees. Service fees are generated from both our Synapse Service and
NXT Gateway Services platforms. Most U.S. Wireless Data services are designed to
be device-independent and serve multiple platforms that enable our clients to
support a variety of protocols, hence, a variety of products and services.
Equipment sales are derived from the sale of our proprietary Synapse Adapter and
Synapse Enabler line displacement wireless conversion devices.

## Total Revenues

`For the three months ended         For the six months ended
                            December 31,                       December 31,
                     ---------------------------         -------------------------
                                              %                                  %
                     2001        2000       Change       2001       2000     Change
                     ----        ----       ------       ----       ----     ------
Total revenue    $ 2,246,000   $ 333,000      574%   $ 4,497,000  $ 484,000    829%`

Total revenues were
$2,246,000 and $4,497,000 for the three and six months ended December 31, 2001
as compared to $333,000 and $484,000 for the same periods in the last fiscal
year. This improvement from the prior year represents over a five fold increase
for the quarter and over an eight fold increase for the six month period. The
increases were attributable to the inclusion of the revenue associated with the
acquisitions of Cellgate Technologies LLC and NXT Corporation and our continued
successful efforts in marketing our flagship suite of Synapse products and
services. Most revenue categories, including recurring services, transaction
fees and equipment revenues, increased from the prior year, all of which are
discussed in more detail below.

---

## SERVICE
REVENUES

`For the three months ended         For the six months ended
                               December 31,                       December 31,
                        ---------------------------         -------------------------
                                                 %                                  %
                        2001        2000       Change       2001       2000     Change
                        ----        ----       ------       ----       ----     ------
Service revenue
     Activation fees   $   72,000  $  49,000     47%     $  142,000   $  63,000    125%
     Monthly fees         386,000    134,000    188%        740,000     221,000    235%
     Transaction fees   1,535,000    137,000   1020%      2,858,000     176,000   1524%
     Other fees           124,000       --       NA         298,000        --       NA
                        ---------    -------   ----       ---------     -------   ----
Total service revenue  $2,117,000  $ 320,000    562%     $4,038,000   $ 460,000    778%`

## Activation
Revenue

Activation revenue which is
generated through our proprietary Synapse Gateway, for the three months ended
December 31, 2001 was $72,000, a $23,000 or a 47% increase as compared to the
three months ended December 31, 2000. Activation revenue for the six months
ended December 31, 2001 was $142,000, a $79,000 or a 125% increase as compared
to the six months ended December 31, 2000. These increases are a direct result
of significant increases in merchant activations for our Synapse wireless and
landline conversion services.

## Recurring
Monthly Revenue

Recurring monthly service
revenue, which is generated from the Synapse Gateway, was $386,000 for the three
months ended December 31, 2001, a $252,000 or a 188% increase as compared to the
three months ended December 31, 2000. Recurring service revenue for the six
months ended December 31, 2001 was $740,000, a $519,000 or a 235% increase as
compared to the six months ended December 31, 2000. The increases for both the
three and six months are attributed to the significant growth in total
activations and a decline in over all deactivations.

## Transaction
Revenue

Transaction revenue is
generated by both Synapse and our NXT Gateway Services, which was acquired as
part of our acquisition of NXT Corporation. Total transaction revenue for the
three months ended December 31, 2001 was $1,535,000 compared to $137,000 for the
same period last year, an over ten fold increase. Including revenue generated by
NXT prior to the acquisition revenue for the same period last year was
$1,179,000, an increase of $356,000 or 30%. Total transaction revenue for the
six months ended December 31, 2001 was $2,858,000, compared to $176,000 during
the same period last year, an over fifteen fold increase. Including revenue
generated by NXT prior to the acquisition, revenue for the same period last year
was $2,797,000, an increase of $61,000 or 2%. The increase for both Synapse and
NXT Gateways is attributed to a higher number of transactions per active site,
increased revenue per transaction that is charged to the customer and the
addition of a significant number of new customer sites.

## Equipment
Revenue

`For the three months ended         For the six months ended
                               December 31,                       December 31,
                        ---------------------------         -------------------------
                                                 %                                  %
                        2001        2000       Change       2001       2000     Change
                        ----        ----       ------       ----       ----     ------

Equipment revenue   $  129,000    $  13,000     892%     $ 459,000   $ 24,000    1813%`

Equipment revenue is
derived from the sale of our proprietary wireless conversion devices, the
Synapse Adapter and the Synapse Enabler. Equipment revenue increased for the
three months ended December 31, 2001 to $129,000 compared to the same period
last year of $13,000. Equipment revenue increased for the six months ended
December 31, 2001 to $459,000 from $24,000 during the same period last year. The
increases were attributed to penetrating new markets that utilize the Synapse
Adapter and Enabler for vending, multilane restaurants, ATMs, existing POS
and transportation solutions, which are discussed below.

As previously announced, we
have entered into a strategic partnership with Pepsi-Cola North America
(Pepsi) to provide our proprietary wireless vending solution. This
solution will enable Pepsi vending machines to accept credit cards, transmit the
credit card information wirelessly and to provide detailed inventory and
mechanical information to the Pepsi bottlers on a real time basis. The system is
currently being operated on a test basis with approximately 200 machines in
Memphis.

Also during the second
quarter, we began deployment of our Synapse Adapters to convert dial point of
sale terminals to wireless for a major worldwide quick service restaurant. Our
Synapse Adapter solution provides queue sensitive merchants the ability to
process credit and debit card purchases faster than a traditional dial terminal.

---

## GROSS PROFIT

`For the three months ended         For the six months ended
                                       December 31,                       December 31,
                                ---------------------------         -------------------------
                                                         %                                  %
                                2001        2000       Change       2001       2000     Change
                                ----        ----       ------       ----       ----     ------
Gross profit
      Service                $ 767,000  $   80,000      859%    $ 1,372,000  $ 122,000    1025%
      Equipment                 20,000       4,000      400%        122,000      7,000    1643%
      Inventory reserve           --        70,000     -100%           --       70,000    -100%
                              --------    --------     ----       ---------   --------    ----
Gross profit                   787,000     154,000      411%      1,494,000    199,000     651%
                              --------    --------     ----       ---------   --------    ----
Total gross margin excluding
inventory reserve credit     $ 787,000  $   84,000      837%    $ 1,494,000  $ 129,000    1058%`

Gross profit consists of
revenues net of direct costs of sales. Costs of sales consist primarily of the
cost for the initial setup and ongoing communications costs associated with
terminals connected through Synapse, costs related to sales of the Synapse
Adapter and Enablers, and cost of wireless and non-wireless carriers. Total
gross profit for the three months ended December 31, 2001 was $787,000, compared
to $154,000 for the same period in fiscal year 2001, which was over a four fold
increase. Total gross profit for the six months ended December 31, 2001 was
$1,494,000, compared to $199,000 for the same period in fiscal year 2001, an
over six fold increase.

Service gross profit for
the three months ended December 31, 2001 was $767,000, compared to $80,000 for
the same period in fiscal year 2001, which was over an eight fold increase.
Service gross profit for the six months ended December 31, 2001 was $1,372,000,
compared to a gross profit of $122,000 for the same period in fiscal year 2001.

Equipment gross profit for
the three months ended December 31, 2001 was $20,000, compared $4,000 for the
same period in fiscal year 2001. Equipment gross profit for the six months ended
December 31, 2001 was $122,000, compared to $7,000 for the same period in fiscal
year 2001.

The improvement in gross
profit for the three and six months ended December 31, 2001 as compared to the
same periods in fiscal year 2001, was primarily the result of: (1) inclusion of
the gross profit associated with the acquisitions of Cellgate and NXT; (2) an
increase in higher margin Synapse service revenues during the first six months
of fiscal year 2002; and (3) an increase in equipment sales during the first six
months of fiscal year 2002.

## GROSS MARGIN

`For the three months ended         For the six months ended
                                         December 31,                       December 31,
                                  ---------------------------         -------------------------
                                                           %                                  %
                                  2001        2000       Change       2001       2000     Change
                                  ----        ----       ------       ----       ----     ------
Gross margin
Service                            36%         25%          45%        34%        27%        28%
Equipment                          16%         31%         -50%        27%        29%        -9%
                                 ----        ----         ----       ----       ----       ----
Total gross margin                 35%         46%         -24%        33%        41%       -19%
                                 ----        ----         ----       ----       ----       ----
Total gross margin excluding
     inventory reserve credit      35%         25%          39%        33%        27%        25%`

Total gross margin (gross
profit as a percentage of net revenues) for the three months and six months
ended December 31, 2001 decreased from the same periods of fiscal year 2001 due
to a non-operating inventory reserve adjustment increasing the gross margin for
fiscal year 2001. Excluding the inventory reserve adjustment, total gross margin
for the three months ended December 31, 2001 increased by 39% from 25% of sales
to 35% of sales compared to the same period last year. Excluding the inventory
reserve adjustment, total gross margin for the six months ended December 31,
2001 increased by 25% from 27% of sales to 33% of sales. Service gross margin
increased for the three months and six months ended December 31, 2001 by 45% and
28%, respectively, from the same periods in fiscal year 2001. This margin
increase is primarily due to a greater percentage of Synapse service revenue
than from the previous fiscal year.

Equipment gross margin was
16% for the three months ended December 31, 2001 compared to 31% for the same
period last fiscal year. The decrease is primarily attributed to the higher mix
of the vending enablers which have a lower margin than our standard equipment
selling prices. The margins on the vending enabler will increase as additional
units are deployed due to cost reductions from our manufacturer based on volume
discounts.

---

## OPERATING
EXPENSES

## Total
operating expenses

`For the three months ended         For the six months ended
                                       December 31,                       December 31,
                                ---------------------------         -------------------------
                                                         %                                  %
                                2001        2000       Change       2001       2000     Change
                                ----        ----       ------       ----       ----     ------

 Total operating expense     $ 4,074,000  $ 4,312,000      -6%  $ 9,468,000  $ 7,922,000   -20%`

Total operating expenses
for the three months ended December 31, 2001 decreased by $238,000 or 6%
compared to the same period last fiscal year. This decrease was due to the
realization of the cost savings from the initial stages of our acquisition
consolidation plan initiated at the end of fiscal year 2001. Operating expenses
for the six months ended December 31, 2001 increased by $1,546,000 or 20%
compared to the same period last fiscal year. The increase was due to higher
amortization of goodwill from the acquisition of Cellgate and NXT of
approximately $1,260,000 and a one time restructuring charge of $625,000 related
to the consolidation of our facilities for severance and related benefits.
Excluding these items, operating expenses were lower by approximately $260,000.

## Research and
Development Expenses

`For the three months ended         For the six months ended
                                       December 31,                       December 31,
                                ---------------------------         -------------------------
                                                         %                                  %
                                2001        2000       Change       2001       2000     Change
                                ----        ----       ------       ----       ----     ------

Research and development     $ 390,000   $ 564,000        -31%   $ 888,000  $ 958,000       -7%`

Research and development expenses
consist primarily of engineering personnel costs for research, design and
development of the proprietary technology we use to integrate and develop our
products and services. Research and development expenses decreased $174,000, or
31%, to $390,000 for the three months ended December 31, 2001, from $564,000 for
the comparable period in fiscal year 2001. For the six months ended December 31,
2001, research and development expenses decreased $70,000 or 7%, to $888,000
from $958,000 for the six months ended December 31, 2000. The decreases are
primarily the result of reduction of employees related to our facilities
consolidation.

During
the fourth quarter of fiscal year 2001, we changed the methodology for recording
research and development expenses. The costs were originally reported in
selling, general and administrative expense, but have been reclassified and are
now recorded as research and development expenses.

## Selling,
General and Administrative Expenses

`For the three months ended         For the six months ended
                                               December 31,                       December 31,
                                        ---------------------------         -------------------------
                                                                 %                                  %
                                       2001        2000       Change       2001       2000     Change
                                       ----        ----       ------       ----       ----     ------

Selling, general and administrative  $ 2,449,000  $3,014,000     -19%  $ 5,473,000  $5,771,000   -5%
Non-cash compensation                    375,000     370,000       1%      747,000     740,000    1%
                                       ---------   ---------     ---    ----------   ---------  ---
      Total S,G&A                    $ 2,824,000  $3,384,000     -17%  $ 6,220,000  $6,511,000   -4%`

---

Selling, general and
administrative expenses consist primarily of salaries and benefits for sales,
general and administrative personnel, advertising and promotion expenses,
professional service fees, occupancy and general office expenses, travel
expenses, other general corporate purposes and non-cash compensation. Sales,
general and administrative expenses excluding non-cash compensation, research
and development, depreciation and amortization and restructuring costs were $2.5
million for the three months ended December 31, 2001 compared to $3.0 million
for the three months ended December 31, 2000, a 19% decrease. Sales, general and
administrative expenses excluding non-cash compensation, research and
development, depreciation and amortization and restructuring costs were $5.5
million for the six months ended December 31, 2001 compared to $5.8 million for
the six months ended December 31, 2000, a 5% decrease. The decreases are
primarily attributed to the successful implementation of our integration and
consolidation plan for our recent acquisitions. This plan has reduced overall
operating expenses by approximately $0.8 million per month or $9.6 million on an
annual basis, representing approximately 42% of our ongoing annual operating
expenses. These expense reductions are related to personnel, professional fees,
consulting services, facility expenses, travel expenses, public relations
expenses and advertising and promotion expenses.

## Depreciation
and Amortization

`For the three months ended         For the six months ended
                                          December 31,                       December 31,
                                   ----------------------------        --------------------------
                                                               %                                  %
                                   2001        2000       Change       2001       2000     Change
                                   ----        ----       ------       ----       ----     ------

Depreciation                   $  232,000   $ 188,000        23%    $   479,000  $ 277,000     73%
Amortization                      628,000     176,000       257%      1,256,000    176,000    614%
                                 --------    --------       ---       ---------   --------    ---
Total                          $  860,000   $ 364,000       136%    $ 1,735,000  $ 453,000    283%`

Amortization of intangibles
includes amortization of goodwill, core technology, trademarks, customer lists,
contract rights, patents and assembled workforce. Amortizations of intangibles
were $0.6 million and $1.3 million for the three and six months ended, December
31, 2001, respectively compared with $0.2 million for the three and six months
ended December 31, 2000. The increases are a result of amortization of
intangibles recorded from the acquisitions of Cellgate and NXT. Intangibles for
acquisitions are being amortized over four to ten years. In the event that we
complete additional acquisitions, which we expect to do, expenses relating to
the amortization of intangibles could increase in the future.

## RESTRUCTURING
CHARGE

`For the three months ended         For the six months ended
                                 December 31,                       December 31,
                          ---------------------------         -------------------------
                                                   %                                  %
                         2001        2000       Change       2001       2000     Change
                         ----        ----       ------       ----       ----     ------

Restructuring expense      --         --                   $ 625,000      --        NA`

During the first quarter of
fiscal year 2002, we recorded a restructuring charge related to the
consolidation and relocation of our Bethesda, Maryland network operations center
with our research and development and operations center, located in Palmer Lake,
Colorado. In conjunction with the latest integration activities, the Company
recorded pretax charges totaling $625,000 or $0.05 per share, in the first
quarter of fiscal year ending June 30, 2002, related to severance payments to
employees and benefits.

---

## INTEREST AND
OTHER

`For the three months ended         For the six months ended
                                             December 31,                       December 31,
                                      ---------------------------         -------------------------
                                                               %                                  %
                                     2001        2000       Change       2001       2000     Change
                                     ----        ----       ------       ----       ----     ------
Interest income                 $   70,000   $ 551,000        -87%    $ 233,000   $1,178,000    -80%
Interest expense                   (82,000)       --           NA      (174,000)       --        NA
Other income                          --        60,000       -100%       64,000       70,000     -9%
Taxes                              (33,000)       --           NA       (38,000)       --        NA
                                 ---------    --------       ----      --------    ---------   ----
   Total interest, net & other  $  (45,000)  $ 611,000       -107%    $  85,000   $1,248,000    -93%`

Interest income for the
three months ended December 31, 2001 was $70,000, compared to $551,000 for the
same period in fiscal 2001. Interest income for the six months ended December
31, 2001 was $233,000, compared to $1,178,000 for the same period in fiscal
2001. Interest income decreased due to the utilization of cash to fund our
growth expectations and the recent declining trend in interest rates.

Interest expense for the
three and six month period ended December 31, 2001 was $82,000 and $174,000,
respectively, related to the financing under a capital lease for Synapse
Adapters assumed with the acquisition of Cellgate. There was no interest expense
for the three and six months ended December 31, 2000. Other income, which
consists primarily of rental income for a sublet facility, for the three months
ended December 31, 2001 there was none, as compared to $60,000 for the three
months ended December 31, 2001. Other income for the six months ended December
31, 2001 was $64,000 compared to $70,000 for the same period in fiscal year
2001.

Tax expense for the three
and six months ended December 31, 2001 was $33,000 and $38,000, respectively.
There was no tax expense for the three and six months ended December 31, 2000.

## NET LOSSES

`For the three months ended         For the six months ended
                                                  December 31,                       December 31,
                                           ----------------------------        --------------------------
                                                                       %                                    %
                                           2001           2000      Change        2001          2000     Change
                                           ----           ----      ------        ----          ----     ------
Net loss                             $ (3,332,000)  $ (3,547,000)      -6%  $ (7,889,000) $ (6,475,000)     22%
                                      -----------    -----------             -----------   -----------
Basic and diluted net loss per share $      (0.27)  $      (0.36)     -25%  $      (0.67) $      (0.71)     -5%
                                      -----------    -----------             -----------   -----------
Weighted average common shares
     outstanding basic and diluted     12,545,000      9,947,000              11,737,000     9,147,000`

For the three months ended
December 31, 2001, net loss totaled $3.3 million or $0.27 per share, as compared
to a net loss of $3.5 million or $0.36, for the three months ended December 31,
2000. For the six months ended December 31, 2001, net loss totaled $7.9 million
or $0.67 per share, as compared to a net loss of $6.5 million or $0.71, for the
six months ended December 31, 2000.

Reconciliation of net
loss to adjusted EBITDA:

The Company uses a modified
version of EBITDA (Adjusted EBITDA), which is net loss excluding
interest, net and other, taxes, depreciation and amortization, restructuring
expense and non cash compensation. Adjusted EBITDA loss for the three months
ended December 31, 2001 was $2.1 million or $0.16 per share as compared to the
same period last year of $3.4 million or $0.34 per share. This improvement in
adjusted EBITDA loss of $1.3 million or approximately 38% is primarily
attributed substantially higher revenues and reduction of operating expenses as
discussed in prior sections.

---

`For the three months ended       For the six months ended
                                          December 31,                     December 31,
                                   --------------------------       ------------------------
                                      2001           2000           2001           2000
                                      ----           ----           --             ----
Net loss                         $(3,332,000)   $(3,547,000)   $(7,889,000)   $(6,475,000)
Depreciation and amortization        860,000        364,000      1,735,000        453,000
Non-cash compensation                375,000        370,000        747,000        740,000
Restructuring expense                   --             --          625,000           --
Interest, net and other               45,000       (611,000)       (85,000)    (1,248,000)
                                 -----------    -----------    -----------    -----------
Adjusted EBITDA loss             $(2,052,000)   $(3,424,000)   $(4,867,000)   $(6,530,000)
                                 -----------    -----------    -----------    -----------
Adjusted EBITDA loss per share   $     (0.16)   $     (0.34)   $     (0.41)   $     (0.71)
                                 ===========    ===========    ===========    ===========`

## FINANCIAL
CONDITION, CAPITAL RESOURCES AND LIQUIDITY

At December 31, 2001 our
principal source of liquidity was $9.7 million in cash, cash equivalents and
segregated cash. We have incurred losses since our inception and as of December
31, 2001, we had an accumulated deficit of approximately $116.4 million.

Net cash used in operating
activities was $6.0 million for the six months ended December 31, 2001. This
primarily consisted of net operating losses, increases in inventory and accounts
payable, offset by non-cash charges for depreciation, amortization and
consulting services. Net cash used in operating activities was $6.1 million for
the six months ended December 31, 2000. This primarily consisted of net
operating losses, increases in inventory and accounts payable, offset by
non-cash charges for depreciation, amortization and consulting services.

Net cash used in investing
activities was $2.8 million for the six months ended December 31, 2001. This
amount consists primarily of $2.8 million which was paid to Cellgate
Technologies LLC under the purchase agreement (see Note 5 of the Notes to
Consolidated Financial Statements for additional information), and $0.2 million
for purchases of capital equipment. Net cash used in investing activities for
the six months ended December 31, 2000 was $2.8 million, consisting primarily of
purchases of equipment and acquisition costs.

Net cash used in financing
activities was $0.4 million for the six months ended December 31, 2001, which
was related to payments for obligations under capital leases. Net cash provided
by financing activities for the six months ended December 31, 2000 was $0.6
million, which was related to a payment of a note payable, offset by cash
received from the exercise of warrants.

As of June 30, 2001, our
monthly consolidated net losses before depreciation, amortization, interest and
taxes (EBITDA) was averaging approximately $1.4 million. EBITDA has
improved to an average net loss of $0.7 million per month for the second quarter
of fiscal year 2002 as we realized the benefits from the reductions in operating
expense and increased sales. In addition, we believe EBITDA will continue to
improve as revenue increases in excess of its current levels and we continue to
minimize our costs in future quarters.

We believe that existing
cash and cash equivalents will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months, assuming current growth rates of revenues. However, the underlying
assumed levels of revenues and expenses may not prove to be accurate. We may
seek additional funding through public or private financings or other
arrangements prior to such time. Adequate funds may not be available when needed
or may not be available on favorable terms. If we raise additional funds by
issuing equity securities, dilution to existing stockholders will result. If
funding is insufficient at any time in the future, we may be unable to develop
or enhance our products or services, take advantage of business opportunities or
respond to competitive pressures.

We believe that our future
success will depend largely on our ability to continue to offer wireless and
other gateway solutions that are attractive to our existing and potential future
clients. Therefore, we plan to:

|° | continue to develop and upgrade our products, services, connectivity and message
translation technology;
|- | --------------------------------------------------------------------------------------------------------

|° | expand our wireless and other gateway service offerings and cross-sell such
services to our existing clients;
|- | -------------------------------------------------------------------------------------------------------------

|° | seek out co-marketing alliances and other partnering opportunities with card
associations, carriers, device manufacturers and card processors in an effort to
seed new and emerging markets;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | increase capital equipment expenditures to meet service level agreement
requirements and build-out our evolving infrastructure;
|- | -------------------------------------------------------------------------------------------------------------------------------

|° | expand our mobile and fixed wireless installations by up-selling and
cross-selling to our existing merchant aggregator partners and grow our network
of merchants;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | expand our NXT Gateway Service capabilities to meet the growing message
translation needs of both our wireless and land-line clients; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------

|° | seek out merger and acquisition opportunities that will either enhance our
technology and/or generate additive revenue that will be accretive to our
earnings. We expect to incur operating losses on a quarterly basis in the
future. In light of the rapidly evolving nature of our business, we believe that
period-to-period comparisons of our revenues and operating results are not
necessarily meaningful, and you should not rely upon them as indications of
future performance. Although we have experienced sequential quarterly growth in
revenues over the past quarters, we do not believe that our growth rates are
necessarily indicative of future growth.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Seasonal
Variation of Business

We anticipate that the
recurring revenue generated under Synapse and NXT Gateway Services agreements
with merchants, merchant acquirers and credit card processors will be relatively
immune to seasonal variations, although we expect that transaction related
revenue will reflect seasonal variations paralleling consumer spending patterns,
generally increasing somewhat during the holiday season. The placement of
devices can be expected to be slow during that season as well, due to the
reluctance of merchants to change processors during premier shopping seasons and
the general industry freeze on new systems implementations during that season.

---

## RISK FACTORS

Investing in our stock is
highly speculative and risky. You should be able to bear a complete loss of your
investment. Before making an investment decision, you should carefully consider
the following risk factors. In any event or circumstance described in the
following risk factors actually occurs, it could materially adversely affect our
business, operating results and financial condition. The risks and uncertainties
described below are not the only ones, which we face. There may be additional
risks and uncertainties not presently known to us or those we currently believe
are immaterial which could also have a negative impact on our business,
operating results and financial condition.

We have never been
profitable, and there is no assurance that we will generate significant revenues
or profits in the future.

We have never been
profitable and have incurred substantial losses since our inception. We had an
accumulated deficit of approximately $108.5 million and $116.4 million at June
30 and December 31, 2001, respectively, and had a loss of $19.2 million for the
year ended June 30, 2001 and a loss of $7.9 million for the six months ended
December 31, 2001. Our Synapse system is relatively new and there is no history
upon which to base a judgment of its prospects. There is no assurance we will
generate significant revenues from Synapse or otherwise or that we will ever
become profitable. There can be no assurance that Synapse will gain market
acceptance.

The success of our
business plan is uncertain.

The success of our business
plan, which is to concentrate on trying to develop a recurring revenue stream
from customers use of our neutral gateway, is dependent on our platforms
being utilized by merchant acquirers, processors and independent sales
organizations in sufficient quantities to generate profits. To date, the
revenues generated from our products and services have been nominal. The failure
to successfully implement our business plan would have a material adverse effect
on our business, operating results and financial condition.

Approximately 67% of our
revenue for fiscal year 2001 was generated from four customers and, accordingly,
the loss of such customers could adversely affect our revenues.

As of December 31, 2001,
Cardservice International, Inc., Merchant Link, Inc., Paymentech and First
Horizon accounted for approximately 67% of our revenue. Although we are
seeking to broaden our client base, no assurance can be made that our efforts
will be successful or that these current clients will not account for a large
concentration of our revenues. If any one customer accounts for a significant
portion of our revenues, the loss of such customer could adversely affect our
business, operating results and financial condition.

There is no assurance
that the market will accept our systems.

We plan to generate our
revenue from sales of services relating to wireless credit card and other
transactions. The market for providing this service is in the early stages of
development and it is difficult to predict the rate at which this market will
grow, if at all. Future competitors are likely to introduce services that
compete with the services offered by us. Demand for these services could be
affected by numerous factors outside of our control, including, among others,
market acceptance by prospective customers, the introduction of new or superior
competing technologies or services that are available on more favorable pricing
terms than those being offered by us, and the general condition of the economy.
Any market acceptance for our services may not develop in a timely manner or may
not be sustainable. Our success will likely depend on our ability to sell our
services to merchant acquirers and independent sales organizations, as well as
an increase in the availability of terminals that interface with our platforms.
New or increased competition may result in market saturation, more competitive
pricing, or lower margins. Our business, operating results and financial
condition would be materially and adversely affected if the market for our
services fails to grow, grows more slowly than anticipated, or becomes more
competitive or if targeted customers do not accept our products and services
even if a substantial market develops.

## Component
shortages could curtail production.

From time to time, supply
for key components in products lags behind worldwide demand. In the event that
supply of a key material component is delayed or curtailed, our ability to ship
the related product in desired quantities and in a timely manner could be
adversely affected. Our attempts to mitigate the risks of component shortages by
working closely with key suppliers on product plans, coordinated product
introductions, purchases on the spot market and selected strategic purchases.

---

We may not be able to
protect our proprietary technology, which could enable others to more easily
compete with us.

Our performance and ability
to compete are dependent to a significant degree on our proprietary technology.
We rely on our patents, copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on patent,
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. Our inability to protect our proprietary rights
adequately would have a material adverse effect on our business.

We have been granted two
design patents, have filed an application to patent the Synapse process and
expect to file additional patents as we determine appropriate. There can be no
assurance that a patent will be issued from the patent application filed by us
or that patents will be issued from any patent applications filed by our
licensors or us in the future or that the scope of any claims granted in any
patent will provide meaningful proprietary protection or a competitive advantage
to us. There can be no assurance that the validity or enforceability of patents
issued or licensed to us will not be challenged by others or, if challenged,
will be upheld by a court. In addition, there can be no assurance that
competitors will not be able to circumvent any patents issued or licensed to us.
We have been granted the service mark U.S. Wireless Data and have
filed for the service mark Synapse, Wireless Made Easy,
Wireless Express Payment Service, WEPS, Powered by
WEPS, e-Processing e-Processing for the new
millennium in the United States. There can be no assurance that we will be
able to secure significant protection for these marks.

We generally have entered
into agreements containing confidentiality and non-disclosure provisions with
our employees and consultants and limit access to and distribution of our
documentation and other proprietary information. There can be no assurance that
the steps taken by us will prevent misappropriation of our technology or that
agreements entered into for that purpose will be enforceable.

Notwithstanding the
precautions we have taken, it might be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization or to
develop similar technology independently. Policing unauthorized use of our
technology is difficult. The laws of other countries may afford us little or no
effective protection of our intellectual property. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available. In the future, we
may also need to file lawsuits to enforce our intellectual property rights,
protect our trade secrets, and determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on our business operating results and
financial condition.

Third parties may sue us
for infringement of their intellectual property rights. We may incur costs of
defense and royalties or lose the right to use technology important to providing
our services.

The telecommunications,
hardware and software industries are characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement or other violations of intellectual property rights. As the number
of participants in our market increases, the possibility of an intellectual
property claim against us could increase. Any intellectual property claims, with
or without merit, could be time-consuming and expensive to litigate or settle,
could require us to enter into costly royalty arrangements, could divert
management attention from administering our business and could preclude us from
conducting our business.

Our acquisition of NXT
Corporation could require additional consideration payments.

Although we completed the acquisition
of substantially all of the assets of NXT Corporation in December 2000, we may
be required to pay additional consideration to NXT Corporation. Under certain
circumstances, we may be required to pay additional cash consideration to NXT
Corporation based upon the closing price of the common stock at certain dates
(see Note 5 Acquisitions).

We could lose our rights
to our exclusive, except as to AT&T Wireless and its affiliates, license
with AT&T Wireless.

USWDs rights to a
technology that make the conversion from landline to wireless transactions
possible for traditional dial-up point of sale terminals and other dial-up
devices are dependent upon an exclusive, except as to AT&T Wireless and its
affiliates, license agreement with AT&T Wireless. Under certain
circumstances the license agreement may be terminated and USWD would no longer
have access to this technology. Additionally, there can be no guarantees that
AT&T Wireless or its affiliates will not enter into competition with USWD
for the application of this technology, and should such competition arise, it
could have an adverse effect on our operating results and financial condition.

---

Unanticipated delays in
product schedules could affect product demand.

The process of developing
new high-technology products and services is complex and often uncertain.
Successful product transitions and deployment of new products requires accurate
predictions of the product development schedule as well as volumes, product mix,
customer demand and configuration. We may also anticipate demand and perceived
market acceptance that differs from the products realizable customer
demand and revenue stream. Further, in the face of intense competition in the
industry, any delay in a new product rollout could decrease any advantage we may
have to be the first to market. A failure on the part of us to carry out a
product rollout in the time frame anticipated and in the quantities
appropriately matching current customer demand could directly affect the future
demand for the product and the profitability of our operations.

Our services rely on an
emerging infrastructure that could encounter capacity constraints or system
failures, which could adversely affect our reputation and market acceptance of
our product.

We utilize a variety of
technologies, infrastructures and products in providing our products and
services, including wireless networks, dedicated lines, web servers, Internet
information servers, local area networks, data storage devices and proprietary
applications. If these systems experience difficulties, capacity constraints or
service interruptions, it could have a detrimental impact on our business,
operating results and financial condition.

The satisfactory
performance, reliability and availability of our network infrastructure are
critical to our reputation and our ability to attract and retain customers and
maintain adequate customer service levels.

Any system interruptions or
quality defects would reduce the quantity and/or quality of services rendered
and the attractiveness of our product offerings and would have a material
adverse effect on our reputation, business, operating results and financial
condition.

We are dependent on
outside parties for our communications infrastructure.

Our ability to retain and
attract merchant acquiring banks, independent sales organizations and card
processors to our products and services is dependent upon, among other things,
the performance of cellular, digital wireless and landline communication
networks and credit card processing networks used by us. Any system or network
failure that causes interruption or slower response time of our services could
result in reduced usage and could reduce the attractiveness of our offerings to
consumers.

The recent growth in
cellular and digital wireless traffic has caused periods of decreased
performance requiring wireless providers to upgrade and expand their
infrastructures.

If wireless usage continues
to increase rapidly, the wireless infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. Consequently, the emergence and growth of the market for our services
is dependent on future improvements to the entire wireless network.

---

We will have to keep
pace with new products and rapid technological change in order to remain
competitive in the marketplace.

If we are able to penetrate
the market with our products and services, our future success will depend upon
our ability to keep pace with technological developments and respond to evolving
merchant demands. Failure to anticipate or respond adequately to technological
developments or significant delays in product development could damage our
potential position in the marketplace and could result in less revenue or an
inability to generate profits. With our current financial and technical
resources, we may not be able to develop or market new services or enhancements
to our existing service offerings. It is possible that we could experience
significant delays in these endeavors. Any failure to successfully develop and
market services and service enhancements could have a material adverse effect on
our business, operating results and financial condition.

We face potential
competition and pricing pressures from larger, well financed and recognized
companies and we may not be able to compete successfully if such potential
competitors enter the market.

The market for our products
and services is highly competitive, including pressure to maintain competitive
pricing structures for credit card processing services. We have identified
potential competitors that may be logical candidates to develop similar products
and services, although at the present time, we are aware of no other
applications currently available that are designed specifically for wireless
transaction processing utilizing Internet-based tools. However, barriers to
entry in our business are relatively insubstantial and companies with
substantially greater financial, technical, marketing, manufacturing and human
resources, as well as those with far greater name recognition than us, may
attempt to enter the market. We believe that our ability to compete depends on
brand recognition, price, distribution channels and quality of service. There
can be no assurance that we will be able to compete successfully in the market.

We depend on recruiting
and retaining key management and technical personnel and we may not be able to
develop new services or support existing services if we cannot hire or retain
qualified employees.

Our success depends to a
large degree upon the skills of our senior management team and current key
employees. We depend particularly upon Dean M. Leavitt, our Chief Executive
Officer. We have an employment agreement with Mr. Leavitt and with certain of
our other employees. We do not maintain key person life insurance for any of our
officers or key employees other than Mr. Leavitt. We do not generally require
our executives or our employees to enter non-competition agreements with us, and
those executives or employees could leave us to form or join a competitor. The
loss of any of our key executives, the use of proprietary or trade secret data
by former employees who compete with us, or the failure to attract, integrate,
motivate, and retain additional key employees could have a material adverse
effect on our business, operating results and financial condition. Because of
the technical nature of our services and the dynamic market in which we compete,
our performance depends on attracting and retaining key employees. Competition
for qualified personnel in the wireless data and software industries is intense
and finding qualified personnel with experience in both industries is even more
difficult. We believe there are only a limited number of individuals with the
requisite skills in the field of wireless data communication, and it is becoming
increasingly difficult to hire and retain these persons.

We might not be able to
manage our growth.

We anticipate a period of
significant growth in connection with our entry into the market for wireless
payment transaction delivery. The resulting strain on our managerial,
operational, financial, and other resources could be significant. Success in
managing this expansion and growth will depend, in part, upon the ability of
senior management to manage our growth effectively. Any failure to manage our
proposed growth and expansion could have a material adverse effect on our
business, operating results and financial condition.

In addition to managing our
company-wide growth, we must continue to develop and expand our systems and
operations to accommodate expected growth in the use of our products and
services. Due to the limited deployment of our some of our services to date, the
ability of our systems and operations to connect and manage a substantially
larger number of customers while maintaining superior performance is unknown.
Any failure on our part to develop and maintain our wireless transaction service
as we experience rapid growth could significantly reduce demand for our services
and materially adversely affect our revenue.

Our use of wireless,
wireline and Internet technologies could pose security issues regarding data
transmission and reporting.

Utilization of our products
and services involves the transmission of payment transactions via a wireless or
wired networks and our servers from the merchants device to the payment
processor and back. All data is transmitted in an encrypted format through
secure channels. The reporting and utility functions accessible via the Internet
are designed with a variety of security precautions, and the end-users
card number is not contained in the database accessible via the Internet.
However, a significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a third
party were able to misappropriate our users personal or proprietary
information or credit card information, we could be subject to claims,
litigation or other potential liabilities that could materially adversely impact
our revenue and may result in the loss of customers.

We may be subject to
liability for transmitting information, and our insurance coverage may be
inadequate to protect us from this liability.

We may be subject to claims
relating to information transmitted over systems we develop or operate. These
claims could take the form of lawsuits for defamation, negligence, copyright or
trademark infringement or other actions based on the nature and content of the
materials. Although we carry general liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed.

Because our business is
not currently diversified, if our wireless or wireline payment transaction
delivery processing business does not succeed, our business may fail.

We are currently in the
payment transaction services industry, and accordingly, there is no diverse
portfolio of products on which to rely if our systems fail. If our systems fail,
we would fail unless we develop new products and a new business plan.

---

Our business is
dependent on our relationship with wireless and wireline carriers.

A significant aspect of our
strategy is to be able to market our products and services as working with all
major wireless protocols. Our business depends, in part, on our ability to
purchase sufficient capacity from the wireless and wireline carriers and the
security and reliability of their systems. If our current arrangements with
wireless and wireline carriers are terminated, if we are unable to enter into
arrangements with any new carriers or if the terms of our arrangements are
altered or prices are increased, it may have a material adverse effect on our
business.

The benefits derived
from any acquisition or strategic alliance may be less than the price we pay and
may result in excessive expenses if we do not successfully integrate them. The
costs and management resources we expend in connection with such integrations
may exceed our expectations.

Acquisitions and strategic
alliances may have a significant impact on our business, financial condition and
results of operations. The value of acquisitions may be less than the amount we
pay for them if there is:

|° | A decline of their position in the respective markets; or
|- | ---------------------------------------------------------

|° | A decline in general of the markets they serve.
|- | -----------------------------------------------

The expenses associated
with these transactions may be greater and their revenue may be smaller than
expected if:

|° | We fail to assimilate any acquired assets with our pre-existing business;
|- | -------------------------------------------------------------------------

|° | We lose key employees of these companies or ours as a result of acquisitions;
|- | -----------------------------------------------------------------------------

|° | Our managements attention is diverted by other business concerns; or
|- | ---------------------------------------------------------------------

|° | We assume unanticipated liabilities related to any acquired assets.
|- | -------------------------------------------------------------------

In addition, the companies
we may acquire may be subject to the other business risks we describe in this
section, which may adversely impact such business. Further, we cannot guarantee
that we will realize the benefits or strategic objectives we are seeking to
obtain if we make any acquisitions.

We may be adversely
impacted by government regulation of the wireless infrastructure and the
Internet.

We are not currently
subject to direct regulation by the Federal Communications Commission or any
other governmental agency, other than regulations applicable to business in
general. However, in the future, we may become subject to regulation by the FCC
or another regulatory agency. In addition, the wireless carriers who supply us
airtime are subject to regulation by the FCC and regulations that affect them
could increase our costs or reduce our ability to continue selling and
supporting our services.

The laws governing Internet
transactions remain largely unsettled. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business,
operating results, and financial condition by increasing our costs and
administrative expenses. It may take years to determine whether and how existing
laws such as those governing intellectual property; privacy, libel, consumer
protection, and taxation apply to the Internet. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. We must comply with new regulations in the United States, as well as
any other regulations adopted by other countries where we may do business. The
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
as well as new laws governing the taxation of Internet commerce. Compliance with
any newly adopted laws may prove difficult for us and may harm our business,
operating results, and financial condition.

We have a 41%
stockholder who is able to exercise substantial influence over
us.

We are effectively
controlled by ComVest, which beneficially owns, as of June 30, 2001 and December
31, 2001, approximately 41% of our common stock. Such ownership interest gives
ComVest substantial influence over the outcome of all matters submitted to our
stockholders, including the election of directors.

The market for our stock
could suffer because there may be too many available shares.

We have approximately
11,478,419 and 12,935,355 total shares of common stock outstanding as of June 30
and December 31, 2001, respectively, of which approximately 7,140,917 and
9,317,777 shares are in the public float respectively. We have a substantial
number of additional shares of common stock that are either presently
outstanding or issuable upon conversion or exercise of other securities that
were issued as restricted securities and are either presently
saleable under SEC Rule 144 or which will become eligible for sale under SEC
Rule 144 over the next several months. In addition, before the end of calendar
2000 we were obligated to register the sale of a total of 21,121,577 shares of
common stock underlying Series C Preferred Stock, options and warrants, a
portion of which have subsequently been sold. In December 2000, we filed a
registration statement to register such shares. Subsequent to filing, the
registration statement was withdrawn and we anticipate filing a new registration
statement for the resale of approximately 17,900,000 shares by the end of
calendar year 2002. Although the sale of certain of these shares is subject to
lock-ups, large numbers of securities may be sold pursuant to these
registrations and adversely affect the market for our common stock.

## Anti-takeover
provisions.

Our Articles of
Incorporation authorize the issuance of up to 25,000,000 shares of preferred
stock. Our Board is empowered, without stockholder approval, to issue a new
series of preferred stock with dividend, liquidation, conversion, voting or
other rights, which could adversely affect the voting power or other rights of
the holders of common stock. Such authority, together with certain provisions of
Delaware law and of our Articles of Incorporation and bylaws, may have the
effect of delaying, deterring or preventing a change in control of us, may
discourage bids for the common stock at a premium over the market price and may
adversely affect the market price, and the voting and other rights of the
holders, of the common stock. Although we have no present intention to issue any
additional shares of our preferred stock or common stock, there can be no
assurance that we will not do so in the future. Under the Delaware Business
Corporation Act, the Board of Directors of a Delaware corporation may issue
rights, options, warrants or other convertible securities (hereinafter
rights) entitling the holders of the rights to purchase, receive or
acquire shares or fractions of shares of the corporation or assets or debts or
other obligations of the corporation, upon such terms as are determined by the
Board. The Board is free, subject to its fiduciary duties to stockholders, to
structure the issuance or exercise of the rights in a manner which may exclude
significant stockholders, as defined, from being entitled to receive
such rights or to exercise such rights or in a way which may effectively prevent
a takeover of the corporation by persons deemed hostile to management. Nothing
presently contained in our Articles of Incorporation prohibits the Board from
using these types of rights in this manner.

We have never paid cash
or common stock dividends and are unlikely to do so for the foreseeable future.

We have never paid cash or other
dividends on our common stock. It is our intention to retain any earnings to
finance the operation and expansion of our business, and therefore, we do not
expect to pay any cash dividends in the foreseeable future.

## Volatility of
common stock.

The common stock is traded
on the OTCBB under the symbol USWE. The trading volume of the common
stock historically has been limited and sporadic, and the stock prices have been
volatile. For example, during the fiscal year ended June 30, 2001, the common
stock has traded at prices ranging from $1.01 to $9.75 and $0.50 to $4.85 during
the six months ended December 31, 2001. As a result of the limited and sporadic
trading activity, the quoted price for the common stock on the OTCBB is not
necessarily a reliable indicator of its fair market value.

---

## PART II 
OTHER INFORMATION

## ITEM 1. LEGAL
PROCEEDINGS

We are not currently
subject to any material legal proceedings. However, we may from time to time
become a party to legal proceedings arising in the ordinary course of our
business.

## ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

## ITEM 3. DEFAULTS
UPON SENIOR SECURITIES

None.

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

Our 2001 Annual Meeting of
Shareholders was held at the New York Marriott East Side Hotel, Vanderbilt Room,
525 Lexington Avenue, New York, New York 10017 at 2:00 p.m., Eastern time, on
November 1, 2001.

The following matters were
voted upon at the Annual Meeting of Shareholders, at which there was a quorum:

1)   Election
of a Board of Directors for One Year Terms:

The following individuals
were elected by vote of a majority of the Common Shareholders present or
represented by proxy to a one-year term on the Board of Directors:

Votes For
          Votes Withheld
      
              
          Dean M. Leavitt     
              
7,052,507            
             
7,775
      
              
          Alvin C. Rice
                
       
7,052,507                
         
7,775
      
              
          Chester N. Winter 
         
     
7,052,507              
           
7,775
      
              
          Michael S. Falk     
                
7,052,507         
                
7,775
      
              
          Amy L. Newmark  
                
7,052,507             
            
7,775

The following individuals
were elected by vote of a majority the Series C Preferred Shareholders present
or represented by proxy to a one-year term on the Board of Directors:

Votes For
          Votes Withheld
      
              
          Edwin M. Cooperman     
    
4,408,172            
             
8,333
       
              
          Barry A. Kaplan     
             
4,408,172            
             
8,333

2)   Ratification
of Deloitte & Touche LLP as Independent Auditors and Public Accountants:

Common Stockholders:

Votes For
             Votes Against
             Votes
Abstaining
6,864,724        
             194,783
           
    
             775

Series C Preferred
Stockholders:

Votes For
             Votes Against
             Votes
Abstaining
4,408,172        
             
      0
           
      
           8,333

By a vote of the majority
of the Common and Series C Preferred Shareholders together present or
represented by proxy, Deloitte & Touche LLP was ratified as Independent
Accountants to the Company.

## ITEM 5. OTHER
INFORMATION

None.

## ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K

a)    
 Exhibits

|10.1 | Form of Employment Agreement between the Company and Heidi R. Goff dated October
10, 2001.
|---- | ------------------------------------------------------------------------------------------

b)    
 Reports on Form 8-K

| | On
October 22, 2001, the Company filed a report on Form 8K/A, Amendment No. 1
reporting the change of the Companys certifying accountants.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 15, 2001, the Company filed a report on Form 8-K reporting the change of
the Companys certifying accountants.
| | -------------------------------------------------------------------------------------------------------------------------

| | On
October 3, 2001, the Company filed a report on Form 8-K reporting the date of
the 2001 Annual Shareholders meeting.
| | -----------------------------------------------------------------------------------------------------------------------

---

# SIGNATURES

In
accordance with Section 13 or 15 of the Exchange Act, the Registrant caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.

U.S. WIRELESS DATA, INC.

Dated
   November 14, 2002
             
   
        By: /s/ Dean M. Leavitt
             
             
             
              
              
           Dean M. Leavitt
             
             
             
              
             
   
        Chief Executive Officer

Dated
   November 14, 2002
             
   
        
/s/ Rick J. DeVincenzo

             
             
             
              
              
           Rick J. DeVincenzo
             
             
             
              
              
           Senior
Vice President, Chief
Financial Officer and Treasurer     
             
              
              
               
             
        (Principal Financial Officer)

---