SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-QSB

|X|      Quarterly  Report under Section 13 or Section 15(d) of the  Securities
         Exchange  Act of 1934 for the  quarterly  period ended March 31, 1999.
                                                                ---------------

|_|      Transition Report under Section 13 or 15(d) of the Securities  Exchange
         Act of 1934 for the transition period from ______ to ______.


         Commission File No.:  0-22848


                            U.S. Wireless Data, Inc.
             (Exact name of registrant as specified in its charter)


        Colorado                                        84-1178691
        --------                                        ----------
(State of incorporation)                     (IRS Employer Identification No.)


                          2200 Powell Street, Suite 800
                          Emeryville, California 94608
                          ----------------------------
          (Address of principal executive offices, including zip code)



                                 (510) 596-2025
                                 --------------
              (Registrant's Telephone Number, including area code)



Check  whether the issuer (1) 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  March  31,  1999  there  were  outstanding   17,330,783  shares  of  the
Registrant's Common Stock (no par value per share).


Transitional Small Business Disclosure Format

                              Yes ___    No _X_

<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
PART I            FINANCIAL INFORMATION                                                  
                                                                                          
Item 1.           Financial Statements (Unaudited)

                  Balance Sheets --
                         March 31, 1999, and June 30, 1998..................................3

                  Statements of Operations --
                         Three Months and Nine Months Ended March 31, 1999 and 1998.........4

                  Statements of Cash Flows --
                         Nine Months Ended March 31, 1999 and 1998..........................5

                  Notes to Financial Statements.............................................6-10

Item 2.           Management's Discussion and Analysis......................................11-19


PART II           OTHER INFORMATION

Item 1.           Legal Proceedings.........................................................19

Item 2.           Changes in Securities.....................................................20

Item 3.           Defaults Upon Senior Securities...........................................20

Item 6.           Exhibits and Reports on Form 8-K..........................................21
</TABLE>


                                       2
<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                                  BALANCE SHEET
                                   (Unaudited)

                                                                                March 31, 1999     June 30, 1998
                                                                                --------------     -------------
<S>                                                                                <C>             <C>         
                                  ASSETS
Current assets:
        Cash ...................................................................   $      3,000    $      4,000
        Accounts receivable, net of allowance for doubtful .....................        115,000          55,000
        accounts of $30,000 at March 31, 1999;
        $22,000 at  June 30, 1998
        Inventory, net .........................................................        231,000         480,000
        Other current assets ...................................................        127,000         187,000
                                                                                   ------------    ------------
             Total current assets ..............................................        476,000         726,000
Processing units - deployed ....................................................        466,000         517,000
Property and equipment, net ....................................................        238,000         253,000
Other assets ...................................................................        338,000          69,000
                                                                                   ------------    ------------

         Total assets ..........................................................   $  1,518,000    $  1,565,000
                                                                                   ============    ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable ......................................................... $  1,245,000    $  1,506,000
        Accrued liabilities ......................................................      585,000       1,735,000
        Borrowings, current portion ..............................................      366,000         452,000
                                                                                   ------------    ------------
        Total current liabilities ..............................................      2,196,000       3,693,000
Borrowings, long-term portion ..................................................      1,711,000          45,000
                                                                                   ------------    ------------
            Total liabilities ..................................................      3,907,000       3,738,000
                                                                                   ------------    ------------
Redeemable common stock
                                                                                        232,000         372,000
                                                                                   ------------    ------------
Stockholders' deficit:
        Preferred stock, at $1 stated value,15,000,000 authorized,                      789,000       3,060,000
          789,325 and 3,060,000  Series A issued and outstanding at March 31, 1999
          and June 30, 1998, respectively
        Common stock, at $1 stated value, 40,000,000 ...........................     17,331,000      12,195,000
          shares authorized; 17,330,783 and 12,195,358 shares
          issued and outstanding at March 31, 1999 and
          June 30, 1998, respectively
        Additional paid-in capital .............................................     12,511,000      10,222,000
        Accumulated deficit ....................................................    (33,252,000)    (28,022,000)
                                                                                   ------------    ------------
        Total stockholders' deficit                                                  (2,621,000)     (2,545,000)
                                                                                   ------------    ------------

            Total liabilities and stockholders' deficit ........................   $  1,518,000    $  1,565,000
                                                                                   ============    ============

</TABLE>

       Accompanying notes are an integral part of the financial statements

                                       3
<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                           Three months ended March 31,     Nine months ended March 31,
                                           ----------------------------     ---------------------------
                                                1999            1998            1999            1998
                                                ----            ----            ----            ----
<S>                                       <C>             <C>             <C>             <C>         
Net revenues:
    Product sales .....................   $    124,000    $    153,000    $    633,000    $    504,000
    Services                              ------------    ------------    ------------    ------------
                                               137,000          99,000         509,000         134,000
                                          ------------    ------------    ------------    ------------
                                               261,000         252,000       1,142,000         638,000
                                          ------------    ------------    ------------    ------------
Cost of revenues:
    Product sales .....................         89,000          91,000         449,000         318,000
                                          ------------    ------------    ------------    ------------
    Services                                   151,000          24,000         482,000          34,000
                                          ------------    ------------    ------------    ------------
                                               240,000         115,000         931,000         352,000
                                          ------------    ------------    ------------    ------------
Gross margin
                                                21,000         137,000         211,000         286,000
                                          ------------    ------------    ------------    ------------

Operating expenses:
    Selling, general and administrative        789,000       2,518,000       3,857,000       6,659,000
    Research and development                   105,000          78,000         363,000         251,000
    Litigation settlement
                                                  --         1,353,000            --         1,353,000
                                          ------------    ------------    ------------    ------------
       Total operating expense                 894,000       3,949,000       4,220,000       8,263,000
                                          ------------    ------------    ------------    ------------

Loss from operations ..................       (873,000)     (3,812,000)     (4,009,000)     (7,977,000)

Interest income .......................           --              --             8,000            --
Interest expense ......................       (448,000)       (439,000)       (681,000)       (707,000)
Other expense                                     --          (165,000)       (161,000)       (166,000)
                                          ------------    ------------    ------------    ------------


Net loss ..............................   $ (1,321,000)   $ (4,416,000)   $ (4,843,000)   $ (8,850,000)
                                          ============    ============    ============    ============


Basic and diluted loss per share: .....   $      (0.09)   $      (0.48)   $      (0.39)   $      (1.01)
                                          ============    ============    ============    ============


Weighted average common shares ........     14,093,000       9,281,000      13,386,000       8,753,000
 outstanding - basic/diluted              ============    ============    ============    ============

</TABLE>
                                      
       Accompanying notes are an integral part of the financial statements


                                       4
<PAGE>




                                             U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                                             STATEMENTS OF CASH FLOWS
                                                    (Unaudited)

                                                              For the nine months ended March 31,
                                                                      1999           1998
                                                                      ----           ----
<S>                                                              <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .................................................   $(4,843,000)   $(8,850,000)
    Adjustments to reconcile net loss to net cash used in
     Operating activities:
        Depreciation and amortization ........................       203,000         65,000
        Non-cash consulting services and warrant extension ...     1,933,000      2,124,000
        Non-cash variable option-compensation expense ........    (1,252,000)     1,707,000
        Non-cash interest expense - debentures ...............       589,000        637,000
        Non-cash litigation expense ..........................          --        1,353,000
        Non-cash other expense - warrants ....................       378,000           --
        Debt forgiveness .....................................      (192,000)          --
        Changes in current assets and liabilities:
           Accounts receivable ...............................       (60,000)        46,000
           Inventory .........................................       213,000       (671,000)
           Other current assets ..............................        27,000       (152,000)
           Accounts payable ..................................      (270,000)       911,000
           Accrued liabilities ...............................       (63,000)        52,000
                                                                 -----------    -----------
           Net cash used in operating activities .............    (3,337,000)    (2,778,000)
                                                                 -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property, plant, and equipment ...........       (46,000)      (291,000)
        Processing units - deployed ..........................       (82,000)      (383,000)
        Decrease (Increase) in other assets ..................        10,000        (56,000)
                                                                 -----------    -----------
           Net cash used in investing activities .............      (118,000)      (730,000)
                                                                 -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of stock ......................        26,000        585,000
        Proceeds from sale of options to purchase common stock         1,000        192,000
        Issuance of notes payable ............................     2,744,000         28,000
        Principal payment on borrowings ......................      (122,000)          --
        Net proceeds from issuance of debt ...................     1,805,000      2,762,000
        Redemption of preferred stock ........................    (1,000,000)          --
                                                                 -----------    -----------
           Net cash provided by financing activities .........     3,454,000      3,567,000
                                                                 -----------    -----------


Net increase in cash .........................................        (1,000)        59,000


Cash at beginning of period ..................................         4,000          6,000
                                                                 -----------    -----------


Cash at end of period ........................................   $     3,000    $    65,000
                                                                 ===========    ===========
</TABLE>

Supplemental Disclosure of non-cash  financing and investing:
1.   Conversion of $2,567,000 notes payable and interest to 2,934,00

       Accompanying notes are an integral part of the financial statements


                                       5
<PAGE>
                            U.S. WIRELESS DATA, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1 -- ACCOUNTING PRINCIPLES

         The balance  sheet as of March 31, 1999,  as well as the  statements of
      operations  for the three and nine month  period  ended March 31, 1999 and
      March 31, 1998,  and  statement  of cash flows for the nine month  periods
      ended March 31, 1999 and March 31, 1998 have been  prepared by the Company
      without  an  audit.  In  the  opinion  of  management,   all  adjustments,
      consisting  only of normal  recurring  adjustments  necessary  to  present
      fairly the financial  position,  results of operations,  and cash flows at
      March 31, 1999 and for all periods presented, have been made.

         Certain information and footnote  disclosures  normally included in the
      financial  statements  prepared  in  accordance  with  generally  accepted
      accounting principles have been condensed or omitted. It is suggested that
      these  financial  statements  are read in  conjunction  with the financial
      statements and notes thereto included in the Company's Form 10-KSB for the
      fiscal year ended June 30,  1998.  The results of  operations  for interim
      periods presented are not necessarily  indicative of the operating results
      for the year.


Note 2 -- FINANCIAL CONDITION AND LIQUIDITY

         The  Company  continues  to  have  difficulties  due to  its  financial
      condition and lack of liquidity.  The Company has accumulated a deficit of
      approximately  $33  million  since  inception,  including  a loss  of $1.3
      million  during the third  quarter of fiscal  year 1999,  and has  limited
      financial resources. In May 1999, the Company completed the first phase of
      a $1.5 to $5.0 million private  placement  pursuant to Regulation D of the
      Securities Act of 1933. The financing was facilitated by an  institutional
      investor,  through which the Company  raised gross proceeds of $1,500,000.
      At present,  development of the Company's  products and services  requires
      significant additional financing.

         Due to the change in its distribution strategy to channel product sales
      and service offerings through existing merchant acquirers, the Company has
      been able to make  significant  reductions  in its direct  sales force and
      reduce its cash requirements. However, execution of the Company's business
      plan is dependent on a significant debt or  equity-financing  event in the
      immediate future.  The Company continues to work both directly and through
      its  consultants  to  secure  such  financing  which is  required  to fund
      operations  while a  significant  recurring  revenue  stream is developed.
      There can be no assurance that the Company will be successful with efforts
      to raise  additional  capital.  The  inability  of the  Company  to secure
      additional financing in the near term could adversely impact the Company's
      financial position, including its ability to continue as a going concern.

         The  accompanying  financial  statements do not include any adjustments
      relating to the  recoverability  and classification of recorded assets and
      liabilities  that  might be  necessary  should  the  Company  be unable to
      continue as a going concern.


Note 3 -- NET LOSS PER SHARE

         Earnings  (loss) per common share (EPS) is computed using  Statement of
      Financial  Accounting  Standard (SFAS) No. 128, "Earnings per Share." SFAS
      No. 128  establishes  standards  for the  computation,  presentation,  and
      disclosure  of earnings  per share.  Basic and diluted net loss per common
      share is computed by dividing the net loss by the weighted  average number
      of  common  shares  outstanding  at the  end of the  period.  Diluted  EPS
      excludes exercisable stock options and warrants from the calculation since
      their effect would be anti-dilutive. Such stock options and warrants could
      potentially  dilute  earnings or decrease  losses per share in the future.
      EPS for the three-month  and nine-month  periods ended March 31, 1998 have
      been  restated to conform to SFAS No.128.  In the third  quarter of fiscal
      1999,  the net loss available to common  shareholders  equals the net loss
      less $25,000 of preferred  stock dividends  charged to retained  earnings.
      For the first nine months of fiscal 1999, the net loss available to common
      shareholders  equals  the  net  loss  plus  $387,000  of  preferred  stock
      dividends and redemption premium charged to accumulated deficit.

                                       6
<PAGE>
Note 4 -- FINANCINGS

         As the Company  entered the first  quarter of fiscal 1999, it continued
      to face the need for increased liquidity to meet its obligations.  In July
      1998,  the  Company  completed  a private  offering  of  $2,000,000  of 6%
      convertible  subordinated  debentures due July 21, 2000 and 100,000 Common
      Stock  Purchase  Warrants  exercisable  at $4.25 per share  until July 21,
      2001. The shares of Common Stock underlying the 6% Debentures and Warrants
      carry  registration  rights.  The net  proceeds  to the  Company  from the
      offering were approximately  $1.8 million.  The Company used approximately
      $250,000 of the  proceeds  from the  offering to pay off a $250,000  short
      term  bridge  loan from one of the  investors,  which was  evidenced  by a
      promissory  note executed  July 1998,  and the balance of the proceeds was
      used for  working  capital.  In  consideration  of the  bridge  loan,  the
      investor  received a warrant to purchase  20,000 shares of Common Stock at
      $4.375 per share,  exercisable  through  September  9, 2001.  The  warrant
      contains  anti-dilution  provisions and  "piggyback"  registration  rights
      applicable  to the Common  Stock  issuable  upon  exercise of the warrant.
      Holders of the Company's Series A Preferred Stock purchased  $1,000,000 of
      the Debentures.

         In August 1998, the Company  obtained  effectiveness  of a registration
      statement on Form SB-2 (SEC File No.  333-52625) under which it registered
      a total of  7,240,356  shares  of Common  Stock,  for  resale  by  certain
      security holders of the Company (the "August SB-2"). After the August SB-2
      was declared effective by the SEC, the National  Association of Securities
      Dealers,  Inc.  ("NASD")  determined  that it would  undertake  a detailed
      review of the registration  statement.  Pending the completion of the NASD
      review,  the Company  suspended the sale of shares under the  registration
      statement  through  NASD  member  firms.   Approximately  250,000  of  the
      registered shares were sold under that  registration  statement before the
      Company  suspended  sales under it. During the NASD's review,  the Company
      further determined that the Prospectus contained in the August SB-2 was no
      longer current and that a "post-effective  amendment" would be required to
      be filed and declared  effective by the SEC before  additional sales could
      be made under the August SB-2. A total of 1,030,310 shares of Common Stock
      included  in the  August  SB-2 were  registered  for sale on behalf of the
      holders of the Company's  Series A Preferred  Stock. As of March 31, 1999,
      there remained 789,000 shares of Series A Preferred Stock outstanding. All
      shares of the Common Stock  issuable upon  conversion  of, or as dividends
      on, the Series A Preferred  stock became  eligible for sale under SEC Rule
      144 as of December 10, 1998.

         On September  22,  1998,  the Company  entered  into an agreement  with
      Liviakis Financial Communications,  Inc., a significant shareholder of the
      Company,  for a $1,300,000 debt financing.  The note payable was due April
      1, 1999,  bears interest at 8% per year,  and is secured by  substantially
      all available  assets of the Company.  The Company used  $1,000,000 of the
      proceeds to redeem $833,000 of the approximate $2.3 million balance of its
      Series A Convertible  Preferred Stock. The Company paid 120% of face value
      for   the   redemption.   The   participating   investors,    representing
      approximately 1,342,000 shares of the remaining Series A Preferred, agreed
      to hold their Series A Preferred  shares  until at least  October 15, 1998
      after  which time  one-third  of the Series A  Preferred  shares  could be
      converted to common stock on each of October 15, November 15, and December
      15 of 1998, respectively.  As an incentive to these investors, the Company
      agreed to issue Common Stock  purchase  warrants  exercisable  to purchase
      that number of shares of Common  Stock equal to five percent of the number
      of shares of Series A Preferred Stock held by the  participating  investor
      at the end of each period. On December 31, 1998, the Company was obligated
      to issue warrants for 78,089 shares exercisable at $2.40 per share through
      October 15, 2001,  67,084  shares  exercisable  at $3.36 per share through
      November 15, 2001,  and 67,084  shares  exercisable  through  December 15,
      2001.  The Company also agreed to increase the dividend rate from 4% to 8%
      on the balance of the unconverted Series A Preferred Stock. By October 31,
      1998,  the Company  was to file a  registration  statement  for the shares
      underlying  the  Warrants  as  well as  additional  shares  issuable  upon
      conversion of the Series A Preferred  Stock,  beyond those included in the
      original SB-2 Registration Statement,  due to a decline in the stock price
      subsequent to  effectiveness  of the August SB-2.  The Company has not met
      this obligation, but intends to include the shares underlying the warrants
      in the upcoming  registration  statement for the Series B Preferred Stock.
      During the quarter ended March 31, 1999,  the Company  issued common stock
      purchase  warrants to JW Genesis as consideration for services rendered in
      conjunction  with the  redemption of Series A Preferred  Stock. A total of
      15,000 warrants were issued at $2.70 per share and are exercisable through
      September  13, 2001.  The shares of Common Stock  underlying  the warrants
      have "piggy-back" registration rights,

                                       7
<PAGE>
         On October 28,  1998,  the Company  borrowed  $500,000 and issued an 8%
      Note Payable due March 1, 1999,  from the CEO and 50% owner of Cardservice
      International,  Inc. In consideration  for the loan, the Company agreed to
      issue a Common  Stock  Purchase  Warrant  exercisable  to purchase  25,000
      shares of Common Stock at $3.038 per share through October 27, 2001.

         During the second  fiscal  quarter of 1999,  the Company  received  two
      bridge loans from Liviakis Financial  Communications,  Inc. (LFC) totaling
      $300,000 in the form of 8% Notes Payable due April 1, 1999. In January and
      February,  the Company received  $390,000 of additional  bridge loans from
      LFC in the form of 8% Notes Payable, due April 1, 1999.

         On March 19, 1999, the Company and holders of the 8% Notes, LFC and the
      CSI  affiliate,  agreed to convert  $2,490,000  of principal  plus accrued
      interest  to Common  Stock at the rate of $.875 per  share.  This rate was
      established  at a 20% discount  from the closing price of the Common Stock
      as of March 18,  1999.  The Company  issued  2,933,671  shares under these
      agreements.  These  shares  are  restricted  securities  and  will  become
      eligible for sale under SEC Rule 144 one year after the original  issuance
      dates of the promissory notes.

         As  noted  above,  the  Company  had a  pending  commitment  to  file a
      registration statement, which was due October 7, 1998, covering the shares
      of Common Stock issuable upon conversion of the 6% Convertible  Debentures
      and related warrants. A registration was not effective with the SEC within
      the  required 120 calendar  days of the Initial  Issuance  Date (which was
      July 21, 1998),  and the Company became obligated to pay a cash penalty of
      two percent (2%) of the face amount of the 6% Debentures and thereafter an
      amount  equal to three  percent  (3%) of the face amount for every  thirty
      calendar  days  (or  any  fraction  thereof)  until  the  registration  is
      effective.  At March 31,  1999,  the  Company  had not  filed or  obtained
      effectiveness of a registration statement,  thereby giving the holders the
      right to require the Company to redeem the 6%  Debentures  at 120% of face
      value  plus  accrued  and unpaid  interest  and  penalties  to the date of
      redemption. The Company has recorded $280,000 in penalties as of March 31,
      1999 for this obligation. On May 7, 1999, the Company and the 6% Debenture
      holders  agreed to convert all the accrued  interest  and  penalties  into
      shares of the Series B Preferred  Stock.  In  addition,  they waived their
      default rights under the original schedule described above and adopted the
      default  schedule  for the  Series  B  Preferred  Stock  (See  "Subsequent
      Events").

         On March 12,  1999,  the  Company  completed  a note and  common  stock
      purchase  agreement with RBB Bank  Aktiengesellschaft,  which is the agent
      for the  holders of certain  shares of the  Company's  Series A  Preferred
      Stock, and $1,000,000 of 6% Debentures. As part of this agreement,  50,000
      shares of common stock and a $250,000  promissory note bearing interest at
      10% due June 12, 1999 were issued.  In connection with the issuance of the
      Note,  the Company also granted RBB Bank a right of first  refusal to fund
      any such additional  bridge  financing  needed by the Company.  This right
      must be exercised  within one day of RBB Bank being  notified of the terms
      of any such additional bridge financing. The shares issued as part of this
      agreement  are  restricted  securities  and the Company  will  include the
      shares in the  Registration  Statement to be filed for the 6%  Convertible
      Debentures  and  other  share  issuances.  The  loan  was  intended  as  a
      short-term  bridge loan and was originally  required to be repaid from the
      proceeds of any  aggregate  equity  placements  made by the Company  which
      amount to at least $1,000,000.  This provision was subsequently eliminated
      in an amendment to the agreement dated April 22,1999.  Liviakis  Financial
      Communications,  Inc,  agreed  to  guarantee  the  note  (See  "Subsequent
      Events").

         In March 1999, the Company entered into a consulting agreement with EBI
      Securities  Corporation  for  purposes  of  assisting  the  Company  as  a
      corporate finance consultant in obtaining additional capital and liquidity
      for its stock.  The intent of the agreement is to position the Company for
      future  financing,  including  but  not  limited  to  a  secondary  public
      offering.  The  agreement  has an  initial  term  of six  months  with  an
      available extension of 3 months. For its services,  the Company has agreed
      to  issue  warrants  to  purchase  100,000  shares  of  its  Common  Stock
      exercisable  at $1.00 per share  expiring three years from March 15, 1999.
      The  Company  amortized  a prepaid  expense of $60,000  during the current
      quarter for these warrants.  The Warrants contain  standard  anti-dilution
      provisions, provide EBI Securities with a cashless exercise provision, and
      "piggy-back" registration rights. The Company also agreed to pay a monthly
      consulting fee of $5,000.  Additionally,  the agreement provides for a fee
      to be paid  for  services  rendered  in  conjunction  with any  merger  or
      acquisition  or  significant  investment  by the Company with fees ranging
      from 1% to 5% based on the value of the transaction.


                                       8
<PAGE>
Note 5 -- LIVIAKIS FINANCIAL COMMUNICATIONS INC. ("LFC") - CONSULTING

         On June 30, 1998, the Company and LFC agreed to extend their consulting
      relationship  through the entry of a new consulting agreement covering the
      period  from  August  1,  1998  through  March  15,  1999  (the  "New  LFC
      Agreement"). The terms of the New LFC Agreement are substantially the same
      as the  original LFC  Agreement of June 1997.  For services to be rendered
      under the New LFC Agreement,  LFC received 290,000 shares of Common Stock,
      issued as a signing  bonus upon  execution of the New LFC  Agreement.  The
      consulting  agreement  was  valued as  $1,078,438  of  prepaid  consulting
      services  based on the share price on the date of the agreement less a 15%
      discount,  attributable  to the fact that the shares were  restricted  and
      subject to a  "lock-up"  provision  as  described  below.  The  consulting
      services  have been expensed  over the term of the  agreement.  The Common
      Stock  issued  to  LFC  under  the  New  LFC  Agreement   carries  certain
      registration  rights.  In  conjunction  with  the  entry  of the  New  LFC
      Agreement,  LFC agreed to a further lock-up of all shares owned by LFC and
      its  affiliates,  pursuant  to which they  agreed not to sell such  shares
      before February 1, 1999. LFC and the principals of LFC subsequently agreed
      to extend their  "lock-up" of Company  shares  through the end of calendar
      year 1999.


Note 6 - LITIGATION

       Settlement of Claims of Certain Noteholders

         In April 1998,  the Company  entered  into an  agreement  with  certain
      Noteholders  under  which the  Company  issued  shares of Common  Stock in
      settlement  of  the  dispute.   Terms  of  the  settlement   entitled  the
      Noteholders to certain guarantee or put provisions  related to the shares.
      The  guarantee  provision of the  settlement  agreement  allows the former
      Noteholders to recover the difference  between the guarantee  price (which
      is  $3.00  per  share  for the  shares  that  are  still  entitled  to the
      guarantee) and the gross amount the Noteholder receives upon a sale of the
      shares.  The guarantee is operative at any time during the one year period
      commencing on the date the shares became  saleable under SEC Rule 144. The
      Company is obligated to pay the amount due within thirty days of receiving
      a demand,  accompanied by  documentation  confirming  the sale.  Under the
      "put" provision of the settlement  agreement,  the former Noteholders will
      have a five day period  commencing  on the date one year from the date the
      shares  become  saleable  under  SEC  Rule 144  during  which  the  former
      Noteholders may "put" any shares remaining unsold by them at the time back
      to the  Company.  Upon  exercise of the put,  the Company  must either (1)
      purchase  the shares for the put price of $3.00 per share,  or (2) require
      the  shareholder  to sell the shares  into the  market,  with the  Company
      making up the  difference  between  the put  price  and the  gross  amount
      received by the shareholder  upon such sale,  within 15 days after receipt
      of  written  notice  and  documentation  confirming  the sale.  The shares
      originally  issued upon conversion of the notes and the additional  shares
      resulting from the settlement are reflected as Redeemable  Common Stock on
      the balance  sheet.  The  originally  issued shares are reflected at their
      conversion value adjusted for the value  attributable to the guarantee and
      "put" provisions.  In the event redemption of such shares becomes probable
      and the actual redemption amount is in excess of the carrying amount, such
      excess  amount will be  recorded as  litigation  settlement  expense.  The
      additional shares are reflected at their redemption value. As of March 31,
      1999,  there  were  up to  approximately  128,000  shares  subject  to the
      guarantee and "put"  provision,  with a carrying value of $232,000,  and a
      maximum redemption value of approximately  $384,000 prior to any reduction
      for amounts the holder may receive upon the sale of such shares.  On April
      29, 1999, certain Noteholders holding  approximately 83,500 shares, agreed
      to waive their  guarantee  and "put" rights in return for the isssuance of
      200,000  restricted  shares of the Company's common stock (See "Subsequent
      Events").


Note 7 -- RECENT ACCOUNTING PRONOUNCEMENTS

         In June  1998,  the  FASB  issued  Statement  of  Financial  Accounting
      Standards No. 133,  "Accounting  for  Derivative  Instruments  and Hedging
      Activities"  (FAS 133).  The new  standard  requires  companies  to record
      derivatives  on the balance  sheet as assets or  liabilities,  measured at
      fair  value.  Gains or losses  resulting  changes  in the  values of these
      derivatives  will be  reported  in the  statement  of  operations  or as a
      deferred item,  depending on the use of the  derivatives  and whether they
      qualify for hedge  accounting.  The key criterion for hedge  accounting is
      that the  derivative  must be highly  effective  in  achieving  offsetting
      changes in fair value or cash flows of the hedged items during the term of
      the  hedge.  The  Company  plans to adopt FAS 133 in the first  quarter of
      fiscal 2000 and has not yet determined the effect, if any, of adopting the
      new standard.

Note 8 -- SUBSEQUENT EVENTS

         On April 29, 1999, the Company agreed with certain Noteholders to waive
      their "put" rights in return for issuance of 200,000  restricted shares of
      USWD's  Common Stock on a pro-rata  basis for their  83,500  shares of the
      original distribution covered in the Settlement Agreement. Issuance of the
      shares is subject to a final agreement and  verification by the Company of
      eligibility of the 83,500 shares for the  put/guarantee  rights (See "Note
      6-Litigation").

                                       9
<PAGE>
         On May 6, 1999,  the Company  completed the minimum amount of a $1.5 to
      $5.0 million private placement  pursuant to Regulation D of the Securities
      Act of 1933. The financing was facilitated by an  institutional  investor,
      through which the Company raised gross proceeds of $1,500,000. The Company
      issued 6% Cumulative Convertible Redeemable Preferred Stock (Series B) for
      $1.00 per share.  The instrument gives the holder the right to convert the
      Preferred Stock into shares of the Company's Common Stock in the future at
      80% of then current market price.  Concurrent with this  transaction,  the
      holders of the Company's 6% Convertible  Debentures  agreed to convert all
      accrued  interest  and  penalties  into  shares of the Series B  Preferred
      Stock.  The Series B  Preferred  Stock and Common  Stock to be issued upon
      conversion have not been  registered  under the Act and may not be offered
      or  sold  in  the  United  States  absent  registration  or an  applicable
      exemption from registration requirements.

          The Company immediately used $401,000 of the proceeds to pay principal
      and interest on a $400,000  bridge note entered into subsequent to the end
      of third quarter  1999. In addition,  proceeds will be used to pay finders
      fees of $180,000 plus estimated  offering  expenses of $41,000  (including
      approximately  $26,000  for the  investor's  legal  fees).  The Company is
      obligated  to utilize an  additional  $413,000 of the proceeds to pay past
      and future  legal and  accounting  fees,  while the  estimated  balance of
      $465,000 is to be used as working capital.

         As described  under Note 4 -  Financings,  the Company was obligated to
      file a  registration  statement by October 7, 1998  covering the shares of
      Common Stock  issuable  upon  conversion of the 6%  Debentures.  Since the
      Company  did not meet the  registration  requirements,  certain  penalties
      accrued  through  April 18, 1999.  The Company  issued  454,705  shares of
      Series B Preferred Stock at $1.00 per share to compensate the 6% Debenture
      holders for the penalties  and interest owed on the 6% Debentures  through
      June 1999.  As part of this  agreement,  the Debenture  holders  agreed to
      adopt the default  schedule  set for the Series B  Preferred  Stock and to
      waive their rights under certain prior defaults.

                  The Company also entered into an agreement (the  "Registration
      Rights Agreement") with the purchasers of the Series B Preferred to file a
      registration  statement with the SEC covering the Common Stock  underlying
      the Series B Preferred and the Warrants within 30 days of the Closing Date
      to be effective  within 90 days of the Closing  Date. If the Company fails
      to meet this  requirement,  monthly penalties accrue at the rate of 2 to 3
      percent of the purchase price, and in certain  circumstances  can equal up
      to 6% per month. In addition,  if the Series B Registration  Statement has
      not been filed within 60 days of the Closing Date or has not been declared
      effective within 150 days of the Closing Date, the holders of the Series B
      Preferred  may require  the  Company to redeem the Series B Preferred  for
      $1.25  per  share,  plus all  accumulated  dividends.  The  filing of this
      registration  statement will activate  certain prior  registration  rights
      granted by the Company to holders of certain of its securities.

         The Company also issued a Common Stock Purchase Warrant  exercisable to
      purchase  300,000 shares of common Stock at $1.50 per share for five years
      from April 30,1999 (the "Series B Warrants") to the cash  purchaser of the
      Series B Preferred.

         As noted in Note 4, RBB Bank Aktiengesellschaft, which is the agent for
      the holders of certain shares of the Company's  Series A Preferred  Stock,
      $1,000,000 of 6% Debentures and a promissory note in the principal  amount
      of  $250,000,  agreed  to waive the right to  immediate  repayment  of the
      $250,000 note (which was  originally  payable upon  completion of the next
      funding received by the Company of at least  $1,000,000).  RBB Bank agreed
      to forebear initiating an action against the Company to collect the amount
      due  until the  earlier  of  receipt  by the  Company  of  funding  in the
      aggregate of at least $2,500,000, or December 1, 1999.

         Mr. John  Liviakis,  a  significant  shareholder  of the Company,  also
      agreed to transfer a total of 443,077 shares of Company Common Stock owned
      by him to the  finder  who  located  the cash  purchaser  of the  Series B
      Preferred Stock. The shares will be transferred as "restricted securities"
      as defined in Rule 144 under the  Securities Act of 1933 and will not have
      any registration rights.

                                       10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

         The Company may, in  discussions  of its future plans,  objectives  and
      expected  performance  in periodic  reports  filed by the Company with the
      Securities and Exchange Commission (or documents incorporated by reference
      therein)  and in  written  and  oral  presentations  made by the  Company,
      include projections or other forward-looking statements within the meaning
      of Section 27A of the  Securities  Exchange  Act of 1933 or Section 21E of
      the   Securities   Act  of  1934,  as  amended.   Such   projections   and
      forward-looking  statements  are based on  assumptions,  which the Company
      believes 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 detailed below,
      and in other reports filed by the Company  under the  Securities  Exchange
      Act of 1934,  including the Company's Annual Report on Form 10-KSB for the
      fiscal year ended June 30, 1998.

         History of Losses and  Potential  Fluctuations  in  Operating  Results:
      Throughout  the Company's  history  including the first nine months of the
      fiscal year ending June 30, 1999,  the Company has continued to experience
      significant  operating losses. The Company has sold securities or borrowed
      funds to cover these losses.  In addition,  because the Company  generally
      ships its products on the basis of credit card processing  applications or
      purchase orders, increments to recurring revenue and other component sales
      in any quarter are highly dependent on orders shipped in that quarter and,
      accordingly,  may  fluctuate  materially  from  quarter  to  quarter.  The
      Company's  operating  expense  levels are based on the Company's  internal
      forecasts for future demand and not on firm  customer  orders.  Failure by
      the Company to achieve these  internal  forecasts  could result in expense
      levels that are inconsistent  with actual revenues.  The Company's results
      may also be affected by fluctuating  demand for the Company's products and
      by  increases  in the  costs of  components  acquired  from the  Company's
      vendors.

          Requirement for Additional Capital: At present, the development of the
      Company's infrastructure,  product development initiatives, and transition
      to the new distribution  program requires additional  financing.  Proceeds
      from  recently  completed  financings  have  provided the Company with the
      ability to launch joint  marketing and  distribution  programs with credit
      card  acquirers,  however,  execution of the  Company's  business  plan is
      dependent on a more significant debt or equity financing event.  Recently,
      operating  expenses have been  satisfied by several bridge  financings,  a
      private equity offering, and making selective payments on certain accounts
      payable.  The  Company  continues  to work both  directly  and through its
      consultants  to  secure  additional  debt or  equity  financing  which  is
      required to fund operations while a significant  recurring  revenue stream
      is built.  While management is confident it can accomplish this objective,
      there is no  guarantee  that this  additional  funding  will  occur in the
      required  time  frame.  The  failure of the  Company to obtain  additional
      financing could have a material  adverse impact on the Company,  including
      its ability to continue as a going concern.

         Distribution  Program:  The Company has  recently  executed a Letter of
      Intent with  Cardservice  International  which  outlines  CSI's  intent to
      produce  its  LinkPoint(TM)   processing  terminals  using  the  Company's
      proprietary  Wireless Express Payment ServiceSM (WEPSSM).  Lipman USA Inc.
      has also  announced  the  availability  of its NURIT 2090  terminal  using
      WEPSSM.  The Company  anticipates  that CSI and Lipman will promote  these
      products  within  their own markets  using their  respective  distribution
      channels. The Company also has joint marketing and distribution agreements
      in place with GTE Wireless, Bell Atlantic Mobile, and Ameritech. These and
      anticipated  additional  distribution  programs  are  expected  to  have a
      positive impact on the Company's future revenue stream.  In addition,  the
      Company  anticipates  it will execute a definitive  agreement with CSI and
      sign distribution  agreements with other significant partners. The failure
      to  successfully  complete the  agreements  and  successfully  execute the
      specified programs through any of these distributors could have a material
      adverse effect on the Company.

         The Company's  Dependence on a Single Type of Product and Technological
      Change:  All of the Company's  revenue is derived from sales of its credit
      card  transaction  services and CDPD enabling  products.  Demand for these
      products  could be  affected  by numerous  factors  outside the  Company's
      control,   including,  among  others,  market  acceptance  by  prospective
      customers,  or the introduction of new or superior competing technologies.
      The  Company's  success  will  depend in part on its  ability  to  respond
      quickly to  technological  changes through the development and improvement
      of its products.

         Competition by Existing Competitors and Potential New Entrants into the
      Market:   The  Company  has  identified   several  potential   competitors
      attempting  to develop CDPD based  terminals and  solutions.  In addition,
      companies with  substantially  greater  financial,  technical,  marketing,
      manufacturing  and human  resources,  as well as name recognition than the
      Company may also enter the market.

                                       11
<PAGE>
         CDPD Resale Agreements  Containing  Minimum Purchase  Obligations:  The
      Company has to date entered into four CDPD service resale agreements,  one
      of which contains minimum  obligations which can be characterized as "take
      or pay"  provisions.  The  agreement  with  AT&T  Wireless  contains  such
      provisions.  The Company is  obligated  to pay for the  minimum  amount of
      service  stated in the agreement  even if it fails to place enough service
      with  merchants to meet the  minimums.  The failure of the Company to meet
      these service  minimums  could have an adverse  financial  impact upon the
      Company.

         Status of Federal Corporate Tax Filings:  The Company has not completed
      federal income tax filings for fiscal years 1996, 1997, and 1998. While it
      is  unlikely  that the  Company  will owe any taxes  due to the  sustained
      losses during the periods, the Company may be subject to penalties for the
      delinquency.  The Company  intends to take the steps  required to complete
      the tax filings as soon as practicable.

         Dilutive and Other Possible  Adverse  Effects of  Outstanding  Options,
      Warrants  and Other  Rights to Acquire  Common  Stock:  The  Company has a
      substantial  number of  outstanding  rights to acquire Common Stock in the
      form  of the  Series  A and  Series  B  Preferred  Stock,  6%  Convertible
      Subordinated   Debentures,   various  warrants,  and  contract  rights.  A
      substantial  number of these  rights are  exercisable  at prices which are
      less than the present  market price for the Common Stock.  Under the terms
      of such rights,  the holders  thereof are given an  opportunity  to profit
      from a rise in the  market  price of the  Common  Stock  with a  resulting
      dilution in the  interests of other  shareholders.  The terms on which the
      Company may obtain additional  financing may be adversely  affected by the
      existence of such rights.  For example,  the holders of these rights could
      exercise  them  at a time  when  the  Company  was  attempting  to  obtain
      additional  capital  through a new  offering of  securities  on terms more
      favorable than those provided by the rights.

         Current Status of Registration Statements: The Company was obligated to
      file a registration  statement with the Securities and Exchange Commission
      by October 7, 1998,  covering  the shares of Common  Stock  issuable  upon
      conversion  of the 6%  Debentures  which the Company sold in July 1998. In
      September  1998,  the  Company  redeemed a total of 833,000  shares of its
      Series A Preferred Stock. In conjunction with that redemption, the Company
      also agreed to issue  warrants  exercisable to purchase a total of 212,257
      shares of Common Stock to the holders of the remaining  shares of Series A
      Preferred  Stock.  The  redemption   agreement  includes  provisions  that
      obligated  the  Company to file a  registration  statement  by October 31,
      1998,  covering the shares  underlying  these warrants plus any additional
      shares  issuable  upon  conversion  of the  Series A  Preferred  Stock.  A
      registration  statement to cover these shares has not been filed as of the
      date  of  filing  of this  Report.  The  Company  is  preparing  to file a
      registration  statement covering the Common Stock issuable upon conversion
      of the 6% Debentures and Series B Preferred Stock described below and will
      include  the shares of Common  Stock  underlying  the  warrants,  Series A
      Preferred Stock and other securities having piggyback  registration rights
      in this  registration  (See  "Securities  Issuances to Fund Operations" in
      Results of Operations, below).


      RESULTS OF OPERATIONS

      Company Background

         U.S.  Wireless Data, Inc. (the "Company" or "USWD") was incorporated in
      the State of Colorado on July 30, 1991.  The  Company is in  the  business
      of  providing  products  and  services  to  enable  the  use  of  wireless
      technology for electronic payment and other transactions.

         Over the past three  years,  USWD has focused  its product  development
      effort on  incorporating  Cellular  Digital Packet Data (CDPD)  technology
      into  its  product  line.  Because  of  the  high  speed  nature  of  CDPD
      technology,  and the  ability  to bypass  the  public  switched  telephone
      network,  the Company's new line of CDPD-based  terminals has  significant
      performance  and  communication  cost  advantages  when  compared with the
      traditional  dial-up  terminals  currently  being sold in the U.S.  market
      today.

                                       12
<PAGE>
         In fiscal year 1998, to broaden  distribution of the TRANZ Enabler CDPD
      based   product,   the  Company   entered  into   agreements   with  large
      telecommunications  carriers  for  direct  distribution  of  products  and
      services to merchants.  The Company  signed joint  marketing and operating
      agreements with Bell Atlantic  Mobile,  Ameritech  Mobile  Communications,
      Inc.,  and GTE Wireless.  Commencing in the second  quarter of fiscal 1998
      and  continuing   into  the  first  quarter  of  fiscal  1999,  USWD  made
      significant  investments  to  support  a  nationwide  deployment  of TRANZ
      Enablers to merchants through GTE's and other telecommunications carriers'
      national  sales forces.  Under these  deployment  programs,  the carrier's
      sales representative introduced USWD's credit card processing solution and
      TRANZ Enabler to the end user  merchant.  Upon  execution of a credit card
      processing agreement, a TRANZ Enabler unit(s) was provided to the merchant
      by USWD.  Under this  program,  the Company  would retain a portion of the
      monthly  credit  card  fees  based on the  dollar  volume  and  number  of
      transactions processed through the TRANZ Enabler.

         Placements of TRANZ Enabler units pursuant to the Company's  agreements
      with telecommunications carriers did not develop as rapidly as anticipated
      and have not reached  anticipated  (and  necessary)  levels to pay for the
      infrastructure   to  support  the  programs.   Costs  to  the  Company  of
      implementing  the joint  marketing and  distribution  agreements  with GTE
      Wireless,  Bell  Atlantic  Mobile  and  Ameritech  have  exceeded  revenue
      generated  by the  programs  since  they  began.  The GTE  Agreement  also
      required  the Company to generate  minimum  CDPD  service  billings to GTE
      Wireless from merchants  signed up for GTE Wireless's CDPD service through
      the  Company.  Actual  placements  did not allow the  Company  to meet the
      renegotiated minimum purchase obligations. To remedy this minimum purchase
      requirement,  the Company and GTE amended the  agreement  on  September 9,
      1998 which removed any minimum purchase requirement and established new IP
      address pricing for merchants placed under the agreement.

      Revision to Business Plan
      -------------------------

         Because   revenue  did  not  develop  as  planned   under  the  carrier
      distribution  program,  and expenditures  relating thereto outstripped the
      Company's  ability to  support  its  business  plan,  management  began to
      reexamine  the  Company' s business  plan in the fourth  quarter of fiscal
      1998 and came to the  conclusion  that the Company  could not  continue to
      function at its current expenditure levels.

        During  the  first  quarter  of fiscal  1999,  Roger  Peirce,   previous
     Vice  President of  Operations  for Visa and most recently the President of
     First Data  Merchant  Services  joined the USWD Board of  Directors.  While
     acclimating to USWD's  business plan and strategy,  Mr. Peirce was asked by
     the Board of Directors to take a more active role in the Company.On  August
     21, 1998 Mr. Peirce became the Chief Executive Officer of the Company.  Mr.
     Peirce was also a nonvoting member of the Board of Directors of Cardservice
     International.  Inc. ("CSI"),  a related party. Mr. Peirce replaced Evon A.
     Kelly  as the  Company's  CEO and Rod  Stambaugh  as  Chairman.  Mr.  Kelly
     resigned  as an officer  and  director  of the  Company,  but remains as an
     employee of the Company under a one-year employment agreement.

         Beginning  in  late  August  1998,  several  changes  in the  Company's
      distribution and operational  strategy were  implemented.  The fundamental
      change in the strategy  involves  positioning the Company as an enabler of
      wireless  products and services to the marketplace and not as a competitor
      to the  current  incumbents.  This  repositioning  of the  Company  in the
      marketplace  encompasses  the  discontinuation  of  soliciting  and owning
      merchant  contracts  for  providing   bankcard-processing   services.  The
      Company's  approach  to the market in fiscal 1998  effectively  positioned
      itself  as a  direct  competitor  to the  major  merchant  acquirers.  The
      Company's new strategy involves an end-to-end systems approach to enabling
      the  marketplace.  The  Company is  enabling  the  marketplace  with a new
      service offering - Wireless  Express Payment  ServiceSM  (WEPSSM).  WEPSSM
      includes  an  expanding  set of  internet  based  software  offerings  and
      wireless terminal devices that incorporate the Company's  proprietary CDPD
      modem, a web-based IP address provisioning and terminal activation process
      that includes real time remote diagnostic  capabilities,  the CDPD network
      service, and server technology that delivers wireless  transactions to the
      current  front end of card  processors.  The  Company is  targeting  large
      merchant  acquirers  and card  processors  for this  service.  The initial
      response for WEPSSM from the targeted prospects has been positive.

         In  furtherance  of this new strategy,  on October 1, 1998, the Company
      and  CSI  entered  into  a   non-binding   Letter  of  Intent  to  form  a
      non-exclusive  strategic  partnership  to jointly  exploit  payment system
      opportunities  using  wireless   technologies.   Upon  entry  of  a  final
      agreement,  CSI will  produce  and promote  its  LinkPoint(TM)  processing
      terminals using the Company's  proprietary  USWD 500 CDPD modem and USWD's
      Wireless Express Payment ServiceSM. CSI will promote these products within
      its own markets using its approximately 2,200-person sales force.

                                       13
<PAGE>
         Lipman USA, Inc., the third largest supplier of point of sale terminals
      is also in the  process  of  integrating  the USWD 500 CDPD modem into its
      Nurit 2090 POS/EDC terminal.  The terminal is expected to be available for
      distribution to the market in the Company's  fourth quarter of fiscal 1999
      and will utilize  WEPSSM to manage the  transaction  from point of sale to
      the payment processor.

      Management Changes
      ------------------

         In early May 1999,  Dean M. Leavitt was  appointed  CEO and Chairman of
      the Company.  He succeeds  Roger Peirce,  who resigned as CEO and Chairman
      for personal  reasons in March 1999. Mr. Leavitt is the founder and former
      president of US Data  Capture,  Inc., a merchant  service  provider in the
      credit card processing industry.  Also in May 1999, Messrs.  Caesar Berger
      and Richard Barton resigned as directors of the Company.


      Securities Issuances to Fund Operations
      ---------------------------------------

         To  fund  its  operating  requirements,  the  Company  has  had to rely
      primarily on the issuance of debt or equity  securities  over the last two
      fiscal years.

          In August 1998, the Company  obtained  effectiveness of a registration
      statement on Form SB-2 (SEC File No.  333-52625) under which it registered
      a total of 7,240,356 shares of Common Stock for resale by certain security
      holders of the Company (the "August  SB-2").  The August SB-2 was filed to
      honor the  registration  rights of the holders of the  Company's  Series A
      Preferred Stock and one previously issued 50,000 share Warrant.  After the
      August SB-2 was declared effective by the SEC, the National Association of
      Securities  Dealers,  Inc.  ("NASD")  determined that it would undertake a
      detailed review of the registration  statement.  Pending the completion of
      the NASD  review,  the  Company  suspended  the sale of  shares  under the
      registration statement through NASD member firms. Approximately 244,000 of
      the registered  shares were sold under the  registration  statement before
      the  Company  suspended  sales  under it.  During the NASD's  review,  the
      Company  further  determined  that the Prospectus  contained in the August
      SB-2 was no longer current and that a "post-effective  amendment" would be
      required to be filed and declared  effective by the SEC before  additional
      sales could be made under the August SB-2. A post-effective  amendment has
      not been  filed to date.  A total of  1,030,310  shares  of  Common  Stock
      included  in the  August  SB-2 were  registered  for sale on behalf of the
      holders of the Company's  Series A Preferred  Stock. As of March 31, 1999,
      there remained 789,000 shares of Series A Preferred Stock outstanding. All
      shares of the Common Stock  issuable upon  conversion  of, or as dividends
      on, the Series A Preferred  stock became  eligible for sale under SEC Rule
      144 as of December 10, 1998.

         In September 1998, the Company  negotiated a partial  redemption of the
      outstanding Series A Preferred Stock with several of the security holders.
      The Company borrowed  $1,300,000 from Liviakis  Financial  Communications,
      Inc.  ("LFC")  and used $1 million of that money to redeem  $833,000  face
      value of the Series A Preferred  Stock,  paying 120% of face value for the
      redemption. The note payable was due April 1, 1999 and bore interest at 8%
      per year.  On March 19,  1999,  LFC agreed to convert  this note to equity
      (See "Other Recent  Borrowings  and Financing  Activities").  The security
      holders  participating  in the Series A redemption  also agreed to a gated
      conversion  schedule over the following  three months.  The  participating
      investors,  representing  approximately  1,342,000 shares of the remaining
      Series A Preferred agreed to hold their Series A Preferred shares until at
      least  October 15,  1998.  Following  October 15,  1998,  one-third of the
      Series A Preferred  shares became  convertible  to common stock on each of
      October 15,  November  15, and  December 15 of 1998,  respectively.  As an
      incentive to these  investors,  the Company  issued Common Stock  purchase
      warrants  exercisable  to purchase  that number of shares of Common  Stock
      equal to five percent of the number of shares of Series A Preferred  Stock
      held by the participating investor at the end of each period. The warrants
      are  exercisable  for three year terms, at a per share price equal to 110%
      of the  average of the  closing  bid price over the five days prior to the
      effective  date of each  warrant.  The Company also agreed to increase the
      dividend  rate from 4% to 8% on the  balance of the  unconverted  Series A
      Preferred  Stock  and to  register  with  the  SEC  for  public  resale  a
      sufficient  number of shares of Common Stock to cover all  conversions  of
      the Series A Preferred  stock plus the shares of Common  Stock  underlying
      the warrants.  The  registration  statement was to be filed by October 31,
      1998, and "penalties  similar to the current deal" apply if the Company is
      tardy in getting the registration  statement effective.  As of the date of
      this  report,  the  Company  has not met this  obligation,  but intends to
      include the shares  underlying  the warrants in the upcoming  registration
      statement for the Series B Preferred Stock. During the quarter ended March
      31, 1999, the Company agreed to issue Common Stock purchase warrants to JW
      Genesis as  consideration  for services  rendered in conjunction  with the
      redemption  of Series A Preferred  Stock.  The warrant is  exercisable  to
      purchase  15,000  shares  of  Common  Stock at  $2.70  per  share  through
      September 13, 2001.

                                       14
<PAGE>
      Private  Offering of 6% Convertible  Subordinated  Debentures due July 21,
      2000.
      --------------------------------------------------------------------------

         On July 27 1998, the Company completed a private offering of $2,000,000
      principal  amount of 6% Convertible  Subordinated  Debentures due July 21,
      2000 (the "6% Debentures") and Common Stock Purchase Warrants  Exercisable
      to Purchase 100,000 shares of Common Stock  exercisable at $4.25 per share
      until July 21, 2001 (the "Warrants"). The net proceeds to the Company from
      the offering were approximately $1,810,000,  after paying finder's fees of
      $190,000,  but before paying  additional  expenses of the offering,  which
      were approximately $20,000. The Company used $250,000 of the proceeds from
      the offering to pay off a $250,000  short term bridge loan from one of the
      participating  investors,  which was evidenced by a promissory  note dated
      June 26, 1998, and used the balance of the proceeds as working capital and
      to  repay  existing  obligations.  Holders  of  1,600,000  shares  of  the
      Company's  Series A  Cumulative  Convertible  Redeemable  Preferred  Stock
      purchased $1,000,000 of the 6% Debentures. JW Genesis Securities,  Inc. of
      Boca Raton,  Florida,  acted as the primary finder in the  transaction and
      the Company paid JW Genesis a finder's fee equal to seven  percent (7%) of
      the amount raised from the sale of the 6%  Debentures,  which  amounted to
      $140,000.  In addition,  JW Genesis  received a  three-year,  60,000 share
      Common Stock purchase  warrant  exercisable at $4.50 per share. The shares
      underlying the Warrant are entitled to piggyback registration rights, with
      the registration expenses to be paid by the Company. The Company also paid
      a $50,000 finder's fee to Liviakis Financial Communications, Inc. ("LFC"),
      which  was 2.5% of the  amount  raised  on the sale of the 6%  Debentures,
      under the  consulting  relationship  between the Company and LFC.  Messrs.
      John M.  Liviakis  and  Robert B. Prag,  who are  affiliates  of LFC,  are
      significant shareholders of the Company.

         The 6% Debentures  are  convertible  into shares of Common Stock at the
      option of the  holders at the lesser of: 80% of the  average  closing  bid
      price of the Common Stock over the five trading days prior to  conversion;
      or $4.25 per share (the "Fixed Conversion Price"). Fifty percent of the 6%
      Debentures  held  by any  holder  become  convertible  on the  earlier  of
      effective  registration of the underlying  shares with the SEC or 120 days
      after the Initial  Issuance  Date.  The remaining 50% of the 6% Debentures
      become  convertible 150 days after the Initial  Issuance Date.  Subject to
      certain  adjustments  described  below,  the 6%  Debentures  could  not be
      converted below a "floor" price,  which is $2.125 per share. The floor was
      eliminated 180 days after the Initial Issuance Date.

         Once the underlying  Common Stock has been  registered with the SEC for
      at least 90 days and the Common  Stock has traded at or above $8.50 for at
      least 20 consecutive  trading days (based on the average closing bid price
      over  such  period),   the  Company  can  require  conversion  of  the  6%
      Debentures, subject to certain restrictions if the stock is suspended from
      trading or the registration of the underlying Common Stock is suspended.

         Any 6%  Debentures  that have not been  converted to Common Stock as of
      the maturity  date, or upon a merger,  consolidation  or other sale of the
      Company or its assets in which the  Company is not the  surviving  entity,
      are to either be converted into Common Stock at the conversion  price then
      in  effect  or, at the  option of the  holders,  must be  redeemed  by the
      Company.

         The Company  committed to file a  registration  statement  covering the
      shares of Common Stock underlying the 6% Debentures by October 7, 1998. No
      registration  statement has yet been filed. Since the registration was not
      effective  with the SEC within 120 calendar  days of the Initial  Issuance
      Date,  the Company  became  obligated to pay a cash penalty of two percent
      (2%) of the face  amount of the 6%  Debentures  and  thereafter  an amount
      equal to three  percent (3%) of the face amount for every thirty  calendar
      days (or any  fraction  thereof)  until  the  registration  is  effective.
      Because  the  Company  failed to obtain  effectiveness  of a  registration
      statement  by January 18,  1999,  the holders had the right to require the
      Company to redeem the 6% Debentures at 120% of face value plus accrued and
      unpaid  interest and penalties to the date of redemption.  The Company has
      recorded as interest  expense  $280,000 in  penalties as of March 31, 1999
      for this  obligation.  The  Company  issued  454,705  shares  of  Series B
      Preferred  Stock to compensate the 6% Debenture  holders for the penalties
      as well as the  interest  owed  through June 1999 at the rate of $1.00 per
      share.  In addition,  the holders  waived their  default  rights under the
      original schedule described above and adopted the default schedule for the
      Series B Preferred  Stock. The Company is preparing to file a registration
      statement  covering the Common Stock  issuable  upon  conversion of the 6%
      Debentures and Series B Preferred Stock described below.

      Private Offering of 6% Cumulative Convertible  Redeemable  Preferred Stock
      (Series B)
      --------------------------------------------------------------------------
         On May 6, 1999,  the Company  completed  the minimum  amount phase of a
      $1.5 to $5.0 million  private  placement  pursuant to  Regulation D of the
      Securities Act of 1933. The financing was facilitated by an  institutional
      investor,  through which the Company  raised gross proceeds of $1,500,000.
      The Company issued 6% Cumulative  Convertible  Redeemable  Preferred Stock
      (Series B) for $1.00 per share.  The instrument gives the holder the right

                                       15
<PAGE>
     to convert the Preferred Stock into shares of the Company's Common Stock in
     the  future  at 80% of then  current  market  price.  Concurrent  with this
     transaction,  the holders of the Company's 6% Convertible Debentures agreed
     to convert all accrued  interest and penalties  into shares of the Series B
     Preferred Stock. The Series B Preferred Stock and Common Stock to be issued
     upon  conversion  have not  been  registered  under  the Act and may not be
     offered or sold in the United States absent  registration  or an applicable
     exemption from registration requirements.

          The Company immediately used $400,000 of the proceeds to pay principal
     and interest on a $400,000  bridge note entered into  subsequent to the end
     of third quarter  1999.  In addition,  proceeds will be used to pay finders
     fees of $180,000 plus  estimated  offering  expenses of $41,000  (including
     approximately  $26,000  for the  investor's  legal  fees).  The  Company is
     obligated to utilize an additional $413,000 of the proceeds to pay past and
     future legal and accounting fees,  while the estimated  balance of $465,000
     is to be used as working capital.

          The Company also entered into an agreement (the  "Registration Rights
     Agreement")  with  the  purchasers  of the  Series  B  Preferred  to file a
     registration  statement  with the SEC covering the Common Stock  underlying
     the Series B Preferred and the Warrants  within 30 days of the Closing Date
     to be effective within 90 days of the Closing Date. If the Company fails to
     meet  this  requirement,  monthly  penalties  accrue  at the rate of 2 to 3
     percent of the purchase  price.  In addition,  if the Series B Registration
     Statement  has not been filed within 60 days of the Closing Date or has not
     been declared effective within 150 days of the Closing Date, the holders of
     the  Series B  Preferred  may  require  the  Company to redeem the Series B
     Preferred  for $1.25  per  share,  plus all  accrued  dividends.  This will
     activate  certain  prior  registration  rights  granted  by the  Company to
     holders  of  certain  of its  securities.  The  Company  estimates  that in
     addition to the shares it will be required to register to cover conversions
     of the Series B Preferred,  it will include up to  approximately  7,000,000
     additional shares of Common Stock on the Series B Registration Statement to
     honor such  registration  rights  (including  150% of the shares  needed to
     cover conversions of the 6% Debentures).

          The Company also issued a Common Stock Purchase Warrant exercisable to
     purchase  300,000  shares of common Stock at $1.50 per share for five years
     from April 30,1999 (the "Series B Warrants")  to the cash  purchaser of the
     Series B Preferred.  Holders of the 6% Debentures  did not receive Series B
     Warrants.

          Mr. John  Liviakis,  a significant  shareholder  of the Company,  also
     agreed to transfer a total of 443,077  shares of Company Common Stock owned
     by him to the  finder  who  located  the  cash  purchaser  of the  Series B
     Preferred Stock. The shares will be transferred as "restricted  securities"
     as defined in Rule 144 under the  Securities  Act of 1933 and will not have
     any registration rights.

     Other Recent Borrowings and Financing Activities
     ------------------------------------------------

         On October 28, 1998, the Company borrowed $500,000 from the CEO and 50%
      owner of Cardservice International,  Inc. The note bore interest at 8% per
      annum and was payable in full on the earlier of the receipt by the Company
      of proceeds from the sale of the Company's Common Stock to this individual
      or March 1, 1999. In  consideration  for the loan, the Company also agreed
      to issue a Common Stock Purchase  Warrant  exercisable to purchase  25,000
      shares of Common Stock at $3.038 per share through October 27, 2001.

         During the second  fiscal  quarter of 1999,  the Company  received  two
      additional bridge loans from Liviakis Financial Communications, Inc. (LFC)
      totaling  $300,000 in the form of 8% Notes  Payable due April 1, 1999.  In
      January and  February,  the Company  received  an  additional  $390,000 of
      bridge loans in the form of 8% Notes Payable, due April 1, 1999.

         On March 19,  1999,  the Company and holders of the 8% Notes  agreed to
      convert all $2,490,000 of principal plus accrued  interest to Common Stock
      at the  rate of $.875  per  share.  This  rate  was  established  at a 20%
      discount  from the closing price of the Common Stock as of March 18, 1999.
      Shares  totaling  2,933,671 were issued as part of this  agreement.  These
      shares are restricted  securities and will become  eligible for sale under
      SEC Rule 144 one year after the original  issuance dates of the promissory
      notes.

         On March 12,  1999,  the Company  entered  into a note and common stock
      purchase  agreement with RBB Bank  Aktiengesellschaft,  which is the agent
      for the  holders of certain  shares of the  Company's  Series A  Preferred
      Stock, and $1,000,000 of 6% Debentures. As part of this agreement,  50,000
      shares of common stock and a $250,000  promissory note bearing interest at
      10% due June 12, 1999 were issued.  In connection with the issuance of the
      Note,  the Company also granted RBB Bank a right of first  refusal to fund
      any such additional  bridge  financing  needed by the Company.  This right
      must be exercised  within one day of RBB Bank being  notified of the terms

                                       16
<PAGE>
      of any such additional bridge financing. The shares issued as part of this
      agreement  are  restricted  securities  and the Company  will  include the
      shares in the  Registration  Statement to be filed for the 6%  Convertible
      Debentures  and  other  share  issuances.  The  loan  was  intended  as  a
      short-term  bridge loan and was originally  required to be repaid from the
      proceeds of any  aggregate  equity  placements  done by the Company  which
      amount to at least $1,000,000 in equity financing. In April 1999, RBB Bank
      agreed to waive the right to immediate repayment of the $250,000. RBB Bank
      agreed to forebear initiating an action against the Company to collect the
      amount due until the  earlier of receipt by the  Company of funding in the
      aggregate of at least $2,500,000,  or December 1, 1999. Liviakis Financial
      Communications, Inc, agreed to guarantee the note.


         In March 1999, the Company entered into a consulting agreement with EBI
      Securities  Corporation  for  purposes  of  assisting  the  Company  as  a
      corporate finance consultant in obtaining additional capital and liquidity
      for its stock.  The intent of the agreement is to position the Company for
      future  financing,  including  but  not  limited  to  a  secondary  public
      offering.  The  agreement  has an  initial  term  of six  months  with  an
      available  extension of 3 months.  For its  services,  the Company  issued
      warrants to purchase  100,000  shares of its Common Stock  exercisable  at
      $1.00 per share  expiring  three  years from March 15,  1999.  The Company
      recorded a prepaid expense of $60,000 during the current quarter for these
      warrants.  The Warrants  contain  standard  anti-dilution  provisions  and
      provide EBI Securities with a cashless exercise provision and "piggy-back"
      registration  rights.  The Company also agreed to pay a monthly consulting
      fee of $5,000.  Additionally,  the agreement provides for a fee to be paid
      for services  rendered in  conjunction  with any merger or  acquisition or
      significant  investment  by the Company  with fees  ranging  from 1% to 5%
      based on the value of the transaction.



      Year 2000 Issues
      ----------------

         The Company has completed a review of the impact of the Year 2000 issue
      on the Company's business.  This issue concerns the potential problems and
      liabilities  faced by all users and persons  dependent on  computers  that
      might  result  from  software  or system  failure or  malfunctions  if the
      systems fail to properly  recognize the date change between 1999 and 2000.
      The Company's internal business systems have been evaluated,  and with the
      exception of the accounting system, are Year 2000 compatible.  The Company
      intends to replace the  accounting  software  during fiscal year 1999. The
      cost of conversion is not expected to be material.  The engineering  staff
      has  made  an  assessment  of  USWD  products  and  is  not  aware  of any
      complications  regarding  the  products  the  Company  delivers to the end
      users. The specific entities providing credit card processing  services to
      the Company have active Y2K projects  underway.  On a broader  basis,  the
      Company is reliant on the electronic payments  infrastructure  utilized by
      credit card processors, banks and financial institutions within the United
      States,  and could be subject  to  unresolved  issues  which  impact  this
      infrastructure.  The Company could be adversely, materially affected, both
      operationally  and financially,  to the extent third parties with which it
      interfaces,  either  directly or  indirectly,  has not properly  addressed
      their Year 2000 issues.


      Fiscal 1999 Compared to Fiscal 1998

      Net Revenue
      -----------

         Revenue of  $261,000  for the third  quarter of fiscal  1999  increased
      slightly  from revenue of $251,000  generated  during the third quarter of
      fiscal 1998 as the Company  continued the shift to its new business model.
      For the nine-month period,  total revenue increased 79% to $1,142,000 from
      the prior year's $637,000. In the third quarter, product sales of POS-500,
      WEPSSM Enabler,  POS-50 and other equipment sales decreased  approximately
      $28,000  while  service   revenue,   which  includes   application   fees,
      transaction  processing,  and repair  revenue  increased by  approximately
      $38,000.  Product  sales  slowed from the  previous  quarter as  resellers
      worked down their inventory levels. Services revenue of $137,000 decreased
      somewhat from the immediate preceding quarter as the Company  discontinued
      sales  under  its  former  credit  card  processing  offering  and is just
      starting  the  placement  of units  under the new WEPSSM  program.  In the
      latter part of the first quarter of fiscal 1999, the Company embarked on a
      significant shift in its product and distribution strategy.  This involves
      the integration of the Company's  WEPSSM modem and server  technology into
      the product  offerings of other terminal  manufacturers and development of
      distribution  agreements  with the major  merchant card acquirers and card
      processors.  The  transition  to the new  business  model has been delayed

                                       17
<PAGE>
      somewhat due to the Company's constrained financial resources. The Company
      anticipates  that the transition will take several months as new products,
      services and distribution capabilities are introduced to the market.

      Gross Profit
      ------------

         Gross profit of $21,000 in the third  quarter of fiscal 1999  decreased
      from the prior year level of $136,000. Gross margin decreased as a percent
      of revenue to 8% in the  current  quarter  from 54% in the prior  quarter.
      This was  attributable  to a decrease in product margins as product prices
      were adjusted to wholesale versus retail  structure,  and negative margins
      in the services segment.  The services cost structure in the third quarter
      reflects the  components  of the previous  business  model which  includes
      ongoing TRANZ Enabler amortization for processing units deployed.  Efforts
      are also underway to eliminate  underutilized CDPD addresses from the CDPD
      carrying  cost.  Billing  for the new WEPSTM  service  has  started and is
      expected  to  improve  the  margin  relationships  as it  becomes  a  more
      predominate  component  of the  services  offering in the future.  For the
      nine-month  period,  gross profit  decreased  by $74,000 on a  significant
      increase in revenue  during the nine-month  period.  The decrease in gross
      profit for the  nine-month  period was  attributable  to the third quarter
      variance described above.

      Operating Expenses
      ------------------

         Selling,  general and administrative  expense decreased from $2,518,000
      in the third  quarter of fiscal 1998 to  $788,000 in the third  quarter of
      fiscal 1999. The large decrease in expense was primarily attributable to a
      quarterly  adjustment for a variable stock option  resulting in a $658,000
      non-cash  credit to reflect the change in the carrying value of the option
      due to the change in the Company's stock price during the quarter versus a
      charge in the prior year third  quarter of $519,000.  Non-cash  consulting
      expense  $594,000 in the third  quarter of fiscal 1999 included a decrease
      from the prior  quarter of  $214,000  related to  investor  relations  and
      business consulting.  In response to the new business model, the Company's
      personnel was reduced from 53 as of the end of September 1998 to 27 at the
      end  of  March  1999,   thereby   reducing   salary  related   expense  by
      approximately  $120,000 per month.  Several key consultants  were added to
      the management  staff and compensated  with stock options instead of cash.
      The option valuation resulted in a $138,000 non-cash  consulting charge to
      general  and  administrative  expense  in the  quarter.  Expense  for  the
      nine-month period decreased by $2,803,000 to $3,856,000, predominately due
      to the accounting for the variable stock option and decreased compensation
      expense noted above.

         Research and development  expenses  increased by $27,000 from the prior
      fiscal  year's  quarter to $105,000 in the third  fiscal  quarter of 1999.
      This increase was primarily related to an increasing in staffing.  For the
      nine-month period,  research and development expense increased by $112,000
      to $363,000  in the  current  fiscal  year,  with a decrease in  materials
      expense partially offsetting the increased staff expense.

         The prior year third  quarter  results  include a $1,353,000  charge to
      Litigation Settlement for the valuation of common shares issued to a group
      of  Certain  Noteholders,  in  settlement  of a dispute  regarding  rights
      related to the conversion of the notes into shares of Common Stock.

      Interest Expense and Other Income
      ---------------------------------

         Interest  expense of $448,000 in the current quarter  includes  accrued
      interest on the 6% Convertible  Debentures and various notes payable,  and
      $280,000  of late  registration  penalties  related to the 6%  Convertible
      Debentures.   Accrued  interest  and  penalties  on  the  Debentures  were
      converted into shares of Series B Preferred Stock in the fourth quarter of
      the fiscal year. The prior year interest  expense  includes a $397,000 and
      $622,000  non-cash charge to interest  expense in the three and nine month
      periods  of fiscal  1998,  respectively,  related  to an  "in-the  -money"
      convertible  option  associated with the December 1997 private  placement.
      For the  nine-month  period,  interest  expense  decreased  slightly  from
      $707,000 to $681,000 in the current fiscal year.

         For the  nine-month  period of fiscal 1999,  other  expense of $162,000
      includes  $351,000  resulting  from the  valuation  of warrants  issued to
      several holders of the Series A Preferred Stock in return for an agreement
      to restrict  conversion  of shares into Common  Stock  during the quarter.
      This  was  partially  offset  by a  $189,000  credit  resulting  from  the
      restructuring of a note payable to a former terminal equipment supplier.


                                       18
<PAGE>
      FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
      ----------------------------------------------------

         The Company continues to have significant problems due to its financial
      condition and lack of liquidity.  While  management is optimistic with its
      medium and long term  opportunities,  the  Company is  constrained  by its
      immediate financial condition and requirement for increased liquidity. The
      Company has  accumulated  a deficit of  approximately  $33  million  since
      inception  to  March  31,  1999,   with  a  working   capital  deficit  of
      approximately $1,720,000 at March 31, 1999, versus a deficit of $2,967,000
      at year-end June 30, 1998.  The Company was  successful  in  restructuring
      several  note  payable  obligations  to equity and has  converted  accrued
      interest and late registration  penalties on the 6% Convertible Debentures
      to shares of Series B Preferred  Stock.  The Company is continuing to work
      with key vendors on payables. The Company has completed the minimum amount
      of an equity private  placement and intends to raise  additional funds via
      the issuance of additional shares of Series B Preferred Stock. The Company
      believes  that it will be able to  restructure  commitments  as  necessary
      while it completes an anticipated  financing event designed to satisfy its
      obligations and fund the business plan, although no assurance can be given
      that this will be the case.

         The  increase  in other  assets from June 30, 1998 to March 31, 1999 is
      attributable  to  unamortized  debt  issuance  expense  related  to the 6%
      Convertible  Debenture  issued in July  1998.  The  increase  in long term
      borrowings is also related to the 6% Convertible Debenture.

         With the  implementation of the new distribution  strategy initiated in
      the latter  part of the first  quarter of fiscal 1999 (see  "Revisions  to
      Business Plan"), the Company has taken steps to reduce spending.  With the
      new focus on distribution  through large merchant  acquirers,  the Company
      has  reduced  personnel  from 60 at June 30,  1998,  to 27 as of March 31,
      1998,  with most of the  reduction  occurring  in the direct  sales force.
      Based on current  staffing  levels,  the Company's cash  expenditures  are
      running at a monthly rate of  approximately  $225,000  versus $450,000 per
      month during the fourth quarter of fiscal 1998. However,  execution of the
      Company's  current  business  plan is dependent on a  significant  debt or
      equity financing event in the immediate  future.  The Company continues to
      work both directly and through its  consultants to secure  additional debt
      or  equity  financing  which  is  required  to  fund  operations  while  a
      significant  recurring  revenue  stream  is  built.  While  management  is
      confident it can accomplish this  objective,  the inability of the Company
      to secure additional financing in the near term could adversely impact the
      Company's financial position, including its ability to continue as a going
      concern.


PART II

ITEM 1 - Legal Proceedings

      Settlement of Claims of Certain Noteholders

         In April 1998,  the Company  entered  into an  agreement  with  certain
      Noteholders  under  which the  Company  issued  shares of Common  Stock in
      settlement  of  the  dispute.   Terms  of  the  settlement   entitled  the
      Noteholders to certain guarantee or put provisions  related to the shares.
      The  guarantee  provision of the  settlement  agreement  allows the former
      Noteholders to recover the difference  between the guarantee  price (which
      is  $3.00  per  share as to the  shares  that are  still  entitled  to the
      guarantee) and the gross amount the Noteholder receives upon a sale of the
      shares.  The guarantee is operative at any time during the one year period
      commencing on the date the shares became  saleable under SEC Rule 144. The
      Company is obligated to pay the amount due within thirty days of receiving
      a demand,  accompanied by  documentation  confirming  the sale.  Under the
      "put" provision of the settlement  agreement,  the former Noteholders will
      have a five day period  commencing  on the date one year from the date the
      shares  become  saleable  under  SEC  Rule 144  during  which  the  former
      Noteholders may "put" any shares remaining unsold by them at the time back
      to the  Company.  Upon  exercise of the put,  the Company  must either (1)
      purchase  the shares for the put price of $3.00 per share,  or (2) require
      the  shareholder  to sell the shares  into the  market,  with the  Company
      making up the  difference  between  the put  price  and the  gross  amount
      received by the shareholder  upon such sale,  within 15 days after receipt
      of  written  notice  and  documentation  confirming  the sale.  The shares
      originally  issued upon conversion of the notes and the additional  shares
      resulting from the settlement are reflected as Redeemable  Common Stock on
      the balance  sheet.  The  originally  issued shares are reflected at their
      conversion value adjusted for the value  attributable to the guarantee and
      "put" provisions.  In the event redemption of such shares becomes probable
      and the actual redemption amount is in excess of the carrying amount, such
      excess  amount will be  recorded as  litigation  settlement  expense.  The
      additional shares are reflected at their redemption value. As of March 31,
      1999,  there  are  up to  approximately  128,000  shares  subject  to  the
      guarantee  and  "put"  provision,  with  a  carrying  value  of  $232,000,
      outstanding,  which  have a  maximum  redemption  value  of  approximately
      $384,000  prior to any  reduction  for amounts the holder may receive upon
      the sale of such shares.  On April 29, 1999,  certain  Noteholders  having
      approximately  83,500  shares,  agreed to waive their  guarantee and "put"
      rights in return for the  isssuance  of 200,000  restricted  shares of the
      Company's Common Stock.

                                       19
<PAGE>
ITEM 2 - CHANGES IN SECURITIES

      Recent Issuances of Unregistered Securities:

       During the fiscal  quarter  ended March 31,  1999,  the  Company  sold or
       issued the following  securities without registering the securities under
       the Securities Act of 1933, as amended (the "Act").

       March  1,  1999:  15,000  Common  Stock  purchase  warrants  issued  to a
       consultant exercisable at $2.70 per share through September 13, 2001.

       March  12,  1999:  50,000  shares  of  Common  Stock  issued  to RBB Bank
       Aktiengesellschaft as partial consideration for a bridge loan.

       March 15,  1999:  100,000  Common  Stock  purchase  warrants  issued to a
       finance  consultant  exercisable at $1.00 per share through September 13,
       2002.

       March 19, 1999:  2,933,671 Common Shares issued upon conversion of 8% 
       Promissory Notes.


         The Company relied upon the registration exemption contained in Section
       4(2) of the  Securities Act of 1933 for these  transactions.  None of the
       transactions  involved a public offering.  Representations  were received
       from the  purchasers of the  securities to the effect that the purchasers
       were  taking  for  investment  purposes  only  and  not  with a  view  to
       distribution;  "restricted  securities" legends were or will be imprinted
       on all certificates;  and stop-transfer  instructions will be lodged with
       the Company's transfer agent as to all shares of common stock issued upon
       exercise of the Warrants.


ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

       6% Convertible Subordinated Debentures Due July 21, 2000

         Pursuant  to the  Debenture  Agreement  relating  to the  Company's  6%
      Convertible  Subordinated  Debentures  due  July  21,  2000,  the  Company
      committed  to  file a  registration  statement  with  the  Securities  and
      Exchange  Commission  by October 7,  1998,  covering  the shares of Common
      Stock issuable upon conversion of the 6% Debentures which the Company sold
      in July 1998.  That  registration  statement  has not been filed as of the
      date  of  filing  of  this  Report.   The  security   required   effective
      registration  of the  underlying  shares within 120 days of July 21, 1998,
      with the following cash penalties for failure to obtain  effectiveness  by
      that time: 2% of the face amount of the  Debentures at 120 days; and 3% of
      the face amount of the  Debentures  for each  additional 30 day period (or
      any part of any 30-day  period)  during which the  registration  statement
      remains  ineffective.  The  holders  also  have the right to  require  the
      Company to redeem  the  Debentures  for 120% of face  value  plus  accrued
      interest  if the shares  were not  registered  by January  18,  1999.  The
      Company had not made the penalty or interest payments totaling $363,000 as
      of March 31,  1999.  The  holders  also have the right to  accelerate  the
      payment of all amounts due and owing under the  Debentures if an "Event of
      Default" (as defined in the  Debenture  Agreement)  is not cured within 45
      days of its  occurrence.  Failure  to pay the  penalties  and/or  interest
      within the periods  required by the  Debenture  Agreement  may  constitute
      "Events of  Default."  On May 7, 1999,  the Company  and the 6%  Debenture
      holders  agreed to convert all the accrued  interest  and  penalties  into
      shares of the Series B Preferred  Stock.  In  addition,  they waived their
      default rights under the original schedule described above and adopted the
      default schedule for the Series B Preferred Stock.



                                       20
<PAGE>
      Series A Preferred Stock

         In September  1998,  the Company  redeemed a total of 833,000 shares of
      its Series A Preferred  Stock. In conjunction  with that  redemption,  the
      Company also agreed to issue  warrants  exercisable to purchase a total of
      212,257  shares of Common Stock to the holders of the remaining  shares of
      Series A Preferred Stock.  The redemption  agreement  includes  provisions
      that obligated the Company to file a registration statement by October 31,
      1998,  covering any  additional  shares  issuable  upon  conversion of the
      Series A Preferred  Stock  (beyond  those  included in the  original  SB-2
      Registration  Statement that was declared  effective as of August 7, 1998,
      which, because of a declining stock price, included an insufficient number
      of shares to cover conversion of all of the outstanding shares of Series A
      Preferred Stock),  plus the shares issuable upon exercise of the warrants.
      The Company has not filed this  registration  statement  as of the date of
      filing of this Report,  and  penalties  similar to those  contained in the
      original  Designation of Series A Preferred  Stock apply if the Company is
      "late" in getting the shares registered







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

      a) Exhibits required by Item 601 of Regulation S-B

          4.1       Note and  Common  Stock  Purchase  Agreement  with RBB Bank,
                    dated March 12, 1999

          10.1      Promissory   Note   Conversion  and  Common  Stock  Purchase
                    Agreement with Burtzloff Family Trust, dated March 19, 1999

          10.2      Common  Stock  Purchase  Agreement  Pursuant to Note Payable
                    Conversion to Equity with Liviakis Financial Communications,
                    Inc., dated March 19, 1999

          27        Financial Data Schedule

       b) Reports on Form 8-K - none filed during this period.


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                            U.S. WIRELESS DATA, INC.
                                            Registrant


Date:    May 17, 1999                       By: \s\Dean M. Leavitt    
                                                ------------------------------

                                                                     

         May 17, 1999                       By: \s\ Robert E. Robichaud  
                                                ------------------------------
                                               Chief Financial Officer