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 September 30, 1998.
                                                             -------------------

[ ]      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  December  30,  1998  there  were  outstanding  13,586,124  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 OF CONTENTS


PART I        FINANCIAL INFORMATION                                      Page
                                                                        ------
Item 1.       Financial Statements (Unaudited)

              Balance Sheets --
                     September 30, 1998, and June 30, 1998................3

              Statements of Operations --
                     Three Months Ended September 30, 1998 and 1997.......4

              Statements of Cash Flows --
                     Three Months Ended September 30, 1998 and 1997.......5

              Notes to Financial Statements...............................6-9

Item 2.       Management's Discussion and Analysis........................10-16


PART II       OTHER INFORMATION

Item 1.       Legal Proceedings ..........................................17

Item 2.       Changes in Securities.......................................17

Item 3.       Defaults Upon Senior Securities.............................18

Item 6.       Exhibits and Reports on Form 8-K............................19



                                       2

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


                                                                      September 30, 1998   June 30, 1998
                                                                      ------------------   -------------
<S>                                                                      <C>             <C>         
                                  ASSETS

Current Assets:
        Cash                                                             $    331,000    $      4,000
        Accounts receivable, net of allowance for doubtful ...........        147,000          55,000
        accounts of $28,000 at September 30, 1998;
        $22,000 at  June 30, 1998
        Inventory, net ...............................................        404,000         480,000
        Other current assets
                                                                              891,000         187,000
                                                                         ------------    ------------
             Total current assets ....................................      1,773,000         726,000
Processing units - deployed ..........................................        561,000         517,000
Property and equipment, net ..........................................        238,000         253,000
             Other assets ............................................        357,000          69,000
                                                                         ------------    ------------

Total assets .........................................................   $  2,929,000    $  1,565,000
                                                                         ============    ============



                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable
                                                                         $  1,169,000    $  1,506,000
        Accrued liabilities ..........................................      1,628,000       1,735,000
        Borrowings, current portion

                                                                            1,452,000         452,000
                                                                         ------------    ------------
             Total current liabilities ...............................      4,249,000       3,693,000

Borrowings, long-term portion ........................................      1,476,000          45,000
                                                                         ------------    ------------
             Total liabilities .......................................      5,725,000       3,738,000
                                                                         ------------    ------------

Redeemable common stock ..............................................        232,000         372,000
                                                                         ------------    ------------

Stockholders' deficit:
        Preferred Stock, at $1.00 stated value, 15,000,000 authorized,      1,342,000       3,060,000
          1,341,667 and 3,060,000  Series A issued and outstanding at
          September 30, 1998 and June 30, 1998, respectively
        Common stock, at $1.00 stated value, 40,000,000 ..............     13,445,000      12,195,000
          shares  authorized; 13,444,713 and 12,195,358 shares
          issued  and outstanding at September 30, 1998 and
          June 30, 1998, respectively
        Additional paid-in capital ...................................     12,135,000      10,222,000
        Accumulated deficit ..........................................    (29,950,000)    (28,022,000)
                                                                         ------------    ------------

             Total stockholders' deficit .............................     (3,028,000)     (2,545,000)
                                                                         ------------    ------------



             Total liabilities and stockholders' deficit .............   $  2,929,000    $  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)


                                                         For the three months ended September 30,
                                                         ----------------------------------------
                                                                    1998            1997
                                                                    ----            ----
<S>                                                          <C>             <C>         
Net revenues:
    Product sales ........................................   $    166,000    $    256,000
    Services .............................................        195,000          14,000
                                                             ------------    ------------
                                                                  361,000         270,000
                                                             ------------    ------------

Cost of revenues: ........................................        108,000         174,000

    Product sales ........................................        159,000           2,000
                                                             ------------    ------------
    Services .............................................        267,000         176,000
                                                             ------------    ------------


Gross margin .............................................         94,000          94,000
                                                             ------------    ------------

Operating expenses:
    Selling, general and administrative ..................      1,686,000       1,288,000
    Research and development .............................         80,000          95,000
                                                             ------------    ------------

       Total operating expense ...........................      1,766,000       1,383,000
                                                             ------------    ------------    

Loss from operations .....................................     (1,672,000)     (1,289,000)

Interest income ..........................................          5,000            --
Interest expense .........................................       (116,000)        (24,000)
Other income .............................................        190,000            --   
                                                             ------------    ------------


Net loss .................................................   $ (1,593,000)   $ (1,313,000)
                                                             ============    ============



Basic and diluted loss per share: ........................   $      (0.15)   $      (0.17)
                                                             ============    ============


Weighted average common shares outstanding - basic/diluted   $ 12,491,000    $  7,770,000
                                                             ============    ============

</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 three months ended September 30,
                                                        ----------------------------------------
                                                                  1998           1997
                                                                  ----           ----
<S>                                                          <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .............................................   $(1,593,000)   $(1,313,000)
    Adjustments to reconcile net loss to net cash used in
     operating activities:
        Depreciation and amortization ....................        71,000          5,000
        Non-cash consulting services and warrant extension       609,000        855,000
        Non-cash interest expense - debentures ...........        97,000           --
        Non-cash variable option / compensation  expense .      (170,000)          --
        Debt forgiveness .................................      (192,000)          --
        Changes in current assets and liabilities:
           Accounts receivable ...........................       (92,000)       (88,000)
           Inventory .....................................        26,000        (15,000)
           Other current assets ..........................        12,000        (17,000)
           Accounts payable ..............................      (417,000)        89,000
           Accrued liabilities ...........................       (20,000)        27,000
                                                             -----------    -----------
           Net cash used in operating activities .........    (1,669,000)      (457,000)
                                                             -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property, plant, and equipment .......        (7,000)          --
        Processing units - deployed ......................       (81,000)          --
        (Increase) in other assets

                                                                  10,000        (11,000)
                                                             -----------    -----------
           Net cash used in investing activities .........       (78,000)       (11,000)
                                                             -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of stock ..................        26,000        514,000
        Issuance of note receivable ......................     1,300,000           --
        Principal payment on borrowings ..................       (58,000)          --
        Net proceeds from issuance of debt ...............     1,806,000         16,000
        Redemption of preferred stock ....................    (1,000,000)          --
                                                             -----------    -----------
           Net cash provided by financing activities .....     2,074,000        530,000
                                                             -----------    -----------


Net increase in cash .....................................       327,000         62,000


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


Cash at end of period ....................................   $   331,000    $    68,000
                                                             ===========    ===========

</TABLE>

       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 September 30, 1998,  and June 30,  1998,as well
      as the statements of operations  for the three months ended  September 30,
      1998 and  September  30, 1997,  and  statement of cash flows for the three
      months ended  September 30, 1998 and September 30, 1997 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 September 30, 1998 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
      fiscal year ended June 30,  1998.  The results of  operations  for interim
      periods presented are not necessarily  indicative of the operating results
      for the full 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  $30  million  since  inception,  including  a loss  of $1.6
      million  during the first  quarter of fiscal  year 1999,  and has  limited
      financial reserves. At present,  development of the Company's products and
      services requires immediate and 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  consolidated  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 are 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 losses per share in the  future.  In the
      first  quarter  of  fiscal  1999,   the  net  loss   available  to  common
      shareholders  equals  the  net  loss  less  $335,000  of  preferred  stock
      dividends and redemption premium charged to retained earnings.


                                       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  $252,000 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.  A holder 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 can be made under the August SB-2.

         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  is due
       February  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  security  holders
       participating  in this  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 at which time one-third of the Series A Preferred shares
       may be converted to common stock on each of October 15,  November 15, and
       December 15 of 1999,  respectively.  As an incentive to these  investors,
       the  Company  has  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. As of December 31,
       1998,  the  Company is  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. 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.  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.  The Company intends to file a registration statement as soon
       as practicable.

         As noted  above,  the Company also has 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% Debentures.  In
       the event the  registration  is not  effective  with the SEC  within  120
       calendar days of the Initial Issuance Date (which was July 21, 1998), the
       Company is required 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.  If the Company
       does not obtain effectiveness of a registration  statement by January 18,
       1999,  the holders have 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  intends  to file a


                                       7
<PAGE>
       registration statement covering the Common Stock issuable upon conversion
       of the 6%  Debentures  as soon as  practicable,  and will include in that
       registration  statement  a  sufficient  number  of  shares  to cover  the
       additional  warrants  issued since  January  1998 and the 290,000  shares
       issued to Liviakis  Financial  Communications,  Inc., an affiliate of the
       Company, which have registration rights. See Note 5, below.


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 will be expensed over the term of the agreement.  The
       Common Stock  issued to LFC under the new  Consulting  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  will not be able to sell such
       shares before  February 1, 1999, even though certain of those shares were
       included in the  Company's  Registration  Statement  on From SB-2,  which
       became effective August 7, 1998.


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 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.  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
       September 30, 1998, approximately 128,000 shares subject to the guarantee
       and  "put"  provision,  with  a  carrying  value  of  $232,000,  remained
       outstanding and 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.

                                       8
<PAGE>
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 from 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 October 1, 1998,  the  Company and CSI  entered  into a  non-binding
       Letter of Intent to form a non-exclusive  strategic partnership.  CSI may
       also make an equity  investment of  $1,000,000  in the Company  through a
       direct  purchase  of  restricted  shares  of common  stock.  In a related
       transaction,  an officer and a  shareholder  of CSI,  may make a separate
       investment  of  $1,000,000  in the  company  through  direct  purchase of
       restricted  shares.  The Letter of Intent provides that the shares are to
       be issued at a discount of 10% from the average  three-day  closing price
       ($3.208) prior to the date of entry of the Letter of Intent, assuming the
       purchase  agreements  are  completed  in a timely  manner.  However,  the
       Company expects that the purchase price will be adjusted to correspond to
       the  price the  Company  may place  additional  shares in a  contemplated
       financing.

         On October 28, 1998, the Company borrowed $500,000 from the CEO and 50%
       owner of  Cardservice  International,  Inc. The note bears interest at 8%
       per annum and is  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
       bridge loans from Liviakis Financial Communications,  Inc. (LFC) totaling
       $300,000  in the  form of 8% Notes  Payable  due  February  1,  1999.  In
       January,  the Company received a $100,000 bridge loan in the form of a 8%
       Note Payable,  due March 1, 1999. LFC and the principals of LFC have also
       agreed to extend their "lock-up" of Company shares held,  through the end
       of calendar year 1999.

                                        9
<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  Act of 1933 or Section 21E
       of the Securities Exchange Act of 1934, as amended.  Such projections and
       forward-looking  statements are based on  assumptions,  which 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 and the Report on Form 8-K
       filed on August 11, 1998,  Reporting an Event of August 3, 1998. The Form
       8-K incorporates the Company's  Registration  Statement on Form SB-2 (SEC
       File No. 333-52625).

         History of Losses and  Potential  Fluctuations  in  Operating  Results:
       Throughout  the  Company's  history  including  the first  quarter of the
       fiscal year ending  September  30,  1998,  the Company has  continued  to
       experience significant operating 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 private placement offerings have allowed
       the Company to continue operations;  however,  execution of the Company's
       business plan is dependent on a more significant debt or equity financing
       event.  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.  CSI is also expected to promote the wireless products to other
       ventures of First Data  Merchant  Services.  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  material  impact on the
       Company's  future revenue stream.  While 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  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.
                                       10
<PAGE>
         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.

         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 Data, Inc. 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 and 1997.  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 Preferred  Stock,  the 6%  Convertible  Subordinated
       Debentures, various warrants, options, and contract rights. A substantial
       number of these  rights,  plus  additional  rights in the form of options
       that have been or may be granted to the  Company's  officers,  directors,
       employees or  consultants  under the Company's  1992 Stock Option Plan or
       otherwise,  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.

         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 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.  See
       "Securities  Issuances to Fund  Operations"  and "Private  Offering of 6%
       Convertible  Subordinated  Debentures  due July  21,  2000"  sections  of
       Results of Operations.


       RESULTS OF OPERATIONS 
       ---------------------

       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  two  and a  half  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 have  significant
     performance  and  communication  cost  advantages  when  compared  with the
     traditional  dial-up  terminals  currently  being  sold in the U.S.  market
     today.

       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. The agreements contain certain significant


                                       11
<PAGE>
     operational and financial performance criteria that the company is required
     to meet.  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  introduces
     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. The Company retains a
     portion of the  monthly  credit  card fees  based on the dollar  volume and
     number of transactions processed through the TRANZ Enabler.

     Market Penetration  through  Telecommunications  Carriers and  Revisions to
     Business Plan
     -------------------------------------------------------------------------

       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.
     GTE Wireless agreed to adjust the commencement  date for these  obligations
     so that the start date for the first  quarter was February 1, 1998.  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 acquired under the agreement.

       Because revenue has not developed as hoped,  and  expenditures  have been
     outstripping 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 is 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.  Mr.
     Stambaugh remains as President and a director of the Company.

       Mr. Peirce identified  several areas in the  Company's  distribution  and
     operational strategy that required redirection.  Beginning the last week of
     August 1998,  several changes in the Company's  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 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 card  processors.  The  Company is
     targeting  the top 30  merchant  acquirers  and  card  processors  for this
     service.  The initial  response for WEPSSM from the targeted  prospects has
     been very 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
     its  LinkPoint(TM)  processing  terminals  using the Company's  proprietary
     Wireless Express Payment ServiceSM.  CSI will promote these products within
     its own  markets  using its  approximately  2,200-person  sales  force.  In
     addition,  CSI is to

                                       12
<PAGE>
     promote  the  wireless  products to other  ventures of First Data  Merchant
     Services,  the  fifty-percent  owner of CSI.  Pursuant  to the  non-binding
     Letter of Intent,  CSI also agreed to consider making an equity  investment
     of $1,000,000 in the Company through a direct purchase of restricted shares
     of common stock and Chuck  Burtzloff,  the chief  executive  officer and 50
     percent owner of CSI, has agreed to consider  making a separate  investment
     of $1,000,000 in the Company through direct purchase of restricted  shares.
     The Company intends to coordinate the timing and terms of these investments
     with a future private offering of equity.

     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 a significant part of 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
     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 can be made under the August SB-2.

       In September 1998,  the Company  negotiated a partial  redemption  of its
     outstanding  Series A Preferred Stock with several of the security holders.
     The Company  borrowed  $1,300,000 from Liviakis  Financial  Communications,
     Inc. and used $1 million of that money to redeem $833,000 face value of the
     Series A  Preferred  Stock.  The  Company  paid 120% of face  value for the
     redemption.  The note  payable  to LFC is due  February  1,  1999 and bears
     interest  at 8% per  year.  The  security  holders  participating  in  this
     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  may 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.  The warrants are to be 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 has also agreed to increase the dividend  rate from 4% to 8% on the
     balance of the unconverted Series A Preferred Stock balance 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 those
     contained in the original  Designation of Series A Preferred Stock apply if
     the  Company is late in getting  the shares  registered.  As of the date of
     this Report, the Company has not yet filed this registration statement.

     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 $251,537 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.  The purchaser 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

                                       13
<PAGE>
     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 finder's fee to Liviakis
     Financial Communications,  Inc. ("LFC") in the amount of 2.5% of the amount
     raised on the sale of the 6%  Debentures,  which amounts to $50,000,  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 cannot be converted
     below a "floor" price,  which is $2.125 per share.  The floor is eliminated
     180 days after the Initial  Issuance  Date. If the Company issues any other
     security  convertible  into shares of Common  Stock  within 180 days of the
     Initial  Issuance  Date  with  a  floor  price  less  than  that  of the 6%
     Debentures, the Debenture floor price is reduced to that lesser amount. Any
     conversion  restrictions  (both  time and price)  are  eliminated  upon the
     announcement of a  consolidation,  merger or other business  combination of
     the Company in which the Company is not the surviving entity.

       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
     (which it did not).  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
     have 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 intends to file a registration  statement covering
     the Common Stock  issuable upon  conversion of the 6% Debentures as soon as
     practicable,  and will include in that registration  statement a sufficient
     number of shares to cover the additional warrants issued since January 1998
     and the 290,000  shares  issued to an affiliate  of the Company  which have
     registration  rights.  The Company may also  include  additional  shares of
     Common Stock to cover the conversion of shares of Series A Preferred  Stock
     for which a  sufficient  number of shares  were not  included in the August
     SB-2 owing to a decline in the Market Price for the Common Stock subsequent
     to the time the August SB-2 was filed.  The Company is in  discussion  with
     various  holders  of the  Series A  Preferred  Stock and the 6%  Debentures
     regarding a possible restructuring or redemption of these securities.

     Current Financing Initiatives
     -----------------------------

       The  Company  has  several  initiatives that it is currently  pursuing to
     raise  additional  capital.  On October 1, 1998, the Company entered into a
     non-binding Letter of Intent with Cardservice International, Inc. to form a
     non-exclusive   strategic   partnership   involving   joint-   product  and
     distribution  initiatives.  The Letter of Intent also  includes a provision
     pursuant to which a $2,000,000  direct equity investment in USWD by CSI and
     its  chief  executive  officer  may be made if the  terms  of a  definitive
     agreement  can be reached.  The parties  are working on the  completion  of
     definitive agreements.

                                       14
<PAGE>
       The Company is also exploring  similar  initiatives  with  several  other
     potential strategic partners as well as continuing efforts to raise capital
     from other debt or equity sources.

     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 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,  have not properly  addressed
     their Year 2000 issues.

     Fiscal 1999 Compared to Fiscal 1998

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

       Revenue of  $361,000 for the  first  quarter of fiscal 1999 increased 33%
     from revenue of $270,000  generated during the first quarter of fiscal 1998
     as the  Company  continued  the shift from a per-unit  sales  approach to a
     recurring  revenue  model.  Product  sales of  POS-50,  POS-500  and  other
     equipment sales decreased by  approximately  $90,000 while service revenue,
     which includes application fees, transaction processing, and repair revenue
     increased  by  approximately  $181,000.  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 manufactures and development of distribution agreements with
     the  major  merchant  card  acquirers  and  card  processors.  The  Company
     anticipates  that this transition will take several months as new products,
     services and distribution capabilities are introduced to the market.

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

       Gross profit of $94,000 in the first quarter of fiscal 1999 was even with
     the prior year's quarter, although the profit margin decreased as a percent
     of revenue to 26% in the  current  quarter  from 35% in the prior  quarter.
     This was  attributable  to a shift in revenue from a higher margin  product
     component to a lower margin  services  component.  The Company  expects the
     margin  relationships  to switch as the new business model is  implemented.
     The Services cost  structure in the first quarter  reflects the dynamics 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. The new
     WEPSTM  Service is  expected  to improve  the  margin  relationships  as it
     becomes a more predominate component of the Services offering.


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

       Selling, general and administrative  expense increased from $1,288,000 in
     the first  quarter of fiscal  1997 to  $1,686,000  in the first  quarter of
     fiscal 1998.  Of the  approximate  $400,000 net increase,  the  significant
     increase in Company  headcount from 18 at September 1997 to 53 in September
     1998,  increased  salary,  commission  and  benefit  expense  by  $672,000,
     including severance expense of approximately  $100,000.  This was partially
     offset by a quarterly adjustment for a variable stock option resulting in a
     $266,000 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.
     Non-cash  consulting  expense,  including a charge resulting from a warrant
     extension in the prior year's first 

                                       15
<PAGE>
     quarter,  decreased  by $246,000 in the current  quarter.  Other  operating
     expenses increased by $233,000 due primarily to increased travel, rent, and
     communication expense related to the increase in headcount, particularly in
     the sales organization, and increase in professional services expense.

       Research and development expenses decreased  slightly from $95,000 in the
     first fiscal quarter of 1998 to $80,000 in the first quarter of 1999.  This
     decrease was due to a reduction in materials expense.


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

       Interest expense of $116,000 in the  current  quarter  included a $97,000
     non-cash charge related to the July Convertible  Debenture  financing.  The
     convertible features of the debenture include an "in-the-money" convertible
     option  that  allows  the  holder  to obtain  shares  of common  stock at a
     discount off of fair market value. The value of the in-the-money  provision
     has been allocated to stockholder equity.

       Other income of $190,000 resulted from the successful restructuring  of a
     note  payable  to a  former  terminal  equipment  supplier.  This  note had
     previously been reported in a default status.


     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  $30  million  since
     inception  to  September  30,  1998,  with a  working  capital  deficit  of
     approximately  $2,476,000  at  September  30,  1998,  versus a  deficit  of
     $2,967,000 in the prior year. The Company has several  immediate  financial
     obligations  in  the  form  of  notes  payables,   commitments  on  the  6%
     Convertible  Debentures,  and  several  key vendor  payables.  The  Company
     believes that it will be able to restructure these 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.

       With the implementation of the new  distribution  strategy adopted in the
     latter part of the first  quarter of fiscal 1999 (see  "Market  Penetration
     through Telecommunication Carriers and Revisions to Business Plan," above),
     the  Company  has  taken  steps to reduce  spending.  With the new focus on
     distribution  through  large  merchant  acquirers,  the Company has reduced
     headcount from 60 at June 30, 1998, to 39 as of October 31, 1998, with most
     of the reduction  occurring in the direct sales force. With the appointment
     of Roger  Peirce as CEO,  the Company has been able to avail  itself of the
     services of several key senior level  personnel,  engaged under  consulting
     contracts with  remuneration in the form of options rather than cash. Based
     on current  staffing  levels,  the Company's  expenditures are running at a
     monthly rate of  approximately  $325,000  versus  $450,000 per month in 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 in an effort 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.

                                       16
<PAGE>
PART II

ITEM 1 - LITIGATION

     Settlement of Claims of Certain Noteholders

     In April 1998, the Company entered into a settlement 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.  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.  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 September
     30, 1998,  approximately  128,000 shares subject to the guarantee and "put"
     provision,  with a carrying value of $232,000 remained outstanding and 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.


ITEM 2 - CHANGES IN SECURITIES

     Recent Issuances of Unregistered Securities:

       During the fiscal quarter ended September 30, 1998,  the Company sold the
     following   securities   without   registering  the  securities  under  the
     Securities Act of 1933, as amended (the "Act").

     July 21, 1998:  $2,000,000 of 6% Convertible  Debentures due July 21, 2000.
     The Convertible  Debentures are convertible  into shares of Common Stock at
     the lesser of 80% of the closing bid price over the last five  trading days
     prior to conversion,  or $4.25 per share. The Debenture  Agreement is filed
     as  Exhibit  4.17 to the  Company's  Annual  Report on Form  10-KSB for the
     fiscal  year  ended  June 30,  1998.  Amounts  payable to holders of the 6%
     Debentures will diminish amounts payable to holders of the Company's Common
     Stock as dividends or upon liquidation;

     July 21, 1998:  20,000 Common Stock purchase  warrants  issued to RBB Bank,
     exercisable at $4.375 through July 21, 2001;

     July 21, 1998:  60,000 Common Stock purchase  warrants issued to JW Genesis
     Securities, Inc. exercisable at $4.50 through July 21, 2001;

     July 21,  1998:  100,000  Common  Stock  purchase  warrants  issued  to the
     purchasers of the 6% Convertible  Debentures,  exercisable at $4.25 through
     July 21, 2001;

     September 3 - 9, 1998: 300,000 non-qualified Common Stock purchase options,
     with strike prices between $2.38 and $2.72, issued to three consultants for
     management services in lieu of salary;


                                       17
<PAGE>
     September  8,  1998:  290,000  shares of Common  Stock  issued to  Liviakis
     Financial   Communications,   Inc.,   an  affiliate  of  the  Company,   as
     consideration  for a new consulting  agreement  entered into as of June 30,
     1998;

     September 11, 1998: 8,333 Common Stock purchase warrants issued to entrenet
     Group, LLC, exercisable at $2.40 through September 11,
     2003.

     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 stock
     certificates; and stop-transfer instructions were lodged with the Company's
     transfer agent as to all shares of common stock issued in the transactions.

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
     17, 1999.  The initial  interest  payment  through  December  31, 1998,  of
     approximately $55,000, was due and payable by January 15, 1999. The Company
     has not made the penalty or interest payments as of the date of filing this
     Report,  and does not  presently  have the  resources to do so. 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."


     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.

                                       18
<PAGE>
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K

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

          4.1  Non-Qualified  Stock  Option  issued  to Roger  Peirce  effective
               November 23, 1998 (1)

          10.1 Extension of Promissory  Notes issued to Liviakis  Financial
               Communications, Inc., dated January 1, 1999

          10.2 Lock-up  Agreement  between the Company  and  Liviakis  Financial
               Communications, Inc. dated January 1, 1999

          10.3 Extension of Promissory Note issued to R. Chuck Burtzloff,  dated
               January 1, 1999


          27   Financial Data Schedule
     ___________________________

          (1)  This exhibit  constitutes  a "Management  Contract,  Compensatory
               Plan or  Arrangement"  required to be filed as an Exhibit to this
               Report.


     b) Reports on Form 8-K

On July 31, 1998,  the Company  filed a report on Form 8-K reporting an event of
July 16, 1998.  The report  contained  disclosures  under Item 5 - Other Events,
relating to the filing of Amendment No. 1 to its Registration  Statement on Form
SB-2 (SEC File No.  333-52625)  with the United States  Securities  and Exchange
Commission.  The number of shares being  registered was decreased from 7,324,106
included in the initial filing to 7,240,356 shares of Common Stock.  None of the
Shares  are being sold by the  company  and the  Company  will not  receive  any
proceeds from sales of the shares.

On August 11, 1998, the Company filed a report on Form 8-K reporting an event of
August 3, 1998. The report  contained  disclosures  under Item 5 - Other Events,
relating to the filing of Amendment No. 2 to its Registration  Statement on Form
SB-2 (SEC File No.  333-52625)  with the United States  Securities  and Exchange
Commission.

On September 14, 1998, the Company filed a report on Form 8-K reporting an event
of August  21,  1998.  The  report  contained  disclosures  under Item 5 - Other
Events, relating to changes in management.  On August 21, 1998, Mr. Roger Peirce
became the Chief Executive Officer and Chairman of the Board of the Company, and
on September 1, 1998,  Charles T. Russell became a member of the Company's Board
of Directors.

                                   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:    January 28, 1999                   By: /s/ Roger Peirce 
         ---------------------------            --------------------------
                                                Chief Executive Officer


         January 28, 1999                   By: /s/ Robert E. Robichaud
         ---------------------------            --------------------------
                                                Chief Financial Officer