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  December 31, 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  31,  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>
<CAPTION>
                                TABLE OF CONTENTS


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

           Balance Sheets --
<S>                                                                                      <C>
                  December 31, 1998, and June 30, 1998...................................3

           Statements of Operations --
                  Three Months and Six Months Ended December 31, 1998 and 1997...........4

           Statements of Cash Flows --
                  Three Months Ended December 31, 1998 and 1997..........................5

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

Item 2.    Management's Discussion and Analysis..........................................9-16


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..............................................18
</TABLE>

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

                                                                              December 31, 1998   June 30, 1998
                                                                              -----------------   -------------
<S>                                                                            <C>             <C>         
                                  ASSETS

Current assets:
        Cash ...............................................................   $     73,000    $      4,000

        Accounts receivable, net of allowance for doubtful .................        197,000          55,000
        accounts of $28,000 at December 31, 1998;
        $22,000 at  June 30, 1998
        Inventory, net .....................................................        260,000         480,000
        Other current assets
                                                                                    443,000         187,000
                                                                               ------------    ------------
             Total current assets ..........................................        973,000         726,000
Processing units - deployed ................................................        520,000         517,000
Property and equipment, net ................................................        255,000         253,000
             Other assets ..................................................        317,000          69,000
                                                                               ------------    ------------

Total assets ...............................................................   $  2,065,000    $  1,565,000
                                                                               ============    ============


                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable ...................................................   $  1,199,000    $  1,506,000

        Accrued liabilities ................................................      1,053,000       1,735,000
        Borrowings, current portion

                                                                                  2,221,000         452,000
                                                                               ------------    ------------
             Total current liabilities .....................................      4,473,000
                                                                                                  3,693,000

Borrowings, long-term portion ..............................................      1,341,000          45,000
                                                                               ------------    ------------
             Total liabilities .............................................      5,814,000       3,738,000
                                                                               ------------    ------------


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

Stockholders' deficit:
        Preferred stock, 15,000,000 authorized,  1,341,667 and 3,060,000 ...      1,342,000       3,060,000
           Series A issued and outstanding at September 30, 1998 and
           June 30, 1998, respectively
        Common stock, at stated value, 40,000,000 ..........................     13,586,000      12,195,000
           shares  authorized; 13,586,124 and 12,195,358 shares issued and
           outstanding at September 30, 1998 and June 30, 1998, respectively
        Additional paid-in capital .........................................     12,997,000      10,222,000
        Accumulated deficit ................................................    (31,906,000)    (28,022,000)
                                                                               ------------    ------------
        Total stockholders' deficit ........................................     (3,981,000)     (2,545,000)
                                                                               ------------    ------------


        Total liabilities and stockholders' deficit ........................   $  2,065,000    $  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 December 31,   Six months ended December 31,
                                         -------------------------------   -----------------------------
                                                 1998            1997            1998            1997
                                                 ----            ----            ----            ----
<S>                                       <C>             <C>             <C>             <C>         
Net revenues:
    Product sales .....................   $    343,000    $     95,000    $    509,000    $    351,000
    Services ..........................        177,000          21,000         372,000          35,000
                                          ------------    ------------    ------------    ------------
                                               520,000         116,000         881,000         386,000
                                          ------------    ------------    ------------    ------------
Cost of revenues:
    Product sales .....................        252,000          53,000         360,000         227,000    
    Services                                   172,000           8,000         331,000          10,000
                                          ------------    ------------    ------------    ------------
                                               424,000          61,000         691,000         237,000
                                          ------------    ------------    ------------    ------------

Gross margin ..........................         96,000          55,000         190,000         149,000
                                          ------------    ------------    ------------    ------------

Operating expenses:
    Selling, general and administrative      1,382,000       2,853,000       3,068,000       4,141,000
    Research and development                   178,000          78,000         258,000         173,000
                                          ------------    ------------    ------------    ------------
       Total operating expense ........      1,560,000       2,931,000       3,326,000       4,314,000
                                          ------------    ------------    ------------    ------------

Loss from operations ..................     (1,464,000)     (2,876,000)     (3,136,000)     (4,165,000)

Interest income .......................          3,000            --             8,000            --
Interest expense ......................       (117,000)       (244,000)       (233,000)       (268,000)
Other expense .........................       (351,000)         (1,000)       (161,000)         (1,000)
                                          ------------    ------------    ------------    ------------

Net loss ..............................   $ (1,929,000)   $ (3,121,000)   $ (3,522,000)   $ (4,434,000)
                                          ============    ============    ============    ============


Basic and diluted loss per share: .....   $      (0.14)   $      (0.34)   $      (0.25)   $      (0.30)
                                          ============    ============    ============    ============


Weighted average common shares ........     13,582,000       9,209,000      13,038,000       8,490,000
  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 six months ended December 31,
                                                           -------------------------------------
                                                                   1998          1997
                                                                   ----          ----
<S>                                                          <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .............................................   $(3,522,000)   $(4,434,000)
    Adjustments to reconcile net loss to net cash used in
     Operating activities:
        Depreciation and amortization ....................       145,000         11,000
        Non-cash consulting services and warrant extension     1,339,000      1,454,000
        Non-cash variable option-compensation expense ....      (573,000)     1,188,000
        Non-cash interest expense - debentures ...........       182,000        225,000
        Non-cash other expense - warrants ................       350,000           --
        Debt forgiveness .................................      (192,000)          --
        Changes in current assets and liabilities:
           Accounts receivable ...........................      (142,000)        (3,000)
           Inventory .....................................       170,000       (426,000)
           Other current assets ..........................        16,000        (48,000)
           Accounts payable ..............................      (393,000)       396,000
           Accrued liabilities ...........................       (37,000)        24,000
                                                             -----------    -----------
           Net cash used in operating activities .........    (2,657,000)    (1,613,000)
                                                             -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property, plant, and equipment .......       (45,000)      (112,000)
        Processing units - deployed ......................       (81,000)          --
                                                                  10,000        (85,000)
                                                             -----------    -----------
           Net cash used in investing activities .........      (116,000)      (197,000)
                                                             -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from issuance of stock ..................        26,000        556,000
        Issuance of note receivable ......................     1,630,000         28,000
        Principal payment on borrowings ..................      (122,000)          --
        Net proceeds from issuance of debt ...............     2,308,000      2,743,000
        Redemption of preferred stock ....................    (1,000,000)          --
                                                             -----------    -----------
           Net cash provided by financing activities .....     2,842,000      3,327,000
                                                             -----------    -----------


Net increase in cash .....................................        69,000      1,517,000


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


Cash at end of period ....................................   $    73,000    $ 1,523,000
                                                             ===========    ===========
                                                                         
</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 December 31, 1998, as well as the statements of
      operations  for the three months ended  December 31, 1998 and December 31,
      1997,  and statement of cash flows for the three months ended December 31,
      1998 and  December 31, 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 December 31, 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 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 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  $32  million  since  inception,  including  a loss  of $1.9
      million  during the second  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. EPS for the
      three-month  and  six-month  period  ended  December  30,  1997  have been
      restated  to conform  with SFAS  No.128.  In the second  quarter of fiscal
      1999,  the net loss available to common  shareholders  equals the net loss
      less $27,000 of preferred  stock dividends  charged to retained  earnings.
      For the first six months of fiscal 1999,  the net loss available to common
      shareholders  equals  the  net  loss  less  $377,000  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.  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 December  31,
      1998,  there  remained  1,341,667  shares  of  Series  A  Preferred  Stock
      outstanding  and  approximately  307,000 shares of Common Stock which have
      been issued upon conversion of, or as dividends on, the Series A Preferred
      Stock  which  have not yet been sold  under the  SB-2.  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
      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 after  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  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 subsequent to
      effectiveness of the August SB-2.  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 has not

                                       7
<PAGE>
      obtained  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 290,000 shares issued to
      Liviakis  Financial  Communications,  Inc.,  an  affiliate of the Company,
      which have registration rights. See Note 5, below.

         On October 1, 1998,  the Company and  Cardservice  International  (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 shareholder of
      CSI, may make 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.

         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 April 1, 1999. In January and
      February,  the Company received $350,000 of additional bridge loans in the
      form of 8% Notes Payable, due April 1, 1999.

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 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,  even though  certain of those shares were included in the Company's
      Registration  Statement  on From SB-2,  which became  effective  August 7,
      1998.  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 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 

                                       8
<PAGE>
     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 December 31, 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.


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.


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 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 half 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  private  placement  offerings  have provided the
      Company  with the  ability  to launch  joint  marketing  and  distribution
      programs with the wireless carriers,  however,  execution of the Company's
      business 

                                       9
<PAGE>
     plan is dependent on a more  significant  debt or equity  financing  event.
     Recently,  operating  expenses  have been  satisfied  by  borrowing  from a
     significant  shareholder  and  by  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.  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  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.

         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 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, 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.  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.
                                       10
<PAGE>
         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 has  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
      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 placed 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

                                       11
<PAGE>
      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  of  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 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 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  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 can 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  December  31,  1998,  there  remained
      1,341,667 shares of Series A Preferred Stock outstanding and approximately
      307,000 shares of Common Stock issued upon  conversion of, or as dividends
      on, the Series A  Preferred  Stock  which have not yet been sold under the
      SB-2.  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.  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 is due April 1, 1999 and bears interest at 8%
      per year.  The security  holders  participating  in this  redemption  also
      agreed to a gated 

                                       12
<PAGE>
     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 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. 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 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 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 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 the
     Company estimates will be 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 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 cannot 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
      (which it did not do). 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.

                                       13
<PAGE>
     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,  although as noted above, all shares of Common Stock
     issuable  on  conversion  of , or as  dividends  on, the Series A Preferred
     Stock became  eligible for sale under SEC Rule 144 as of December 10, 1998.
     The ability to sell the shares  under SEC Rule 144 may abrogate the need to
     include those shares in a future registration statement.. 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.

      Recent Borrowings
      -----------------

         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 April 1, 1999. In January and
      February,  the Company received an additional  $350,000 of bridge loans in
      the form of 8% Notes Payable, due April 1, 1999.

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

         The Company has several  initiatives  that it is currently  pursuing to
      raise additional  capital. On September 30, 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.


         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 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.

                                       14
<PAGE>
      Fiscal 1999 Compared to Fiscal 1998

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

         Revenue of $520,000  for the second  quarter of fiscal  1999  increased
      significantly from revenue of $116,000 generated during the second quarter
      of fiscal  1998 as the  Company  continued  the shift to its new  business
      model.  For the six month  period,  total  revenue  more than  doubled  to
      $881,000 from the prior year's  $386,000.  In the second quarter,  product
      sales of  POS-500,  WEPSSM  Enabler,  POS-500  and other  equipment  sales
      increased by approximately  $248,000 while service revenue, which includes
      application fees, transaction processing,  and repair revenue increased by
      approximately  $156,000.  Services revenue of $177,000  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
      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 $96,000 in the second  quarter of fiscal 1999 increased
      from the prior year level of $55,000, although the profit margin decreased
      as a percent  of  revenue to 18% in the  current  quarter  from 47% in the
      prior quarter.  This was  attributable to a decrease in product margins as
      product  prices were adjusted to wholesale  versus retail  structure.  The
      margin on the services  revenue  component was  negligible do to the sales
      shift noted above.  The  services  cost  structure  in the second  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.  The new WEPSTM  service is expected to improve the margin
      relationships as it becomes a more  predominate  component of the services
      offering in the future. Gross profit increased by $41,000 on a significant
      increase in revenue  during the  six-month  period.  The decrease in gross
      profit  percent for the six-month  period was  attributable  to the second
      quarter variance described above.

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

         Selling,  general and administrative  expense decreased from $2,853,000
      in the second  quarter of fiscal 1998 to $1,382,000 in the second  quarter
      of fiscal 1999. The large  decrease in expense was primarily  attributable
      to a quarterly  adjustment  for a variable  stock  option  resulting  in a
      $380,000  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 second  quarter of  $1,187,000.
      Non-cash  consulting  expense of  $510,000  decreased  by  $106,000 in the
      current  quarter.  In response to the new business  model,  the  Company's
      personnel was reduced from 53 in September 98 to 35 at the end of December
      98.  This will  reduce  future  salary  related  expense by  approximately
      $100,000 per month.  Several key consultants  were added to the management
      staff and compensated with stock options versus cash. The option valuation
      resulted  in a  $228,000  non-cash  charge to general  and  administrative
      expense in the  quarter.  Expense for the  six-month  period  decreased by
      $1,073,000 to  $3,068,000,  predominately  due to the  accounting  for the
      variable stock option noted above.

         Research and development  expenses increased by $100,000 from the prior
      fiscal year's  quarter to $178,000 in the second  fiscal  quarter of 1999.
      This increase was primarily related to the non-cash stock option valuation
      associated with a staff consultant. For the six-month period, research and
      development expense increased by $85,000 to $258,000 in the current fiscal
      year,  with a decrease  in  materials  expense  partially  offsetting  the
      increased staff expense.

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

         Interest  expense of $117,000 in the current quarter  includes  accrued
      interest on the 6% Convertible Debentures and various notes payable, and a
      $52,000 valuation on warrants issued in conjunction with a $500,000 bridge
      loan. The prior year interest expense includes a $225,000  non-cash charge
      to  interest  expense in the second  quarter  related to the  December  97
      private  placement.  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 

                                       15

<PAGE>
      discount off of fair market  value.  For the  six-month  period,  interest
      expense decreased from $268,000 to $233,000 in the current fiscal year.

         Other  expense of  $351,000  in the second  quarter  resulted  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.  The current  six-month period included a
      $190,000 credit  resulting from the  restructuring  of a note payable to a
      former terminal equipment supplier.


      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  $32  million  since
      inception  to  December  31,  1998,  with a  working  capital  deficit  of
      approximately  $3,500,000  at  December  30,  1998,  versus a  deficit  of
      $2,967,000  at year-end June 30, 1998.  The Company has several  immediate
      financial   obligations   in  the  form  of  notes   payable   secured  by
      substantially  all available assets of the Company,  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.

         The increase in other current assets from June 30, 1998 to December 31,
      1998  primarily  represents  the balance of pre-paid  consulting  services
      related  to  the  New  LFC  Agreement  which  continue  to be  charged  to
      operations over the remaining term of the agreement. The increase in other
      assets over the same period is attributable  to unamortized  debt issuance
      expense related to the July 1998 6% Convertible Debenture. The increase in
      current  borrowings  at December 31, 1998 versus June 30, 1998 reflect the
      additional bridge loans assumed by the Company, while the increase in long
      term borrowings is related to the July 1998 6% Convertible Debenture.

         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"), 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 35 as of December 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 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.

                                       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. Terms of the settlement entitled the Noteholders to a
      guarantee or put  provision.  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) 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 which is $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  December 30, 1998,  the Company sold or
       issued the following  securities without registering the securities under
       the Securities Act of 1933, as amended (the "Act").

       October 15, 1998:  78,098 Common Stock purchase  warrants  issued to four
       holders of the Series A Preferred  Stock,  exercisable  at $2.40  through
       October 15, 2001;


       November 15, 1998:  67,084 Common Stock purchase  warrants issued to four
       holders of the Series A Preferred  Stock,  exercisable  at $3.36  through
       November 15, 2001;

       December 15, 1998:  67,084 Common Stock purchase  warrants issued to four
       holders of the Series A Preferred  Stock,  exercisable  at $3.69  through
       December 15, 2001.

         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.

                                       17
<PAGE>
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.


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

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

                  27        Financial Data Schedule

          b) Reports on Form 8-K - none filed during this reporting 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:    February 15, 1999                 By: \s\ Roger Peirce    
         ---------------------------           ---------------------------
                                                  Chief Executive Officer


         February 15, 1999                 By: \s\ Robert E. Robichaud  
         ---------------------------           ---------------------------
                                                   Chief Financial Officer