---

# SECURITIES
AND EXCHANGE COMMISSION

# Washington, DC 20549

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# FORM 10-QSB

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[X]    Quarterly Report under Section 13 or Section
15(d) of the Securities Exchange Act 
    
              
          
      of 1934 for the quarterly period ended
September 30, 2002

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

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Commission File Number 0-22848

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

Delaware
(State of incorporation)

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84-1178691
(IRS Employer
Identification No.)

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

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

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

As of November
11, 2002, there were outstanding 15,095,537 shares of the Registrants
Common Stock ($0.01 par value per share).

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

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

Part I  FINANCIAL
INFORMATION

`ITEM 1.  Financial Statements                                                 Page
                                                                              ----
         Consolidated Balance Sheets as of
                September 30, 2002 and June 30, 2002.........................   3

         Consolidated Statements of Operations for the three months
                ended September 30, 2002 and 2001............................   4

         Consolidated Statements of Stockholders' Equity for the year
                ended June 30, 2002 and the three
                months ended September 30, 2002..............................   5

         Consolidated Statements of Cash Flows for the three months ended
                September 30, 2002 and 2001..................................   6

         Notes to Consolidated Financial Statements..........................   7-15

ITEM 2.  Management's Discussion and Analysis................................   16-31

ITEM 3.  Controls and Procedures.............................................   31`

Part II  OTHER
INFORMATION

`ITEM 1.  Legal Proceedings...................................................   32
ITEM 2.  Changes in Securities and Use of Proceeds...........................   32
ITEM 3.  Defaults Upon Senior Securities.....................................   32
ITEM 4.  Submission of Matters to a Vote of Security Holders.................   32
ITEM 5.  Other Information...................................................   32
ITEM 6.  Exhibits and Reports on Form 8-K....................................   32`

---

# Part I  FINANCIAL
INFORMATION

# ITEM 1. Financial
Statements

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED BALANCE SHEETS

`September 30,       June 30,
                                                                                 2002              2002
                                                                             ------------        --------
                                                                              (Unaudited)
ASSETS
Current assets:
     Cash and cash equivalents ..........................................   $   6,008,000    $   2,862,000
     Accounts receivable, net of allowance for
        doubtful accounts of $289,000 and $293,000
        at September 30 and June 30, 2002, respectively .................         809,000        1,360,000
     Inventory, net .....................................................         788,000          800,000
     Notes receivable ...................................................          41,000             --
     Other current assets ...............................................         293,000          357,000
     Assets held for sale ...............................................            --          4,128,000
                                                                            -------------    -------------
                Total current assets ....................................       7,939,000        9,507,000

Property and equipment, net .............................................       2,014,000        2,195,000
Restricted cash .........................................................       1,131,000        1,167,000
Intangible assets, net ..................................................         993,000        1,059,000
Other assets ............................................................          36,000           35,000
                                                                            -------------    -------------
                Total assets ............................................   $  12,113,000    $  13,963,000
                                                                            =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ...................................................   $   1,928,000    $   1,880,000
     Accrued liabilities ................................................         586,000          961,000
     Other current liabilities ..........................................         374,000          299,000
     Accrued restructuring expense, current portion .....................         162,000          262,000
     Obligation under capital lease, current portion ....................         726,000          785,000
     Purchase price payable, current portion ............................         488,000          477,000
                                                                            -------------    -------------
                Total current liabilities ...............................       4,264,000        4,664,000

Deferred rent expense ...................................................         185,000          181,000
Accrued restructuring expense, less current portion .....................         656,000          687,000
Other liabilities .......................................................         140,000           47,000
Obligation under capital lease, less current portion ....................         123,000          287,000
                                                                            -------------    -------------
                Total liabilities .......................................       5,368,000        5,866,000
                                                                            -------------    -------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, 25,000,000 shares authorized:
       Series C convertible, at $.01 par value, liquidation value
           $10.00 per share, aggregating $37,852,000 and $39,413,000
           at September 30 and June 30, 2002, respectively; 8,450,000
           shares authorized, 3,785,200 and 3,941,325 issued and
           outstanding at September 30 and June 30, 2002, respectively ..          38,000           39,000
   Common stock, 200,000,000 shares authorized at $.01 par value;
       15,074,705 and 14,813,927 shares issued and outstanding at
       September 30 and June 30, 2002, respectively .....................         151,000          149,000
   Additional paid-in capital ...........................................     143,028,000      142,927,000
   Unearned compensation ................................................        (654,000)        (963,000)
   Accumulated deficit ..................................................    (135,818,000)    (134,055,000)
                                                                            -------------    -------------
                Total stockholders' equity ..............................       6,745,000        8,097,000
                                                                            -------------    -------------
                Total liabilities and stockholders'
                equity ..................................................   $  12,113,000    $  13,963,000
                                                                            =============    =============`

Accompanying
notes are an integral part of the financial statements

---

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

`For the three months ended
                                                                September 30,
                                                           2002            2001
                                                      ------------    ------------
Revenues
  Service revenues
    Activation fees ...............................   $    105,000    $     70,000
    Monthly fees ..................................        526,000         290,000
    Transaction fees ..............................         57,000          30,000
    Other fees ....................................         29,000           2,000
                                                      ------------    ------------
       Total service revenues .....................        717,000         392,000
  Product sales ...................................         66,000         330,000
                                                      ------------    ------------
       Total revenues .............................        783,000         722,000
                                                      ------------    ------------
Cost of revenues
  Services ........................................        322,000         167,000
  Product sales ...................................         61,000         228,000
                                                      ------------    ------------
       Total cost of revenues .....................        383,000         395,000
                                                      ------------    ------------
Gross profit ......................................        400,000         327,000
                                                      ------------    ------------
Operating expenses
  Selling, general and administrative
    (Exclusive of non-cash compensation) ..........      1,861,000       2,665,000
  Non-cash compensation ...........................        281,000         372,000
                                                      ------------    ------------
       Total selling, general and administrative ..      2,142,000       3,037,000

  Depreciation and amortization ...................        269,000         716,000
  Research and development ........................        159,000         309,000
  Restructuring expense ...........................           --           625,000
                                                      ------------    ------------
       Total operating expenses ...................      2,570,000       4,687,000
                                                      ------------    ------------

Loss from operations ..............................     (2,170,000)     (4,360,000)

Interest income ...................................         13,000         150,000
Interest expense ..................................        (60,000)        (90,000)
Other income (expense), net .......................        (57,000)         61,000
                                                      ------------    ------------
       Loss from continuing operations ............     (2,274,000)     (4,239,000)
                                                      ------------    ------------
Discontinued operations:
  Income (loss) from discontinued operations ......        371,000        (318,000)
  Gain on sale of discontinued operations .........        140,000            --
                                                      ------------    ------------
       Net income (loss) from
        discontinued operations ...................        511,000        (318,000)
                                                      ------------    ------------
Net loss ..........................................   $ (1,763,000)   $ (4,557,000)
                                                      ============    ============
Basic and diluted net loss per share:
     Loss from continuing operations ..............   $      (0.15)   $      (0.36)
     Income (loss) from discontinued operations ...   $       0.03    $      (0.02)
                                                      ------------    ------------
       Net loss per share .........................   $      (0.12)   $      (0.38)
                                                      ============    ============

Weighted average common shares
  outstanding, basic and diluted ..................     14,971,000      11,853,000
                                                      ============    ============`

Accompanying
notes are an integral part of the financial statements

---

# U.S. WIRELESS
DATA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR
ENDED JUNE 30, 2002 AND THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)

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

BALANCE AT JUNE 30, 2001 ....       5,514,475    $      55,000       11,478,419   $     115,000

Exercise of stock options ...            --               --            214,444           2,000
Non-cash compensation .......            --               --             30,571           1,000
Amortization of
 non-cash compensation ......            --               --               --              --
Cancellation of options
 issued to Board member .....            --               --               --              --
Issuance of options to
 investment banker ..........            --               --               --              --
Issuance of contingent
 consideration to Cellgate ..            --               --            468,750           5,000
Conversion of Series
 C preferred stock ..........      (1,573,150)         (16,000)       2,621,743          26,000
Net loss ....................            --               --               --              --
                                -------------    -------------    -------------   -------------
BALANCE AT JUNE 30, 2002 ....       3,941,325    $      39,000       14,813,927   $     149,000

Amortization of
 non-cash compensation ......            --               --               --              --
Amortization of options
 in lieu of cash ............            --               --               --              --
Issuance of options
 to investment banker .......            --               --               --              --
Issuance of options
 for sale of NXT ............            --               --               --              --
Issuance of options
 for investor ...............            --
 relations services .........            --               --               --              --
Conversion of Series
 C preferred stock ..........        (156,125)          (1,000)         260,778           2,000
Net loss ....................            --               --               --              --
                                -------------    -------------    -------------   -------------
BALANCE AT SEPTEMBER 30, 2002       3,785,200    $      38,000       15,074,705   $     151,000
                                =============    =============    =============   =============

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

BALANCE AT JUNE 30, 2001 ....   $ 142,873,000    $  (2,639,000)   $(108,503,000)   $  31,901,000

Exercise of stock options ...         404,000             --               --            406,000
Non-cash compensation .......         266,000             --               --            267,000
Amortization of
 non-cash compensation ......            --          1,075,000             --          1,075,000
Cancellation of options
 issued to Board member .....        (750,000)         750,000             --               --
Issuance of options to
 investment banker ..........         149,000         (149,000)            --               --
Issuance of contingent
 consideration to Cellgate ..          (5,000)            --               --               --
Conversion of Series
 C preferred stock ..........         (10,000)            --               --               --
Net loss ....................            --               --        (25,552,000)     (25,552,000)
                                -------------    -------------    -------------    -------------
BALANCE AT JUNE 30, 2002 ....   $ 142,927,000    $    (963,000)   $(134,055,000)   $   8,097,000

Amortization of
 non-cash compensation ......            --            281,000             --            281,000
Amortization of options
 in lieu of cash ............            --             78,000             --             78,000
Issuance of options
 to investment banker .......          21,000          (21,000)            --               --
Issuance of options
 for sale of NXT ............          52,000             --               --             52,000
Issuance of options
 for investor ...............
 relations services .........          29,000          (29,000)            --               --
Conversion of Series
 C preferred stock ..........          (1,000)            --               --               --
Net loss ....................            --               --         (1,763,000)      (1,763,000)
                                -------------    -------------    -------------    -------------
BALANCE AT SEPTEMBER 30, 2002   $ 143,028,000    $    (654,000)   $(135,818,000)   $   6,745,000
                                =============    =============    =============    =============`

Accompanying
notes are an integral part of the financial statements

---

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

`For the three months ended
                                                                                  September 30,
                                                                             2002            2001
                                                                         ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss ............................................................   $ (1,763,000)   $ (4,557,000)
 Adjustments to reconcile net loss to net cash used in
    operating activities:
       Depreciation and amortization .................................        269,000         716,000
       Depreciation and amortization from discontinued operations ....           --           159,000
       Loss on sale of discontinued operations .......................        140,000            --
       Bad debt expense ..............................................         14,000          35,000
       Deferred rent .................................................          4,000          10,000
       Non-cash compensation .........................................        281,000         372,000
       Changes in assets and liabilities:
             Accounts receivable .....................................        537,000          49,000
             Inventory ...............................................         12,000         (45,000)
             Notes receivable ........................................        (41,000)         (1,000)
             Other current assets ....................................         64,000         (14,000)
             Other assets ............................................         (1,000)           --
             Accounts payable ........................................         48,000        (473,000)
             Accrued liabilities .....................................       (516,000)        (26,000)
             Other current liabilities ...............................         75,000         (77,000)
             Other liabilities .......................................         93,000            --
             Accrued restructuring expense ...........................       (131,000)        487,000
                                                                         ------------    ------------
                Net cash used in operating activities ................       (915,000)     (3,365,000)
                                                                         ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of property and equipment ............................        (22,000)       (100,000)
       Decrease (increase)  in restricted cash .......................         36,000          (3,000)
       Net payment for purchase acquisition, net of cash acquired ....         12,000         (52,000)
                                                                         ------------    ------------
                Net cash provided by (used in) investing activities ..         26,000        (155,000)
                                                                         ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Proceeds from the sale of NXT .................................      5,000,000            --
       Payments of expenses for sale of NXT ..........................       (820,000)           --
       Issuance of options in lieu of cash ...........................         78,000            --
       Payments of obligations under capital lease ...................       (223,000)       (184,000)
                                                                         ------------    ------------
                Net cash provided by (used in) financing activities ..      4,035,000        (184,000)
                                                                         ------------    ------------
Net increase (decrease) in cash ......................................      3,146,000      (3,704,000)
Cash and cash equivalents, beginning of period .......................      2,862,000      18,205,000
                                                                         ------------    ------------
Cash and cash equivalents, end of period .............................   $  6,008,000    $ 14,501,000
                                                                         ============    ============`

Accompanying
notes are an integral part of the financial statements

---

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

## Note 1 - THE
COMPANY

U.S. Wireless Data, Inc.
(USWD or the Company) was incorporated in the state of
Colorado on July 30, 1991 and was reincorporated in the state of Delaware on
October 6, 2000. U.S. Wireless Data, Inc. is the premier provider of wireless
transaction delivery and gateway services to the payments processing industry.
The Company provides credit card processors, merchant acquirers, banks,
automated teller machine (ATM) distributors and their respective
sales organizations with turnkey wireless and other transaction management
services. The Company also provides those entities with proprietary wireless
enabling products designed to allow for card acceptance where such acceptance
has heretofore been too expensive or technologically unfeasible or to displace
conventional telephone lines. These services and products may be utilized by
conventional card accepting retailers as well as emerging card accepting market
segments such as vending machines, quick service restaurants (fast foods), taxis
and limousines, in-home service providers or door-to-door sales, contractors,
delivery services, sporting events, and outdoor markets. Our services and
products may also be used for gathering telemetric information from remote
equipment such as vending machines.

## Note 2 
BASIS OF CONSOLIDATION AND ASSET SALE OF SUBSIDIARY

The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary
UNS Corporation, formerly known as NXT Corporation (NXT) prior to
the sale of NXTs assets as described below. All intercompany accounts and
transactions have been eliminated in consolidation.

Effective as of the close
of business on August 31, 2002, the Company sold, for $5 million in cash,
substantially all of the operating assets and operating obligations associated
with our wholly owned subsidiary, NXT, to Paymentech, L.P.
(Paymentech). NXT provides data services and landline-based
connectivity for credit-card transaction processing. We have classified NXT as a
discontinued operation, and have eliminated NXT from the discussion that follows
except as indicated.

## Note 3 - BASIS
OF PRESENTATION

The consolidated financial
statements include the accounts of U.S. Wireless Data, Inc. and its subsidiary.
The accompanying financial statements included herein have been prepared by the
Company, without an audit. In the opinion of management, all adjustments have
been made, which include normal recurring adjustments necessary to present
fairly the consolidated financial statements. Operating results for the three
months ended September 30, 2002 are not necessarily indicative of the operating
results for the full year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. The Company believes that the disclosures provided are
adequate to make the information presented not misleading. Certain amounts in
the financial statements have been reclassified from prior period presentations.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related notes included in
the Companys Annual Report for the year ended June 30, 2002 on Form
10-KSB.

The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

---

## Note 4 
RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill and other
intangible assets with indefinite lives no longer be amortized, but instead
tested for impairment at least annually. In addition, the standard includes
provisions for the reclassification of certain existing intangibles as goodwill
and reassessment of the useful lives of existing recognized intangibles. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001. As a
result of the write-off of all goodwill during the year ended June 30, 2002, the
adoption of SFAS No. 142 did not have an impact on the Company. The remaining
intangibles at June 30, 2002 shall be subject to the impairment provisions of
SFAS No. 144. The provisions of SFAS No. 142 are effective for periods after
adoption and retroactive application is not permitted. Therefore, the historical
results of periods prior to the fourth quarter of fiscal year 2002 in the
Companys Consolidated Statement of Operations do not reflect the effect of
SFAS No. 142, and accordingly, the three months ended September 30, 2001
included amortization expense relating to goodwill of $118,000. Excluding
goodwill amortization, the pro forma net loss for the three months ended
September 30, 2001, was $4.44 million or $0.37 per share.

In June 2001, the FASB
issued SFAS No. 143, Accounting for Asset Retirement Obligations
which requires the recognition of a liability for an asset retirement obligation
in the period in which it is incurred. When the liability is initially recorded,
the carrying amount of the related long-lived asset is correspondingly
increased. Over time, the liability is accreted to its present value and the
related capitalized charge is depreciated over the useful life of the asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
Company has determined that SFAS No. 143 will not have a material effect on the
financial statements of the Company.

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of Accounting Principles Board
(APB) Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business. This Statement also amends Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a subsidiary
for which control is likely to be temporary. The provisions of this Statement
are required to be applied starting with fiscal years beginning after December
15, 2001.

---

The Company adopted the
impairment provisions of SFAS No. 144 in the first quarter of the fiscal year
ending June 30, 2003, however, the Company adopted the provisions relating to
discontinued operations during the fourth quarter of the fiscal year ended June
30, 2002 relating to the sale of NXT. The adoption of the impairment provisions
did not have an impact on the Companys financial condition or results of
operations.

In April 2002, the FASB
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. This
Statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This Statement will be effective for the Company for
the fiscal year ending June 30, 2004. The Company has not determined the impact,
if any, that this statement will have on its financial statements.

In June 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 will supersede Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.

## Note 5 
INVENTORY

`September 30,  June 30,
                                      2002         2002
                                  ------------   -------
  Inventory consists of:
    Finished goods                 $ 530,000    $ 210,000
    Raw material                      65,000       43,000
    Work in process                  193,000      547,000
                                   ---------    ---------
                                   $ 788,000    $ 800,000
                                   =========    =========`

The Company has recorded
inventory at the lower of cost or market.

---

## Note 6 
INTANGIBLE ASSETS

All of USWDs acquired
intangible assets are subject to amortization. There were no material
acquisitions of intangible assets during the three months ended September 30,
2002 or fiscal year 2002. Amortization expense related to intangible assets was
$66,000 and $520,000 for the three months ended September 30, 2002 and 2001,
respectively.

In the fourth quarter of
fiscal 2002, the Company recorded an impairment charge of $5,701,000 on goodwill
and other intangibles to writedown the value of the acquired assets of Cellgate
to the present value of the net amount the Company now expects to realize over
the remaining expected life of the Synapse Adapter product. Goodwill has been
completely eliminated due to this impairment charge, and the remaining
$1,059,000 value of intangibles from this acquisition as of June 30, 2002 will
be amortized over the estimated remaining life of four years.

The net carrying amount of
$5,927,000 as of June 30, 2002 of goodwill and other intangibles relating to the
NXT acquisition was reclassified to assets held for sale. Since the net proceeds
from the sale of NXT did not exceed the carrying value of the related net
assets, a loss on the carrying value of such assets has been recorded as of June
30, 2002 (see Note 13).

The components of
intangible assets are as follows:

Intangibles related to the
acquisition of Cellgate:

`September 30, 2002                             June 30, 2002
              --------------------------------------   --------------------------------------------------
              Gross Carrying                   Net      Gross                                       Net
               Amount Net of  Accumulated   Carrying   Carrying     Accumulated     Write-off    Carrying
                 Write-off    Amortization    Amount    Amount      Amortization      Amount       Amount
              --------------  ------------  --------   --------     ------------    ----------   --------
Intellectual   $ 2,444,000    $(1,480,000) $ 964,000 $ 6,000,000    $(1,416,000)   $(3,556,000)  $1,028,000
 property
Acquired
 workforce         135,000       (106,000)    29,000     250,000       (104,000)      (115,000)      31,000
Goodwill           406,000       (406,000)      --     2,436,000       (406,000)    (2,030,000)        --
               -----------    -----------  --------- -----------    -----------    -----------   ----------
Total          $ 2,985,000    $(1,992,000) $ 993,000 $ 8,686,000    $(1,926,000)   $(5,701,000)  $1,059,000
               ===========    ===========  ========= ===========    ===========    ===========   ==========`

Intangibles related to the
acquisition of NXT have all been reclassified to Assets held for
sale as of June 30, 2002 as a result of the sale of NXT.

## Note 7 
ACCRUED RESTRUCTURING EXPENSE

Provided below is an
analysis of the changes in the restructuring accrual for the period indicated:

`Balance at June 30, 2002                        $ 949,000
Charges against accrual (Bethesda rent
  payments, severance and benefit payments)      (131,000)
                                                ---------
Balance at September 30, 2002                     818,000
Less current portion                             (162,000)
                                                ---------
Balance at September 30, 2002, excluding
  current portion                               $ 656,000
                                                =========`

---

The balance of the
restructuring charge accrual will be paid over the remaining lease term of our
former Bethesda office which expires July 2009.

## Note 8
- ACCRUED LIABILITIES

`September 30,    June 30,
                                             2002            2002
                                          ------------    ---------
Accrued liabilities consists of:
  Accrued compensation                    $ 107,000      $ 588,000
  Accrued professional fees                 112,000         20,000
  Accrued  expenses  relating  to sale
    of NXT                                   90,000           --
  Accrued state and other taxes             119,000           --
  Accrued vendor obligation                   --           187,000
  Other                                     158,000        166,000
                                          ---------      ---------
                                          $ 586,000      $ 961,000
                                          =========      =========`

## Note 9
- OTHER LIABILITIES

Other current liabilities
at September 30, 2002, consists of deferred revenue in the amount of $374,000.
Other current liabilities at June 30, 2002, consisted of deferred revenue in the
amount of $299,000.

Other liabilities at
September 30, 2002, consist of a $65,000 deposit due to the sub-lessor of our
former office space in Bethesda, MD and $75,000 due August 31, 2004 to our
investment banker as part of the sale of NXT. Other liabilities at June 30,
2002, consist of a $47,000 deposit due to the sub-lessor of our former office
space in Bethesda, MD

## Note 10
- STOCKHOLDERS EQUITY

During the three months
ended September 30, 2002, 156,125 shares of Series C preferred stock were
converted into 260,788 shares of common stock, in accordance with the Series C
preferred stock documents.

During the three months
ended September 30, 2002, 569,046 stock options were granted to employees with
exercise prices equal to the fair market value of the Companys common
stock at the date of grant.

On July 16, 2002, 50,000
stock options were granted to an investment banking firm for services to be
performed. These options were valued at $21,000 and are being amortized to
expense over the six-month contract period ending January 16, 2003. In
determining the fair value of the options issued, the Company used the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following assumptions: dividend yield of zero, volatility of 123%, expected life
of two years and an average risk free rate of 2.1%.

---

On August 30, 2002, 50,000
stock options were granted to an investment banking firm pursuant to their
service agreement. These options were recorded as an expense of $27,000 in
relation to the sale of NXT. Also in relation to the sale of NXT, 100,000
options were granted to a vendor as consideration for their consent of
assignment and modifications of their service agreement. These options were
valued at $25,000 and charged against the expense of the NXT sale. In
determining the fair value of the options issued, the Company used the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following assumptions: dividend yield of zero, volatility of 123%, expected life
of two years and an average risk free rate of 2.1%.

On October 16, 2002, 65,000
stock options were granted to our investor relations firm for services to be
performed from July 1, 2002 through June 30, 2003. These options were valued at
$29,000 and are being amortized to expense over the period of the contract. In
determining the fair value of the options issued, the Company used the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following assumptions: dividend yield of zero, volatility of 123%, expected life
of two years and an average risk free rate of 2.1%.

For the three months ended
September 30, 2002, $359,000 was charged to compensation expense relating to
options issued to three board members granted on March 29, 2000.

## Note 11
- NET LOSS PER SHARE

Earnings (loss) per common
share (EPS) is computed using SFAS No. 128, Earnings per Share. SFAS
No. 128 establishes standards for the computation, presentation, and disclosure
of earnings per share. Basic per share amounts are computed by dividing the net
loss available to common stockholders by the weighted average number of common
shares outstanding during the year. Diluted per share amounts incorporate the
incremental shares issuable upon the assumed exercise of the Companys
stock options and warrants and assumed conversion of convertible securities.
During fiscal years 2003 and 2002, such incremental amounts have been excluded
from the calculation since their effect would be anti-dilutive. Such stock
options, warrants and conversions could potentially dilute earnings per share in
the future.

The following table
reconciles the number of shares of common stock outstanding to the maximum
diluted shares of common stock as of September 30 and June 30, 2002.

---

CONSOLIDATED COMMON STOCK
EQUIVALENTS

`September 30,    June 30,
                                                            2002           2002
                                                        ------------     --------

Common shares outstanding                                 15,075,000   14,814,000
Series C Preferred Stock outstanding
   in common stock equivalents                             6,309,000    6,569,000
                                                          ----------   ----------
                                                          21,384,000   21,383,000
                                                          ----------   ----------
Warrants
      Outstanding related to the Private Placement
         Investor warrants                                 2,328,000    2,328,000
         Agent warrants                                    2,328,000    2,328,000
         Agent warrants                                      582,000      582,000
         Investment company warrants                         466,000      466,000
         Investment company warrants                         116,000      116,000
      Various outstanding                                    325,000      325,000
      Executive                                            1,344,000    1,344,000
                                                          ----------   ----------
                   Total warrants                          7,489,000    7,489,000
                                                          ----------   ----------

Options
      Outstanding, 1992 Option Plan                          415,000      213,000
      Outstanding, 2000 Option Plan                        3,420,000    3,281,000
      Outstanding, Non-Plan                                  346,000      338,000
                                                          ----------   ----------
                   Total options                           4,181,000    3,832,000
                                                          ----------   ----------

                                                          ----------   ----------
Common stock contingently issuable for acquisitions        2,242,000    2,242,000
                                                          ----------   ----------

                   Total shares outstanding or issuable   35,296,000   34,946,000
                                                          ==========   ==========`

## Note 12 
COMMITMENTS AND CONTINGENCIES

The Company has entered
into leases for facilities. Future minimum lease payments under non-cancelable
operating leases and the present value of future minimum lease payments as of
September 30, 2002, are as follows:

`Facility    Less Subleased
                                    Leases       Facilities       Net
                                   --------    --------------     ---
For fiscal year ending June 30:
2003                              $  971,000    $  368,000    $  603,000
2004                               1,280,000       534,000       746,000
2005                               1,306,000       556,000       750,000
2006                               1,380,000       578,000       802,000
2007                               1,401,000       601,000       800,000
Thereafter                         3,546,000     1,331,000     2,215,000
                                  ----------    ----------    ----------
Total minimum payments required   $9,884,000    $3,968,000    $5,916,000
                                  ==========    ==========    ==========`

---

In accordance with the NXT
acquisition agreement, under certain circumstances, depending on the price of
the Companys Common Stock, a maximum in cash, discounted by 10% to the
present value, of $455,000 from $500,000 and approximately 2,242,000 shares of
the Companys Common Stock, valued at $4,203,000 may be issued on December
22, 2002: if the Daily Average Price (as defined in the Asset Purchase Agreement
dated December 13, 2000) of USWD Common Stock for the twenty (20) consecutive
trading days ending with the trading day immediately preceding December 21, 2002
is less than $18.40 per share (as adjusted for any stock splits, stock dividends
or similar events). Such additional consideration shall be an amount equal to:
(i) the number of the original 1,125,000 shares which have not previously been
sold or transferred, subject to certain exceptions, multiplied by (ii) the
amount, if any, not to exceed $12.40, by which such Daily Average Price is less
than $18.40. Such additional consideration shall be paid to the NXT shareholders
in cash, to the extent of 10% of the amount of the additional consideration to
be paid by USWD, provided that the aggregate amount of cash paid will not exceed
$500,000. Any balance of consideration due shall be paid in shares of USWD
Common Stock having value equal to the Daily Average Price, provided however,
that for such purposes, in no event shall the value ascribed to USWD Common
Stock be lower than $6.00 per share.

## Note 13 
SALE OF NXT

Pursuant to an Asset
Purchase Agreement dated August 31, 2002 (the Agreement), the
Company sold, for $5 million in cash, substantially all of the operating assets
and operating obligations associated with its wholly-owned subsidiary, NXT to
Paymentech, which subsequently transferred the NXT assets and obligations to its
wholly-owned subsidiary Merchant-Link, LLC. Pursuant to a Transition Services
Agreement the Company entered into on the same date with Merchant-Link, LLC, for
a limited period of time the Company expects to receive approximately $30,000
per month for continuing to house certain NXT assets located in the
Companys facilities and for providing certain services. NXT provides data
services and landline-based connectivity for credit-card transaction processing.
The assets to be sold, at their book values, have been separately classified as
Assets held for sale in the accompanying balance sheet at June 30,
2002.

Subject to certain
conditions in the Agreement, Paymentech is obligated under the Agreement to
purchase goods or services from us or our affiliates over three (3) years in an
amount aggregating at a minimum $3,472,500, with Paymentech obligated to pay us
at least $1,000,000 during the first year, in installments of $83,333 per month,
at least $1,150,000 during the second year, in installments of $95,833 per
month, and at least $1,322,500 during the third year, in installments of
$110,208 per month.

---

The results of operations
of NXT are reported as discontinued operations for all periods presented.
Revenues and loss from operations of NXT are as follows:

`Three Months ended September 30,
                                      2002(a)            2001
                                      ------             ----
Revenues                          $ 1,224,000        $ 1,529,000
Income (loss) from operations         371,000           (318,000)

(a)      Includes results through August 31, 2002.`

As a result of the NXT
transaction, the Company recorded an additional gain on sale of discontinued
operations of $140,000 for the three months ended September 30, 2002 due to the
reversal of an accrued vendor obligation that was waived as a result of the sale
of NXT, partially offset by additional transaction costs of $47,000.

## Note 14 
SUBSEQUENT EVENTS

On October 24, 2002, the
Companys management and Board instituted a cost reduction plan to be
effective November 1, 2002, which was comprised of salary and headcount
reductions, increased employee contributions for medical care benefits, and
effective January 1, 2003, elimination of the automatic matching on employee
401(K) contributions by the Company. As additional compensation to offset the
reduction of salaries, the Company issued 884,886 options to employees at the
fair market value on the date of grant. These options vest over one year in
monthly installments on the 24th of each month and have a term of ten
years. In addition, the Company issued 164,000 options to an advisor in lieu of
an $82,000 cash obligation. The options were issued at the market price on the
date of grant, vest immediately and have a five-year term.

On October 24, 2002, the
Company entered into an amendment to the capital lease agreement relating to
certain inventory. According to the terms of the amendment, the Company paid the
lessor $410,000 on October 25, 2002 to buy out the first five of eleven leases.
The lease schedules for the remaining units were adjusted to extend the payments
until April 25, 2005. The total future payments for the remaining lease
schedules are $640,000.

---

## ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS

## Special Note
Regarding Forward-Looking Statements

We may, in discussions of
our future plans, objectives and expected performance in periodic reports filed
by us with the Securities and Exchange Commission (or documents incorporated by
reference therein) and in written and oral presentations made by us, include
projections or other forward-looking statements within the meaning of Section
27A of the Securities 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 we believe are reasonable but are, by their nature,
inherently uncertain. In all cases, results could differ materially from those
projected. Some of the important factors that could cause actual results to
differ from any such projections or other forward-looking statements are
discussed below, and in other reports filed by us under the Securities Exchange
Act of 1934. Our forward looking statements are based on information available
to us today, and except as required by law, we undertake no obligation to update
any forward looking statement, whether as a result of new information, future
events or otherwise.

## OVERVIEW

U.S. Wireless Data, Inc.
(USWD or the Company) is the premier provider of
wireless transaction delivery and gateway services to the payments processing
industry. We provide credit card processors, merchant acquirers, banks,
automatic teller machine (ATM) distributors and their respective
sales organizations with turnkey wireless and other transaction management
services. We also provide those entities with proprietary wireless enabling
products designed to allow for card acceptance where such acceptance has
heretofore been too expensive or technologically unfeasible or to displace
conventional telephone lines. These services and products may be utilized by
conventional card accepting retailers as well as emerging card accepting market
segments such as vending machines, quick service restaurants (fast foods), taxis
and limousines, in-home service providers or door-to-door sales, contractors,
delivery services, sporting events, and outdoor markets. Our services and
products may also be used for gathering telemetric information from remote
equipment such as vending machines.

We connect merchants to
credit card or other processors using wireless technologies. We make it easy for
the credit and debit card industries to deploy wireless solutions through a
single source, our Synapse platform. We aggregate wireless network services,
offering ubiquitous wireless coverage, and provide a single point of terminal
management, customer support and transaction reporting. For strategically
selected markets, we develop and deploy proprietary wireless hardware products
designed to enable card acceptance at points-of-sale or nonconventional
points-of-sale with card acceptance (such as vending machines and taximeters).
All of our efforts are aimed at providing the transaction processing industry
with the speed, mobility, and cost savings of wireless and the ability to
provide card acceptance to new market segments.

We have contracts with over
210 resellers, including eight of the top 10 merchant acquirers according to The
Nilson Report. Our clients process the majority of all point-of-sale
(POS) transaction activity in the United States and include: Bank of
America, BuyPass, Cardservice International, CardSystems, Concord EFS, First
Data Merchant Services, First Horizon, Global Payments, Lynk Systems, MSI,
National Processing Company, Paymentech, Vital, and many others.

---

Effective as of the close
of business on August 31, 2002, we sold, for $5 million in cash, substantially
all of the operating assets and operating obligations associated with our
wholly-owned subsidiary, NXT Corporation (NXT) to Paymentech, L.P.
NXT provides data services and landline-based connectivity for credit-card
transaction processing. In accordance with generally accepted accounting
principles, we classified NXT as a discontinued operation in this report, and
have eliminated NXT from the discussion that follows except as indicated.

## SERVICES
AND PRODUCTS

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues are
generated from our Synapse Service. Most U.S. Wireless Data services are
designed to be device-independent and serve multiple platforms. Our clients are
therefore generally able to support a variety of protocols, products and
services. Revenue from product (equipment) sales are primarily derived from the
sale of our proprietary Synapse Enabler and Synapse Adapter products, and, since
these products must send transactions through our Synapse Service, sales of
these products typically generate Synapse Service revenues. The following
provides more details on our service and product offerings:

## SynapseSM
Wireless Services

For mobile merchants or
merchants conducting business in temporary locations, wireless POS systems are
an obvious solution, enabling card acceptance and delivering increased profits
and greater customer satisfaction. We believe we are at the forefront of this
payments revolution, providing certification of wireless credit card terminals
from third-party manufacturers such as Linkpoint, Lipman, Thales, Ingenico, and
others, to the Synapse host platform, which acts as a neutral gateway to payment
processors such as Concord, First Data Merchant Services, Global Payments, Lynk,
NPC, Paymentech, and Vital. This proprietary service allows credit card
processing for taxis and limousines, in-home service providers or door-to-door
sales, contractors, delivery services, vending machines, sporting events, and
outdoor markets. Our service is wireless carrier agnostic, providing a broad
selection of wireless data networks including Motients DataTac network,
AT&T Wireless & Verizons CDPD networks, and Cingulars
Mobitex network. Businesses with locations throughout the United States can
implement a wireless POS strategy using multiple networks and terminals to
ensure optimal coverage.

## Synapse
EnablerTMfor POS

The Synapse Enabler is a
proprietary device that we developed for the purpose of converting non-wireless
devices to a wireless medium. The Synapse Enabler is designed to interface with
devices, such as vending machines, taximeters, and utility meters, using a
serial port connection. In addition, many dial-up POS terminals have spare
serial ports and the Synapse Enabler can interface with such devices, thus
wirelessly enabling them. Our Synapse Enabler with T8 Hub can convert as
many as eight POS terminals to a single wireless connection, making it an ideal
solution for multi-lane environments such as quick service restaurants (fast
foods) that require fast-as-cash card acceptance.

---

## Synapse
EnablerTMfor Vending

In addition to
fixed-location, mobile, and portable wireless applications, we are actively
involved in integrating our propriety technology into existing devices at the
point of sale to create new opportunities for card acceptance. Vending machines
are one area in which we have made significant progress. The Synapse Enabler has
been integrated into vending machines in certain cities as part of a pilot
program for Pepsi-Cola North America to introduce credit card payments for their
vended products. In addition to enabling card payments on vending machines, the
Synapse technology delivers up to the minute information about inventory and
operational status of each vending machine, helping vendors become more
efficient in determining daily routes and contributing to keeping machines
operating at peak performance.

## Synapse
EnablerTMfor Transportation

We have also integrated our
Synapse Enabler solution into taximeters from Pulsar and Centrodyne, the two
leading manufacturers of taximeters in North America. The new wireless solution,
called the CardMeter Wireless Taximeter, is currently in use by taxi
fleets in Salt Lake City, Utah; Providence, Rhode Island; and Cincinnati, Ohio.
The CardMeter solution offers fleets the opportunity to accept cards and get
real-time authorizations in their taxicabs, which is fast, convenient, and safer
because drivers carry less cash.

## Synapse
Wireless Payment Acceptance on Phones, Pagers and Other PDA Devices

The market for card
payments will likely become larger with the emergence of new payment devices
based on mobile phone, pager, and other devices such as personal planners and
organizers. We intend to offer such solutions based on products from Creditel
(cellular phones) and Comstar (pagers).

## Synapse
AdapterTMfor POS or ATMs

The Synapse Adapter
is a proprietary device utilizing patented dial tone emulation technology
licensed from AT&T Wireless Services to provide our clients with a seamless
"plug and play" solution for the conversion of most conventional
dial-up POS terminals to a high speed, lower cost, wirelessly enabled device.

The Synapse Adapter also
makes it easy for the operators of dial-up ATMs to utilize wireless technology.
Typically, dial-up ATMs are placed in off premise locations such as
convenience stores, supermarkets, and shopping malls. To install a dial-up ATM,
a phone line must be ordered from the local phone company and, after waiting
days or weeks, the line is installed. With the Synapse Adapter, dial-up ATMs can
be placed immediately, without the wait or cost of installing a new phone line.
Once installed using the Synapse Adapter, the ATM can be relocated quickly and
easily. Additionally, based on the monthly cost of a phone line, the Synapse
Adapter offers the opportunity to reduce operating costs.

---

## Other Services

We may also provide
merchants and their processing companies with customized solutions, including
application development or other services.

## RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

## KEY METRICS

We utilize several basic
performance metrics to measure the progress of our operations. Some of the
metrics we rely upon include: (1) the number of resellers through which we sell
our various products and services; (2) the number of active sites that can
process transactions through our hosts; (3) the number of transactions processed
through our hosts; (4) the number of units of USWD products sold; and (5)
Adjusted EBITDA - Earnings before interest, taxes, depreciation, amortization
and other non-cash items.

## Resellers

As of September 30, 2002,
we had over 230 resellers under contract to sell our products and services as
compared to 180 as of September 30, 2001. As of September 30, 2002, more than
120 of these resellers were actively engaged in the sale of one or more of our
products or services and had registered over 13,400 merchants on Synapse.

## Active Sites

Active wireless sites
(i.e., the number of activated terminals or other devices that can process
transactions through our hosts) have grown to over 15,400 as of September 30,
2002, an increase of over 7,900 or 105% from the same date of the prior year.

## Transactions

Wireless transactions
processed for the three months ended September 30, 2002, were approximately
1,741,000, an increase of over 746,000 or 75% from the same period of the prior
fiscal year. This increase was due to the growth in active wireless sites and
their respective transactions.

## Product Sales
in Units

Product sales in units for
the three months ended September 30, 2002 were 127, a decrease of 1,011 units or
89% from the same period of the prior fiscal year. The decrease was attributed
to the lack of sales for the Synapse Adapter. Our Synapse Adapter generally
provides for the conversion of certain conventional dial-up POS terminals and
dial-up ATMs to high speed, low cost wirelessly enabled devices. Product sales
in units also reflect sales of our Synapse Enabler. Our Synapse Enabler was
developed to convert POS terminals or non-wireless devices to accept credit
cards wirelessly, including vending machines, taximeters, and other integrated
devices. Sales of the Synapse Enabler increased by 70 units to 71 units.

---

## REVENUE

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues consist
of: (a) one-time, non-refundable service activation fees; (b) monthly minimum
subscription fees for the availability of service; (c) fees for transactions
delivered on wireless or other methods through our hosts; and (d) other fees,
including administration and other fees for certain wireless services and
certain charges for telecommunications connections between us and a party.
Service revenues are generated from our Synapse service. Most U.S. Wireless Data
services are designed to be device-independent and serve multiple platforms. Our
clients are therefore generally able to support a variety of protocols, products
and services. Product sales are primarily derived from the sale of our
proprietary Synapse Enabler and Synapse Adapter products.

## Total Revenues

Total revenues were
$783,000 for the three months ended September 30, 2002, as compared to $722,000
for the same period in the prior fiscal year. This improvement from the prior
year represents an 8% increase and was attributed to the higher recurring
service revenues from the growth in the number of active sites and partially
offset by the decrease in equipment revenue. Revenues are discussed in more
detail below.

The following table sets
forth, for the periods indicated, certain financial data as percentages of our
total revenues:

`For the three months ended
                                              September 30,
                                         2002              2001
                                         ----              ----
Revenues
   Activation fees                      13%                10%
   Monthly fees                         67%                40%
   Transaction fees                      7%                 4%
   Other fees                            4%                 0%
                                       ----              ----
      Total service revenues            92%                54%
      Product sales                      8%                46%
                                       ----              ----
Total revenues                          100%              100%
                                       ====              ====`

## Service
Revenues

Revenue from services for
the three months ended September 30, 2002 increased to $717,000 from $392,000
during the same period in the prior fiscal year, a $325,000 or 83% increase.

---

Activation Fees.
Revenue from activation fees, which is generated from activations of new sites
added through our proprietary Synapse service, was $105,000 for the three months
ended September 30, 2002, a $35,000 or 50% increase as compared to the same
period in the prior fiscal year. The increase is a direct result of the increase
in the number of new sites added and the applicable rate charged to each client.

Monthly Fees.Revenue from recurring monthly fees, which is generated from the number of
active sites that can process transactions through our Synapse service, was
$526,000 for the three months ended September 30, 2002, a $236,000 or 81%
increase as compared to the same period in the prior fiscal year. The increase
is a direct result of the increase in the number of active sites and the
applicable rate charged to each client.

Transaction Fees.Revenue from transaction fees for the three months ended September 30, 2002
was $57,000, compared to $30,000 during the same period in the prior fiscal
year, a $27,000 or 90% increase. The increase is a direct result of the increase
in the volume of transactions due primarily to the number of active sites and
the applicable rate charged to each client.

Other Fees.Revenue
from other fees for the three months ended September 30, 2002 was $29,000,
compared to $2,000 during the same period in the prior fiscal year, a $27,000
increase. The increase is a result of certain administrative and other charges
to certain clients.

## Product Sales

Product sales are primarily
derived from the sale of our proprietary wireless conversion devices, the
Synapse Enabler and the Synapse Adapter. Revenue from product sales decreased
for the three months ended September 30, 2002 to $66,000 from $330,000 during
the same period in the prior fiscal year, a $264,000 or 80% decrease. The
decrease was attributed to the lack of sales of the Synapse Adapter, partially
offset by sales of the Synapse Enabler.

## GROSS PROFIT

Gross profit consists of
revenues, net of direct costs of sales. Costs of revenues consist primarily of
the cost for the initial setup and ongoing communications costs associated with
terminals connected through Synapse, costs of production of products such as the
Synapse Adapter and Enablers, and certain other carrier costs. Total gross
profit for the three months ended September 30, 2002 was $400,000, compared to
$327,000 for the same period in the prior fiscal year, a $73,000 or 22%
increase. The improvement in total gross profit for the three months ended
September 30, 2002 over the same period in the prior fiscal year was attributed
to volume increases in new activations of Synapse services and the growth of
active sites for Synapse services, partially offset by the decrease in product
sales.

Gross profit from services
for the three months ended September 30, 2002 was $395,000, compared to $225,000
for the same period in the prior fiscal year, a 76% increase.

Gross profit from product
sales for the three months ended September 30, 2002 was $5,000, compared to
$102,000 for the same period in the prior fiscal year, a 95% decrease.

---

## GROSS MARGIN

The following table sets
forth, for the periods indicated, certain financial data as percentages of our
total revenue:

`For the three months ended
                                       September 30,
                                2002               2001
                                ----               ----
Gross margin
   Services                     55.1%             57.4%
   Product sales                 7.6%             30.9%

Total gross margin              51.1%             45.3%`

Total gross margin (gross
profit as a percentage of total revenues) for the three months ended September
30, 2002 increased to 51.1% from 45.3% for the same period in the prior fiscal
year. This improvement was attributed to the greater percentage of revenues from
higher margin service revenues and the reduced amount of the lower margin
product revenues.

Gross margin from services
was 55.1% for the three months ended September 30, 2002 compared to 57.4% for
the same period in the prior fiscal year. This reduction was primarily
attributed to the mix of rates charged to our clients, including a reduction in
rates for a large client, and the associated number of active sites for each
client.

Gross margin from product
sales was 7.6% for the three months ended September 30, 2002 compared to 30.9%
for the same period in the prior fiscal year. The decrease is primarily
attributed to the substantial reduction of sales of the Synapse Adapter and the
increased sales of the Synapse Enabler. Certain initial deployments of the
Synapse Enabler have been sold at reduced margins.

## OPERATING
EXPENSES

Total operating expenses
for the three months ended September 30, 2002 decreased to $2,570,000 from
$4,687,000, a decrease of $2,117,000 or 45% compared to the same period in the
prior fiscal year. The decrease was due to the realization of the cost savings
from our acquisition consolidation plan initiated at the end of fiscal year
2001, and further cost reduction efforts and efficiency gains, including
additional reductions in staff, as well as the reduction in the amortization
expense recorded in relation to goodwill and intangible assets.

## Selling,
General, and Administrative Expenses

Selling, general, and
administrative expenses consist primarily of salaries and benefits for sales,
general and administrative personnel, advertising and promotion expenses,
professional fees, occupancy and general office expenses, travel expenses, other
general corporate purposes, and non-cash compensation. Selling, general, and
administrative expenses excluding non-cash compensation, were $1,861,000 for the
three months ended September 30, 2002 compared to $2,665,000 for the same period
in the prior fiscal year, a $804,000 or 30% decrease. The decrease is primarily
attributed to the successful implementation of our integration and consolidation
plan for our Cellgate and NXT acquisitions that were made in 2001, and our
continued cost reduction efforts.

---

Non-cash compensation
expense of $281,000 for the three months ended September 30, 2002 decreased
$91,000 or 25% from the same period in the prior fiscal year. The decrease was
primarily related to the elimination of amortization related to the resignation
of a director on March 7, 2002 who had received options in March 2000.

Selling, general and
administrative expenses including non-cash compensation, were $2,142,000 for the
three months ended September 30, 2002 compared to $3,037,000 for the same period
in the prior fiscal year, an $895,000 or 30% decrease.

## Research and
Development Expenses

Research and development
expenses consist primarily of engineering personnel costs for research, design
and development of the proprietary technology we use to integrate and develop
our products and services. Research and development expenses decreased to
$159,000 for the three months ended September 30, 2002 compared to $309,000 for
the same period in the prior fiscal year, a $150,000, or 49% decrease. The
decrease is primarily the result of reductions in the number of employees.

## Depreciation
and Amortization

Amortization of intangibles
includes amortization of goodwill, acquired workforce and intellectual property,
including core technology, customer relationships and contract rights.
Amortization of goodwill and intangibles were $66,000 for the three months ended
September 30, 2002, compared with $520,000 for the same period in the prior
fiscal year, a $454,000 or 87% decrease. For the quarter ended September 30,
2001, a significant part of the amortization of $520,000 included amortization
relating to goodwill and intangibles generated by the previous acquisitions of
NXT and Cellgate. As a result of the sale of NXT and a write-down of $5,701,000
at June 30, 2002 of goodwill and intangibles related to our acquisition of
Cellgate, remaining intangible assets of $1,059,000 at the end of fiscal year
2002 are being amortized over a four year remaining life. Thus, $66,000 of
amortization was recorded for the quarter ended September 30, 2002 on the
remaining intangibles.

Depreciation and
amortization of fixed assets, leasehold improvements and capitalized software
were $203,000 for the three months ended September 30, 2002, compared with
$196,000 for the same period in the prior fiscal year, a $7,000 or 4% increase.
We anticipate a decrease in depreciation and amortization of fixed assets,
leasehold improvements, and capitalized software as we expect our outlays for
capital expenditures over the next year to be minimal.

## Restructuring
Charge

During the fourth quarter
of fiscal year 2001, we recorded a restructuring charge of $2,400,000 related to
the consolidation and relocation of our former Bethesda, Maryland network
operations center with our research and development and operations center,
located in Palmer Lake, Colorado. In addition, we recorded pretax charges
totaling $625,000 or $0.05 per share in the first quarter of the fiscal year
ended June 30, 2002, related to severance payments to employees and benefits.
During the fourth quarter of fiscal year 2002, we reevaluated the balance of the
restructuring accrual as the Bethesda facility sublease was completed. It was
determined that in connection with vacating the Bethesda office, we
underestimated potential sublease income and overestimated related costs.
Accordingly, we reduced the restructuring accrual by $714,000.

---

Provided below is an
analysis of the changes in the restructuring accrual during the first quarter of
fiscal year 2003:

`Balance at June 30, 2002                   $  949,000
             Charges against accrual (Bethesda
                rent payments, severance and
                benefit payments)                        (131,000)
                                                       ----------
            Balance at September 30, 2002                 818,000
            Less current portion                         (162,000)
                                                       ----------
            Balance at September 30, 2002,
                less current portion                   $  656,000
                                                       ==========`

The balance of the
restructuring charge accrual will be paid over the remaining lease term of our
former Bethesda office which expires July 2009.

## OTHER

Interest income for the
three months ended September 30, 2002 was $13,000, compared to $150,000 for the
same period in the prior fiscal year. Interest income decreased due to lower
cash balances invested corresponding with the utilization of cash to fund our
business and the decline in interest rates over the period.

Interest expense for the
three months ended September 30, 2002 was $60,000, compared to $90,000 for the
same period in the prior fiscal year. The decrease in interest expense was
primarily related to the decreasing principal balance under a capital lease for
Synapse Adapters assumed with the acquisition of Cellgate, partially offset by
the amortization of a discount for the expected cash payment of $500,000 due in
December 2002 to the sellers of NXT.

Other income (expense), net
for the three months ended September 30, 2002 was a net expense of $57,000,
compared to net income of $61,000 for the same period in the prior fiscal year.
Other income (expense), net consists primarily of: (a) rental income for sublet
facilities, of $11,000 for the three months ended September 30, 2002 compared to
$64,000 for the same period in fiscal year 2002, a $53,000 decrease due to the
sublet termination which occurred simultaneously with the expiration of the
lease for the facility, partially offset by sublet of a portion of the
Companys current offices in New York; (b) income relating to a transition
services agreement that was executed in connection with the sale of NXT of
$24,000 for the three months ended September 30, 2002 and $0 for the same period
in fiscal year 2002; and (c) tax expense for the three months ended September
30, 2002 of $92,000 compared to $3,000 for the same period in fiscal year 2002,
a $89,000 increase due to the amortization of an accrual for corporation
franchise taxes for Delaware and an increase in accruals for certain state and
local taxes.

---

## LOSS FROM
CONTINUING OPERATIONS

Loss from continuing
operations of $2,274,000 for the three months ended September 30, 2002 decreased
$1,965,000 or 46% from the same period in the prior fiscal year. The decrease in
loss was primarily attributed to the realization of the cost reduction efforts
and efficiency gains, the reduction in the amortization expense recorded in
relation to goodwill and intangible assets, as well as overall increased service
revenues.

## DISCONTINUED
OPERATIONS

Income (loss) from
discontinued operations represents the net results of our wholly-owned
subsidiary, NXT. As previously disclosed, effective as of the close of business
on August 31, 2002, we sold substantially all of the operating assets and
operating obligations associated with NXT. NXT provides data services and
landline-based connectivity for credit-card transaction processing. The
improvement in net results for the three months ended September 30, 2002 to
$371,000 from a loss of $318,000 was due primarily to growth in the number of
transactions processed, reductions in telecommunications costs from third
parties, the successful implementation of our integration and consolidation plan
of our November 2000 acquisition of NXT and other cost reduction efforts.

Gain on sale of
discontinued operations of $140,000 represents the reversal of an accrued vendor
obligation that was waived as a result of the sale of NXT, partially offset by
additional transaction costs of $47,000 associated with the sale.

## NET LOSS

For the three months ended
September 30, 2002, net loss totaled $1.76 million or $0.12 per share, as
compared to a net loss of $4.56 million or $0.38, for the same period in the
prior fiscal year.

## ADJUSTED EBITDA

EBITDA is presented because
it is a widely accepted indicator of funds available to service debt, although
it is not a measure of liquidity or of financial performance under accounting
principles generally accepted in the United States of America. The EBITDA
presented may not be comparable to similarly titled measures reported by other
companies. We believe that EBITDA, while providing useful information, should
not be considered in isolation or as an alternative to net income or cash flows
as determined under GAAP.

We use a modified version
of EBITDA (Adjusted EBITDA) as an internal measure of operating
performance, which is net loss excluding net interest, other income, taxes,
depreciation and amortization, non-cash compensation and certain other
nonrecurring items. Adjusted EBITDA loss for the three months ended September
30, 2002 was $1.62 million or $0.11 per share as compared to the same period in
the prior fiscal year of $2.65 million or $0.22 per share. This improvement in
Adjusted EBITDA loss of $1.03 million or approximately 39% is primarily
attributed to the increase in revenues and a reduction of cost of revenues and
operating expenses as discussed in prior sections.

---

The following table sets
forth, for the periods indicated, the reconciliation of net loss to Adjusted
EBITDA:

`For the three months ended
                                                              September 30,
                                                         2002            2001
                                                         ----            ----
Net loss                                            $(1,763,000)    $(4,557,000)
Non-cash compensation                                   281,000         372,000
Depreciation and amortization                           269,000         716,000
Restructuring expense                                      --           625,000
(Income) loss from discontinued operations             (371,000)        318,000
Gain on sale of discontinued operations                (140,000)           --
Net interest and other                                  104,000        (121,000)
                                                    -----------     -----------
Adjusted EBITDA loss                                $(1,620,000)    $(2,647,000)
                                                    ===========     ===========
Adjusted EBITDA loss per share                      $     (0.11)    $     (0.22)
                                                    ===========     ===========
Net loss per share                                  $     (0.12)    $     (0.38)
                                                    ===========     ===========`

## FINANCIAL
CONDITION, CAPITAL RESOURCES, AND LIQUIDITY

Since our inception we have
incurred significant losses and negative cash flow (assuming the positive cash
flow from capital transactions are excluded). As of September 30, 2002, we had
an accumulated deficit of approximately $135.8 million.

At September 30, 2002
our principal source of liquidity was $6.0 million in cash and cash equivalents.
At October 31, 2002, cash and cash equivalents aggregated approximately $4.2
million. Taking into account all cash items, we continue to anticipate no change
in our cash balance at December 31, 2002 relative to our June 30, 2002 cash
balance of $2.86 million. Furthermore, we anticipate negative cash flow to
continue to improve on a quarterly basis as we believe a large percentage of our
operating costs are fixed and expect to increase our revenues without incurring
significant operating cost increases. We are also focused on conserving cash and
improving our cash flow through growth in the number of active sites and various
product sales, including revenues from services and products for vending, and
continued reduction in operating expenses. We do not expect to achieve positive
cash flow from operations until the second half of calendar 2003.

---

Paymentech is obligated
under the Asset Purchase Agreement of NXT, subject to certain conditions in such
agreement, to purchase goods or services from us or our affiliates over three
(3) years in an amount aggregating at a minimum $3,472,500, with Paymentech
obligated to pay us at least $1,000,000 during the first year, in installments
of $83,333 per month, at least $1,150,000 during the second year, in
installments of $95,833 per month, and at least $1,322,500 during the third
year, in installments of $110,208. In addition, we estimate we will receive
approximately $30,000 per month for continuing to house certain NXT assets
located at our facilities and providing certain services for a limited period of
time during a transition.

Although we completed the
disposition of substantially all of the assets of NXT in August 2002, we may be
required to pay additional cash consideration of up to $500,000 and up to
2,242,000 shares of our common stock in January 2003 to the parties we
originally acquired such assets from pursuant to the terms of the original NXT
acquisition agreement.

Based on our current
estimates of revenue levels, operating costs and other cash outlays, we continue
to believe we will have adequate cash balances until we achieve positive cash
flow from operations.  However, if our revenue estimates are too high or
our cost estimates too low, we may need to raise additional capital during the
fiscal year ending June 30, 2003.  In addition, our concerns about capital
may lead us to take additional steps to cut costs and, depending on whether we
are successful in our efforts to raise additional capital, may require us to
eliminate or curtail certain of our projects and take additional steps to
conserve cash that may adversely affect our operations.  In connection with
our efforts to raise capital, we have hired investment bankers and are exploring
a number of alternatives, including debt or equity financings and strategic
investments.  There can be no assurance that we will succeed in
raising capital, either on favorable terms or at all, pursuant to any of these
alternatives. If we raise additional funds, dilution to existing shareholders
may occur, particularly in light of the full ratchet antidilution
provisions of our Series C preferred stock and the related warrants.

In light of the rapidly
evolving nature of our business, we believe that period-to-period comparisons of
our revenues and operating results are not necessarily meaningful, and you
should not rely upon them as indications of future performance. Although we have
experienced sequential quarterly growth in revenues over the past quarters, we
do not believe that our growth rates are necessarily indicative of future
growth.

## Seasonal
Variation of Business

We anticipate that the
recurring revenue generated from monthly fees under our Synapse service
offerings will be relatively immune to seasonal variations, although we expect
that transaction related revenue will reflect seasonal variations paralleling
consumer spending patterns, generally increasing somewhat during the holiday and
travel seasons. The placement of devices may be slow during the holiday season
as well, due to the reluctance of merchants to change processors during premier
shopping seasons and the general industry freeze on new systems implementations
during that season.

---

## Historical
Cash Flows

Net cash used in operating
activities was $915,000 during the three months ended September 30, 2002. This
primarily consisted of net operating losses, decreases in accrued liabilities,
and charges against the restructuring accrual, partially offset by non-cash
charges for depreciation and amortization, non-cash compensation, and the
decrease in accounts receivables. Net cash used in operating activities was
$3,365,000 during the three months ended September 30, 2001. This primarily
consisted of net operating losses and a decrease in accounts payable, partially
offset by non-cash charges for depreciation and amortization, and non-cash
compensation and the accrual of a restructuring charge for the consolidation of
our facilities.

Net cash provided by
investing activities was $26,000 for the three months ended September 30, 2002.
This was primarily comprised of a decrease in restricted cash. Net cash used in
investing activities was $155,000 for the three months ended September 30, 2001.
This was primarily comprised of purchases of equipment, tenant improvements to
leased property and acquisition costs.

Net cash provided by
financing activities for the three months ended September 30, 2002 of $4,035,000
was primarily comprised of the net proceeds from the sale of NXT, partially
offset by payments of capital leases. Net cash used in financing activities for
the three months ended September 30, 2001 of $184,000 was comprised of payment
of capital leases.

## CRITICAL
ACCOUNTING POLICIES

In December 2001, the
Securities and Exchange Commission (SEC) requested that all
registrants list their three to five most "critical accounting
policies" in the Managements Discussion and Analysis section. The SEC
indicated that a "critical accounting policy" is one which is both
important to the portrayal of the company's financial condition and results and
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. We believe that the following three accounting policies
fit this definition:

## Intangibles
and Recovery of Long-Lived Assets

Cost in excess of the fair
value of tangible and identifiable intangible net assets acquired is amortized
on a straight-line basis over four years. Identifiable intangible net assets
consist of completed technology, assembled workforce, trademarks, and acquired
customers.

Prior to July 1, 2002, in
accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, our policy was to review our
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment in value
was considered to have occurred when the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset. The measurement of the
impairment loss to be recognized is based upon the difference between the future
cash flows and the carrying amount of the assets. Based on the above assessment,
a $5,701,000 impairment of goodwill and intangibles was recognized in the fourth
quarter of the fiscal year ended June 30, 2002.

---

SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets supersedes SFAS No. 121, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001. We adopted the impairment provisions of
SFAS No. 144 in the first quarter of the fiscal year ending June 30, 2003,
however, we adopted the provisions relating to discontinued operations during
the fourth quarter of the fiscal year ended June 30, 2002 relating to the sale
of NXT. The adoption of the impairment provisions did not have an impact on our
financial condition or results of operations.

## Inventory
Valuation

Inventory is stated at the
lower of cost or market, cost being determined by the first-in, first-out
method. In the fourth quarter of fiscal 2002, we took a charge of $3.48 million
to writedown our inventory of Synapse Adapters to the cost value of the number
of units we now expect to realize over the remaining expected life of this
product.

AT&T Wireless has
advised us and others that it intends to transition from its current CDPD data
service to its next generation GPRS data service. Accordingly, we may incur
additional costs and expenses, or delays or interruptions in providing our
CDPD-based services, while we migrate to other CDPD providers or to other
wireless services such as GPRS. Our Synapse Adapter product is currently CDPD
based, and certain third party products used on our service are also CDPD based.
We are currently exploring our options with AT&T and others. At this time,
we cannot determine if any impairment on our inventory of Synapse Adapters or
our carrying amount of intangibles related to the Synapse Adapter exists.

## Revenue
Recognition

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues consist
of: (a) one-time, non-refundable service activation fees; (b) monthly minimum
subscription fees for the availability of service; (c) fees for transactions
delivered on wireless or other methods through our hosts; and (d) other fees,
including administration and other fees for certain wireless services and
certain charges for telecommunications connections between us and a party.
Service revenues are generated from our Synapse Service. Most U.S. Wireless Data
services are designed to be device-independent and serve multiple platforms. Our
clients are therefore generally able to support a variety of protocols, products
and services. Product sales are primarily derived from the sale of our
proprietary Synapse Enabler and Synapse Adapter products.

Revenue is recognized when
earned. More specifically, revenue related to providing services and sales of
our products are as follows:

Services. Service
revenues are recognized as services are provided. On June 30, 2001, we adopted
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101), which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. Effective January 1, 2001, activation revenue is recognized ratably over
the estimated average life of a customer contract. Prior to the adoption of SAB
101, we recognized activation revenue as services were performed. As required by
generally accepted accounting principles, we have reflected the effects of the
change in accounting principle as if such change had been adopted as of January
1, 2001, and the change is included in the results of operations for the year
ended June 30, 2001.

---

Product sales.Revenues from the sale of products (equipment) are recognized upon shipment.
Revenues from equipment under rental agreements and similar arrangements are
accounted for by the operating lease method and are recognized over the rental
term.

## RECENT
ACCOUNTING PROUNOUNCEMENTS

In June 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires the use of the purchase
method of accounting for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interests method. The adoption of SFAS No. 141 did
not have an impact on our financial statements.

In June 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. As a result of the write-off of all goodwill
during the year ended June 30, 2002, the adoption of SFAS No. 142 did not have
an impact on the Company. The remaining intangibles at June 30, 2002 shall be
subject to the impairment provisions of SFAS No. 144. The provisions of SFAS No.
142 are effective for periods after adoption and retroactive application is not
permitted. Therefore, the historical results of periods prior to the fourth
quarter of fiscal year 2002 in the Companys Consolidated Statement of
Operations do not reflect the effect of SFAS No. 142, and accordingly, the three
months ended September 30, 2001 included amortization expense relating to
goodwill of $118,000. Excluding goodwill amortization, the pro forma net loss
for the three months ended September 30, 2001, was $4.44 million or $0.37 per
share.

In June 2001, the FASB
issued SFAS No. 143, Accounting for Asset Retirement Obligations
which requires the recognition of a liability for an asset retirement obligation
in the period in which it is incurred. When the liability is initially recorded,
the carrying amount of the related long-lived asset is correspondingly
increased. Over time, the liability is accreted to its present value and the
related capitalized charge is depreciated over the useful life of the asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We
have determined that SFAS No. 143 will not have a material effect on our
financial statements.

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. This Statement
also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are required to be
applied starting with fiscal years beginning after December 15, 2001. We adopted
the impairment provisions of SFAS No. 144 in the first quarter of the fiscal
year ending June 30, 2003; however, we adopted the provisions relating to
discontinued operations during the fourth quarter of the fiscal year ended June
30, 2002 relating to the sale of NXT. The adoption of the impairment provisions
did not have an impact on our financial condition or results of operations.

---

In April 2002, the FASB
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. This
Statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This Statement will be effective for us for the fiscal
year ending June 30, 2004. We have not determined the impact, if any, that this
statement will have on our financial statements.

In July 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 will supersede Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.

## QUALITATIVE
AND QUANTITATIVE RISK

We currently have no
floating rate indebtedness, hold no derivative instruments, and do not earn
foreign-sourced income. Accordingly, changes in interest rates or currency
exchange rates do not generally have a direct effect on our financial position.
However, changes in currency exchange rates may affect the cost of services,
components or systems that we utilize or may employ in the future in or with our
products, and so may directly impact upon the cost of a given product. In
addition, to the extent that changes in interest rates and currency exchange
rates affect general economic conditions, and specifically the environment for
credit card and related activities, we would also be affected by such changes.

## ITEM 3.
CONTROLS AND PROCEDURES

(a) Evaluation of
Disclosure Controls and Procedures. The Companys principal executive
officer and principal financial officer, after evaluating the effectiveness of
the Companys disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c)) on November 11, 2002, have concluded that,
based on such evaluation, the Companys disclosure controls and procedures
were adequate and effective to ensure that material information relating to the
Company, including its consolidated subsidiaries, was made known to them by
others within those entities, particularly during the period in which this
Quarterly Report on Form 10-QSB was being prepared.

(b) Changes in Internal
Controls. There were no significant changes in the Companys internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, nor were there any significant
deficiencies or material weaknesses in the Companys internal controls.
Accordingly, no corrective actions were required or undertaken.

---

## PART II
- OTHER INFORMATION

## ITEM 1.
LEGAL PROCEEDINGS

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

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

None.

## ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

## ITEM 5.
OTHER INFORMATION

None.

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

a)
       Exhibits
              
   None.
       b)
       Reports on Form 8-K

On September 5, 2002, we
filed a current report on Form 8-K reporting Item 2 and Item 7 events regarding
the disposition of the assets of our wholly owned subsidiary, NXT Corporation.

On August 16, 2002, we
filed a current report on Form 8-K reporting an Item 5 and Item 7 event
regarding our new Chief Financial Officer.

---

# SIGNATURES

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

U.S. WIRELESS DATA, INC.

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

Dated
        November 14, 2002
          
       
        By: /s/ Adi Raviv
             
             
             
              
             
           
Adi Raviv
             
             
             
              
             
           
Executive Vice President and
             
             
             
              
             
           
Chief Financial Officer
             
             
             
              
             
           
(Principal Financial Officer)

---

CERTIFICATIONS

I, Dean M. Leavitt, certify
that:

1. I have reviewed this
quarterly report on Form 10-QSB of U.S. Wireless Data, Inc.;

2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;

3. Based on my knowledge,
the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;

4. The registrants
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:

a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the
effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and

c) presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
functions):

a) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and

b) any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrants internal controls; and

6. The registrants
other certifying officers and I have indicated in this quarterly report whether
there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Dean M.
Leavitt
Dean M. Leavitt
Chief Executive Officer
   (Principal Executive Officer)

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CERTIFICATIONS

I, Adi Raviv, certify that:

1. I have reviewed this
quarterly report on Form 10-QSB of U.S. Wireless Data, Inc.;

2. Based on my knowledge,
this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;

3. Based on my knowledge,
the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;

4. The registrants
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and we have:

a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the
effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this quarterly report (the
Evaluation Date); and

c) presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants
other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
functions):

a) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and

b) any fraud, whether or
not material, that involves management or other employees who have a significant
role in the registrants internal controls; and

6. The registrants
other certifying officers and I have indicated in this quarterly report whether
there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: November 14, 2002

/s/ Adi
Raviv
Adi Raviv
Executive Vice President and
   Chief Financial Officer
   (Principal Financial Officer)

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