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SECURITIES
AND EXCHANGE COMMISSIONWashington,
DC 20549

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# FORM 10-QSB

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|[X] |  | Quarterly
Report under Section 13 or Section15 (d) of the Securities Exchange Act of 1934 for the
quarterly period ended March 31, 2004
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|[   ] |  | 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.)

420 Lexington Avenue,
Suite 2450New York, NY 10170
(Address of principal executive offices, including zip code)

(646)
452-6128
(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 [   ]
     No [X]

As of January
25, 2005, there were outstanding 18,159,556 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

|                                                                    | Page
|------------------------------------------------------------------- | ----
|PART I  FINANCIAL INFORMATION                                      |     
|ITEM 1.   Financial Statements                                      |     
|Consolidated Balance Sheet as of                                    |     
|March 31, 2004                                                      |     
|Consolidated Statements of Operations for the three and nine months |     
|ended March 31, 2004 and 2003                                       |     
|Consolidated Statements of Cash Flows for the nine months ended     |     
|March 31, 2004 and 2003                                             |     
|Consolidated Statements of Stockholders (Deficit) Equity for       |     
|the year ended June 30, 2003 and the nine months                    |     
|ended March 31, 2004                                                |     
|                                                                    |     
|Notes to Consolidated Financial Statements                          |     
|ITEM 2.   Managements Discussion and Analysis                      |     
|ITEM 3.   Controls and Procedures                                   |     
|PART II  OTHER INFORMATION                                         |     
|ITEM 1.   Legal Proceedings                                         |     
|ITEM 2.  Changes in Securities and Small Business                   |     
|Issuer Purchases of Equity Securities                               |     
|ITEM 3.  Defaults Upon Senior Securities                            |     
|ITEM 4.  Submission of Matters to a Vote of Security Holders        |     
|ITEM 5.  Other Information                                          |     
|ITEM 6.  Exhibits                                                   |     
|SIGNATURES                                                          |     

2

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PART I
 FINANCIAL INFORMATION

ITEM 1.   
FINANCIAL STATEMENTS

U.S.
WIRELESS DATA, INC.(Debtor in Possession)CONSOLIDATED BALANCE SHEET

|                                                               | March 31,2004
|-------------------------------------------------------------- | -------------
|
|ASSETS                                                         |              
|Current assets:                                                |              
|Cash and cash equivalents                                      |              
|Accounts receivable, net of allowance for                      |              
|doubtful accounts of $21,000                                   |              
|Due from factor                                                |              
|Deferred cost of revenue of discontinued operations            |              
|Assets held for sale                                           |              
|Restricted cash                                                |              
|Prepaids and other current assets                              |              
|                                                               |              
|Total assets                                                   |              
|                                                               |              
|                                                               |              
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY                 |              
|Current liabilities:                                           |              
|Accounts payable                                               |              
|Accrued liabilities                                            |              
|Deferred revenue of discontinued operations                    |              
|                                                               |              
|Total liabilities not subject to compromise                    |              
|Prepetition liabilities subject to compromise                  |              
|Notes payable for DIP loan                                     |              
|Other                                                          |              
|                                                               |              
|Total liabilities                                              |              
|                                                               |              
|Commitments and contingencies                                  |              
|Stockholders (deficit) equity:                                |              
|Preferred stock, 25,000,000 shares authorized:                 |              
|Series C convertible, at $.01 par value, liquidation value     |              
|$10.00 per share, aggregating $32,402,000; 8,450,000           |              
|shares authorized, 3,240,200 issued and outstanding            |              
|Common stock, 200,000,000 shares authorized at $.01 par value; |              
|18,142,889 shares issued and outstanding                       |              
|Additional paid-in capital                                     |              
|Accumulated deficit                                            |              
|                                                               |              
|Total stockholders (deficit) equity                           |              
|                                                               |              
|Total liabilities and stockholders (deficit) equity           |              
|                                                               |              
|                                                               |              

Accompanying
notes are an integral part of the financial statements

3

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

|                                            | For the three months endedMarch 31, | For the nine months endedMarch 31, |   |                   
|------------------------------------------- | ----------------------------------- | ---------------------------------- | - | ------------------
|
|Continuing operations                       |                                     |                                    |   |                   
|General and administrative expenses         |                                     | $     (89,000                      | ) | $               --
|Reorganization items                        |                                    
|Professional fees and U.S. Trustee fees     |                                     | (370,000                           | ) | --                
|Rejection of real property lease            |                                     | (462,000                           | ) | --                
|Interest income                             |                                     | --                                 |   | 8,000             
|Interest expense                            |                                     | (231,000                           | ) | (13,000           
|Other income                                |                                     | 50,000                             |   | 99,000            
|                                            |                                     |                                    |   |                   
|Income (loss) from continuing operations    |                                     | (1,102,000                         | ) | 94,000            
|                                            |                                     |                                    |   |                   
|Discontinued operations                     |                                    
|Loss from discontinued operations           |                                     | (977,000                           | ) | (1,654,000        
|Gain on sale of discontinued operations     |                                     | --                                 |   | --                
|                                            |                                     |                                    |   |                   
|Loss from discontinued operations           |                                     | (977,000                           | ) | (1,654,000        
|                                            |                                     |                                    |   |                   
|Net loss                                    |                                     | $(2,079,000                        | ) | $(1,560,000       
|                                            |                                     |                                    |   |                   
|                                            |                                     |                                    |   |                   
|Basic and diluted net loss per share:       |                                    
|Income (loss) from continuing operations    |                                     | $         (0.06                    | ) | $            0.01 
|Loss from discontinued operations           |                                     | (0.05                              | ) | (0.10             
|                                            |                                     |                                    |   |                   
|Net loss per share                          |                                     | $         (0.11                    | ) | $         (0.09   
|                                            |                                     |                                    |   |                   
|                                            |                                     |                                    |   |                   
|Weighted average common shares outstanding, |                                    
|basic and diluted                           |                                     | 18,128,000                         |   | 17,488,000        
|                                            |                                     |                                    |   |                   
|                                            |                                     |                                    |   |                   

Accompanying
notes are an integral part of the financial statements

4

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                      | For the nine months endedMarch 31, |             
|----------------------------------------------------- | ---------------------------------- | ------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                    |             
|Net loss                                              |                                    | $(4,924,000 
|Adjustments to reconcile net loss to net cash used in |                                   
|operating activities:                                 |                                   
|Depreciation and amortization                         |                                    | 437,000     
|Accretion of bridge loan discount                     |                                    | 282,000     
|Provision for rejected real property lease            |                                    | 462,000     
|Amortization of deferred financing costs              |                                    | 32,000      
|Gain on sale of discontinued operations               |                                    | --          
|Provision for doubtful accounts                       |                                    | 18,000      
|Deferred rent                                         |                                    | 11,000      
|Impairment of intangible assets                       |                                    | --          
|Write-down of inventory                               |                                    | 79,000      
|Non-cash compensation for directors                   |                                    | --          
|Non-cash consulting and other                         |                                    | --          
|Loss on notes receivable                              |                                    | --          
|Changes in operating assets and liabilities:          |                                   
|Accounts receivable                                   |                                    | (122,000    
|Due from factor                                       |                                    | 57,000      
|Inventory                                             |                                    | 53,000      
|Deferred cost of revenue                              |                                    | (73,000     
|Prepaids and other current assets                     |                                    | 74,000      
|Other assets                                          |                                    | --          
|Accounts payable                                      |                                    | 608,000     
|Accrued liabilities                                   |                                    | 11,000      
|Accrued restructuring expense                         |                                    | 65,000      
|Customer advances                                     |                                    | (273,000    
|Deferred revenue                                      |                                    | 116,000     
|Other current liabilities                             |                                    | --          
|Other liabilities                                     |                                    | (144,000    
|                                                      |                                    |             
|Net cash used in operating activities                 |                                    | (3,231,000  
|                                                      |                                    |             
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                   
|Proceeds from the sale of NXT                         |                                    | --          
|Payment of expenses for sale of NXT                   |                                    | --          
|Purchase of property and equipment                    |                                    | (201,000    
|Decrease in restricted cash                           |                                    | 625,000     
|Payment for acquisition, net of cash acquired         |                                    | --          
|Loan and notes receivable                             |                                    | --          
|                                                      |                                    |             
|Net cash provided by investing activities             |                                    | 424,000     
|                                                      |                                    |             
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                   
|Proceeds from DIP loan                                |                                    | 925,000     
|Proceeds from notes payable                           |                                    | 700,000     
|Payment of notes payable                              |                                    | (700,000    
|Proceeds from bridge loan                             |                                    | 2,750,000   
|Accrued interest on bridge loan                       |                                    | 91,000      
|Financing costs of bridge loan                        |                                    | (90,000     
|Payments for real estate lease termination            |                                    | (625,000    
|Decrease in deposits                                  |                                    | --          
|Payments of obligations under capital lease           |                                    | (111,000    
|                                                      |                                    |             
|Net cash provided by (used in) financing activities   |                                    | 2,940,000   
|                                                      |                                    |             
|Net (decrease) increase in cash and cash equivalents  |                                    | 133,000     
|Cash and cash equivalents, beginning of period        |                                    | 602,000     
|                                                      |                                    |             
|Cash and cash equivalents, end of period              |                                    | $    735,000
|                                                      |                                    |             
|                                                      |                                    |             

Accompanying
notes are an integral part of the financial statements

5

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# U.S. WIRELESS
DATA, INC.(Debtor in Possession)CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY For the year
ended June 30, 2003 and the nine months ended March 31, 2004 (Unaudited)

|                                        | Series C Convertible Preferred Stock | Common Stock | AdditionalPaid-in | UnearnedCompensation and Contra | Accumulated | Total Stockholders(Deficit) |   |          
|--------------------------------------- | ------------------------------------ | ------------ | ----------------- | ------------------------------- | ----------- | ---------------------------- | - | ---------
|
|BALANCE AT JUNE 30, 2002                |                                      | 3,941,325    |                   | $ 39,000                        |             | 14,813,927                   |   | $ 149,000
|Amortization of non-cash compensation   |                                     
|for directors                           |                                      | --           |                   | --                              |             | --                           |   | --       
|Cancellation of options issued to       |                                     
|Board member                            |                                      | --           |                   | --                              |             | --                           |   | --       
|Issuance of options for services        |                                      | --           |                   | --                              |             | --                           |   | --       
|Amortization of non-cash investment     |                                     
|banking services                        |                                      | --           |                   | --                              |             | --                           |   | --       
|Issuance of options related to the      |                                     
|sale of NXT                             |                                      | --           |                   | --                              |             | --                           |   | --       
|Issuance of common stock to former      |                                     
|NXT shareholders                        |                                      | --           |                   | --                              |             | 2,241,658                    |   | 22,000   
|Retirement of common stock in           |                                     
|settlement of notes receivable          |                                      | --           |                   | --                              |             | (81,818                      | ) | (1,000   
|Conversion of Series C convertible      |                                     
|preferred stock                         |                                      | (392,625     | )                 | (3,000                          | )           | 654,949                      |   | 6,000    
|Net loss                                |                                      | --           |                   | --                              |             | --                           |   | --       
|                                        |                                      |              |                   |                                 |             |                              |   |          
|BALANCE AT JUNE 30, 2003                |                                      | 3,548,700    |                   | $ 36,000                        |             | 17,628,716                   |   | $ 176,000
|Conversion of Series C convertible      |                                     
|preferred stock                         |                                      | (308,500     | )                 | (4,000                          | )           | 514,173                      |   | 5,000    
|Issuance of warrants for bridge loan    |                                      | --           |                   | --                              |             | --                           |   | --       
|Termination of warrants for bridge loan |                                      | --           |                   | --                              |             | --                           |   | --       
|Net loss                                |                                      | --           |                   | --                              |             | --                           |   | --       
|                                        |                                      |              |                   |                                 |             |                              |   |          
|BALANCE AT MARCH 31, 2004               |                                      | 3,240,200    |                   | $ 32,000                        |             | 18,142,889                   |   | $ 181,000
|                                        |                                      |              |                   |                                 |             |                              |   |          
|                                        |                                      |              |                   |                                 |             |                              |   |          

Accompanying
notes are an integral part of the financial statements

6

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

NOTE 1
 THE COMPANY

U.S.
Wireless Data, Inc. (USWD, the Company, we,
us, our or similar terms) was incorporated in the state
of Colorado on July 30, 1991 and was reincorporated in the state of Delaware on
October 6, 2000. We are operating under the Chapter 11 Proceedings (as defined
below) and as of May 21, 2004, we sold all of our operations in the Auction
Sales (as defined below). Subsequent to the Auction Sales, we do not have any
assets or operations other than those related to the Chapter 11 Proceedings.
Prior to that time, we were we were principally engaged in providing wireless
transaction delivery and gateway services to the payment processing industry.

Chapter 11
Proceedings

On
March 26, 2004 (the Petition Date), we filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the United States Bankruptcy Court for the
Southern District of New York (the Court), in re U.S. Wireless Data,
Inc., Case Number 04-12075. We are operating as a debtor-in-possession
(DIP) under the jurisdiction of the Court and in accordance with the
applicable provisions of the Bankruptcy Code and orders of the Court (the
Chapter 11 Proceedings).

In
connection with our bankruptcy filing, we issued a press release announcing that
we had executed an agreement with NBS Synapse Corporation to sell our Synapse
point-of-sale gateway business to NBS for $2.85 million in cash plus up to $2.15
million credit for free payment processing services to be rendered to us for our
vending operations plus the assumption of certain liabilities. We simultaneously
announced that we had reached an agreement with SANI Operating Co., LLC
(SANI) to sell our vending operations, including the $2.15 million
credit for free payment processing services from NBS, for $1.6 million in cash
plus the assumption of certain liabilities. We had also arranged DIP financing
with SANI in order to fund our ongoing operations during the bankruptcy process
and through the closing of the sales of the operations. We drew $925,000 on the
DIP loan at March 31, 2004 and $675,000 on May 7, 2004. Interest accrued on the
DIP loan at a rate of 6% per annum. The DIP loan was repaid, with interest, on
May 11, 2004 from a deposit of the proceeds of the Auction Sales.

On May
11, 2004, we completed the bankruptcy auctions for the sale of (i) our Synapse
point-of-sale gateway business, and (ii) our vending operations (collectively,
the Auction Sales). Transaction Network Services (TNS)
was awarded by the Court as the winning bidder for each of the operations
offered for sale. TNS paid $6 million in cash for our wireless payment
processing business and $3.7 million in cash for our wireless vending business,
for an aggregate purchase price of $9.7 million in cash. The sales to TNS were
completed on May 21, 2004.

7

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

The
Court entered an order that established August 9, 2004 as the last date for each
person or entity to file a proof of claim or preferred equity interest against
us (the Bar Date). In addition, the Court established a separate
date of September 23, 2004 for governmental units only to file a proof of claim
(the Governmental Bar Date). We are analyzing the actual claims
filed by creditors against the pre-petition liabilities accrued by us. In some
individual instances and in total, claims filed by creditors are in excess of
the amounts recorded by us, allowed under the law, or provided for by agreement.
There is uncertainty as to the ultimate liability that will be allowed with
creditors in the case, and the final liability that will be allowed at a future
date may be significantly higher or lower than our current estimate. We intend
to contest claims to the extent that they exceed the amounts we believe are due.

In
September 2004, we filed a Plan of Reorganization and
Disclosure Statement with the Court. On November 21, 2004, the Court
approved an Amended Disclosure Statement and on December 21, 2004
held a hearing to consider confirmation of the Plan of Reorganization.

On
December 27, 2004, the Court confirmed our Amended Plan of Reorganization (the
Plan). The Plan contemplates that the primary source of cash for
distributions will be the proceeds from the aforementioned sale of our
businesses and the cash contribution of Trinad Capital, L.P.
(Trinad), the plan sponsor. Trinad will contribute $500,000 in cash
to us in exchange for 93% of the new common stock to be issued under the Plan,
with the remaining 7% of the new common stock being issued to the holders of
record of our Series C Preferred Stock and our common stock as of February 7,
2005, with 3.5% going to each class. Of such $500,000 from Trinad, $400,000 will
be added to the funds used to pay administrative costs, creditors and, possibly,
a small portion of the liquidation preference. The remaining $100,000 will be
retained by us to fund the expenses of remaining public. The Plan contemplates
that all cash (other than the $100,000 to be retained by the reorganized debtor)
will be placed in a liquidation trust (the Liquidation Trust) and,
after the payment of administrative costs, will be used to pay our liabilities.
If there is any remaining cash, it will be used to settle a small portion of the
aggregate $32,302,000 liquidation preference to which the holders of our Series
C Preferred Stock are entitled as of January 11, 2005.

The
Plan also contemplates that the Liquidation Trust will pay for the prosecution
of our pending litigation against AT&T Wireless. On February 20, 2004, we
commenced arbitration proceedings against AT&T Wireless whereby we are
seeking a $12 million judgment against AT&T Wireless relating to its
decommissioning of the cellular digital packet data (CDPD) network. Any
recoveries, net of the costs of prosecuting the arbitration and administering
the trust, will be distributed by the Liquidation Trust as described above.

8

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

There
is no assurance that there will be sufficient assets to satisfy all of our
liabilities, or to pay any portion of the Series C Preferred liquidation
preference. Our disclosure statement projected that available cash would be
adequate to pay 70-80% of the unsecured claims made. However, we do plan to
challenge certain of the claims and, if successful, of which there is no
assurance, we may be able to pay 100% of such claims and retain a small surplus
for payment of a small portion of the Series C Liquidation preference. Only
holders of record of our Series C Preferred Stock as of February 7, 2005 will be
entitled to receive any payments towards the Series C liquidation preference, or
to receive any pro rata share of the new common stock allocated to Series C
Preferred Stock. Cash distributions shall be made as soon as practicable, as
determined by the trustee of the Liquidation Trust. Distributions of the new
stock shall be made as soon as practicable after we make certain filings with
the Securities and Exchange Commission (SEC) which were not made, in
light of the uncertainties associated with the bankruptcy, in order to conserve
cash. Such filings include our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004, which will need to include audited financial statements. In
light of the sale of our operating assets to TNS in May 2004, the information to
be contained in such reports will be largely irrelevant to stockholders of the
reorganized USWD.

Additional
details concerning the Plan are in the Amended Disclosure Statement filed with
the Court in November 2004 in support of the Plan, the Amended Plan of
Reorganization and Order Confirming Amended Plan of Reorganization, each of
which is filed as an exhibit to Form 8-K filed with the SEC on January 18, 2005.

As
soon as practicable after we become current on our filings with the SEC, new
common stock will be issued to Trinad (93%), holders of record of our Series C
Preferred Stock as of February 7, 2005 (3.5%) and holders of record of our
common stock as of the same date (3.5%). On that date, Robert Ellin and Jay Wolf
shall become our sole Board members and shall also be our Chief Executive
Officer and Chief Operating Officer, respectively, and Barry Regenstein will be
our Chief Financial Officer. On that date, we will be capitalized with $100,000
of the $500,000 Trinad has paid, with the $400,000 having been transferred to
the Liquidation Trust.

Trinad
has advised us that it will seek to raise additional capital (which will dilute
the ownership interests of all stockholders) with a view to making us an
attractive vehicle with which to acquire a business. It will then seek a
suitable acquisition candidate. No such business has been identified and we will
be subject to a number of risks, including that any acquisition consummated by
us may turn out to be unsuccessful; investors in us will not know what operating
business, if any, will be acquired, including the particular industry in which
the business operates, and whether dilutive financing will be required
therewith; the historical operations of a specific business opportunity may not
necessarily be indicative of the potential for the future; we may acquire a
company in the early stage of development causing us to incur further risks; we
may be dependent upon the management of an acquired business which has not
proven its abilities or effectiveness; we will be controlled by a small number
of stockholders and such control could prevent the taking of certain actions
that may be beneficial to other stockholders; our common stock will likely be
thinly traded, and the public market may provide little or no liquidity for
holders of our common stock.

Trinad
has agreed that it will not dispose of any of its common stock until an
acquisition transaction has been consummated and a Current Report on Form 8-K
setting forth the terms of the acquisition and audited financial statements of
the acquisition target have been filed with the SEC.

9

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

As a
result of the sale of virtually all of our operating assets, the historical
financial statements are irrelevant to any assessment of our operations on an
ongoing basis. Accordingly, readers are advised not to rely on any historical
financial information in considering an investment in or the disposition of our
stock. After we emerge from bankruptcy, we will have no liabilities and
extremely limited cash under new management. The Liquidation Trust will be
entirely for the benefit of the holders of the Series C Preferred Stock as of
the record date, after payment of administrative costs and allowed claims in
accordance with the provisions of the Plan, and will not be an asset of the
corporation.

Bridge Loan

Prior
to the Petition Date, we partially financed our business through a factoring
arrangement with Platinum Funding Corp. (Platinum). Our obligations
to Platinum were secured by all of the Companys assets. By the date of the
Auction Sales, we had fully repaid this obligation and were released from the
liens on our assets.

Also,
prior to the bankruptcy filing, we financed our business through a $2.75 million
bridge loan (the Bridge Loan) made by Brascan Financial Corporation
(Brascan), a subsidiary of the Toronto, Canada-based Brascan
Corporation. The Bridge Loan was secured by a lien upon and security interest in
all of the Companys assets. As part of the transaction, Platinum
contractually subordinated its lien upon our assets (other than Accounts
Receivable) to Brascans liens to the extent of $3,500,000. In connection
with the Bridge Loan, Brascan received a warrant on September 16, 2003
exercisable for 10 million shares of our common stock at $.15 per share (the
Bridge Loan Warrant). The Bridge Loan Warrant was subsequently
amended and restated to 5 million shares as of the Petition Date. The Bridge
Loan Warrant became exercisable on December 31, 2003 and was to expire in
September 2008.

As of
January 31, 2004, the Company was not in compliance with the minimum net worth
requirement set forth in the Bridge Loan documents and was in technical default
under several provisions of the Bridge Loan. Nonetheless, Brascan continued to
extend the balance of the remaining unadvanced amounts under the Bridge Loan to
us. As of January 31, 2004, we had drawn down the full amount of the $2.75
million Bridge Loan commitment. The Bridge Loan was repaid, with interest, on
May 21, 2004 from the proceeds of the Auction Sales.

NOTE 2
 BASIS OF CONSOLIDATION AND PRESENTATION

Basis of
Consolidation, Asset Sale of Subsidiary and Auction Sales

Our
consolidated financial statements include the accounts of our former
wholly-owned subsidiary, UNS Corporation, formerly known as NXT Corporation
(NXT). UNS Corporation was dormant during the nine months ended
March 31, 2004 and was dissolved on December 11, 2003.

During
May 2002, the Company developed a formal plan to sell NXT. 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 associated with NXT, to Paymentech,
L.P. (Paymentech). NXT provided data services and landline-based
connectivity for credit-card transaction processing. NXT has been classified as
a discontinued operation in the accompanying consolidated financial statements.

10

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

During
March 2004, our Board of Directors approved and authorized management to seek
the sale of our operations which were sold in the Auction Sales. We closed the
sales of our operations included in the Auction Sales on May 21, 2004. Such
operations have been classified as discontinued operations in the accompanying
consolidated financial statements.

Basis of
Presentation and Use of Estimates

The
accompanying financial statements have been prepared by us, without an audit. In
the opinion of management, all adjustments have been made, which include normal
recurring adjustments necessary to present fairly the consolidated financial
statements. Operating results for the three and nine months ended March 31, 2004
and 2003 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. We
believe that the disclosures provided are adequate to make the information
presented not misleading. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and related notes included in our Annual Report for the year ended June 30, 2003
on Form 10-KSB and Form 10-KSB/A.

The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with Statement of Position 90-7 (SOP 90-7),
Financial Reporting by Entities in Reorganization under the Bankruptcy
Code. SOP 90-7 requires that the financial statements for periods
subsequent to the Chapter 11 filing petition distinguish transactions and events
that are directly associated with the reorganization from the ongoing operations
of the business. Accordingly, all pre-petition liabilities subject to compromise
are separately classified. Additional pre-petition claims (liabilities subject
to compromise) may arise due to the rejection of executory contracts or
unexpired leases, or as a result of the allowance of contingent or disputed
claims. Revenues, expenses, realized gains and losses and provision for losses
resulting from the reorganization are reported separately as
Reorganization items in the unaudited consolidated statements of
operations.

Except
for the reclassification of our Prepetition liabilities subject to
compromise as current liabilities at March 31, 2004, the accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of these
uncertainties nor do they reflect any adjustments that will result from SOP
90-7.

The
accompanying unaudited consolidated financial statements have been prepared on a
going concern basis, which assumes continuity of operations and realization of
assets and satisfaction of liabilities in the ordinary course of business and in
accordance with SOP 90-7.

11

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

Long  Lived
Assets Held For Sale

Long-lived
assets are classified as held for sale when certain criteria are met, which
include: managements commitment to a plan to sell the assets; the
availability of the assets for immediate sale in their present condition;
whether an active program to locate buyers and other actions to sell the assets
have been initiated; whether the sale of the assets is probable and their
transfer is expected to qualify for recognition as a completed sale within one
year; whether the assets are being marketed at reasonable prices in relation to
their fair value; and how unlikely it is that significant changes will be made
to the plan to sell the assets.

We
measure long-lived assets to be disposed of by sale at the lower of carrying
amount or fair value less cost to sell. These assets are not depreciated. Fair
value is determined using quoted market prices or the anticipated cash flows
discounted at a rate commensurate with the risk involved.

Reclassifications

Certain
amounts in the prior period financial statements have been reclassified to
conform to the current presentation.

Stock-based
Compensation

We
account for employee stock-based compensation cost using the intrinsic value
method of accounting prescribed by the Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No.
25). The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock Based-Compensation and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure for employee
stock arrangements. Restricted stock or stock awards are recorded as
compensation expense over the vesting period, if any, based on the market value
on the date of grant.

For options
issued to non-employees, we utilize the fair value method prescribed in SFAS No. 123.

At
March 31, 2004, we had four fixed stock-based compensation plans. The exercise
price of each option granted pursuant to these plans was equal to the market
price of the Companys common stock on the date of grant. Accordingly,
pursuant to APB No. 25, no compensation cost has been recognized for such
grants. Had compensation cost been determined based on the fair value at the
grant dates for such awards consistent with the method prescribed by SFAS No.
123, the Companys net loss and loss per share for the periods indicated
would have been as follows:

12

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

|                                       | Three months endedMarch 31, | Nine months endedMarch 31, |   |                       
|-------------------------------------- | --------------------------- | -------------------------- | - | ----------------------
|
|Income (loss) from continuing          |                             |                            |   |                       
|operations                             |                             | $         (1,102,000       | ) | $             94,000  
|Income (loss) from                     |                            
|discontinued operations                |                             | (977,000                   | ) | (1,654,000            
|                                       |                             |                            |   |                       
|Net loss, as reported                  |                             | $         (2,079,000       | ) | $       (1,560,000    
|Deduct: Total stock-based compensation |                            
|expense determined under fair          |                            
|value based method                     |                             | (147,000                   | ) | (684,000              
|                                       |                             |                            |   |                       
|Pro forma net loss                     |                             | $         (2,226,000       | ) | $       (2,244,000    
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       
|Per share, as reported                 |                            
|From continuing operations             |                             | $                (0.06)    |   | $                 0.01
|From discontinued                      |                            
|operations                             |                             | (0.05)                     |   | (0.10)                
|                                       |                             |                            |   |                       
|Net loss                               |                             | $                (0.11)    |   | $               (0.09)
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       
|Per share, pro forma                   |                            
|From continuing operations             |                             | $                (0.07)    |   | $               (0.03)
|From discontinued                      |                            
|operations                             |                             | (0.05)                     |   | (0.10)                
|                                       |                             |                            |   |                       
|Net loss                               |                             | $                (0.12)    |   | $               (0.13)
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       

NOTE 3
 RECENT ACCOUNTING PRONOUNCEMENTS

In
November 2002, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligations undertaken in issuing the
guarantee. The disclosure provisions of FIN 45 are effective for financial
statements of periods ending after December 15, 2002. Additionally, the
recognition of a guarantors obligation should be applied on a prospective
basis to guarantees issued after December 31, 2002. The adoption of the
disclosure and recognition provisions of FIN 45 did not have a material effect
on our results of operations or financial position.

13

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

In
January 2003, FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51" (FIN 46)
was issued. FIN 46 requires the consolidation of certain types of entities in
which a company absorbs a majority of another entitys expected losses,
receives a majority of the other entitys expected residual returns, or
both, as a result of ownership, contractual or other financial interests in the
other entity. These entities are called variable interest entities.
The principal characteristics of variable interest entities are (1) an
insufficient amount of equity to absorb the entitys expected losses; (2)
equity owners as a group are not able to make decisions about the entitys
activities, or (3) equity that does not absorb the entitys losses or
receive the entitys residual returns. Variable interests are
contractual, ownership or other monetary interests in an entity that change with
fluctuations in the entities net asset value. As a result, variable interest
entities can arise from items such as lease agreements, loan arrangements,
guarantees or service contracts.

If an
entity is determined to be a variable interest entity, the entity
must be consolidated by the primary beneficiary. The primary
beneficiary is the holder of the variable interests that absorb a majority of
the variable interest entitys expected losses or receive a majority of the
entitys residual returns in the event no holder has a majority of the
expected losses. There is no primary beneficiary in cases where no single holder
absorbs the majority of the expected losses or receives a majority of the
residual returns. The determination of the primary beneficiary is based on
projected cash flows at the inception of the variable interests.

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This standard amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Relationships. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships after June 30, 2003.
The adoption of this statement did not have a material impact on our results of
operations or financial condition.

In May
2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial condition.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption the provisions of SFAS No.
150 did not have a material effect on our results of operations or financial
condition.

In
December 2003, the SEC issued Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104), which supersedes SAB 101, Revenue
Recognition in Financial Statements. The primary purpose of SAB 104 is to
rescind accounting guidance contained in SAB 101 related to multiple element
revenue arrangements, which was superseded as a result of the issuance of EITF
00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not
have a material impact on our financial statements.

14

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

In
December 2003, the FASB revised FIN 46 (FIN 46-(R)), delaying the
effective date for certain entities created before February 1, 2003 and making
other amendments to clarify the application of the guidance. In adopting FIN 46
and in anticipation of adopting FIN 46-(R), we have evaluated its various
variable interests to determine whether they are in variable interest entities.

We
have adopted FIN 46 for entities created subsequent to January 31, 2003 as of
December 31, 2003 and adopted FIN 46-(R) as of the end of the interim period
ended March 31, 2004. The adoption of FIN 46 and FIN 46(R) did not result in the
consolidation of any variable interest entities.

In
December 2004, the FASB issued SFAS No. 123 (Revised 2004) Share-Based
Payment (SFAS No. 123R) that addresses the accounting for
share-based payment transactions in which a company receives employee services
in exchange for (a) equity instruments of the company or (b) liabilities that
are based on the fair value of the companys equity instruments or that may
be settled by the issuance of such equity instruments. SFAS No. 123R addresses
all forms of share-based payment awards, including shares issued under employee
stock purchase plans, stock options, restricted stock and stock appreciation
rights. SFAS No. 123R eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, Accounting for Stock
Issued to Employees, that was provided in Statement 123 as originally
issued. Under SFAS No. 123R companies are required to record compensation
expense for all share based payment award transactions measured at fair value.
This statement is effective for quarters ending after June 15, 2005. We have not
yet determined the impact of applying the various provisions of SFAS No. 123R.

NOTE 4
 ASSETS HELD FOR SALE AND AUCTION SALES

In
August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS 144), which addressed
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 is applicable to certain long-lived assets, including those
reported as discontinued operations, and develops one accounting model for
long-lived assets to be disposed of by sale. SFAS 144 superseded SFAS No. 121,
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of, and APB 30 for the disposal of a segment of a
business. We adopted the provisions of SFAS 144 effective January 1, 2002.

SFAS
144 requires that long-lived assets to be disposed of by sale be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet been incurred. SFAS 144 also broadened the
reporting of discontinued operations to include the disposal of a component of
an entity provided that the operations and cash flows of the component will be
eliminated from the ongoing operations of the entity and the entity will not
have any significant continuing involvement in the operations of the component.
We recorded write downs for inventory as disclosed further below.

15

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

Assets
held for sale at March 31, 2004 representing the assets held for the Auction
Sales are as follows:

|Property and equipment, net       |  | $1,183,000 | 
|--------------------------------- |  | ---------- | 
|Prepaids and other current assets |  | 82,000     | 
|Inventory                         |  | 5,000      | 
|                                  |  |           
|Assets held for sale              |  | $1,270,000 | 
|                                  |  |           
|                                  |  |           

Revenues
and income from the discontinued operations relating to the Auction Sales are as
follows:

|                     | Three months endedMarch 31, | Nine months endedMarch 31, |   |             
|-------------------- | --------------------------- | -------------------------- | - | ------------
|
|Revenues             |                             | $ 1,433,000                |   | $    864,000
|Loss from operations |                             | (977,000                   | ) | (1,654,000  

We
curtailed further efforts and resources associated with our Synapse Enabler for
Transportation and Synapse Enabler T8, and intended to liquidate our remaining
inventory of these products and other materials. As a result, during the quarter
ended December 31, 2003, we recorded a charge of $79,000 to write-down the
remaining inventory to the net realizable value we estimated we would realize
from such sales. In this regard, subsequent to December 31, 2003, we had
returned for a refund approximately $69,000 of previously purchased inventory
items and sold approximately $29,000 of other materials.

NOTE 5
 ACCRUED RESTRUCTURING EXPENSE

During
the fourth quarter of fiscal year 2001, we recorded a restructuring charge of
$2.4 million related to the consolidation and relocation of our former Bethesda,
Maryland network operations center with its research, development and operations
center, located in Palmer Lake, Colorado.

As
part of the consolidation of our technical and network operations and the
closure of our Bethesda facility, a restructuring charge of $625,000 was
recorded in the first quarter of the year ended June 30, 2002 related to the
termination of thirty-seven employees. The charge represents the cost of
involuntary severance and related benefits for technical, operations,
engineering, and administrative employees located in the Bethesda and Palmer
Lake facilities.

During
the fourth quarter of the year ended June 30, 2002, as a result of completing a
sublease arrangement for our former Bethesda facility, we re-evaluated the
balance of the restructuring accrual and adjusted our estimates of sublease
income and related costs. As a result, we reduced the restructuring accrual
balance by $714,000.

In
June 2003, we revised our restructuring accrual related to a settlement of our
Bethesda lease obligation. Accordingly, the restructuring accrual was adjusted
by approximately $131,000 to reflect the actual amount that was paid in fiscal
2004.

16

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

The
following is an analysis of the changes in the restructuring accrual:

|Balance at June 30, 2001                     |  | $ 2,400,000         |  
|-------------------------------------------- |  | ------------------- | -
|Charges against accrual (Bethesda rent       | 
|payments, severance and benefit payments)    |  | (1,362,000          | )
|Additions to accrual (severance and benefits | 
|accrual)                                     |  | 625,000             |  
|Change in estimate (based on sublease)       |  | (714,000            | )
|                                             |  |                    
|Balance at June 30, 2002                     |  | 949,000             |  
|Charges against accrual                      |  | (258,000            | )
|Change in estimate (for Bethesda             | 
|lease termination)                           |  | (131,000            | )
|                                             |  |                    
|Balance at June 30, 2003                     |  | 560,000             |  
|Charges against accrual                      |  | (560,000            | )
|                                             |  |                    
|Balance at March 31, 2004                    |  | $                -- |  
|                                             |  |                    
|                                             |  |                    

NOTE 6
 PREPETITION LIABILITIES SUBJECT TO COMPROMISE

At
March 31, 2004, Prepetition liabilities subject to compromise are as
follows:

|Notes payable for DIP loan                  |  | $   925,000 | 
|------------------------------------------- |  | ----------- | 
|                                            |  |            
|                                            |  |            
|Other                                       | 
|Bridge loan, net of debt discount           |  | $2,733,000  | 
|Accounts payable                            |  | 1,383,000   | 
|Accrued liabilities                         |  | 565,000     | 
|Customer advances                           |  | 412,000     | 
|Obligation under capital lease              |  | 510,000     | 
|Obligation for rejected real property lease |  | 668,000     | 
|                                            |  |            
|Balance at March 31, 2004                   |  | $6,271,000  | 
|                                            |  |            
|                                            |  |            

The
Bridge loan balance of $2,770,000 at March 31, 2004 represents the
outstanding balance of $2,841,000 (principal of $2,750,000 and accrued interest
of $91,000) on the Bridge Loan, less the debt discount balance of $108,000 from
the Bridge Loan Warrant (see Note 7  Stockholders Equity).

NOTE 7
 STOCKHOLDERS EQUITY

During
the nine months ended March 31, 2004, 308,500 shares of Series C preferred stock
were converted into 514,173 shares of common stock, in accordance with the
Series C preferred stock documents.

17

---

U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

The
Bridge Loan Warrant was valued at $780,000 and is being accreted to interest
expense over the 18-month period of the Bridge Loan. In determining the fair
value of the warrants issued, we used the Black-Scholes option pricing model as
prescribed by SFAS No. 123 using the following assumptions: dividend yield of
zero, volatility of 144%, expected life of 18 months, an exercise price of
$0.15, and an average risk free rate of 1.74%. On the Petition Date, the Bridge
Loan Warrant was amended and restated to 5 million shares and we reversed the
associated $390,000 of debt discount and adjusted additional paid in capital for
the same amount.

As of
the effective date of the Plan and as provided for under the provisions of the
Plan, all outstanding warrants and options expired worthless.

NOTE 8
 NET LOSS PER SHARE

Loss
per common share is computed in accordance with the provisions of 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 the three and nine months ended
March 31, 2004 and 2003, 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.

NOTE 9
 SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental
disclosure of cash flow information:

$96,000
and $20,000 was paid in cash for interest for the nine months ended March 31,
2004 and 2003, respectively.

Supplemental
disclosure of non-cash financing and investing activities:

Nine months
ended March 31, 2004

|1. |  | Conversion
of 308,500 shares of Series C Convertible Preferred Stock into 514,173 shares of Common
Stock.
|-- |  | ---------------------------------------------------------------------------------------------------------

|2. |  | Issuance
of warrant in connection with the Bridge Loan,  exercisable for 10,000,000 shares of
Common Stock  valued at $780,000. Amended and restated for 5,000,000 shares on March 26,
2004.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Accretion
of Bridge Loan discount of $282,000.
|-- |  | ----------------------------------------------

|4. |  | Reversal
of $390,000 of debt  discount  and adjust of  additional  paid in capital for the same
amount for  the amended and restated warrant.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

18

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U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

Year ended June
30, 2003

|1. |  | Conversion
of 392,625 shares of Series C Preferred Stock into 654,949 shares of Common Stock.
|-- |  | ---------------------------------------------------------------------------------------------

|2. |  | Issuance
of 2,241,658  shares of Common Stock to former NXT  shareholders  in connection  with
stock price  guarantees.
|-- |  | -----------------------------------------------------------------------------------------------------------------------

|3. |  | Issuance
of 329,000 options for services valued at $157,000.
|-- |  | ------------------------------------------------------------

|4. |  | Retirement
of 72,560 common shares received in connection with  settlement of notes  receivable
valued at  $15,000.
|-- |  | -------------------------------------------------------------------------------------------------------------------

NOTE 10
 COMMITMENTS AND CONTINGENCIES

The
Company has entered into leases for facilities. Future minimum lease payments
and sublease income under non-cancelable operating leases as of March 31, 2004,
before adjustment for the Chapter 11 Proceedings, are as follows:

|                                 | FacilityLeases | Less SubleasedFacilities | Net
|-------------------------------- | -------------- | ------------------------ | ---
|For fiscal years ending June 30: |                |                          |    
|2004                             |                | $   173,000              |    
|2005                             |                | 695,000                  |    
|2006                             |                | 694,000                  |    
|2007                             |                | 667,000                  |    
|2008                             |                | 667,000                  |    
|Thereafter                       |                | 1,279,000                |    
|                                 |                |                          |    
|Total minimum payments required  |                | $4,174,000               |    
|                                 |                |                          |    
|                                 |                |                          |    

The
real property leases for the Companys facilities located in Colorado were
assigned in conjunction with the Auction Sales.

On May
31, 2004, the Company vacated its former leased office space in New York
and rejected the balance of the lease. The Company accrued an aggregate of
$668,000 at March 31, 2004 as an estimated obligation on the rejected lease plus
the associated New York City Commercial Rent Taxes, recognizing that this amount
is subject to rejection and reduction for a variety of reasons. Such amount was
reduced by the elimination of $206,000 of deferred rent expense. These items are
reported in the Reorganization items in the accompanying Consolidated Statements
of Operations. The Company had maintained a letter of credit in the amount of
$456,000 as a security deposit for this lease and had restricted cash of the
same amount on deposit in a money market fund as collateral for the letter of
credit maintained by the issuing bank. In September 2004, the issuing bank
claimed the collateral in settlement of the letter of credit, which was
presented and drawn by the landlord. The actual amount of the remaining claim
may be greater or less than the remaining estimated accrual.

The
Company is now subletting much smaller, more economical space on a month to
month basis, which will enable it to wind down the Chapter 11 Proceedings and
terminate its rental obligations once all matters have been concluded.

19

---

U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

Rent
expense for the three and nine months ended March 31, 2004 was $179,000 and
$533,000, respectively, as compared to $232,000 and $1,021,000 for the same
periods of the prior fiscal year.

Future
minimum lease payments on capital leases aggregated $510,000 and are included
under Prepetition liabilities as of March 31, 2004.

The
Company entered into purchase commitments with a contract manufacturer
aggregating approximately $224,000 for the manufacture of additional units of
the Companys Synapse Enabler for Vending. Approximately $73,000 of this
commitment was prepaid and is included in Prepaids and other current
assets included in Assets held for sale in the consolidated
balance sheet at March 31, 2004. The obligation was assigned as a component of
the operations sold in the Auction Sales.

The
Company has employment agreements with four of its executive officers. The
agreements are for initial terms of one to three years, with automatic one-year
extensions after the initial term. As of March 31, 2004, the employment
agreements committed the Company to annual salary compensation of $738,000. The
agreements include provisions for severance payments upon nonrenewal or
termination under certain conditions. The agreements are subject to the Chapter
11 Proceedings.

The
Company has committed to reimburse a third party 50%, up to a maximum of
$300,000, for certain agreed upon development costs. As of March 31, 2004,
$150,000 has been accrued based on an informal agreement to settle this matter.
Management was negotiating the modification of the terms of payment of the
Companys obligation. The obligation is subject to the Chapter 11
Proceedings.

The
Company maintains agreements with wireless, landline and other carriers for
certain telecommunication services. The agreements include pricing for various
services, including volume discounts. Should the Company fail to maintain or
reach minimum volume levels, the prices the Company pays for services may
increase and this may have an adverse effect on the results of operations. These
agreements were assigned as a component of the operations sold in the Auction
Sales.

On
March 12, 2004, the Company was served with a complaint filed by U.S.A.
Technologies, Inc. in the District Court for the District of Delaware, alleging
infringement of one patent relating to certain aspects of the Companys
technology to enable vending machines to accept credit cards and seeking
unspecified damages and injunctive relief. The Company believes this suit is
without merit and intended to vigorously defend such action. The suit has been
stayed by virtue of the Companys bankruptcy filing. The suit is subject to
the Chapter 11 Proceedings.

The
Company is not currently subject to any other material legal proceedings.
However, the Company may from time to time become a party to legal proceedings
arising in the ordinary course of its business.

See
Chapter 11 Proceedings contained in Note 1  The Company.

---

U.S.
WIRELESS DATA, INC.(Debtor in Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the three and nine months ended March 31, 2004 and 2003(Unaudited)

NOTE 12
 SALE OF NXT

In May
2002, the Company adopted a formal plan to sell its wholly-owned subsidiary 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 of NXT to Paymentech,
which subsequently transferred the acquired assets and obligations to its
wholly-owned subsidiary Merchant-Link. Pursuant to a Transition Services
Agreement the Company entered into on the same date with Merchant-Link, certain
of the NXT assets continued to be located in the Companys Colorado
facility and the Company provided certain services for payment to Merchant-Link
for a limited period of time. NXT provides data services and landline-based
connectivity for credit-card transaction processing.

Revenues
and income from the discontinued operations of NXT are as follows:

|                              | Three months endedMarch 31, | Nine months endedMarch 31, |  |                
|----------------------------- | --------------------------- | -------------------------- |  | ---------------
|
|Revenues                      |                             | $            --            |  | $            --
|Income (loss) from operations |                             | --                         |  | --             

| | (a) | Includes
results through August 31, 2002.
| | --- | -----------------------------------------

The
Company recorded a gain on the sale of discontinued operations of $133,000 for
the nine months ended March 31, 2003 due to the reversal of an accrued vendor
obligation as a result of the sale of NXT, partially offset by additional
transaction costs.

Paymentech
is obligated under the Agreement, subject to certain conditions, to purchase
goods or services from the Company or its affiliates over a three (3) year
period that commenced September 1, 2002, in an amount aggregating a minimum of
$3,472,500. Paymentech is obligated to pay the Company 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.

21

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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. You are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward looking statements as a
result of various factors. The factors that might cause such differences
include, among others, the following: (i) our ability to develop, prosecute,
confirm and consummate one or more plans of reorganization with respect to the
Chapter 11 case; (ii) risks associated with third parties proposing and
obtaining confirmation of one or more plans of reorganization, or seeking and
obtaining approval for the appointment of a Chapter 11 trustee or converting the
case to a Chapter 7 case; (iii) our inability to obtain sufficient cash to fund
ongoing obligations and continue as a going concern; (iv) our ability to carry
out our operating and restructuring strategy; and (v) other factors including
those discussed below. We undertake no obligation to publicly update or revise
forward looking statements to reflect events or circumstances after the date of
this Quarterly Report on Form 10-QSB or to reflect the occurrence of
unanticipated events.

OVERVIEW

U.S.
Wireless Data, Inc. (USWD, the Company, we,
us, our or similar terms) was incorporated in the state
of Colorado on July 30, 1991 and was reincorporated in the state of Delaware on
October 6, 2000. We are operating under the Chapter 11 Proceedings (as defined
below) and as of May 21, 2004, we sold all of our operations in the Auction
Sales (as defined below). Subsequent to the Auction Sales, we do not have any
assets or operations other than those related to the Chapter 11 Proceedings.
Prior to that time, we were we were principally engaged in providing wireless
transaction delivery and gateway services to the payment processing industry.

Chapter 11
Proceedings

On
March 26, 2004 (the Petition Date), we filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the United States Bankruptcy Court for the
Southern District of New York (the Court), in re U.S. Wireless Data,
Inc., Case Number 04-12075. We are operating as a debtor-in-possession
(DIP) under the jurisdiction of the Court and in accordance with the
applicable provisions of the Bankruptcy Code and orders of the Court (the
Chapter 11 Proceedings).

In
connection with our bankruptcy filing, we issued a press release announcing that
we had executed an agreement with NBS Synapse Corporation to sell our Synapse
point-of-sale gateway business to NBS for $2.85 million in cash plus up to $2.15
million credit for free payment processing services to be rendered to us for our
vending operations plus the assumption of certain liabilities. We simultaneously
announced that we had reached an agreement with SANI Operating Co., LLC
(SANI) to sell our vending operations, including the $2.15 million
credit for free payment processing services from NBS, for $1.6 million in cash
plus the assumption of certain liabilities. We had also arranged DIP financing
with SANI in order to fund our ongoing operations during the bankruptcy process
and through the closing of the sales of the operations. We drew $925,000 on the
DIP loan at March 31, 2004 and $675,000 on May 7, 2004. Interest accrued on the
DIP loan at a rate of 6% per annum. The DIP loan was repaid, with interest, on
May 11, 2004 from a deposit of the proceeds of the Auction Sales.

22

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On May
11, 2004, we completed the bankruptcy auctions for the sale of (i) our Synapse
point-of-sale gateway business, and (ii) our vending operations (collectively,
the Auction Sales). Transaction Network Services (TNS)
was awarded by the Court as the winning bidder for each of the operations
offered for sale. TNS paid $6 million in cash for our wireless payment
processing business and $3.7 million in cash for our wireless vending business,
for an aggregate purchase price of $9.7 million in cash. The sales to TNS were
completed on May 21, 2004.

The
Court entered an order that established August 9, 2004 as the last date for each
person or entity to file a proof of claim or preferred equity interest against
us (the Bar Date). In addition, the Court established a separate
date of September 23, 2004 for governmental units only to file a proof of claim
(the Governmental Bar Date). We are analyzing the actual claims
filed by creditors against the pre-petition liabilities accrued by us. In some
individual instances and in total, claims filed by creditors are in excess of
the amounts recorded by us, allowed under the law, or provided for by agreement.
There is uncertainty as to the ultimate liability that will be allowed with
creditors in the case, and the final liability that will be allowed at a future
date may be significantly higher or lower than our current estimate. We intend
to contest claims to the extent that they exceed the amounts we believe are due.

In
September 2004, we filed a Plan of Reorganization and
Disclosure Statement with the Court. On November 21, 2004, the Court
approved an Amended Disclosure Statement and on December 21, 2004
held a hearing to consider confirmation of the Plan of Reorganization.

On
December 27, 2004, the Court confirmed our Amended Plan of Reorganization (the
Plan). The Plan contemplates that the primary source of cash for
distributions will be the proceeds from the aforementioned sale of our
businesses and the cash contribution of Trinad Capital, L.P.
(Trinad), the plan sponsor. Trinad will contribute $500,000 in cash
to us in exchange for 93% of the new common stock to be issued under the Plan,
with the remaining 7% of the new common stock being issued to the holders of
record of our Series C Preferred Stock and our common stock as of February 7,
2005, with 3.5% going to each class. Of such $500,000 from Trinad, $400,000 will
be added to the funds used to pay administrative costs, creditors and, possibly,
a small portion of the liquidation preference. The remaining $100,000 will be
retained by us to fund the expenses of remaining public. The Plan contemplates
that all cash (other than the $100,000 to be retained by the reorganized debtor)
will be placed in a liquidation trust (the Liquidation Trust) and,
after the payment of administrative costs, will be used to pay our liabilities.
If there is any remaining cash, it will be used to settle a small portion of the
aggregate $32,302,000 liquidation preference to which the holders of our Series
C Preferred Stock are entitled as of January 11, 2005.

The
Plan also contemplates that the Liquidation Trust will pay for the prosecution
of our pending litigation against AT&T Wireless. On February 20, 2004, we
commenced arbitration proceedings against AT&T Wireless whereby we are
seeking a $12 million judgment against AT&T Wireless relating to its
decommissioning of the cellular digital packet data (CDPD) network. Any
recoveries, net of the costs of prosecuting the arbitration and administering
the trust, will be distributed by the Liquidation Trust as described above.

23

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There
is no assurance that there will be sufficient assets to satisfy all of our
liabilities, or to pay any portion of the Series C Preferred liquidation
preference. Our disclosure statement projected that available cash would be
adequate to pay 70-80% of the unsecured claims made. However, we do plan to
challenge certain of the claims and, if successful, of which there is no
assurance, we may be able to pay 100% of such claims and retain a small surplus
for payment of a small portion of the Series C Liquidation preference. Only
holders of record of our Series C Preferred Stock as of February 7, 2005 will be
entitled to receive any payments towards the Series C liquidation preference, or
to receive any pro rata share of the new common stock allocated to Series C
Preferred Stock. Cash distributions shall be made as soon as practicable, as
determined by the trustee of the Liquidation Trust. Distributions of the new
stock shall be made as soon as practicable after we make certain filings with
the Securities and Exchange Commission (SEC) which were not made, in
light of the uncertainties associated with the bankruptcy, in order to conserve
cash. Such filings include our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004, which will need to include audited financial statements. In
light of the sale of our operating assets to TNS in May 2004, the information to
be contained in such reports will be largely irrelevant to stockholders of the
reorganized USWD.

Additional
details concerning the Plan are in the Amended Disclosure Statement filed with
the Court in November 2004 in support of the Plan, the Amended Plan of
Reorganization and Order Confirming Amended Plan of Reorganization, each of
which is filed as an exhibit to Form 8-K filed with the SEC on January 18, 2005.

As
soon as practicable after we become current on our filings with the SEC, new
common stock will be issued to Trinad (93%), holders of record of our Series C
Preferred Stock as of February 7, 2005 (3.5%) and holders of record of our
common stock as of the same date (3.5%). On that date, Robert Ellin and Jay Wolf
shall become our sole Board members and shall also be our Chief Executive
Officer and Chief Operating Officer, respectively, and Barry Regenstein will be
our Chief Financial Officer. On that date, we will be capitalized with $100,000
of the $500,000 Trinad has paid, with the $400,000 having been transferred to
the Liquidation Trust.

Trinad
has advised us that it will seek to raise additional capital (which will dilute
the ownership interests of all stockholders) with a view to making us an
attractive vehicle with which to acquire a business. It will then seek a
suitable acquisition candidate. No such business has been identified and we will
be subject to a number of risks, including that any acquisition consummated by
us may turn out to be unsuccessful; investors in us will not know what operating
business, if any, will be acquired, including the particular industry in which
the business operates, and whether dilutive financing will be required
therewith; the historical operations of a specific business opportunity may not
necessarily be indicative of the potential for the future; we may acquire a
company in the early stage of development causing us to incur further risks; we
may be dependent upon the management of an acquired business which has not
proven its abilities or effectiveness; we will be controlled by a small number
of stockholders and such control could prevent the taking of certain actions
that may be beneficial to other stockholders; our common stock will likely be
thinly traded, and the public market may provide little or no liquidity for
holders of our common stock.

Trinad
has agreed that it will not dispose of any of its common stock until an
acquisition transaction has been consummated and a Current Report on Form 8-K
setting forth the terms of the acquisition and audited financial statements of
the acquisition target have been filed with the SEC.

24

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As a
result of the sale of virtually all of our operating assets, the historical
financial statements are irrelevant to any assessment of our operations on an
ongoing basis. Accordingly, readers are advised not to rely on any historical
financial information in considering an investment in or the disposition of our
stock. After we emerge from bankruptcy, we will have no liabilities and
extremely limited cash under new management. The Liquidation Trust will be
entirely for the benefit of the holders of the Series C Preferred Stock as of
the record date, after payment of administrative costs and allowed claims in
accordance with the provisions of the Plan, and will not be an asset of the
corporation.

Discontinued
Operations

NXT
Corporation

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

Auction Sales

During
March 2004, our Board of Directors approved and authorized management to seek
the sale of our operations which were sold in the Auction Sales. In accordance
with accounting principles generally accepted in the United States of America,
we classified our former operations sold in the Auction Sales as discontinued
operations and have eliminated such operations from the discussion that follows
except where indicated.

RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2004 AND 2003

KEY METRICS
AND REVENUE

In
light of the Chapter 11 Proceedings and the Auction Sales, our former businesses
were reclassified as discontinued operations. We currently have no operating
business and therefore no revenue from continuing operations to report. In
addition, our former key metrics are no longer applicable.

CONTINUING OPERATIONS

General and administrative expenses
for the three and nine months ended March 31, 2004 were $89,000 as compared to
no expenses for the same period in the prior fiscal year. The increase was
primarily due to compensation costs of administrative services, ongoing
professional fees (including accruals for professional and arbitration fees
related to the AT&T Action), office and other miscellaneous costs.

25

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Professional
fees and U.S Trustee fees of $370,000 for the three and nine months ended March
31, 2004 represent fees associated with the Chapter 11 Proceedings. No such
fees were incurred during the same period of the prior fiscal year.

On
May 31, 2004, we vacated our former leased office space in New York and
rejected the balance of the lease. Rejection of real property lease of $462,000
for the three and nine months ended March 31, 2004 represents (i) an aggregate
accrual of $668,000 at March 31, 2004 as an estimated obligation on the
rejection of the leased office space plus the associated New York City
Commercial Rent Taxes, recognizing that this amount is subject to rejection and
reduction for a variety of reasons, less (ii) the elimination of $206,000 of
deferred rent expense related to such lease. No provisions were recorded during
the same periods of the prior fiscal year.

Interest
income for the three months ended March 31, 2004 was negligible, compared to
$8,000 for the same period in the prior fiscal year. Interest income for the
nine months ended March 31, 2004 was $3,000, compared to $38,000 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.

Interest
expense for the three months ended March 31, 2004 was $231,000, compared to
$13,000 for the same period in the prior fiscal year. Interest expense for the
nine months ended March 31, 2004 was $515,000, compared to $93,000 for the same
period in the prior fiscal year. The increase in interest expense was primarily
related to increased borrowing costs, including interest on the Bridge Loan
effective September 16, 2003, the amortization of deferred financing interest
for the Bridge Loan warrant over the term of such loan, and interest for
factoring certain receivables; partially offset by the reduced principal balance
of a capital lease for Synapse Adapters assumed with the acquisition of
Cellgate.

Other
income (expense), net for the three months ended March 31, 2004 was income of
$50,000, compared to income of $99,000 for the same period in the prior fiscal
year. Other income (expense), net consists primarily of: (a) rental income for
sublet facilities of $38,000 for the three months ended March 31, 2004 compared
to $33,000 for the same period in the prior fiscal year; (b) income relating to
a transition services agreement that was executed in connection with the sale of
NXT of $0 for the three months ended March 31, 2004 and $92,000 for the same
period in the prior fiscal year; and (c) reduction of tax expense for the three
months ended March 31, 2004 of $12,000 compared to $30,000 for the same period
in the prior fiscal year.

Other
income (expense), net for the nine months ended March 31, 2004 was income of
$108,000, compared to income of $71,000 for the same period in the prior fiscal
year. Other income (expense), net consists primarily of: (a) rental income for
sublet facilities of $104,000 for the nine months ended March 31, 2004 compared
to $78,000 for the same period in the prior fiscal year; (b) income relating to
a transition services agreement that was executed in connection with the sale of
NXT of $0 for the nine months ended March 31, 2004 and $203,000 for the same
period in the prior fiscal year; (c) expense of $0 for the nine months ended
March 31, 2004 and $46,000 for the same period in the prior fiscal year relating
to withholding taxes on additional shares issued to certain former shareholders
of NXT; and (d) tax expense for the nine months ended March 31, 2004 of $3,000
compared to $168,000 for the same period in the prior fiscal year for certain
state and local taxes.

INCOME
(LOSS) FROM CONTINUING OPERATIONS

Income
(loss) from continuing operations for the three months ended March 31, 2004 was
a loss of $1,102,000, as compared with income of $94,000 for the same period in
the prior fiscal year, a difference of $1,196,000. Income (loss) from continuing
operations for the nine months ended March 31, 2004 was a loss of $1,325,000, as
compared with income of $16,000 for the same period in the prior fiscal year, a
difference of $1,341,000. The swing to a loss for the current periods was
primarily attributed to the costs of the reorganization related to the Chapter
11 Proceedings and the increase in interest expense as discussed previously.

26

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DISCONTINUED
OPERATIONS

Loss
from discontinued operations represents the net results of (i) our former
operations sold in the Auction Sales, and (ii) our former wholly-owned
subsidiary, UNS Corporation (formerly, NXT).

During
May 2002, we developed a formal plan to sell NXT. As previously disclosed,
effective as of the close of business on August 31, 2002, we sold substantially
all of the operating assets associated with NXT. NXT provides data services and
landline-based connectivity for credit-card transaction processing. UNS
Corporation was dormant for the six months ended December 31, 2003 and was
dissolved on December 11, 2003.

For
the three months ended March 31, 2004, loss from discontinued operations was
$977,000 as compared to a loss of $1,654,000 for the same period of the prior
fiscal year, each such period comprised solely of the results of the operations
of our former operations sold in the Auction Sales.

For
the nine months ended March 31, 2004, loss from discontinued operations was
$3,599,000 as compared to a loss of $6,757,000 for the same period of the prior
fiscal year. The current fiscal year period was comprised solely of the results
of the operations of our former operations sold in the Auction Sales. The same
period of the prior fiscal year was comprised of (i) a loss of $7,253,000 from
the results of the operations of our former operations sold in the Auction
Sales, (ii) income of $363,000 from the results of the operations of NXT, and
(iii) a gain on the sale of NXT due to the reversal of an accrued vendor
obligation as a result of the sale, partially offset by additional transaction
costs.

For
the periods presented, there was no gain or loss on our former operations sold
in the Auction Sales since such sales occurred on May 21, 2004 (subsequent to
the periods presented).

NET LOSS

For
the three months ended March 31, 2004, net loss totaled $2.079 million or $0.11
per share, as compared to a net loss of $1.560 million or $0.09 per share, for
the same period in the prior fiscal year. For the nine months ended March 31,
2004, net loss totaled $4.924 million or $0.28 per share, as compared to a net
loss of $6.741 million or $0.42 per share for the same period in the prior
fiscal year.

FINANCIAL
CONDITION, CAPITAL RESOURCES AND LIQUIDITY

We
have met our working capital requirements from a combination of internally
generated sources including cash from the sale of our operations in the Auction
Sales and borrowings available to us from the Bridge Loan, Dip loan and a
factoring arrangement. As discussed above, we are operating as a
debtor-in-possession pursuant to Chapter 11 of the Bankruptcy Code. In addition
to the cash requirements necessary to fund ongoing operations, we anticipate
that we will continue to incur significant professional fees and other
restructuring costs in connection with the reorganization. As a result of the
uncertainty surrounding our current circumstances, it is difficult to predict
our actual liquidity needs and sources at this time. However, based upon current
and anticipated levels of operations, during the Chapter 11 Proceedings, we
believe that our liquidity and capital resources will be sufficient to maintain
our remaining operations at current levels. Costs previously incurred and to be
incurred in the future in connection with the reorganization have been and will
continue to be substantial and, in any event, there can be no assurance that we
will be able to reorganize our indebtedness or that our liquidity and capital
resources will be sufficient to maintain our normal operations during the
reorganization period. Subsequent to the Auction Sales, we do not have any
assets or operations other than those related to the Chapter 11 Proceedings.
Upon the sale to Trinad, we will have no liabilities and will be capitalized
with $100,000 of the $500,000 Trinad has paid into escrow.

27

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Trinad
has advised us that it will seek to raise additional capital (which will dilute
the ownership interests of all stockholders) with a view to making us an
attractive vehicle with which to acquire a business. It will then seek a
suitable acquisition candidate. No such business has been identified and we will
be subject to a number of risks, including that any acquisition consummated by
us may turn out to be unsuccessful; investors in us will not know what operating
business, if any, will be acquired, including the particular industry in which
the business operates, and whether dilutive financing will be required
therewith; the historical operations of a specific business opportunity may not
necessarily be indicative of the potential for the future; we may acquire a
company in the early stage of development causing us to incur further risks; we
may be dependent upon the management of an acquired business which has not
proven its abilities or effectiveness; we will be controlled by a small number
of stockholders and such control could prevent the taking of certain actions
that may be beneficial to other stockholders; our common stock will likely be
thinly traded, and the public market may provide little or no liquidity for
holders of our common stock.

Accrued
Restructuring Expense

During
the fourth quarter of fiscal year 2001, we recorded a restructuring charge of
$2.4 million related to the consolidation and relocation of our former Bethesda,
Maryland network operations center with its research, development and operations
center, located in Palmer Lake, Colorado.

As
part of the consolidation of our technical and network operations and the
closure of our Bethesda facility, a restructuring charge of $625,000 was
recorded in the first quarter of the year ended June 30, 2002 related to the
termination of thirty-seven employees. The charge represents the cost of
involuntary severance and related benefits for technical, operations,
engineering, and administrative employees located in the Bethesda and Palmer
Lake facilities.

During
the fourth quarter of the year ended June 30, 2002, as a result of completing a
sublease arrangement for our former Bethesda facility, we re-evaluated the
balance of the restructuring accrual and adjusted our estimates of sublease
income and related costs. As a result, we reduced the restructuring accrual
balance by $714,000.

In
June 2003, we revised our restructuring accrual related to a settlement of our
Bethesda lease obligation. Accordingly, the restructuring accrual was adjusted
by approximately $131,000 to reflect the actual amount that was paid in fiscal
2004.

The
following is an analysis of the changes in the restructuring accrual:

|                                             | 
|-------------------------------------------- | 
|Balance at June 30, 2001                     | 
|Charges against accrual (Bethesda rent       | 
|payments, severance and benefit payments)    | 
|Additions to accrual (severance and benefits | 
|accrual)                                     | 
|Change in estimate (based on sublease)       | 
|                                             | 
|Balance at June 30, 2002                     | 
|Charges against accrual                      | 
|Change in estimate (for Bethesda lease       | 
|termination)                                 | 
|                                             | 
|Balance at June 30, 2003                     | 
|Charges against accrual                      | 
|                                             | 
|Balance at March 31, 2004                    | 
|                                             | 
|                                             | 

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Period to
Period Comparisons and Seasonal Variation of Business

Upon
emergence from Chapter 11, the amounts reported in subsequent financial
statements will materially change due to our reorganization.

We do
not anticipate seasonal fluctuations to impact us since there are no remaining
continuing operations.

Historical
Cash Flows

For
the nine months ended March 31, 2004, cash increased by $133,000 to $735,000.
For the nine months ended March 31, 2003, cash decreased by $1,596,000 to
$1,266,000.

Net
cash used in operating activities was $3,231,000 during the nine months ended
March 31, 2004. This primarily consisted of net operating losses offset by
non-cash items. Net cash used in operating activities was $4,656,000 during the
nine months ended March 31, 2003. This primarily consisted of net operating
losses and an increase in liabilities, partially offset by non-cash items and a
decrease in accounts receivable.

Net
cash provided by investing activities was $424,000 for the nine months ended
March 31, 2004. This was primarily comprised of the decrease in restricted cash,
partially offset by the purchase of property and equipment. Net cash provided by
investing activities was $3,531,000 for the nine months ended March 31, 2003.
This amount was primarily comprised of the net proceeds from the sale of NXT.

Net
cash provided by financing activities for the nine months ended March 31, 2004
of $2,940,000 was primarily comprised of the net proceeds from the bridge loan,
partially offset by payments for the real estate lease termination. Net cash
used in financing activities for the nine months ended March 31, 2003 of
$471,000 was primarily comprised of payments under capital leases.

CRITICAL
ACCOUNTING POLICIES

Critical
accounting policies reflect significant judgments and uncertainties and
potentially result in materially different results under different assumptions
and conditions. We have prepared the accompanying financial statements in
conformity with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts in
the accompanying financial statements and notes thereto. Actual results could
differ from those estimates under different assumptions or conditions. We have
identified the following critical accounting policies utilized in the
preparation of such financial statements.

Revenue
Recognition

We
adopted the provisions of 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 Securities and Exchange Commission. In
addition, we follow the guidance contained in Emerging Issues Task Force
position No. 00-21 with respect to sales arrangements with multiple
deliverables.

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We
derive revenue primarily from two sources: service revenues and product
(equipment) sales. Revenue is recognized when earned. More specifically, revenue
related to providing services and sales of our products are as follows:

Services.  Service fees 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, certain charges for telecommunications connections between us and a
party, and installation fees and expenses. Service fees are generated from our
Synapse Service. Service activation fees are recognized ratably over the
estimated average life of a customer contract. All other service revenues are
recognized as services are provided.

Product
sales.  Product sales (i.e., sales of equipment) are primarily derived from
the sale of our proprietary Synapse Enabler and Synapse Adapter products.
Revenues from product sales are recognized upon shipment and acceptance,
although product sales of our Synapse Enabler for Vending are recognized ratably
over the life of the customer contract upon activation.

Valuation of
Long-Lived and Intangible Assets

The
carrying values of our assets are reviewed when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount. If it is determined that an impairment loss has occurred, then an
impairment loss is recognized in the statement of operations. The resulting
impairment loss is measured as the amount by which the carrying amount of the
asset exceeds its fair value, estimated using quoted market prices, if
available, or other acceptable valuation methodologies, including discounted
cash flows or comparable sales.

Stock-based
Compensation

The
Company accounts for employee stock-based compensation cost using the intrinsic
value method of accounting prescribed by the Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No.
25). The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock Based-Compensation and SFAS No. 148, Accounting for
Stock-Based Compensation for employee stock arrangements. Restricted stock
or stock awards are recorded as compensation expense over the vesting period, if
any, based on the market value on the date of grant.

For options
issued to non-employees, the Company utilizes the fair value method prescribed in SFAS
No. 123.

30

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At
March 31, 2004, the Company had four fixed stock-based compensation plans. The
exercise price of each option granted pursuant to these plans was equal to the
market price of the Companys common stock on the date of grant.
Accordingly, pursuant to APB No. 25, no compensation cost has been recognized
for such grants. Had compensation cost been determined based on the fair value
at the grant dates for such awards consistent with the method prescribed by SFAS
No. 123, the Companys net loss and loss per share for the periods
indicated would have been as follows:

|                                       | Three months endedMarch 31, | Nine months endedMarch 31, |   |                       
|-------------------------------------- | --------------------------- | -------------------------- | - | ----------------------
|
|Income (loss) from continuing          |                             |                            |   |                       
|operations                             |                             | $         (1,102,000       | ) | $             94,000  
|Income (loss) from                     |                            
|discontinued operations                |                             | (977,000                   | ) | (1,654,000            
|                                       |                             |                            |   |                       
|Net loss, as reported                  |                             | $         (2,079,000       | ) | $       (1,560,000    
|Deduct: Total stock-based compensation |                            
|expense determined under fair value    |                            
|based method                           |                             | (147,000                   | ) | (684,000              
|                                       |                             |                            |   |                       
|Pro forma net loss                     |                             | $         (2,226,000       | ) | $       (2,244,000    
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       
|Per share, as reported                 |                            
|From continuing operations             |                             | $                (0.06)    |   | $                 0.01
|From discontinued                      |                            
|operations                             |                             | (0.05)                     |   | (0.10)                
|                                       |                             |                            |   |                       
|Net loss                               |                             | $                (0.11)    |   | $               (0.09)
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       
|Per share, pro forma                   |                            
|From continuing operations             |                             | $                (0.07)    |   | $               (0.03)
|From discontinued                      |                            
|operations                             |                             | (0.05)                     |   | (0.10)                
|                                       |                             |                            |   |                       
|Net loss                               |                             | $                (0.12)    |   | $               (0.13)
|                                       |                             |                            |   |                       
|                                       |                             |                            |   |                       

Loss
Contingencies, Impairment of an Asset or Incurrence of a Liability

We are
subject to the possibility of various loss contingencies arising in the ordinary
course of business. We consider the likelihood of loss or impairment of an asset
or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of loss in determining loss contingencies. An estimated loss
contingency is accrued when it is probable that an asset has been impaired or a
liability has been incurred and the amount of loss can be reasonably estimated.
We regularly evaluate current information available to us to determine whether
such accruals should be adjusted.

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RECENT
ACCOUNTING PRONOUNCEMENTS

In
November 2002, the FASB issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees,
including Indirect Guarantees of Indebtedness of Others (FIN
45). FIN 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. FIN 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee. The disclosure provisions of FIN 45 are
effective for financial statements of periods ending after December 15, 2002.
Additionally, the recognition of a guarantors obligation should be applied
on a prospective basis to guarantees issued after December 31, 2002. The
adoption of the disclosure and recognition provisions of FIN 45 did not have a
material effect on the Companys results of operations or financial
position.

In
January 2003, FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 (FIN 46)
was issued. FIN 46 requires the consolidation of certain types of entities in
which a company absorbs a majority of another entitys expected losses,
receives a majority of the other entitys expected residual returns, or
both, as a result of ownership, contractual or other financial interests in the
other entity. These entities are called variable interest entities.
The principal characteristics of variable interest entities are (1) an
insufficient amount of equity to absorb the entitys expected losses; (2)
equity owners as a group are not able to make decisions about the entitys
activities, or (3) equity that does not absorb the entitys losses or
receive the entitys residual returns. Variable interests are
contractual, ownership or other monetary interests in an entity that change with
fluctuations in the entities net asset value. As a result, variable interest
entities can arise from items such as lease agreements, loan arrangements,
guarantees or service contracts.

If an
entity is determined to be a variable interest entity, the entity
must be consolidated by the primary beneficiary. The primary
beneficiary is the holder of the variable interests that absorb a majority of
the variable interest entitys expected losses or receive a majority of the
entitys residual returns in the event no holder has a majority of the
expected losses. There is no primary beneficiary in cases where no single holder
absorbs the majority of the expected losses or receives a majority of the
residual returns. The determination of the primary beneficiary is based on
projected cash flows at the inception of the variable interests.

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This standard amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Relationships. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships after June 30, 2003.
The adoption of this statement did not have a material effect on the
Companys results of operations or financial condition.

In May
2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial condition.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption the provisions of SFAS No.
150 did not have a material effect on the Companys results of operations
or financial condition.

32

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In
December 2003, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 104, Revenue Recognition (SAB 104), which
supersedes SAB 101, Revenue Recognition in Financial Statements. The
primary purpose of SAB 104 is to rescind accounting guidance contained in SAB
101 related to multiple element revenue arrangements, which was superseded as a
result of the issuance of EITF 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables. While the wording of SAB 104 has changed to
reflect the issuance of EITF 00-21, the revenue recognition principles of SAB
101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104
did not have a material impact on our financial statements.

In
December 2003, the FASB revised FIN 46 (FIN 46-(R)), delaying the
effective date for certain entities created before February 1, 2003 and making
other amendments to clarify the application of the guidance. In adopting FIN 46
and in anticipation of adopting FIN 46-(R), we have evaluated its various
variable interests to determine whether they are in variable interest entities.

We have adopted
FIN 46 for entities created subsequent to January 31, 2003 as of  December 31, 2003 and
adopted FIN 46-(R) as of the end of the interim period  ended March 31, 2004. The
adoption of FIN 46 and FIN 46(R) did not result in the  consolidation of any variable
interest entities.

In
December 2004, the FASB issued SFAS No. 123 (Revised 2004) Share-Based
Payment (SFAS No. 123R) that addresses the accounting for
share-based payment transactions in which a company receives employee services
in exchange for (a) equity instruments of the company or (b) liabilities that
are based on the fair value of the companys equity instruments or that may
be settled by the issuance of such equity instruments. SFAS No. 123R addresses
all forms of share-based payment awards, including shares issued under employee
stock purchase plans, stock options, restricted stock and stock appreciation
rights. SFAS No. 123R eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, Accounting for Stock
Issued to Employees, that was provided in Statement 123 as originally
issued. Under SFAS No. 123R companies are required to record compensation
expense for all share based payment award transactions measured at fair value.
This statement is effective for quarters ending after June 15, 2005. We have not
yet determined the impact of applying the various provisions of SFAS No. 123R.

QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET 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. Changes in interest rates may affect the amount of interest
we earn on available cash balances as well as the amount of interest we pay on
borrowings. To the extent that changes in interest rates and currency exchange
rates affect general economic conditions, we may also be affected by such
changes.

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ITEM 3.
CONTROLS AND PROCEDURES

(a)
Evaluation of Disclosure Controls and Procedures. Our principal executive
officer and principal financial officer, after evaluating the effectiveness of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly
Report on Form 10-QSB, have concluded that, based on such evaluation, our
disclosure controls and procedures were adequate and effective to ensure that
material information relating to us, including our 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 our
internal control over financial reporting, identified in connection with the
evaluation of such internal control that occurred during our last fiscal
quarter, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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PART II
 OTHER INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

On
March 26, 2004, we filed a petition for relief under Chapter 11 of the
Bankruptcy Code with the Court. On May 21, 2004, the Court closed the sale of
all of our assets and operations to TNS. We are operating as a
debtor-in-possession (DIP) under the jurisdiction of the Court and
in accordance with the applicable provisions of the Bankruptcy Code and orders
of the Court (the Chapter 11 Proceedings).

On
March 12, 2004, we were served with a complaint filed by U.S.A. Technologies,
Inc. in the District Court for the District of Delaware, alleging infringement
of one patent relating to certain aspects of our technology to enable vending
machines to accept credit cards and seeking unspecified damages and injunctive
relief. We believe this suit is without merit and intended to vigorously defend
such action. The suit has been stayed by virtue of our bankruptcy filing and is
subject to the Chapter 11 Proceedings.

We are
not currently subject to any other 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 SMALL BUSINESS ISSUER  PURCHASES OF EQUITY SECURITIES

None.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

Prior
to the Petition Date, we financed our business through a $2.75 million bridge
loan (the Bridge Loan) made by Brascan Financial Corporation
(Brascan), a subsidiary of the Toronto, Canada-based Brascan
Corporation. The Bridge Loan was secured by a lien upon and security interest in
all of the Companys assets. As part of the transaction, Platinum
contractually subordinated its lien upon our assets (other than Accounts
Receivable) to Brascans liens to the extent of $3,500,000.

As of
January 31, 2004, the Company was not in compliance with the minimum net worth
requirement set forth in the Bridge Loan documents and was in technical default
under several provisions of the Bridge Loan. Nonetheless, Brascan continued to
extend the balance of the remaining unadvanced amounts under the Bridge Loan to
us. As of January 31, 2004, we had drawn down the full amount of the $2.75
million Bridge Loan commitment. In light of the filing for the Chapter 11
Proceedings, we were in default on the Bridge Loan. The Bridge Loan was repaid,
with interest, on May 21, 2004 from the proceeds of the Auction Sales.

35

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

None.

ITEM 5.
OTHER INFORMATION

None.

ITEM 6. EXHIBITS

|Exhibit No. | Description of Exhibit
|----------- | ----------------------
|            |                       
|31          | .1                    
|31          | .2                    
|32          | .1                    
|32          | .2                    

36

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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:    January 26, 2005
|--------------------------
|                          

|Dated:    January 26, 2005
|--------------------------
|                          

37

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