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# SECURITIES
AND EXCHANGE COMMISSION

# Washington, DC 20549

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# FORM 10-QSB

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[X]    Quarterly Report under Section 13 or Section
15(d) of the Securities Exchange Act 
    
              
          
      of 1934 for the quarterly period ended
March 31, 2002

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

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Commission File Number 0-22848

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

Delaware
(State of incorporation)

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84-1178691
(IRS Employer
Identification No.)

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

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

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

As of April 30, 2002,
there were outstanding  14,666,164 shares of the Registrants  Common Stock
($0.01 par value per share).

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

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

Part I  FINANCIAL
INFORMATION            
            
            
            
            
        
                
        Page

`ITEM 1. Financial Statements

        Consolidated Balance Sheets as of
            March 31, 2002 and June 30, 2001................................     3

        Consolidated Statements of Operations for the three and nine months
            ended March 31, 2002 and 2001...................................     4

        Consolidated Statements of Stockholders' Equity for the nine
            months ended March 31, 2002.....................................     5

        Consolidated Statements of Cash Flows for the nine months ended
            March 31, 2002 and 2001.........................................     6

        Pro Forma Condensed Consolidated Statement of Operations for the
            nine months ended March 31, 2001................................     7

        Notes to Consolidated Financial Statements..........................     8-19

ITEM 2. Management's Discussion and Analysis of Financial
            Condition and Results of Operations.............................    19-44`

Part II  OTHER
INFORMATION

`ITEM 1. Legal proceedings....................................................   44
ITEM 2. Changes in securities and use of proceeds............................   44
ITEM 3. Defaults upon senior securities......................................   44
ITEM 4. Submission of matters to a vote of security holders..................   44
ITEM 5. Other information....................................................   44
ITEM 6. Exhibits and Reports on Form 8-K ....................................   45`

---

# Part I  FINANCIAL
INFORMATION

ITEM 1. Financial
Statements

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

`March 31,        June 30,
                                                                                      2002             2001
                                                                                    --------         -------
ASSETS                                                                            (Unaudited)
Current assets:
     Cash and cash equivalents ..............................................   $   6,175,000    $  18,205,000
     Accounts receivable, net of allowance for
        doubtful accounts of $134,000 and $55,000
        at March 31, 2002 and June 30, 2001, respectively ...................       1,040,000        1,515,000
     Inventory, net .........................................................       4,184,000        3,923,000
     Notes receivable .......................................................          88,000           87,000
     Other current assets ...................................................         616,000          472,000
                                                                                -------------    -------------
                Total current assets ........................................      12,103,000       24,202,000

Property and equipment, net .................................................       2,532,000        2,818,000
Segregated cash .............................................................         715,000          769,000
Intangible assets, net ......................................................      14,016,000       15,739,000
Other assets ................................................................          61,000           93,000
                                                                                -------------    -------------

                Total assets ................................................   $  29,427,000    $  43,621,000
                                                                                =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable .......................................................   $   1,868,000    $   2,258,000
     Accrued liabilities ....................................................       1,357,000        1,538,000
     Other current liabilities ..............................................          47,000          261,000
     Accrued restructuring expense, current portion .........................         371,000        1,000,000
     Obligation under capital lease, current portion ........................       1,104,000          793,000
     Purchase price payable, current portion ................................         466,000        2,557,000
                                                                                -------------    -------------

                Total current liabilities ...................................       5,213,000        8,407,000
                                                                                -------------    -------------

Deferred rent expense .......................................................         178,000          275,000
Accrued restructuring expense, less current portion .........................       1,543,000        1,400,000
Other liabilities, less current portion .....................................          47,000          109,000
Obligation under capital lease, less current portion ........................         177,000        1,074,000
Purchase price payable, less current portion ................................            --            455,000
                                                                                -------------    -------------

                Total liabilities ...........................................       7,158,000       11,720,000
                                                                                -------------    -------------
Commitments and contingencies

Stockholders' equity:
   Preferred stock, 25,000,000 shares authorized:
       Series C convertible, at $.01 par value, liquidation value
           $10.00 per share, aggregating $40,893,000 and $55,145,000
           at March 31, 2002 and June 30, 2001, respectively; 8,450,000
           shares authorized, 4,089,325 and 5,514,475 issued and
           outstanding at March 31, 2002 and June 30, 2001, respectively ....          41,000           55,000
   Common stock, 200,000,000 shares authorized at $.01 par value;
       14,567,832 and 11,478,419 shares issued and outstanding at
       March 31, 2002 and June 30, 2001, respectively .......................         145,000          115,000
   Additional paid-in capital ...............................................     143,376,000      142,873,000
   Unearned compensation ....................................................      (1,517,000)      (2,639,000)
   Accumulated deficit ......................................................    (119,776,000)    (108,503,000)
                                                                                -------------    -------------

                Total stockholders' equity ..................................      22,269,000       31,901,000
                                                                                -------------    -------------


                Total liabilities and stockholders' equity ..................   $  29,427,000    $  43,621,000
                                                                                =============    =============`

Accompanying
notes are an integral part of the financial statements

---

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

`For the three months ended     For the nine months ended
                                                      March 31,                      March 31,
                                              --------------------------     -------------------------
                                                 2002           2001            2002            2001
                                                 ----           ----            ----            ----
Revenues
   Service revenue
     Activation fees ..................   $     80,000    $     52,000    $    222,000    $    166,000
     Monthly fees .....................        440,000         243,000       1,180,000         409,000
     Transaction fees .................      1,378,000       1,164,000       4,236,000       1,306,000
     Other fees .......................        134,000         168,000         431,000         206,000
                                          ------------    ------------    ------------    ------------
         Total service fees ...........      2,032,000       1,627,000       6,069,000       2,087,000
   Product sales ......................         85,000           7,000         545,000          31,000
                                          ------------    ------------    ------------    ------------
         Total revenue ................      2,117,000       1,634,000       6,614,000       2,118,000
                                          ------------    ------------    ------------    ------------
Cost of revenues
     Services .........................      1,199,000       1,127,000       3,865,000       1,464,000
     Product sales ....................         79,000           5,000         416,000          22,000
     Inventory reserve ................           --              --              --           (70,000)
                                          ------------    ------------    ------------    ------------
         Total cost of revenue ........      1,278,000       1,132,000       4,281,000       1,416,000
                                          ------------    ------------    ------------    ------------
Gross profit ..........................        839,000         502,000       2,333,000         702,000

Operating expenses
Selling, general and administrative
   (exclusive of non-cash
    compensation) .....................      2,472,000       4,717,000       7,945,000      10,649,000
Non-cash compensation .................        375,000         370,000       1,122,000       1,110,000
                                          ------------    ------------    ------------    ------------
         Total selling, general and
         administrative ...............      2,847,000       5,087,000       9,067,000      11,759,000
Depreciation and amortization .........        765,000         849,000       2,500,000       1,302,000
Research and development ..............        415,000         570,000       1,304,000       1,367,000
Restructuring expense .................           --              --           625,000            --
                                          ------------    ------------    ------------    ------------
         Total operating expense ......      4,027,000       6,506,000      13,496,000      14,428,000
                                          ------------    ------------    ------------    ------------

Loss from operations ..................     (3,188,000)     (6,004,000)    (11,163,000)    (13,726,000)
Interest income .......................         26,000         387,000         260,000       1,565,000
Interest expense ......................       (138,000)           --          (312,000)           --
Other income ..........................         (3,000)         35,000          61,000         104,000
Taxes .................................        (80,000)           --          (119,000)           --
                                          ------------    ------------    ------------    ------------
         Total other income
         (expense) ....................       (195,000)        422,000        (110,000)      1,669,000
                                          ------------    ------------    ------------    ------------

Net loss ..............................   $ (3,383,000)     (5,582,000)   $(11,273,000)   $(12,057,000)
                                          ============    ============    ============    ============

Basic and diluted net loss per share ..   $      (0.24)   $      (0.49)   $      (0.88)   $      (1.22)
                                          ============    ============    ============    ============

Weighted average common shares
    outstanding, basic and diluted ....     14,070,000      11,336,000      12,817,000       9,868,000
                                          ============    ============    ============    ============`

Accompanying
notes are an integral part of the financial statements

---

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(Unaudited)

`Series C Preferred             Common Stock         Additional
                                                --------------------       ---------------------      Paid in
                                                Shares        Amount       Shares         Amount      Capital
                                                -----         ------       ------         ------    -----------

Balance at July 1, 2000 ..................     5,586,600   $  56,000     8,098,637    $ 8,099,000  $ 124,902,000
Exercise of stock warrants ...............       --             --       1,572,000         16,000         47,000
Non cash compensation ....................       --             --          --              --            --
Issuance of common stock and
  contingent consideration to CellGate ...       --             --         563,000          6,000      3,605,000
Issuance of common stock and contingent
     consideration to NXT shareholders'...       --             --       1,125,000         11,000      6,301,000
Conversion of Preferred C stock ..........       (72,125)     (1,000)      119,782          1,000         --
Adjustment to reflect
     par and stated value change .........       --             --          --         (8,018,000)     8,018,000
Net Loss .................................       --             --          --              --            --
                                             -----------    --------   -----------     ----------   ------------

Balance at June 30, 2001 .................     5,514,475   $  55,000    11,478,419    $   115,000  $ 142,873,000
Non cash compensation ....................       --             --          --              --            --
Conversion of Preferred C Stock ..........    (1,425,150)    (14,000)    2,375,648         23,000        (10,000)
Issuance of contingent
     consideration to Cellgate ...........       --             --         468,750         4,000          (6,000)
Non cash compensation ....................       --             --          30,571         1,000         112,000
Exercise of stock options ................       --             --         214,444         2,000         407,000
Net Loss .................................       --             --          --              --            --
                                             -----------    --------   -----------     ----------   ------------

Balance at March 31, 2002 ................     4,089,325   $  41,000    14,567,832    $   145,000  $ 143,376,000
                                             ===========    ========   ===========     ==========   ============

                                                                               Total
                                             Unearned       Accumulated     Stockholders'
                                           Compensation       Deficit          Equity
                                           ------------    -----------     -------------

Balance at July 1, 2000 .................  $  (4,119,000)  $ (89,246,000)  $ 39,692,000
Exercise of stock warrants ..............        --               --             63,000
Non cash compensation ...................      1,480,000          --          1,480,000
Issuance of common stock and
  contingent consideration to CellGate ..        --               --          3,611,000
Issuance of common stock and contingent
  consideration to NXT shareholders' ....        --               --          6,312,000
Conversion of Preferred C stock .........        --               --             --
Adjustment to reflect
     par and stated value change ........        --               --             --
Net Loss ................................        --          (19,257,000)   (19,257,000)
                                             -----------    ------------    -----------

Balance at June 30, 2001 ................  $  (2,639,000)  $(108,503,000)  $ 31,901,000
Non cash compensation ...................      1,122,000        --            1,122,000
Conversion of Preferred C Stock .........        --             --               (1,000)
Issuance of contingent
     consideration to Cellgate ..........        --             --               (2,000)
Non cash compensation ...................        --             --              113,000
Exercise of stock options ...............        --             --              409,000
Net Loss ................................        --          (11,273,000)   (11,273,000)
                                             -----------    ------------    -----------

Balance at March 31, 2002 ...............  $  (1,517,000)  $(119,776,000)  $ 22,269,000
                                             ===========    ============    ===========`

Accompanying
notes are an integral part of the financial statements

---

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

`For the nine months ended March 31,
                                                                              2002            2001
                                                                              ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................................   $(11,273,000)   $(12,057,000)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
         Depreciation and amortization ...............................      2,500,000       1,302,000
         Bad debt expense ............................................        100,000          10,000
         Deferred rent ...............................................        (97,000)         18,000
         Non-cash consulting services and other ......................      1,122,000       1,110,000
         Loss on asset disposal ......................................           --             5,000
         Gain on sale of fixed assets ................................           --            (1,000)
         Changes in current assets and liabilities:
               Accounts receivable ...................................        375,000        (361,000)
               Inventory .............................................       (260,000)     (1,403,000)
               Other current assets ..................................       (145,000)       (382,000)
               Other assets ..........................................         31,000          60,000
               Accounts payable ......................................       (390,000)     (2,671,000)
               Accrued liabilities ...................................       (181,000)        614,000
               Accrued restructuring expense .........................       (486,000)           --
               Other current liabilities .............................       (214,000)         93,000
               Other liabilities, less current portion ...............        (63,000)        109,000
                                                                         ------------    ------------

                   Net cash used in operating activities ...........     (8,981,000)    (13,554,000)
                                                                         ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of property and equipment ..........................       (440,000)     (1,688,000)
         Segregated cash .............................................         54,000        (129,000)
         Net payment for purchase acquisition, net of cash acquired ..     (2,598,000)     (1,164,000)
         Proceeds from sales of equipment ............................           --             2,000
         Notes receivable ............................................         (1,000)         (6,000)
                                                                         ------------    ------------

                     Net cash used in investing activities ...........     (2,985,000)     (2,985,000)
                                                                         ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from exercise of options ...........................        409,000          62,000
         Issuance of common stock ....................................        126,000            --
         Conversion of preferred stock ...............................        (14,000)           --
         Payment of notes payable ....................................           --          (690,000)
         Payments on obligations under capital lease .................       (585,000)           --
                                                                         ------------    ------------

                     Net cash used in financing activities ...........        (64,000)       (628,000)
                                                                         ------------    ------------

Net decrease in cash .................................................    (12,030,000)    (17,167,000)

Cash and cash equivalents, beginning of period .......................     18,205,000      39,231,000
                                                                         ------------    ------------

Cash and cash equivalents, end of period .............................   $  6,175,000    $ 22,064,000
                                                                         ============    ============`

Accompanying
notes are an integral part of the financial statements

---

Pro Forma Information
related to acquisitions

The following unaudited pro
forma information shows the results of the Company for the nine months ended
March 31, 2001, as if the acquisitions of and Cellgate Technologies, LLC and NXT
Corporation occurred on July 1, 2000. The pro forma results of operations are
unaudited, have been prepared for comparative purposes only and do not purport
to indicate the results of operations which would actually have occurred had the
combinations been in effect on the date indicated or which may occur in the
future.

# U.S. WIRELESS
DATA, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2001 (a)
(Unaudited)

`(Unaudited)      (Unaudited)     (Unaudited)     Cellgate            NXT          Combined
                               U.S. Wireless      Cellgate           NXT         Pro Forma        Pro Forma      Pro Forma
                                 Data, Inc.   Technologies LLC   Corporation    Adjustments      Adjustments       Results
                               -------------  ----------------   -----------    -----------      -----------     ---------

Revenues ....................  $  2,118,000    $     44,000    $  2,722,000           --               --      $  4,884,000
Cost of revenues ............     1,416,000         245,000       1,994,000           --               --         3,655,000
                               ------------    ------------    ------------   ------------     ------------    ------------
Gross profit ................       702,000        (201,000)        728,000           --               --         1,229,000

Operating expenses
Selling, general and
  administrative ............    11,951,000         732,000       2,294,000        425,000(b)       403,000(c)   15,805,000
Research and development ....     1,367,000            --              --             --               --         1,367,000
Non cash compensation .......     1,110,000            --              --             --               --         1,110,000
                               ------------    ------------    ------------   ------------     ------------    ------------
     Total operating
      expenses ..............    14,428,000         732,000       2,294,000        425,000          403,000      18,282,000

Loss from operations ........   (13,726,000)       (933,000)     (1,566,000)      (425,000)        (403,000)    (17,053,000)
Interest income .............     1,565,000            --              --             --               --         1,565,000
Interest expense ............          --            (8,000)       (139,000)          --               --          (147,000)
Other income ................       104,000            --              --             --               --           104,000
                               ------------    ------------    ------------   ------------     ------------    ------------
    Total other
     income (expense) .......   (12,057,000)       (941,000)     (1,705,000)      (425,000)        (403,000)    (15,531,000)
                               ------------    ------------    ------------   ------------     ------------    ------------

Net loss ....................  $(12,057,000)   $   (941,000)   $ (1,705,000)  $   (425,000)    $   (403,000)   $(15,531,000)
                               ============    ============    ============   ============     ============    ============

Basic and diluted net
  loss per share ............  $      (1.22)           --              --             --               --      $      (1.57)
                               ============    ============    ============   ============     ============    ============

Weighted average
     common shares
     outstanding,
     basic and diluted ......     9,868,000            --              --             --               --         9,868,000(d)
                               ============    ============    ============   ============     ============    ============`

Accompanying
notes are an integral part of the financial statements

# U.S.
Wireless Data, Inc.Notes to Pro Forma Condensed
Consolidated Statement of Operations(Unaudited)

|a) | U.S. Wireless Data, Inc. (USWD) acquired the assets and assumed
certain liabilities of Cellgate Technologies LLC (Cellgate) on November 16, 2000
and acquired NXT Corporation (NXT) on December 22, 2000. For the
purposes of the Unaudited Pro Forma Condensed Consolidated Statement of
Operations, information for Cellgate and NXT has been included from July 1, 2000
through their respective acquisition dates.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Represents the applicable amortization expense for intangible assets derived
from the Cellgate transaction. The intangible assets are being amortized on a
straight-line basis over four (4) years to ten (10) years.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) | Represents the applicable amortization expense for intangible assets derived
from the NXT transaction. The intangible assets are being amortized on a
straight-line basis over four (4) years to ten (10) years.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d) | Represents the weighted average number of common stock outstanding for the
period and (i) 562,500 shares issued at the date of closing of the Cellgate
acquisition and excludes 468,750 shares of common stock issued on November 16,
2001 pursuant to the acquisition agreement since they were issued after the date
presented in this statement, and (ii) 1,125,000 shares of USWDs common
stock issued as the date of closing of the NXT acquisition, and excludes
2,242,000 shares of common stock contingently issuable two years from the date
of closing depending on the average share price of USWD common stock.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

## Note 1 - THE
COMPANY

U.S. Wireless Data, Inc.
(USWD or the Company) was incorporated in the state of
Colorado on July 30, 1991 and was reincorporated in the state of Delaware on
October 6, 2000. U.S. Wireless Data, Inc. is a premier provider of transaction
delivery and gateway services to the payments processing industry. The Company
provides credit card processors, merchant acquirers, banks, and their respective
sales organizations with turnkey wireless and other IP- based transaction
management services. The Company also provides those entities with proprietary
wireless enabling products designed to displace conventional telephone lines and
to allow for card acceptance where such acceptance has heretofore been too
expensive or technologically unfeasible. These products may be utilized by
conventional card accepting retailers as well as emerging card accepting market
segments such as quick service restaurants (fast foods), taxis and limousines,
in-home service provider contractors, delivery services, vending machines,
sporting events, and outdoor markets. Our products may also be used in
conjunction with dial-up ATMs, PC-based electronic cash registers and other
types of integrated point-of-sale systems.

## Note 2 - BASIS
OF PRESENTATION

The Consolidated Balance
Sheet as of March 31, 2002, the Consolidated Statements of Operations for the
three and nine months ended March 31, 2002 and 2001, the Consolidated Statements
of Stockholders Equity for the nine months ended March 31, 2002, and the
Consolidated Statements of Cash Flows for the nine months ended March 31, 2002
and 2001 have been prepared by the Company, without an audit. In the opinion of
management, all adjustments have been made, which include normal recurring
adjustments necessary to present fairly the consolidated financial statements.
Operating results for the three and nine months ended March 31, 2002 are not
necessarily indicative of the operating results for the full year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. The Company believes
that the disclosures provided are adequate to make the information presented not
misleading. Certain amounts in the financial statements have been reclassified
from prior period presentations. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes included in the Companys Annual Report for
the year ended June 30, 2001 on Form 10-KSB.

## Note 3 
BASIS OF CONSOLIDATION

The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary
NXT Corporation (NXT). All intercompany accounts and transactions
have been eliminated in consolidation.

---

## Note 4 
RECENT ACCOUNTING PRONOUNCEMENTS

In March 2000, the
Financial Accounting Standards Board (FASB) issued Interpretation
No. 44 (FIN 44), Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion 25 for the following issues: (1) the definition of
employee for purposes of applying Opinion 25, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (4) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000.
The Company elected to early adopt FIN 44 in March 2000.

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

In July 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. The Company has not determined the impact
that SFAS 142 will have on the financial statements of the Company.

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

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standard on existing long-lived assets and plans to adopt the new
accounting standard in its financial statements for the fiscal year ending June
2003.

---

## Note 5 
ACQUISITIONS

## Cellgate
Technologies LLC

On November 16, 2000, the
Company acquired the assets and assumed certain liabilities of Cellgate
Technologies LLC (Cellgate), a Delaware limited liability company in
a cash and stock transaction. The acquisition was accounted for under the
purchase method of accounting and accordingly, the acquired assets and assumed
liabilities have been recorded at their estimated fair values. The purchase
price included $1,250,000 cash and 562,500 shares of the Companys Common
Stock, valued at the closing at an aggregate of $1,969,000 and additional
consideration.

In addition, the agreement
provided for the following: if the average Closing Price (as defined in the
Asset Purchase Agreement dated October 30, 2000) of the Companys Common
Stock for the twenty (20) consecutive trading days ending with the trading day
immediately preceding the one-year anniversary of the closing date is less than
$16.00 per share (as adjusted for any stock splits, stock dividends or similar
events), such additional consideration shall be an amount equal to: (i) the
number of the shares which have not previously been sold or transferred, subject
to certain exceptions, multiplied by (ii) the amount, if any, not to exceed
$10.00, by which such average Closing Price is less than $16.00. No less than
50% of such amount shall be paid in cash, and the balance shall be paid, at the
Companys option, in cash or shares of Common Stock having a value, based
on such average Closing Price provided that such average Closing Price for such
purposes shall not be less than $6.00 per share prior to the anniversary of the
closing. As a result, on November 16, 2001 and December 10, 2001, the Company
issued 468,750 shares of the Companys Common Stock and paid $2,812,500 in
cash, respectively. The operating results of Cellgate have been included in the
consolidated financial statements of the Company since the acquisition date. The
Company incurred approximately $475,000 of expenses related to this transaction,
which includes accounting fees, attorneys fees, investment banking fees
and other costs.

The purchase price was
calculated as follows:

`Cash paid                                                           $ 1,250,000
U.S. Wireless Data, Inc. Common Stock issued at closing
   valued at $3.50 per share                                          1,969,000
Maximum cash that may be paid in one (1) year discounted
   by 10% to present value                                            2,557,000
Maximum shares of U.S. Wireless Data, Inc. Common Stock that
   may be issued in one year valued at $3.50 per share                1,642,000
Closing costs                                                           475,000
Fair value of assumed liabilities as of November 16, 2000 (a)         3,353,000
                                                                     ----------
Total purchase price                                                 11,246,000
Less fair value of tangible assets acquired (a)                      (2,707,000)
                                                                     ----------

Total amount of acquired intangible assets and goodwill             $ 8,539,000
                                                                     ==========`

(a) The fair value of
assets acquired and assumed liabilities were increased by $2,505,000 and
$2,223,000, respectively, to reflect recognition of inventory and an obligation
under capital leases.

---

The purchase price was
allocated, based on an independent third party valuation, as follows:

`Allocated       Useful
                                                        Value          Life
                                                      ---------       ------
Intellectual Property:
   AT&T Wireless IP technology                      $  2,600,000          7
   CBF 2000 design and Tellus agreement                1,700,000          7
   Cellgate gateway application                          200,000          7
   Cellgate enterprise system                            200,000          7
   ATM wireless solution                               1,300,000          7
Acquired workforce                                       250,000          4
Fair value of tangible assets acquired                 2,707,000          4
Goodwill                                               2,289,000         10
                                                      ----------

Total allocation of purchase price                  $ 11,246,000
                                                      ==========`

The valuation methodology
for intangible assets and intellectual property were based on the income and
cost approach.

## NXT Corporation

On December 22, 2000, the
Company acquired NXT Corporation (NXT) in a stock for stock
transaction, accounted for under the purchase method of accounting. The assets
acquired and the liabilities assumed have been recorded at their estimated fair
values as of the date of the acquisition. The shareholders of NXT, including
holders of certain phantom stock rights in NXT have exchanged their shares of
Common Stock of NXT and such rights, for an aggregate of 1,125,000 shares of
USWDs Common Stock valued at an aggregate of approximately $2,109,000. In
addition, under certain circumstances, depending on the price of the
Companys Common Stock, a maximum in cash, discounted by 10% to the present
value, of $455,000 from $500,000 and approximately 2,242,000 shares of the
Companys Common Stock, valued at $4,203,000 may be issued two (2) years
from closing based on the following: if the Daily Average Price (as defined in
the Asset Purchase Agreement dated December 13, 2000) of USWD Common Stock for
the twenty (20) consecutive trading days ending with the trading day immediately
preceding December 21, 2002 is less than $18.40 per share (as adjusted for any
stock splits, stock dividends or similar events). Such additional consideration
shall be an amount equal to: (i) the number of the original 1,125,000 shares
which have not previously been sold or transferred, subject to certain
exceptions, multiplied by (ii) the amount, if any, not to exceed $12.40, by
which such Daily Average Price is less than $18.40. Such additional
consideration shall be paid to the NXT shareholders in cash, to the extent of
10% of the amount of the additional consideration to be paid by USWD, provided
that the aggregate amount of cash paid will not exceed $500,000. Any balance of
consideration due shall be paid in shares of USWD Common Stock having value
equal to the Daily Average Price, provided however, that for such purposes, in
no event shall the value ascribed to USWD Common Stock be lower than $6.00 per
share.

---

In addition to the
1,125,000 shares of Common Stock, the Company also assumed options for
approximately 76,000 shares of its Common Stock, which were fully vested on the
change of control, at exercise prices ranging from $7.50 to $33.07 per share.
The holders of such options may also be entitled, upon exercise of their
options, to additional consideration depending on the Daily Average Price of
USWD common stock for the twenty (20) consecutive trading days immediately
preceding December 21, 2002. The value was considered to be nominal, therefore,
not recorded.

In connection with the
merger, Paymentech, Inc. (Paymentech) and Merchant-Link, LLC,
NXTs two largest customers, agreed, subject to certain exceptions, to
maintain certain revenue levels of business with NXT over the next twelve (12)
months and twenty-four (24) months, respectively. Failure of either of these
parties to maintain such levels of business for any reason could materially
impair the value of the NXT acquisition. Paymentech, Inc. was a stockholder of
NXT and Merchant-Link, LLC is a wholly owned subsidiary of Paymentech, Inc.

In connection with the
merger, American Express Travel Related Services Company, Inc.
(AMEX), a stockholder of and service provider to NXT, agreed to
provide certain services at more favorable rates and the Company agreed that
AMEX shall be entitled to designate a person to serve as a member of its board
of directors for a period of two (2) years following the closing. The Company
also paid an aggregate amount of approximately $1,700,000 to AMEX and Paymentech
to retire certain indebtedness payable by NXT to AMEX and Paymentech other than
current trade payables. In addition, AMEX has provided the Company with $300,000
in business development funding.

The Company incurred
approximately, $1,055,000 of expenses related to this acquisition, which
includes accounting fees, attorneys fees, investment banking fees and
other costs. The operating results of NXT have been included in the consolidated
financial statements of the Company since the acquisition date.

The purchase price was
calculated as follows:

`Shares of U.S. Wireless Data, Inc. Common Stock issued at closing,
   valued at $1.875 per share                                         $  2,109,000
Maximum cash that may be paid in two years discounted
   by 10% to present value                                                 455,000
Maximum shares U.S. Wireless Data, Inc. Common Stock that
    may be issued in two years valued at $1.875 per share                4,203,000
Closing costs                                                            1,055,000
Assumed liabilities as of December 22, 2000                              3,260,000
                                                                        ----------
Total purchase price                                                    11,082,000
Less the fair value of tangible assets acquired                         (2,976,000)
                                                                        ----------

Total amount of acquired intangible assets and goodwill               $  8,106,000
                                                                        ==========`

---

The purchase price was
allocated, based on an independent third party valuation, as follows:

`Allocated        Useful
                                                         Value           Life
                                                       ---------        ------

Intellectual Property:
   IP transaction switch                            $  2,400,000          6
   Customer relationships                              1,700,000          4
   Proprietary software                                  864,000          5
   Tools & value added components                        190,000          6
Acquired workforce                                     1,300,000          5
Fair value of tangible assets acquired                 2,976,000          5
Goodwill                                               1,652,000         10
                                                      ----------

Total allocation of purchase price                  $ 11,082,000
                                                      ==========`

The valuation methodology
for intangible assets and intellectual property were based on the income and
cost approach.

The purchase price for both
acquisitions was recorded under EITF 97-15, Accounting for Contingency
Arrangements Based on Security Prices in a Purchase Business Combination,
under which additional contingent consideration will not affect the purchase
price.

## Note 6 
INTANGIBLE ASSETS

During the third quarter
and the first nine months of fiscal year 2002, no goodwill was acquired,
impaired, or written off.

All of USWDs acquired
intangible assets are subject to amortization. There were no material
acquisitions of intangible assets during the third quarter and the first nine
months of fiscal year 2002. Intangible assets amortization expense was $520,000
for the third quarter of fiscal year 2002 and $1,775,000 for the first nine
months of fiscal year 2002. The components of intangible assets are as follows:

`March 31, 2002                                June 30, 2001
                           -----------------------------------------      ----------------------------------------
                            Gross                             Net                                            Net
                           Carrying       Accumulated      Carrying       Carrying       Accumulated      Carrying
                            Amount        Amortization      Amount         Amount        Amortization      Amount
                           --------       ------------     ---------      --------       ------------     --------

Intellectual property   $  9,454,000    $ (1,760,000)   $  7,694,000   $  9,454,000    $   (780,000)   $  8,674,000

Acquired workforce         1,550,000        (252,000)      1,298,000      1,550,000        (106,000)      1,444,000

Marketing related          1,700,000        (212,000)      1,488,000      1,700,000         (85,000)      1,615,000

Goodwill                   3,941,000        (460,000)      3,481,000      3,889,000        (209,000)      3,680,000

Deferred
    acquisition costs
                             147,000         (92,000)         55,000        147,000         (37,000)        110,000
Acquired intangibles
     from NXT                432,000        (432,000)           --          432,000        (216,000)        216,000
                         -----------     -----------     -----------    -----------     -----------     -----------

Total                   $ 17,224,000    $ (3,208,000)   $ 14,016,000   $ 17,172,000    $ (1,433,000)   $ 15,739,000
                         ===========     ===========     ===========    ===========     ===========     ===========`

---

## Note 7 -
INVENTORY

`March 31,     June 30,
                                                 2002         2001
                                               --------      -------
Inventory consists of:
     Finished goods                        $  4,138,000  $  3,675,000
     Raw material                                37,000       239,000
     Work in process                             26,000        26,000
     Lower of cost or market reserve            (17,000)      (17,000)
                                             ----------    ----------
                                           $  4,184,000  $  3,923,000
                                             ==========    ==========`

The Company has
established a reserve to reflect the lower of cost or market value of the
inventory as of March 31, 2002 and June 30, 2001.

## Note 8 -
ACCRUED LIABILITIES

`March 31,     June 30,
                                                 2002         2001
                                               --------      -------
Accrued liabilities consists of:
     Accrued compensation                  $    948,000  $  1,102,000
     Accrued professional fees                   52,000       149,000
     Accrued telecommunication expenses          44,000        --
     Other                                      313,000       287,000
                                             ----------    ----------
Total accrued liabilities                  $  1,357,000  $  1,538,000
                                             ==========    ==========`

## Note 9 
ACCRUED RESTRUCTURING EXPENSE

USWD recorded pretax
charges totaling $2.4 million in the fourth quarter of the fiscal year ended
June 30, 2001, related to the consolidation of the Companys technical and
network operations for disposal of assets not used in the primary operations
facility and the estimated impact of vacating the unused facilities, net of
potential subleases.

As part of the
Companys consolidation of its technical and network operations and the
closure of its Bethesda, Maryland facility, a restructuring charge of $0.6
million was recorded in the first quarter of fiscal year 2002. The charge is
related to the cost of involuntary severance and related benefits for technical,
operations, engineering and administrative employees located in our Bethesda,
Maryland and Palmer Lake, Colorado facilities.

---

Provided below 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)                           (1,111,000)
            Additions to accrual (severance
                and benefits accrual)                          625,000
                                                           -----------
            Balance at March 31, 2002                        1,914,000
            Less current portion                              (371,000)
                                                           -----------
            Balance at March 31, 2002,
                excluding current portion                 $  1,543,000
                                                           ===========`

## Note 10 -
CAPITAL LEASE OBLIGATION

In November 2000, the Company
purchased the assets and assumed liabilities of Cellgate Technologies, LLC.
Included in the assumed liabilities were leases that financed the purchase of
equipment used in the ordinary course of business.

On July 29, 1999, Cellgate
entered into a Master Purchase and Lease Agreement with Tellus Technology Inc.
(Tellus) and Varilease Corporation (Varilease) in which
Tellus agreed to sell to Varilease and Varilease agreed to lease to the Company
wireless IP modem adapters (the Equipment Units). In connection
therewith, Cellgate entered into a separate Master Lease Agreement with
Varilease to lease Equipment Units. These agreements were assumed in the
purchase of assets and certain liabilities of Cellgate. At the end of the
period, and under the terms specified in the agreement, the Company may either
purchase the Equipment Units (at prices to be determined by the parties), extend
the lease for an additional twelve months (at specified rates), or return the
Equipment Units and purchase new units. While in its possession, the Company
bears the risk of loss for any damaged Equipment Units. In connection with the
lease agreement, the Company has $50,000, which is maintained in an escrow
account, included in restricted cash. As of March 31, 2002, the Company recorded
the fair value of the capitalized lease obligation of $1,254,000.

In addition, NXT entered
into capital leases for certain computer and network equipment, which expire on
various dates through 2002.

Future minimum lease
payments on capital leases, are as follows:

`For fiscal year ending June 30:
2002                                      $   261,000
2003                                        1,155,000
                                           ----------
Total minimum payments required             1,416,000
                                           ----------

Less amount representing
     Interest at 16.919%                     (134,000)
     Interest at 10.00%                        (1,000)
                                           ----------
     Total interest                          (135,000)
                                           ----------
Present value of net minimum
     lease payments                         1,281,000

Less current installments                  (1,104,000)
                                           ----------
Obligations under capital leases,
   excluding current installments         $   177,000
                                           ==========`

---

The carrying value of
assets under capital leases of $2,505,000 and $29,000, is included in inventory
and equipment, respectively, at March 31, 2002.

## Note 11 - NET
LOSS PER SHARE

Earnings (loss) per common
share (EPS) is computed using Statement of Financial Accounting Standards (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. Throughout fiscal year 2001 and
during the three and nine months ended March 31, 2002, such incremental amounts
have been excluded from the calculation since their effect would be
anti-dilutive. Such stock options, warrants and conversions could potentially
dilute earnings per share in the future.

The following table
reconciles the number of shares of common stock outstanding to the maximum
diluted shares of common stock:

Common Stock
Equivalents

`As of March 31,
                                                                      2002         2001
                                                                      ----         ----

Common shares outstanding                                          14,568,000   11,359,000
Series C Preferred Stock outstanding in common stock equivalents    6,816,000    9,311,000
                                                                   ----------   ----------
                                                                   21,384,000   20,670,000
                                                                   ----------   ----------
Warrants
      Outstanding related to the Private Placement
         Investor warrants                                          2,328,000    2,328,000
         Agent warrants                                             2,328,000    2,328,000
         Agent warrants                                               582,000      582,000
         Investment company warrants                                  466,000      466,000
         Investment company warrants                                  116,000      116,000
      Various outstanding                                             326,000      418,000
      Executive                                                     1,343,000    1,343,000
                                                                   ----------   ----------
                   Total warrants                                   7,489,000    7,581,000
                                                                   ----------   ----------
Options
      Outstanding, 1992 Option Plan                                   256,000      400,000
      Outstanding, 2000 Option Plan                                 2,622,000    1,346,000
      Outstanding, Non-Plan                                           338,000      505,000
                                                                   ----------   ----------
                   Total options                                    3,216,000    2,251,000
                                                                   ----------   ----------
Common stock contingently issuable for acquisitions                 2,242,000    2,710,000
                                                                   ----------   ----------

                   Total shares outstanding or issuable            34,331,000   33,212,000
                                                                   ==========   ==========`

---

## Note 12 
STOCKHOLDERS EQUITY

On October 6, 2000,
authorized capital was increased to 225,000,000 shares, 200,000,000 of which are
$.01 par value common stock and 25,000,000 of which are $.01 par value preferred
stock.

On November 16, 2001,
468,750 shares of common stock were issued to Cellgate Technologies LLC in
accordance with the acquisition agreement (see Note 5 for further information).

During the nine months
ended March 31, 2002, 1,425,150 shares of Series C preferred stock were
converted into 2,375,648 shares of common stock, in accordance with the terms of
the Series C preferred stock.

During the nine months
ended March 31, 2002, 512,750 stock options were granted to employees with
exercise prices equal to the fair market value of the Company's common stock at
the date of grant.

During the nine months
ended March 31, 2002, 214,444 options were exercised. In addition, 30,571 shares
of common stock were issued as non-cash compensation to a former executive of
the Company. The non-cash compensation was valued at $112,500 and charged
against the restructuring accrual.

For the nine months ended
March 31, 2002, $1,122,000 was charged to compensation expense relating to
options issued to four Board Members granted on March 29, 2000.

## NOTE 13 -
COMMITMENTS AND CONTINGENCIES

The Company has entered
into leases for certain computer equipment and facilities. Future minimum lease
payments under non-cancelable operating leases and the present value of future
minimum lease payments as of March 31, 2002, are as follows:

`Equipment        Facility
                                         Leases          Leases
                                       ---------        --------
For fiscal years ending June 30:
2002                                   $  7,000       $   446,000
2003                                     13,000         1,303,000
2004                                       --           1,279,000
2005                                       --           1,304,000
2006                                       --           1,379,000
Thereafter                                 --           4,943,000
                                        -------        ----------
Total minimum payments required        $ 20,000       $10,654,000
                                        =======        ==========`

---

The following table sets
forth, the Companys current facility leases:

Square
             Location
                
                
                
     Business Use     
                
                
          Footage
New York, New York     
Corporate Headquarters and Primary Sales and Marketing Offices       
     11,700
Palmer Lake, Colorado    
Research and Development and Primary Network Operations Center     
    6,100
                
           
            and Engineering Facility
Bethesda, Maryland       
Vacant-9,672 square feet currently sub-leased. Under contract       
            17,471
                
           
           
sub-lease remaining space.

As a security deposit for
the Companys New York facility, the Company maintains a letter of credit
in the amount of $456,300. The Company has restricted cash of $490,000 on
deposit in a money market fund as collateral for the letter of credit maintained
by the bank.

Included in restricted cash
is $175,000, which is held in certificate of deposit as a security deposit for
the Companys Bethesda facility.

The Company is obligated
through July 30, 2009 under a lease for its former office facility located in
Bethesda, Maryland. The future minimum lease commitment for the period April 1,
2002 through the date of expiration is $5,012,000. The Company has vacated the
majority of the space as of the close of business on November 1, 2001, and
anticipates vacating the remaining space of less than 2,000 square feet in the
near future. The Company has subleased this facility to a third party for
approximately $4,109,000 in aggregate payments for the balance of the
Companys lease term.

The Company anticipates
signing a lease for approximate 1,300 square feet to replace the existing
Bethesda, Maryland facility. The future minimum lease commitment is anticipated
to be $101,000 for the lease term ending May 31, 2005.

The Company has employment
agreements with four of its executive officers. The agreements are for initial
terms of two years, with automatic one-year extensions after the initial term.
In May 2001, the Company renewed the employment agreement with its Chairman and
Chief Executive Officer for a new initial term of three years, with automatic
one-year extensions after the initial term. As of March 31, 2002, the employment
agreements commit the Company to annual salary compensation of $900,000 and
annual discretionary bonuses of approximately $575,000. The agreements include
provisions for severance payments upon termination under certain conditions.

---

The Company has committed
to reimburse a third party 50%, up to a maximum of $300,000, for certain agreed
upon development costs.

The Company maintains
agreements with wireless, landline and other carriers for certain
telecommunication services from such carriers. The agreements include the
pricing for various services, including volume discounts and requirements.
Should the Company fail to maintain or reach any volume levels or requirements
as specified in the agreements, the prices the Company pays for services may
increase and may have an adverse effect on the results of operations.

An Intellectual Property
License Agreement with AT&T Wireless Services, Inc. (AT&T
Wireless) grants the Company a non-exclusive worldwide license to certain
proprietary technology of AT&T Wireless for use in the provision of wireless
data financial transactions using AT&T Wirelesss CDPD service. The
technology is currently utilized with the Companys Synapse Adapter, which
was acquired in the acquisition of Cellgate. The term of the agreement was
extended to the fifth anniversary of the closing date of the Companys
acquisition of Cellgate. Subject to the terms of this agreement, AT&T
Wireless cannot license the patents to a third party, except for certain
instances, provided the Company maintains certain minimum quantities of deployed
units at certain anniversary dates, or, at the Companys election, pays a
fee for any shortfall.

## ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

## 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 Act of 1933 or Section 21E of the Securities Exchange Act
of 1934, as amended. Such projections and forward-looking statements are based
on assumptions, which we believe are reasonable but are, by their nature,
inherently uncertain. In all cases, results could differ materially from those
projected. Some of the important factors that could cause actual results to
differ from any such projections or other forward-looking statements are
discussed below, and in other reports filed by us under the Securities Exchange
Act of 1934.

## OVERVIEW

U.S. Wireless Data, Inc.
(USWD or the Company) is the premier provider of
transaction delivery and gateway services to the payments processing industry.
We provide credit card processors, merchant acquirers, banks, ATM deployment
companies, and their respective sales organizations with turnkey wireless and
other IP-based transaction management services. We also provide those entities
with proprietary wireless enabling products designed to displace conventional
telephone lines and to allow for card acceptance where such acceptance has
heretofore been too expensive or technologically unfeasible. These products and
services may be utilized by conventional card accepting retailers as well as
emerging card accepting market segments such as quick service restaurants (fast
foods), taxis and limousines, in-home service providers contractors, delivery
services, vending machines, sporting events, and outdoor markets. Our products
may also be used in conjunction with dial-up automatic teller machines
(ATMs) and PC-based electronic cash registers and other types of
integrated point-of-sale systems.

---

## PRODUCTS AND
SERVICES

|1. | SynapseSM Wireless Point of Sale Services
For
mobile merchants or merchants setting up in temporary locations, wireless POS
systems are an obvious solution, enabling card acceptance and delivering
increased profits and greater customer satisfaction. U.S. Wireless Data is at
the forefront of this payments revolution, providing certification of wireless
credit card terminals from third-party manufacturers such as Lipman, Thales,
Ingenico, and others, to the Synapse host platform, which acts as a neutral
gateway to payment processors such as Concord, First Data Merchant Services,
Global Payments, Lynk, NPC, Paymentech and Vital. This sophisticated and
proprietary service opens the door to credit card processing for taxis and
limousines, in-home service providers, contractors, delivery services, vending
machines, sporting events, and outdoor markets. Our service is wireless carrier
agnostic, providing a broad selection of wireless data networks including the
Motient network, AT&T Wireless & Verizons CDPD network, and
Cingulars Mobitex network. The increased choice of networks allows
merchants to select the one that maximizes the coverage footprint for their
needs. Businesses with locations throughout the United States can implement a
wireless POS strategy using multiple networks to ensure optimal coverage.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Synapse AdapterTMand Synapse EnablerTMfor POS
U.S.
Wireless Data offers fixed-location retailers products that make it easy to
convert from dial-up to wireless. The Synapse Adapter is a plug-and-play
wireless modem that allows merchants to convert a single dial-up POS terminal to
wireless for cost savings and faster transactions. The Synapse Enabler
4500 operates similarly to the Synapse Adapter, but it can convert as many as
eight POS terminals to a single wireless connection, making it an ideal solution
for multi-lane environments.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Synapse AdapterTMfor ATMs
The Synapse Adapter also makes it easy for the operators of dial-up ATMs to go
wireless. Typically, dial-up ATMs are placed in off premise
locations such as convenience stores, delicatessens and shopping malls. To
install a dial-up ATM, a phone line must be ordered from the phone company and,
after waiting days or weeks, the line is installed. With the Synapse Adapter,
dial-up ATMs can be placed immediately, without the wait or cost of installing a
new phone line. Once installed using the Synapse Adapter, the ATM can be
relocated quickly and easily. Additionally, based on the monthly cost of a phone
line, the Synapse Adapter offers the opportunity to reduce operating costs.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|4. | Synapse Wireless Payment Acceptance on Phones and Pagers
With
more than 12,000 wireless POS sites already established on our Synapse platform,
the market for card payments will likely become even larger with the emergence
of new payment devices based on mobile phone, pager, and other
beltware technology. U.S. Wireless Data intends to offer beltware
solutions based on products from Creditel (cellular phones) and Comstar
(pagers).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Synapse EnablerTM for Vending
In
addition to fixed-location, mobile, and portable wireless applications, U.S.
Wireless Data is actively involved in integrating its propriety technology into
existing devices at the point of sale to create new opportunities for card
acceptance. Vending machines are one area in which the company has made
significant progress. An OEM version of the Synapse Enabler has been integrated
into more than 200 Pepsi vending machines throughout the Memphis, Tennessee area
as part of a pilot program for Pepsi-Cola North America to introduce credit card
payments for their vended products. In addition to enabling card payments on
Pepsi vending machines, the Synapse technology delivers up to the minute
information about inventory and operational status of each machine to Pepsi
bottlers, helping them become more efficient in determining their daily routes
and keeping machines operating at peak performance.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Synapse EnablerTMfor Transportation
U.S.
Wireless Data has also integrated its Synapse Enabler solution into Pulsar
taximeters, creating the CardMeter wireless taximeter, which is currently
in use by taxi fleets in Salt Lake City, Utah; Providence, Rhode Island; and
Cincinnati, Ohio. The Cardmeter solution offers fleets the opportunity to accept
cards and get real-time authorizations in their taxicabs, which is fast,
convenient, and safer because drivers carry less cash. In addition, we have also
recently completed the certification for taximeters offered by Centrodyne.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | NXT Gateway Services
U.S. Wireless Datas leadership in wireless payment processing through its
Synapse platform is complemented by a full array of landline-based data
transport, translation, processing and gateway services, which are provided
through its NXT platform to merchant locations throughout the U.S. We acquired
NXT in December of 2000, helping to create significant transaction volume and
broaden our offerings. NXT offers a robust transaction processing network with
access via 1-800 dial service, frame relay, Internet and VPN, as well as
satellite. In addition, the NXT network provides formatting, routing and
transaction splitting, including splitting at the network level for
American Express and loyalty and gift card programs, making legacy POS systems
operate more efficiently and with new levels of functionality.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|8. | Other Services
U.S.
Wireless Data also provides merchants and their processing companies with
customized solutions, including application development and hosting. These
services are provided to meet a specific merchant need such as loyalty,
electronic gift card or other card payment program.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## SYNAPSE
WIRELESS SOLUTIONS

Synapse wireless solutions
are providing the payments industry with timely access to wireless solutions
that support mobile payment processing, fixed-location payment processing,
wireless ATM deployment, wireless unattended vending, and much more. In each of
these areas, our payment processor clients, Independent Sales Organization
(ISO) clients, and end users benefit from one or more of the
following wireless advantages:

|1. | Making
Wireless Easy. Through proprietary data translation and reformatting,
Synapse connects wireless POS terminals, wireless network carriers, and the
payment processor in a payment transaction. The result is fully supported
wireless payment solutions on the leading bankcard processing platforms that
simplify the steps involved in selling, activating, and supporting wireless
payment solutions. This advantage is the cornerstone of the Synapse
brand.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Fixed
location merchants benefit from our Synapse wireless technology because it
offers cost savings. In most locations in the U.S., the cost of connecting a
point-of-sale (POS) system to a payment processor with a dial-up
line or leased-line is more expensive than a wireless connection. Therefore,
when a merchant chooses our wireless solution, they can save significantly on
their monthly communications costs, especially when they operate multiple POS
systems in a single location, such as a grocery store or ticketing
counter.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Synapse
wireless offers fixed location merchant increased transaction speed. Dial-up
transactions normally take 15-20 seconds, but wireless transactions are as fast
as 3 seconds. Such a dramatic increase in speed enables queue-sensitive merchant
locations, such as Quick Service Restaurants (QSR) and ticketing
counters, to embrace the benefits of card acceptance without slowing down their
operations. These businesses are keenly aware of the benefits of card
acceptance: higher average tickets (increasing 48% according to information
recently published by VISA), reduced drive-bys from customers who
are low on cash, and greater efficiency and accuracy at the cash
register.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Synapse
offers ISOs and payment processors new ways to generate revenue and
incremental profits. With Synapse, our customers can now share in the
revenues and profits of wireless communications. Merchant acquirers and
processors can build additional margin into the Synapse Adapter and Synapse
Enabler wireless service that can be packaged with their payment processing
offerings due to the lower cost of wireless versus a dial-up connection. This
will benefit the payments industry right now, as players large and small are
seeking ways to improve their payment processing margins.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

## RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2002 AND 2001

## KEY METRICS

We utilize several basic
performance metrics to measure the progress of our operations. Some of the
metrics we rely upon include: (1) the number of resellers through which we sell
our various products and services; (2) the number of active sites that can
process transactions through one or more of our hosts, including those that
transmit via wireless, satellite, dial-up and leased-line technology; (3) the
number of transactions processed through one or more of our hosts; (4) the
number of units of USWD equipment sold; and (5) EBITDA - Earnings before
interest, taxes, depreciation, amortization and other non-cash items.

## Resellers

As of March 31, 2002, we
had over 216 resellers under contract to sell our products and services as
compared to 121contracts that were in place at March 31, 2001. As of
March 31, 2002, more than 100 of these 216 resellers were actively engaged in
the sale of one or more of our products or services.

## Active Sites

Synapse Services.Active wireless sites have grown to over 12,300 at March 31, 2002, an
increase of 6,900 or over 127% compared to the same period last fiscal year.
Since June 30, 2001, we have added over 5,700 new terminals or an increase of
86%. As of March 31, 2002, we had over 10,400 merchants using Synapse.

NXT Gateway Services.Total active sites on the NXT gateway as of March 31, 2002 were over 45,400
compared to 42,500 active sites as of March 31, 2001, representing an increase
of over 2,900, or 7%. Since June 30, 2001, 2,400 total new active sites have
been acquired.

## Transactions

Synapse Services.Wireless transactions processed for the three and nine months ended March
31, 2002, were 1,203,000 and 3,274,000, respectively, an increase of over
508,000 or 73% and 1,768,000 or 117% from the same periods last fiscal year.
This was due to an increase in active wireless sites and their respective
transactions.

NXT Gateway
Services. Our NXT Gateway Service Host utilizes traditional
narrowband/dedicated networks (i.e.: dial lines and leased-line circuits) to
deliver transactions between merchants and processors. Total transactions for
the three and nine months ended March 31, 2002 were 146 million and 421 million,
respectively, compared to 124 million and 355 million for the same periods in
fiscal year 2001, an increase of over 22 million, or 18%, and 66 million
transactions, or 19%, respectively.

---

## Equipment
Sales in Units

Unit sales for the three
and nine months ended March 31, 2002 were 212 and 1,686, respectively, as
processors and merchant acquirers continue to market the Synapse Adapters for
resale to retail merchants, and the Synapse Enabler, for conversion of taxi
meters, vending machines and other integrated devices to accept credit cards
wirelessly.

## REVENUE

We derive revenue primarily
from two sources: service fees and equipment sales. Service fees consist of: (a)
one-time, non-refundable service activation fees; (b) wireless and landline fees
for transactions delivered on wireless, broadband and narrowband networks
through one or more of our hosts; (c) monthly fees for providing online, real
time reports; (d) monthly minimum subscription fees; and (e) other fees,
including software development fees and hosting services. Service fees are
generated from both our Synapse Service and NXT Gateway Services platforms. Most
U.S. Wireless Data services are designed to be device-independent and serve
multiple platforms that enable our clients to support a variety of protocols,
hence, a variety of products and services. Equipment sales are derived from the
sale of our proprietary Synapse Adapter and Synapse Enabler products.

## Total Revenues

Total revenues were
$2,117,000 and $6,614,000 for the three and nine months ended March 31, 2002, as
compared to $1,634,000 and $2,118,000 for the same periods in the last fiscal
year. This improvement from the prior year represents a 30% increase for the
quarter and over a 212% increase for the nine months. The increase for the
quarter compared to the same quarter last year was attributed to higher
transaction and monthly service revenues. The NXT and Cellgate acquisitions are
included for both of the three months ended March 31, 2001 and 2002. Including
revenue from NXT for the period prior to the acquisition, total revenues for the
nine months ended March 31, 2001 were $4,884,000 compared to $6,614,000 for the
nine months ended March 31, 2002, a 35% increase. The increase for the nine
months is due to the inclusion of the revenue associated with the acquisitions
of Cellgate Technologies LLC and NXT Corporation and our continued successful
efforts in marketing our flagship suite of Synapse products and services. Most
revenue categories, including recurring services, transaction fees and equipment
revenues, increased from the prior year, all of which are discussed in more
detail below.

## Service
Revenues

Activation Revenue.Activation revenue, which is generated through our proprietary Synapse
Gateway, was $80,000 for the three months ended March 31, 2002, a $28,000 or a
53% increase as compared to the three months ended March 31, 2001. Activation
revenue for the nine months ended March 31, 2002 was $222,000, a $56,000 or a
33% increase as compared to the nine months ended March 31, 2001. These
increases are a direct result of significant increases in merchant activations
for our Synapse services.

---

Recurring Monthly
Revenue.Recurring monthly service revenue, which is generated from the
Synapse Gateway, was $440,000 for the three months ended March 31, 2002, a
$197,000 or an 81% increase as compared to the three months ended March 31,
2001. Recurring service revenue for the nine months ended March 31, 2002 was
$1,180,000, a $771,000 or a 188% increase as compared to the nine months ended
March 31, 2001. The increases for both the three and nine months are attributed
to the significant growth in total activations and a decline in deactivations.

Transaction Revenue.Both our Synapse and NXT Gateway Services generate transaction revenue.
Total transaction revenue for the three months ended March 31, 2002 was
$1,378,000 compared to $1,164,000 for the same period last year, an over 18%
increase. The revenue associated with the NXT acquisition is included for both
the 2002 and 2001 periods. Total transaction revenue for the nine months ended
March 31, 2002 was $4,236,000, compared to $1,306,000 during the same period
last year, an over 224% increase. Including revenue generated by NXT prior to
the acquisition, revenue for the same period last year was $4,028,000.
Accordingly, transaction revenue increased by $208,000 or 5%. The increase for
both Synapse and NXT Gateways is attributed to a higher number of transactions
per active site, increased revenue per transaction and the addition of a
significant number of new customer sites.

## Equipment
Revenue

Equipment revenue is
derived from the sale of our proprietary wireless conversion devices, the
Synapse Adapter and the Synapse Enabler. Equipment revenue increased for the
three months ended March 31, 2002 to $85,000 compared to the same period last
year of $7,000. Equipment revenue increased for the nine months ended March 31,
2002 to $545,000 from $31,000 during the same period last year. The increases
were attributed to penetrating new markets that utilize the Synapse Adapter and
Enabler for vending, multilane restaurants, ATMs, existing POS and
transportation solutions, which are discussed below.

As previously announced, we
have entered into a strategic partnership with Pepsi-Cola North America
(Pepsi) to provide our proprietary wireless vending solution. This
solution will enable Pepsi vending machines to accept credit cards by
transmitting the credit card information and approval wirelessly and to provide
detailed inventory and mechanical information to the Pepsi bottlers on a real
time basis. The system is currently being operated on a pilot basis with
approximately 200 machines in Memphis, Tennessee.

Also during the third
quarter, we have continued to deploy Synapse Adapters to convert dial point of
sale terminals to wireless for a major worldwide quick service restaurant. Our
Synapse Adapter solution provides queue sensitive merchants the ability to
process credit and debit card purchases faster than a traditional dial terminal
and eliminates the need for phone lines.

## GROSS PROFIT

Gross profit consists of
revenues, net of direct costs of sales. Costs of sales consist primarily of the
cost for the initial setup and ongoing communications costs associated with
terminals connected through Synapse, costs related to sales of the Synapse
Adapter and Enablers, and certain other carrier costs. Total gross profit for
the three months ended March 31, 2002 was $839,000, compared to $502,000 for the
same period in fiscal year 2001, which was over a 67% increase. Total gross
profit for the nine months ended March 31, 2002 was $2,333,000, compared to
$702,000 for the same period in fiscal year 2001, an increase of over 232%.

---

Service gross profit for
the three months ended March 31, 2002 was $833,000, compared to $500,000 for the
same period in fiscal year 2001, which was a 66% increase. Service gross profit
for the nine months ended March 31, 2002 was $2,204,000, compared to $623,000
for the same period in fiscal year 2001, a 254% increase.

Equipment gross profit for
the three months ended March 31, 2002 was $6,000, compared to $2,000 for the
same period in fiscal year 2001. Equipment gross profit for the nine months
ended March 31, 2002 was $129,000, compared to a gross loss of $9,000 for the
same period in fiscal year 2001.

The improvement in gross
profit for the three months ended March 31, 2002 was attributed to volume
increases from NXT Gateway services and Synapse services. The gross profit for
the NXT and Cellgate acquisitions were included for both the three months ended
March 31, 2001 and 2002. For the nine months ended March 31, 2002 as compared to
the same period in fiscal year 2001 was primarily the result of: (1) inclusion
of the gross profit associated with the acquisitions of Cellgate and NXT for a
full nine months; (2) an increase in higher margin Synapse service revenues
during the first nine months of fiscal year 2002; and (3) an increase in
equipment sales during the first nine months of fiscal year 2002.

## GROSS MARGIN

Total gross margin (gross
profit as a percentage of net revenues) for the three months ended March 31,
2002 expanded 9% from 30.7% to 39.6% for the same period of fiscal year 2001.
This improvement was attributed to higher service related revenue volumes and a
decrease in cost of sales for NXT related to lower carrier costs. Total gross
margin for the nine months ended March 31, 2002 increased to 35.3% from 33.1%.

Service gross margin
increased for the three months and nine months ended March 31, 2002 to 41.0% and
36.3% from 30.7% and 29.9%, respectively, from the same periods in fiscal year
2001. This margin increase is primarily due to a greater percentage of Synapse
service revenue than in the previous fiscal year.

Equipment gross margin was
7.1% for the three months ended March 31, 2002 compared to 28.6% for the same
period last fiscal year. The decrease is primarily attributed to the higher mix
of the vending Enablers, which have a lower margin than our standard equipment
selling prices. The margins on the vending enabler will increase as additional
units are deployed due to cost reductions from our manufacturer based on volume
discounts.

---

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

`For the three months ended    For the nine months ended
                                   March 31,                    March 31,
                          --------------------------    -------------------------
                              2002         2001              2002         2001
                          --------------------------    -------------------------
Revenues
   Activation revenue          3.8%         3.2%              3.4%         7.8%
   Monthly fees               20.8%        14.9%             17.8%        19.3%
   Transaction fees           65.1%        71.2%             64.0%        61.7%
   Other revenue               6.3%        10.3%              6.5%         9.7%
                             -----        -----             -----        -----
Total service revenues        96.0%        99.6%             91.7%        98.5%
Equipment revenue              4.0%         0.4%              8.3%         1.5%
                             -----        -----             -----        -----

Total revenue                100.0%       100.0%            100.0%       100.0%
                             =====        =====             =====        =====

Gross margin
   Synapse services           54.5%        51.7%             46.3%        43.9%
    NXT services              36.7%        24.4%             31.5%        26.7%
   Equipment                   7.1%        28.6%             23.7%        29.0%
   Other                       0.0%         0.0%              0.0%        (3.0%)

Total gross margin            39.6%        30.7%             35.3%        33.1%`

## OPERATING
EXPENSES

Total operating expenses
for the three months ended March 31, 2002 were $4,027,000, a decrease of
$2,479,00 or 38% compared to the same period last fiscal year. This decrease was
due to the realization of the cost savings from the initial stages of our
acquisition consolidation plan initiated at the end of fiscal year 2001.
Operating expenses for the nine months ended March 31, 2002 decreased by
$932,000 or 6.5% compared to the same period last fiscal year. The decrease was
lower than anticipated due to higher amortization of goodwill from the
acquisition of Cellgate and NXT of approximately $1,198,000 and a one time
restructuring charge of $625,000 related to the consolidation of our facilities
for severance and related benefits. Excluding these items, operating expenses
were lower by approximately $2,755,000 or 19%.

---

## Research and
Development Expenses

Research and development expenses
consist primarily of engineering personnel costs for research, design and
development of the proprietary technology we use to integrate and develop our
products and services. Research and development expenses decreased $155,000, or
27%, to $415,000 for the three months ended March 31, 2002, from $570,000 for
the comparable period in fiscal year 2001. For the nine months ended March 31,
2002, research and development expenses decreased $63,000 or 4.6%, to $1,304,000
from $1,367,000 for the nine months ended March 31, 2001. The decreases are
primarily the result of reduction of employees related to our facilities
consolidation.

During the fourth quarter
of fiscal year 2001, we changed the methodology for recording research and
development expenses. The costs were originally reported in selling, general and
administrative expense, but have been reclassified and are now recorded as
research and development expenses.

## Selling,
General and Administrative Expenses

Selling, general and
administrative expenses consist primarily of salaries and benefits for sales,
general and administrative personnel, advertising and promotion expenses,
professional service fees, occupancy and general office expenses, travel
expenses, other general corporate purposes and non-cash compensation. Sales,
general and administrative expenses excluding non-cash compensation, research
and development, depreciation and amortization and restructuring costs were $2.5
million for the three months ended March 31, 2002 compared to $4.7 million for
the three months ended March 31, 2001, a 47% decrease. Sales, general and
administrative expenses excluding non-cash compensation, research and
development, depreciation and amortization and restructuring costs were $7.9
million for the nine months ended March 31, 2002 compared to $10.6 million for
the nine months ended March 31, 2001, a 25% decrease. The decreases are
primarily attributed to the successful implementation of our integration and
consolidation plan for our Cellgate and NXT acquisitions. This plan has reduced
overall operating expenses by approximately $0.8 million per month or $9.6
million on an annual basis, representing approximately 42% of our ongoing annual
operating expenses. These expense reductions are related to personnel,
professional fees, consulting services, facility expenses, travel expenses,
public relations expenses and advertising and promotion expenses.

## Depreciation
and Amortization

Amortization of intangibles
includes amortization of goodwill, core technology, trademarks, customer lists,
contract rights, patents and assembled workforce. Amortizations of intangibles
were $0.5 million and $1.5 million for the three and nine months ended, March
31, 2002, respectively compared with $0.2 million for the three and nine months
ended March 31, 2001. The increases are a result of amortization of intangibles
recorded from the acquisitions of Cellgate and NXT. Intangibles for acquisitions
are being amortized over four to ten years. In the event that we complete
additional acquisitions, expenses relating to the amortization of intangibles
could increase in the future. Depreciation and amortization of fixed assets,
leasehold improvements and software were $0.3 million and $1.0 for the three and
nine months ended, March 31, 2002, respectively.

---

## Restructuring
Charge

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 Bethesda, Maryland network operations
center with our research and development and operations center, located in
Palmer Lake, Colorado. In addition, we recorded pretax charges totaling $625,000
or $0.05 per share, in the first quarter of fiscal year ending June 30, 2002,
related to severance payments to employees and benefits.

Provided below 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)                            (1,111,000)
            Additions to accrual (severance
                and benefits accrual)                           625,000
                                                            -----------
            Balance at March 31, 2002                         1,914,000
            Less current portion                               (371,000)
                                                            -----------
            Balance at March 31, 2002,
                excluding current portion                  $  1,543,000
                                                            ===========`

## INTEREST AND
OTHER

Interest income for the
three months ended March 31, 2002 was $26,000, compared to $387,000 for the same
period in fiscal 2001. Interest income for the nine months ended March 31, 2002
was $260,000, compared to $1,565,000 for the same period in fiscal 2001.
Interest income decreased due to lower cash balances invested corresponding with
the utilization of cash to fund our growth expectations and the decline in
interest rates over the period.

Interest expense for the
three and nine months ended March 31, 2002 was $138,000 and $312,000,
respectively, related to the financing under a capital lease for Synapse
Adapters assumed with the acquisition of Cellgate and amortization of a discount
for the expected cash payment due to NXT shareholders. There was no interest
expense for the three and nine months ended March 31, 2001. Other income, which
consists primarily of rental income for a sublet facility was none for the three
months ended March 31, 2002, as compared to $35,000 for the three months ended
March 31, 2001. Other income for the nine months ended March 31, 2002 was
$61,000 compared to $104,000 for the same period in fiscal year 2001.

Tax expense for the three
and nine months ended March 31, 2002 was $80,000 and $119,000, respectively.
There was no tax expense for the three and nine months ended March 31, 2001.

## NET LOSS

For the three months ended
March 31, 2002, net loss totaled $3.4 million or $0.24 per share, as compared to
a net loss of $5.6 million or $0.49, for the three months ended March 31, 2001.
For the nine months ended March 31, 2002, net loss totaled $11.3 million or
$0.88 per share, as compared to a net loss of $12.1 million or $1.22, for the
nine months ended March 31, 2001.

---

## ADJUSTED EBITDA

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

We use a modified version
of EBITDA (Adjusted EBITDA) as an internal measure of operating
performance, which is net loss excluding net interest, other income, taxes,
depreciation and amortization, restructuring expenses and non cash compensation.
Adjusted EBITDA loss for the three months ended March 31, 2002 was $2.0 million
or $0.15 per share as compared to the same period last year of $4.8 million or
$0.42 per share. This improvement in adjusted EBITDA loss of $2.7 million or
approximately 56% is primarily attributed to substantially higher revenues and
a reduction of operating expenses as discussed in prior sections. Adjusted
EBITDA loss for the nine months ended March 31, 2002 was $6.9 million or $0.54
per share as compared to the same period last year of $11.3 million or $1.15 per
share.

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

`For the three months ended      For the nine months ended
                                           March 31,                        March 31,
                                    --------------------------      -------------------------
                                      2002            2001            2002            2001
                                      ----            ----            ----            ----

Net loss                         $ (3,383,000)   $ (5,582,000)   $(11,273,000)   $(12,057,000)

Depreciation and amortization         765,000         849,000       2,500,000       1,302,000


Non-cash compensation                 375,000         370,000       1,122,000       1,110,000

Restructuring expenses                   --              --           625,000            --

Net interest and other                195,000        (422,000)        110,000      (1,669,000)
                                 ------------    ------------    ------------    ------------


Adjusted EBITDA loss             $ (2,048,000)   $ (4,785,000)   $ (6,916,000)   $(11,314,000)
                                 ============    ============    ============    ============


Adjusted EBITDA loss per share   $      (0.15)   $      (0.42)   $      (0.54)   $      (1.15)
                                 ============    ============    ============    ============


Net loss per share               $      (0.24)   $      (0.49)   $      (0.88)   $      (1.22)
                                 ============    ============    ============    ============`

---

## FINANCIAL
CONDITION, CAPITAL RESOURCES AND LIQUIDITY

At March 31, 2002 our principal
source of liquidity was $6.2 million in cash and cash equivalents. We have
incurred losses since our inception and, as of March 31, 2002, we had an
accumulated deficit of approximately $119.8 million.

Net cash used in operating
activities was $9.0 million for the nine months ended March 31, 2002. This
primarily consisted of net operating losses, increases in inventory and accounts
payable, offset by a decrease in accounts receivable and non-cash charges for
depreciation, amortization and consulting services. Net cash used in operating
activities was $13.6 million for the nine months ended March 31, 2001. This
primarily consisted of net operating losses, increases in inventory and accounts
receivable, offset by decreases in accounts payable and non-cash charges for
depreciation, amortization and consulting services

Net cash used in investing
activities was $3.0 million for the nine months ended March 31, 2002. This
amount consists primarily of $2.6 million, which was paid to Cellgate
Technologies LLC under the purchase agreement (see Note 5 of the Notes to
Consolidated Financial Statements for additional information), and $0.4 million
for purchases of capital equipment. Net cash used in investing activities for
the nine months ended March 31, 2001 was $3.0 million, consisting primarily of
purchases of equipment and acquisition costs.

Net cash used in financing
activities was $60,000 for the nine months ended March 31, 2002, which was
related to payments for obligations under capital leases, offset by proceeds
from the exercise of stock options. Net cash provided by financing activities
for the nine months ended March 31, 2001 was $0.6 million, which was related to
a payment of a note payable, offset by cash received from the exercise of
warrants.

As of June 30, 2001,
Adjusted EBITDA was averaging approximately $1.4 million. Adjusted EBITDA has
improved to an average net loss of $0.7 million per month for the third quarter
of fiscal year 2002 as we realized the benefits from the reductions in operating
expense and increased sales. In addition, we believe Adjusted EBITDA will
continue to improve as revenue increases from its current levels and we
continue to minimize our costs in future quarters.

Based on our current
estimates of revenue levels, operating costs and other cash outlays, we believe
we have enough cash for the next 12 months. However, if our revenue estimates
are too high or our cost estimates too low, we may need additional capital
sooner than 12 months. In addition, our concerns about capital may lead to us
taking additional steps to cut costs and, depending on whether we are successful
in our efforts to raise additional capital, may require us to eliminate or
curtail certain of our projects and take additional steps to conserve cash that
may adversely affect our operations. In connection with our efforts to raise
capital, we have hired investment bankers and are exploring a number of
alternatives, including debt or equity financings, strategic investment and
disposition of certain assets. There can be no assurance that we will succeed in
raising capital, either on favorable terms or at all, pursuant to any of these
alternatives.

We believe that our future
success will depend largely on our ability to continue to offer wireless and
other gateway solutions that are attractive to our existing and potential future
clients. Therefore, we plan to:

---

|° | continue to develop and upgrade our products, services, connectivity and message
translation technology;
|- | --------------------------------------------------------------------------------------------------------

|° | expand our wireless and other gateway service and product offerings and
cross-sell such services and products to our existing clients;
|- | --------------------------------------------------------------------------------------------------------------------------------------

|° | seek out co-marketing alliances and other partnering opportunities with card
associations, carriers, device manufacturers and card processors in an effort to
seed new and emerging markets;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | increase capital equipment expenditures to meet service level agreement
requirements and build-out our evolving infrastructure;
|- | -------------------------------------------------------------------------------------------------------------------------------

|° | expand our mobile and fixed wireless installations by up-selling and
cross-selling to our existing merchant aggregator partners and grow our network
of merchants;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | expand our NXT Gateway Service capabilities to meet the growing message
translation needs of both our wireless and land-line clients; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------

|° | seek out merger and acquisition or other opportunities that will either enhance
our technology and/or generate additive revenue that will be accretive to our
earnings.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

## Seasonal
Variation of Business

We anticipate that the
recurring revenue generated under Synapse and NXT Gateway Services agreements
with merchants, merchant acquirers and credit card processors will be relatively
immune to seasonal variations, although we expect that transaction related
revenue will reflect seasonal variations paralleling consumer spending patterns,
generally increasing somewhat during the holiday season. The placement of
devices can be expected to be slow during that season as well, due to the
reluctance of merchants to change processors during premier shopping seasons and
the general industry freeze on new systems implementations during that season.

## CRITICAL
ACCOUNTING POLICIES

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

---

## Revenue
Recognition

We derive revenue from two
primary sources: service fees and equipment sales. Service fees consist of: a)
one-time, non-refundable service activation fees; b) wireless and landline
transaction fees; c) monthly minimum subscription fees; and d) software
development fees. Equipment sales are derived from the sale of USWDs
proprietary Synapse Adapter and Synapse Enabler line displacement wireless
devices.

In the normal course of
business, we generate revenue through the sale of equipment and services.
Revenue is recognized when earned. More specifically revenue related to sales of
our products and services are as follows:

Equipment.Revenues
from the sale of equipment of customer installable and merchant channels type
products are recognized upon shipment. Revenues from equipment under rental
agreements and similar arrangements are accounted for by the operating lease
method and are recognized over the rental term.

Services.Service
revenues are derived primarily from activation fees, transaction fees and
subscription fees for our equipment or other equipment manufacturers sold to
customers and are recognized as services are provided.

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

Software Development.
Software development revenue is derived from the development of customized
software and is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is determinable and collectibility is probable.

## Internally
Developed Software

Certain costs of developing
or obtaining software for internal use were required to be capitalized beginning
in fiscal 2000. Costs incurred during the three and nine months ended March 31,
2002 are as follows:

Research and Development
Costs of Computer Software.All costs incurred to establish the
technological feasibility of a computer software product to be sold, leased, or
otherwise marketed are research and development costs. These costs are charged
to expense when incurred as required by FASB Statement No. 2, Accounting for
Research and Development Costs.

Production Costs of
Computer Software. Costs of producing product masters incurred subsequent to
establishing technological feasibility are capitalized. These costs include
coding and testing performed subsequent to establishing technological
feasibility. Software production costs for computer software that is used as an
integral part of a product or process is capitalized only when technological
feasibility has been established for the software and all research and
development activities for the other components of the product or process have
been completed.

---

As a product is available
for general release to customers, capitalization of software costs is
discontinued and related maintenance and customer support and costs are charged
to expense when costs are incurred.

Amortization of
Capitalized Software Costs.Capitalized software costs are amortized on a
product-by-product basis on a straight-line basis over the remaining estimated
economic life of the product.

Inventory Costs.Costs incurred for duplicating the computer software, documentation, and
training materials from the product masters and for physically packaging the
product for distribution are capitalized as inventory on a unit-specific basis
and charged to cost of sales when revenue from the sale of those units is
recognized.

Evaluation of
Capitalized Software Costs. On a quarterly basis, any unamortized
capitalized costs of our products are compared to the net realizable value of
that product at the balance sheet date. The amount by which the unamortized
capitalized costs of a computer software product exceed the net realizable value
of that asset is written off. The net realizable value is the estimated future
gross revenues from that product reduced by the estimated future costs of
completing and disposing of that product, including the costs of performing
maintenance and customer support.

## Goodwill and
Impairment of Goodwill

During the third quarter and
the first nine months of fiscal year 2002, no goodwill was acquired, impaired,
or written off as of March 31, 2002.

All of our acquired
intangible assets are subject to amortization. There were no material
acquisitions of intangible assets during the third quarter and the first nine
months of fiscal year 2002. Intangible assets amortization expense was $520,000
for the third quarter of fiscal year 2002 and $1,775,000 for the first nine
months of fiscal year 2002.

In July 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. We have not determined the impact this
statement will have on our financial statements.

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

---

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001. We are currently evaluating the impact of the new
accounting standard on existing long-lived assets and plan to adopt the new
accounting standard in our financial statements for the fiscal year ending June
2003.

RISK FACTORS

Investing in our stock is
highly speculative and risky. You should be able to bear a complete loss of your
investment. Before making an investment decision, you should carefully consider
the following risk factors. In any event or circumstance described in the
following risk factors actually occurs, it could materially adversely affect our
business, operating results and financial condition. The risks and uncertainties
described below are not the only ones, which we face. There may be additional
risks and uncertainties not presently known to us or those we currently believe
are immaterial which could also have a negative impact on our business,
operating results and financial condition.

We have never been
profitable, and there is no assurance that we will generate significant revenues
or profits in the future.

We have never been
profitable and have incurred substantial losses since our inception. We had an
accumulated deficit of approximately $108.5 million and $119.8 million at June
30 and March 31, 2002, respectively, and had a loss of $19.2 million for the
year ended June 30, 2001 and a loss of $11.3 million for the nine months ended
March 31, 2002. Our Synapse system is relatively new and there is no history
upon which to base a judgment of its prospects. There is no assurance we will
generate significant revenues from Synapse or otherwise or that we will ever
become profitable. There can be no assurance that Synapse will gain market
acceptance.

The success of our
business plan is uncertain.

The success of our business
plan, which is to concentrate on trying to develop a recurring revenue stream
from customers use of our neutral gateway, is dependent on our platforms
being utilized by merchant acquirers, processors and independent sales
organizations in sufficient quantities to generate profits. To date, the
revenues generated from our products and services have been nominal. The failure
to successfully implement our business plan would have a material adverse effect
on our business, operating results and financial condition.

---

Approximately 69% of our
revenue for the nine months ended March 31, 2002 was generated from four
customers and, accordingly, the loss of such customers could adversely affect
our revenues.

As of March 31, 2002,
Cardservice International, Inc., Merchant Link, Inc., Paymentech and First
Horizon accounted for approximately 69% of our revenue. Although we are seeking
to broaden our client base, no assurance can be made that our efforts will be
successful or that these current clients will not continue to account for a
large concentration of our revenues. If any one customer accounts for a
significant portion of our revenues, the loss of such customer could adversely
affect our business, operating results and financial condition.

There is no assurance
that the market will accept our systems.

We plan to generate our
revenue from sales of services relating to wireless credit card and other
transactions. The market for providing this service is in the early stages of
development and it is difficult to predict the rate at which this market will
grow, if at all. Future competitors are likely to introduce services that
compete with the services offered by us. Demand for these services could be
affected by numerous factors outside of our control, including, among others,
market acceptance by prospective customers, the introduction of new or superior
competing technologies or services that are available on more favorable pricing
terms than those being offered by us, and the general condition of the economy.
Any market acceptance for our services may not develop in a timely manner or may
not be sustainable. Our success will likely depend on our ability to sell our
services to merchant acquirers and independent sales organizations, as well as
an increase in the availability of terminals that interface with our platforms.
New or increased competition may result in market saturation, more competitive
pricing, or lower margins. Our business, operating results and financial
condition would be materially and adversely affected if the market for our
services fails to grow, grows more slowly than anticipated, or becomes more
competitive or if targeted customers do not accept our products and services
even if a substantial market develops.

Component shortages
could curtail production.

From time to time, supply
for key components in products lags behind worldwide demand. In the event that
supply of a key material component is delayed or curtailed, our ability to ship
the related product in desired quantities and in a timely manner could be
adversely affected. Our attempts to mitigate the risks of component shortages by
working closely with key suppliers on product plans, coordinated product
introductions, purchases on the spot market and selected strategic purchases.

We may not be able to
protect our proprietary technology, which could enable others to more easily
compete with us.

Our performance and ability
to compete are dependent to a significant degree on our proprietary technology.
We rely on our patents, copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on patent,
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to protect
our proprietary rights. Our inability to protect our proprietary rights
adequately would have a material adverse effect on our business.

---

We have been granted two
design patents, have filed an application to patent the Synapse process and
expect to file additional patents as we determine appropriate. There can be no
assurance that a patent will be issued from the patent application filed by us
or that patents will be issued from any patent applications filed by our
licensors or us in the future or that the scope of any claims granted in any
patent will provide meaningful proprietary protection or a competitive advantage
to us. There can be no assurance that the validity or enforceability of patents
issued or licensed to us will not be challenged by others or, if challenged,
will be upheld by a court. In addition, there can be no assurance that
competitors will not be able to circumvent any patents issued or licensed to us.
We have been granted the service mark U.S. Wireless Data and have
filed for the service mark Synapse, Wireless Made Easy,
Wireless Express Payment Service, WEPS, Powered by
WEPS, e-Processing, and e-Processing for the new
millennium in the United States. There can be no assurance that we will be
able to secure significant protection for these marks.

We generally have entered
into agreements containing confidentiality and non-disclosure provisions with
our employees and consultants and limit access to and distribution of our
documentation and other proprietary information. There can be no assurance that
the steps taken by us will prevent misappropriation of our technology or that
agreements entered into for that purpose will be enforceable.

Notwithstanding the
precautions we have taken, it might be possible for a third party to copy or
otherwise obtain and use our proprietary information without authorization or to
develop similar technology independently. Policing unauthorized use of our
technology is difficult. The laws of other countries may afford us little or no
effective protection of our intellectual property. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our products and services are made available. In the future, we
may also need to file lawsuits to enforce our intellectual property rights,
protect our trade secrets, and determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on our business operating results and
financial condition.

Third parties may sue us
for infringement of their intellectual property rights. We may incur costs of
defense and royalties or lose the right to use technology important to providing
our services.

The telecommunications,
hardware and software industries are characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement or other violations of intellectual property rights. As the number
of participants in our market increases, the possibility of an intellectual
property claim against us could increase. Any intellectual property claims, with
or without merit, could be time-consuming and expensive to litigate or settle,
could require us to enter into costly royalty arrangements, could divert
management attention from administering our business and could preclude us from
conducting our business.

---

We could lose our rights
to our exclusive, except as to AT&T Wireless and its affiliates, license
with AT&T Wireless.

USWDs rights to a
technology that make the conversion from landline to wireless transactions
possible for traditional dial-up point of sale terminals and other dial-up
devices are dependent upon an exclusive, except as to AT&T Wireless and its
affiliates, license agreement with AT&T Wireless. Under certain
circumstances the license agreement may be terminated and USWD would no longer
have access to this technology. Additionally, there can be no guarantees that
AT&T Wireless or its affiliates will not enter into competition with USWD
for the application of this technology, and should such competition arise, it
could have an adverse effect on our operating results and financial condition.

Our acquisition of NXT
Corporation could require additional consideration payments.

Although we completed the
acquisition of substantially all of the assets of NXT Corporation in December
2000, we may be required to pay additional consideration to NXT Corporation.
Under certain circumstances, we may be required to pay additional cash
consideration to NXT Corporation based upon the closing price of the common
stock at certain dates (see Note 5 Acquisitions).

The impact of the
recent terrorist attacks and the risk of future terrorist attacks may adversely
impact our revenue.

The tragic events of
September 11, 2001 impacted our sales to companies in the New York City area and
our sales to the United States government. These markets have not yet recovered
from the events of September 11, 2001 and it is impossible to determine when,
and if, they will recover. Sales in the New York City area and sales to the
United States government are a significant source of revenue for us and our
business may be adversely affected as these areas recover. Additionally, recent
terrorist warnings, both in the United States and internationally, suggest the
possibility of future terrorist attacks. As we sell products both in the United
States and internationally, the occurrence of future terrorist attacks may
adversely affect our business.

Unanticipated delays in
product schedules could affect product demand.

The process of developing
new high-technology products and services is complex and often uncertain.
Successful product transitions and deployment of new products requires accurate
predictions of the product development schedule as well as volumes, product mix,
customer demand and configuration. We may also anticipate demand and perceived
market acceptance that differs from the products realizable customer
demand and revenue stream. Further, in the face of intense competition in the
industry, any delay in a new product rollout could decrease any advantage we may
have to be the first to market. A failure on the part of us to carry out a
product rollout in the time frame anticipated and in the quantities
appropriately matching current customer demand could directly affect the future
demand for the product and the profitability of our operations.

---

Our services rely on
an emerging infrastructure that could encounter capacity constraints or system
failures, which could adversely affect our reputation and market acceptance of
our product.

We utilize a variety of
technologies, infrastructures and products in providing our products and
services, including wireless networks, dedicated lines, web servers, Internet
information servers, local area networks, data storage devices and proprietary
applications. If these systems experience difficulties, capacity constraints or
service interruptions, it could have a detrimental impact on our business,
operating results and financial condition.

The satisfactory
performance, reliability and availability of our network infrastructure are
critical to our reputation and our ability to attract and retain customers and
maintain adequate customer service levels.

Any system interruptions or
quality defects would reduce the quantity and/or quality of services rendered
and the attractiveness of our product offerings and would have a material
adverse effect on our reputation, business, operating results and financial
condition.

We are dependent on
outside parties for our communications infrastructure.

Our ability to retain and
attract merchant acquiring banks, independent sales organizations and card
processors to our products and services is dependent upon, among other things,
the performance of cellular, digital wireless and landline communication
networks and credit card processing networks used by us. Any system or network
failure that causes interruption or slower response time of our services could
result in reduced usage and could reduce the attractiveness of our offerings to
consumers.

The recent growth in
cellular and digital wireless traffic has caused periods of decreased
performance requiring wireless providers to upgrade and expand their
infrastructures.

If wireless usage continues
to increase rapidly, the wireless infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. Consequently, the emergence and growth of the market for our services
is dependent on future improvements to the entire wireless network.

We will have to keep
pace with new products and rapid technological change in order to remain
competitive in the marketplace.

If we are able to penetrate
the market with our products and services, our future success will depend upon
our ability to keep pace with technological developments and respond to evolving
merchant demands. Failure to anticipate or respond adequately to technological
developments or significant delays in product development could damage our
potential position in the marketplace and could result in less revenue or an
inability to generate profits. With our current financial and technical
resources, we may not be able to develop or market new services or enhancements
to our existing service offerings. It is possible that we could experience
significant delays in these endeavors. Any failure to successfully develop and
market services and service enhancements could have a material adverse effect on
our business, operating results and financial condition.

---

We face potential
competition and pricing pressures from larger, well financed and recognized
companies and we may not be able to compete successfully if such potential
competitors enter the market.

The market for our products
and services is highly competitive, including pressure to maintain competitive
pricing structures for credit card processing services. We have identified
potential competitors that may be logical candidates to develop similar products
and services, although at the present time, we are aware of no other
applications currently available that are designed specifically for wireless
transaction processing utilizing Internet-based tools. However, barriers to
entry in our business are relatively insubstantial and companies with
substantially greater financial, technical, marketing, manufacturing and human
resources, as well as those with far greater name recognition than us, may
attempt to enter the market. We believe that our ability to compete depends on
brand recognition, price, distribution channels and quality of service. There
can be no assurance that we will be able to compete successfully in the market.

We depend on
recruiting and retaining key management and technical personnel and we may not
be able to develop new services or support existing services if we cannot hire
or retain qualified employees.

Our success depends to a
large degree upon the skills of our senior management team and current key
employees. We depend particularly upon Dean M. Leavitt, our Chief Executive
Officer. We have an employment agreement with Mr. Leavitt and with certain of
our other employees. We do not maintain key person life insurance for any of our
officers or key employees other than Mr. Leavitt. The loss of any of our key
executives or employees, the use of proprietary or trade secret data by former
employees who compete with us, or the failure to attract, integrate, motivate,
and retain additional key employees could have a material adverse effect on our
business, operating results and financial condition. Because of the technical
nature of our services and the dynamic market in which we compete, our
performance depends on attracting and retaining key employees. Competition for
qualified personnel in the wireless data and software industries is intense and
finding qualified personnel with experience in both industries is even more
difficult. We believe there are only a limited number of individuals with the
requisite skills in the field of wireless data communication, and it is becoming
increasingly difficult to hire and retain these persons.

We might not be able
to manage our growth.

We anticipate a period of
significant growth in connection with our entry into the market for wireless
payment transaction delivery. The resulting strain on our managerial,
operational, financial, and other resources could be significant. Success in
managing this expansion and growth will depend, in part, upon the ability of
senior management to manage our growth effectively. Any failure to manage our
proposed growth and expansion could have a material adverse effect on our
business, operating results and financial condition.

In addition to managing our
company-wide growth, we must continue to develop and expand our systems and
operations to accommodate expected growth in the use of our products and
services. Due to the limited deployment of our some of our services to date, the
ability of our systems and operations to connect and manage a substantially
larger number of customers while maintaining superior performance is unknown.
Any failure on our part to develop and maintain our wireless transaction service
as we experience rapid growth could significantly reduce demand for our services
and materially adversely affect our revenue.

---

Our use of wireless,
wireline and Internet technologies could pose security issues regarding data
transmission and reporting.

Utilization of our products
and services involves the transmission of payment transactions via a wireless or
wired networks and our servers from the merchants device to the payment
processor and back. All data is transmitted in an encrypted format through
secure channels. The reporting and utility functions accessible via the Internet
are designed with a variety of security precautions, and the end-users
card number is not contained in the database accessible via the Internet.
However, a significant barrier to the growth of wireless data services or
transactions on the Internet or by other electronic means has been the need for
secure transmission of confidential information. Our systems could be disrupted
by unauthorized access, computer viruses and other accidental or intentional
actions. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches. If a third
party were able to misappropriate our users personal or proprietary
information or credit card information, we could be subject to claims,
litigation or other potential liabilities that could materially adversely impact
our revenue and may result in the loss of customers.

We may be subject to
liability for transmitting information, and our insurance coverage may be
inadequate to protect us from this liability.

We may be subject to claims
relating to information transmitted over systems we develop or operate. These
claims could take the form of lawsuits for defamation, negligence, copyright or
trademark infringement or other actions based on the nature and content of the
materials. Although we carry general liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed.

Because our business is
not currently diversified, if our wireless or wireline payment transaction
delivery processing business does not succeed, our business may fail.

We are currently in the
payment transaction services industry, and accordingly, there is no diverse
portfolio of products on which to rely if our systems fail. If our systems fail,
we would fail unless we develop new products and a new business plan.

Our business is
dependent on our relationship with wireless and wireline carriers.

A significant aspect of our
strategy is to be able to market our products and services as working with all
major wireless protocols. Our business depends, in part, on our ability to
purchase sufficient capacity from the wireless and wireline carriers and the
security and reliability of their systems. If our current arrangements with
wireless and wireline carriers are terminated, if we are unable to enter into
arrangements with any new carriers or if the terms of our arrangements are
altered or prices are increased, it may have a material adverse effect on our
business.

---

The benefits derived
from any acquisition or strategic alliance may be less than the price we pay and
may result in excessive expenses if we do not successfully integrate them. The
costs and management resources we expend in connection with such integrations
may exceed our expectations.

Acquisitions and strategic
alliances may have a significant impact on our business, financial condition and
results of operations. The value of acquisitions may be less than the amount we
pay for them if there is:

|° | A decline of their position in the respective markets; or
|- | ---------------------------------------------------------

|° | A decline in general of the markets they serve.
|- | -----------------------------------------------

The expenses associated
with these transactions may be greater and their revenue may be smaller than
expected if:

|° | We fail to assimilate any acquired assets with our pre-existing business;
|- | -------------------------------------------------------------------------

|° | We lose key employees of these companies or ours as a result of acquisitions;
|- | -----------------------------------------------------------------------------

|° | Our managements attention is diverted by other business concerns; or
|- | ---------------------------------------------------------------------

|° | We assume unanticipated liabilities related to any acquired assets.
|- | -------------------------------------------------------------------

In addition, the companies
we may acquire may be subject to the other business risks we describe in this
section, which may adversely impact such business. Further, we cannot guarantee
that we will realize the benefits or strategic objectives we are seeking to
obtain if we make any acquisitions.

We may be adversely
impacted by government regulation, including regulation of the wireless
infrastructure and the Internet.

We are not currently
subject to direct regulation by the Federal Communications Commission or any
other governmental agency, other than regulations applicable to business in
general. However, in the future, we may become subject to regulation by the FCC
or another regulatory agency. In addition, the wireless carriers who supply us
airtime are subject to regulation by the FCC and regulations that affect them
could increase our costs or reduce our ability to continue selling and
supporting our services.

The laws governing Internet
transactions remain largely unsettled. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business,
operating results, and financial condition by increasing our costs and
administrative expenses. It may take years to determine whether and how existing
laws such as those governing intellectual property; privacy, libel, consumer
protection, and taxation apply to the Internet. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. We must comply with new regulations in the United States, as well as
any other regulations adopted by other countries where we may do business. The
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
as well as new laws governing the taxation of Internet commerce. Compliance with
any newly adopted laws may prove difficult for us and may harm our business,
operating results, and financial condition.

We face risks relating
to general economic conditions.

We face risks related to
general economic and market conditions, including the potential impact of the
status of the economy. Any negative general economic conditions could have a
material adverse effect on our business, operating results and financial
condition.

---

We need additional
capital.

Based on our current
estimates of revenue levels, operating costs and other cash outlays, we believe
we have enough cash for the next 12 months. However, if our revenue estimates
are too high or our cost estimates too low, we may need additional capital
sooner than 12 months. In addition, our concerns about capital may lead to us
taking additional steps to cut costs and, depending on whether we are successful
in our efforts to raise additional capital, may require us to eliminate or
curtail certain of our projects and take additional steps to conserve cash that
may adversely affect our operations. In connection with our efforts to raise
capital, we have hired investment bankers and are exploring a number of
alternatives, including debt or equity financings, strategic investment and
disposition of certain assets. There can be no assurance that we will succeed in
raising capital, either on favorable terms or at all, pursuant to any of these
alternatives.

The market for our stock
could suffer because there may be too many available shares.

We had approximately
11,478,419 and 14,567,832 total shares of common stock outstanding as of June
30, 2001 and March 31, 2002, respectively, of which approximately 7,140,917 and
12,268,754 shares are in the public float respectively. We have a substantial
number of additional shares of common stock that are either presently
outstanding or issuable upon conversion or exercise of other securities that
were issued as restricted securities and are either presently
saleable under SEC Rule 144 or which will become eligible for sale under SEC
Rule 144 over the next several months. The Company is currently overdue with
respect to its obligation to register common stock underlying the Series C
preferred stock and related warrants sold in the private placement completed in
May 2000. The sale of such securities may increase the number of shares traded
in the market and may thereby adversely affect the market for our common stock.

Anti-takeover
provisions.

Our Articles of
Incorporation authorize the issuance of up to 25,000,000 shares of preferred
stock. Our Board is empowered, without stockholder approval, to issue a new
series of preferred stock with dividend, liquidation, conversion, voting or
other rights, which could adversely affect the voting power or other rights of
the holders of common stock. Such authority, together with certain provisions of
Delaware law and of our Articles of Incorporation and bylaws, may have the
effect of delaying, deterring or preventing a change in control of us, may
discourage bids for the common stock at a premium over the market price and may
adversely affect the market price, and the voting and other rights of the
holders, of the common stock. Although we have no present intention to issue any
additional shares of our preferred stock or common stock, there can be no
assurance that we will not do so in the future. Under the Delaware Business
Corporation Act, the Board of Directors of a Delaware corporation may issue
rights, options, warrants or other convertible securities (hereinafter
rights) entitling the holders of the rights to purchase, receive or
acquire shares or fractions of shares of the corporation or assets or debts or
other obligations of the corporation, upon such terms as are determined by the
Board. The Board is free, subject to its fiduciary duties to stockholders, to
structure the issuance or exercise of the rights in a manner which may exclude
significant stockholders, as defined, from being entitled to receive
such rights or to exercise such rights or in a way which may effectively prevent
a takeover of the corporation by persons deemed hostile to management. Nothing
presently contained in our Articles of Incorporation prohibits the Board from
using these types of rights in this manner.

---

We have never paid cash
or common stock dividends and are unlikely to do so for the foreseeable
future.

We have never paid cash or
other dividends on our common stock. It is our intention to retain any earnings
to finance the operation and expansion of our business, and therefore, we do not
expect to pay any cash dividends in the foreseeable future.

Volatility of common
stock.

Our common stock is traded
in the over-the-counter market and quoted on the OTC Bulletin Board
(OTCBB) under the symbol USWE. The trading volume of the
common stock historically has been limited and sporadic, and the stock prices
have been volatile. For example, during the fiscal year ended June 30, 2001, the
common stock has traded at prices ranging from $1.01 to $10.125 and $0.50 to
$5.52 during the nine months ended March 31, 2002. As a result of the limited
and sporadic trading activity, the quoted price for the common stock on the
OTCBB is not necessarily a reliable indicator of its fair market value.

## PART II
- OTHER INFORMATION

## ITEM 1.
LEGAL PROCEEDINGS

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

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

None.

## ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

## ITEM 5.
OTHER INFORMATION

Changes in the Composition
of the Board

At the March 7, 2002
meeting of the Board of Directors, the resignation of Alvin Rice was accepted.
At this time, the Board decided to not seek a replacement for the vacancy
created from the resignation.

Commonwealth Associates,
L.P. has the right, under an agency agreement in connection with the Series C
Private Placement, to designate two directors to the Companys Board. At
the March 7, 2002 meeting of the Board of Directors, the resignation of Michael
Falk, a Commonwealth designee, was accepted and the Board approved the
appointment of Lee Provow to fill the vacancy created from the resignation and
to serve as a Commonwealth designee.

---

Mr. Provows
background information is provided below:

Mr. Provow currently
focuses on managing Commonwealth Associates, L.P. relationships with its
portfolio companies. Mr. Provow previously served as President and Chief
Executive Officer of Intelispan since January 2000, until the company was sold
to McLeod USA, and served as a director since August 1998. From May 1998 to
December 1999, Mr. Provow served as the Chief Operating Officer of Slingshot
Networks LLC, a provider of digital media storage, until the company was
purchased by Qwest Communications. From June 1995 to May 1998, Mr. Provow served
as the Executive Vice President and Chief Operating Officer of GridNet
International, a provider of enhanced data communications services, which Mr.
Provow founded and which was purchased by MCI WorldCom in July 1997. Prior to
founding GridNet, Mr. Provow spent 15 years with NCR and its successor, AT&T
Global Information Services, in various domestic and international technical,
marketing, product management, and strategic planning positions, including Vice
President of Retail Product and Systems Marketing. Mr. Provow serves as a
director of Slingshot Networks, LLC; US Wireless Data, Inc.; Horizon Medical
Products and Intraware.

The committees of the
Board have been changed due to the changes in the Board as discussed above. The
Audit Committee is now comprised of Edwin M. Cooperman (Chairperson), Barry A.
Kaplan and Chester N. Winter. The Compensation Committee is now comprised of Amy
L. Newmark (Chairperson), Lee Provo and Chester N. Winter.

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

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

---

# 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
   May 15, 2002     
             
           
        By: /s/ Dean M. Leavitt
             
             
             
              
              
           Dean M. Leavitt
             
             
             
              
             
   
        Chief Executive Officer

Dated
   May 15, 2002     
             
         
             
   /s/ Rick J. DeVincenzo
             
             
             
              
              
           Rick J. DeVincenzo
             
             
             
              
              
           Senior
Vice President and Chief
Financial Officer     
             
              
              
               
             
        (Principal Accounting and
Financial Officer)

---