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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, 2001

[  ]    
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 May 10, 2001,
there were outstanding 11,430,032 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, 2001 and June 30, 2000
 .........................................................     3
        Consolidated Statements of
Operations for the three months and
            
nine months ended March 31, 2001 and 2000
 ..............................................     4
        Consolidated Statements of
Stockholders' Equity for the nine months ended
            
    March 31, 2001
 .......................................................................................     5
        Consolidated Statements of Cash
Flows for the nine months ended
            
    March 31, 2001 and 2000
 ........................................................................     6
        Notes to Financial Statements
 .......................................................................... 7-14
  ITEM 2. Management's Discussion and Analysis of
Financial Condition and
    Results of Operations
 .......................................................................................... 15-24
Part II  OTHER INFORMATION
  ITEM 6. Exhibits and Reports on Form 8-K
 ...........................................................    25

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# Part I  FINANCIAL
INFORMATION

ITEM 1. Financial
Statements

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

`March 31, 2001    June 30, 2000
                                                              --------------    -------------
ASSETS
Current assets:
   Cash and cash equivalents ..............................   $  22,064,000    $  39,231,000
   Accounts receivable, net of allowance for
       doubtful accounts of $55,000 at March 31, 2001
       $75,000 at June 30, 2000 ...........................         917,000          126,000
   Notes receivable .......................................          85,000           79,000
   Inventory, net .........................................       1,448,000           45,000
   Other current assets ...................................         737,000          150,000
                                                              -------------    -------------
    Total current assets ..................................      25,251,000       39,631,000

Restricted cash ...........................................         762,000          459,000
Property and equipment, net ...............................       2,612,000        1,055,000
Other assets ..............................................          91,000          111,000
Intangible assets .........................................      16,649,000             --
                                                              -------------    -------------
    Total assets ..........................................   $  45,365,000    $  41,256,000
                                                              =============    =============

LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
   Accounts payable .......................................   $     988,000    $   1,014,000
   Accrued liabilities ....................................       2,097,000          498,000
   Other current liabilities ..............................         165,000             --
                                                              -------------    -------------
     Total current liabilities ............................       3,250,000        1,512,000

Deferred rent .............................................         265,000           52,000
Deposit due to sub lessor .................................         109,000             --
                                                              -------------    -------------
     Total liabilities ....................................       3,624,000        1,564,000
                                                              -------------    -------------

COMMITMENTS AND CONTINGENCIES
Contingent consideration for acquisitions .................       3,010,000             --
                                                              -------------    -------------
STOCKHOLDERS EQUITY
Preferred stock, 25,000,000 shares
  authorized at March 31, 2001, 15,000,000 shares
  authorized at June 30, 2000
    Series C convertible, $.01 par value at March 31, 2001
    $.01 stated value at June 30, 2000, liquidation value
    $10.00 per share, aggregating $55,866,000, 8,450,000
    shares authorized, 5,586,600 issued and outstanding ...          56,000           56,000
Common stock, $0.01 par value, 200,000,000
  shares authorized and 11,359,000 issued and outstanding
  at March 31, 2001, no par value, $1.00 stated value
    40,000,000 shares authorized and 8,099,000 issued and
    outstanding at June 30, 2000 ..........................         114,000        8,099,000
Contingent consideration (2,710,000 shares of common stock)       5,845,000             --
Additional paid-in capital ................................     134,019,000      120,783,000
Accumulated deficit .......................................    (101,303,000)     (89,246,000)
                                                              -------------    -------------
      Total stockholders' equity ..........................      38,731,000       39,692,000
                                                              -------------    -------------
Total liabilities and stockholders' equity ................   $  45,365,000    $  41,256,000
                                                              =============    =============`

The
accompanying notes are an integral part of the financial statements

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

`For the three months ended      For the nine months ended
                                                            March 31,                     March 31,
                                                  --------------------------      -------------------------
                                                    2001              2000          2001             2000
                                                    ----              ----          ----             ----
Net revenues
  Service revenue
     Activation fees ........................  $    119,000    $     30,000    $    182,000    $     54,000
     Monthly fees ...........................       378,000          55,000         599,000         129,000
     Transaction fees .......................     1,130,000           3,000       1,306,000          13,000
                                               ------------    ------------    ------------    ------------
  Total service revenue .....................     1,627,000          88,000       2,087,000         196,000
     Product sales ..........................         7,000         111,000          31,000         271,000
                                               ------------    ------------    ------------    ------------
  Total revenue .............................     1,634,000         199,000       2,118,000         467,000
                                               ------------    ------------    ------------    ------------
  Cost of revenues
     Services ...............................     1,127,000          52,000       1,464,000         196,000
     Product sales ..........................         5,000         214,000          22,000         349,000
     Inventory adjustment ...................          --              --           (70,000)           --
                                               ------------    ------------    ------------    ------------
  Total cost of revenue .....................     1,132,000         266,000       1,416,000         545,000
                                               ------------    ------------    ------------    ------------
Gross profit (loss) .........................       502,000         (67,000)        702,000         (78,000)
                                               ------------    ------------    ------------    ------------
Operating expenses
Selling, general and administrative .........     4,717,000       1,741,000      10,649,000       3,378,000
(Exclusive of non-cash compensation)
Non-cash compensation .......................       370,000         159,000       1,110,000         511,000
                                               ------------    ------------    ------------    ------------
Total selling, general and administrative ...     5,087,000       1,900,000      11,759,000       3,889,000

Depreciation and amortization ...............       849,000          53,000       1,302,000         127,000
Research and development ....................       570,000         391,000       1,367,000         859,000
                                               ------------    ------------    ------------    ------------
Total operating expense .....................     6,506,000       2,344,000      14,428,000       4,875,000
                                               ------------    ------------    ------------    ------------
Loss from operations ........................    (6,004,000)     (2,411,000)    (13,726,000)     (4,953,000)

Interest income .............................       387,000          65,000       1,565,000          65,000
Interest expense ............................          --          (462,000)           --        (1,394,000)
Interest credit .............................          --           597,000            --           597,000
Other income ................................        35,000            --           104,000         128,000
                                               ------------    ------------    ------------    ------------
Net loss ....................................    (5,582,000)     (2,211,000)    (12,057,000)     (5,557,000)
Preferred stock dividends ...................          --       (42,864,000)           --       (43,849,000)
                                               ------------    ------------    ------------    ------------
Net loss available to common
  stockholders ..............................  $ (5,582,000)   $(45,075,000)   $(12,057,000)   $(49,406,000
                                               ============    ============    ============    ============
Basic and diluted net loss per share
 (after provision for Preferred
  stock dividends) ..........................  $      (0.49)   $      (7.54)   $      (1.22)   $      (9.32)
                                               ============    ============    ============    ============
Weighted average common shares outstanding
 basic and diluted ..........................    11,336,000       5,975,000       9,868,000       5,299,000
                                               ============    ============    ============    ============`

The above
statement gives retroactive effect to a 1 for 4 reverse stock split effectuated
on October 18, 2000.

The
accompanying notes are an integral part of the financial statements

---

# U.S. WIRELESS
DATA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

`Series C Preferred      Common Stock        Additional  Contingent Consideration                  Total
                     ------------------    -----------------      Paid in    ------------------------ Accumulated   Stockholders'
                      Shares    Amount     Shares      Amount     Capital       Shares    Amount       Deficit         Equity
                      -----     ------     ------      ------   -----------     ------    ------      -----------   -------------


Balance at
June 30, 2000 ...  5,586,600  $  56,000   8,099,000 $  8,099,000 $120,783,000        --         --   $ (89,246,000)  $  39,692,000

 Exercise of stock
   warrants and
   options ......       --         --     1,429,000    1,429,000   (1,372,000)       --         --            --            57,000
 Non cash
  compensation ..       --         --          --           --        370,000        --         --            --           370,000
 Net loss .......       --         --          --           --           --          --         --      (2,928,000)     (2,928,000)
                 -----------  --------- ----------- ------------ ------------  --------------------- -------------   -------------
 Balance at
 September
  30, 2000 ......  5,586,600     56,000   9,528,000    9,528,000  119,781,000        --         --     (92,174,000)     37,191,000

 Non cash
  compensation ..       --         --          --           --        370,000        --         --            --           370,000
 Exercise of
 stock warrants
 and options ....       --         --        91,000        1,000        3,000        --         --            --             4,000
 Issuance of
  common stock
  and contingent
  consideration
  to CellGate ...       --         --       563,000        6,000    1,963,000     468,000  1,642,000          --         3,611,000
 Issuance of
  common stock
  and contingent
  consideration
  to NXT
  shareholders ..       --         --     1,125,000       11,000    2,098,000   2,242,000  4,203,000          --         6,312,000
 Net Loss .......       --         --          --           --           --          --         --      (3,547,000)     (3,547,000)
 Adjustment to
  reflect par
  value change ..       --         --          --     (9,433,000)   9,433,000        --         --            --              --
                 -----------  --------- ----------- ------------ ------------  ---------- ---------- -------------   -------------
 Balance at
 December
  31,2000 .......  5,586,600     56,000  11,307,000      113,000  133,648,000   2,710,000  5,845,000   (95,721,000)     43,941,000

Non cash
compensation ....      --         --          --           --         370,000       --         --             --           370,000
Exercise of
stock
warrants ........      --         --         52,000        1,000        1,000       --         --             --             2,000
Net Loss ........      --         --          --            --           --         --         --       (5,582,000)     (5,582,000)
                 -----------  --------- ----------- ------------ ------------  ---------- ---------- -------------   -------------
Balance at
March
31, 2001 ........  5,586,600  $  56,000  11,359,000 $    114,000 $134,019,000   2,710,000 $5,845,000 $(101,303,000)  $  38,731,000
                  ==========  ========= =========== ============ ============  ========== ========== =============   =============`

The above
statement gives retroactive effect to a 1 for 4 reverse stock split effectuated
on October 18, 2000.
The accompanying notes are an integral part of the financial
statements

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

`For the nine months ended March 31,
                                                              -----------------------------------
                                                                      2001            2000
                                                                      ----            ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .....................................................  $(12,057,000)   $ (5,557,000)
Adjustments to reconcile net loss to net cash used in
    operating activities:
         Depreciation and amortization .......................     1,302,000         127,000
         Bad debt expense ....................................        10,000          25,000
         Deferred rent .......................................        18,000            --
         Non-cash consulting services and other ..............     1,110,000         511,000
         Loss on asset disposal ..............................         5,000            --
         (Gain) loss on sale of fixed assets .................        (1,000)         16,000
         Gain on sale of merchant portfolio ..................          --          (124,000)
         Write down of inventory .............................          --           112,000
         Non-cash interest expense ...........................          --           451,000
         Changes in current assets and liabilities:
               Accounts receivable ...........................      (361,000)         (4,000)
               Notes receivable ..............................        (6,000)           --
               Inventory .....................................    (1,403,000)        (44,000)
               Escrow for professional fees ..................          --           112,000
               Other current assets ..........................      (382,000)       (181,000)
               Accounts payable ..............................    (2,671,000)        349,000
               Accrued liabilities ...........................       614,000          74,000
               Other current liabilities .....................        93,000            --
                                                                ------------    ------------
                    Net cash used in operating activities ....   (13,729,000)     (4,133,000)
                                                                ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of property and equipment ..................    (1,688,000)       (395,000)
         Proceeds from sale of merchant portfolio ............          --           450,000
         Restricted cash .....................................      (129,000)           --
         Decrease (increase) in other assets .................        60,000         (39,000)
         Net payment for purchase acquisition,
            net of cash acquired .............................    (1,164,000)           --
         Increase in deposits ................................       109,000            --
         Proceeds from sales of equipment ....................         2,000          24,000
                                                                ------------    ------------
                    Net cash (used in) provided by
                       investing activities ..................    (2,810,000)         40,000
                                                                ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common stock ..............          --           939,000
         Principal payment on borrowings .....................          --        (1,827,000)
         Net proceeds from issuance of debt ..................          --         1,585,000
         Proceeds from exercise of warrants and options ......        62,000         169,000
         Proceeds from issuance of Series C preferred stock ..          --        50,616,000
         Payments of offering costs for Series C
            preferred stock ..................................          --        (6,102,000)
         Redemption of Series B preferred stock ..............          --        (2,198,000)
         Redemption of convertible debenture .................          --        (1,000,000)
         Payment of notes payable ............................      (690,000)           --
                                                                ------------    ------------
                    Net cash (used in) provided by
                        financing activities .................      (628,000)     42,182,000
                                                                ------------    ------------
Net (decrease) increase in cash ..............................   (17,167,000)     38,089,000

Cash and cash equivalents, beginning of period ...............    39,231,000         425,000
                                                                ------------    ------------
Cash and cash equivalents, end of period .....................  $ 22,064,000    $ 38,514,000
                                                                ============    ============`

The above
statement gives retroactive effect to a 1 for 4 reverse stock split
effectuated on October 18, 2000.
The accompanying notes are an integral part of the financial
statements

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

Note 1 - BASIS OF
PRESENTATION

The consolidated financial
statements include the accounts of U.S. Wireless Data, Inc. (USWD or
Company) and its subsidiary. The Consolidated Balance Sheets as of
March 31, 2001, the Consolidated Statements of Operations for the three and nine
months ended March 31, 2001 and 2000, and the Consolidated Statements of Cash
Flows for the nine months ended March 31, 2001 and 2000 have been prepared by
the Company, without 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, 2001 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 generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures provided are adequate to make the
information presented not misleading. These condensed 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, 2000 on Form 10-KSB.

The common stock and per
share prices in the financial statements and related notes have been
retroactively adjusted to give effect to the 1 for 4 reverse stock split that
was effectuated on October 18, 2000.

Note 2 - 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 3 - THE COMPANY

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. The Company has 85 employees in three
locations in the United States. Our NXT Gateway Services Division is located in
Maryland, our Wireless Research and Development Center and primary Synapse
production host is located in Colorado and our Corporate Headquarters is located
in New York City, NY.

---

Note 4 -  SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES

(a)  Revenue
Recognition

The Company derives 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 processing fees; and c) monthly minimum subscription fees.
Equipment sales are derived from the sale of USWDs proprietary Synapse
Adapter and Synapse Enabler wireless conversion modems.

In December 1999, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.
101 (SAB 101), Revenue Recognition in Financial Statements, as amended by SAB
101A and SAB 101B which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
provides guidance on necessary disclosures relating to revenue recognition
policies in addition to outlining the criteria that must be met in order to
recognize revenue. Given the guidance on SAB 101, the Company will be
implementing its policy of recognizing activation fee revenue ratably over the
expected term of the customer relationship. The effect of this implementation on
the Companys consolidated results of operations or its financial position
cannot presently be determined. The Company is required to adopt SAB 101 by the
fourth quarter of fiscal 2001.

(b)  Cost of
Revenues

Cost of service fees
consists primarily of one-time activations fees, airlink time and monthly
minimum charges all of which are paid to the various wireless carriers with whom
USWD conducts business.

(c)  Use of
Estimates

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

(d)  Recent
Accounting Pronouncements

In
March 2000, the 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 adopted FIN 44 in March 2000.

---

In September 1998, the FASB
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended by SFAS No. 137 and further amended by SFAS
No. 138, established accounting and reporting standards for derivative financial
instruments and associated hedging activities as well as hedging activities in
general. The Company does not hold any hedging instruments, and does not expect
the adoption of SFAS No. 133, as amended, to have a material affect on its
consolidated results of operation or its financial position.

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. In addition, under
certain circumstances and depending on the price of the Companys Common
Stock, a maximum of $2,557,000 in cash and approximately 468,000 shares of the
Companys Common Stock, valued at approximately $1,642,000, may be issued
one (1) year from closing, based on 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. 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                            1,130,000
                                                                                     ---------
Total purchase price                                                                $9,023,000
                                                                                     =========`

---

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                   203,000        4
Goodwill                                               2,570,000       10
                                                      ----------
Total allocation of purchase price                    $9,023,000
                                                      ==========`

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, as more fully described below, a maximum of
$455,000 in cash 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 $455,000. 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
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.

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 will provide the Company with $300,000
in business development funding. The Company incurred approximately, $1,055,000
of expenses related to this transaction, which includes accounting fees,
attorneys fees, investment banking fees and other costs. The operating
results of NXT has 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                             3,208,000
                                                                       ----------
Total purchase price                                                   11,030,000

Less the fair value of tangible assets acquired                        (2,976,000)
                                                                       ----------
Total amount of goodwill and intangible assets                         $8,054,000
                                                                       ==========`

---

The estimated fair market
value of the acquired assets and assumed liabilities are based on an estimated
valuation by management and the purchase price allocation is subject to final
adjustment. The estimated fair market value and the allocation of the purchase
price to the assets acquired is currently being determined by an independent
third party.

Note 6 - INVENTORY

`March 31,       June 30,
                                                    2001            2000
                                                  ---------       --------
         Inventory consists of:

            Raw material                         $    --       $  177,000
            Finished goods                        1,465,000       360,000
            Lower of cost or market reserve         (17,000)     (492,000)
                                                  ---------    ----------
                                                 $1,448,000    $   45,000
                                                  =========    ==========`

The Company has established
a reserve against finished goods and raw materials to reflect the estimated net
realizable value of the inventory as of March 31, 2001 and June 30, 2000.

Note 7 - INTANGIBLE ASSETS

Intangible assets are
primarily comprised of the excess of the purchase price and the related
acquisition costs over the value assigned to the net tangible assets of the
business acquired. The purchase price of businesses acquired is allocated to the
tangible and identifiable intangible assets acquired based on their estimated
fair values with any amount in excess of such allocations designated as
goodwill. Intangible assets, including goodwill, are amortized over their
estimated useful lives, which range from four to ten years. As of March 31, 2001
the Company had the following intangible assets;

`Date of        Intangible    Accumulated          Net
                                    Acquisition      Asset       Amortization  Intangible assets
                                    -----------    ----------    ------------  -----------------
Cellgate acquisition                11/16/2000     $ 8,820,000   $ (477,000)    $ 8,343,000
NXT acquisition                     12/22/2000       8,054,000     (201,000)      7,853,000
Acquired intangibles from NXT       12/22/2000         432,000     (108,000)        324,000
Restructuring expenses                 N/A             147,000      (18,000)        129,000
                                                   -----------    ---------     -----------
Total Intangible assets                            $17,453,000   $ (804,000)    $16,649,000
                                                   ===========    =========     ===========`

---

Note 8- 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. During fiscal years 2001 and 2000,
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 basic weighted average shares of common stock
outstanding to the maximum diluted shares of common stock for the three and nine
month periods ended March 31, 2001.

`CONSOLIDATED COMMON STOCK EQUIVALENT
                                  (UNAUDITED)

                                                                Three Months     Nine Months
                                                                    Ended          Ended
                                                               March  31, 2001  March 31, 2001
                                                               ---------------  --------------

Weighted average shares of common stock outstanding: ..........   11,336,000     9,868,000

Common Stock equivalents issued in the Series C Preferred
 Stock private placement
    Preferred stock included in units offered .................    9,311,000     9,311,000
    Investor warrants, 25% of shares in common stock ..........    2,328,000     2,328,000
    Agent warrants, 25% of units in common stock ..............    2,328,000     2,328,000
    Agent warrants, 25% of shares in common stock .............      582,000       582,000
    Investment company warrants, 20% of shares in common stock       466,000       466,000
    Investment company warrants,  25% of shares in common stock      116,000       116,000
Warrants, various .............................................      418,000       418,000
Employee options/warrants
      Outstanding, 1992 plan ..................................      400,000       400,000
      Outstanding, out of plan ................................      505,000       505,000
      Outstanding, 2000 plan ..................................    1,346,000     1,346,000
      Warrants, Executive .....................................    1,343,000     1,343,000
Maximum contingent consideration of common stock to
be issued for acquisitions ....................................    2,710,000     2,710,000
                                                                  ----------    ----------
                Total Shares issued or issuable ...............   33,189,000    31,721,000
                                                                  ==========    ==========`

---

Note 9 - STOCKHOLDERS'
EQUITY

On September 7, 2000,
966,500 stock options were issued to employees with exercise prices equal to the
fair market value of the Companys Common Stock at the date of grant.

On September 15, 2000,
ComVest Capital Management LLC exercised its warrants for 1,429,000 shares of
Common Stock at an exercise price of $0.04 per share.

On October 6, 2000, the par
value of the Company's Common Stock changed from no par value, at $1.00 stated
value per share to $.01 par value per share.

On November 16, 2000,
562,500 shares of USWDs Common Stock were issued at the closing to acquire
the assets and assume the liabilities of Cellgate Technologies LLC, and
contingent consideration which consist of 468,000 shares of USWDs Common
stock and cash of approximately $2,557,000 that may be issued in one (1) year,
under certain circumstances pursuant to the acquisition agreement.

On December 22, 2000,
1,125,000 shares of USWDs Common Stock were issued at the closing to
acquire NXT Corporation, and contingent consideration which consists of
2,242,000 shares of USWDs Common Stock and cash of approximately $455,000
that may be issued in two (2) years, under certain circumstances pursuant to the
acquisition agreement.

On December 29, 2000, Dean
M. Leavitt Family Trust exercised warrants for 90,909 shares of Common Stock at
an exercise price of $0.04 per share.

On February 9, 2001,
warrants were exercised for 52,000 shares of Common Stock at an exercise price
of $0.04 per share.

During the third fiscal
quarter ended March 31, 2001, 487,000 stock options, were issued to employees
with exercise prices equal to the fair market value of the Companys Common
Stock at date of grant.

For the three and nine
months ended March 31, 2001, $370,000 and $1,110,000, respectively,was charged
to compensation expense for options issued to four Board Members granted on
March 29, 2000.

Note 10 - COMMITMENTS AND
CONTINGENCIES

The Company has entered
into leases for certain computer equipment, facility leases and product
inventory. Future minimum lease payments under non-cancelable operating leases
and the present value of future minimum lease payments as of March 31, 2001, are
as follows:

---

`Operating           Facility
For fiscal year ending June 30:               Leases             Leases
                                            ---------           --------
2001                                       $  289,000        $   512,000
2002                                        1,147,000          1,368,000
2003                                          426,000          1,303,000
2004                                            --             1,279,000
2005                                            --             1,304,000
Thereafter                                      --             6,322,000
                                           ----------         ----------
Total minimum payments required           $ 1,862,000       $ 12,088,000
                                           ==========         ==========`

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

FORWARD-
LOOKING STATEMENTS

The following discussion
and analysis should be read in conjunction with our Consolidated Financial
Statements and the notes thereto appearing elsewhere in this Form 10-QSB. All
statements contained herein that are not historical facts, including but not
limited to, statements regarding our current business strategy and our plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Generally, the words anticipates,
believes, estimates, expects and similar
expressions as they relate to us and our management are intended to identify
forward looking statements. Actual results may differ materially. Among the
factors that could cause actual results to differ materially are those set forth
in our Annual Report on Form 10-KSB under the caption Risk Factors.
We wish to caution readers not to place undue reliance on any such
forward-looking statements, which statements speak only as of the date made.

OVERVIEW/BUSINESS
STRATEGY

US Wireless Data is the
premier provider of transaction delivery and gateway services to the payments
processing industry. We provide credit card processors, merchant acquirers,
banks, 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 that may be utilized by conventional card
accepting retailers as well as emerging card accepting market segments such as
quick service restaurants, taxis and limousines, in-home service providers and
contractors, delivery services, vending machines, sporting events, outdoor
markets, etc.

US Wireless Datas
technology provides a seamless interface between a merchants point of sale
device and their credit card processor using a sophisticated network
infrastructure, proprietary equipment, and unique message translation software
applications.

We are currently engaged in
contracts with over 140 resellers including 7 of the top 10 merchant
acquirers whose aggregate market share, related to payment transactions, exceeds
60%. Our clients process the vast majority of all point-of-sale transaction
activity in the United States. They include: First Data Merchant Services,
Cardservice International, Paymentech, First Horizon, Lynk Systems, Concord EFS,
CardSystems, National Processing Corporation, Global Payments, BuyPass and many
others.

---

The Company derives 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 for transactions delivered on wireless, broadband and
narrowband networks; c) fees for our online, real time reporting services and d)
monthly minimum subscription fees. 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 wireless conversion devices which allow traditional dial-up
devices to operate in a wireless mode. Transactions processed through these
proprietary devices must be routed through USWD, therefore, recurring monthly
revenues are derived from the deployment of these products.

The following provides more
details on our service and equipment offerings:

Synapse Services:
The Synapse host provides a gateway enabling a wireless point-of-sale
(POS) transaction. By providing a seamless interface between a
merchants wireless POS terminal and transaction processors, payments and
other transactions can be processed faster than conventional dial-up
transactions, without the cost and inconvenience of being tethered to a
telephone line. In addition, Synapses Internet-based tools offer online,
real-time transaction monitoring, reporting, remote terminal management and
diagnostics. Our monitoring and reporting services may be private-labeled for
each client, thereby allowing the client to preserve their brand and their
relationship with their merchant customer. Revenues from Synapse Services are
derived from activation fees, monthly service fees and transaction fees.

NXT Gateway
Services: Through our wholly owned subsidiary NXT, we provide a myriad of
message translation services for our clients. In most instances, transactions
are sent to us from integrated point-of-sale (IPOS) systems in a
format which must be re-configured via NXTs proprietary message
reformatting software. These transactions are then delivered to one of the many
front-end processors with which we have connectivity. In addition, NXT monitors
and manages these networks on behalf of our clients twenty-four (24) hours per
day, seven (7) days per week from our Network Operations and Merchant Support
Center (NOC) located in Bethesda, Maryland. NXT generates revenue
from monthly subscription fees and transaction fees. Currently, NXT processes
approximately 500 million transactions per annum.

Synapse Adapter: The
Synapse Adapter is a proprietary device which utilizes patented dial tone
emulation technology exclusively licensed from AT&T to provide our clients
with a seamless plug and play solution for the conversion of most
conventional dial-up point-of-sale terminals and dial-up automatic teller
machines (ATMs) to a high speed, low cost wirelessly enabled device.
This alternative to landline technology (both conventional dial service or
dedicated leased line telephone service) provides a unique ability for any
merchant to have instant access to faster and lower cost payment transactions.
The Synapse Adapter converts a landline signal into a wireless protocol signal
using the patented technology. We generate equipment revenues through the sale
of Synapse Adapters to our clients. As units are deployed, transactions are
routed through our system deriving monthly recurring revenue streams.

---

Synapse Enabler: The
Synapse Enabler is another proprietary device that we developed for the purpose
of converting non-wireless devices to wirelessly enabled ones. Unlike the
Synapse Adapter whose primary role is to allow dial-up financial transaction
devices to become wirelessly enabled, the Synapse Enabler is designed to
interface with devices such as vending machines, taxi meters, utility meters,
etc using a serial port connection; however, as many dial-up point-of-sale
terminals do have spare serial ports, the Synapse Enabler can interface with
such devices thus wirelessly enabling them. We generate equipment revenues
through the sale of Synapse Enablers to our clients. Like Synapse Adapters,
Synapse Enablers must also send transactions through the Synapse Service host.
As such, Synapse Enabler sales are also typically precursors to Synapse Service
revenues as described above.

RESULTS OF OPERATIONS:
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000
KEY METRICS

The Company utilizes basic
performance metrics to measure the progress of its 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 processing
transactions through one or more of our hosts including those that transmit via
wireless, dial-up and leased-line technology; 3) the number of transactions
processed through one or more of our hosts; and 4) Pro forma cash flow or
earnings/(loss) before interest, taxes, depreciation, amortization and
dividends, (EBITDA). (EBITDA) is discussed in greater detail in the financial
condition, capital resources and liquidity section of this report.

## Resellers

As of March 31, 2001 we
have over 140 resellers under contract to sell our products and services,
including seven of the ten largest credit card acquirers. This represents a 233%
increase over the 42 customer contracts that were in place at March 31, 2000.

## Active Sites
 Synapse Services

Active wireless sites have
grown to over 5,400 at March 31, 2001, representing approximately 4,533
Merchants. The more than 5,400 active wireless sites as of March 31, 2001
represents an increase of 3,536, or over 189% compared to the number of active
sites at March 31, 2000.

## Active Sites
 NXT Gateway Services

Total active sites on the
NXT gateway as of March 31, 2001 were over 44,600, compared to 39,000 active
sites as of March 31, 2000, representing an increase of over 5,600, or 14%. For
the three and nine months ended March 31, 2001, total new active sites acquired
were 3,405 and 4,784, respectively.

---

## Transactions
 Synapse Services

Wireless transactions
processed for the third quarter of fiscal year 2001, were 695,000, an increase
of 201,000 or 41% from the second quarter of fiscal year 2001. Wireless
transactions processed for the nine months ended March 31, 2001 were 1,507,000,
compared to 1,067,000, an increase of 440,000 or 41% from the nine months ended
March 31, 2000.

## Transactions -
NXT Gateway Services

Our NXT Gateway Service
Host utilizes traditional narrowband/dedicated networks (ie: dial lines and
leased-line circuits) to deliver transactions between merchants and processors.
Total transactions for the three months ended March 31, 2001 were 125 million,
compared to 97 million for the three month period ended March 31, 2000, an
increase of over 28 million transactions or 29%. Total transactions for the nine
months ended March 31, 2001 were 355 million, compared to 277 million for the
nine months ended March 31, 2000, an increase of over 78 million transactions or
28%.

REVENUE

The Company derives 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 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 and d) monthly minimum subscription fees.
Service fees are generated from our Synapse Service host in Palmer Lake,
Colorado and our NXT Gateway Services host in Bethesda, Maryland. 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 wireless conversion devices.

Total revenue of $1,634,000
for the three months ended March 31, 2001, increased from $199,000 for the three
months ended March 31, 2000, representing a seven fold increase of $1,435,000.
Total revenue for the nine months ended March 31, 2001 was $2,118,000,
representing over a three fold increase of $1,651,000, from the nine months
ended March 31, 2000. Below is a discussion of the components of our revenue.

---

SERVICE REVENUE

Service revenue for the
three months ended March 31, 2001 was $1,627,000, as compared to $88,000 for the
three months ended March 31, 2000, an 18 fold increase of $1,539,000. This
includes revenue from the acquisitions of Cellgate Technologies LLC and NXT
Corporation accounting for approximately $1,410,000 and $1,555,000 for the three
and nine months ended March 31, 2001, which was not included for the three
months ended March 31, 2000. Service revenue for the nine months ended March 31,
2001 was $2,087,000, as compared to $196,000 for the nine months ended March 31,
2000, over a 10 fold increase of $1,891,000. This increase was attributed to the
inclusion of the revenue associated with the recent acquisitions of Cellgate
Technologies LLC and NXT Corporation and our continued successful efforts in
marketing our flagship suite of Synapse products and services.

EQUIPMENT REVENUE

Equipment revenue decreased
for the three months ended March 31, 2001 to $7,000 from $111,000 for the same
period ended March 31, 2000. Equipment revenue decreased for the nine months
ended March 31, 2001 to $31,000 from $271,000 for the same period ended March
31, 2000. This decrease was primarily due to the completion of the transition to
a recurring revenue model based on the promotion of Synapse services and
products and the discontinuation of the Tranz Enabler product line. Equipment
sales are expected to begin to increase as we roll out the new Synapse Adapter
and Synapse Enabler products that will support the Synapse family of wirelessly
enabled services.

COST OF REVENUES

Cost of revenues includes
the initial setup and ongoing communications costs associated with terminals
connected through Synapse, costs related to sales of Synapse Adapter and Synapse
Enablers, and cost of wireless and non-wireless carriers. Cost of revenues
increased to $1,132,000 for the three months ended March 31, 2001 or 326% from
the same period in 2000. Cost of revenues increased to $1,416,000 for the nine
months ended March 31, 2001 or 160% from the same period in 2000. This increase
was primarily attributed to inclusion of the cost of sales for NXT and Cellgate
for the third fiscal quarter of 2001. We expect the spending on expanded
communications as a percent of revenue will decrease in future periods as we
continue to consolidate our operations following our two recent acquisitions.

OPERATING EXPENSES

Research and
Development Expenses

Research and development
expenses consist principally of engineering personnel costs, design
and development of our proprietary technology used to integrate and distribute
our products and services. Research and development expenses increased $179,000,
or 46%, to $570,000 in the three months ended March 31, 2001, from $391,000 for
the comparable period in 2000. For the nine months ended, March 31, 2001,
research and development expenses increased $508,000, or 59% to $1,367,000 from
$859,000, for the nine months ended March 31, 2000. The increase in absolute
dollars is primarily attributable to increases in engineering personnel required
for continued development and enhancement of our product and service offerings
and expanding our connectivity to major payment processors. We believe that
significant investments in technology are necessary to remain competitive.
Therefore, we expect product development expenses to continue to increase in
absolute dollars as we develop and enhance our proprietary technology.

---

Sales, General and
Administrative Expenses

Sales and general and
administrative expenses consist primarily of compensation and related benefits
for sales, general and administrative personnel, advertising and promotion
expenses, professional service fees, occupancy and general office expenses,
travel expenses and other general corporate purposes. Sales, general and
administrative expenses were $4,717,000 for the three months ended March 31,
2001, compared to $1,741,000 for the three months ended March 31, 2000. Sales,
general and administrative expenses were $10,649,000 for the nine months ended
March 31, 2001 compared to $3,378,000, for the nine months ended March 31, 2000.
The absolute dollar increase is primarily due to increased personnel costs,
occupancy costs, professional service fees and travel expenses. These increases
are primarily attributed to the inclusion of the operating expenses related to
our recent acquisitions and our own internal growth.

Amortization of Intangibles

Amortization of intangibles
includes amortization of goodwill, core technology, trademarks, customer lists,
contract rights, patents and assembled workforce. Amortization of intangibles
were $627,000 for the three months ended March 31, 2001 and $804,000 for the
nine months ended March 31, 2001. There was no amortization expense for the
three and nine months ended March 31, 2000. The increases are a result of
amortization of intangibles recorded primarily from the acquisitions of Cellgate
Technologies LLC and NXT Corporation. Intangibles for acquisitions are being
amortized over seven to ten years. In the event that we complete additional
acquisitions, which we expect to do, expenses relating to the amortization of
intangibles could increase in the future.

INTEREST AND OTHER

The Company used funds from
the private placement in March, 2000 to pay off the debt related to the 6%
Debentures, Series B Preferred Stock and other notes payable at the end of
fiscal year 2000, therefore there was no interest expense for the third quarter
or for the first nine months of fiscal year 2001 versus an interest credit of
$135,000 and an interest expense of $797,000, respectively, for the same periods
in 2000. The interest credit was a result of the reversal of accrued interest
and penalties on the 6% Debentures and Series B Preferred Stock.

Interest income for the
third quarter and the first nine months of fiscal 2001 was $387,000 and
$1,565,000, respectively, versus $65,000 for the same periods in 2000. Our
receipt of the net cash from the three closings of the $55.8 million private
placement beginning in March 2000 provided us with a large cash balance from
which we earn interest and other investment income. Interest income for
subsequent periods should decline as we utilize this cash to fund our growth
initiatives.

---

Other income of $104,000
for the first nine months of fiscal 2001, included rental income of $149,000
offset by franchise taxes of $45,000. Other income of $128,000 for the first
nine months of fiscal 2000 included a $124,000 gain on the July 1999 sale of a
portion of our merchant credit card portfolio to PMT Services Inc., a wholly
owned subsidiary of Nova Corporation. The transaction resulted in a cash payment
to us of $450,000. The sale included approximately 450 installed TRANZ Enabler
point-of-sale devices owned by us and deployed with certain merchants.

PREFERRED STOCK DIVIDEND

There were no preferred
stock dividends for the three and nine months ended March 31, 2001. The
$42,864,000 preferred stock dividend for the three months ended March 31, 2000
includes $42,364,000 charged for the value of the in the money
conversion feature for the Series C Preferred Stock from the closings of the
Private Placement and $592,000 for warrants issued and cash paid to induce the
redemption of the Series B Preferred Stock. Preferred stock dividends of
$43,849,000 for the nine month period ended March 31, 2000, include, in addition
to the amounts above, $874,000 to accrete the value of the Series B Preferred
Stock up to its redemption value by the date at which mandatory redemption is
available to the holders.

NET LOSSES

We have incurred losses
since our inception and as of March 31, 2001. We had an accumulated deficit of
approximately $101,303,000, which includes dividends of $42,864,000. For the
three months ended March 31, 2001 our net loss totaled $5,582,000, including
$627,000 in amortization of intangibles associated with the acquisitions of NXT
Corporation and Cellgate Technologies LLC; $370,000 of non-cash compensation
related to issuance of stock options and research and development costs of
$570,000. For the nine months ended, March 31, 2001 our net loss totaled
$12,057,000, including amortization of intangibles of $804,000, associated with
the acquisitions of NXT Corporation and Cellgate Technologies LLC; $1,110,000 of
non-cash compensation related to issuance of stock options and research and
development costs of $1,367,000.

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:

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

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

|o | 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;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

|o | 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|o | seek out merger and acquisition opportunities that will either enhance our
technology or generate additive revenue that will be accretive to our earnings
or both;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

After giving effect to our
recent acquisitions and continued expansion, 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.

FINANCIAL CONDITION,
CAPITAL RESOURCES AND LIQUIDITY

At March 31, 2001 our
principal source of liquidity was $22,064,000 in cash and cash equivalents. Our
private placement offering in March 2000 yielded net proceeds of $39,489,000.
Since July 1, 2001, the Company used approximately $17 million in cash of which
$8.4 million, or 49% was used for overall operating expenses. Approximately $7.0
million, or 40% was used for the purchase, assumed liabilities and cost
associated with our two recent acquisitions. Approximately, $1.8 million, or 11%
was used for purchases of capital expenditures.

Net cash used in operating
activities was $13,729,000, during 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 operating
activities was $4,133,000 during the nine months ended March 31, 2000. This
consisted primarily of net operating losses and is offset by increases in
accounts payables and non-cash charges for depreciation, amortization,
consulting services and inventory write-downs.

Net cash used in investing
activities was $2,810,000 for the nine months ended March 31, 2001. This was
primarily comprised of acquisition costs, purchases of equipment and tenant
improvements. Net cash provided by investing activities during the nine months
ended March 31, 2000 was $40,000. This was primarily a result of the proceeds
from the sale of a merchant portfolio, offset by purchases of equipment.

Net cash used in financing
activities for the nine months ended March 31, 2001 of $628,000 was primarily
comprised of repayment of notes payables, offset by proceeds from the exercise
of stock options and warrants. Cash provided by financing activities in the nine
months ended March 31, 2000 of $42,182,000 was primarily comprised of proceeds
from the issuance of Series C Preferred Stock, offset by costs related to the
Series C offering and the repayment of other borrowings.

---

We plan to use our cash for
investments in internally developed technology, expansion of our services
through internal growth and acquisitions.

During the
third fiscal quarter of 2001 and continuing into the fourth fiscal quarter, the
Company has successfully implemented its integration and consolidation plan of
our recent acquisitions. This plan will reduce overall operating expenses by
approximately $350,000 per month or $4,200,000 on an annual basis, representing
approximately 16% of our total operating expenses. These expense reductions are
related to personnel, professional fees, consulting services, rent and related,
travel expenses, public relation expenses, advertising and promotion expenses.
Our current monthly consolidated net losses before depreciation, amortization,
interest and taxes (EBITDA) is averaging approximately ($1,400,000). EBITDA
should improve, due to the on-going operating expense reduction plan, to under
($1,000,000) per month beginning in the first fiscal quarter of 2002.

We believe that existing
cash balances, cash equivalents and cash generated from operations will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 18 months assuming current growth rates of
revenues. However, the underlying assumed levels of revenues and expenses may
not prove to be accurate. We may seek additional funding through public or
private financings or other arrangements prior to such time. Adequate funds may
not be available when needed or may not be available on favorable terms. If we
raise additional funds by issuing equity securities, dilution to existing
stockholders will result. If funding is insufficient at any time in the future;
we may be unable to develop or enhance our products or services, take advantage
of business opportunities or respond to competitive pressures.

ACQUISITIONS

Cellgate Technologies LLC

With the acquisition of
Cellgate and its proprietary technology, USWD obtained a unique ability to
accelerate our entry into the fixed wireless market by providing its wireless
solutions to the approximately 4.7 million wired POS terminals currently being
used throughout the United States. Cellgate held exclusive rights, except as to
AT&T, to AT&Ts patented technology that enables traditional dial
up devices, including POS terminals and ATMs, to communicate via a
wireless protocol signal. Cellgates exclusive rights to this patented
technology were extended from two to five years in connection to the
acquisition. Cellgate incorporated this technology into its CBF2000 modem, a
plug and play technology that is very easy to use. The merchant or
ATM deployer simply disconnects the telephone connection and plugs the existing
phone cord into the Cellgate CBF2000 modem, now called the Synapse Adapter. Once
connected to the adapter, the existing POS terminal instantly processes
transactions in a wireless mode, connecting to the merchants current
credit card processor via the Synapse host. The result is faster service for the
merchant without the need for expensive equipment upgrades and reduces operating
costs by disconnecting the secondary POTS line that may have been previously
required to process payment transactions.

---

In addition to the Synapse
Adapter, which is manufactured for us by Tellus Technology, Inc., under a
development and supply agreement assigned to us as part of the acquisition, we
also acquired the Cellgate Gateway Application and Enterprise Systems. These
systems connect to major credit card and check processors and are used to route
transactions to their appropriate destination. Currently Williams Communication
Group, Inc. operates the Cellgate Enterprise through an outsourcing arrangement;
however, we intend ultimately to integrate these operations into our internal
operating functions.

NXT Corporation

The acquisition of NXT
Corporation expands our technical capabilities with respect to converting
traditional dial-up and leased-line based POS to IP-enabled sites. Utilizing our
Synapse Adapter, obtained through the Cellgate acquisition, the Synapse Enabler,
which we developed internally, and the Synapse wireless gateway, we can offer
NXTs current merchant base of over 42,000 access to a wireless solution.
NXT provides key services to the financial transaction industry, including
telecommunications, data transport, software development, real time data
translation and manipulation, data storage and reporting. NXT recently launched
a suite of payment processing and related POS products, allowing merchants,
banks, MSPs, processors and acquirers to offer and access these solutions
with a minimal front-end technology investment. Residing within the NXT network
are intelligent transaction switches that are capable of message translation,
message augmentation, transaction tracing and network level transaction routing.

In addition to transaction
processing and message management software, NXT has built a complete set of
tools, reports, and utilities to support these services. These tools include:

|o | a multi-layered network management system;
|- | ------------------------------------------

|o | diagnostic utilities;
|- | ---------------------

|o | back-up and data protection systems;
|- | ------------------------------------

|o | a terminal ID database management system, and
|- | ---------------------------------------------

|o | an accounting system with extensive reports.
|- | --------------------------------------------

NXT has pioneered solutions
for customers in which traditional POS terminal routing or message formatting
functionality is moved from the device onto the NXT network. Performing the
transaction routing within the network enables the merchant to take advantage of
high performance network links as well as evolving host message formats and
protocols. Services offered are: (1) AmexDirect, which eliminates American
Express transaction fees without the need to change existing hardware, software,
or third-party processor/acquiring bank for most merchants; and (2) SiteNET,
NXTs payments network architecture improves transaction routing and data
communications efficiency, reducing costs and merchant support requirements
while improving data management and control.

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# PART II 
OTHER INFORMATION

ITEM 5 - OTHER INFORMATION

On April 1, 2001, we
entered into an agreement with a major company in the vending industry with
respect to a pilot program under which that company will license our technology
for use in their equipment to enable them to wirelessly accept credit cards and
retrieve other related information. The pilot program is not expected to
materially affect our financial position during the current fiscal year. If the
pilot project is successful, we anticipate rolling out wirelessly enabled
vending machines during the next fiscal year.

On April 27, 2001 we
entered into an agreement with Finite Technologies, Inc. (Finite),
with respect to a custom manufacturing agreement for Finite to use USWD
technology in order to manufacture, assemble, test, label and package the device
known as the Synapse Enabler for USWD to be sold in the ordinary
course of business.

ITEM 6 -EXHIBITS AND
REPORTS ON FORM 8-K

a)     
 Exhibits- none

b)     
 Reports on Form 8-K

| | On
January 8, 2001 the company filed a report on Form 8-K reporting the completion
of the acquisition of NXT Corporation.
| | -------------------------------------------------------------------------------------------------------------------------

| | On
January 30, 2001 the company filed a report on Form 8-K/A, Amendment No. 1
reporting the required financial statements for the acquisition of Cellgate
Technologies, LLC.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 31, 2001 the company filed a report on Form 8-K/A, Amendment No. 2
amending the financial statements for the acquisition of Cellgate Technologies,
LLC.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 5, 2001 the company filed a report on Form 8-K/A, Amendment No. 3
amending the financial statements for the acquisition of Cellgate Technologies,
LLC.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 6, 2001, the company filed a report on Form 8-K/A reporting the required
financial statements for the acquisition of NXT Corporation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

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# SIGNATURES

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

U.S. WIRELESS DATA, INC.

Dated
        May 15, 2001
             
   
        By: /s/ Dean M. Leavitt
             
             
             
              
              
           Dean M. Leavitt
             
             
             
              
             
   
        Chief Executive Officer

Dated
        May 15, 2001
/s/ Rick J. DeVincenzo
Rick J. DeVincenzo         
             
          
            Senior
Vice President, Chief
Financial Officer and Treasurer     
             
              
              
             
             
        (Principal Financial Officer)

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