---

# SECURITIES
AND EXCHANGE COMMISSION

# Washington, DC 20549

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# FORM 10-QSB

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[X]    Quarterly Report under Section 13 or Section
15(d) of the Securities Exchange Act 
    
              
          
      of 1934 for the quarterly period ended
September 30, 2003

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

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Commission File Number 0-22848

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

Delaware
(State of incorporation)

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84-1178691
(IRS Employer
Identification No.)

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

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

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

As of November
11, 2003, there were outstanding 17,630,382 shares of the Registrants
Common Stock ($0.01 par value per share).

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

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

|                                                                 | Page
|---------------------------------------------------------------- | ----
|PART I -- FINANCIAL INFORMATION                                  |     
|ITEM 1.  Financial Statements                                    |     
|Consolidated Balance Sheets as of                                |     
|September 30, 2003 and June 30, 2003                             |     
|Consolidated Statements of Operations for the three months       |     
|ended September 30, 2003 and 2002                                |     
|Consolidated Statements of Cash Flows for the three months ended |     
|September 30, 2003 and 2002                                      |     
|Consolidated Statements of Stockholders (Deficit) Equity for    |     
|the year ended June 30, 2003 and the three months                |     
|ended September 30, 2003                                         |     
|                                                                 |     
|Notes to Consolidated Financial Statements                       |     
|ITEM 2.  Managements Discussion and Analysis                    |     
|ITEM 3.  Controls and Procedures                                 |     
|PART II -- OTHER INFORMATION                                     |     
|ITEM 1.  Legal Proceedings                                       |     
|ITEM 2.  Changes in Securities and Use of Proceeds               |     
|ITEM 3.  Defaults Upon Senior Securities                         |     
|ITEM 4.  Submission of Matters to a Vote of Security Holders     |     
|ITEM 5.  Other Information                                       |     
|ITEM 6.  Exhibits and Reports on Form 8-K                        |     
|SIGNATURES                                                       |     

2

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# Part I  FINANCIAL
INFORMATION

# ITEM 1. Financial
Statements

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

|                                                                  | September 30,2003 | June 30,2003    
|----------------------------------------------------------------- | ----------------- | ----------------
|
|ASSETS                                                            |                   |                 
|Current assets:                                                   |                  
|Cash and cash equivalents                                         |                   | $        185,000
|Accounts receivable, net of allowance for                         |                  
|doubtful accounts of $22,000 and $18,000                          |                  
|at September 30, 2003 and June 30, 2003, respectively             |                   | 321,000         
|Due from factor                                                   |                   | 55,000          
|Inventory, net                                                    |                   | 200,000         
|Deferred cost of revenue                                          |                   | 138,000         
|Prepaids and other current assets                                 |                   | 387,000         
|                                                                  |                   |                 
|Total current assets                                              |                   | 1,286,000       
|Property and equipment, net                                       |                   | 1,403,000       
|Deferred interest                                                 |                   | 758,000         
|Restricted cash                                                   |                   | 456,000         
|Other assets                                                      |                   | 48,000          
|                                                                  |                   |                 
|Total assets                                                      |                   | $     3,951,000 
|                                                                  |                   |                 
|                                                                  |                   |                 
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY                    |                  
|Current liabilities:                                              |                  
|Accounts payable                                                  |                   | $        714,000
|Accrued liabilities                                               |                   | 979,000         
|Notes payable                                                     |                   | 840,000         
|Accrued restructuring expense, current portion                    |                   | --              
|Customer advances                                                 |                   | 556,000         
|Deferred revenue                                                  |                   | 295,000         
|Obligation under capital lease, current portion                   |                   | 249,000         
|                                                                  |                   |                 
|Total current liabilities                                         |                   | 3,633,000       
|Obligation under capital lease, less current portion              |                   | 320,000         
|Deferred rent expense                                             |                   | 199,000         
|Other liabilities                                                 |                   | 85,000          
|                                                                  |                   |                 
|Total liabilities                                                 |                   | 4,237,000       
|                                                                  |                   |                 
|Commitments and contingencies (Note 9)                            |                  
|Stockholders (deficit) equity:                                   |                  
|Preferred stock, 25,000,000 shares authorized:                    |                  
|Series C convertible, at $.01 par value, liquidation value        |                  
|$10.00 per share, aggregating $35,477,000 and $35,487,000         |                  
|at September 30, 2003 and June 30, 2003, respectively; 8,450,000  |                  
|shares authorized, 3,547,700 and 3,548,700 issued and             |                  
|outstanding at September 30, 2003 and June 30, 2003, respectively |                   | 36,000          
|Common stock, 200,000,000 shares authorized at $.01 par value;    |                  
|17,630,382 and 17,628,716 shares issued and outstanding at        |                  
|September 30, 2003 and June 30, 2003, respectively                |                   | 176,000         
|Additional paid-in capital                                        |                   | 143,468,000     
|Accumulated deficit                                               |                   | (143,966,000    
|                                                                  |                   |                 
|Total stockholders (deficit) equity                              |                   | (286,000        
|                                                                  |                   |                 
|Total liabilities and stockholders (deficit) equity              |                   | $     3,951,000 
|                                                                  |                   |                 
|                                                                  |                   |                 

Accompanying
notes are an integral part of the financial statements

3

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

|                                                              | For the three months ended September 30, |                
|------------------------------------------------------------- | ---------------------------------------- | ---------------
|
|Revenues                                                      |                                          |                
|Service revenues                                              |                                         
|Activation fees                                               |                                          | $        82,000
|Monthly fees                                                  |                                          | 974,000        
|Transaction fees                                              |                                          | 94,000         
|Other fees                                                    |                                          | 80,000         
|                                                              |                                          |                
|Total service revenues                                        |                                          | 1,230,000      
|Product sales                                                 |                                          | 16,000         
|                                                              |                                          |                
|Total revenues                                                |                                          | 1,246,000      
|                                                              |                                          |                
|Cost of revenues                                              |                                         
|Services                                                      |                                          | 734,000        
|Product sales                                                 |                                          | 10,000         
|                                                              |                                          |                
|Total cost of revenues                                        |                                          | 744,000        
|                                                              |                                          |                
|Gross profit                                                  |                                          | 502,000        
|                                                              |                                          |                
|Operating expenses                                            |                                         
|Selling, general and administrative                           |                                         
|(Exclusive of non-cash compensation for directors)            |                                          | 1,538,000      
|Non-cash compensation for directors                           |                                          | --             
|                                                              |                                          |                
|Total selling, general and administrative                     |                                          | 1,538,000      
|Depreciation and amortization                                 |                                          | 153,000        
|Research and development                                      |                                          | 94,000         
|                                                              |                                          |                
|Total operating expenses                                      |                                          | 1,785,000      
|                                                              |                                          |                
|Loss from operations                                          |                                          | (1,283,000     
|Interest income                                               |                                          | 2,000          
|Interest expense                                              |                                          | (76,000        
|Other income (expense), net                                   |                                          | 26,000         
|                                                              |                                          |                
|Loss from continuing operations                               |                                          | (1,331,000     
|                                                              |                                          |                
|Discontinued operations:                                      |                                         
|Income from discontinued operations                           |                                          | --             
|Gain on sale of discontinued operations                       |                                          | --             
|                                                              |                                          |                
|Income from discontinued operations                           |                                          | --             
|                                                              |                                          |                
|Net loss                                                      |                                          | $(1,331,000    
|                                                              |                                          |                
|                                                              |                                          |                
|Basic and diluted net loss per share:                         |                                         
|Loss from continuing operations                               |                                          | $         (0.08
|Income from discontinued operations                           |                                          | --             
|                                                              |                                          |                
|Net loss per share                                            |                                          | $         (0.08
|                                                              |                                          |                
|                                                              |                                          |                
|Weighted average common shares outstanding, basic and diluted |                                          | 17,629,000     
|                                                              |                                          |                
|                                                              |                                          |                

Accompanying
notes are an integral part of the financial statements

4

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

|                                                      | For the three months ended September 30, |             
|----------------------------------------------------- | ---------------------------------------- | ------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |                                          |             
|Net loss                                              |                                          | $(1,331,000 
|Adjustments to reconcile net loss to net cash used in |                                         
|operating activities:                                 |                                         
|Depreciation and amortization                         |                                          | 153,000     
|Amortization of non-cash deferred interest            |                                          | 22,000      
|Gain on sale of discontinued operations               |                                          | --          
|Bad debt expense                                      |                                          | 6,000       
|Deferred rent                                         |                                          | 4,000       
|Non-cash compensation for directors                   |                                          | --          
|Non-cash consulting and other                         |                                          | --          
|Changes in operating assets and liabilities:          |                                         
|Accounts receivable                                   |                                          | (21,000     
|Due from factor                                       |                                          | 85,000      
|Inventory                                             |                                          | (63,000     
|Deferred cost of revenue                              |                                          | (75,000     
|Prepaids and other current assets                     |                                          | 148,000     
|Other assets                                          |                                          | --          
|Accounts payable                                      |                                          | (119,000    
|Accrued liabilities                                   |                                          | 87,000      
|Accrued restructuring expense                         |                                          | 65,000      
|Customer advances                                     |                                          | (129,000    
|Deferred revenue                                      |                                          | 136,000     
|Other liabilities                                     |                                          | (66,000     
|                                                      |                                          |             
|Net cash used in operating activities                 |                                          | (1,098,000  
|                                                      |                                          |             
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |                                         
|Proceeds from the sale of NXT                         |                                          | --          
|Payment of expenses for sale of NXT                   |                                          | --          
|Purchase of property and equipment                    |                                          | (159,000    
|Decrease in restricted cash                           |                                          | 625,000     
|Payment for acquisition, net of cash acquired         |                                          | --          
|                                                      |                                          |             
|Net cash provided by investing activities             |                                          | 466,000     
|                                                      |                                          |             
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |                                         
|Proceeds from notes payable                           |                                          | 450,000     
|Payment of notes payable                              |                                          | (450,000    
|Proceeds from bridge loan                             |                                          | 840,000     
|Payments for real estate lease termination            |                                          | (625,000    
|Payments of obligations under capital lease           |                                          | --          
|                                                      |                                          |             
|Net cash provided by (used in) financing activities   |                                          | 215,000     
|                                                      |                                          |             
|Net (decrease) increase in cash and cash equivalents  |                                          | (417,000    
|Cash and cash equivalents, beginning of year          |                                          | 602,000     
|                                                      |                                          |             
|Cash and cash equivalents, end of year                |                                          | $    185,000
|                                                      |                                          |             
|                                                      |                                          |             

Accompanying
notes are an integral part of the financial statements

5

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# U.S. WIRELESS
DATA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY FOR THE YEAR
ENDED JUNE 30, 2003 AND THE THREE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)

|                                      | Series C Convertible Preferred Stock | Common Stock | Additional Paid-in | UnearnedCompensation and Contra | Accumulated | Total Stockholders(Deficit) |   |          
|------------------------------------- | ------------------------------------ | ------------ | ------------------ | ------------------------------- | ----------- | ---------------------------- | - | ---------
|
|BALANCE AT JUNE 30, 2002              |                                      | 3,941,325    |                    | $ 39,000                        |             | 14,813,927                   |   | $ 149,000
|Amortization of non-cash compensation |                                     
|for directors                         |                                      | --           |                    | --                              |             | --                           |   | --       
|Cancellation of options issued to-    |                                     
|Board member                          |                                      | --           |                    | --                              |             | --                           |   | --       
|Issuance of options for services      |                                      | --           |                    | --                              |             | --                           |   | --       
|Amortization of non-cash investment   |                                     
|banking services                      |                                      | --           |                    | --                              |             | --                           |   | --       
|Issuance of options related to the    |                                     
|sale of NXT                           |                                      | --           |                    | --                              |             | --                           |   | --       
|Issuance of common stock to former    |                                     
|NXT shareholders                      |                                      | --           |                    | --                              |             | 2,241,658                    |   | 22,000   
|Retirement of common stock in         |                                     
|settlement of notes receivable        |                                      | --           |                    | --                              |             | (81,818                      | ) | (1,000   
|Conversion of Series C convertible    |                                     
|preferred stock                       |                                      | (392,625     | )                  | (3,000                          | )           | 654,949                      |   | 6,000    
|Net loss                              |                                      | --           |                    | --                              |             | --                           |   | --       
|                                      |                                      |              |                    |                                 |             |                              |   |          
|BALANCE AT JUNE 30, 2003              |                                      | 3,548,700    |                    | $ 36,000                        |             | 17,628,716                   |   | $ 176,000
|Conversion of Series C convertible    |                                     
|preferred stock                       |                                      | (1,000       | )                  | --                              |             | 1,666                        |   | --       
|Issuance of warrants for Bridge Loan  |                                      | --           |                    | --                              |             | --                           |   | --       
|Net loss                              |                                      | --           |                    | --                              |             | --                           |   | --       
|                                      |                                      |              |                    |                                 |             |                              |   |          
|BALANCE AT SEPTEMBER 30, 2003         |                                      | 3,547,700    |                    | $ 36,000                        |             | 17,630,382                   |   | $ 176,000
|                                      |                                      |              |                    |                                 |             |                              |   |          
|                                      |                                      |              |                    |                                 |             |                              |   |          

Accompanying
notes are an integral part of the financial statements

6

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(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. USWD operates in one business segment
and provides wireless transaction delivery and gateway services to the payments
processing industry. The Companys customers include credit card
processors, merchant acquirers, banks, automated teller machine
(ATM) distributors and their respective sales organizations, as well
as certain businesses seeking new solutions to make it easier for their
customers to buy their products or services. The Company offers these entities
turnkey wireless and other transaction management services. The Company also
provides its customers with proprietary wireless enabling products designed to
allow for card acceptance. These services and products may be utilized by
conventional card accepting retailers as well as emerging card accepting market
segments such as vending machines, quickservice (fast-food) and quick casual
restaurants, taxis and limousines, in-home service providers, door-to-door
sales, contractors, delivery services, sporting events, and outdoor markets. The
Companys services and products may also be used for gathering telemetric
information from remote equipment such as vending machines.

Going
Concern and Liquidity Uncertainties

The
Company needs additional capital in the immediate future in order to continue
operations. Since the Companys inception, the Company has incurred
significant losses and negative cash flow from operations. As of September 30,
2003, the Company had an accumulated deficit of approximately $144 million and
the Companys principal source of liquidity was approximately $185,000 in
cash and cash equivalents. Based on managements current estimates of
revenue levels, operating costs and other cash inflows and outlays, and
excluding the remaining proceeds available to the Company from the bridge
facility discussed below, the Company will not have cash balances adequate for
it to continue operations beyond December 2003 without a sufficient capital
infusion by such time. Managements concerns about capital require the
Company to take additional steps to raise funds and cut costs. If the Company is
not successful in its efforts to raise additional capital, the Company may be
forced to eliminate or curtail certain of its projects, sell assets and take
additional steps to conserve cash that may adversely affect the Companys
operations.

In
August 2003, the Company signed term sheets with Brascan Financial Corporation
(Brascan), a subsidiary of Toronto, Canada-based Brascan
Corporation, to arrange for the purchase of $12.5 million of a newly issued
Series D Preferred Stock representing at least 60% of the Companys equity.
The term sheets contemplated that the Company enters into a strategic alliance
with MIST Inc., Brascans subsidiary, and a provider of card issuance and
payment processing products and gateway services to banks, non-bank card issuers
and the payments processing industry. The term sheets contemplated that Brascan
would provide a bridge loan to allow the Company to continue operations while
negotiating a definitive Series D Preferred Stock purchase agreement and to
satisfy the anticipated closing conditions. In addition, the term sheets contain
provisions with respect to break-up fees, non-solicitation and other
miscellaneous matters.

7

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

On
September 16, 2003, the Company entered into a Term Loan and Security Agreement
(the Bridge Loan) with Brascan, pursuant to which Brascan agreed to
lend the Company up to $2.75 million, at an interest rate of 7.5% per annum
payable monthly, with cash payments commencing March 28, 2004. The loan is
secured by a general security interest in all of the Companys assets and
is due March 16, 2005. A portion of the funds was used to repay a demand loan in
the principal amount of $300,000 previously made to the Company on August 28,
2003, which was necessary in order to enable the Company to continue its
operations. The remaining portion of the loan will provide the Company with the
working capital necessary to allow it to continue operations until February
2004.

In
connection with the Bridge Loan, Brascan received a warrant for 10 million
shares of common stock exercisable at $.15 per share. Brascan will have certain
demand and piggyback registration rights as to the shares of common stock
underlying the warrant. The warrant was issued pursuant to certain exceptions
contained in the full ratchet anti-dilution provisions of the Series C
Convertible Preferred Stock and Series C Warrants and, therefore, the Company
believes the issuance of the warrant will not trigger such anti-dilution
provisions.

As of
November 10, 2003, the Company has drawn down approximately $1.74 million
against the $2.75 million Bridge Loan commitment. The Bridge Loan contains
various covenants which include, among others, (i) a material adverse change
clause, (ii) a minimum monthly revenue requirement of approximately $380,000,
and (iii) a minimum net worth requirement of not less than negative $2 million.
As of November 10, 2003, the Company was in compliance with these covenants. The
Company is currently in technical default under the Bridge Loan with respect to
two post-closing covenants (relating to receiving a landlord waiver for the
Companys New York facility and completing the actions necessary to subject
certain of the Companys funds to a blocked account
arrangement).

On
October 30, 2003, the Company received notification from Brascan, on behalf of
its designate MIST, that it no longer intends to pursue the equity financing
transaction contemplated by the term sheet with USWD as previously announced on
September 16, 2003. However, the Company is continuing to explore alternative
transactions with MIST, although there can be no assurance that any such
transaction will be consummated, or consummated on terms favorable to the
Company.

Brascan
indicated that despite certain technical defaults in connection with their
Bridge Loan to the Company, as previously reported in the Companys Annual
Report on Form 10-KSB, as filed on October 14, 2003 (which defaults were waived
through October 31, 2003), it is willing to discuss continuing to extend the
balance of the remaining unadvanced amounts under the Bridge Loan that
approximate $1 million. However, there can be no assurance that Brascan will
continue to extend such remaining amounts or that it will not declare a default
under the Bridge Loan documentation subsequent to October 31, 2003.

8

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

In
connection with MISTs determination not to proceed with the equity
financing transaction as previously contemplated, Brascan has released the
Company from its obligations to not solicit alternative financings from other
potential investors, and the break-up fee that was associated with such a
financing. The Company is currently exploring such other options. In view of
MISTs determination not to proceed with the equity financing transaction
as contemplated, the warrant to purchase 10,000,000 shares of the Companys
common stock issued to Brascan in connection with the Bridge Loan (i) will
become exercisable on the earlier of (a) December 31, 2003, or (b) upon a
consolidation or merger with another entity, or the sale, transfer or other
disposition of all or substantially all of our assets and properties to another
entity; and (ii) will expire in September 2008.

There
can be no guarantees or assurances that any financing or other transaction will
be completed, and in the absence of alternative financing or other transaction,
the Company will be forced to cease operations. Any contemplated financing or
other transaction more than likely would be subject to a number of conditions,
including, but not limited to, the execution of definitive documentation and the
successful completion of a reorganization of the Companys capital
structure, which may include the restructuring of the Companys currently
issued and outstanding Series C Convertible Preferred Stock and Series C
Warrants. It is also anticipated that the terms and provisions of any
contemplated financing or other transaction, if completed, will have a
substantial dilutive effect on the ownership interests of the Companys
existing stockholders.

These
conditions raise substantial doubt about the Companys ability to continue
as a going concern and if the Company is unable to obtain additional capital as
needed, it will be required to cease operations altogether. The consolidated
financial statements do not include any adjustments that might result from the
Companys inability to continue as a going concern.

NOTE 2
 BASIS OF CONSOLIDATION AND PRESENTATION

Basis of
Consolidation and Asset Sale of Subsidiary

The
consolidated financial statements include the accounts of the Company and its
wholly- owned subsidiary UNS Corporation, formerly known as NXT Corporation
(NXT).

During
May 2002, the Company developed a formal plan to sell NXT. Effective as of the
close of business on August 31, 2002, the Company sold, for $5 million in cash,
substantially all of the operating assets associated with NXT, to Paymentech,
L.P. (Paymentech). NXT provided data services and landline-based
connectivity for credit-card transaction processing. NXT has been classified as
a discontinued operation in the accompanying consolidated financial statements.

9

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

Basis of
Presentation

The
accompanying financial statements have been prepared by the Company, without an
audit. In the opinion of management, all adjustments have been made, which
include normal recurring adjustments necessary to present fairly the
consolidated financial statements. Operating results for the three months ended
September 30, 2003 and 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. 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, 2003 on Form 10-KSB and
Form 10-KSB/A.

Use of
Estimates

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

Reclassifications

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

Stock-based
Compensation

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

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

At
September 30, 2003, the Company had four fixed stock-based compensation plans.
The exercise price of each option granted pursuant to these plans was equal to
the market price of the Companys common stock on the date of grant.
Accordingly, pursuant to APB No. 25, no compensation cost has been recognized
for such grants. Had compensation cost been determined based on the fair value
at the grant dates for such awards consistent with the method prescribed by SFAS
No. 123, the Companys net loss and loss per share for the periods
indicated would have been as follows:

10

---

# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

|                                               | Three months endedSeptember 30, |                   
|---------------------------------------------- | ------------------------------- | ------------------
|
|Loss from continuing operations                |                                 | $      (1,331,000 
|Income from discontinued operations            |                                 | --                
|                                               |                                 |                   
|Net loss, as reported                          |                                 | $      (1,331,000 
|Deduct: Total stock-based compensation expense |                                
|determined under fair value based method       |                                 | (581,000          
|                                               |                                 |                   
|Pro forma net loss                             |                                 | $      (1,912,000 
|                                               |                                 |                   
|                                               |                                 |                   
|Per share, as reported                         |                                
|From continuing operations                     |                                 | $            (0.08
|From discontinued operations                   |                                 | --                
|                                               |                                 |                   
|Net                                            |                                 | $            (0.08
|                                               |                                 |                   
|                                               |                                 |                   
|Per share, pro forma                           |                                
|From continuing operations                     |                                 | $            (0.11
|From discontinued operations                   |                                 | --                
|                                               |                                 |                   
|Net                                            |                                 | $            (0.11
|                                               |                                 |                   
|                                               |                                 |                   

NOTE 3
 RECENT ACCOUNTING PRONOUNCEMENTS

In
April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. This Statement
eliminates the automatic classification of gain or loss on extinguishment of
debt as an extraordinary item and requires that such gain or loss be evaluated
for extraordinary classification under the criteria of APB Opinion No. 30. This
Statement also requires sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. This Statement is effective for the Company for the fiscal year
ending June 30, 2004. The adoption of this statement did not have an effect on
the Companys results of operations or financial condition.

In
January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Company is required to
adopt the provisions of FIN 46 on October 1, 2003. The Company does not have any
variable interest entities, and, accordingly, the adoption of FIN 46 on October
1, 2003 is not expected to have an impact on the Companys results of
operations or financial condition.

11

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

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

In May
2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement will become effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of this statement did not have a material impact on
the Companys results of operations or financial condition.

NOTE 4
 NOTES PAYABLE

On
August 18, 2003, the Company borrowed $150,000 from the finance company with
which it has a factoring agreement. The loan was repaid on September 11, 2003.

The
notes payable balance of $840,000 at September 30, 2003 represents the
outstanding principal balance of the Bridge Loan as of such date (see Note 1).

NOTE 5
 ACCRUED RESTRUCTURING EXPENSE

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

|                              | 
|----------------------------- | 
|Balance at June 30, 2003      | 
|Charges against accrual       | 
|                              | 
|Balance at September 30, 2003 | 
|                              | 
|                              | 

NOTE 6 
STOCKHOLDERS EQUITY

During
the three months ended September 30, 2003, 1,000 shares of Series C preferred
stock were converted into 1,666 shares of common stock, in accordance with the
Series C preferred stock documents.

12

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

In
connection with the Bridge Loan, Brascan received a warrant on September 16,
2003 for 10 million shares of common stock exercisable at $.15 per share. The
warrant is exercisable upon the occurrence of certain conditions as more fully
described in Note 1. This warrant was valued at $780,000 and is being amortized
to interest expense over the 18-month period of the Bridge Loan. An unamortized
balance of $758,000 in deferred interest remained on the consolidated balance
sheet at September 30, 2003. In determining the fair value of the options
issued, the Company used the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions: dividend yield of zero, volatility
of 144%, expected life of 18 months and an average risk free rate of 1.74%.

NOTE 7
 NET LOSS PER SHARE

Loss
per common share is computed in accordance with the provisions of SFAS No. 128,
Earnings per Share. SFAS No. 128 establishes standards for the
computation, presentation, and disclosure of earnings per share. Basic per share
amounts are computed by dividing the net loss available to common stockholders
by the weighted average number of common shares outstanding during the year.
Diluted per share amounts incorporate the incremental shares issuable upon the
assumed exercise of the Companys stock options and warrants and assumed
conversion of convertible securities. During the three months ended September
30, 2003 and 2002, such incremental amounts have been excluded from the
calculation since their effect would be anti-dilutive. Such stock options,
warrants and conversions could potentially dilute earnings per share in the
future.

The
following table reconciles the number of shares of common stock outstanding to
the maximum number of common stock and potentially dilutive common stock for
grants issued and outstanding as of the dates indicated.

|                                                            | September 30,2003 | June 30,2003
|----------------------------------------------------------- | ----------------- | ------------
|Common shares outstanding                                   |                   | 17,630,000  
|Series C Convertible Preferred Stock outstanding, in        |                  
|common stock equivalents                                    |                   | 5,913,000   
|                                                            |                   |             
|                                                            |                   | 23,543,000  
|                                                            |                   |             
|Warrants                                                    |                  
|Outstanding related to the Private Placement                |                  
|Investor warrants                                           |                   | 2,328,000   
|Agent warrants                                              |                   | 2,328,000   
|Agent warrants                                              |                   | 582,000     
|Investment company warrants                                 |                   | 466,000     
|Investment company warrants                                 |                   | 116,000     
|Various outstanding                                         |                   | 283,000     
|Executive                                                   |                   | 1,344,000   
|                                                            |                   |             
|Total warrants                                              |                   | 7,447,000   
|                                                            |                   |             
|Options                                                     |                  
|Outstanding, 1992 Option Plan                               |                   | 402,000     
|Outstanding, 2000 Option Plan                               |                   | 2,801,000   
|Outstanding, 2002 Option Plan (3,500,000 authorized)        |                  
|                                                            |                   |             
|Outstanding, Non-Plan                                       |                   | 1,391,000   
|                                                            |                   |             
|Total options                                               |                   | 4,594,000   
|                                                            |                   |             
|                                                            |                   |             
|Common stock contingently issuable for Bridge Loan warrants |                   | 10,000,000  
|                                                            |                   |             
|Total                                                       |                   | 45,584,000  
|                                                            |                   |             
|                                                            |                   |             

13

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

NOTE 8
 SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental
disclosure of cash flow information:

$50,000
and $60,000 was paid in cash for interest for the three months ended September
30, 2003 and 2002, respectively.

Supplemental
disclosure of non-cash financing and investing activities:

Three months
ended September 30, 2003

|1. |  | Conversion
of 1,000 shares of Series C Convertible Preferred Stock into 1,666 shares of Common Stock.
|-- |  | -----------------------------------------------------------------------------------------------------

|2. |  | Issuance
of warrant in connection with the Bridge Loan, exercisable for 10,000,000 shares of
Common Stock.
|-- |  | ----------------------------------------------------------------------------------------------------------

Year ended June
30, 2003

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

|2. |  | Issuance
of 2,241,658 shares of Common Stock to former NXT shareholders.
|-- |  | ------------------------------------------------------------------------

|3. |  | Issuance
of 329,000 options for services.
|-- |  | -----------------------------------------

|4. |  | Retirement
of 81,818 common shares received in connection with settlement of notes receivable.
|-- |  | ----------------------------------------------------------------------------------------------

NOTE 9
 COMMITMENTS AND CONTINGENCIES

The
Company has entered into leases for facilities. Future minimum lease payments
and sublease income under non-cancelable operating leases as of September 30,
2003 (excluding the former Bethesda facility), are as follows:

|                                | FacilityLeases | Less SubleasedFacilities | Net
|------------------------------- | -------------- | ------------------------ | ---
|For fiscal year ending June 30: |                |                          |    
|2004                            |                | $   518,000              |    
|2005                            |                | 695,000                  |    
|2006                            |                | 694,000                  |    
|2007                            |                | 667,000                  |    
|2007                            |                | 667,000                  |    
|Thereafter                      |                | 1,278,000                |    
|                                |                |                          |    
|Total minimum payments required |                | $4,519,000               |    
|                                |                |                          |    
|                                |                |                          |    

14

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

Rent
expense for the three months ended September 30, 2003 and 2002 was $181,000 and
$179,000, respectively.

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

Included
in restricted cash at June 30, 2003 is $625,000, which was held as collateral
for the former Bethesda facility. In accordance with the lease termination
agreement for the Bethesda facility, this amount was paid to the landlord in
August 2003.

Future
minimum lease payments on capital leases as of September 30, 2003 are as
follows:

|                                  | 
|--------------------------------- | 
|For fiscal year ending June 30:   | 
|2004                              | 
|2005                              | 
|2006                              | 
|                                  | 
|Total minimum payments required   | 
|Less amount representing interest | 
|                                  | 
|Present value of net minimum      | 
|lease payments                    | 
|Less current installments         | 
|                                  | 
|Obligations under capital leases, | 
|excluding current installments    | 
|                                  | 
|                                  | 
|                                  | 

The
Company has employment agreements with four of its executive officers. The
agreements are for initial terms of one to three years, with automatic one-year
extensions after the initial term. As of September 30, 2003, the employment
agreements commit the Company to annual salary compensation of $738,000. The
agreements include provisions for severance payments upon nonrenewal or
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. As of September 30, 2003,
$150,000 has been accrued in connection with this arrangement. Management is
negotiating the modification of the terms of payment of the Companys
obligation, which, if successful, will enable the Company to reduce the amount
due to the amount accrued.

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

15

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# U.S.
WIRELESS DATA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2003 and 2002
(Unaudited)

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

NOTE 10
 SALE OF NXT

In May
2002, the Company adopted a formal plan to sell its wholly-owned subsidiary NXT.
Pursuant to an Asset Purchase Agreement dated August 31, 2002 (the
Agreement), the Company sold, for $5 million in cash, substantially
all of the operating assets and operating obligations of NXT to Paymentech,
which subsequently transferred the acquired assets and obligations to its
wholly-owned subsidiary Merchant-Link. Pursuant to a Transition Services
Agreement the Company entered into on the same date with Merchant-Link, certain
of the NXT assets continued to be located in the Companys Colorado
facility and the Company provided certain services for payment to Merchant-Link
for a limited period of time. NXT provides data services and landline-based
connectivity for credit-card transaction processing.

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

|                       | Three months ended September 30, |             
|---------------------- | -------------------------------- | ------------
|
|Revenues               |                                  | $         --
|Income from operations |                                  | --          

(a)
Includes results through August 31, 2002.

The
Company recorded a gain on the sale of discontinued operations of $140,000 for
the three months ended September 30, 2002 due to the reversal of an accrued
vendor obligation as a result of the sale of NXT.

Paymentech
is obligated under the Agreement, subject to certain conditions, to purchase
goods or services from the Company or its affiliates over a three (3) year
period that commenced September 1, 2002, in an amount aggregating a minimum of
$3,472,500. Paymentech is obligated to pay the Company at least $1,000,000
during the first year, in installments of $83,333 per month, at least $1,150,000
during the second year, in installments of $95,833 per month, and at least
$1,322,500 during the third year, in installments of $110,208. Paymentech has
made such payments as scheduled and is expected to continue to make such
payments on a timely basis. In August 2003, the Company received an advance of
$167,000 from Paymentech representing guaranteed payments due for September and
October 2003. The Company agreed to a $25,000 reduction in the scheduled amount
due in return for the early advance. The Company has also agreed to apply any
unapplied balance to future services. Payments from Paymentech in excess of
goods and services provided to date aggregating $388,000 are included in
Customer advances in the consolidated balance sheet at September 30,
2003.

16

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ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS

Special Note
Regarding Forward-Looking Statements

We
may, in discussions of our future plans, objectives and expected performance in
periodic reports filed by us with the Securities and Exchange Commission (or
documents incorporated by reference therein) and in written and oral
presentations made by us, include projections or other forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933 or Section 21E of the Securities Act of 1934, as amended. Such projections
and forward-looking statements are based on assumptions, which we believe are
reasonable but are, by their nature, inherently uncertain. 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, including under the caption
Risk Factors in our Annual Report on Form 10-KSB. Our forward
looking statements are based on information available to us today, and except as
required by law, we undertake no obligation to update any forward looking
statement, whether as a result of new information, future events or otherwise.

OVERVIEW

U.S.
Wireless Data, Inc. (USWD or the Company) provides
wireless transaction delivery and gateway services to the payments processing
industry. Our customers include credit card processors, merchant acquirers,
banks, automatic teller machine (ATM) distributors and their
respective sales organizations, as well as certain businesses seeking new
solutions to make it easier for their customers to buy their products or
services. We offer these entities turnkey wireless and other transaction
management services. We also provide our clients with proprietary wireless
enabling products designed to allow for card acceptance where such acceptance
has heretofore been either too expensive or technologically unfeasible, or to
displace conventional telephone lines for increased speed, cost reduction and/or
convenience. These services and products may be utilized by conventional card
accepting retailers as well as emerging card accepting market segments such as
vending machines, quickservice (fast-food) and quick casual restaurants, taxis
and limousines, in-home service providers, door-to-door sales, contractors,
delivery services, sporting events, and outdoor markets. Our services and
products may also be used for gathering telemetric information such as mission
critical operational data on a real-time basis from remote equipment (e.g.,
vending machines).

We
facilitate the delivery of credit card or other transactions from merchants to
payment processors using wireless technologies. We make it easy for the cashless
payments industries (e.g., credit and debit cards) to deploy wireless solutions
through a single source, our Synapse platform. We aggregate different wireless
network services, offering nationwide wireless coverage, and provide a single
point of terminal management, customer support and transaction reporting. For
strategically selected markets, we develop and integrate proprietary wireless
hardware products designed to enable traditional points of sale and
unconventional points of sale (such as vending machines and taximeters) with
card acceptance. All of our efforts are aimed at providing the payments
processing industry and end-user merchants with the speed, mobility, cost
savings and other strategic benefits associated with wireless technology.

17

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

Going
Concern and Liquidity Uncertainties

We
need additional capital in the immediate future in order to continue operations.
Since our inception, we have incurred significant losses and negative cash flow
from operations. As of September 30, 2003, we had an accumulated deficit of
approximately $144 million and our principal source of liquidity was
approximately $185,000 in cash and cash equivalents. Based on our current
estimates of revenue levels, operating costs and other cash inflows and outlays,
and excluding the remaining proceeds which may be available to us from the
bridge facility discussed below, we will not have cash balances adequate for us
to continue operations beyond December 2003 without a sufficient capital
infusion by such time. Our concerns about capital have placed us in a position
where we are required to take additional steps to raise funds and cut costs. If
we are not successful in our efforts to raise additional capital, we may be
forced to eliminate or curtail certain of our projects, sell assets and take
additional steps to conserve cash that may adversely affect our operations.

The
availability of funds from a bridge facility (the Bridge Loan) is
pursuant to previously executed fully secured loan documentation in the amount
of $2.75 million with Brascan Financial Corporation (Brascan), a
subsidiary of Brascan Corporation, and advances under this Bridge Loan require
us to satisfy certain conditions on a going-forward basis. As of November 10,
2003, we have drawn down approximately $1.74 million against the $2.75 million
Bridge Loan commitment.

In
connection with this Bridge Loan, and as part of an overall restructuring and
strategic alliance with MIST Inc. (MIST), a provider of card
issuance and payments processing products and gateway services to banks,
non-bank card issuers and the payments processing industry and a subsidiary of
Brascan Corporation, we also entered into a term sheet that contemplated the
agreement by Brascan, subject to a number of conditions, to arrange for the
purchase of $12.5 million of a newly issued Series D Preferred Stock
representing at least 60% of our equity. The Bridge Loan was allowing us to
continue operations while we negotiate a definitive Series D Preferred Stock
purchase agreement and to satisfy the anticipated closing conditions of such a
financing.

On
October 30, 2003, we received notification from Brascan, on behalf of its
designate MIST, that it no longer intends to pursue the equity financing
transaction contemplated by the term sheet with USWD as previously announced on
September 16, 2003. However, we are continuing to explore alternative
transactions with MIST, although there can be no assurance that any such
transaction will be consummated, or consummated on terms favorable to us.

18

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Brascan
indicated that despite certain technical defaults in connection with their
Bridge Loan to us, as previously reported in our Annual Report on Form 10-KSB,
as filed on October 14, 2003 (which defaults were waived through October 31,
2003), it is willing to discuss continuing to extend the balance of the
remaining unadvanced amounts under the Bridge Loan that approximate $1 million.
However, there can be no assurance that Brascan will continue to extend such
remaining amounts or that it will not declare a default under the Bridge Loan
documentation subsequent to October 31, 2003.

In
connection with MISTs determination not to proceed with the equity
financing transaction as previously contemplated, Brascan has released us from
our obligations to not solicit alternative financings from other potential
investors, and the break-up fee that was associated with such a financing. We
are currently exploring such other options. In view of MISTs determination
not to proceed with the equity financing transaction as contemplated, the
warrant to purchase 10,000,000 shares of our common stock issued to Brascan in
connection with the Bridge Loan (i) will become exercisable on the earlier of
(a) December 31, 2003, or (b) upon a consolidation or merger with another
entity, or the sale, transfer or other disposition of all or substantially all
of our assets and properties to another entity; and (ii) will expire in
September 2008.

There
can be no guarantees or assurances that any financing or other transaction will
be completed, and in the absence of alternative financing or other transaction,
we will be forced to cease operations. Any contemplated financing or other
transaction more than likely would be subject to a number of conditions,
including, but not limited to, the execution of definitive documentation and the
successful completion of a reorganization of our capital structure, which may
include the restructuring of our currently issued and outstanding Series C
Convertible Preferred Stock and Series C Warrants. It is also anticipated that
the terms and provisions of any contemplated financing or other transaction, if
completed, will have a substantial dilutive effect on the ownership interests of
our existing stockholders.

These
conditions raise substantial doubt about our ability to continue as a going
concern and if we are unable to obtain additional capital as needed, we will be
required to cease operations altogether. The consolidated financial statements
do not include any adjustments that might result from our inability to continue
as a going concern.

SERVICES AND
PRODUCTS

We
derive revenue primarily from two sources: service revenues and product sales.
Service revenues are generated from our Synapse Wireless Services. Revenue from
product (equipment) sales are primarily derived from the sale of our proprietary
Synapse Enabler products, and, as these products send transactions through our
Synapse Service, sales of these products are typically precursors to Synapse
Service revenues. The following provides more details on our service and product
offerings:

19

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SynapseSM
Wireless Services

For
mobile merchants or merchants conducting business in the field, wireless POS
systems are an obvious solution, enabling card acceptance and delivering
increased profits and greater customer satisfaction. We believe we are at the
forefront of this payments revolution, providing certification of wireless
credit card terminals from third-party manufacturers such as Creditel,
Linkpoint, Lipman, Thales, and others, to the Synapse host platform, which acts
as a neutral gateway to payment processors. This proprietary service also allows
credit card processing for vending machines, quickservice (fast-food) and quick
casual restaurants, taxis and limousines, in-home service providers,
door-to-door sales, contractors, delivery services, sporting events, and outdoor
markets. No single wireless network provides a complete and ubiquitous
foot print of nationwide coverage in the United States. Our service
is wireless carrier agnostic, providing a broad selection of wireless data
networks including Motients DataTac network, the Cellular Digital Packet
Data (CDPD) networks operated by AT&T Wireless and Verizon
Wireless (both of which are being phased out) and Alltel, and Cingulars
Mobitex network. We are also in discussions with the leading wireless carriers
and equipment manufacturers regarding next generation (3G) wireless
technologies, including Code Division Multiple Access digital wireless developed
by Qualcomm (CDMA) and General Packet Radio Service
(GPRS) enabled networks which offer always-on, higher
capacity, Internet-based content and packet-based data services. Utilizing
Synapse Wireless Services, businesses with locations throughout the United
States can implement a wireless POS strategy using multiple networks and
terminals to ensure optimal coverage.

In
April 2003, we successfully converted, on behalf of a major payment processor,
approximately 7,400 existing wireless merchant terminals on Cingulars
Mobitex network to our Synapse service. Previously, the terminals had been
connected directly to the processor over the Mobitex wireless network. Now, the
terminals continue to use Cingulars Mobitex network, but the transactions
are routed to the processor via the Synapse host platform. The processor can now
leverage the value added services of Synapse including online management of the
wireless accounts, our 24/7 customer support desk and online reporting. This
conversion brings our total active sites to more than 32,500 at September 30,
2003.

The
terminal conversion described above highlights the growing importance of Synapse
to payment processors and other clients as a means of improving the overall
management of their wireless programs through our value-added services. Of great
importance to processors is the ability to activate and manage wireless
merchants through our online tools and reporting features. Additionally, our
24/7 customer support desk provides them with personalized attention and fast
responses to issues that arise. Our focus will be to continually improve these
support tools and services and to offer our clients a single source for their
wireless payment processing programs, regardless of the wireless carrier service
or terminal hardware that is chosen for each individual merchant site.

Synapse
Enabler for POS

The
Synapse Enabler is a proprietary device that we developed for the purpose
of converting non-wireless devices to a wireless medium. The product has
applicability to many vertical markets, but a key advantage for the payments
industry is the ability to displace slow and expensive conventional phone lines
by converting traditional dial-up POS terminals to wireless cashless payment
terminals. When compared to leased line connectivity, the Synapse Enabler offers
similar high-speed transaction processing with dramatically reduced monthly
communications costs.

20

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The
Synapse Enabler T8 (T8) can convert as many as eight dial-up POS
terminals in one location to a single wireless connection. When compared to
dial-up connectivity, the T8 affords the merchant less expensive installation,
faster transactions, and lower operating costs, making it an ideal solution for
queue-sensitive, multi-lane environments such as quickservice (fast-food) and
quick casual restaurants. Currently, we have certified the T8 with one of our
largest processing clients who has deployed the system in a limited number of
quickservice restaurants in California and Florida.

Synapse
Enabler for Vending

In
addition to fixed-location, mobile, and portable wireless applications, we have
integrated our proprietary technology into devices such as vending machines to
create new opportunities for cashless payment and other data gathering services.
Vending machines in selected cities have been retrofitted with the Synapse
Enabler for Vending (SEV) as part of a program for PepsiCo, Inc.
(Pepsi) to introduce cashless payments for their vended products.
Transactions are routed through the Synapse system for authorization and
settlement. In addition to enabling card payments on vending machines, the SEV
communicates with the vending machines internal Data Exchange control
boards allowing it to send up-to-the-minute information about inventory and the
operational status of each vending machine to Synapse. This telemetric data is
then provided to Pepsi, its bottlers and licensees over a secure Internet
connection. Increased sales and margin through cashless payment acceptance, more
efficiency in determining and servicing daily routes, and information designed
to keep machines operating at peak performance are all expected results of the
Synapse system for the vending industry.

In
December 2002, we received our first trademark authorization from
Pepsi for our wireless cashless payment processing solution for vending
machines. The trademark authorization given by Pepsi authorizes our first
generation SEV for deployment by Pepsis bottling partners in their vending
machines throughout North America. The solution earned trademark authorization
after nearly two years of development and testing in various locations. We are
now finalizing certain operational and commercialization arrangements governing
the program for deployment of the second generation SEVs with Pepsi bottlers and
licensees. While we await the start of full commercialization of the program, we
continue to build and deploy units pursuant to purchase orders received from
Pepsi. As such, over five hundred units have already been deployed in test
laboratories and certain test markets by key Pepsi anchor bottlers and
licensees. These markets include Chicago, Illinois; Memphis, Tennessee; Las
Vegas, Nevada; Orlando, Florida and St. Louis, Missouri. Also, we have shipped
an additional 250 units to Pepsi in late August 2003 for expected installation
in the quarter ending December 31, 2003, of which approximately 50 have already
been installed.

On
October 16, 2003, we announced that we entered into a multi-year exclusive
supply agreement with Pepsi for cashless payment and wireless route management
systems and service for use on the vending machines of Pepsis bottlers,
licensees and affiliates. Pending the completion of successful commercial
testing, the Pepsi-Cola North America division of Pepsi has committed to
purchase a minimum of 10,000 SEVs. It is anticipated that commercial testing
shall be completed no later than December 31, 2003. Upon completion of the final
commercial testing with Pepsi, we expect to receive various orders of unit
deployments from Pepsi, its bottlers and licensees as we seek to ramp up to a
steady deployment of units.

21

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Synapse
Enabler for Transportation

We
have also integrated our Synapse Enabler solution into taximeters from
Centrodyne and Pulsar, the two leading manufacturers of taximeters in North
America. This wireless solution, called the CardMeter Wireless Taximeter,
is currently in use by taxi companies in Chicago, Illinois; Cincinnati, Ohio;
Dallas, Texas; and Providence/Warwick, Rhode Island. The CardMeter solution
offers such companies the opportunity to accept cards and get real-time
authorizations in their taxicabs, which is fast, convenient, and safer because
drivers carry less cash. Although we continue to seek opportunities in this
arena, sales have proved extremely challenging and have been minimal to date.

Synapse
Wireless Payment Acceptance on Cell Phones

We
believe the market for card payments will become larger with the emergence of
card acceptance on new wireless devices such as those integrated with mobile
phones.

To
that end, we have played an important role in the recently launched PowerSwipe,
a new product by Creditel Corp. that attaches to certain models of Motorola
telephones utilizing the Nextel network. The device provides mobile workers with
the capability to swipe a credit card and take payment with greater security,
speed, and convenience while also having access to Nextels standard cell
phone, two-way voice messaging and text messaging services. We believe that
Creditels partnership with Nextel and Motorola is ideal for the launch of
this solution since Motorola phones with service on the Nextel network are
already popular with fleet-based businesses. Motorola and Nextel will promote
and sell the solution through their dealer networks. Our Synapse Service
provides Creditel with a payments gateway to various credit card processors and
other services. We have signed an agreement with Creditel to be the exclusive
payments gateway for the PowerSwipe product. Device trials included payment
acceptance for food and beverages in the club seats of the Super Bowl in January
2003 and in kiosks and merchandise tents surrounding the Pro Bowl in February
2003. The product is now entering full commercial launch.

Synapse
Adapter for POS or ATMs

The
Synapse Adapter is a proprietary device utilizing patented dial
tone-emulation technology licensed from AT&T Wireless to provide our clients
with a seamless plug and play solution for the conversion of dial-up
POS terminals to a high speed, lower cost, wirelessly-enabled device based on
the CDPD wireless network. The Synapse Adapter also makes it easy for the
operators of dial-up ATMs to utilize wireless technology.

Although
we continue to provide service for this product, we no longer sell the Synapse
Adapter as it is based on the CDPD wireless medium, which the existing U.S.
wireless carriers will ultimately migrate away from as they move to next
generation technologies. AT&T Wireless has stated that it intends to
completely shutdown its CDPD network in June 2004 and will migrate to its new
GPRS network. Verizon Wireless has announced that it intends to transition from
its current CDPD data service to its next generation CDMA data service and
intends to completely shutdown its CDPD network in December 2005. Our Synapse
Adapter product is CDPD-based, and certain third party products used on our
service are also CDPD-based. The useful life of this product and other
CDPD-based terminals are dependent on the availability of CDPD service.

22

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Other
Services

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

Discontinued
Operations

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

RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

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 active
sites that can process transactions through our hosts; (2) the gross number of
active sites that are added to our system; (3) the number of transactions
processed through our hosts; (4) the number of units of USWD products sold; and
(5) EBITDA  Earnings before interest, taxes, depreciation and
amortization.

Active Sites

Active
sites have grown to approximately 32,500 as of September 30, 2003, an
increase of 15,400 or 90% from the same date of the prior year. In April 2003 we
converted approximately 7,400 wireless sites for a major processor using
Cingulars Mobitex network to our Synapse service on the same wireless
network. This conversion has resulted in a substantial increase in activations
and transactions, as several hundred new wireless activations are being made by
this customer through our Synapse service each month.

Gross
Activations

Gross
activations for the three months ended September 30, 2003, were 4,400 compared
to 3,700 for the same period in the prior fiscal year. This represents a 700
unit or 19% increase.

Transactions

Transactions
processed for the three months ended September 30, 2003, were approximately
2,623,000, an increase of 850,000 or 48% from the same period in the prior
fiscal year. This increase was primarily due to the growth in active sites.

23

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Product
Sales in Units

Product
sales in units for the three months ended September 30, 2003, were 21, a
decrease of 108 units or 84% from the same period of the prior fiscal year. The
decrease was attributed to the lack of sales for the Synapse Adapter, which we
no longer sell as it is based on the CDPD wireless medium, which the existing
U.S. wireless carriers will ultimately migrate away from as they move to next
generation technologies. Product sales in units also reflect sales of our
Synapse Enabler and Creditels PowerSwipe. Sales of the Synapse Enabler
decreased by 57 units to 15 units for the three months ended September 30, 2003
as compared to the same period in the prior fiscal year, representing the lack
of sales of the Synapse Enabler for Transportation and partially offset by sales
of our Synapse Enabler T8. Product sales in units also reflect sales of
Creditels PowerSwipe.

Product
sales are expected to gradually increase as we move to the commercialization of
our (i) Synapse Enabler for Vending through Pepsi, its bottlers and licensees,
and (ii) Synapse Enabler for POS.

EBITDA

Discussion
of EBITDA is included below.

REVENUE

We
derive revenue primarily from two sources: service revenues and product sales.
Service revenues consist of: (a) one-time, non-refundable service activation
fees; (b) monthly minimum subscription fees for the availability of service; (c)
fees for transactions delivered on wireless or other methods through our hosts;
and (d) other fees, including administration and other fees for certain wireless
services, certain charges for telecommunications connections between us and a
party, and installation fees and expenses. Service revenues are generated from
our Synapse Service. Product sales are primarily derived from the sale of our
proprietary Synapse Enabler and Synapse Adapter products.

Total
Revenues

Total
revenues were $1,246,000 for the three months ended September 30, 2003, as
compared to $783,000 for the same period in the prior fiscal year. This
improvement from the prior fiscal year represents a $463,000 or 59% increase.
The increase is primarily attributed to the higher recurring service revenues
from the growth in the number of active sites. This increase was partially
offset by the decrease in product sales. Revenues are discussed in more detail
below.

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

|                       | For the three months endedSeptember 30, |    
|---------------------- | --------------------------------------- | ---
|
|Revenues               |                                         |    
|Activation fees        |                                         | 7  
|Monthly fees           |                                         | 78 
|Transaction fees       |                                         | 8  
|Other fees             |                                         | 6  
|                       |                                         |    
|Total service revenues |                                         | 99 
|Product sales          |                                         | 1  
|                       |                                         |    
|Total revenues         |                                         | 100
|                       |                                         |    
|                       |                                         |    

24

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Service
Revenues

Revenue from
services for the three months ended  September 30, 2003  increased to $1,230,000  from
$717,000  during the same period in  the prior fiscal year, a $513,000 or 72% increase.

Activation
Fees. Revenue from activation fees, which represents the amortization of fees
generated from activations of new sites added through our proprietary Synapse
service, was $82,000 for the three months ended September 30, 2003, a $22,000 or 21%
decrease as compared to the same period in the prior fiscal year. The amortization of
revenue from activation fees for the current period as compared to the same period of
the prior year was reduced by an increase in the amortization period effective July 1,
2002, resulting from an increase of our estimate of the expected life of an activation
from six months to one year. The number of gross activations by client and the
applicable rate charged to each client also affects aggregate activation fees.

Monthly Fees. Revenue
from recurring  monthly fees,  which is generated from the number of active sites that
can process  transactions  through our Synapse  service,  was $974,000 for the three
months ended  September  30, 2003, a $447,000 or 85% increase as compared to  the same
period in the prior fiscal year.  The increase is a direct  result of the increase in the
number of active  sites.  The number  of active sites by client and the applicable rate
charged to each client also affects aggregate monthly fees.

Transaction
Fees. Revenue  from  transaction  fees for the three  months ended  September  30,
2003 was $94,000,  compared to $63,000  during the same period in the prior  fiscal
year, a $31,000 or 49%  increase.  The increase is a direct  result of the increase in
the  volume of  transactions  due  primarily  to the growth in the  number of active
sites.  The  number of active  sites by client and the  applicable rate charged to each
client also affects aggregate transaction fees.

Other Fees. Revenue
from other fees for the three months ended  September 30, 2003 was $80,000,  a $57,000
increase.  The increase is  a result of certain administrative and other charges to
certain clients.

Product Sales

Poduct sales
are primarily  derived from the sale of our proprietary  wireless  devices,  the Synapse
Enabler and the Synapse Adapter.  Revenue from product sales  decreased for the three
months ended  September 30, 2003 to $16,000 from $66,000  during the same period in  the
prior fiscal year, a $50,000 or 76%  decrease.  The  decrease was  attributed  to the mix
of "Product  Sales in Units" as discussed  above.

GROSS PROFIT

Gross  profit
consists of  revenues,  net of direct costs of sales.  Costs of revenues  consist
primarily of the cost for the initial  setup and ongoing  communications  costs
associated with terminals  connected through Synapse,  costs of production of products
such as  the Synapse  Adapter and Enablers,  and certain  carrier and other costs.  Total
gross profit for the three months ended  September 30,  2003 was $502,000,  compared to
$400,000 for the same period in the prior fiscal year, a $102,000 or 26% increase.  The
improvement in  total  gross  profit for the three  months  ended  September  30,  2003
over the same  period in the prior  fiscal  year was  primarily  attributed  to the
growth of active  sites for Synapse  services.

Gross profit
from  services for the three months ended  September  30, 2003 was  $496,000,  compared
to $395,000 for the same period in  the prior fiscal year, a $101,000 or 26%  increase.
The  improvement  in gross profit from  services was  primarily  attributed to the
growth of active sites for Synapse services.

Gross profit
from product  sales for the three months ended  September  30, 2003 was $6,000,  compared
to $5,000 for the same period in  the prior fiscal year, a $1,000 increase.  The increase
was attributed to the mix of "Product Sales in Units" as discussed above.

25

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GROSS MARGIN

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

|                   | For the three months endedSeptember 30, |   
|------------------ | --------------------------------------- | --
|
|Gross margin       |                                         |   
|Services           |                                         | 40
|Product sales      |                                         | 37
|Total gross margin |                                         | 40

Total
gross margin (gross profit as a percentage of total revenues) for the three
months ended September 30, 2003 decreased to 40.3% from 51.1%. This decrease was
primarily attributed to changes in customer pricing plans that led to lower
service margins and higher costs for certain wireless carrier service, which
were partially offset by the greater percentage of total revenue from monthly
fees due to the growth in active sites.

Gross
margin from services was 40.3% for the three months ended September 30, 2003
compared to 55.1% for the same period in the prior fiscal year. This reduction
was primarily attributed to the mix of rates charged to our clients, including a
reduction in rates for a large client and the associated number of active sites
for each client, and higher costs for certain wireless carrier service, which
were partially offset by the greater percentage of total revenue from monthly
fees due to the growth in active sites. Gross margin from product sales was
37.5% for the three months ended September 30, 2003 compared to 7.6% for the
same period in the prior fiscal year. The increase is primarily attributed to
the increased sales of Synapse Enabler products.

OPERATING
EXPENSES

Total
operating expenses for the three months ended September 30, 2003 decreased to
$1,785,000 from $2,570,000, a decrease of $785,000 or 31% compared to the same
period in the prior fiscal year. The decrease was due to cost reduction efforts
and efficiency gains, including reductions in staff and compensation, as well as
the elimination of amortization of the non-cash compensation expense since the
amortization was completed in the fiscal year ended June 30, 2003, a reduction
in depreciation expense due to minimal capital expenditures in recent periods,
and to the reduction in the amortization expense recorded in relation to
goodwill and intangible assets. In November 2002, we instituted an additional
cost reduction plan, which was primarily comprised of salary and headcount
reductions. These cost savings are reflected in the decrease in operating
expenses for the three-month period ended September 30, 2003.

26

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Selling,
General, and Administrative Expenses

Selling,
general, and administrative expenses consist primarily of salaries and benefits
for sales, general and administrative personnel, occupancy and general office
expenses, professional fees (including legal, tax and accounting), insurance,
advertising and promotion expenses, travel expenses, other general corporate
purposes, and non-cash compensation of directors. Selling, general, and
administrative expenses excluding non-cash compensation of directors, were
$1,538,000 for the three months ended September 30, 2003 compared to $1,862,000
for the same period in the prior fiscal year, a $324,000 or 17% decrease. The
decrease is primarily attributed to the reduction of staff and compensation of
staff, and our continued cost cutting efforts.

The
amortization of non-cash compensation of directors of $0 for the three months
ended September 30, 2003 compared to $281,000 for the same period in the prior
fiscal year. The decrease was related to the elimination of amortization of the
non-cash compensation expense since the amortization was completed in the fiscal
year ended June 30, 2003.

Selling,
general and administrative expenses including non-cash compensation of directors
were $1,538,000 for the three months ended September 30, 2003 compared to
$2,143,000 for the same period in the prior fiscal year, a $605,000 or 28%
decrease.

Research and
Development Expenses

Research
and development expenses consist primarily of engineering personnel costs for
research, design and development of the proprietary technology we use to
integrate and develop our products and services. Research and development
expenses decreased to $94,000 for the three months ended September 30, 2003
compared to $158,000 for the same period in the prior fiscal year, a $64,000, or
41% decrease. The decrease is primarily attributed to the reduction of staff and
compensation of staff, and our continued cost cutting efforts.

Depreciation
and Amortization

Depreciation
and amortization for the three months ended September 30, 2003 was $153,000,
compared to $269,000 for the same period in the prior fiscal year, a $116,000 or
43% decrease. The improvement in depreciation and amortization is discussed
below in this section.

Amortization
of intangibles includes amortization of goodwill and intellectual property,
including core technology, customer relationships, and contract rights.
Amortization of intangibles were $23,000 for the three months ended September
30, 2003, compared with amortization of goodwill and intangibles of $66,000 for
the same period in the prior fiscal year, a $43,000 or 65% decrease. For the
three months ended September 30, 2002, a significant part of the amortization
included amortization relating to goodwill and intangibles generated by the
acquisitions of NXT and Cellgate Technologies, Inc. As a result of the sale of
NXT and impairment charges in fiscal 2003 against goodwill and intangibles
related to our acquisition of Cellgate, remaining intangible assets of $45,000
at June 30, 2003 are being amortized over a six-month remaining life.

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Depreciation
and amortization of fixed assets, leasehold improvements and capitalized
software were $130,000 for the three months ended September 30, 2003, compared
with $203,000 for the same period in the prior fiscal year, a $73,000 or 36%
decrease. We anticipate a decrease in depreciation and amortization of fixed
assets, leasehold improvements, and capitalized software as we expect minimal
outlays for capital expenditures over the next year.

Restructuring

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

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

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

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

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

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

28

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OTHER

Interest
income for the three months ended September 30, 2003 was $2,000, compared to  $13,000 for
the same period in the prior fiscal year. Interest income decreased  due to lower cash
balances invested corresponding with the utilization of cash  to fund our business.

Interest
expense for the three months ended September 30,  2003 was $76,000, compared to $60,000
for the same period in the prior fiscal  year. The increase in interest expense was
primarily related to increased  borrowing costs partially offset by the reduced principal
balance of a capital  lease for Synapse Adapters assumed with the acquisition of
Cellgate. Other  income (expense), net for the three months ended September 30, 2003 was
net  income of $26,000, compared to a net expense of $57,000 for the same period in  the
prior fiscal year.

Other income
(expense), net consists primarily of: (a)  rental income for sublet facilities of $33,000
for the three months ended  September 30, 2003 compared to $11,000 for the same period in
the prior fiscal  year, a $22,000 increase due to the sublet of a portion of the Companys
current offices in New York; (b) income relating to a transition services  agreement that
was executed in connection with the sale of NXT of $0 for the  three months ended
September 30, 2003 and $24,000 for the same period in the  prior fiscal year; and (c) tax
expense for the three months ended September 30,  2003 of $7,000 compared to $92,000 for
the same period in the prior fiscal year,  a $85,000 decrease for certain state and local
taxes.

LOSS FROM
CONTINUING OPERATIONS

Loss
from continuing operations of $1,331,000 for the three months ended September
30, 2003, compared with a loss of $2,274,000 for the same period in the prior
fiscal year, decreased $943,000 or 42% from the same period in the prior fiscal
year. The decrease in loss was primarily attributed to the realization of the
cost reduction efforts and efficiency gains, the elimination of amortization of
the non-cash compensation expense, the reduction in depreciation and
amortization, as well as overall increased service revenues.

DISCONTINUED
OPERATIONS

Income
from discontinued operations represents the net results of our wholly owned
subsidiary, UNS Corporation (formerly, NXT). During May 2002, we developed a
formal plan to sell NXT. As previously disclosed, effective as of the close of
business on August 31, 2002, we sold substantially all of the operating assets
associated with NXT. NXT provides data services and landline-based connectivity
for credit-card transaction processing. For the three months ended September 30,
2003, there were no operations or gain on sale of discontinued operations. For
the three months ended September 30, 2002, operations resulted in income of
$371,000. For the three months ended September 30, 2002, gain on sale of
discontinued operations of $140,000 primarily represents the reversal of an
accrued vendor obligation that was waived as a result of the sale of NXT.

NET LOSS

For
the three months ended September 30, 2003, net loss totaled $1.33 million or
$0.08 per share, as compared to a net loss of $1.76 million or $0.15 per share,
for the same period in the prior fiscal year.

29

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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. We use EBITDA as an internal measure of operating performance, which
is net loss excluding net interest, taxes, depreciation and amortization. We
believe that EBITDA, while providing useful information, should not be
considered in isolation or as an alternative to net income or cash flows as
determined under accounting principles generally accepted in the United States
of America.

The
EBITDA loss for the three months ended September 30, 2003 was $1.10 million, as
compared to the same period in the prior fiscal year of $1.36 million. This
improvement in EBITDA loss of $0.26 million or approximately 19% is primarily
attributed to the increase in revenues and a reduction of operating expenses as
discussed in prior sections.

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

|                                              | For the three months ended  September 30, |            
|--------------------------------------------- | ----------------------------------------- | -----------
|
|Net loss                                      |                                           | $(1,331,000
|Subtract interest income                      |                                           | (2,000     
|Add interest expense                          |                                           | 76,000     
|Add taxes included in other income (expense), |                                          
|net                                           |                                           | 7,000      
|Add depreciation and amortization             |                                           | 153,000    
|                                              |                                           |            
|EBITDA loss                                   |                                           | $(1,097,000
|                                              |                                           |            
|                                              |                                           |            

FINANCIAL
CONDITION, CAPITAL RESOURCES AND LIQUIDITY

We
need additional capital in the immediate future in order to continue operations.
Since our inception we have incurred significant losses and negative cash flow
from operations. As of September 30, 2003, we had an accumulated deficit of
approximately $144 million and our principal source of liquidity was
approximately $185,000 in cash and cash equivalents. Based on our current
estimates of revenue levels, operating costs and other cash inflows and outlays,
and excluding the remaining proceeds available to us from the bridge facility
discussed below, we will not have cash balances adequate for us to continue
operations beyond December 2003 without a sufficient capital infusion by such
time. Our concerns about capital have placed us in a position where we are
required to take additional steps to raise funds and cut costs. If we are not
successful in our efforts to raise additional capital, we may be forced to
eliminate or curtail certain of our projects, sell assets and take additional
steps to conserve cash that may adversely affect our operations.

30

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In
August 2003, we signed term sheets with Brascan Financial Corporation
(Brascan), a subsidiary of Toronto, Canada-based Brascan
Corporation, to arrange for the purchase of $12.5 million of a newly issued
Series D Preferred Stock representing at least 60% of our equity. The term
sheets contemplated that we enter into a strategic alliance with MIST Inc.,
Brascans subsidiary, and a provider of card issuance and payment
processing products and gateway services to banks, non-bank card issuers and the
payments processing industry. The term sheets contemplated that Brascan would
provide a bridge loan to allow us to continue operations while negotiating a
definitive Series D Preferred Stock purchase agreement and to satisfy the
anticipated closing conditions. In addition, the term sheets contain provisions
with respect to break-up fees, non-solicitation and other miscellaneous matters.

On
September 16, 2003, we entered into a Term Loan and Security Agreement (the
Bridge Loan) with Brascan, pursuant to which Brascan agreed to lend
us up to $2.75 million, at an interest rate of 7.5% per annum payable monthly,
with cash payments commencing March 28, 2004. The loan is secured by a general
security interest in all of our assets and is due March 16, 2005. A portion of
the funds was used to repay a demand loan in the principal amount of $300,000
previously made to us on August 28, 2003, which was necessary in order to enable
us to continue operations. The remaining portion of the loan will provide us
with the working capital necessary to continue operations until February 2004.
As of November 10, 2003, we have drawn down approximately $1.74 million against
the $2.75 million Bridge Loan commitment. The Bridge Loan contains various
covenants which include, among others, (i) a material adverse change clause,
(ii) a minimum monthly revenue requirement of approximately $380,000, and (iii)
a minimum net worth requirement of not less than negative $2 million. As of
November 10, 2003, the Company was in compliance with these covenants. We are
currently in technical default under the Bridge Loan with respect to two
post-closing covenants (relating to receiving a landlord waiver for our New York
facility and completing the actions necessary to subject certain of our funds to
a blocked account arrangement).

On
October 30, 2003, we received notification from Brascan, on behalf of its
designate MIST, that it no longer intends to pursue the equity financing
transaction contemplated by the term sheet with USWD as previously announced on
September 16, 2003. However, we are continuing to explore alternative
transactions with MIST, although there can be no assurance that any such
transaction will be consummated, or consummated on terms favorable to us.

Brascan
indicated that despite certain technical defaults in connection with their
Bridge Loan to us, it is willing to discuss continuing to extend the balance of
the remaining unadvanced amounts under the Bridge Loan that approximate $1
million. However, there can be no assurance that Brascan will continue to extend
such remaining amounts or that it will not declare a default under the Bridge
Loan documentation subsequent to October 31, 2003.

In
connection with MISTs determination not to proceed with the equity
financing transaction as previously contemplated, Brascan has released us from
our obligations to not solicit alternative financings from other potential
investors, and the break-up fee that was associated with such a financing. We
are currently exploring such other options. In view of MISTs determination
not to proceed with the equity financing transaction as contemplated, the
warrant to purchase 10,000,000 shares of our common stock issued to Brascan in
connection with the Bridge Loan (i) will become exercisable on the earlier of
(a) December 31, 2003, or (b) upon a consolidation or merger with another
entity, or the sale, transfer or other disposition of all or substantially all
of our assets and properties to another entity; and (ii) will expire in
September 2008.

31

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There can be no
guarantees or assurances that any financing or other transaction will be completed, and
in the  absence of alternative financing or other transaction, we will be forced to cease
operations. Any contemplated  financing or other transaction more than likely would be
subject to a number of conditions, including, but not  limited to, the execution of
definitive documentation and the successful completion of a reorganization of our
capital structure, which may include the restructuring of our currently issued and
outstanding Series C  Convertible Preferred Stock and Series C Warrants.  It is also
anticipated that the terms and provisions of any  contemplated financing or other
transaction, if completed, will have a substantial dilutive effect on the  ownership
interests of our existing stockholders.

These
conditions raise substantial doubt about our ability to continue as a going
concern and if we are unable to obtain additional capital as needed, we will be
required to cease operations altogether. The consolidated financial statements
do not include any adjustments that might result from our inability to continue
as a going concern.

On May
14, 2003, we entered into an agreement (the Factoring Agreement)
with a finance company to sell a portion of our trade receivables on a regular
monthly basis. Under the terms of the Factoring Agreement, we receive 70% of the
face amount of approved invoices. Receivables may be sold in lots of not less
than $10,000. We receive the remaining 30% of a lot sold, net of fees and
expenses, upon the finance companys receipt of payment of the entire lot.
The Factoring Agreement requires that we sell not less than $450,000 per quarter
until the expiration of the agreement in May 2005.

Paymentech
is obligated, subject to certain conditions, to purchase goods or services from
us or our affiliates over a three (3) year period commencing September 1, 2002,
in an amount aggregating at a minimum $3,472,500, with Paymentech obligated to
pay us at least $1,000,000 during the first year, in installments of $83,333 per
month, at least $1,150,000 during the second year, in installments of $95,833
per month, and at least $1,322,500 during the third year, in installments of
$110,208. Paymentech has made such payments and is expected to continue to make
such payments on a timely basis. In August 2003, we received an advance of
$167,000 from Paymentech representing guaranteed payments due for September and
October 2003. We agreed to a $25,000 reduction in the scheduled amount due in
return for the early advance. We have also agreed to apply any unapplied balance
to future services. Payments from Paymentech in excess of goods and services
provided to date aggregating $388,000 are included in Customer
advances in the consolidated balance sheet at September 30, 2003.

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In
April 2003, Paymentech began to accelerate its purchase of services from us.
Such purchases will be reflected in significant increases in our service and
product sales revenues in comparison with prior periods, but will have no
immediate cash benefit. Paymentech will offset the amounts due us with the
credit balances that it has built up by making the payments referred to above.
Therefore, Paymentechs purchases will have a negative impact on our cash
balance until the accumulated credit balances have been fully realized.

Nevertheless,
we anticipate our negative cash flow will continue to improve on a quarterly
basis. A large percentage of our operating expenses are fixed and we expect to
continue increasing our revenues without incurring significant increases in
operating expenses. We are also exploring ways of conserving cash and improving
our cash flow through growth in the number of active sites and various product
sales, including revenues from services and products for vending, and continued
reduction of cash expenses.

Period to
Period Comparisons and Seasonal Variation of Business

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

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

Historical
Cash Flows

For
the three months ended September 30, 2003, cash decreased by $417,000 to
$185,000. For the three months ended September 30, 2002, cash increased by
$3,146,000 to $6,008,000.

Net
cash used in operating activities was $1,098,000 during the three months ended
September 30, 2003. This primarily consisted of net operating losses. Net cash
used in operating activities was $836,000 during the three months ended
September 30, 2002. This primarily consisted of net operating losses, partially
offset by non-cash charges for depreciation and amortization and non-cash
compensation for directors and consulting.

Net
cash provided by investing activities was $466,000 for the three months ended
September 30, 2003. This was primarily comprised of the decrease in restricted
cash, partially offset by the purchase of property and equipment. Net cash
provided by investing activities was $4,205,000 for the three months ended
September 30, 2002. This amount was primarily comprised of the net proceeds from
the sale of NXT.

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Net
cash provided by financing activities for the three months ended September 30,
2003 of $215,000 was primarily comprised of the net proceeds from the bridge
loan, partially offset by payments for the real estate lease termination. Net
cash used in financing activities for the three months ended September 30, 2002
of $223,000 was comprised of payments under capital leases.

CRITICAL
ACCOUNTING POLICIES

The
Securities and Exchange Commission (SEC) has requested that all
registrants discuss their three to five most critical accounting
policies in Managements Discussion and Analysis. 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 of
operations 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 accounting
policies fit this definition:

Revenue
Recognition

We
adopted the provisions of Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements (SAB 101), which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. In
addition, we follow the guidance contained in Emerging Issues Task Force
position No. 00-21 with respect to sales arrangements with multiple
deliverables.

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

Services.Service fees consist of: (a) one-time, non-refundable service activation
fees; (b) monthly minimum subscription fees for the availability of service; (c)
fees for transactions delivered on wireless or other methods through our hosts;
and (d) other fees, including administration and other fees for certain wireless
services, certain charges for telecommunications connections between us and a
party, and installation fees and expenses. Service fees are generated from our
Synapse Service. Service activation fees are recognized ratably over the
estimated average life of a customer contract. All other service revenues are
recognized as services are provided.

Product
sales.Product sales (i.e., sales of equipment) are primarily derived from
the sale of our proprietary Synapse Adapter and Synapse Enabler products.
Revenues from product sales are recognized upon shipment and acceptance.

Stock-based
Compensation

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

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

At
September 30, 2003, the Company had four fixed stock-based compensation plans.
The exercise price of each option granted pursuant to these plans was equal to
the market price of the Companys common stock on the date of grant.
Accordingly, pursuant to APB No. 25, no compensation cost has been recognized
for such grants. Had compensation cost been determined based on the fair value
at the grant dates for such awards consistent with the method prescribed by SFAS
No. 123, the Companys net loss and loss per share for the periods
indicated would have been as follows:

|                                       | Three months endedSeptember 30, |                   
|-------------------------------------- | ------------------------------- | ------------------
|
|Loss from continuing operations        |                                 | $      (1,331,000 
|Income from discontinued operations    |                                 | --                
|                                       |                                 |                   
|Net loss, as reported                  |                                 | $      (1,331,000 
|Deduct: Total stock-based compensation |                                
|expense determined under fair          |                                
|value based method                     |                                 | (581,000          
|                                       |                                 |                   
|Pro forma net loss                     |                                 | $      (1,912,000 
|                                       |                                 |                   
|                                       |                                 |                   
|Per share, as reported                 |                                
|From continuing operations             |                                 | $            (0.08
|From discontinued operations           |                                 | --                
|                                       |                                 |                   
|Net                                    |                                 | $            (0.08
|                                       |                                 |                   
|                                       |                                 |                   
|Per share, pro forma                   |                                
|From continuing operations             |                                 | $            (0.11
|From discontinued operations           |                                 | --                
|                                       |                                 |                   
|Net                                    |                                 | $            (0.11
|                                       |                                 |                   
|                                       |                                 |                   

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

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

RECENT
ACCOUNTING PRONOUNCEMENTS

In
April 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. This Statement
eliminates the automatic classification of gain or loss on extinguishment of
debt as an extraordinary item and requires that such gain or loss be evaluated
for extraordinary classification under the criteria of APB Opinion No. 30. This
Statement also requires sale-leaseback accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. This Statement is effective for the Company for the fiscal year
ending June 30, 2004. The adoption of this statement did not have an effect on
the Companys results of operations or financial condition.

In
January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Company is required to
adopt the provisions of FIN 46 on October 1, 2003. The Company does not have any
variable interest entities, and, accordingly, the adoption of FIN 46 is not
expected to have an impact on the Companys results of operations or
financial condition.

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

In May
2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement will become effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of this statement did not have a material impact on
the Companys results of operations or financial condition.

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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 3.
CONTROLS AND PROCEDURES

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

(b)
Changes in Internal Controls. There were no significant changes in our
internal control over financial reporting, identified in connection with the
evaluation of such internal control that occurred during our last fiscal
quarter, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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PART II
 OTHER INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

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

ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS
UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.
OTHER INFORMATION

None.

ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K

(a)
Exhibits

31.1    Section
302 Certifications by the Chief Executive Officer
31.2    Section 302 Certifications by the Chief Financial Officer
32.1    Section 906 Certifications by the Chief Executive Officer
32.2    Section 906 Certifications by the Chief Financial Officer

(b) Reports
on Form 8-K

On
November 4, 2003, we filed a current report on Form 8-K reporting an Item 5
event regarding notification from Brascan Financial Corporation that it no
longer intends to pursue the equity financing transaction contemplated by the
term sheet with us as previously announced on September 16, 2003.

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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:
         November 13, 2003
          
 
        By: /s/ Dean M. Leavitt
             
             
             
              
             
           
Dean M. Leavitt
             
             
             
              
             
           
Chief Executive Officer
             
             
             
              
             
           
(Principal Executive Officer)

Dated:
         November 13, 2003
          
 
        By: /s/ Adi Raviv
             
             
             
              
             
           
Adi Raviv
             
             
             
              
             
           
Executive Vice President and
             
             
             
              
             
           
Chief Financial Officer
             
             
             
              
             
           
(Principal Financial Officer)

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