SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                                   [Mark One]

      [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1998

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ____________________ to _____________________.

                          Commission file no.: 0-22848

                            U.S. WIRELESS DATA, INC.
                            ------------------------
                 (Name of small business issuer in its charter)

                  Colorado                         84 -1178691
         ------------------------------         -------------------
        (State or other jurisdiction of          (I.R.S. Employer 
         incorporation or organization)         Identification No.)

           2200 Powell Street, Suite 800, Emeryville, California 94608
           -----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (510) 596-2025
                                                           --------------
        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered under Section 12(g) of the Exchange Act

                        No Par Value Class A Common Stock
                        ---------------------------------
                                (Title of Class)

Check  whether the issuer (1) 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 90 days.

                                 Yes _X_   No ___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and  nodisclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]

The issuer's revenues for the fiscal year ended June 30, 1998 were $909,000.

The aggregate market value of the issuer's voting stock held as of September 30,
1998 by non-affiliates of the Registrant was approximately  $29,784,000 based on
an average price of $3.84 as of September 30, 1998.

As of September 30, 1998, the issuer had  13,476,318  shares of its no par value
common stock outstanding.

Transitional Small Business Disclosure Format (check one):

                                 Yes ___  No _X_
<PAGE>
PART I

ITEM 1. DESCRIPTION OF BUSINESS

     U.S. Wireless Data, Inc., a Colorado  corporation (the "Company" or "USWD")
is in the  business  of  providing  products  and  services to enable the use of
wireless technology for electronic payment and other transactions. The Company's
business  is centered on a vision that  consumers  will have  anytime,  anywhere
access to all of their financial resources.

     While the vision statement is simple,  it encapsulates the Company's belief
that consumers want and will  ultimately have the ability to access and exchange
value  regardless of where they are or which  financial  resources  they wish to
use.  Confidence in this belief is supported by historical  trends over the last
twenty years as electronic payments from credit, debit, stored value, Electronic
Benefit Transfer (EBT), equity, and investment accounts continue to replace cash
and checks.  Correspondingly,  electronic  payments are becoming more pervasive,
more global,  available through a broader range of devices, and accepted in more
market segments.  Indeed,  cash and checks are still the overwhelming choice for
consumer payments.  However,  because no fundamental  obstacle exists to prevent
replacing cash and checks,  it is reasonable to expect that growth in electronic
payments  within the United States will likely  continue to be in the 12% to 17%
range, while growth outside the U.S. will be even greater.

     Communications  systems have played a  significant  part in the movement to
electronic   payments.   With  faster,   more   reliable,   and  less  expensive
communications  facilities  becoming  available  year after year,  more and more
merchants and their  customers have opted for electronic  value  exchange.  Now,
with wireless data  transmission  capabilities  following and  leveraging on the
success of  cellular  voice  systems,  electronic  payments  become an even more
justified   reality  for  many  market   segments  that   heretofore  have  been
under-served by land-based communications facilities.

     The  Company's  mission is to become the  recognized  leader in capture and
delivery of electronic payment, informational,  and other transactions, from the
point of  creation to the point of  processing,  using  wireless  communications
technologies.  As the mission statement implies, the Company defines its primary
role as a service provider,  delivering  payment  transactions from merchants to
merchant processors (i.e. acquirers), using wireless technology.

     The  strategy  of the  Company  is to  enable  widespread  use of  wireless
transaction   delivery   in  the   payment   sector  by   surrounding   existing
communications  carrier  capabilities  with products and services as required to
transmit electronic payments.  Initially, this strategy required the Company to:
(i) build  terminal  and modem  equipment  to read  credit  and debit  cards and
transmit to the carrier  facilities;  (ii) establish contracts with the carriers
for sending transactions; (iii) develop interface software required to translate
wireless  transactions into a form recognizable by processors' existing systems;
and,  (iv)  create an  awareness  within  the  payment  industry  that  wireless
transmission  is  superior  to  traditional  methods  for  many,  if  not  most,
merchants.  The  Company's  primary  customers  are  acquirers  already  in  the
marketplace and looking to improve their merchant services.

History of the Company
----------------------

     U.S. Wireless Data, Inc., a Colorado corporation (the "Company" or "USWD"),
was organized on July 30, 1991 for the purpose of designing,  manufacturing  and
marketing a line of wireless  and portable  credit card and check  authorization
terminals.  It went public in December  1993,  raising a total of  approximately
$12,200,000  of net  proceeds  through  the sale of  1,650,000  shares of Common
Stock.

     The Company's  focus until mid 1997 had been as a "box" maker and seller of
its  cellular-based  credit  card  terminal  products.   The  Company  designed,
manufactured and marketed its first product,  the POS-50(R),  through  acquiring
banks, POS hardware  distributors,  independent sales organizations,  and by the
company directly.

                                       2
<PAGE>
In early 1997,  USWD focused its product  development  efforts on  incorporating
Cellular Digital Packet Data (CDPD) technology into its product lines. CDPD is a
high-speed  digital packet data;  internet  protocol (IP) based  technology that
operates in parallel with current  cellular voice  networks.  It is designed for
high speed  encrypted data  transmission  over  dedicated  channels and will not
interfere  with or degrade  cellular  voice  traffic.  Because of the high-speed
nature of CDPD  technology,  and the  ability  to  bypass  the  public  switched
telephone  network,   CDPD-based  terminals  have  significant  performance  and
communication  cost  advantages  when  compared  with  the  traditional  dial-up
terminals  currently  being  sold in the U.S.  market  today.  The  Company  has
developed  two  CDPD-based  products  (POS-500 & TRANZ  Enabler) that reduce the
current  authorization  time  for  a  credit  or  debit  card  transaction  from
approximately 15 seconds to 3 to 5 seconds.

     In early 1997,  management  made the  fundamental  shift to transition  the
Company  into a  position  where  it  would  earn  recurring  revenue  from  the
CDPD-based  wireless  terminal  products and processing  services it marketed to
retail merchants. To facilitate this change in strategy, the Company has entered
into  various  consulting  agreements  and has been  required to generate  funds
through sales of securities.  Detailed  descriptions of these agreements and the
securities  sold by the Company are contained in Item 6 of this Report  entitled
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

     In order  to  market  credit  card  acceptance  and  electronic  processing
services,  in January  1997,  the  Company  executed a Member  Service  Provider
("MSP")  agreement  with NOVA  Information  Systems  ("NOVA"),  the nation's 7th
largest  credit card  transaction  processor.  In March 1998,  the Company  also
entered into a "Merchant Marketing and Services Agreement" with National Bank of
Commerce  ("NBC").  As a  registered  MSP  with  NOVA and NBC,  the  Company  is
positioned to provide transaction processing and bankcard acceptance services to
merchants.

     In order to create  awareness that wireless  processing is competitive with
land-based  alternatives,  the  Company  focused on  selling  its  products  and
transaction  processing  services  directly to  merchants.  In August 1997,  the
Company  began  marketing  its products  and services  through a series of joint
marketing agreements with major CDPD service providers. This effort included the
creation of a regionalized USWD sales  organization that would train and support
the data sales  representatives of each respective cellular carrier organization
to  actively   market  the  Company's  TRANZ  Enabler  product  and  transaction
processing services.  GTE Wireless was the first cellular organization mobilized
to sell the Company's products and services followed by Bell Atlantic Mobile and
Ameritech.

     The combined  joint  marketing  efforts  with  cellular  service  providers
allowed the Company to establish its presence as a leading  provider of wireless
transaction processing equipment and services;  however, unit placements did not
reach anticipated levels.

     In July of 1998,  Roger Peirce,  previous Chief Operating  Officer for Visa
and most recently  Group  President of First Data Merchant  Services  joined the
USWD Board of Directors. While acclimating to USWD's business plan and strategy,
Mr. Peirce was asked by the Board of Directors to take a more active role in the
Company. On August 21, 1998 Mr. Peirce became the Chief Executive Officer of the
Company.

     As a senior executive with extensive experience in the industry, Mr. Peirce
identified several areas in the Company's  distribution and operational strategy
that required immediate redirection. In late August 1998, several changes in the
Company's  strategy were  implemented.  The  fundamental  change in the strategy
involves positioning the Company as an enabler of wireless products and services
to the  marketplace  and not as a  competitor  to the current  incumbents.  This
repositioning of the Company in the marketplace  encompasses the discontinuation
of soliciting and owning  merchant  contracts for providing  bankcard-processing
services,  an  approach  that  effectively  positioned  the  Company as a direct
competitor to the major merchant acquirers.  The Company's new strategy involves
an  end-to-end  systems  approach to enabling  the  marketplace.  The Company is
enabling the marketplace  with a new service offering - Wireless Express Payment
ServiceSM  (WEPS).  WEPS includes an expandable set of wireless terminal devices
that  incorporate the Company's  proprietary  CDPD modem, a web-based IP address
provisioning  and terminal  activation  process that  includes  real time remote
diagnostic  capabilities,  the CDPD network service,  and server technology that
delivers  wireless  transactions to the current front end card  processors.  The
Company is targeting the top 30 merchant  acquirers and card processors for this
service.

                                       3
<PAGE>
     The Company  recently  announced a  non-binding  Letter Of Intent to form a
non-exclusive strategic partnership with Cardservice International Inc. (CSI) to
jointly exploit payment system opportunities using wireless technologies.  Under
the  terms of the  agreement,  CSI will  produce  its  LinkPoint(TM)  processing
terminals using the Company's  proprietary  Wireless Express Payment  ServiceSM.
Given CSI's  position in the industry and its shared  ownership  with First Data
Merchant Services, the largest payment processor in the world, this agreement is
viewed by management as  validation  of the  Company's  strategy.  Completion of
these  transactions  is subject to various  conditions,  including  the entry of
definitive agreements.  See "Management's  Discussions and Analysis of Financial
Condition and Results of Operations - Current Financing Initiatives."


Recent Significant Securities Issuances

     During the past two years,  the Company  has issued a number of  securities
related to financing  and  consulting  activities.  For a  description  of these
securities, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial  Condition,  Capital Resources and Liquidity -
Recent Significant Securities Issuances."

Industry Overview
-----------------

Credit and Debit Card Industry

     Americans  reached for their plastic credit and debit cards over 12 billion
times to purchase  over $2 trillion in goods and  services  and for  delivery of
cash in 1997,  representing  a 20.6%  increase  over 1996.  Recent  studies have
indicated that consumers spend 30% more per transaction  when using credit cards
than when  using  cash or  checks.  The  proliferation  in the uses and types of
credit,  debit,  stored-value  and electronic  benefits  transfer  (EBT),  rapid
technological  advances  in  transaction  processing  and  financial  incentives
offered by credit card  associations  and issuers  have  contributed  greatly to
wider merchant acceptance and increased consumer use of transaction cards.

     Unfortunately,  fraud  is  also  on  the  rise  and as a  result,  merchant
acquirers,  transaction processors and card issuers are trying to minimize their
losses by offering  incentives  and  requiring  merchants to utilize  electronic
draft  capture  ("EDC")  terminals  to  conduct  on-line  credit  and debit card
transactions. An EDC terminal magnetically reads the encoded account information
from the magnetic  strip on the back of a credit or debit card and sends it to a
transaction  processor for electronic  on-line  authorization.  The  transaction
processor  authorizes  the card with the  issuer,  electronically  captures  the
transaction,  generates an approval  code and returns the data to the  terminal,
which  prints a customer  receipt.  Presently,  the  majority  of EDC  terminals
communicate with the transaction  processor via a telephone or leased line. This
dial-up  type  transaction  process  takes  approximately  10  - 30  seconds  to
complete. At the end of the business day, the EDC terminal dials the transaction
processor to initiate the settlement, collection and electronic deposit of funds
to the  merchant's  local bank account.  Losses from  fraudulent  cardholder use
where  no   authorization   was  obtained  at  the  retail  point  of  sale  are
electronically "charged back" to the merchant.

     Payment  acceptance  guidelines have been introduced by Visa that require a
merchant  to comply  with  specific  procedures  in order to receive  the lowest
transaction  processing fees or discount rates. These requirements  include: (1)
the presence of the bank card at the point of sale, (2) transmission of all data
encoded on the card's magnetic strip, and (3) settlement  within two days of the
authorization.  If any one of these  requirements  is not met,  the  merchant is
penalized  with a  higher  discount  rate and a  surcharge  is  applied  to each
transaction not complying with the new  requirements.  In addition,  several new
card types have been  introduced to the  marketplace  that require  merchants to
capture  additional  information on each  transaction  such as sales tax or line
item detail to receive the lowest discount rates.

                                       4
<PAGE>
Transaction Processing Industry

     The transaction  processing  industry is characterized by a small number of
large  transaction  processors that primarily focus on servicing large merchants
and by many  smaller  transaction  processors  that  provide a limited  range of
services to  small-to-medium  sized merchants.  Large merchants (i.e. those with
multiple locations and high volumes of card  transactions)  typically demand and
receive the full range of transaction  processing services as well as customized
information services at low per-transaction costs. By contrast,  small-to-medium
sized merchants historically have not been offered the same level of services as
large merchants and have incurred relatively higher  per-transaction  costs. The
growth in card  transactions  and the transition from  paper-based to electronic
transaction  processing have caused small-to-medium sized merchants increasingly
to demand  sophisticated  transaction  processing and services  similar to those
provided to large merchants.

     Transaction   processing   services   are   marketed   and   sold   to  the
small-to-medium  sized  merchant  market  segment  primarily  by  community  and
regional banks and Independent Sales Organizations (ISO's) that outsource all or
a portion  of the  transaction  processing  services  they  offer.  The costs to
convert from  paper-based to electronic  processing,  merchant  requirements for
improved customer service, and demands for additional customer applications have
made it  difficult  for  community  and  regional  banks  and  ISO's  to  remain
competitive.  As a result,  transaction  processing  continues to undergo  rapid
consolidation in recent years.  The industry remains  fragmented with respect to
the number of entities  providing merchant services and the economic factors are
expected to drive additional consolidation of merchant acquirers and transaction
processors.

Check Payment Industry

     Checks are still the  American  consumer's  second  favorite way to pay for
purchases,  behind cash. Americans wrote 66 billion checks in 1997 totaling over
$12 trillion  dollars  representing  a 5.2% increase in dollar volume and a 3.4%
increase in transactions.  Checks represent 23-24% of all retail sales and about
75% of all non-cash transactions.

     Unfortunately,  as the number of checks written continues to increase,  the
number of bad checks is increasing.  The cost of insufficient funds checks often
leads  merchants  either  to  refuse  to  accept  checks  or  to  utilize  check
verification and guarantee  services.  Check  verification or guarantee services
require the merchant to  magnetically  read the MICR line of a check or hand key
certain  information  into an EDC terminal  which  communicates  with a database
maintained and operated by the verification  service.  If the check is approved,
an approval  code is  generated  and sent back to the  terminal to complete  the
check verification or guarantee transaction.

The Company's Current Products and Services
-------------------------------------------

     The Company markets wireless  point-of-sale  ("POS") equipment and services
to merchant  acquirers and card processors.  The Company's products and services
introduce a new standard in  performance  and allow card  acceptance  in new and
under-served  markets where traditional dial-up solutions either are too slow or
are not practical such as taxicabs, and other semi-mobile applications.

     From a merchant's perspective,  the Company's products and services provide
high  speed  transaction  processing  of  credit,  debit and check  transactions
without the need and recurring  cost of a phone line.  From a merchant  acquirer
and card processor perspective, the Company's products and services provide high
speed end-to-end  wireless solutions that allow the respective  bankcard service
providers to offer their  customers a competitive and  technologically  superior
alternative to dial up solutions. The following section describes the respective
product and service offerings:

Wireless Express Payment ServiceSM

     Wireless  Express  Payment  ServiceSM is the Company's  newest  product and
service offering.  It is an end-to-end  product and service offering that allows
its  users a  simple  and  easy  way to  offer  wireless  transaction-processing
services.  It  begins  with  a  rich  set  of  wireless  terminal  devices  that
incorporate the Company's proprietary USWD500 modem, and includes a web-based IP
address  provisioning  and terminal  activation  process with  real-time  remote
diagnostic  capability  that allows  merchant  acquirers and card  processors to
easily  resolve  problems  associated  with  wireless   transaction   processing
services.  It also includes the CDPD network service and server  technology that
simplifies the interface between the wireless networks and the various front-end
of

                                       5
<PAGE>
card  processors and card  associations.  The final (and optional)  component of
WEPS is complete terminal deployment and management services. The net result and
value of this service is that it provides the  acquirers  and card  processors a
simple  and easy to use  method  of  providing  end-to-end  wireless  processing
solutions to their merchants without the need for extensive systems  development
or customer service training.


USWD500 CDPD Modem

     The Company and Z-Com are jointly  developing a proprietary CDPD modem, the
USWD500,  which the Company is now incorporating  into its CDPD-based  products.
This modem is a fundamental  component of the Wireless  Express Payment Service,
and is  currently  being  integrated  by  several of the  credit  card  terminal
manufacturers.  The USWD500 CDPD modem incorporates several proprietary features
that  improve  the  performance  and  reliability  of  credit,   debit  and  ATM
transactions.  It also provides real time remote diagnostic capability when used
with the Wireless Express Payment Service offering described above. This feature
is extremely  valuable to merchant help desk and customer service  organizations
that desire to provide fast and efficient problem resolution.

CDPD-Based Products

     POS-500 - During the third quarter of fiscal 1996,  the Company  introduced
two new products  utilizing CDPD  technology.  The Company's first CDPD product,
known as the POS-500,  is a fully  integrated EDC terminal,  receipt printer and
CDPD  wireless  modem that  allows a merchant to complete a credit or debit card
transaction  in less than 5  seconds.  The  POS-500  is  designed  to target the
traditional small-to-medium sized retailer. Because response times are 3-4 times
faster than  dial-up  terminals,  and  per-transaction  communication  costs are
competitive  with current dial-up costs,  the POS-500 can compete  favorably and
eventually  replace dial-up credit card terminal  technology in areas where CDPD
service is available.

     TRANZ Enabler - The TRANZ Enabler was also released in test mode during the
third fiscal quarter of 1996, and was designed to enable the existing  installed
base of Verifone TRANZ(R) 330, 380, or 460 dial-up terminals to operate over the
CDPD network  resulting in high speed, low cost  transaction  processing for the
retail  marketplace.  The TRANZ  Enabler  connects  to the  printer  port of the
TRANZ(R)  330,  380, or 460  terminal  and  utilizes  power from the credit card
terminal power supply.  The TRANZ Enabler features a printer port for connection
to a receipt printer and can complete a credit or debit card transaction in less
than 5 seconds.

The POS-50(R)

     The Company's first product, known as the POS-50(R),  was the world's first
integrated wireless credit card and check authorization  terminal using cellular
communication  technology.  The  POS-50(R)  is certified to operate on the major
credit card transaction  processing  networks and is presently being marketed in
the U.S. by a variety of Independent  Sales  Organizations  ("ISO's"),  cellular
service providers,  and directly by the Company. The POS-50(R) allows a merchant
to electronically  capture a credit card, debit card or check transaction at the
point of sale virtually  anywhere cellular voice service exists and complete the
authorization  process in approximately  16-18 seconds.  Because of its portable
and wireless nature,  the POS-50(R) is well suited for the small to medium sized
mobile  retailer or service  company.  Examples of current  POS-50(R)  customers
include craft show vendors,  sporting event  concessionaires,  towing  services,
cart and kiosk  vendors  and  essentially  any  business on the go that wants to
safely  accept  credit  cards,  debit  cards or checks  for their  products  and
services. With over 7,000 POS-50(R) terminals in the marketplace, the Company is
recognized as the leader in providing  wireless terminal  transaction  equipment
for the mobile marketplace.


                                       6
<PAGE>
Product Benefits
----------------

     The Company's CDPD products and  transaction  processing  services  benefit
merchants in the following ways:

     Faster  Transactions.  A CDPD-enabled  credit card  authorization is 3 to 4
times faster than a transaction  completed via a telephone  line. A CDPD-enabled
credit card transaction  bypasses the local telephone and interexchange  carrier
networks resulting in faster transactions and fewer delays due to busy telephony
networks and inefficiencies. The TRANZ Enabler and POS-500 can complete a credit
card transaction in less than 5 seconds. Faster transactions afford the merchant
the ability to process more  business in a given period of time while  improving
customer convenience and satisfaction.

     Competitive  Transaction  Fees.  Because  of  the  ability  to  bypass  the
traditional  telephony  networks and the costs associated with them, the Company
can often offer its customers  competitive  transaction fees and discount rates.
Lower  transaction fees and discount rates are a key component in the merchant's
decision making process when evaluating a transaction processing relationship.

     Increased  Sales.  Consumers often make purchases when they have no cash on
hand if the merchant  accepts  credit cards or checks.  Research  indicates that
when  customers  have the option to use a credit  card,  they spend 30% more per
transaction.  Merchants  that  accept  alternative  methods of  payment  such as
credit/debit  cards  or  checks  believe  such  alternative  methods  provide  a
competitive  advantage  over  merchants who do not. The  Company's  products and
services afford faster authorization  response times resulting in the ability to
process more  transactions  and sales over a given period of time.  The products
and services allow card acceptance in new and under-served  markets such as fast
food restaurants,  parking garages, transportation and markets that are time and
queue sensitive.

     Controls Bad Debt. All of the Company's products allow a merchant to obtain
an on-line  authorization  and  electronically  capture each  credit/debit  card
transaction.  Once the  customer's  card  transaction  has  been  electronically
authorized, an approval code is assigned and funds are electronically "captured"
(i.e., reserved to pay for the authorized  transaction).  Since each transaction
begins by swiping the card through the terminal's magnetic card reader, there is
a  significant  reduction  in the  risk  of  fraud  loss  due to  lost,  stolen,
overextended,  or physically  altered  credit cards.  Debit or ATM  transactions
require that the customer keys in a personal  identification  number  ("PIN") to
complete a transaction.  Debit or ATM transactions cannot be reversed or charged
back to a merchant  thereby further  reducing bad debt.  Losses from checks with
insufficient  funds are collected or guaranteed by check service companies under
a separate fee agreement with the merchant.

     Improves  Cash Flow.  Once funds have been  authorized  and  electronically
captured  and  the  settlement   procedure   initiated,   they  are  transferred
electronically  to the  merchant's  local bank  account.  When compared to paper
submission  of credit card  transactions,  the Company's  products  expedite the
funding process by electronically  depositing the day's credit card transactions
into the merchant's local bank account usually within 24 to 48 hours.

Overview of Cellular Technology
-------------------------------

Circuit Switched Cellular, CDPD, and EDC Terminal Technology

     The Company's  products  integrate  circuit-switched  cellular,  CDPD,  and
credit card  terminal  technology  to access  credit card,  debit card and check
verification  services.  The POS-50(R)  terminal can be used  anywhere  advanced
mobile phone service (AMPS) cellular service is available.  Upon card swipe, and
once  the  sales  amount  is  entered  via the  terminal  keypad,  the  cellular
transceiver  acquires a cellular  channel  and  transmits  the data over the air
waves to a cell site, which is connected to a mobile telephone  switching office
(MTSO) and then connected to the public switched  telephone network (PSTN).  The
call is then routed over one of several  inter-exchange  carriers (IEC's) to the
transaction  processor.  Once an  authorization  is  obtained,  a  corresponding
approval  code is returned to the  terminal,  which prints a duplicate  customer
receipt  and  electronically  captures  the  entire  transaction  data.  A check
authorization  utilizes  essentially the same technology and communication path,
but authorizes the check data with a database maintained by a check verification
or guarantee company.

     The CDPD  products,  including  the  TRANZ  Enabler  and  POS-500,  utilize
dedicated CDPD channels to transmit high speed,  encrypted credit card data from
the merchant location to the nearest CDPD cell site which routes the data to the
local mobile data  intermediate  system (MDIS) which then routes the transaction
to the

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<PAGE>
transaction  processor  via a leased  line or frame relay  connection.  Once the
transaction is authorized, the response is returned to the terminal in less than
300 milliseconds.  The CDPD protocol is based on Internet protocol (IP) and each
terminal  and  authorization  host  has its own  unique  IP  address.  The  CDPD
infrastructure  includes  a  network  of  routers  that  direct  the data to the
appropriate IP addresses.  A CDPD enabled  terminal is essentially  on-line with
the transaction processor whenever it is powered up.

Cellular Communication Networks

     Presently there are cellular  communication  networks providing coverage in
over 700  metropolitan  statistical  area ("MSA") and rural service area ("RSA")
markets in the U.S. It is estimated that the present cellular service  footprint
covers 95% of the U.S.  population.  The POS-50(R) can be used in any area where
cellular voice-grade coverage is present.

     With  approximately  30,000 cellular  phones being sold each day,  cellular
voice  technology  is a commodity  service.  To support  this type of  explosive
growth,  the cellular carriers are spending a substantial part of their revenues
to expand  capacity by upgrading  their  infrastructure  and  capacity  with new
digital  technology.  The  cellular  carriers  are now  focusing on  incremental
revenue  streams,  including  wireless data  transmission.  Wireless data can be
transmitted  over  the  same  cellular  infrastructure  as  voice.  It has  been
estimated  that, by the year 2000,  as much as 30% of cellular  revenues will be
derived from data transmission.

Wireless Data Networks

     There are several  land-based  wireless data networks  currently  providing
regional and national data services in the U.S. market. Listed below are several
networks the Company  perceives as current and potential  future carriers of POS
data  traffic.  USWD  continuously  monitors and  evaluates  this  technology to
determine feasibility, and applicability for POS data transmission.

     Cellular Digital Packet Data (CDPD).  The Company believes that CDPD is the
superior wireless data technology for transaction processing. Presently over 260
metropolitan  statistical  areas have CDPD  service  provided  by AT&T  Wireless
Services,  Bell  Atlantic  Mobile,  GTE  Wireless,  Ameritech  Cellular  and 360
Communications,  and an aggressive  deployment  schedule is expected to continue
throughout the U.S., Canada and Latin America.  Despite the widespread  presence
of CDPD  networks,  there  are  presently  two  major  markets  that do not have
operating CDPD networks - Los Angeles,  California and Atlanta,  Georgia. Recent
developments  in the Los  Angeles  market  seem to suggest  that LA will soon be
deploying CDPD,  which is a major retail market that could then be served by the
Company's products and services.

     CDPD appears to be fast  becoming the  standard  protocol for  transmitting
data over a cellular  network  and  presently  covers  approximately  70% of the
retail  marketplace.  Because  of the  encrypted  packet  data and IP  (Internet
protocol) nature of CDPD technology,  CDPD-enabled POS terminals can out-perform
traditional dial-up terminal technology operating over public switched telephone
networks.  A CDPD network provides high-speed (19.2 bps) wireless access between
a CDPD-enabled POS terminal and a transaction  processor,  effectively bypassing
local phone line service and the monthly costs associated with it. The result of
utilizing CDPD technology is sub-5 second authorization  response times at lower
than dial-up rates. In addition to fast,  secure and low transaction  costs, the
merchant can also  eliminate  the monthly  recurring  cost of a dedicated  phone
line, which averages between $30-40 per month.

     Digital  Cellular.  Present cellular networks consist of digital and analog
technology.  There are three  digital  voice  technologies  competing for market
acceptance  and  dominance:  Code  Division  Multiplexing  Access  (CDMA),  Time
Division Multiplexing Access (TDMA), and the European standard known as GSM. All
three  digital  technologies  have the  ability  to  transmit  data  over  their
respective networks. The Company is evaluating the respective data protocols and
pricing  structure for each of the digital  technologies  and intends to develop
products and services based on competitive  rate structures and the availability
of new digital data modules.

     Personal Communication Services (PCS). With the allocation of additional RF
spectrum  and the FCC's  successful  auctioning  of these air wave  licenses,  a
variety of competing Personal  Communication  Services networks are beginning to
offer local and regional wireless voice and data services. As these networks are
developed  and  deployed,   PCS  could  become  a  viable  POS  wireless  access
technology. The future viability of PCS as a wireless POS access technology will
be  contingent  on a  "standardized"  protocol  and a  competitive  data pricing
structure.  Presently,  the major PCS service  providers are deploying GSM, CDMA
and TDMA infrastructure and products.  As an alternative to traditional cellular
service, the PCS service providers have the

                                       8
<PAGE>
benefit of building infrastructure with state-of-the-art  digital voice and data
technologies.  As the coverage area  increases and favorable data rate plans are
created,  the Company views PCS as a viable network for its wireless product and
service offerings.

     BellSouth  Mobile Data.  BellSouth Mobile Data ("BMD") is a wireless packet
data network currently  available in over 7,500 U.S. cities and towns,  covering
90% of the urban  business  population.  The  network  is very  similar  to, but
separate  from the  cellular  voice  network.  BMD is  designed  as a  data-only
infrastructure.  BMD is  also  connected  to a  limited  number  of  transaction
processors and currently has credit card data transversing its network.  BMD has
recently  upgraded the network to improve overall  coverage area and in building
penetration  efficiencies to support a new two-way paging service.  This network
expansion and upgrade  positions BMD as a viable  competitor to CDPD and digital
cellular as a transport network for point-of-sale  transactions.  The Company is
currently  negotiating  with BMD to be able to offer  its new  Wireless  Express
Payment ServiceSM utilizing the BMD wireless data network.

     Nextel.  Nextel  currently  has a digital  Specialized  Mobile  Radio (SMR)
network, based on TDMA technology, providing voice and messaging services in the
top 50 major metropolitan service areas, covering  approximately 65% of the U.S.
population.  Presently, Nextel's network is not compatible for POS data traffic,
but it is  anticipated  that it will be  upgraded to a  packet-based  data-ready
network.  When the network is upgraded to packet-based status, it could become a
viable POS data  network if the pricing  structure is  competitive.  The Company
will  continue to evaluate  Nextel as a potential  data highway for its wireless
products and services.

     Metrocom.  Metrocom is currently operating a packet-based data network in a
few  major  cities  including  San  Francisco,   Seattle,  and  Washington  D.C.
Metrocom's  Ricochet  network is a packet data  network  designed  for  wireless
mobile computing  applications including E-mail and Internet access. The Company
perceives the Ricochet network as a potentially viable POS data network when the
coverage area expands to a nationwide  footprint and competitive  data rates are
created for POS transactions.  To date,  however,  the expansion of the Metrocom
network has been slow to develop  which may limit the overall  potential of this
wireless network as a competitive service offering.

Markets
-------

     Current market research indicates that there are over 4 million stand-alone
credit card  terminals  installed in the U.S.  market.  In 1997,  1,312,098  POS
terminals  were shipped in the U.S.  market,  a 20% increase over 1996.  Several
factors  contributing to this increase are the growth of credit and debit cards,
electronic benefits transfer (EBT) acceptance and the larger memory requirements
due  to the  amount  of  data a  credit  card  terminal  must  capture  on  each
transaction.  A debit card transaction requires a personal identification number
(PIN)  to be  entered  into  the POS  terminal,  and a large  percentage  of the
existing terminal base is not debit ready.  These factors suggest that a growing
percentage of the legacy  terminals will need to be replaced to meet the various
technical and functional demands of the changing marketplace.

     In the U.S.,  mobile service and retail sales  companies  have  experienced
large growth as Americans have developed a demand for  convenience and a need to
save time.  To a larger  extent than in past years,  the retail point of sale is
located  wherever  the  customer  resides and the  merchant  must be prepared to
complete the sale at that location. Thus, a wide range of business services such
as towing services, locksmiths, concessionaires,  special event vendors, in-home
appliance repair services,  mobile auto repair, delivery, and similar businesses
depend almost exclusively on completing the sales transactions at the customer's
location.

International Applications

     The Company believes that international markets, particularly Latin America
and China, where land-based  telephone lines are not in place or are unreliable,
represent realistic market potential for the Company's products and services.

     Several  Chinese  provinces and cities and Latin  American  countries  have
operational CDPD networks and POS transaction  processing is being viewed as one
of the initial and most immediate applications to be pursued.

     The Company is  presently  evaluating  its  international  strategy and may
attempt  to  form  alliances  or  partnerships  with  the  respective  financial
institutions, wireless service providers and the local transaction processors to
enter these markets.

                                       9
<PAGE>
Transaction Processing Agreements
---------------------------------

     NOVA  Information  Systems.  In January,  1997 the Company  entered  into a
Member  Service  Provider  ("MSP")  agreement  with  NOVA  Information   Systems
("NOVA"), of Atlanta,  Georgia, the nation's 7th largest credit card transaction
processor,  together  with  Regions Bank (NOVA's  procuring  bank),  a principal
member of VISA U.S.A.,  Inc. and  MasterCard  International  Incorporated.  As a
registered MSP of NOVA,  the Company is entitled to enroll  merchants to process
their credit and debit card transactions with NOVA. The Company sells processing
to merchants it enrolls at a retail rate and purchases that processing from NOVA
at  wholesale,  thereby  generating  revenue on each card swipe and every dollar
processed  from  merchants  enrolled by the Company.  The Company is required to
train the  merchants  it enrolls in using  credit card  processing  hardware and
services and must also provide merchant support to assure that the merchants are
continually  apprised of their customer  service  requirements and to remedy any
problems   encountered  by  the  merchants  in  conjunction   with  credit  card
processing.  The term of the  agreement is for three years from January 1, 1997,
and  renews  automatically  for  additional,  successive  one-year  terms if not
terminated at least 90 days prior to the  expiration of the current term. Due to
the Company's new Wireless  Express Payment  Service SM, it is anticipated  that
the Company will sell its interest in the current  merchant  portfolio to remove
any perceived conflicts of interest in the marketplace.

     National Bank of Commerce.  The Company entered into a "Merchant  Marketing
and Services  Agreement"  with National Bank of Commerce  ("NBC") as of March 9,
1998,  under  which the  Company  also  became an ISO/MSP of NBC and can thereby
offer NBC's  transaction  processing  services to  merchants.  The Company  will
solicit  potential  merchants for submission of  applications to NBC, which then
has the right to accept the merchant for participation in NBC's program.  Once a
merchant  is  accepted,  the  Company  sets up point of sale  access,  including
maintenance of electronic  terminal hardware and other equipment,  and must also
supply the merchant  with  training,  supplies,  program  information  and other
services  related to the  program.  The Company  will  receive a residual on all
transactions  processed  through NBC for which it is the  procurer.  The Company
also has been  granted the right to own a 50% equity  interest  in the  merchant
accounts it procures  for NBC.  This means that the Company  will receive 50% of
the amount paid by a third party upon a sale of the merchant  account.  However,
the Company  must also stand  behind  nonpayment  of amounts  owed to NBC by the
merchant,  which  remain  unpaid  for 60  days,  including  fraud,  chargebacks,
adjustments,  fees  and  any  other  charges,  related  to  the  merchant.  Upon
termination of the agreement (for any reason other than  de-registration  of the
Company with Visa U.S.A., Inc. or MasterCard  International,  Inc.), the Company
has the right to transfer NBC's  interest in the merchant  accounts in which the
Company owns an interest to another processor upon payment to NBC of one-half of
the equity value of the  portfolio,  or, if such a transfer is not  practicable,
NBC has agreed to  terminate  the  merchant  agreements  to allow the Company to
allow the merchants to sign with another processor.  To allow this transfer, NBC
is entitled to be paid its  out-of-pocket  expenses  incurred in  effecting  the
transaction.  The  agreement is for a term of three  years,  subject to one-year
automatic  renewals if not  terminated  at least 90 days prior to the end of the
original or any renewal term.  The  agreement  can also be terminated  early for
certain  specified  causes.  Due to the Company's new Wireless  Express  Payment
ServiceSM  strategy it is anticipated that the Company will sell its interest in
the current merchant portfolio to remove any perceived  conflicts of interest in
the marketplace.

Marketing and Distribution  Arrangements for the Company's  Products and Related
Services
--------------------------------------------------------------------------------
POS-50(R)

     The POS-50(R) can be purchased or leased through Cardservice  International
or the Company directly.  The Company has no agreements in which the reseller or
distributor  is obligated to purchase any specific  quantity of product from the
Company.

     The Company's  most  successful  distributor  to date has been  Cardservice
International, Inc. ("CSI") of Agoura Hills, California. CSI currently processes
in  excess  of  $4.5  billion  in  credit  and  debit  card   transactions   for
approximately  100,000 merchant  accounts.  POS-50(R) sales to CSI accounted for
approximately  53% and 20% of the  Company's  total  revenue in fiscal  1997 and
1998,  respectively.  Sales of  POS-50(R)  units  through  CSI are  expected  to
diminish as a percent of total revenue as the Company shifts from an emphasis on
selling boxes to selling its Wireless Express Payment ServiceSM.

     The Company also sells its POS-50(R)  units  directly to merchants.  Due to
the focus on Wireless  Express  Payment  ServiceSM it is likely that the Company
will direct all new sales inquiry's to Cardservice International.

                                       10
<PAGE>
CSI has a large sales and service  organization and is well positioned to accept
essentially all types of merchants that fit the POS-50(R) profile.

     For  existing  POS-50(R)  customers  who do not  process  with  Cardservice
International and simply want to add additional  terminals,  Finite  Technology,
through  its repair  and  service  facility  in Pueblo,  Colorado  will  provide
distribution of the POS-50(R).

TRANZ Enabler and POS-500 Sales and Marketing Plan

     During fiscal year 1998,  the Company  implemented  new sales and marketing
strategy  for its  CDPD-based  products and bankcard  processing  services.  The
Company decided to only sell or provide these products to merchants that sign up
for bankcard  processing  services with the Company.  The Company will no longer
just sell a "box"  without  the  ability  to earn  recurring  revenue  from each
transaction originated by its customers.

     The Company marketed its products and bankcard  processing services through
joint marketing and operating agreements with its cellular alliances and through
its own direct sales  organization.  The Company  focused its initial efforts on
launching the TRANZ Enabler and its bankcard  processing  program  through joint
marketing efforts with GTE, Bell Atlantic Mobile and Ameritech.

     To operationalize this marketing strategy, the Company has entered into the
following agreements:

     Agreement with GTE Wireless.  On August 1, 1997, the Company entered into a
CDPD  Service and  Equipment  Agreement  (the "GTE  Agreement")  with GTE Mobile
Communications Service Corporation,  on its behalf and on behalf of GTE Mobilnet
Incorporated   and  Contel  Cellular  Inc.  and  their   respective   affiliates
(collectively  "GTE  Wireless") by which the Company has agreed to purchase CDPD
services in the markets  served by GTE  Wireless  and GTE Wireless has agreed to
market CDPD-based  processing  services to merchants in its service  territories
using the Company's TRANZ Enabler  hardware,  a USWD provided  credit/debit card
transaction  payment  service and GTE  Wireless's  CDPD data  network (the "USWD
Solution").  The  initial  term of the GTE  Agreement  is for a two-year  period
ending  August 1,  1999.  The GTE  Agreement  contains  provisions  by which GTE
Wireless  has  agreed to  exclusively  market  and sell the "USWD  Solution"  to
merchants that utilize VeriFone TRANZ(R) 330 or 380 equipment.  In return,  USWD
has  agreed  to  exclusively  use GTE  Wireless's  CDPD  services  in all of GTE
Wireless's  markets,  except  in the case of  customers  referred  to USWD by an
alternative CDPD service provider.  The Company has agreed to pay GTE Wireless a
fixed  activation  fee for each CDPD  address it  requests be  activated  on GTE
Wireless's  network  and a fixed fee for each  merchant  referred to the Company
through GTE Wireless's marketing efforts. The Company was also required to put a
sales support staff in place to service the GTE Wireless  representatives in the
field.  As of June 30, 1998 the Company had  approximately  28 sales and support
personnel  deployed in the various GTE markets.  The GTE Agreement also required
the Company to generate  minimum  CDPD  service  billings to GTE  Wireless  from
merchants  signed up for GTE Wireless's  CDPD service  through the Company.  The
minimum  amount due escalated  over the term of the GTE  Agreement  from $20,000
during the first  quarter to $2.75 million by the eighth  quarter.  GTE Wireless
agreed to adjust the commencement  date for these  obligations so that the start
date for the first quarter began February 1, 1998.  Actual sales results did not
allow the Company to meet the  renegotiated  minimum  purchase  obligations.  To
remedy  this  minimum  purchase  requirement,  the  Company  and GTE amended the
agreement on September 9, 1998 which  removed any minimum  purchase  requirement
and  established  new IP  address  pricing  for  merchants  acquired  under  the
agreement.

     In addition to the amended  agreement,  the Company and GTE management have
discussed  additional changes to be made to the sales and marketing program with
respect to the Wireless Express Payment  ServiceSM model now being  implemented.
The Company  expects to amend the agreement again to be consistent with this new
product and service offering.

     Agreements  with Bell  Atlantic  Mobile.  The Company has entered  into two
agreements  with Cellco  Partnership,  doing  business as Bell  Atlantic  Mobile
(BAM). The first, a CDPD airtime  reseller  agreement was executed on August 14,
1997 and allows the Company to resell Bell  Atlantic  Mobile's  CDPD  service in
markets  served by Bell  Atlantic  Mobile.  The agreement is for a term of three
years with automatic one-year renewals unless terminated by 60 days notice prior
to the end of a term. The Company does not have any minimum purchase obligations
to Bell  Atlantic  Mobile  under this CDPD airtime  agreement.  The Company also
entered  into a Joint  CDPD Sales and  Marketing  Agreement  with Bell  Atlantic
Mobile as of March 23, 1998, which provides for joint sales and promotion of the
Company's  products and processing  solutions in Bell Atlantic  Mobile  markets.
With certain  exceptions,  the Company is obligated to use Bell Atlantic  Mobile
CDPD Service

                                       11
<PAGE>
exclusively  within certain defined "Bell Atlantic Mobile Market Areas" whenever
it places a solution through Company agents or employees. The agreement runs for
two years from March 23, 1998;  however,  the  agreement is terminable by either
party on 30 days prior written notice "with or without  cause." The Company also
must pay Bell Atlantic Mobile an activation fee for each unit placed through the
efforts  of Bell  Atlantic  Mobile  under  the  agreement,  plus a  monthly  fee
commencing  with the thirteenth  month after  activation for each merchant which
has met certain minimum processing volume criteria.

     Beginning April 1998, the Company began acquiring merchants under the terms
of the joint  marketing  agreement  and  initiated  a  telemarketing  program to
pre-qualify leads in the Bell Atlantic Mobile coverage areas.

     The Company and BAM management have discussed additional changes to be made
to the sales and marketing  program with respect to the Wireless Express Payment
ServiceSM  model  now  being  implemented.  The  Company  expects  to amend  the
agreement to be consistent with this new product and service offering.

         Agreement with Ameritech Mobile Communications,  Inc. On July 16, 1998,
the Company and Ameritech Mobile Communications,  Inc. ("Ameritech") executed an
exclusive  Joint Marketing and Operating  Agreement.  Pursuant to the agreement,
Ameritech  has agreed to use its good faith  efforts to market  exclusively  the
Company's TRANZ Enablers and credit card processing  services,  together with an
Ameritech  CDPD IP address (the "USWD  Solution")  in Ameritech  CDPD markets in
Chicago and Springfield,  Illinois, St. Louis, Missouri,  Cincinnati, Dayton and
Columbus,  Ohio and Detroit,  Michigan to merchants  who  currently use VeriFone
TRANZ 330,  380 or 460  credit  card  authorization  terminals.  The  Company is
obligated to use Ameritech  CDPD service  exclusively  in all of the  designated
Ameritech CDPD markets, except for unsolicited orders for the Company's products
or services from a merchant or another CDPD service provider.  The agreement has
a term of two years and renews automatically for an additional two years. Either
party may terminate the agreement at any time upon 90 days written notice to the
other  party.  There are no minimum  CDPD airtime  purchase  obligations  to the
Company under the agreement.

     Since this  agreement is the latest to be  formalized,  sales  results have
been  minimal due to the front end  training and  operational  requirements.  In
addition,  the Company will discuss with  Ameritech  management  all  amendments
necessary to implement the Wireless Express Payment ServiceSM offering.

     Agreement  with AT&T Wireless.  The Company  entered into an agreement with
AT&T Wireless as of April 30, 1997 to sell AT&T  Wireless'  CDPD  communications
service for a term of three years,  with  automatic  renewals of additional  one
year terms if either party fails to give 90 days prior notice of  termination at
the end of term. The Company is obligated to maintain a minimum number of active
CDPD addresses  with AT&T Wireless over the term of the  agreement,  or pay AT&T
Wireless  for such  addresses  even if the Company has not resold the numbers to
merchants.  The Company is obligated to maintain a minimum number of active CDPD
addresses  over the term of the  agreement,  or pay such  addresses  even if the
Company has not resold the numbers to merchants. Based on the agreement of April
1, 1997,  the Company is  obligated to have  minimum  monthly  CDPD  billings of
$4,500 by the one-year  anniversary of the  agreement,  $13,500 within 18 months
and $20,250  within two years.  The Company and AT&T  Wireless  management  have
engaged in recent  discussions  regarding Wireless Express Payment ServiceTM and
are in the process of defining new pricing arrangements and marketing strategies
that would compliment this new service.

Manufacturing and Deployment Arrangements
-----------------------------------------

Third Party Manufacturing Relationships

     The Company utilizes high quality,  third party  manufacturers to build its
products.  Uniform Industrial  Corporation  manufactures the Company's POS-50(R)
product. Wellex Corporation,  a Fremont,  California based manufacturer,  builds
the  TRANZ  Enabler  product  line.  Finite  Technologies  of  Pueblo,  Colorado
manufacturers  the  POS-500  CDPD-based  terminal,  and Z-Com  manufactures  the
USWD500 CDPD modem that will be integrated  into various  terminal  platforms as
well as all of the Company's CDPD product lines.

Inventory Financing

     The Company's prior business model was based on the  manufacturing  cost of
the TRANZ Enabler being financed by a third party.  Although the Company entered
into an agreement  with GTE Leasing  Corporation  as of April 2, 1998 to finance
product to be placed under the joint marketing  agreement with GTE Wireless,  it
has not been able to draw funding  under that  agreement.  The agreement was not
implemented because the various

                                       12
<PAGE>
partners  could not  agree on the  assignment  of  revenue  stream  to  specific
participants  in the event the  Company  defaults on its  obligation  to pay GTE
leasing and/or GTE wireless.  Consequently, to date, the Company has had to rely
primarily on its working  capital to procure product to be placed with merchants
and will need to  continue  to do so until it can  obtain  financing  form other
sources.  Due to the change in the Company's business model described above, the
Company  will now sell the TRANZ  Enabler  through  its  distribution  channels,
thereby  eliminating  the ongoing need for long-term  equipment  financing.  The
monthly equipment  depreciation and CDPD airtime expense are recorded as cost of
sales against the monthly recurring revenue.

Equipment Deployment and Servicing

     The  Company  outsources  its  deployment  services  to a third  party that
specializes  in credit card terminal  deployment  and  management  services.  In
January 1998, the Company entered into an agreement with TASQ Technology,  Inc.,
of Rocklin,  California ("TASQ"), to provide equipment repair, deployment,  call
tag management,  encryption services,  inventory  management  services,  product
sales  (including  equipment,   accessories  and  supplies),  leasing,  rentals,
customer  support  and  other  related  services  on an  as-requested  basis  to
merchants using the Company's  wireless  solutions.  Under this  agreement,  the
Company pays TASQ fees for the various products  provided and services  rendered
by TASQ to the  Company's  customers,  on a 30-day  billed  basis.  TASQ charges
inventory  storage and handling  fees for  equipment,  accessories  and supplies
purchased  from persons other than TASQ. The agreement is for an initial term of
twelve months from January 26, 1998, and renews for successive terms of the same
duration  unless either party provides  written notice of termination at least 3
months prior to the end of a term.

     The Company  believes  that this  relationship  will  ultimately  result in
savings to the Company over what it would cost to provide these  services by its
own personnel. In addition, TASQ has a reputation for highly efficient,  quality
service in the industry and the Company hopes that this relationship will insure
a high level of satisfaction in the Company's customers.

Customers
---------

     With respect to POS-50(R) sales, Cardservice  International continues to be
the Company's  single largest  customer.  Cardservice  International  is a large
merchant  acquirer with over 2,200 sales  representatives,  and  distributes the
POS-50 product through its sales channels.

     During  fiscal  1998,  sales  of  the  Company's  CDPD-based  products  and
recurring  revenue  earned from credit card  processing  services  represent the
largest source of revenue.  The TRANZ Enabler and POS-500  products were sold or
deployed to merchants  through the distribution  organizations of the respective
CDPD carriers and the Company's own direct sales force.

Patents, Trademarks and Other Proprietary Protection
----------------------------------------------------

Patents

     The Company was granted a design patent on certain aspects of the POS-50(R)
product in June 1994.  The  Company  expects  to file  additional  patents as it
determines appropriate.

Trademarks

     The Company's name and POS-50(R) are registered  trademarks of the Company.
The Company  identifies its mark in all it's marketing  material and advertising
campaigns.  The Company has recently filed for a trademark on "Wireless  Express
Payment ServiceSM".

Other Proprietary Protection

     Proprietary  technology involved in the primary components of the Company's
products,  including the cellular and CDPD transceiver and printer,  is owned or
licensed  by  the  respective   component  supplier.   The  Company  does  claim
proprietary  rights with  respect to the  integration  and use in the  Company's
products.  The Company also claims  proprietary rights on certain aspects of its
application  software  as it relates  to CDPD  point-of-sale  functionality  and
diagnostic features.

                                       13
<PAGE>
     The Company owns at least 50% of the  intellectual  property in its USWD500
CDPD modem. In addition,  the Company has exclusive worldwide rights for the use
of the USWD500 modem in the electronic payments industry.

     The  Company  is  developing   proprietary   web-based  proprietary  server
software,  which  performs  various  functions  related to the Wireless  Express
Payment ServiceSM.  The Company intends to seek intellectual property protection
on this software and its functional operation characteristics.

     The Company may pursue additional  intellectual  property protection on its
hardware and software products as appropriate and resources are available.

Competition
-----------

     Currently,  the Company believes it has no direct POS-50(R) competitor that
is manufacturing an integrated, battery powered circuit-switched  cellular-based
terminal  and printer  product.  However,  the company  has  identified  several
non-integrated cellular based solutions that compete with the POS-50(R), but are
not as elegant or functional.  These  non-integrated  solutions range from a few
hundred  dollars  to a few  thousand  dollars  depending  upon the  distribution
channels and the type and number of components.

     The Company has  identified a limited number of hardware  competitors  that
have  or  are  attempting  development  of  CDPD-based  terminals.  Hypercom,  a
Phoenix-based  terminal  manufacturer,   is  currently  marketing  a  CDPD-based
terminal  product.  The  Company  perceives  this  product  as  direct  hardware
competition to the POS-500;  however,  the Company intends to encourage Hypercom
and all of the major terminal  manufacturers to integrate the USWD500 CDPD modem
in a rich set of terminal  devices.  This strategy is being implemented in order
to increase market  awareness and overall demand for wireless  terminal  devices
that can compliment the Company's Wireless Express Payment ServiceSM.

     The  Company   perceives  the  current   transport   providers  of  dial-up
transaction  services as potential  competitors.  One company,  for example,  is
offering  wireless  transport  services to several of the card  processors.  The
Company  believes,  however,  that  it can  favorably  compete  by  providing  a
technologically  superior  service with  proprietary  protocols  and value added
wireless services.

     In  summary,  the  Company  currently  has no one  single  competitor  that
provides the end-to-end systems approach to the wireless transaction  processing
industry.  The  Company  does  expect  competition  to  appear  if it is able to
demonstrate its ability to build market share and acceptance.

Government Regulation
---------------------

     The  POS-50(R),  POS-500 and TRANZ  Enabler use cellular RF channels in the
800-900  megahertz  bandwidth  and are subject to regulation by the FCC for both
cellular  transmission and unintentional  interference  radiation.  The products
incorporate either a circuit-switched  cellular or CDPD transceiver manufactured
by suppliers that comply with the  appropriate  FCC  requirements  and have been
issued a FCC identification number.

     The  Company  has  received  confirmation  from the FCC that the  POS-50(R)
terminal  product does not require FCC approval for sales of the terminal in the
U.S. marketplace.

     The  POS-50(R),  POS-500 and TRANZ Enabler have passed all known UL and CSA
requirements in testing conducted at an independent certified test site.

     The  USWD500  modem has  passed  all known  FCC  requirements  and has been
granted a grantee code and is currently  waiting the final FCC ID number,  which
is expected to be issued in the next few weeks.

     Most foreign countries accept United States federal regulatory approval for
purposes  of  permitting  commercial  sales  of  electronic  products;  however,
specific  regulatory  approval of the product may be required in some  countries
and could become an obstacle to sales of the product in such areas.

                                       14
<PAGE>
Research and Development
------------------------

     Substantial portions of the Company's early activities were involved in the
engineering  and  development of the initial  POS-50(R)  terminal  product.  The
Company  completed  development of POS-50(R) in early 1993.  During the last two
fiscal  years  efforts  have been  directed  almost  exclusively  on CDPD  based
products. In fiscal 1998 and 1997, the Company spent approximately  $295,000 and
$407,000 respectively, on research and product development activities.

     The Company  currently  employs four people who are engaged in research and
development.  Current efforts are focused on developing new CDPD-based products,
product integration with strategic partners, cost reduction,  product efficiency
and reliability,  customization and software development. The Company expects to
add  personnel  to its R&D  staff  over the next few  months to  facilitate  new
product and application software  development,  including the development of new
server technology.  It is anticipated that the Company will spend  approximately
$350,000  on research  and  development  during  fiscal  1999,  based on present
staffing levels and projects currently under way.

Employees
---------

     In fiscal year 1997, the Company's headcount levels were maintained between
eight and eleven full time  employee.  During the first  quarter of fiscal 1998,
the company added several key management  positions and has aggressively built a
national sales and marketing  organization to fulfill its obligations  under the
GTE Wireless Joint Marketing and Operating Agreement.  This agreement requires a
specific  ratio of Company  support  personnel  within  each GTE  Wireless  CDPD
marketing region.  From September through early November 1997, the Company added
approximately  43 sales  and  sales  support  personnel.  The  Company  has also
expanded its operations, human resources and administrative staff and as of June
30, 1998 had approximately 60 employees, including five executive officers. With
the  implementation of the new distribution  strategy adopted in the latter part
of the first quarter of fiscal 1999 (see above),  the Company has taken steps to
reduce  spending.  With the new focus on  distribution  through  large  merchant
acquirers,  the Company has reduced headcount from 60 at June 30, 1998, to 39 as
of October  30,1998,  with most of the  reduction  occurring in the direct sales
force.

Seasonal Variations of Business
-------------------------------

     The Company's  merchant  acquiring and transaction  processing  business is
relatively  immune to seasonal  variations,  although  the Company  expects that
transaction  processing  revenue will reflect  seasonal  variations  paralleling
consumer spending patterns,  generally  increasing somewhat during the Christmas
holiday  season.  However,  the  placement  of  point-of-sale  terminals  can be
expected  to be slower  during  that season as well,  due to the  reluctance  of
merchants to change processors during premier shopping seasons.

Backlog
-------

     As  of  June  30,  1998,   there  was  no  order  backlog  due  to  product
unavailability.

     The Company's financial condition has limited it from obtaining traditional
credit from its manufacturers and adequate capital will be required to assure an
uninterrupted  production of inventory as needed. The Company is hopeful that it
will be able to obtain adequate financing for its inventory needs.  However,  no
assurance can be given that this will be the case.

Impact of Environmental Laws
----------------------------

     The  Company  does  not  believe  that  it  is  substantially  affected  by
environmental  laws and does not expect any material  impact as a result of such
laws.

Direct Data Acquisition and Dissolution
---------------------------------------

     During fiscal 1995, the Company  acquired all of the outstanding  shares of
Direct Data,  Inc., a distributor of POS-related  products.  The acquisition did
not create the synergies that were hoped for and in fiscal 1996, the Direct Data
assets  were  surrendered  to  Direct  Data's  secured  creditor  in lieu of the
creditor's  foreclosure on a past due $1.3 million  obligation.  Direct Data was
dissolved on October 19, 1995.

                                       15
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTIES

     The  Company now  occupies  approximately  5,000  square feet of office and
general-purpose space in a building in Emeryville, California, a suburb adjacent
to Oakland and San Francisco, California. The Company executed a five-year lease
term in this space in September 1997, which serves as its corporate headquarters
at an initial rate of approximately  $10,000 per month commencing  October 1997,
and subsequently raised due to relocation to Suite #800 at approximately $11,000
per month.  Engineering  functions remain at the Company's Palmer Lake, Colorado
facility.

ITEM 3.  LEGAL PROCEDINGS

Settlement of Claims of Certain Noteholders

     From April  through  June 1997 the  Company  issued a total of  $185,000 of
Demand Notes  payable in full on or before April 11, 1998 (the "Demand  Notes").
The principal and accrued  interest on the Demand Notes became  convertible into
shares of the  Company's  Common  Stock as of November 1, 1997 at prices of $.35
per share (as to $75,000 of the Demand Notes) and $.50 per share (as to $110,000
of the Demand  Notes).  Commencing  on  November  3,  1997,  the  Company  began
receiving  conversion  demands from the Noteholders and as of November 14, 1997,
holders of $135,000 of the Demand Notes had demanded  conversion of their Demand
Notes into Common Stock and were insisting that the Company issue "free-trading"
shares to them. The Noteholders  claimed that their right to free-trading  stock
arose out of certain  oral  representations  made at the time of issuance of the
Demand Notes, the fact that no "restricted securities" legends were imprinted on
the documents  evidencing the Demand Notes and no other written advice as to the
"restricted"  nature of the shares underlying the Demand Notes was given to them
at the time.  The  complaining  Noteholders  were  asserting  damages based on a
market price for the  Company's  Common Stock in the $8.00 per share range as of
the November 1, 1997 time period.  The holder of the  remaining  $50,000  Demand
Note  (which is  convertible  at $.50 per  share)  has not  asserted  any claims
against the Company in connection with his purchase of the Demand Note.

     Rather  than incur the  expense  and risks of  litigation,  the Company has
settled the complaining  Noteholders'  claims by agreeing to issue 1.4 times the
number of shares  originally  issuable as  principal  and interest on the Demand
Notes purchased by the complaining Noteholders (plus an additional 11,000 shares
to one Noteholder who purchased $50,000 of the Demand Notes),  and providing the
Noteholders with certain guarantees as to the amount for which the shares can be
resold and a "put"  which  allows the  Noteholders  to  require  the  Company to
repurchase any  restricted  shares  remaining  unsold at the end of the one year
period after the shares  become  saleable  under SEC Rule 144. The shares issued
upon conversion of the Demand Notes are "restricted securities" as defined under
SEC Rule 144,  but will become  saleable  pursuant to Rule 144 one year from the
date the  converted  Demand Note was  purchased  by the  Noteholder.  A total of
525,800 shares have been issued to the complaining  Noteholders  upon conversion
of their Demand Notes which are subject to the guarantee and put agreements. The
holder of the other $50,000  Demand Note has been given the enhanced  conversion
rate (of 1.4  times  the  number of shares  originally  issuable)  and  received
154,000  shares upon  conversion of his Demand Note; the shares are not entitled
to the guarantee or put.

     The  guarantee  provision  of the  settlement  agreements  allow the former
Noteholders  to recover the  difference  between the  guarantee  price (which is
$3.00  per  share as to  360,800  of the  shares  and  $4.29 per share as to the
remaining  165,000  shares  issued upon  conversion of the Demand Notes) and the
gross amount the Noteholder receives upon a sale of the shares. The guarantee is
operative  at any time  during the one year  period  commencing  on the date the
shares become  saleable  under SEC Rule 144. The Company is obligated to pay the
amount  due  within   thirty  days  of  receiving  a  demand,   accompanied   by
documentation  confirming  the sale.  Through June 30, 1998, no claims have been
submitted  to the  Company  under  the  guarantee  provision  of the  settlement
agreements.  Under the "put" provision of the settlement  agreement,  the former
Noteholders will have a five day period commencing on the date one year from the
date the shares become  saleable  under SEC Rule 144 (or the first  business day
thereafter  if such day is a day on which the stock  markets are closed)  during
which the former Noteholders may "put" any restricted shares remaining unsold by
them at the time back to the  Company.  Upon  exercise  of the put,  the Company
which must either (1)  purchase the shares for the put price (which is $3.00 per
share for  360,800 of the shares and $4.29 per share for  165,000 of the shares)
or (2) require  the  shareholder  to sell the shares  into the market,  with the
Company  making up the  difference  between  the put price and the gross  amount
received  by the  shareholder  upon such sale,  within 15 days after  receipt of
written notice and documentation confirming the sale.

                                       16
<PAGE>
On July 2, 1997,  the  Company  also issued a  promissory  note in the amount of
$16,825 to one of the investors  who  purchased the Demand Notes.  This note was
due and payable in full as of July 30, 1997 and bore  interest at a default rate
of 18% per annum if not paid when due.  In return for the  investor's  agreement
not to require the Company to pay the note when it came due, the investor claims
that a  representative  of the Company promised that the Company would treat the
note the same as the other  Demand  Notes and convert it to Common  Stock on the
same terms.  At the same time as it settled the claims of this investor  arising
out of the Demand  Notes,  the Company  agreed to convert  all amounts  owing as
principal  and  interest  by it under  this note to a total of 18,507  shares of
Common Stock. The shares issued upon conversion of this note are not entitled to
the guarantee or put described above.

Dispute with Supplier

     In April of 1995,  the  Company  entered  into an  agreement  with  Novatel
Communications Ltd. (now called Novatel,  Inc.) to supply it with modems for its
CDPD products. Novatel Inc. asserted a claim against the Company for payment for
product it tendered to the Company under that agreement.  The claim was asserted
in October 1996 for $59,632. Although the Company has accrued a liability in the
amount of this claim,  it asserted  that Novatel  delivered  defective  product,
which has caused damages to the Company in excess of the amount being claimed by
Novatel.  The  Company  therefore  disputed  the claim.  The Company and Novatel
agreed to arbitrate the dispute under an arbitration provision of the agreement;
however,  prior to  commencing  arbitration,  the Company and Novatel  agreed to
settle the  dispute.  The Company has paid  Novatel  $50,000  over the sixty day
period commencing June 30, 1998.

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

     No matter was submitted to a vote of the Company's  shareholders during the
fourth quarter of the Company's fiscal year ended June 30, 1998.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)      Market Information.

         The   Company's   no  par   value   Common   Stock  is  traded  in  the
over-the-counter  market and quoted on the OTC  Electronic  Bulletin Board under
the symbol  "USWDA." The  following  table sets forth,  for the fiscal  quarters
indicated,  the  range  of high  and low  prices  for the  Common  Stock.  These
quotations have been obtained from the OTC Electronic Bulletin Board and reflect
inter-dealer  prices (in  dollars),  without any retail  mark-up,  mark-down  or
commissions, and may not necessarily represent actual transactions.

                Fiscal 1998               High              Low
                -----------               ----              ---

                Fourth Quarter           $5.310           $2.625
                Third Quarter             7.625             5.000
                Second Quarter            8.750             4.500
                First Quarter             6.875             0.281

                Fiscal 1997               High              Low
                -----------               ----              ---

                Fourth Quarter            0.625             0.218          
                Third Quarter             0.281             0.125
                Second Quarter            0.375             0.156
                First Quarter             0.406             0.125

         There is no public trading market for the Company's  Series A Preferred
  Stock or any other securities of the Company other than the Common Stock.

                                       17
<PAGE>
(b)      Holders.

         As of June 30,  1998,  there  were 180  holders of record of the Common
Stock. There were also an undetermined number of holders who hold their stock in
nominee or "street" name, although at December 15, 1997, in conjunction with the
record date for its 1997 Annual  Shareholder  Meeting held  February 6, 1998 the
Company determined that there were approximately 2,557 beneficial holders of its
Common Stock.

(c)      Dividends.

         The Company has not declared  cash  dividends on its Common Stock since
its inception and the Company does not  anticipate  paying any cash dividends in
the foreseeable future.

(d)      Recent Sales of Unregistered Securities.

         During the fiscal  quarter  ended June 30,  1998,  the Company  sold or
issued the following equity securities without  registering the securities under
the Securities Act of 1933, as amended (the "Act").

April 3-June 30, 1998:  
------------------------
270,000  shares  issued under a consulting  agreement  with  Liviakis  Financial
Communications, Inc. ("LFC"). 240,000 shares were issued as of April 3, 1998 and
30,000 shares were issued on June 30, 1998;  pursuant to the  agreement,  75% of
the shares  were  issued to LFC and 25% of the shares have been issued to Robert
B. Prag, an executive officer of LFC;

March 24-June 30, 1998: 
------------------------
sale of call  options  acquired  by the Company in October  1995,  to purchase a
total of 367,684  shares of Common Stock owned by an  unaffiliated  third party,
sold by the Company to three unaffiliated third parties for total  consideration
of approximately $1,240,000 in cash;

April 6, 1998:  
----------------
280,000 shares issued to a consultant and its affiliated assignees as a finder's
fee for locating the Liviakis investors for the Company;

May 12, 1998:  
---------------
1,200,000  shares issued upon exercise of a common stock purchase  warrant by an
affiliated shareholder at $.01 per share; the warrant was issued as of August 6,
1997;

May 20, 1998: 
--------------
328,750  shares  issued upon  conversion of principal and interest on a $150,000
promissory note issued June 3, 1997, due June 3, 1998;

April 7 - June 15, 1998:  
--------------------------
698,327 shares issued upon  conversion of  convertible  Demand Notes issued from
April - July, 1997;

         As to each of the foregoing  transactions,  the Company relied upon the
registration  exemption contained in Section 4(2) of the Securities Act of 1933,
as amended (the "Act").  The  transactions  did not involve a public offering of
securities;  the Company received investment representations from each purchaser
to the effect that such purchaser was taking for investment  only and not with a
view to distribution  of the securities;  the Company had reason to believe that
each  purchaser  had such  knowledge and  experience,  either alone or through a
purchaser  representative  not affiliated with the Company,  that such purchaser
was capable of evaluating  the merits and risks of an investment in the Company;
each  purchaser,  either in his or her capacity as an investor or an employee or
consultant to the Company,  had access to adequate  information  concerning  the
Company and its business;  all  certificates  representing  the securities  were
imprinted with customary "restricted  securities" legends, and instructions were
lodged with the  Company's  transfer  agent with respect to all shares of Common
Stock issued in the transactions as "restricted securities."

                                       18
<PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
---------------------

Overview - Implementation of New Business Plan - Fiscal 1997 and 1998
---------------------------------------------------------------------

         U.S.  Wireless Data, Inc. (the "Company" or "USWD") was incorporated in
the State of  Colorado  on July 30,  1991.  The  Company is in the  business  of
providing  products  and services to enable the use of wireless  technology  for
electronic payment and other transactions.

         Over  the  past  two  and  a  half  years,  USWD  focused  its  product
development  efforts  on  incorporating  Cellular  Digital  Packet  Data  (CDPD)
technology  into its  product  line.  Because of the high  speed  nature of CDPD
technology, and the ability to bypass the public switched telephone network, the
Company's new line of CDPD-based  terminals  have  significant  performance  and
communication  cost  advantages  when  compared  with  the  traditional  dial-up
terminals currently being sold in the U.S. market.

         In mid fiscal year 1997,  the Company  made a  fundamental  decision to
change the manner in which it generates revenue.  The objective was to transform
the  Company  from  being  solely a "box  maker,"  from which it earned one time
wholesale margins from the sale of its products, to earning recurring revenue by
providing  wireless  credit  card and debit card  processing  services to retail
merchants.  In January  1997,  the Company  executed a Member  Service  Provider
agreement  with NOVA  Information  Systems  that  established  the  Company as a
transaction   processing   service  provider  to  retail  merchants.   The  NOVA
arrangement  allows the Company to generate a recurring revenue stream from each
installation instead of the previous per unit sales approach.

         Another  key  piece of the  strategic  direction  was to  significantly
broaden  distribution  of the TRANZ  Enabler  CDPD based  product by  developing
distribution  agreements  with  large  telecommunications  carriers  for  direct
distribution  of products and services to  merchants.  In  preparation  for this
effort,  the Company signed CDPD airtime agreements with AT&T Wireless Services,
Bell  Atlantic  Mobile and  initiated  discussions  with GTE Wireless  regarding
airtime  purchases,  joint  marketing  and  operating  agreements.  As described
further  below,  the  Company was  ultimately  successful  in  entering  into an
agreement  with GTE  Wireless,  which  contains  joint  marketing  and operating
provisions. This was followed by similar agreements with Bell Atlantic Mobil and
Ameritech.

         In the fourth quarter of fiscal 1997, it was clear that the Company had
a very significant  market  opportunity but had extremely  limited financial and
human  resources to apply to an aggressive CDPD product  rollout.  In June 1997,
the Company engaged entrenet Group, LLC  ("entrenet"),  a management  consulting
group, to assist with the development of a detailed  marketing and business plan
and  introduction  of financing  sources.  For a description of the terms of the
agreement, see "Item 12 - Certain Relationships and Related Transactions."

     In July 1997,  through an  introduction by entrenet,  the Company  retained
Liviakis Financial  Communications,  Inc. (LFC) to advise and assist the Company
in matters  concerning  investor  relations,  corporate  finance  and  strategic
management planning. For a description of the terms of the agreement,  see "Item
12 - Certain Relationships and Related Transactions."

         Following  the  Liviakis  investment,  the Company  undertook a focused
effort to strengthen and broaden its management  team. In early August 1997, the
Company retained Evon A. Kelly as its chief executive  officer.  Also in August,
the Company hired a vice president of sales,  vice president of major  accounts,
and in September added a chief financial officer.

         A  key  element  of  USWD's  strategic  change  in  direction  was  the
establishment of close alliances with large telecommunications  carriers through
joint distribution  programs. By leveraging the sales organizations of the major
CDPD providers, the Company could potentially gain ready access to large numbers
of merchants who would be interested in purchasing the Company's product/service
packages. In furtherance of this approach, in August 1997, USWD and GTE Wireless
entered into a joint  marketing  and operating  agreement to  distribute  USWD's
proprietary  TRANZ Enabler credit card processing  system using GTE's CDPD sales
network.  The agreement contains certain  significant  operational and financial
performance   criteria   (including   minimum  airtime  purchases  and  staffing
requirements)  that the Company was required to meet.  The Company then actively
recruited  and  hired  marketing  and  sales  personnel  to  support  nationwide
deployment  under the joint  marketing

                                       19
<PAGE>
program with GTE. The minimum airtime purchase  requirements were removed by GTE
in September 1998. See "Market Penetration through  Telecommunications  Carriers
and Revisions to Business Plan," below in this section.

         In March 1998 the Company signed a Joint Sales and Marketing  Agreement
with Bell Atlantic  Mobile,  the largest  wireless  service provider on the East
Coast and the second  largest in the United  States.  In July 1998,  the Company
signed  a  Joint  Marketing  and  Operating   Agreement  with  Ameritech  Mobile
Communications, Inc. ("Ameritech"), another large provider of cellular phone and
data  services.  The  agreements  are similar in  structure  to the GTE Wireless
agreement described above, and the Company added additional personnel to support
these agreements.

     Commencing  in the second  quarter of fiscal 1998 and  continuing  into the
first quarter of fiscal year 1999, USWD made significant  investments to support
a nationwide  deployment of TRANZ Enablers to merchants  through GTE's and other
telecommunication  carrier's  national  sales  forces.  Under  these  deployment
programs,  the  carrier's  sales  representative  introduces  USWD's credit card
processing  solution and TRANZ Enabler to the end user merchant.  Upon execution
of a credit card processing agreement, a TRANZ Enabler unit(s) is/(are) provided
to the  merchant by USWD.  The Company  retains a portion of the monthly  credit
card fees  based on the  dollar  volume  and  number of  transactions  processed
through the TRANZ Enabler.

     The Company's  business  model was based on the  manufacturing  cost of the
TRANZ Enabler being financed by a third party. Although the Company entered into
an agreement with GTE Leasing Corporation as of April 2, 1998 to finance product
to be placed under the joint marketing  agreement with GTE Wireless,  it has not
been  able  to  draw  funding  under  that  agreement.  The  agreement  was  not
implemented  because the various  partners  could not agree on the assignment of
revenue stream to specific participants in the event the Company defaults on its
obligation  to pay GTE leasing  and/or GTE wireless.  Consequently,  to date the
Company has had to rely primarily on its working  capital to procure  product to
be placed  with  merchants.  Due to a change  in the  Company's  business  model
described  below,  the Company now intends to sell the TRANZ Enabler through its
distribution  channels,  thereby  eliminating  the  ongoing  need for  long-term
equipment  financing.  On those units for which the Company  retains title,  the
monthly equipment  depreciation expense is recorded as cost of sales against the
monthly  recurring  revenue.  CDPD airtime  expense is also  recorded as cost of
sales against the monthly recurring revenue.

     During the  second  quarter  of fiscal  1998,  the  Company  completed  the
relocation of its customer support,  administrative and accounting  functions to
new offices in Emeryville,  California,  which serves as the Company's corporate
headquarters.  The  lease  on  the  Wheat  Ridge,  Colorado  office  terminated.
Engineering functions remain at the Company's Palmer Lake, Colorado facility.

     Through the second  quarter of fiscal 1998,  the Company  conducted its own
equipment deployment and servicing functions. In late January 1998, USWD entered
into an agreement with TASQ  Technology,  Inc. of Rocklin,  CA, to provide these
services.  TASQ deploys,  tracks and maintains  all TRANZ  Enablers  placed with
merchants  acquired by the Company.  In addition,  TASQ will provide  these same
functions for  peripheral  equipment sold by the Company.  The Company  believes
that this  relationship  will  ultimately  result in savings to the Company over
what it would cost to provide these services internally.

     The Company  signed a merchant  acquiring  agreement  with National Bank of
Commerce  "NBC",  in March 1998.  NBC is the lead banking  affiliate of National
Commerce Bancorporation. The agreement broadens the Company's ability to provide
credit card  processing  services for merchants in the retail,  restaurant,  and
hotel/lodging  industries.  Concurrent  with this  agreement,  the Company began
using Maverick International Processing Services, Inc, for processing a majority
of new CDPD merchant placements.

Market Penetration through Telecommunications Carriers and Revisions to Business
Plan
--------------------------------------------------------------------------------
     Placements of TRANZ Enabler units pursuant to the Company's agreements with
telecommunications  carriers did not develop as rapidly as anticipated  and have
not reached  anticipated (and necessary) levels to pay for the infrastructure to
support the programs.  Costs to the Company of implementing  the joint marketing
and  distribution  agreements  with  GTE  Wireless,  Bell  Atlantic  Mobile  and
Ameritech have exceeded revenue  generated by the programs since they began. The
GTE  Agreement  also  required  the Company to  generate  minimum  CDPD  service
billings  to GTE  Wireless  from  merchants  signed up for GTE  Wireless's  CDPD
service through the Company. GTE Wireless agreed to adjust the commencement date
for these  obligations so that the start date for the first quarter was February
1, 1998.  Actual  placements did not allow the Company to meet the  

                                       20
<PAGE>
renegotiated  minimum  purchase  obligations.  To remedy this  minimum  purchase
requirement,  the Company and GTE amended the  agreement  on  September  9, 1998
which removed any minimum  purchase  requirement  and established new IP address
pricing for merchants acquired under the agreement.

     Because  revenue has not  developed as hoped,  and  expenditures  have been
outstripping  the  Company's  ability to support its business  plan,  management
began to reexamine the Company's  business plan in the fourth  quarter of fiscal
1998 and came to the conclusion  that the Company could not continue to function
at its current expenditure levels.

     In July of 1998,  Roger Peirce,  previous Chief Operating  Officer for Visa
and most recently  Group  President of First Data Merchant  Services  joined the
USWD Board of Directors and in August 1998, became the Company's Chief Executive
Officer.  Mr. Peirce identified several areas in the Company's  distribution and
operational  strategy that required  immediate  redirection.  Beginning the last
week of August 1998, several changes in the Company's strategy were implemented.
The fundamental  change in the strategy  involves  positioning the Company as an
enabler of  wireless  products  and  services  to the  marketplace  and not as a
competitor to the current  incumbents.  This repositioning of the Company in the
marketplace  encompasses the  discontinuation  of soliciting and owning merchant
contracts  for  providing   bankcard-processing   services,   an  approach  that
effectively  positioned the Company as a direct competitor to the major merchant
acquirers. The Company's new strategy involves an end-to-end systems approach to
enabling the  marketplace.  The Company is enabling the  marketplace  with a new
service offering - Wireless Express Payment ServiceSM  (WEPS).  WEPS includes an
expandable  set of wireless  terminal  devices that  incorporate  the  Company's
proprietary  CDPD  modem,  a  web-based  IP address  provisioning  and  terminal
activation process that includes real time remote diagnostic  capabilities,  the
CDPD network service, and server technology that delivers wireless  transactions
to the current  front end card  processors.  The Company is targeting the top 30
merchant  acquirers and card processors for this service.  The initial  response
for WEPS from the targeted prospects has been very positive.

         In furtherance of this new strategy, on September 30, 1998, the Company
and Cardservices International, Inc. entered into a non-binding Letter of Intent
to form a non-exclusive  strategic partnership to jointly exploit payment system
opportunities using wireless technologies.  Upon entry of a final agreement, CSI
will  produce  its  LinkPoint(TM)   processing  terminals  using  the  Company's
proprietary  Wireless Express Payment  Service.  CSI will promote these products
within its own markets  using its  approximately  2,200-person  sales force.  In
addition,  CSI is to promote the  wireless  products to other  ventures of First
Data  Merchant  Services,  the  fifty-percent  owner  of  CSI.  Pursuant  to the
non-binding  letter of  intent,  CSI also  agreed to  consider  making an equity
investment of $1,000,000 in the Company  through a direct purchase of restricted
shares of common stock. The shares are to be issued at $2.72 per share, which is
a 10% discount from market price for the average of the closing prices for three
days prior to September  25,1998.  Closing of these  transactions  is subject to
various  contingencies  and  finalization  of  definitive  agreements.  Also, in
October 1998, the Company borrowed $500,000 from the Chief Executive Officer and
50% owner of CSI.

Entry of Renewed or New Consulting Relationships to Obtain Additional Financing
-------------------------------------------------------------------------------

     In  connection  with  attempts  to raise  additional  capital,  the Company
entered into new or renewed consulting or finder's agreements, as follows:

     As of March  12,  1998,  the  Company  entered  into a new  agreement  with
entrenet Group, LLC  ("entrenet") to provide  business and financial  consulting
services  to the  Company  and to assist  the  Company  in  locating  additional
financing.  For the  description of the terms of the  agreement,  see "Item 12 -
Certain  Relationships and Related  Transactions."  The term of the agreement is
for six months from March 12,  1998 and renews for  additional  six-month  terms
unless at least 60 days notice is given to terminate the agreement  prior to the
end of a term. For its advisory services under the agreement, the Company agreed
to pay  entrenet  a fee of  $60,000,  payable in the form of a  promissory  note
bearing 10%  interest,  due on or before the earlier of March 11,  1999,  or the
receipt by the Company of aggregate gross proceeds from financing of $2,000,000.
This  note  was  paid in July  1998.  In  addition,  at the time of entry of the
Consulting  Agreement,  entrenet  received a Common  Stock  Purchase  Warrant to
purchase  10,435  shares at $5.75 per share,  exercisable  until March 11, 2003.
Upon the consummation of any financing  transaction  entered into by the Company
during the term of the agreement  (with the exception of financing  from certain
identified, excluded sources) or for two years after termination with respect to
any financing  obtained from a source introduced to the Company by entrenet,  or
if entrenet assists the Company in locating an executive-level  candidate who is
hired  by the  Company,  entrenet  is  entitled  to a  finder's  fee  under  the
agreement.  This  Consulting  Agreement was  terminated in September  1998.  The
Company  agreed 

                                       21
<PAGE>
to pay  remaining  fees to  entrenet  of $20,000  and has issued a Common  Stock
Purchase Warrant for 8,333 shares exercisable at $2.40 per share until September
11, 2003.

     As of June 19, 1998,  the Company  entered  into an agreement  with the Los
Angeles  based  investment  banking  firm of Houlihan,  Lokey,  Howard and Zukin
Capital  ("Houlihan  Lokey")  whereby  Houlihan Lokey is to act as the Company's
exclusive agent for purposes of structuring  mergers (excluding  acquisitions by
the  Company),  sale of assets or similar  transactions  involving  a portion or
substantially  all of the  business,  assets or stock of the Company  (which are
defined in the agreement as a "Transaction"). The agreement is terminable at any
time by either  party,  but unless  terminated  early,  runs for a basic term of
twelve months,  with automatic one month  extensions  thereafter,  unless either
party  gives  seven  days'  prior  written  notice  of  termination.  Under  the
agreement, the Company is obligated to pay a cash retainer fee to Houlihan Lokey
of $30,000,  payable $5,000 a month for six months, reimburse Houlihan Lokey for
reasonable  out-of-pocket  expenses  and pay a  "contingent  fee" equal to three
percent (3%) of the "Aggregate Gross  Consideration"  received by the Company in
connection with a Transaction. "Aggregate Gross Consideration" is defined as the
sum of the fair  market  values of any  consideration  received  by the  Company
and/or its  creditors  or  shareholders,  whether in cash,  securities  or other
intangibles,  subject to  adjustments  to reflect the fair  market  value of any
liabilities assumed or assets retained. Customary valuation methodology is to be
used to value the  consideration  received by the Company in a Transaction.  The
Company is also  required to pay  Houlihan  Lokey a  "break-up  fee" of $100,000
(reduced by the aggregate  amount of retainer fees previously paid) in the event
that a  Transaction  that  has  been  publicly  announced,  or an  agreement  in
principal for a  Transaction  has been reached,  is  rescinded,  invalidated  or
otherwise canceled. Houlihan Lokey is also entitled to its contingent fee and/or
break-up  fee, as the case may be, under various  circumstances,  in the event a
Transaction  occurs  or is broken  during  the  twelve  month  period  following
termination  of the  agreement.  The  Company has  secured  its  obligations  to
Houlihan Lokey under the agreement with all of the Company's  assets,  excluding
TRANZ Enabler assets and/or portions of monthly credit card  processing  revenue
related to the repayment of equipment  financing.  The security interest granted
to Houlihan Lokey is also subject to change to allow the Company to successfully
complete a bridge financing of up to $2,000,000.  The Company has also agreed to
indemnify   Houlihan  Lokey  for  certain   liabilities,   including   potential
liabilities  arising under the federal securities laws. In late August 1998, the
Company  notified  Houlihan  Lokey  to  suspend  their  active  efforts  pending
discussions  the Company  initiated with several  potential  strategic  partners
involving joint operational initiatives and/or direct investments in USWD by the
potential partners.

     On June 30, 1998, the Company and Liviakis Financial  Communications,  Inc.
("LFC") agreed to extend their  consulting  relationship  through the entry of a
new consulting  agreement  covering the period from August 1, 1998 through March
15, 1999 (the "New LFC Agreement"). In conjunction with the entry of the new LFC
Agreement,  the  principles  of LFC agreed to a "lock-up" of their Company stock
until  February 1, 1999.  For the  description of the terms of the agreement see
"Item 12 - Certain Relationships and Related Transactions."

Securities Issuances to Fund Operations
---------------------------------------

     To fund its operating  requirements,  the Company has had to rely primarily
on the issuance of debt or equity securities over a significant part of the last
two fiscal years.  In addition to the  issuances of securities to entrenet,  LFC
and Messrs.  Liviakis  and Prag  described  above,  from April 1997  through the
present,  the Company has issued the securities described in the section of this
Item 6 entitled  "Financial  Condition,  Capital Resources and  Liquidity-Recent
Significant Securities Issuances."


Fiscal 1998 Compared to Fiscal 1997
-----------------------------------

Net Revenue
-----------

         Net  revenue of  $909,000  for fiscal 1998  decreased  from  revenue of
$1,315,000  generated  during fiscal 1997. The decrease in revenue was caused by
the Company's shift from a per-unit sales approach to a recurring revenue model.
Product  sales of  POS-50,  POS-500  and  other  equipment  sales  decreased  by
approximately  $638,000 while service revenue,  which includes application fees,
transaction processing,  and repair revenue increased by approximately $232,000.
Product   placements  of  the  TRANZ  Enabler  to  merchants   through  the  new
distribution  program have not developed as rapidly as anticipated.  The Company
is currently  implementing a strategic  shift intended to increase the growth of
both one-time and recurring revenue.

                                       22
<PAGE>
Gross Profit
------------

         Gross  profit in fiscal  1998 was  negligible  at $1,000,  compared  to
$506,000 in the prior year. The 1998 product cost of goods includes  several one
time  inventory   adjustments  totaling   approximately   $227,000  including  a
write-down of POS-50 raw materials  inventory of approximately  $170,000.  Gross
profit on service  revenue was $137,000  compared to $22,000 in the prior fiscal
year, due a to shift in business strategy to establish a recurring revenue base.

Operating Expenses
------------------

         Selling,  general and administrative expense increased from $813,000 in
fiscal  1997  to  $8,408,000  in  fiscal  1998.  Of the  approximate  $7,600,000
increase,  approximately $4 million was related to several significant  non-cash
charges,  including approximately $2,262,000 expensed for the Liviakis Financial
Communications  consulting services and $472,000 for other consulting  services,
and approximately  $1,327,000 of non-cash  compensation expense was recorded for
the change in stock price related to a variable stock option grant.

         The balance of the selling, general and administrative expense increase
of  approximately  $3,600,000  during fiscal 1998  resulted from the  aggressive
addition of sales and support  personnel  and  infrastructure  to provide  local
support for the GTE nationwide  deployment and similar  distribution  agreements
entered  into  with  Bell  Atlantic  and  Ameritech.  Headcount  increased  from
approximately  18 at the end of September 1997, to approximately 50 employees as
of December 31, 1997 and approximately 63 at the end of March 1998. Expenditures
include  increased  compensation  expense  for new sales  and  sales  management
personnel,  selective  additions to the management team and increased travel and
communication  expense  related  to  the  new  marketing  program.  The  Company
continued  to hire sales and  support  personnel  to support  the new  marketing
programs  through the end of 1998 fiscal year. The expense trend was reversed in
the first  quarter  of fiscal  1999 with  headcount  reductions  related  to the
revised distribution  approach.  In addition,  expenses increased in fiscal 1998
due to increased  audit fees and legal  expenses  related to the  resolution  of
several outstanding legal issues and the registration expenses for the Company's
registration statement under Form SB-2.

         Research and  development  expenses  decreased  from $406,000 in fiscal
1997 to $295,000 in fiscal  1998.  This  decrease  was due to lower  engineering
material  purchases,  one  vacancy  in the  department  during the first half of
fiscal 1998, and lower occupancy costs.

         Litigation  settlement  in 1998 relates to a $1,353,000  charge for the
valuation of common shares issued to a group of Noteholders,  in settlement of a
dispute  regarding  rights related to the conversion of the notes into shares of
Common Stock. The 1997 litigation  settlement expense reflects the settlement of
the law suit regarding the Company's  initial public  offering in December 1993.
The expense  consists of $94,000 for the value of the Common  Stock issued based
upon  the  fair  market  value  of the  Company's  common  stock on the date the
commitment  of such  shares  were  made,  $10,000  for cash paid by the  company
pursuant to the settlement with stockholders,  and $60,000 for a note payable to
one underwriter of the transaction. See "Item 3 - Legal Proceedings."

Interest Expense and Other  Expense
-----------------------------------

         Interest  expense  includes a $697,000  non-cash  charge in fiscal 1998
related to the private  placement  financing in December 1997.  The  convertible
features of the  debenture  include an  "in-the-money"  convertible  option that
allows  the  holder to obtain  shares of Common  Stock at a  discount  from fair
market value.  The value of the  in-the-money  provision  has been  allocated to
stockholder  equity. The difference between the realized value and face value of
the debt was recognized as non-cash  interest  expense between the date of issue
and date of conversion into preferred stock which occurred on February 9, 1998.

         Other expense for fiscal 1998 included a $156,000 charge related to the
extension of a common stock warrant exercise period which was expiring.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
----------------------------------------------------

The Company  continues to have  significant  difficulties  due to its  financial
condition and lack of liquidity.  While management is optimistic with its medium
and  long-term  opportunities,  the  Company  is  constrained  by its  immediate
financial  condition and  requirement for increased  liquidity.  The Company has
accumulated a deficit of  approximately  $28 million since inception to June 30,
1998,  with a working  capital  deficit of  approximately  $3million at June 30,
1998,  versus a deficit of $769,000 at the end of the prior year.  The increased
working  capital deficit is directly  related  working capital  utilized to fund
operating  losses  including  purchases  of  TRANZ  Enabler  inventory  and  the
significant  increase in the Company's headcount and infrastructure  implemented
during  fiscal 1998.  The deficit was also  affected by a $1.3 million  non-cash
accrual related to a variable stock option.

                                       23          
<PAGE>
     The  Company  believes  its  CDPD  based  products,   joint  marketing  and
distribution agreements with CDPD carriers, pending distribution agreements with
merchant  acquirers,   and  building  a  recurring  revenue  stream  present  an
opportunity for  significant  revenue growth,  eventual  profitability,  and the
generation of positive cash flow from operations. At present, development of the
Company's  products  and  services  requires  immediate,  additional  financing.
Proceeds from the private  placement  offering,  which was completed in December
1997, were used primarily to complete the launch of the joint marketing  program
with GTE Wireless, build the related corporate infrastructure and make selective
inventory purchases. Cash raised through recent private securities offerings has
been and will be used primarily for working capital and to pay certain  accounts
payable.

     With the  implementation  of the new  distribution  strategy adopted in the
latter part of the first quarter of fiscal 1999 (see "Market Penetration through
Telecommunication  Carriers and Revisions to Business Plan," above), the Company
has taken steps to reduce spending.  With the new focus on distribution  through
large merchant acquirers,  the Company has reduced headcount from 60 at June 30,
1998, to 39 as of October 30, 1998, with most of the reduction  occurring in the
direct sales force. With the appointment of Roger Peirce as CEO, the Company has
been able to avail itself of the services of several key senior level personnel,
engaged  under  consulting  contracts  with  remuneration  in the  form of stock
options  rather  than cash.  Based on current  staffing  levels,  the  Company's
operating  expenditures are running at a monthly rate of approximately  $350,000
versus  $450,000  per  month in the  fourth  quarter  of fiscal  1998.  However,
execution of the Company's  current  business plan is dependent on a significant
debt or equity financing event in the immediate future. The Company continues to
work both  directly and through its  consultants  to secure  additional  debt or
equity  financing  which is  required  to fund  operations  while a  significant
recurring  revenue  stream  is  built.  While  management  is  confident  it can
accomplish  this  objective,  the inability of the Company to secure  additional
financing  in the near term  could  adversely  impact  the  Company's  financial
position, including its ability to continue as a going concern.

Recent Significant Securities Issuances
---------------------------------------

     To meet its capital requirements,  the Company has issued securities during
fiscal 1997 and through the present, as follows:

Demand Notes
------------
     From April  through  June 1997 the  Company  issued a total of  $185,000 of
Demand  Notes  payable in full on or before  April 11, 1998 (the  "Notes").  The
principal and accrued  interest on the Notes became  convertible  into shares of
the  Company's  Common  Stock as of November 1, 1997 at prices of $.35 per share
(as to $75,000 of the Notes) and $.50 per share (as to  $110,000  of the Notes).
Commencing on November 3, 1997, the Company began receiving  conversion  demands
from certain of the Noteholders and as of November 14, 1997, holders of $135,000
of the Notes had demanded  conversion of their Notes into Common  Stock,  at the
same time  insisting that the Company issue  "free-trading"  shares to them. The
Company  settled  the claims of these  Noteholders  in April 1998 by agreeing to
issue 1.4 times the total number of shares  originally  issuable pursuant to the
terms of the Notes and providing the Noteholders  with certain  guarantees and a
"put option" which allows the  Noteholders  to require the Company to repurchase
the shares under certain limited  circumstances.  As a result of the settlement,
the  issuance  of  "premium  shares"  was  recorded  in  Operating  Expense as a
litigation settlement of approximately $1,353,000 in 1998. The shares into which
the Notes are  convertible  become  salable  under SEC Rule 144 commenced in the
Spring of 1998,  one year from the dates on which  the Notes  were  issued.  The
Company has issued a total of 698,307 shares of Common Stock through  conversion
of the Notes.

                                       24
<PAGE>
Private Offering of 8% Adjustable Rate Convertible
Subordinated Debentures Due December 31, 1999
--------------------------------------------------

     The Company closed a private offering of $3,060,000  principal amount of 8%
Adjustable Rate Convertible  Subordinated  Debentures Due December 31, 1999 (the
"8%  Convertible  Debentures")  on December  10,  1997.  The net proceeds to the
Company from the offering were  approximately  $2,600,000.  The Company used the
proceeds  from the offering  primarily  as working  capital to fund the national
launch of its  proprietary  wireless  transactions  processing  solutions and to
repay existing obligations. The 8% Convertible Debentures converted to 3,060,000
shares  of  Series A  Preferred  Stock as of  February  9,  1998.  The  Series A
Preferred  Stock is further  convertible at the option of the holder into shares
of Common Stock effective upon the earlier of (i) a declaration of effectiveness
by  the  Securities  and  Exchange  Commission  (the  "SEC")  of a  registration
statement  covering the shares of Common Stock into which the Series A Preferred
Stock are convertible  (the "Common Stock  Registration  Statement") or (ii) 150
days from December 10, 1997.  Based on a face value of $1.00 per share of Series
A Preferred Stock, the rate at which the Series A Preferred Stock is convertible
into Common Stock (the  "Conversion  Price") is equal to the lesser of (i) $6.00
per share of Common Stock or (ii) 80% of the average of the closing bid price of
the Common Stock over the five trading days prior to conversion.  The Conversion
Price  was no less  than  $4.00  per  share of  Common  Stock  for 270 days from
December 10, 1997 (the "Minimum Conversion Price").  However, after that 270-day
period  (which  has  elapsed),   the  Minimum  Conversion  Price  is  no  longer
applicable.  The Conversion Price (and the Minimum  Conversion Price) were to be
reduced  by 2% per month  for  every 30 days (or any part of any 30 day  period)
commencing  on May  11,  1998,  that  the  Company  did not  have  an  effective
registration  statement  on file with the SEC covering the sale of the shares of
Common Stock issuable on conversion of the Series A Preferred Stock. The Company
did not obtain effectiveness of the registration  statement (which it originally
filed on May 14,  1998)  until  August 7, 1998,  thereby  incurring a 6% penalty
applicable  to the  Conversion  and  Minimum  Conversion  Prices.  The  Series A
Preferred Stock is therefore convertible at 75% of the Market Price (as defined)
of the Common Stock. The Common Stock into which the Series A Preferred Stock is
convertible  (together  with shares of Common Stock that were issued as interest
on the 8%  Convertible  Debentures  and which are  issuable as  dividends on the
Series A Preferred Stock) is included in the shares offered for sale pursuant to
the  Registration  Statement  on Form  SB-2  (SEC No.  333-52625)  which  became
effective August 7, 1998.

     In  September  1998,  the Company  negotiated a partial  redemption  of the
outstanding  Series A Preferred Stock with several of the security holders.  The
Company borrowed  $1,300,000 from Liviakis  Financial  Communications,  Inc. and
used $1  million  of that  money to redeem  $833,000  face value of the Series A
Preferred Stock.  Substantially all available  tangible and intangible assets of
the  Company  secure  the note.  The  Company  paid  120% of face  value for the
redemption. The note payable is due January 1, 1999 and bears interest at 8% per
year. See "Certain  Relationships  and Related  Transactions - Transactions with
Liviakis Financial  Communications,  Inc." The security holders participating in
this  redemption also agreed to a gated  conversion  schedule over the following
three months. The participating investors,  representing approximately 1,342,000
shares  of the  remaining  Series A  Preferred  agreed  to hold  their  Series A
Preferred  shares until at least October 15, 1998.  Following  October 15, 1998,
one-third  of the Series A Preferred  shares may be converted to common stock on
each of October 15,  November 15, and December 15 of 1998,  respectively.  As an
incentive  to these  investors,  the  Company has agreed to issue  Common  Stock
purchase warrants  exercisable to purchase that number of shares of Common Stock
equal to five  percent of the number of shares of Series A Preferred  Stock held
by the participating investor at the end of each period,  exercisable at 110% of
the prior five-day  average bid price for three years from the date of issuance.
The Company also  increased  the dividend rate from four to eight percent on the
balance of the Preferred Stock held.

Sale of Call Options on Certain Shares of Common Stock
------------------------------------------------------

     Mr. Draper was the principal  shareholder  of a company called Direct Data,
Inc., which the Company acquired in 1994. In conjunction with the acquisition of
Direct Data,  Mr.  Draper was issued a total of 397,684  shares of the Company's
Common Stock.  The  acquisition did not create the synergies that were hoped for
and in October 1995, the Direct Data assets were  surrendered to Mr. Draper,  as
Direct Data's secured creditor, in lieu of the creditor's  foreclosure on a past
due  $1.31  Million  obligation.  Direct  Data was left with no  assets,  ceased
operations,  and was  dissolved on October 19, 1995.  In  conjunction  with that
transaction,  Mr. Draper  entered into an agreement  with the Company  effective
until  October 5, 1998,  pursuant  to which he granted  the Company the right to
vote his 397,684  shares in its discretion and to purchase those shares for $.25
per share (the "Call  Option").  In order to satisfy a portion of its  immediate
short term capital requirements,  on March 12, 1998, the Company entered into an
agreement to allow the Company to assign

                                       25
<PAGE>
to third  parties,  options it has held  since  1995,  on 367,684  shares of the
Company's Common Stock owned by Mr. Draper's assignee,  Tillicombe International
LDC  ("Tillicombe"),  which the  Company  had the right to  purchase at $.25 per
share. Mr. Draper retained the remaining 30,000 shares.

     As of June 30, 1998, the Company assigned its Call Option on all 367,784 of
the shares owned by Tillicombe.  RBB Bank  Aktiengesellschaft  purchased 250,000
options,  Kennedy Capital  Management,  Inc.  purchased  100,000 options and the
remaining 17,684 options were purchased by another individual investor. RBB Bank
Aktiengesellschaft is the agent that purchased 1,600,000 shares of the Company's
Series A Preferred  Stock in December  1997 and  $1,000,000  of 6% debentures in
July 1998. RBB Bank purchased the Call Option in five increments of 50,000 share
options  each,  and paid the Company  85% of the average  last sale price of the
underlying  shares  over the five days prior to the date of  acquiring  the Call
Option,  less the Call Option  exercise price of $25 per share.  Kennedy Capital
Management, Inc. purchased the Call Option on the 100,000 options it acquired at
a price of $2.25 per share as of June 10, 1998. In each transaction,  the option
purchaser was required to pay the acquisition price for the Call Option, as well
as the exercise price to Tillicombe prior to taking delivery of the shares.  The
Company raised a total of approximately $1,244,000 net of expenses from the sale
of these Call Options through June 30, 1998.

$250,000 Loan from RBB Bank Aktiengesellschaft
----------------------------------------------

     Effective  July  1998,  the  Company   borrowed   $250,000  from  RBB  Bank
Aktiengesellschaft,  under a  promissory  note  which was  payable in full on or
before  September  9,  1998.  The note was repaid in July  1998,  from  proceeds
obtained from the sale of $2,000,000 of 6% Convertible  Subordinated  Debentures
due July 21, 2000. In  conjunction  with this loan,  the Company issued a Common
Stock purchase warrants to RBB Bank Aktiengesellschaft to purchase 20,000 shares
of Common Stock at $4.375 per share,  exercisable through September 9, 2001. The
warrant has antidilution provisions that protect the holders against dilution in
the event of certain transactions. The warrant also has "piggyback" registration
rights  entitling the holders to have the  underlying  shares  registered in any
registration done by the Company,  other than registrations on ineligible forms.
The expenses of such registrations (other than selling expenses) are to be borne
by the Company.

Private Offering of 6% Convertible Subordinated Debentures due July 21, 2000.
-----------------------------------------------------------------------------

     In July 1998,  the  Company  completed  a private  offering  of  $2,000,000
principal  amount of 6%  Convertible  Subordinated  Debentures due July 21, 2000
(the "6% Debentures") and Common Stock Purchase Warrants Exercisable to Purchase
100,000  shares of Common  Stock  exercisable  at $4.25 per share until July 21,
2001 (the  "Warrants").  The net proceeds to the Company from the offering  were
approximately  $1,810,000,  after paying  finder's fees of $190,000,  but before
paying  additional  expenses of the offering,  which the Company estimates to be
approximately  $20,000. The Company used approximately  $252,000 of the proceeds
from the  offering  to pay off a $250,000  short term  bridge loan from RBB Bank
Aktiengesellschaft, which was evidenced by a promissory note executed July 1998,
and used the balance of the  proceeds as working  capital and to repay  existing
obligations.  RBB Bank Aktiengesellschaft,  the purchaser of 1,600,000 shares of
the  Company's  Series A  Cumulative  Convertible  Redeemable  Preferred  Stock,
purchased $1,000,000 of the 6% Debentures.  JW Genesis Securities,  Inc. of Boca
Raton,  Florida,  acted as the primary finder in the transaction and the Company
paid JW Genesis a finder's fee equal to seven  percent (7%) of the amount raised
from the sale of the 6% Debentures,  which amounted to $140,000. In addition, JW
Genesis  received a  three-year,  60,000  share Common  Stock  purchase  warrant
exercisable at $4.50 per share.  The shares  underlying the Warrant are entitled
to piggyback  registration rights, with the registration  expenses to be paid by
the  Company.  The  Company  also  paid a  finder's  fee to  Liviakis  Financial
Communications,  Inc.  ("LFC") in the amount of 2.5% of the amount raised on the
sale of the 6%  Debentures,  which  amounted  to $50,000,  under the  consulting
relationship between the Company and LFC. Messrs. John M. Liviakis and Robert B.
Prag, who are affiliates of LFC, are significant shareholders of the Company.

         The 6% Debentures  are  convertible  into shares of Common Stock at the
option of the holders at the lesser of: 80% of the average  closing bid price of
the Common Stock over the five trading  days prior to  conversion;  or $4.25 per
share (the "Fixed Conversion Price"). Fifty percent of the 6% Debentures held by
any holder become  convertible on the earlier of effective  registration  of the
underlying  shares with the SEC or 120 days after the Initial Issuance Date. The
remaining 50% of the 6% Debentures become convertible 150 days after the Initial
Issuance Date. Subject to certain adjustments described below, the 6% Debentures
cannot be converted below a "floor" price,  which is $2.125 per share. The floor
is eliminated  180 days after the Initial  Issuance  Date. If the Company issues
any other  security  convertible  into shares of Common Stock within 180 days of
the  Initial  Issuance  Date  with  a  floor  price  less  than  that  of the 6%
Debentures,  the  Debenture  floor price 

                                       26
<PAGE>
is reduced to that lesser  amount.  Any conversion  restrictions  (both time and
price) are eliminated upon the announcement of a consolidation,  merger or other
business  combination  of the Company in which the Company is not the  surviving
entity.

         Once the underlying  Common Stock has been  registered with the SEC for
at least 90 days and the Common  Stock has traded at or above $8.50 for at least
20  consecutive  trading days (based on the average  closing bid price over such
period),  the Company can require  conversion of the 6%  Debentures,  subject to
certain  restrictions if the stock is suspended from trading or the registration
of the underlying Common Stock is suspended.

         The Company may redeem the 6%  Debentures  at any time from the Initial
Issuance  Date to 120 days  thereafter  if the Common Stock is trading above the
floor  price,  on the  following  basis:  to day 60 at 105% of face  value  plus
accrued  interest;  from day 61 to day 90 at 112.5% of face value  plus  accrued
interest;  and  from  day 91 to day  120 at  120% of  face  value  plus  accrued
interest.  At the time of any such  redemption,  the  Company  must  also  issue
additional  Common Stock purchase warrants for 50,000 shares of Common Stock per
$1,000,000 of redeemed 6% Debentures, exercisable for three years at the closing
bid price on the day prior to redemption.

         Any 6%  Debentures  that have not been  converted to Common Stock as of
the maturity date, or upon a merger,  consolidation or other sale of the Company
or its assets in which the Company is not the surviving entity, are to either be
converted  into Common Stock at the  conversion  price then in effect or, at the
option of the holders, must be redeemed by the Company.

         The Company  agreed to file a  registration  statement  with the SEC to
register the Common Stock  underlying  the 6% Debentures  within 75 days of July
22, 1998, (the "Initial Issuance Date"), and that it will respond to initial SEC
comments  within 15 days of receipt and any  subsequent  SEC comments  within 10
days of receipt.  In the event the  registration  is not effective  with the SEC
within 120 calendar days of the Initial  Issuance  Date, the Company is required
to  pay a cash  penalty  of two  percent  (2%)  of  the  face  amount  of the 6%
Debentures  and  thereafter  an amount  equal to three  percent (3%) of the face
amount  for every  thirty  calendar  days (or any  fraction  thereof)  until the
registration is effective. In the event the registration is not effective by the
180th day after the Initial  Issuance  Date,  the Company can be required by the
holders to redeem the 6% Debentures at 120% of face value, plus accrued interest
to the date of  redemption.  The Company is  obligated  to pay all  registration
expenses (but not selling  expenses)  incurred in registering the shares for the
holders of the 6% Debentures.

OMRON - Note Restructuring 
---------------------------

     During  August 1998,  the Company and the supplier  reached an agreement to
cure the default with a  restructuring  of the terms of the note.  The new terms
include a  reduction  in the price per unit as well as the number of units under
the contract. The agreement also reduced the principal balance under the note to
$120,000 plus interest of $47,000.  The Company has agreed to a payment schedule
that will repay the balance due by February 1999. See "Note 5. Borrowings - Note
Payable-Supplier-OMRON."

$500,000 Loan - October 1998
----------------------------

     On October 28, 1998 the Company borrowed $500,000 from Chuck Burtzloff, the
CEO and 50% owner of Cardservice International,  Inc. The note bears interest at
8% per annum and is payable in full on the earlier of the receipt by the Company
of proceeds  from a sale of the  Company's  Common  Stock to Mr.  Burtzloff  (as
discussed below under "Current  Financing  Initiatives")  or January 1, 1999. In
consideration  for the loan,  the Company  also agreed to issue Mr.  Burtzloff a
Common Stock Purchase  Warrant  exercisable to purchase  25,000 shares of Common
Stock at  $3.038  per share  through  October  27,  2001.  See also,  "Item 12 -
"Certain  Relationships and Related Transactions - Transactions with Cardservice
International, Inc."
                                       27
<PAGE>
Current Financing Initiatives
-----------------------------

     The Company has several  initiatives that it is currently pursuing to raise
additional   capital.  On  September  30,  1998,  the  Company  entered  into  a
non-binding  letter of intent  with  Cardservice  International,  Inc. to form a
non-exclusive  strategic  partnership  involving joint product and  distribution
initiatives.  The letter of intent also includes a provision pursuant to which a
$1,000,000 direct equity investment in USWD by CSI may be made if the terms of a
definitive  agreement can be reached.  The parties are working on the completion
of definitive agreements.

     The  Company is also  exploring  similar  initiatives  with  several  other
potential strategic partners as well as continuing efforts to raise capital from
other debt or equity sources.

Year 2000 Issues
----------------

     The Company has  completed a review of the impact of the Year 2000 issue on
the  Company's  business.   This  issue  concerns  the  potential  problems  and
liabilities  faced by all users and persons  dependent on  computers  that might
result from software or system  failure or  malfunctions  if the systems fail to
properly recognize the date change between 1999 and 2000. The Company's internal
business  systems have been evaluated,  and with the exception of the accounting
system, are Year 2000 compatible.  The Company intends to replace the accounting
software  during fiscal year 1999.  The cost of conversion is not expected to be
material.  The engineering  staff has made an assessment of USWD products and is
not aware of any  complications  regarding the products the Company  delivers to
the end users. While there can be no assurance that unforeseen problems will not
be  encountered,  the Company  expects that all projects  will be completed in a
timely manner. While the Company believes that its key suppliers for credit card
transaction  processing  are  taking  reasonable  steps  to  address  Year  2000
compliance,  the Company is reliant on the  electronic  payments  infrastructure
utilized by credit card processors,  banks and financial institutions within the
United States. The Company could be subject to unresolved  issues,  which impact
this infrastructure.  The Company could be adversely,  materially affected, both
operationally  and  financially,  to the  extent  third  parties  with  which it
interfaces, either directly or indirectly, has not properly addressed their Year
2000 issues.

Forward-Looking Statements
--------------------------

         The Company may, in  discussions  of its future plans,  objectives  and
expected  performance  in  periodic  reports  filed  by  the  Company  with  the
Securities  and Exchange  Commission  (or  documents  incorporated  by reference
therein)  and in written and oral  presentations  made by the  Company,  include
projections or other  forward-looking  statements  within the meaning of Section
27A of the  Securities Act of 1933 or Section 12E of the Securities Act of 1934,
as  amended.  Such  projections  and  forward-looking  statements  are  based on
assumptions,  which the Company believes 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
detailed  below,  and in other reports filed by the Company under the Securities
Exchange Act of 1934, including the Report on Form 8-K filed on August 11, 1998,
Reporting  an Event  of  August  3,  1998,  which,  incorporates  the  Company's
Registration Statement on Form SB-2 (SEC File No. 333-52625).

         History of Losses and  Potential  Fluctuations  in  Operating  Results:
Throughout  the  Company's  history,  including  the fiscal year ending June 30,
1998, the Company had experienced significant operating losses. It has continued
to incur operating  losses  subsequent to June 30, 1998,and through the present.
In addition,  because the Company  generally  ships its products on the basis of
credit card processing applications or purchase orders,  increments to recurring
revenue and other component sales in any quarter are highly  dependent on orders
shipped in that quarter and, accordingly,  may fluctuate materially from quarter
to quarter.  The Company's  operating  expense levels are based on the Company's
internal forecasts for future demand and not on firm customer orders. Failure by
the Company to achieve these internal forecasts has and could continue to result
in expense  levels that are  inconsistent  with actual  revenues.  The Company's
results may also be affected by  fluctuating  demand for the Company's  products
and by increases in the costs of components acquired from the Company's vendors.

          Requirement for Additional Capital: At present, the development of the
Company's infrastructure, product development initiatives, and transition to the
new distribution program requires additional  financing.  Proceeds from recently
completed private placement offerings have provided the Company with the ability
to launch joint marketing and distribution  programs with the wireless carriers;
however,  execution  of the  

                                       28
<PAGE>
Company's  business  plan is  dependent  on a more  significant  debt or  equity
financing  event.  The Company  continues to work both  directly and through its
consultants to secure  additional debt or equity  financing which is required to
fund operations while a significant  recurring revenue stream is built. There is
no guarantee that this additional funding will occur in the required time frame.
The failure of the Company to obtain additional  financing could have a material
adverse  impact on the  Company,  including  its  ability to continue as a going
concern.

         Distribution  Program:  The Company has  recently  executed a letter of
intent with Cardservice International which outlines CSI's intent to produce its
LinkPoint(TM)  processing  terminals  using the Company's  proprietary  Wireless
Express Payment  Service.  The Company  anticipates  that CSI will promote these
products  within its own markets  using it's sales  force,  and also promote the
wireless products to other ventures of First Data Merchant Services. The Company
also has joint marketing and distribution agreements in place with GTE Wireless,
Bell  Atlantic  Mobile,   and  Ameritech.   These  and  anticipated   additional
distribution  programs are expected to have a material  impact on the  Company's
future  revenue  stream.  While  the  Company  anticipates  it  will  execute  a
definitive  agreement  with  CSI and sign  distribution  agreements  with  other
significant  partners,  the failure to successfully  complete the agreements and
execute the specified  programs through any of these  distributors  could have a
material adverse effect on the Company.

         The Company's  Dependence on a Single Type of Product and Technological
Change:  All of the  Company's  revenue is derived from sales of its credit card
transaction  services and enabling products.  Demand for these products could be
affected by numerous  factors outside the Company's  control,  including,  among
others, market acceptance by prospective  customers,  or the introduction of new
or superior competing technologies. The Company's success will depend in part on
its ability to respond quickly to technological  changes through the development
and improvement of its products.

         Competition by Existing Competitors and Potential New Entrants into the
Market: The Company has identified several potential  competitors  attempting to
develop  CDPD  based  terminals  and  solutions.  In  addition,  companies  with
substantially greater financial, technical,  marketing,  manufacturing and human
resources,  as well as name  recognition,  than the  Company  may also enter the
market.

         CDPD Resale Agreements  Containing  Minimum Purchase  Obligations:  The
Company has to date  entered into four CDPD service  resale  agreements,  one of
which contains minimum  obligations  which can be characterized as "take or pay"
provisions.   The  agreement  with  AT&T  Wireless  Data,  Inc.   contains  such
provisions.  The Company is obligated  to pay for the minimum  amount of service
stated in the agreement  even if it fails to place enough service with merchants
to meet the minimums.  The failure of the Company to meet these service minimums
could have an adverse financial impact upon the Company.

         Status of Federal Corporate Tax Filings:  The Company has not completed
federal income tax filings for fiscal years 1996 and 1997.  While it is unlikely
that the  Company  will owe any taxes due to the  sustained  losses  during  the
periods,  the  Company  may be subject to  penalties  for the  delinquency.  The
Company  intends to take the steps  required to complete the tax filings as soon
as practicable.

         Dilutive and Other Possible  Adverse  Effects of  Outstanding  Options,
Warrants and Other Rights to Acquire Common Stock: The Company has a substantial
number of outstanding rights to acquire Common Stock in the form of the Series A
Preferred Stock, the 6% Convertible Subordinated  Debentures,  various warrants,
and contract  rights.  A  substantial  number of these rights,  plus  additional
rights in the form of options that have been or may be granted to the  Company's
officers,  directors,  employees or  consultants  under the Company's 1992 Stock
Option Plan or otherwise,  are  exercisable  or  convertible at prices which are
less than the present  market price for the Common Stock or at a discount to the
market price as of the time of conversion.  Under the terms of such rights,  the
holders  thereof  are given an  opportunity  to profit from a rise in the market
price of the Common  Stock with a resulting  dilution in the  interests of other
shareholders. The terms on which the Company may obtain additional financing may
be adversely affected by the existence of such rights. For example,  the holders
of these rights could exercise them at a time when the Company was attempting to
obtain  additional  capital  through a new offering of  securities on terms more
favorable than those provided by the rights.


                                       29
<PAGE>
ITEM 7: FINANCIAL STATEMENTS                                                Page

Report of Independent Accountants..........................................  31

Balance Sheet as of
 June 30, 1998 and 1997....................................................  32

Statement of Operations for the fiscal year ended
June 30, 1998 and 1997.....................................................  33

Statement of Changes in Stockholders' Deficit for the fiscal year ended
June 30, 1998 and 1997.....................................................  34

Statement of Cash Flows for the fiscal year ended
June 30, 1998 and 1997.....................................................  35

Notes to Financial Statements..............................................  36


ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

(Not Applicable)


                                       30
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of U.S. Wireless Data, Inc.

         In  our  opinion,  the  accompanying  balance  sheets and  the  related
statements of operations,  of changes in stockholders' deficit and of cash flows
present  fairly,  in all  material  respects,  the  financial  position  of U.S.
Wireless Data, Inc. at June 30, 1998 and 1997, and the results of its operations
and its cash  flows  for the  years  then  ended in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

         The accompanying  financial statements have been prepared assuming that
the Company  will  continue as a going  concern.  As  discussed in Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital  deficiency that raise substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 1. The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.



PricewaterhouseCoopers LLP

San Jose, California
November 6, 1998


                                       31
<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                                 BALANCE SHEETS

                                                                                    June 30,
                                                                              1998            1997
                                                                              ----            ----
<S>                                                                   <C>             <C>         
ASSETS     
------                                                                                                        

Current assets:
     Cash .........................................................   $      4,000    $      6,000
     Accounts receivable, net of allowance for
       doubtful accounts of $22,000 (1998); and $16,000 (1997) ....         55,000         131,000
     Inventory ....................................................        480,000         209,000
     Other current assets .........................................        187,000         103,000
                                                                      ------------    ------------

          Total current assets ....................................        726,000         449,000
Processing units - deployed, net ..................................        517,000            --
Property and equipment, net .......................................        253,000          41,000
Other assets ......................................................         69,000          11,000
                                                                      ------------    ------------

          Total assets ............................................   $  1,565,000    $    501,000
                                                                      ============    ============


LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

Current liabilities:
     Accounts payable .............................................   $  1,506,000    $    354,000
     Accrued liabilities ..........................................      1,735,000         126,000
     Borrowings, current portion ..................................        452,000         738,000
                                                                      ------------    ------------

          Total current liabilities ...............................      3,693,000       1,218,000
Borrowings, long-term portion .....................................         45,000          45,000
                                                                      ------------    ------------
          Total liabilities .......................................      3,738,000       1,263,000
                                                                      ------------    ------------


Redeemable common stock and warrants (Notes 12, 13) ...............        372,000            --
                                                                      ------------    ------------


Commitments and contingencies (Notes 11,12,13 and 14)

Stockholders' deficit:
      Preferred stock, at $1.00 stated value,15,000,000 authorized,
        3,060,000 (1998) Series A issued and outstanding ..........      3,060,000            --
      Common stock, at $1.00 stated value, 40,000,000 shares
        authorized 12,195,358 (1998) and 5,613,952
        (1997) shares issued and outstanding ......................     12,195,000       5,614,000
      Additional paid-in capital ..................................     10,222,000      10,613,000
      Accumulated deficit .........................................    (28,022,000)    (16,961,000)
      Notes receivable from stockholder ...........................           --           (28,000)
-------------------------------------------------------------------   ------------    ------------

          Total stockholders' deficit .............................     (2,545,000)       (762,000)
                                                                      ------------    ------------

          Total liabilities and stockholders' deficit .............   $  1,565,000    $    501,000
                                                                      ============    ============
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       32

<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                             STATEMENT OF OPERATIONS


                                                     For the year ended June 30,
                                                           1998            1997
<S>                                                <C>             <C>         
Net revenues:
     Product sales .............................   $    650,000    $  1,288,000
     Services ..................................        259,000          27,000
                                                   ------------    ------------
                                                        909,000       1,315,000
                                                   ------------    ------------
Cost of revenues:
     Product sales .............................        786,000         804,000
     Services ..................................        122,000           5,000
                                                   ------------    ------------
                                                        908,000         809,000
                                                   ------------    ------------

         Gross profit ..........................          1,000         506,000
                                                   ------------    ------------
Operating expenses:
     Selling, general and administrative .......      8,408,000         813,000
     Research and development ..................        295,000         406,000
     Litigation settlement .....................      1,353,000         164,000
                                                   ------------    ------------
                                                     10,056,000       1,383,000
                                                   ------------    ------------

         Loss from operations ..................    (10,055,000)       (877,000)


Interest expense ...............................       (778,000)        (32,000)

Other income(expense) ..........................       (167,000)         45,000
                                                   ------------    ------------

Net loss .......................................   $(11,000,000)   $   (864,000)
                                                   ============    ============

Basic and diluted net loss per share: ..........   $      (1.18)   $      (0.17)
                                                   ============    ============
Weighted average common shares outstanding-    
   basic and diluted ...........................      9,368,926       4,986,767
                                                   ============    ============
</TABLE>

     The accompanying notes are an integral part of the financial statements


                                       33
<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT


                                                                Series A                                           Common    
                                                             Preferred Stock               Common Stock             Stock    
                                                           Shares       Amount         Shares         Amount      Subscribed  
                                                           ------       ------         ------         ------      ----------  
<S>                                                     <C>           <C>           <C>          <C>            <C>                
Balance at June 30, 1996 .........................           --     $       --        4,523,333    $  4,523,000    $    143,000
Issuance of common stock for services ............           --             --          102,975         103,000            --   
Issuance of common stock for litigation settlement           --             --          600,000         600,000            --   
Exercise of stock options ........................           --             --          245,100         245,000            --   
Stock subscription issued ........................           --             --          142,544         143,000        (143,000)
Note receivable on stock option plan .............           --             --             --              --              --   
Net loss .........................................           --             --             --              --              --   
                                                        -------------------------------------------------------------------------
Balance at June 30, 1997 .........................           --     $       --        5,613,952       5,614,000            --   
Issuance of common stock for cash ................           --             --        1,428,571       1,428,000            --   
Issuance of common stock for services ............           --             --        2,621,429       2,621,000            --   
Issuance of common stock for litigation settlement
  and related note conversion ....................           --             --          679,800         680,000            --   
Reclassification of redeemable common stock
  and warrants ...................................           --             --         (128,307)       (128,000)           --   
Exercise of stock options ........................           --             --          340,640         341,000            --   
Exercise of stock warrants .......................           --             --        1,203,947       1,204,000            --   
Issuance of common stock for conversion of  
  notes payable ..................................           --             --          422,257         422,000            --   
Issuance of common stock for interest on debenture           --             --           13,069          13,000            --   
Sale of common stock repurchase right ............           --             --             --              --              --   
Issuance of convertible debentures ...............           --             --             --              --              --   
Issuance of warrants for services ................           --             --             --              --              --   
Issuance of Series A preferred stock .............      3,060,000      3,060,000           --              --              --   
Payment of notes receivable ......................           --             --             --              --              --   
Net loss .........................................           --             --             --              --              --   
Preferred stock dividend .........................           --             --             --              --              --   
Balance at June 30, 1998 .........................      3,060,000   $  3,060,000     12,195,358    $ 12,195,000    $       --   
                                                     ============   ============   ============    ============    ============


                                                       Additional        Note                         
                                                        Paid in       Receivable      Accumulated       
                                                        Capital       Stockholder       Deficit            Total   
                                                        -------       -----------     -----------          -----   
<S>                                                 <C>              <C>            <C>              <C> 
Balance at June 30, 1996 .........................   $ 11,419,000            --      $(16,097,000)   $    (12,000)
Issuance of common stock for services ............        (88,000)           --              --            15,000
Issuance of common stock for litigation settlement 
  and related note conversion ....................       (506,000)           --              --            94,000
Exercise of stock options ........................       (212,000)           --              --            33,000
Stock subscription issued ........................           --              --              --              --
Note receivable on stock option plan .............           --      $    (28,000)           --           (28,000)
Net loss .........................................           --              --          (864,000)       (864,000)
                                                     ------------------------------------------------------------    
Balance at June 30, 1997 .........................     10,613,000         (28,000)    (16,961,000)       (762,000)


Issuance of common stock for cash ................       (929,000)           --              --           499,000
Issuance of common stock for services ............       (810,000)           --              --         1,811,000
Issuance of common stock for litigation settlement        875,000            --              --         1,555,000
Reclassification of redeemable common stock 
  and warrants ...................................       (244,000)           --              --          (372,000)
Exercise of stock options ........................       (167,000)           --              --           174,000
Exercise of stock warrants .......................     (1,190,000)           --              --            14,000
Issuance of common stock for conversion of     
  notes payable ..................................       (186,000)           --              --           236,000
Issuance of common stock for interest on debenture         62,000            --              --            75,000
Sale of common stock repurchase right ............      1,240,000            --              --         1,240,000
Issuance of convertible debentures ...............        622,000            --              --           622,000
Issuance of warrants for services ................        753,000            --              --           753,000
Issuance of Series A preferred stock .............       (417,000)           --              --         2,643,000
Payment of notes receivable ......................           --            28,000            --            28,000
Net loss .........................................           --              --       (11,000,000)    (11,000,000)
Preferred stock dividend .........................           --              --           (61,000)        (61,000)
                                                     ------------------------------------------------------------
Balance at June 30, 1998 .........................   $ 10,222,000    $       --      $(28,022,000)   $ (2,545,000)
                                                     ============    ============    ============    ============
</TABLE>
     The accompanying notes are an integral part of the financial statements

                                       34
<PAGE>
                            U.S. WIRELESS DATA, INC.
<TABLE>
<CAPTION>
                            STATEMENTS OF CASH FLOWS

                                                               For the year ended June 30,
                                                                     1998            1997
<S>                                                          <C>             <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss .............................................   $(11,000,000)   $   (864,000)
    Adjustments to reconcile net loss to net cash used in
      Operating activities:
       Depreciation and amortization .....................        111,000          57,000
       Non-cash consulting and other expense .............      2,734,000          50,000
       Non-cash compensation - stock option ..............      1,327,000            --
       Non-cash interest expense .........................        654,000            --
       Non-cash litigation expense .......................      1,353,000         164,000
       Debt forgiveness ..................................           --           (33,000)
       Changes in current assets and liabilities:
          Accounts receivable ............................         77,000         (79,000)
          Inventory ......................................       (271,000)        412,000
          Other current assets ...........................        (85,000)         22,000
          Accounts payable ...............................      1,153,000         136,000
          Accrued liabilities ............................        281,000        (102,000)
                                                             ------------    ------------
          Net cash used in operating activities ..........     (3,666,000)       (237,000)
                                                             ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of property and equipment ................       (256,000)           --
       Processing units - deployed .......................       (564,000)           --
       (Increase)decrease in other assets ................        (58,000)         12,000
                                                             ------------    ------------
          Net cash used in investing activities ..........       (878,000)         12,000
                                                             ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Proceeds from issuance of stock ...................        664,000         185,000
       Proceeds from sale of common stock repurchase right      1,240,000           6,000
       Payment of note receivable from stockholder .......         28,000            --
       Payment of note payable ...........................        (13,000)           --
       Net proceeds from issuance of debt ................      2,623,000            --   
                                                             ------------    ------------
          Net cash provided by financing activities ......      4,542,000         191,000
                                                             ------------    ------------

Net decrease in cash .....................................         (2,000)        (34,000)

Cash at beginning of period ..............................          6,000          40,000
                                                             ------------    ------------

Cash at end of period ....................................   $      4,000    $      6,000
                                                             ============    ============
<FN>
Supplemental disclosure of non-cash financing and investing:
1. Conversion of $50,000 notes payable to 75,000 shares of common stock.  
2. Conversion of $3,060,000 convertible debentures to 3,060,000 shares of preferred stock. 
3. Conversion of $202,000 note payable to 496,221 shares of common stock.
4. Conversion of $164,000 note payable to 328,750 shares of common stock.
</FN>
</TABLE>
     The accompanying notes are an integral part of the financial statements

                                       35
<PAGE>
                            U.S. WIRELESS DATA, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1.  OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations

         U.S.  Wireless Data, Inc. (the "Company" or "USWD") was incorporated in
the state of  Colorado  on July 30,  1991.  The  Company is in the  business  of
providing  products  and services to enable the use of wireless  technology  for
electronic  payment and other  transactions.  The Company began  generating  its
first  revenue  from  product  sales in fiscal  1995.  The  Company  is now in a
transition  from  being  solely  an  equipment  manufacturer  to also  providing
products and services  that  generates  recurring  revenue.  In the future,  and
assuming  the  Company is able to  continue as a going  concern,  the  recurring
revenue component is expected to become a significant component of the Company's
business.

Financial Condition

         The  Company  continues  to  have  difficulties  due to  its  financial
condition  and lack of  liquidity.  The  Company  has  accumulated  a deficit of
approximately $28 million at June 30, 1998 and has limited financial  resources.
At  present,  development  of  the  Company's  products  and  services  requires
immediate  and  significant  additional  financing.  Proceeds  from the  private
placement offering, which was completed in December 1997, were used primarily to
complete the launch of the joint marketing  program with GTE Wireless,  to build
the related corporate  infrastructure and to make selective inventory purchases.
Cash raised  through recent  private  securities  offerings has been and will be
used primarily for working capital and to pay certain preexisting liabilities.

Due to the change in its  distribution  strategy  to channel  product  sales and
service offerings through existing merchant acquirers, the Company has been able
to make  significant  reductions  in its direct  sales force and reduce its cash
requirements.  However, execution of the Company's business plan is dependent on
a  significant  debt or  equity-financing  event in the  immediate  future.  The
Company  continues to work both directly and through its  consultants  to secure
such  financing  which  is  required  to fund  operations  while  a  significant
recurring  revenue  stream  is  developed.  There can be no  assurance  that the
Company  will be  successful  with  efforts  to raise  additional  capital.  The
inability of the Company to secure  additional  financing in the near term could
adversely  impact the  Company's  financial  position,  including its ability to
continue as a going concern.

         The accompanying  consolidated  financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
and liabilities that might be necessary should the Company be unable to continue
as a going concern.

Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from the estimates used.

Cash Equivalents

         The Company considers all highly liquid  investments  purchased with an
original  maturity  of  three  months  or  less  to be  cash  equivalents.  Cash
equivalents are carried at cost, which approximates fair value.

                                       36
<PAGE>
Inventory

         Inventory  is  stated  at the  lower  of cost  or  market,  cost  being
determined by the first-in, first-out method.

Property and Equipment

         Property  and  equipment  are  stated  at cost.  The  Company  uses the
straight-line  method of depreciation based on the estimated useful lives of the
assets (generally three to seven years).  Maintenance and repairs are charged to
operations as incurred.

Processing Units Deployed

         Merchants  that  subscribe  to the  Company's  credit  card  processing
service  usually  receive  a TRANZ  Enabler  unit  that  provides  the  wireless
communications  and processing  functionality.  As these units are deployed at a
customer location,  the asset value is transferred from inventory to "Processing
units -  deployed"  and  depreciated  via a charge to Cost of  Revenue  over its
estimated  useful  life of 48 months.  The  company  retains  title to the TRANZ
Enabler units and earns usage income on the units while they are deployed at the
customer location.

Impairment of Long-lived Assets

         The Company  evaluates the  recoverability of its long-lived assets and
recognizes an impairment in the event the net book value of such assets  exceeds
the future undiscounted cash flow attributable to such assets.

Revenue Recognition and Major Customers

         Revenue is  classified  as either  Product  Sales or Services . Product
Sales result from the sale of the  Company's  electronic  payment  terminals and
related peripheral  products to resellers or end-user  merchants.  Product Sales
are recognized upon shipment of products to customers. Services result primarily
from the Company's  participation in the ongoing transaction  processing revenue
stream generated by the merchant's  credit card processing  agreement.  One-time
application  fees are also included in this  category.  Services are recorded in
the period services are provided. During fiscal 1997, Cardservice International,
Inc. ("CSI") accounted for 53% of revenue. During fiscal 1998, CSI accounted for
20% of revenues.

Research and Development Costs

         Research and development costs are expensed as incurred.

Income Taxes

         The Company accounts for income taxes under the liability method, which
requires  recognition  of  deferred  taxes and  liabilities  for the  income tax
consequences  of  temporary  differences  between  the tax basis of  assets  and
liabilities and their reported amounts.

Net Loss Per Share

         Earnings  (loss) per common share (EPS) is computed using  Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings per Share". SFAS No. 128
establishes  standards  for the  computation,  presentation,  and  disclosure of
earnings per share. Basic and diluted net loss per share is computed by dividing
the net loss available to common  stockholders by the weighted average number of
common  shares  outstanding  at the  end of the  period.  Diluted  EPS  excludes
exercise  of stock  options  and  warrants  and the  conversion  of  convertible
securities from the calculation since their effect would be anti-dilutive.  Such
shares could  potentially  dilute earnings per share in the future.  EPS for the
year ended June 30,  1997 has been  restated  to conform  with SFAS  No.128.  In
fiscal 1998, the net loss available to common  stockholders  equals the net loss
less the $61,000 preferred stock dividend issuable at year end.

                                       37
<PAGE>
Fair Value of Financial Instruments

         The carrying  value of the Company's  financial  instruments  including
accounts receivable,  accounts payable, accrued liabilities and debt approximate
their fair values due to their relatively short maturities.

Stock-based Compensation

         The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with disclosure provisions of SFAS No. 123, "Accounting
for Stock Based Compensation."

Recent Accounting Pronouncements

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income".  SFAS No. 130,  which is  effective  for fiscal years  beginning  after
December  15,  1997,   establishes   standards  for  reporting  and   displaying
comprehensive  income  and its  components  with  the same  prominence  as other
financial  statements.  All prior  periods  must be  restated  to conform to the
provisions of SFAS No. 130. The Company will adopt SFAS No. 130 during the first
quarter of fiscal 1999, but does not expect the new accounting  standard to have
a material impact on the Company's reported financial results.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related  Information." SFAS No. 131, which is effective for
fiscal years  beginning  after  December 15, 1997,  establishes  new  disclosure
requirements for operating segments,  including products,  services,  geographic
areas,  and major  customers.  The Company  will adopt SFAS No. 131 for the 1999
fiscal year. The Company does not expect the new  accounting  standard to have a
material impact on the Company's reported financial results.

Reclassifications

         Certain  reclassifications  have  been  made to  prior  year  financial
statements to conform to current year presentation.

                                       38
<PAGE>
NOTE 2.  INVENTORY
<TABLE>
<CAPTION>
                                                                         June 30,
                                                                    1998         1997
                                                                    ----         ----
<S>                                                             <C>          <C>      
Inventory consists of:
   Raw material .............................................   $ 153,000    $ 111,000
   Finished goods ...........................................     556,000      208,000
   Spare parts and accessories ..............................       8,000        2,000
   Lower of cost or market reserve ..........................    (237,000)    (112,000)
                                                                ---------    ---------
                                                                $ 480,000    $ 209,000
                                                                =========    =========
</TABLE>
     The  Company  has  established  a reserve  against  finished  goods and raw
materials to reflect the estimated net  realizable  value of the inventory as of
June 30, 1998, based on current selling prices.

NOTE 3.  PROCESSING UNITS DEPLOYED AND PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                         June 30,
                                                                    1998         1997
                                                                    ----         ----
<S>                                                             <C>          <C>
         Processing units deployed consists of:
            Processing units deployed .......................   $ 564,000         --
            Less: accumulated depreciation ..................     (47,000)        --
                                                                ---------    ---------
                                                                $ 517,000         --
                                                                =========    =========
         Property and equipment consists of:
           Equipment and furniture ..........................   $ 523,000    $ 295,000
           Tooling ..........................................     124,000      124,000
           Demo equipment ...................................      28,000         --
           Less:  accumulated depreciation and amortization .    (422,000)    (378,000)
                                                                ---------    ---------
                                                                $ 253,000    $  41,000
                                                                =========    =========
</TABLE>

NOTE 4.  ACCRUED LIABILITIES
<TABLE>
<CAPTION>
                                                                         June 30,
                                                                    1998         1997
                                                                    ----         ----
<S>                                                            <C>          <C>      
         Accrued liabilities consists of:
             Accrued compensation ...........................  $ 224,000    $  69,000
             Accrued compensation-stock option...............   1,327,000         --
             Accrued professional fees ......................     112,000         --
             Other ..........................................      72,000       57,000
                                                                ---------    ---------
                                                               $1,735,000    $ 126,000
                                                               ==========    =========
</TABLE>

NOTE 5.  BORROWINGS
<TABLE>
<CAPTION>
         Borrowing consist of the following:
         Current portion:
                                                                         June 30,
                                                                    1998         1997
                                                                    ----         ----
<S>                                                             <C>          <C>      
           Note payable - supplier - OMRON ..................   $ 375,000    $ 388,000
           Note payable - investors .........................        --        185,000
           Note payable - entrenet ..........................      62,000      150,000
           Note payable - lawsuit settlement ................      15,000       15,000
                                                                ---------    ---------
                                                                $ 452,000    $ 738,000
                                                                =========    =========

         Long-term portion - lawsuit settlement .............   $  45,000    $  45,000
</TABLE>

                                       39
<PAGE>
         Note Payable - Supplier - OMRON
                  The note  payable  to a  supplier  was in  default at June 30,
         1998. The Company continued to accrue monthly interest payments.  As of
         June 30,  1998,  the supplier  had not called the note.  During  August
         1998,  the Company and the  supplier  reached an  agreement to cure the
         default with a  restructuring  of the terms of the note.  The new terms
         include a  reduction  in the  price  per unit as well as the  number of
         units under contract.  The agreement also reduced the principal balance
         under the note to $120,000  plus  interest of $47,000.  The Company has
         agreed  to a  payment  schedule  that will  repay  the  balance  due by
         February 1999.

         Note Payable - entrenet
                  On March 12, 1998, the Company  entered into an agreement with
         entrenet to provide business and financial  consulting  services to the
         Company and to assist the Company in locating additional financing. The
         term of the  agreement  is for six months  and  renews  for  additional
         six-month  terms  unless at least 60 days notice is given to  terminate
         the  agreement  prior to the end of a term.  For its advisory  services
         under this agreement, entrenet earned a fee of $60,000 which is payable
         by a promissory  note plus  interest at 10% per year.  The Company paid
         this in full in July 1998.

         Note Payable - Lawsuit Settlement
                  As part of a lawsuit  settlement,  the Company executed a note
         payable in  September  1997 which is due in  installments  as  follows:
         $5,000 due March 17, 1998;  $10,000 due September 17, 1998; $20,000 due
         September 17, 1999;  and $25,000 due September 17, 2000.  The first two
         installments,  due in March 1998 and September  1998,  were paid during
         the first  quarter of fiscal 1999.  See  additional  discussion  of the
         lawsuit settlement in " Note 12. Litigation."

         Convertible Debenture
                  In December 1997,  the Company  closed a private  placement of
         $3,060,000 principal amount of 8% Convertible Debentures.  Net proceeds
         approximated $2.6 million.  Interest on the debentures was settled with
         13,000  shares  of  common  stock  valued at  $75,000.  The  debentures
         included  an "in the money"  convertible  option  valued at $622,000 on
         date of issuance,  which allowed the holder to convert preferred shares
         to common shares at a discount from fair market value.  The  debentures
         were  converted to  3,060,000  of Series A Preferred  Stock in February
         1998.   Non-cash   interest  expense  of  approximately   $622,000  was
         recognized in fiscal 1998 related to this debenture.

                  See Notes 12 and 13 for additional borrowings.

NOTE 6.  PREFERRED STOCK

         The Company has authorized  15,000,000 shares of no par value preferred
stock,  of which  4,000,000  shares have been  designated as Series A Cumulative
Convertible  Redeemable  Preferred Stock ("the Series A Preferred Stock") with a
stated  value of $1.00 per share.  On  February  9,  1998,  the  Company  issued
3,060,000  shares of its Series A Preferred Stock in exchange for all $3,060,000
of the Company's 8% Convertible Debentures.

Conversion

         Each share of Series A Preferred  Stock is  convertible at the election
of the  holder  into  common  stock  based  on the face  value  of the  Series A
Preferred  Stock  being  converted,  at a rate  equal to the lesser of $6.00 per
share or 75% of the  average of the  closing  bid price of the  common  stock as
reported on the OTC Electronic Bulletin Board or, if available,  the closing bid
price as quoted on NASDAQ or any other national  securities  exchange upon which
the common stock is then listed, over the five trading days prior to conversion.
A minimum  conversion  price of $3.76 per share was in effect from the  issuance
date through September 6, 1998.

                                       40
<PAGE>
Dividends

         Holders of Series A Preferred Stock are entitled to receive  cumulative
quarterly dividends upon declaration by the Board of Directors at an annual rate
of 8% per share  which was  reduced  to 4% per  share on  August  7,  1998,  the
effective  date of the SEC  registration  statement  covering  the common  stock
reserved for  conversion.  The Company can pay the dividends in shares of common
stock,  the number of shares issuable being determined by dividing the amount of
the  dividend  by the same  formula as applies to  conversions.  Unless the full
amount of cumulative  dividends  have been paid or  sufficient  funds set aside,
dividends  may not be paid or  declared  on the common  stock or any other stock
ranking  junior to the Series A Preferred  Stock.  Additionally,  under Colorado
law, certain  conditions must be met prior to dividend  distributions of cash or
property.  As a result,  the Company's  ability to pay cash or property (but not
stock) dividends in the future depends upon its financial results, liquidity and
financial condition.

Voting

         Generally,  the Series A  Preferred  Stock is not  entitled  to vote on
matters  submitted  to  shareholders  except as  specifically  authorized  under
Colorado law.

Liquidation

         In the event of a  liquidation  or sale of the  Company,  the  Series A
Preferred Stockholders are entitled to a per share distribution in preference to
common  shareholders  or any stock of the company ranking junior to the Series A
Preferred  Stock of $1.00 plus any accrued but unpaid  dividends.  If the amount
available in liquidation is  insufficient  to pay the full amount,  the Series A
Preferred  Stockholders will ratably share any distribution  first in proportion
to their  respective  liquidation  preferences  and then in  proportion to their
respective amounts of accrued but unpaid dividends. A consolidation or merger of
the Company will not be deemed to be a liquidation  provided it is approved by a
majority of the Series A Preferred Stock.

Optional Redemption

         The Company may redeem any Series A Preferred Stock  outstanding  after
36 months from  December 10, 1997 by payment of $1.00 per share plus all accrued
and unpaid dividends to the date of redemption.  If fewer than all of the shares
of Series A Preferred Stock were to be redeemed, the redemption will be pro rata
among all shares outstanding. 

         See  "Note 14.  Subsequent Events"  for  a  description  of  a  partial
redemption and  modification of the conversion terms for a portion of the Series
A Preferred Stockholders.


NOTE 7.   STOCK OPTIONS 

Stock Option Plan

         In September  1992, the Company  adopted an incentive stock option plan
and a  non-qualified  stock option  plan,  which,  as amended,  provides for the
issuance of 2,680,000 shares of Common Stock under the Plan.

         Stock  options  have been  granted  under the  option  plan at the fair
market value of the common stock on the date of grant and generally  vest over a
period of between two and four years.  Options  granted under the Plan generally
must be exercised no later than 10 years from the date of grant.

                                       41
<PAGE>
  The following table summarizes  information about stock options outstanding at
June 30, 1998:
<TABLE>
<CAPTION>
                                         Outstanding Options                  Outstanding Vested Options
                           --------------------------------------------       --------------------------
                           Average           Weighted                           Weighted
                           Remaining         Average                            Average
         Range of          Contractual       Exercise         Number            Exercise         Number
         Exercise Price    Life              Price            Outstanding       Price            Outstanding
-------------------------------------------------------------------------------------------------------------
<S>      <C>               <C>                <C>             <C>                <C>             <C>    
         $0.00 - $0.13     7.5                $0.13           172,281            $0.13           172,281
         $0.14 - $0.22     7.3                $0.22            70,000            $0.22            68,750
         $0.23 - $4.13     9.3                $3.80           120,000            $3.73            38,500
         $4.14 - $6.34     9.5                $5.99           145,000            $6.00            36,050
         $6.35 - $8.41     9.3                $7.70           100,000            $7.70            33,650
                                                              -------                            -------
                                                              607,281                            349,231
                                                              =======                            =======
</TABLE>
         Stock  option  transactions  for the years ended June 30, 1997 and 1998
were are follows:
<TABLE>
<CAPTION>
                                                                      Options Outstanding
                                                              ----------------------------------
                                                                                Weighted Average
                                                              Number of         Exercise Price
                                                              Shares            Per Share               
                                                              ----------------------------------               
<S>                                                            <C>                <C>  
                  Balance at June 30, 1996                      793,549            $0.16
                  Granted                                        20,000            $0.16
                  Exercised                                    (245,100)           $0.14
                  Cancelled                                    (138,800)           $0.22
                                                                -------
                  Balance at June 30, 1997                      429,649            $0.16
                  Granted                                       608,000            $4.30
                  Exercised                                    (340,640)           $0.48
                  Cancelled                                     (89,728)           $4.32
                                                                --------
                  Balance at June 30, 1998                      607,281            $3.51
                                                                =======

                  Exercisable at June 30, 1998                  349,231            $1.88
                                                                =======
</TABLE>
Fair value disclosures

         Had  compensation  expense for the Company's Plan been determined based
on the fair value of the  options at the grant  dates for awards  under the Plan
consistent  with the  method  of  accounting  prescribed  by SFAS No.  123,  the
Company's net loss and loss per share would have been  increased to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
                                                                                         June 30,
                                                                                  1998              1997     
                                                                           ------------------------------     
<S>                                                                        <C>                 <C>       
         Net loss available to Common Stockholders     As reported         ($11,061,000)        ($864,000)
                                                       Pro forma           ( 11,567,000)        ( 876,000)

         Basic and diluted loss per share              As reported              $(1.18)           $(0.17)
                                                       Pro forma                $(1.24)           $(0.18)
</TABLE>
       The  weighted  average  fair value of options  granted  during the year
  ended June 30, 1998 and 1997 under the  Company's  stock option plan was $3.22
  and $.03 per option,  respectively.  In determining  the minimum fair value of
  each option, the Company used Black-Scholes option-pricing model as prescribed
  by SFAS No.  123  using the  following  assumptions:  dividend  yield of zero;
  expected volatility of 90% for 1998 and 162% for 1997; risk-free interest rate
  of 5.6% and 6.4%,  respectively;  and an average  expected  option life of 3.5
  years.

  Other Stock Options

         In addition to the options  granted  under the plan, on August 4, 1997,
  the Company granted to an employee 600,000 options to purchase common stock at
  an exercised price of $1.00 per share. The options vest ten percent on date of
  grant and three percent per month  thereafter.  At June 30, 1998,  all options
  remained  unexercised.  On November 21, 1997, the Company agreed to pay to the
  employee any additional  income taxes which the employee may incur as a result
  of the options  being  non-qualified  stock  options as compared to  incentive
  stock options.  Due to this agreement, the stock  options are  being accounted
  for as variable stock options which  results in  recognition  of  compensation
  expense based  on the  fair  market  value  of the  common  stock  at the  end
  of each reporting  period.  Compensation  expense relating  to  these  options
  approximated $1,300,000 for the year ended June 30, 1998.

                                       42
<PAGE>
  NOTE 8.  STOCK WARRANTS AND CALL OPTION

         In fiscal  1993,  the  Company  issued  warrants to one officer and one
  director of the Company to purchase an aggregate  of 250,000  shares of common
  stock at $4.00 per share.  As of June 30,  1997,  all of these  warrants  were
  fully vested and had the following  terms:  100,000  originally  set to expire
  April 12, 1998 have been extended to February 7, 1999;  150,000  expire May 1,
  2003.  The  Company  recorded  a charge of  $156,000  in  connection  with the
  extension of these warrants.

         In connection with the Company's December 1993 initial public offering,
  the Company issued warrants to the  underwriters to purchase 165,000 shares of
  the Company's common stock at $12.33 per share, which were fully vested at the
  date of issuance. Such warrants expire on December 2, 1998.

         In fiscal 1994, in conjunction with the acquisition of Direct Data, the
  Company issued warrants to four former shareholders of Direct Data to purchase
  29,548 shares of common stock at $2.625 per share,  which were fully vested at
  the date of issuance. Of those warrants, 8,947 have been exercised, 5,752 have
  expired, and the remaining 14,849 expire as of May 31, 1999.

         In August 1997, for total  consideration of $500,000,  the Company sold
  3,500,000 shares of Common Stock and 1,600,000  warrants to Liviakis Financial
  Communications,  Inc. and its affiliates.  The warrants entitle the holders to
  purchase up to  1,600,000  shares of the  Company's  Common  Stock at $.01 per
  share during the period from January 15, 1998 and through  August 4, 2002. The
  warrant shares carry certain registration rights and antidilution  provisions.
  On May 12, 1998, 1,200,000 shares of Common Stock were issued upon exercise of
  the warrants. See Note 13.

         In connection with the private offering of 8% Convertible Debentures in
  December  1997,  the  Company  issued a warrant  as part of the  finder's  fee
  payment related to the offering.  The warrant  entitles the holder to purchase
  50,000  shares of Common  Stock at $6.525 per share  during  the  period  from
  December 10, 1997,  through  December 9, 2000.  The warrant also  provides for
  cashless   exercise.   The  warrant  contains   antidilution   protection  and
  "piggyback"  registration  rights applicable to the common stock issuable upon
  exercise of the warrant. As of June 30, 1998 no warrants were exercised.

         In March 1998, the Company issued a warrant to entrenet  Group,  LLC to
  purchase 10,435 shares of Common Stock at $5.75 per share as a consulting fee.
  The warrant expires on March 11, 2003. The warrant has antidilution provisions
  and "piggyback"  registration  rights  applicable to the common stock issuable
  upon  exercise of the  warrant.  In  September  1998,  the  Company  issued an
  additional  warrants to  purchase  8,333  shares of common  stock at $2.40 per
  share exercisable through September 2003 upon termination of this agreement.

         The  Company  obtained a call  option on  397,684  shares of its common
stock in fiscal 1996 in connection  with the  surrendering  of the assets to the
seller of a previously acquired company.  The call option allowed the Company to
purchase the shares at $.25 per share  through  October 5, 1998.  In March 1998,
the Company entered into an agreement with the shareholder to assign the options
to third parties. As of June 30, 1998, the Company sold the call options for net
proceeds of approximately $1.2 million.

                                       43
<PAGE>
  NOTE 9.  INCOME TAXES

         At  June  30,  1998  and  1997,  the  Company  had net  operating  loss
  carryforwards  for federal and state income tax purposes of approximately  $21
  million  and  $12  million,  respectively.  Annual  utilization  of  the  loss
  carryforwards  is subject  to  significant  limitations  due to changes in the
  Company's ownership,  which could result in little or no benefit being derived
  from these carryforwards. Future changes in ownership could further reduce the
  annual  availability  of these benefits.  If unused,  the  carryforwards  will
  expire beginning in 2008.

         Deferred  income  taxes  reflect  the  net  tax  effects  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes and the amounts used for income tax purposes,  and operating
loss  and  tax  credit  carryforwards.  The tax  effects  of  significant  items
comprising the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
                                                                 June 30,
                                                          1998             1997
                                                          ----             ----
<S>                                                <C>              <C>    
Deferred tax assets
    Net operating loss carry-forwards ........     $ 8,125,000      $ 4,388,000
    Depreciation .............................           4,000           (3,000)
    Inventory reserves .......................          47,000           31,000
    Allowance for bad debts ..................          (8,000)           6,000
    Other ....................................          60,000           28,000
                                                   -----------      -----------
                                                   $ 8,228,000      $ 4,450,000
    Valuation allowance ......................      (8,228,000)      (4,450,000)
                                                   -----------      -----------
Net deferred tax asset .......................     $      --        $      --
                                                   ===========      ===========
</TABLE>
         The Company has recorded a full valuation allowance on its net deferred
tax assets based on current  evidence which  indicates that it is not considered
more  likely  than not that  these  benefits  will be  realized.  The  valuation
allowance  increased  during  fiscal 1998 and 1997 by  $3,778,000  and  $324,000
respectively, due to additional losses for which no tax benefits were recorded.

         The Company  has not  completed  federal  income tax filings for fiscal
years 1996 and 1997 and intends to take the steps  required to complete  the tax
filings as soon as practicable.

NOTE 10.  EMPLOYEE BENEFIT PLAN

         In April 1994,  the Company  established  a  qualified  Section  401(K)
Savings  Plan.  The Plan allows  eligible  employees to  contribute up to 15% of
their salaries on a pre-tax basis. The Company did not make any contributions to
the Plan during fiscal year 1998 or 1997.

NOTE 11.  COMMITMENTS AND CONTINGENCIES

         The Company  leases its office  facilities  under two  operating  lease
arrangements,  wherein product  development is located in Colorado under a month
to month lease at $1,400 per month.  In September  1997, the Company  executed a
five-year  lease term for its primary  office space in  Emeryville,  California.
Rental payments  commenced  October 1, 1997 at the initial rental rate of $9,942
per month and are currently at $11,126 per month  following a recent move within
the facility.  The leases contain certain provisions for rental adjustments.  In
addition,  the leases require the Company to pay property  taxes,  insurance and
normal  maintenance costs. Rent expenses were $119,000 and $74,000 during fiscal
years 1998 and 1997. Future minimum lease  commitments  (including twelve months
of rent for the Colorado  facility lease for fiscal year 1999 only) are $146,000
in fiscal  1999,  $137,000  in 2000,  $143,000 in 2001,  $148,000  in 2002,  and
$38,000 in 2003.

                                       44
<PAGE>
         Through  June 30 1998,  the Company has entered  into four  agreements,
which include various  marketing,  distribution and CDPD service purchase terms.
The agreement with AT&T Wireless  includes  purchase  obligations  for a term of
three years,  with  automatic  renewals of additional  one-year  terms if either
party fails to give 90 days prior notice of  termination at the end of term. The
Company is obligated to maintain a minimum  number of active CDPD addresses over
the term of the  agreement,  or pay such  addresses  even if the Company has not
resold the numbers to merchants.  Based on the  agreement of April 1, 1997,  the
Company is obligated to have minimum  monthly CDPD billings of $4,500  beginning
with the one-year  anniversary  of the  agreement,  $13,500 within 18 months and
$20,250  within two years.  The  Company is  currently  in  discussion  with the
carrier  regarding  modifications  to the agreement to accommodate the Company's
new distribution  approach. The GTE Wireless minimum CDPD levels were eliminated
with a contract amendment in September 1998. See "Note 14. Subsequent Events."

         As of June 19, 1998,  the Company  entered  into an  agreement  with an
investment banking firm to act as the Company's  exclusive agent for purposes of
structuring mergers, sale of assets or similar transactions  involving a portion
or substantially all of the business,  assets or stock of the Company. Under the
agreement,  the  Company  is  obligated  to pay a cash  retainer  fee of $30,000
payable  $5,000  a month  for six  months,  reimburse  reasonable  out-of-pocket
expenses  and pay a  "contingent  fee" equal to three  percent of the  aggregate
gross  consideration  received by the Company in connection  with a transaction.
The Company has secured its obligation  under this agreement with  substantially
all assets of the Company.

         Under  one of the  Company's  transaction  processing  agreements,  the
Company is required to pay 50 percent of the amounts due to the  processor  from
the merchant which remain unpaid for 60 days.

         The Company  agreed to file a  registration  statement  with the SEC to
register the Common Stock  underlying  the 6% Debentures  within 75 days of July
22, 1998, (the "Initial Issuance Date"), and that it will respond to initial SEC
comments  within 15 days of receipt and any  subsequent  SEC comments  within 10
days of receipt.  In the event the  registration  is not effective  with the SEC
within 120 calendar days of the Initial  Issuance  Date, the Company is required
to  pay a cash  penalty  of two  percent  (2%)  of  the  face  amount  of the 6%
Debentures  and  thereafter  an amount  equal to three  percent (3%) of the face
amount  for every  thirty  calendar  days (or any  fraction  thereof)  until the
registration is effective. In the event the registration is not effective by the
180th day after the Initial  Issuance  Date,  the Company can be required by the
holders to redeem the 6% Debentures at 120% of face value, plus accrued interest
to the date of  redemption.  The Company is  obligated  to pay all  registration
expenses (but not selling  expenses)  incurred in registering the shares for the
holders of the 6% Debentures. See "Note 14. Subsequent Events."

         See Notes 12, 13, and 14 for additional commitments and contingencies.

                                       45
<PAGE>
NOTE 12.  LITIGATION

Securities Class Actions Settlements

     In September  1996, the Company agreed to terms in settlement of securities
fraud  litigation,  pending since 1994, which was brought in connection with the
Company's initial public offering in December 1993. The parties'  agreement (the
"Settlement  Agreement")  was filed in the United States  District Court for the
District of Colorado on January 15, 1997. By its order approving the settlement,
the court  certified a plaintiffs'  settlement  class and provided the mechanism
for payment of claims. The Company  contributed  $10,000 to the total settlement
fund of $2,150,000.  The remaining  portion of the settlement was contributed by
certain  underwriters  of the Company's  initial public  offering and its former
securities  counsel.  No objections to the  Settlement  Agreement  were made. No
potential  class  member  opted-out of the  settlement  and all are bound by the
release   granted  the  Company.   All  claims  against  the  Company  in  those
consolidated  cases were  dismissed by final federal court order on September 4,
1997. No appeal was filed. Similar state court claims were dismissed by Colorado
district  court order dated  October 9, 1997,  and no appeals have been filed in
that case.

     To resolve cross-claims asserted by the underwriters in the litigation, the
Company  agreed to issue a total of  600,000  shares of Common  Stock  valued at
approximately $94,000 upon the effective date of the Settlement Agreement, which
was April 26, 1997.  The shares  issued under this  settlement  become  saleable
under SEC Rule 144  commencing  on April 26,  1998.  The  Company  has agreed to
register  such shares upon demand of holders of not less than 25% of the shares,
however,  a substantial number of the shares have been sold under Rule 144 as of
June 30, 1998

     Further,  on September 17, 1997,  the Company  agreed to entry of a consent
judgment against it and in favor the sole shareholder of an underwriter,  in the
amount of $60,000 payable over a three year period.

Settlement with Consultant

     In July 1997,  the Company  executed a two-year  agreement  effective as of
April 1, 1997 for consulting services. In addition to monthly cash compensation,
the consultant  received a $50,000  two-year  convertible note with 10% interest
per annum.  The note was convertible  into Common Stock at $.40 per share, for a
total of 125,000 shares issuable upon conversion of the principal  amount of the
note. A dispute arose between the  consultant and the Company and the consulting
agreement  was  terminated  by the  Company  as of the end of August  1997.  The
Company settled the dispute in January 1998, which resulted in a $60,000 payment
(including  amounts previously paid to the consult prior to termination) for all
services  rendered.  As part of the settlement,  an adjustment to the conversion
terms of the promissory  note was made reflecting that all principal and accrued
interest on the note could be converted to 75,000 shares of the Company's Common
on or before April 1, 1998. The note was converted and the shares were issued as
"restricted  securities"  as defined under Rule 144 under the  Securities Act of
1933,  as of  January  26,  1998.  The  shares  became  saleable  under Rule 144
commencing on April 1, 1998.

                                       46
<PAGE>
Settlement of Claims of Certain Noteholders

     From April  through  June 1997,  the Company  issued a total of $185,000 of
Demand Notes  payable in full on or before April 11, 1998 (the "Demand  Notes").
The principal and accrued  interest on the Demand Notes became  convertible into
shares of the  Company's  Common  Stock as of November 1, 1997 at prices of $.35
per share (as to $75,000 of the Demand Notes) and $.50 per share (as to $110,000
of the Demand  Notes).  Commencing  on  November  3,  1997,  the  Company  began
receiving  conversion  demands from the Noteholders and as of November 14, 1997,
holders of $135,000 of the Demand Notes had demanded  conversion of their Demand
Notes into "free trading" Common Stock. The Noteholders claimed that their right
to free-trading stock arose out of certain oral representations made at the time
of  issuance  of the  Demand  Notes,  the fact that no  "restricted  securities"
legends were imprinted on the documents evidencing the Demand Notes and no other
written advice as to the "restricted" nature of the shares underlying the Demand
Notes was given to them at the time. The complaining  Noteholders were asserting
damages based on a market price for the Company's  Common Stock in the $8.00 per
share range as of the November 1, 1997 time period.  The holder of the remaining
$50,000 Demand Note (which was convertible at $.50 per share) did not assert any
claims against the Company in connection with his purchase of the Demand Note.

     Rather than incur the expense and risks of litigation,  the Company settled
the  complaining  Noteholders'  claims by issuing 1.4 times the number of shares
originally  issuable as principal and interest on the Demand Notes  purchased by
the complaining  Noteholders (plus an additional 11,000 shares to one Noteholder
who purchased  $50,000 of the Demand Notes),  and providing the Noteholders with
certain  guarantees  as to the  amount  for which the shares can be resold and a
"put" which  allows the  Noteholders  to require the Company to  repurchase  any
restricted  shares  remaining unsold at the end of the one year period after the
shares become  saleable  under SEC Rule 144, as described in detail  below.  The
shares issued upon conversion of the Demand Notes are "restricted securities" as
defined  under SEC Rule 144, but will become  saleable  pursuant to Rule 144 one
year from the date the converted Demand Note was purchased by the Noteholder.  A
total of 525,800  shares have been issued to the  complaining  Noteholders  upon
conversion  of their Demand Notes which will be subject to the guarantee and put
agreements.  The  holder of the other  $50,000  Demand  Note has been  given the
enhanced conversion rate (of 1.4 times the number of shares originally issuable)
and received  154,000 shares upon  conversion of his Demand Note; the shares are
not entitled to the guarantee or put.

     The  guarantee  provision  of the  settlement  agreement  allows the former
Noteholders  to recover the  difference  between the  guarantee  price (which is
$3.00  per  share as to  360,800  of the  shares  and  $4.29 per share as to the
remaining  165,000 shares  issuable upon conversion of the Demand Notes) and the
gross amount the Noteholder receives upon a sale of the shares. The guarantee is
operative  at any time  during the one year  period  commencing  on the date the
shares become  saleable  under SEC Rule 144. The Company is obligated to pay the
amount  due  within   thirty  days  of  receiving  a  demand,   accompanied   by
documentation  confirming the sale.  Under the "put" provision of the settlement
agreement,  the former Noteholders will have a five day period commencing on the
date one year from the date the shares  become  saleable  under SEC Rule 144 (or
the  first  business  day  thereafter  if such day is a day on which  the  stock
markets are closed) during which the former Noteholders may "put" any restricted
shares remaining  unsold by them at the time back to the Company.  Upon exercise
of the put,  the Company  must either (1)  purchase the shares for the put price
(which  is $3.00 per share for  360,800  of the  shares  and $4.29 per share for
165,000 of the shares) or (2) require  the  shareholder  to sell the shares into
the market,  with the Company making up the difference between the put price and
the gross  amount  received by the  shareholder  upon such sale,  within 15 days
after receipt of written notice and documentation confirming the sale.

     As a result of the above  settlement,  the Company  recorded  approximately
$1,353,000  as  litigation   settlement  expense  in  fiscal  1998.  The  shares
originally  issuable  upon  conversion  of the notes and the  additional  shares
resulting from the settlement are subject to the guarantee and "put"  provisions
and are reflected as Redeemable Common Stock. The originally issuable shares are
reflected at their conversion  value adjusted for the value  attributable to the
guarantee  and "put" provisions.  In the event redemption of such shares becomes
probable and the actual  redemption  amount is in excess of the carrying amount,
such  excess  amount  will be recorded as  litigation  settlement  expense.  The
additional  shares are reflected at their redemption value. As of June 30, 1998,
approximately 128,000 shares subject to the guarantee and "put", with a carrying
value of $232,000 remained outstanding and have a maximum

                                       47
<PAGE>
redemption  value of  approximately  $384,000 prior to any reduction for amounts
the holder may receive upon the sale of such shares.

     On July 2, 1997, the Company also issued a promissory note in the amount of
$16,825 to one of the investors  who  purchased the Demand Notes.  This note was
due and payable in full as of July 30, 1997 and bore  interest at a default rate
of 18% per annum if not paid when due.  In return for the  investor's  agreement
not to require the Company to pay the note when it came due, the investor claims
that a  representative  of the Company promised that the Company would treat the
note the same as the other  Demand  Notes and convert it to Common  Stock on the
same terms.  In conjunction  with the Demand Note settlement with this investor,
the Company  agreed to convert all amounts owing as principal and interest by it
under this note to a total of 18,507 shares of Common  Stock.  The shares issued
upon  conversion of this note are not entitled to the guarantee or put described
above.

 Dispute with Supplier

         In April of 1995, the Company entered into an agreement with a supplier
to supply modems for CDPD  products.  In October 1996,  the supplier  asserted a
claim for  payment  of  product  sold  under  that  agreement  in the  amount of
approximately  $60,000.  The Company asserted the supplier  delivered  defective
product,  which  caused  damages to the  Company  in excess of the amount  being
claimed.  The Company  agreed to settle the dispute by paying  $50,000  over the
sixty-day period commencing June 30, 1998.

NOTE 13.  RELATED PARTIES

Transactions with Cardservice International, Inc.

         A director of the Company is also an officer of the  Company's  largest
customer, Cardservice International,  Inc. ("CSI"). Another officer and director
of the  Company is a  "nonvoting"  director  of CSI.  Sales to CSI  approximated
$178,000 and $698,000 in fiscal 1998 and 1997, respectively.

         During fiscal 1996,  CSI purchased  $162,500 of raw materials on behalf
of the Company in exchange for 142,544 shares of common stock issued  subsequent
to June 30, 1996 at 150% of the then current fair market value plus registration
rights  after one year on all stock  owned by CSI.  This  transaction  increased
CSI's  ownership  in the  Company  from 2% to 5%.  At  June  30,  1998,  CSI had
completely divested its stock interest in the Company. Additionally, the Company
provides  sales  rebates to CSI on  POS-50(R)  units sold by CSI to end users of
product built with the raw materials  purchased using the amounts  advanced from
CSI. As of June 30, 1998, a total of $64,000 was paid under the agreement.

Transactions with Liviakis Financial Communications, Inc.

         In July of 1997, the Company  entered into a Consulting  Agreement with
Liviakis Financial  Communications,  Inc. and its affiliates ("LFC") pursuant to
which LFC provides the Company with financial and business consulting and public
and  investor  relations  services.  The Company was  obligated  to pay Liviakis
consulting  fees of $10,000 in cash and 300,000  shares of its Common Stock over
the  one-year  term of the  Consulting  Agreement.  Pursuant  to the  Consulting
Agreement,  the  Company  must  also  pay LFC cash  equal  to 2.5% of the  gross
proceeds received in any direct financing located for the Company by LFC.

         The Company also sold a total of  3,500,000  shares of Common Stock and
warrants  to  purchase  up to an  additional  1,600,000  shares of Common  Stock
exercisable  at $.01 per share to two LFC affiliates in August 1997 for $500,000
in  cash.  Pursuant  to  this  transaction,  LFC  and  these  affiliates  became
significant  shareholders of the Company.  The Common Stock issued (and issuable
pursuant to the  Consulting  Agreement and upon exercise of the warrants) to LFC
and its affiliates  carries certain  registration  rights.  The warrants provide
that if for any reason the  Company  does not issue  shares upon  exercise,  the
Company is required to repurchase  the warrants for the  difference  between the
$.01 exercise price and the then-current market price of the common stock.

         Since the LFC  related  financing  transaction  and the LFC  Consulting
Agreement were entered into by the Company at  approximately  the same time, the
Company  has  treated  these  transactions  as one  transaction  for  accounting
purposes. Based on the fair market value of the Common Stock as determined by an
independent valuation, the initial 3,500,000 shares of Common Stock and warrants
for  1,600,000  shares of Common Stock issued in the  transactions,  net of cash
proceeds  received,  were valued at  approximately  $1,285,000  and  recorded as
prepaid  consulting  services.  The  consulting  services  are  amortized  on  a
straight-line  basis over the term of the Consulting  Agreement  commencing with
the July 25, 1997 effective  date of the agreement.  The warrants are classified
as redeemable  securities  as a result of the  repurchase  provisions  described
above.  The 300,000  shares which are issuable over the term of the contract are
being valued as such shares vest,  and resulted in an  additional  $1,085,000 in
consulting expenses during fiscal 1998.     

         In  connection  with  the  closing  of the  sale  of  $3,060,000  of 8%
Convertible  Debentures,  the  Company  paid LFC $76,500 in  December  1997.  In
conjunction  with  the  July  1998  closing  of the  sale  of  $2,000,000  of 6%
Convertible  Subordinated  Debentures Due July 21, 2000, LFC earned $50,000,  as
its finder's fee. See "Note 14. Subsequent Events."

         Pursuant to the agreements,  LFC and/or its affiliates were granted the
right to appoint certain officers and directors of the Company.

         Between October 14 and November 30, 1997, the Company  received several
bridge loans from LFC in the total amount of $475,000. The Company was obligated
to pay LFC  interest  on the amount  borrowed  at the rate of 9% per annum.  The
Company  paid LFC the amount due on these  loans,  with  interest  at the stated
rate,  from the proceeds of the sale of the 8%  Convertible  Debentures  sold on
December 10, 1997.

         On June 30, 1998, the Company and LFC agreed to extend their consulting
relationship through the entry of a new consulting agreement covering the period
from August 1, 1998 through March 15, 1999 (the "New LFC Agreement").  The terms
of the New  LFC  Agreement  are  substantially  the  same  as the  original  LFC
Agreement.  For services to be rendered under the New LFC  Agreement,  LFC is to
receive  290,000  shares of Common  Stock,  issuable  as a  signing  bonus  upon
execution of the New LFC  Agreement.  The Common Stock issuable to LFC under the
new Consulting  Agreement  carries certain  registration  rights. In conjunction
with the entry of the New LFC Agreement  LFC agreed to a further  lock-up of all
shares, owned by LFC and its affiliates, pursuant to which they will not be able
to sell such shares before February 1, 1999, even though certain of those shares
were included in the  Registration  Statement which became  effective  August 7,
1998.

Transactions with entrenet Group, LLC

         In June 1997,  the Company  entered  into a consulting  agreement  with
entrenet  Group,  LLC  ("entrenet"),  for purposes of  assisting  the Company in
strategic  planning,  the creation of a detailed business and marketing plan and
in locating financing sources.  For its services,  the Company issued a $150,000
convertible promissory note to entrenet, with interest payable at 10% per annum,
due in full on or before June 2, 1998. At entrenet's election, the principal and
interest converted into 328,750 shares of Common Stock of the Company during the
year ended June 30,  1998,  at $.50 per share.  In  addition,  the  Company  was
obligated  to pay  entrenet a finder's  fee of 8% for any  direct  financing  it
located for the  Company,  payable in Company  securities  identical to what for
that  $500,000  financing.  During  1998,  the  Company  and  entrenet  were  in
discussions   over  the   interpretation   of  the  provisions   specifying  the
consideration  payable to entrenet as its  finder's  fee for  locating  LFC. The
matter was  resolved in  November  1997,  whereby  the  Company  agreed to issue
entrenet a total of 280,000  shares of its Common Stock issuable to it under the
note and as payment of the finder's fee.  Those shares were issued in April 1998
and included in the  Registration  Statement,  which became  effective August 7,
1998.

         As of March 12,  1998,  the  Company  entered  into an  agreement  with
entrenet to provide  business and financial  consulting  services to the Company
and to assist the  Company in  locating  additional  financing.  The term of the
agreement  is for six  months  from March 12,  1998 and  renews  for  additional
six-month  terms  unless  at least 60 days  notice  is  given to  terminate  the
agreement  prior  to the end of a term.  For its  advisory  services  under  the
agreement,  entrenet earned a fee of $60,000 plus interest that was paid in July
1998. In addition, entrenet received a Common Stock Purchase Warrant to purchase
10,435 shares at $5.75 per share,  exercisable  until March 11, 2003. The shares
issuable  pursuant to the warrant carry certain piggyback  registration  rights.
Upon the consummation of any financing  transaction  entered into by the Company
during the term of the agreement  (with the exception of financings from certain
identified, excluded sources) or for two years after termination with respect to
any  financing  obtained  from a source  introduced  to the Company by entrenet,
entrenet  is  entitled  to  receive  cash  compensation  as  follows:  for  debt
financings,  2% of the total amount of the financing,  payable in cash or in the
form of a 10% note due in one year; for equity financings, 7% of the total gross
financing  proceeds  

                                       49
<PAGE>
(payable in cash),  unless  there is a licensed  investment  banker  entitled to
receive  compensation as a result of the  transaction,  in which case the amount
payable  to  entrenet  is reduced to 2 1/2% of the gross  proceeds  (payable  in
cash), plus a five year Common Stock purchase warrant which entitles entrenet to
purchase that number of shares of Common Stock equal in value (as  determined by
a defined  fair  market  price) to the full  amount of  compensation  payable to
entrenet in cash, at a per share exercise price equal to the then current market
value of the Common Stock (as defined); for mergers and acquisitions,  5% of the
total  consideration  paid or  received  in the  transaction  (payable in cash),
unless there is a licensed investment banker entitled to receive compensation as
a result of the  transaction,  in which case the amount  payable to  entrenet is
reduced to 3% (payable in cash) of such  consideration,  plus a five year Common
Stock purchase warrant which entitles entrenet to purchase that number of shares
of Common Stock equal in value (as determined by a defined fair market price) to
the full amount of  compensation  payable to  entrenet  in cash,  at a per share
exercise  price equal to the then  current  market value of the Common Stock (as
defined).  If  entrenet  assists  the  Company in  locating  an  executive-level
candidate  who is hired by the  Company,  entrenet  is entitled to receive a fee
equal to 30% (payable in cash) of the candidate's total first year compensation.
The Consulting Agreement was terminated in September 1998. The Company agreed to
pay the  remaining  fees to entrenet of $20,000 and has agreed to issue a Common
Stock  Purchase  Warrant for 8,333 shares  exercisable  at $2.40 per share until
September  11,  2003.  The shares  issuable on exercise  of this  warrant  carry
certain registration rights.

Transactions with ADATOM, Inc.

         During fiscal 1998,  the Company  purchased  furniture and equipment in
the approximate  amount of $200,000 through a company owned by a director of the
Company.

NOTE 14. SUBSEQUENT EVENTS

     In July 1998, the Company  issued a warrant to RBB Bank  Aktiengesellschaft
to  purchase  20,000  shares of Common  Stock at $4.375 per  share,  exercisable
through  September  9, 2001.  The  warrant was issued in  consideration  for RBB
Bank's  $250,000  loan  to  the  Company.  The  warrant  contains   antidilution
provisions and "piggyback"  registration  rights  applicable to the common stock
issuable upon exercise of the warrant.

     On July 27, 1998, the Company completed a private offering of $2,000,000 of
6%  convertible  subordinated  debentures  due July 21,  2000 and  Common  Stock
Purchase  Warrants  exercisable  to  purchase  100,000  shares of  common  stock
exercisable  at $4.50 per share  until July 21,  2001.  The net  proceeds to the
Company from the offering  were  approximately  $1.8 million.  In addition,  the
company issued three year, 60,000 Common Stock purchase warrants  exercisable at
$4.50 per share as part of the  finders's fee on this  transaction.  The Company
used  approximately  $250,000 of the proceeds to pay existing  notes payable and
used the balance of the  proceeds as working  capital.  A holder of the Series A
Preferred Stock purchased  $1,000,000 of the Debentures.  The Company has agreed
to  register  the  shares  of  Common  Stock  issuable  upon  conversion  of the
debentures and exercise of the warrants with the SEC.  Failure of the Company to
obtain an effective  registration  of the shares by November 19, 1998,  entitles
the holders to a cash penalty of 2% of the face amount of the  debentures.  Each
further  30-day delay (or any part of a 30-day  delay) incurs a 3% cash penalty.
Failure to have the shares registered by January 18, 1999,  entitles the holders
to require the  Company to redeem the  debentures  at 120% of face  value,  plus
accrued interest to the date of redemption. All costs of the registration (other
than selling costs) are to be borne by the Company.  The  debentures  include an
"in the money"  conversion  feature which allows the holder to convert to common
stock at an initial discount of 20%, as defined.  The Company has also agreed to
increase the discount rate by 2% if the Company is unable to obtain an effective
registration statement on such shares within 120 days from the issue date and an
additional  3%  for  every  30-day  period  thereafter  until  the  registration
statement is effective. In the event the registration statement is not effective
within 180 days, the holders can require  redemption by the Company at an amount
equal to 120% of the face value, plus accrued interest. The value of the "in the
money" conversion feature will be recognized as interest expense in fiscal 1999.

         On August 7, 1998, the Company  registered  7,240,356  shares of Common
Stock for sale solely by certain security holders.  This offering resulted in no
proceeds to the Company. All costs relating to the registration, estimated to be
approximately $140,000, were borne by the Company.

                                       50
<PAGE>
         On August 21, the Company  granted  options to its new Chief  Executive
Officer to purchase 1,000,000 shares of the Company's Common Stock at $3.438 per
share,  the estimated fair market value at date of grant.  In November 1998, the
Company and Mr. Peirce agreed to cancel the original  1,000,000 share option and
the Company  granted Mr.  Peirce an option to purchase  1,300,000  shares of the
Company's  Common Stock,  exercisable  at $2.563 per share,  the estimated  fair
market value at date of grant, for ten years from November 23, 1998.

         On  September 9, 1998,  the  Company  amended  its  GTE  Wireless  CDPD
agreement to removed any minimum service billings and established new IP address
pricing for merchants acquired under the agreement.

         On September 22, 1998, the Company  borrowed  $1,300,000  from Liviakis
Financial  Communications,  Inc. through a note payable, which is due January 1,
1999,  and bears  interest at 8% per year.  The  Company  used $1 million of the
proceeds  to  redeem  $833,000  of its  Series A  Convertible  Preferred  Stock.
Substantially all available tangible and intangible assets of the Company secure
the note. The Company paid 120% of face value for the  redemption.  The security
holders  participating in this redemption also agreed to a specified  conversion
schedule  over  the  following  three  months.   The  participating   investors,
representing  approximately 1,342,000 shares of the remaining Series A Preferred
Stock have agreed to hold their Series A Preferred shares until at least October
15, 1998. Following October 15, 1998, one-third of the Series A Preferred shares
may be  converted  to Common  Stock on each of  October  15,  November  15,  and
December 15 of 1999,  respectively.  As an  incentive  to these  investors,  the
Company  has agreed to issue  Common  Stock  purchase  warrants  exercisable  to
purchase  that  number of shares of Common  Stock  equal to five  percent of the
number of shares of Series A Preferred Stock held by the participating  investor
at the end of each period, exercisable at 110% of the five-day average bid price
prior to the date of  issuance  for three years from the date of  issuance.  The
Company  also  increased  the  dividend  rate from four to eight  percent on the
balance of the  Preferred  Stock held.  The  amounts  paid in excess of the face
value of the preferred shares redeemed and the fair value of the warrants issued
to the investors reduces earnings available to common shareholders.

         On September  30, 1998,  the Company and CSI entered into a non-binding
Letter of Intent to form a  non-exclusive  strategic  partnership.  CSI may also
make an equity investment of $1,000,000 in the Company through a direct purchase
of restricted shares of common stock. In a related  transaction,  an officer and
shareholder of CSI, may make a separate  investment of $1,000,000 in the Company
through direct purchase of restricted  shares.  The shares are to be issued at a
discount of 10% from the average  three-day  closing price ($3.208) prior to the
date of entry of the Letter of Intent,  assuming  the  purchase  agreements  are
completed in a timely manner.

         On October 28, 1998, the Company borrowed $500,000 from the CEO and 50%
owner of Cardservice International, Inc. The note bears interest at 8% per annum
and is payable in full on the  earlier of the receipt by the Company of proceeds
from the sale of the  Company's  Common Stock to this  individual  or January 1,
1999. In  consideration  for the loan, the Company also agreed to issue a Common
Stock Purchase Warrant  exercisable to purchase 25,000 shares of Common Stock at
$3.038 per share through October 27, 2001.

NOTE 15.  UNAUDITED RESTATED QUARTERLY FINANCIAL INFORMATION

        As  discussed  in Note 8, the  Company  granted  an option to  purchase
600,000  shares of common stock and  subsequently  agreed to pay to the employee
any  additional  income  taxes which the  employee  may incur as a result of the
option being a  non-qualified  stock  option as compared to an  incentive  stock
option.  Due to this  agreement,  the  stock  options,  which  the  Company  had
previously accounted for based on the fair value as of the grant date, are being
accounted  for as variable  options  resulting in an  additional  $1,327,000  of
non-cash  compensation expense in fiscal 1998. The Company's previously reported
balance  sheet and statement of  operations  are being  restated to reflect this
accounting.

         As  discussed  in Note  12,  the  Company  settled  claims  of  certain
noteholders  regarding the tradability of shares to be issued upon conversion of
their notes. The settlement  included the issuance of additional  shares as well
as a guarantee and put feature. The Company is restating its previously reported
quarterly statements of operations to increase the initial value used to account
for the  settlement  to  include  the  value of the  guarantee  and put  feature
estimated  to be  approximately  $430,000.  In  addition,  the  Company  is also
restating  its  previously  reported  interim  balance  sheets  to  reflect  the
settlement  as an accrued  expense in the amount of  $1,353,000  as of March 31,
1998 instead of equity as previously reported.

         As discussed in Note 13, the Company entered into certain financing and
consulting transactions with LFC that included the issuance of common stock. The
Company  valued the shares as of the date of the agreement  although such shares
were issued throughout its term as services were being performed. The Company is
restating its previously  reported quarterly  statements of operations to record
an  additional  $847,000 of consulting  expense  during fiscal 1998 based on the
value of the common  stock at the dates of  issuance.  The  Company  also issued
1,600,000  warrants to LFC in  connection  with this  transaction.  The warrants
provide that if for any reason the Company does not issue shares upon  exercise,
the Company is required to repurchase  the warrants for the  difference  between
the $.01 exercise price and the  then-current  market price of the common stock.
As such,  the  warrants  should be  classified  as  redeemable  securities.  The
Company's  previously reported interim balance sheets are also being restated to
properly reflect this transaction.
                                       51
<PAGE>
<TABLE>
<CAPTION>
Unaudited quarterly financial information is presented below.

                                                                                        For the quarter ended
                                                                    September 30,    December 31,      March 31,       June 30,
                                                                         1997            1997            1998            1998
                                                                      (restated)      (restated)      (restated)

<S>                                                                <C>             <C>             <C>             <C>         
         Statement of operation data:
         Revenues ..............................................   $    270,000    $    116,000    $    252,000    $    271,000
         Cost of revenues ......................................        176,000          61,000         115,000         556,000
                                                                   ------------    ------------    ------------    ------------

         Gross profit (loss) ...................................         94,000          55,000         137,000        (285,000)
                                                                   ------------    ------------    ------------    ------------
         Operating expenses:
         Selling, general and administrative ...................      1,288,000       2,853,000       2,518,000       1,748,000
         Research and development ..............................         95,000          78,000          78,000          44,000
         Litigation expense ....................................           --              --         1,353,000            --
         Total operating expenses ..............................      1,383,000       2,931,000       3,949,000       1,792,000
                                                                   ------------    ------------    ------------    ------------

         Loss from operations ..................................     (1,289,000)     (2,876,000)     (3,812,000)     (2,077,000)
         Other expense, net                                             (24,000)       (245,000)       (604,000)        (73,000)
                                                                   ------------    ------------    ------------    ------------

         Net loss ..............................................   $ (1,313,000)   $ (3,121,000)   $ (4,416,000)   $ (2,150,000)
                                                                   ============    ============    ============    ============

         Basic and diluted loss per share ......................   $       (.17)   $       (.34)   $       (.48)   $       (.20)
                                                                   ============    ============    ============    ============

         Weighted average common shares ........................      7,770,000       9,209,000       9,281,000      11,243,000
           outstanding basic and diluted .......................   ============    ============    ============    ============


         Balance sheet data:

         Current assets ........................................   $  1,663,000    $  3,078,000    $  1,596,000    $    726,000
         Total assets ..........................................      1,720,000       3,654,000       2,334,000       1,565,000
         Current liabilities ...................................      1,961,000       3,661,000       6,284,000       3,693,000
         Total liabilities .....................................      2,006,000       6,369,000       6,329,000       3,738,000
         Redeemable common stock and warrants ..................        560,000         560,000         560,000         372,000
         Stockholders' (deficit) equity ........................       (846,000)     (3,275,000)     (4,555,000)     (2,545,000)

Reconciliation of previously reported amounts:
                                                                   September 30,    December 31,      March 31,
         Net loss: .............................................       1997            1997             1998

         As reported ...........................................   $   (806,000)   $ (1,757,000)   $ (3,302,000)
         Adjustment ............................................       (507,000)     (1,364,000)     (1,114,000)
                                                                   ------------    ------------    ------------
         As restated ...........................................   $ (1,313,000)   $ (3,121,000)   $ (4,416,000)
                                                                   ============    ============    ============

         Basic and diluted net loss per share:

         As reported ...........................................   $       (.10)   $       (.19)   $       (.36)
         Adjustment                                                        (.07)           (.15)           (.12)
                                                                   ------------    ------------    ------------
         As restated ...........................................   $       (.17)   $       (.34)   $       (.48)
                                                                   ============    ============    ============

         Stockholders' (deficit) equity:

         As reported                                               $    327,000    $   (737,000)   $     16,000
         Adjustment                                                  (1,173,000)     (2,538,000)     (4,571,000)
                                                                   ------------    ------------    ------------
         As restated ...........................................   $   (846,000)   $ (3,275,000)   $ (4,555,000)
                                                                   ============    ============    ============
</TABLE>
                                       52
<PAGE>
PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

The  following  table sets forth  information  with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name                                Age             Principal Occupation                    Director Since
----                                ---             --------------------                    --------------
<S>                                 <C>             <C>                                     <C> 
     Roger Peirce                   57               Chief Executive Officer                 July 1998
                                                       and Chairman of the Board
                                                       of the Company

     Rod L. Stambaugh               38               President of the Company                August 1991

     Richard S. Barton              49               CEO and President of                    December 1997
                                                      ADATOM, Inc.

     Caesar Berger                  51               Vice President - Cardservice            December 1995
                                                      International, Inc.

     Chester N. Winter              67               General Partner of Colorado             February 1994
                                                      Incubator Fund, L.P.

     Alvin C. Rice                  74               Senior Associate -                      June 1998
                                                      entrenet Group, LLC

     Charles T. Russell             68               Business Consultant                     September 1998

</TABLE>
Information  on each of the  Company's  Executive  Officers and Directors is set
forth below:

     Roger L. Peirce.  On August 21, 1998, Mr. Peirce became the Chief Executive
Officer and Chairman of the Board of the Company.  Mr. Peirce joined the Company
as a director as of July 22,  1998.  Mr.  Peirce has been in the credit card and
electronic  commerce  industry for 17 years. He was with First Data  Corporation
("FDC"),  the largest credit card processing company in the United States,  from
January,  1994 until June,  1998,  where he served most recently as president of
FDC's Merchant Services Organization.  Prior to joining FDC, Mr. Peirce spent 13
years at VISA, commencing in 1981 as manager of software development.  He worked
at VISA in various  capacities and in 1989, became its Chief Operating  Officer.
In 1991,  Mr. Peirce moved from VISA USA to VISA  International  and  thereafter
served on all five VISA Regional  Boards.  Mr. Peirce is a non-voting  member of
the  Board  of  Directors  of  Cardservice  International,   Inc.  See  "Certain
Relationships   and   Related    Transactions-Transactions    with   Cardservice
International,  Inc." Mr.  Peirce  attended San Jose State  University  where he
earned a B.A. in Mathematics.

     Evon A. Kelly.  Mr. Kelly was Chief  Executive  Officer of the Company from
August  1997 to August  1998.  He  resigned  as an officer  and  director of the
Company  effective as of August 21, 1998, but remains an employee of the Company
under a one year employment agreement at his former rate of compensation.

     Rod L. Stambaugh.  Mr. Stambaugh  served as Chief Executive  Officer of the
Company from October 1996 until August 1997, and became President when Mr. Kelly
joined the Company.  He was Vice  President in charge of marketing  and business
development  for the Company from 1991 through  October 1996. Mr.  Stambaugh was
also the  Corporate  Secretary  from  September  1995 until  October  1996.  Mr.
Stambaugh  is one of the founders of the Company.  Mr.  Stambaugh  served on the
Company's Board of Directors from July 1991 through October 1994,  rejoining the
Board as Chairman in July 1995. Mr. Stambaugh graduated from Baker University in
1982 with a B.S. degree in Psychology, and a minor in Business Administration.

                                       53
<PAGE>
     Richard S. Barton.  Mr.  Barton is Chairman,  Chief  Executive  Officer and
President  of ADATOM,  Inc., a California  corporation  which  markets and sells
retail and shopping solutions,  including electronic  catalogues and stores. See
"Certain  Relationships  and Related  Transactions -  Transactions  with ADATOM,
Inc." He  completed  a Sloan  Fellowship  at Stanford  University  in Palo Alto,
California from September 1995 through September 1996. From October 1993 through
August 1995,  Mr. Barton was a corporate  vice president and president of Xerox'
United States Customer  Operations.  From 1991 until October 1993 Mr. Barton was
President of Xerox Canada,  Inc. Mr. Barton holds a Master's  degree in Business
Management  from  Stanford  University.  Mr. Barton also serves on the boards of
Avon Products, Inc., and the United States Chamber of Commerce.

     Caesar  Berger.  Mr.  Berger  is a senior  Vice  President  of  Cardservice
International, Inc. where he is responsible for the Technology Group. Mr. Berger
joined  Cardservice  International  in August of 1994. Prior to that, Mr. Berger
served for more than ten years as  President,  and was the founder of,  Computer
Based  Controls,  Inc., a wholly owned  subsidiary of Electronic  Clearing House
Inc. Mr.  Berger was a principal on the American  Express  Money Order  project,
which  resulted in the  deployment of over 17,000 of the Money Order  dispensers
operating today in over 10,000 retail locations nationwide. Mr. Berger graduated
in 1970 from Lvov Polytech  Institute with the  equivalent of an M.S.  degree in
Electronics and Computer Science.

     Chester N. Winter.  Mr. Winter is a general  partner of Colorado  Incubator
Fund,  L.P., a venture capital fund which invests in early stage high technology
enterprises  including  software,  materials,  medical  and  bio-technology;   a
position  he has  held  since  1991.  Since  March  1993 he has also  been  Vice
President of Paradigm Partners,  LLC, a consulting  company.  From February 1994
until  September  1995 he  served  as  Chairman  of  Highland  Energy,  Inc.,  a
subsidiary  of Eastern  Utility  Associates.  He holds B.A. and M.S.  degrees in
Economics from the University of Colorado and has completed the  Owner/President
Management Program at Harvard University Graduate School of Business.

     Alvin C. Rice. Mr. Rice is currently  affiliated with entrenet Group,  LLC,
as a senior associate. He has been with entrenet since January 1998. He became a
director  of the  Company on June 1, 1998.  His  career in  banking,  investment
banking and commercial  business management has spanned over 40 years. He served
as Chairman of California Bancorp Systems, Inc. from January 1994 until December
1997 and as  Chairman  of the  First  National  Bank of Marin  from  1989  until
December  1993.  Mr. Rice has also served as a Director of Memorex  Corporation,
Fairchild  Camera & Instrument Co., and the Montreal Trust Company.  He is a cum
laude  graduate  Phi Beta Kappa  graduate of Stanford  University  from which he
received  a B.A.  degree.  He  attended  the  Graduate  School of Banking at the
University of Wisconsin and Harvard's Advanced Management Program.  See "Certain
Relationships and Related Transactions - Transactions with entrenet Group, LLC."

     Charles T. Russell.  Mr. Russell had a distinguished  26-year career in the
credit card and electronic  commerce industry when he retired as CEO & President
of VISA  International  in 1994, a post he held for 10 years.  He joined VISA in
January 1971 as vice  president for  operations,  following  that as senior vice
president,  executive vice president and president and COO of VISA U.S.A.  He is
currently on the Board of First Data  Corporation,  InfiCorp,  CyberCash,  Inc.,
E-Funds Corporation and Janol Hydro Co. Mr. Russell earned his Bachelor's degree
in Business Administration,  cum laude, from the University of Pittsburgh, and a
Graduate degree from the Stonier Graduate School of Banking at Rutgers.

Board of Directors and Committees

     The  Company has an audit  committee,  which  consists  of Messrs.  Barton,
Berger  and  Winter.  Until the  fiscal  year  ended  June 30,  1998,  the audit
committee consisted of Messrs. Berger and Alan Roberts, a former director of the
Company. The audit committee recommends  engagement of the Company's independent
accountants,  approves services  performed by such accountants,  and reviews and
evaluates  the  Company's  accounting  system of  internal  controls.  The audit
committee  did not meet during  fiscal  year 1998;  however,  these  issues were
discussed by the full board.  The Company does not have  standing  nominating or
compensation committees.  The Board as a whole performs the functions that these
committees would perform.

     During  fiscal year 1998,  the Board of  Directors  held nine  meetings and
acted ten times by consent without a meeting.  All directors  attended more than
75% of the aggregate number of meetings of the Board.

                                       54
<PAGE>
Other Significant Executive Officers

     Other  significant  executive  officers  of the  Company  that are not also
directors are:

         Name             Age   Position with the Company        Officer Since
         ----             ---   -------------------------        -------------
 Robert E. Robichaud      45    Chief Financial and Accounting   September 1997
                                Officer, Treasurer and
                                Assistant Secretary

 Clyde F. Casciato        43    Vice President, Sales            August 1997 *

 Raymond J. Mueller       57    Vice President, Operations       December 1997 *
------------------------
* Mr. Casciato left the Company on October 6, 1998.
  Mr. Mueller left the Company on September 15, 1998.

Business Experience of Significant Executive Officers

     Robert  E.  Robichaud.  Since  1985  Mr.  Robichaud  has held  several  key
financial  management  positions at Triad  Systems Corp.  including  Director of
Financial  Planning and Analysis and most recently,  Director of Finance.  Triad
Systems is a provider of software, hardware and information management solutions
which  recorded  1997  revenues in excess of $175  million.  Triad Systems was a
NASDAQ listed company and was acquired by Cooperative Computing Inc. on February
27, 1997. Mr. Robichaud  received a Bachelors Degree in Economics from Fairfield
University in 1976 and M.B.A. from Rutgers Graduate School of Business in 1978.

     Clyde F.  Casciato.  Since 1989, Mr.  Casciato has held several  management
positions at AT&T Wireless  Services,  the wireless business unit of AT&T Corp.,
including  Director of Sales and Marketing,  District  Manager -  Major/National
Accounts and most recently,  Western U.S. Regional  Sales/Distribution Manager -
Wireless  Data.  Mr.  Casciato  played a key role in helping to  establish  AT&T
Wireless Services as the market leader in the emerging wireless data (packet and
circuit switched) business segment.

     Raymond J. Mueller.  Mr.  Mueller served as Director of Sales and Marketing
for Nicor, Inc., a pneumatic tool company,  from 1995 until joining the Company.
From 1993 until joining the Company,  Mr. Mueller was an independent  consultant
in  the  areas  of  strategic  planning,  team  building,  decision  making  and
compensation matters.  Prior to that, he was Director of Sales and Marketing for
Wilson  Learning  Corp.  from 1989 through 1993. He holds a Bachelors  Degree in
Economics from Xavier University.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  officers,  directors,  and persons  owning more than ten percent of a
registered class of the Company's equity securities ("ten percent shareholders")
to file reports of ownership and changes of ownership  with the  Securities  and
Exchange Commission ("SEC").  Officers,  directors, and ten-percent shareholders
are  required  by SEC  regulations  to furnish  the  Company  with copies of all
Section 16(a) reports they file with the SEC.

        To the Company's knowledge,  based solely on its review of the copies of
such  reports and  amendments  thereto  furnished  to the  Company,  and written
representations  that no other reports were required,  the Company believes that
during the Company's  fiscal year ended June  30,1998,  all Section 16(a) filing
requirements  applicable to the Company's officers,  directors,  and ten percent
shareholders were met.

                                       55
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION

Executive Compensation

     The following table shows all the  compensation  paid by the Company to its
Chief Executive Officer (the "Named Executive  Officer") during the fiscal years
ended June 30, 1997 and 1998. Mr. Stambaugh, the Company's CEO at June 30, 1997,
did not serve as CEO for the Company during the fiscal year ended June 30, 1996.

                                             Summary Compensation Table
<TABLE>
<CAPTION>
====================================================================================================================
                                             Annual Compensation            Long Term Compensation
====================================================================================================================
   Name and Principal       Fiscal      Salary      Bonus       Other      Restricted   Securities     All Other
        Position             Year        ($)         ($)        Annual       Stock      Underlying     Compensa-
                                                               Compen-       Awards     Options (#)     tion ($)
                                                              sation ($)      ($)           (3)
====================================================================================================================

<S>                          <C>       <C>         <C>           <C>          <C>        <C>             <C> 
Rod L. Stambaugh,            1998      $113,333    $34,750       (2)          $-0-          -0-           $-0-
President (1)
                             1997      $ 79,881      $-0-        (2)          $-0-          -0-           $-0-

Evon A. Kelly,               1998      $131,250      $-0-        (2)          $-0-        600,000         $-0-
Chief Executive Officer
              

Robert E. Robichaud,         1998      $101,756    $10,417       (2)          $-0-        50,000          $-0-
Chief Financial and
Accounting Officer (1)

====================================================================================================================
<FN>
(1)      Mr.  Stambaugh  served as CEO from  October 1996 until August 1997 when
         Mr. Kelly commenced service as CEO. Mr. Robichaud  commenced service as
         of September 1997. The bonus amounts include $25,000 for Mr.  Stambaugh
         and $10,000 for Mr. Robichaud which were accrued but not paid.
(2)      No amounts are shown under "Other",  as the aggregate  incremental cost
         to the Company of personal  benefits  provided to the executive officer
         did not exceed 10% of his annual salary and bonus during the year.
(3)      All  options  were granted  under the 1992 Stock  Option  Plan,  except
         those issued to Mr. Kelly, which are outside the Plan.
</FN>
</TABLE>
Option Grants in Fiscal Year Ending June 30, 1998

     As  reflected  in  the  following  table,   reported  are  the  values  for
"in-the-money" options, which represent the positive spread between the exercise
price of any existing stock options owned by the Named Executive Officer and the
year-end price of the Company's Common Stock.

                                       56
<PAGE>
                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
====================================================================================================================
          Name                Shares            Value          Number of Securities               Value of
                            Acquired on     Realized ($)      Underlying Unexercised        Unexercised In-the-
                           Exercise (#)          (1)           Options at FY-End (#)          Money Options at
                                                                  Vested/Unvested                FY-End ($)
                                                                                          Vested/Unexercisable(2)
====================================================================================================================
<S>                           <C>             <C>              <C>                            <C>     
Rod L. Stambaugh              150,000         $672,750                5,000/0                    $22,800/$0
Evon A. Kelly                                                   240,000/252,000(3)            885,600/929,880
Robert E. Robichaud                                                18,500/31,500               13,690/23,310

====================================================================================================================
<FN>
(1)  Market  value on the  average  traded  price of the  underlying  shares  of
     Company's Common Stock on the date of exercise less the exercise price.
(2)  Represents  the difference  between $4.69,  the average market price of the
     Company's Common Stock at fiscal year end, and the exercise price.
(3)  Per employment agreement, only 492,000 of  the  600,000 shares  granted are
     eligible for exercise.
</FN>
</TABLE>
Director Compensation

     Directors  who are not  employees  of the Company  receive an annual  stock
option to purchase  20,000  shares of the Company's  Common Stock.  The grant is
made  pursuant to the  Company's  1992 Stock  Option Plan as of each  director's
anniversary  date,  with an  exercise  price  equal to the  market  value of the
underlying  stock as of the date of grant.  Options  vest 25% on each  six-month
anniversary  following  the  date of  grant.  This is the only  arrangement  for
compensation of directors.  A total of 80,000 stock options were granted to four
non-employee directors during the fiscal year ended June 30, 1998.

Proposed Executive Bonus Plan

     Management   of  the   Company  is  in  the   process  of   formulating   a
performance-based  bonus  plan  for the  Company's  executive  officers  and key
personnel,  which may include  provisions for cash bonus compensation as well as
stock  based  compensation  under  the  Company's  1992  Stock  Option  Plan  or
otherwise.  Other  than  certain  contingent  bonus  compensation  that has been
offered to certain  executive  officers of the Company as described  below,  and
which is subject to adoption of  criteria by the Board of  Directors,  the Board
has not yet approved the parameters of such a bonus plan.

                                       57
<PAGE>
Employment Agreements and Change In Control Provisions

        Roger  Peirce.  The Company  has an  employment  agreement  with Roger
Peirce,  its current CEO and  Chairman of the Board.  Mr.  Peirce will receive a
salary of $75,000  per year plus  reimbursement  of certain  customary  business
expenses.  On August 21, the Company  granted options to its new Chief Executive
Officer to purchase 1,000,000 shares of the Company's Common Stock at $3.438 per
share,  the estimated fair market value at date of grant.  In November 1998, the
Company and Mr. Peirce agreed to cancel the original  1,000,000 share option and
the Company  granted Mr.  Peirce an option to purchase  1,300,000  shares of the
Company's  Common Stock,  exercisable  at $2.563 per share,  the estimated  fair
market value of the grant,  for ten years from  November  23, 1998.  The Company
will issue options to purchase  39,016  shares as incentive  stock options under
the  Company's  1992 Stock  Option Plan ("the  Plan") and those  options will be
subject to all of the terms and  conditions of incentive  stock  options  issued
under the Plan.  The balance of the options  will be issued  outside the Plan as
"non-qualified  options" and will have the same exercise  terms as the incentive
options  issued  under the Plan but will expire on the earlier of  September  1,
2002 or one year from the date Mr.  Peirce  ceases to serve the  Company  in any
capacity,  including as an employee, officer, director or consultant. All of the
options vest immediately upon issuance but are subject to the Company's right to
repurchase the shares at the price Mr. Peirce paid for them. The Company's right
to repurchase  the shares expires over a 48 month period at the rate of 2.08% of
the shares per month. The repurchase rights of the Company terminate  completely
(thereby  vesting Mr.  Peirce's right in and to 100% of the shares) in the event
of a change in control of the  Company.  Mr.  Peirce has also been  granted  the
option to  purchase  up to 200,000  shares of Common  Stock owned by Mr. John M.
Liviakis, a significant shareholder of the Company. Those options are subject to
the same terms and conditions as the  non-qualified  stock options issued by the
Company as of August 21, 1998.

     Evon A. Kelly. The Company presently has an employment  agreement with Evon
A. Kelly, its former CEO,  pursuant to which Mr. Kelly receives $150,000 in cash
compensation  per year.  Mr. Kelly has also been granted a  non-qualified  stock
option to purchase up to 600,000  shares of the Company's  Common Stock at $1.00
per share,  exercisable  as to 10% as of the date of grant  (August 4, 1997) and
vesting at the rate of 3% per month  thereafter  so long as Mr. Kelly remains in
the employ of the Company.  All options must be exercised within 10 years of the
date of grant. All options immediately vest and become exercisable upon a change
in control of the Company.  The Company has agreed to indemnify  Mr. Kelly for a
portion of the tax liability differential between non-qualified stock option and
incentive stock option tax treatment, when and if he should exercise his options
and  dispose of the shares.  The Company has also agreed to register  the shares
underlying Mr. Kelly's option with the SEC on a Form S-8 registration  statement
as soon as practicable.

     Rod L. Stambaugh. The Company has an arrangement under which it pays Rod L.
Stambaugh,  its President,  $130,000 per year. Mr. Stambaugh may also be granted
bonus  compensation  and/or stock  options as approved by the Board of Directors
from time to time.  It is  anticipated  that Mr.  Stambaugh  will be entitled to
participate  in any  performance-based  bonus  plan  approved  by the  Board  of
Directors.  In November  1998,  Mr.  Stambaugh  was granted  options to purchase
100,000  shares of the  Company's  Common  Stock at  $2.563  per  share,  with a
four-year vesting schedule of 25% per year.

     Other Executive  Officers.  The Company also has an employment  arrangement
with Robert E. Robichaud.  Mr. Robichaud  receives a salary of $125,000 per year
and may be  entitled  to a  performance  bonus of up to $25,000  for fiscal year
1998,  based on the  performance  of the Company.  Mr.  Robichaud is entitled to
severance of one year's salary if he is terminated  without cause. Mr. Robichaud
was granted options to purchase up to 50,000 shares of Common Stock at $3.95 per
share under the Company's 1992 Stock Option Plan, with a vesting schedule of 10%
as of his date of hire  (September  5,  1997)  and 3% per month  thereafter.  In
November 1998, Mr.  Robichaud was granted  options to purchase  50,000 shares of
the  Company's  Common  Stock at $2.563  per  share,  with a  four-year  vesting
schedule of 25% per year.  Pursuant to the Amended 1992 Stock  Option Plan,  all
options  granted to employees  immediately  vest and become  exercisable  upon a
merger,  acquisition,  sale of all  assets  or other  change in  control  of the
Company.

Stock Option Plan

     General.  The  Company's  Amended  1992 Stock  Option Plan (the "Plan") was
adopted for the purpose of granting employees,  directors and consultants of the
Company  options to purchase  Common Stock so that they may have the opportunity
to  participate in the growth of the Company and to provide these people with an
increased incentive to promote the interests of the Company.

     Administration  of the  Plan.  The Plan is  administered  by at  least  two
disinterested  members  of the Board of  Directors  (the  "Board")  or the Board
itself. The Board may from time to time adopt rules and regulations, as it 

                                       58
<PAGE>
deems  advisable for the  administration  of the Plan,  and may alter,  amend or
rescind  any such rules and  regulations  in its  discretion.  The Board has the
power to interpret, amend or discontinue the Plan.

     Grant of  Options.  Options  may be  granted  under the Plan for a total of
2,680,000 shares of Common Stock. The Board of Directors increased the number of
shares  underlying  options  available to the Plan to 2,680,000  from 880,000 on
August 6, 1997.  This  amendment  was  approved  by  shareholders  at the Annual
Meeting of Shareholders held February 6, 1998.  Additional grants of options may
be made only to  employees,  directors  and  consultants  of the Company and any
parent or subsidiary.  The Board  determines the terms of options  granted under
the Plan,  including the type of option (which can be an incentive  stock option
within the  meaning of Section  422 of the  Internal  Revenue  Code of 1986,  as
amended (the "Code"), or a non-qualified stock option),  the exercise price, the
number of shares  subject to the option,  and the  exercisability  thereof.  The
Board also determines,  at the time of grant, the period during which the option
will be exercisable,  subject to the limitations of the Plan.  Unless  otherwise
provided  at the time of grant,  options  to  employees  vest 10% at the time of
grant and 3% per month  thereafter.  An option to purchase 20,000 shares at fair
market  value  is  automatically  issued  under  the  Plan to each  non-employee
director as of the director's  anniversary date. Options granted to non-employee
directors'  vest  25% at  each  six-month  anniversary  thereafter.  Information
regarding presently outstanding options is set forth below.

     Terms and  Conditions  of  Options.  The Board may  impose on an option any
additional  terms  and  conditions  which it deems  advisable  and which are not
inconsistent with the Plan. The exercise price of any stock option granted under
the Plan  must not be less  than  100% of the  fair  market  value of a share of
Common Stock on the date of grant, except that as to an optionee who at the time
an incentive stock option is granted owns stock  possessing more than 10% of the
total combined voting power of all classes of stock of the Company, the exercise
price of such incentive  stock option must be at least equal to 110% of the fair
market  value of the shares as of the date  prior to the date of the  grant.  In
addition,  no incentive  stock  option can be granted to any employee  where the
aggregate fair market value of the shares (determined at the date of such option
grant) for which such incentive stock options are exercisable for the first time
in any calendar year exceeds $100,000.  In connection with a merger, sale of all
of the Company's  assets,  or other transaction which results in the replacement
of the Company's Common Stock with the stock of another corporation, all granted
options (including unvested options) become exercisable immediately prior to the
consummation of the  transaction,  unless other provisions are made with respect
to those options.

     Exercise of Options.  An optionee may exercise  less than the entire vested
portion  of an option,  in which case such  unexercised,  vested  portion  shall
continue  to remain  exercisable,  subject  to the terms of the Plan,  until the
option  terminates.  Vested options must be exercised  within three months of an
optionee's termination of employment with the Company.

     Federal Income Tax Consequences.
     --------------------------------

     Incentive Stock Options.  The Company  anticipates that all options granted
under the Plan and treated by the Company as "incentive stock options," that is,
a stock  option  described in Section 422 of the Code,  will have the  following
anticipated (but not guaranteed) federal income tax consequences,  among others:
the optionee will recognize no income at the time of grant; upon exercise of the
incentive  stock  option,  no income  will  result to any party;  if there is no
disposition of the shares until a date that is both (i) two years from the grant
of an incentive stock option and (ii) one year from its exercise, no amount will
be ordinary income and, upon disposition in a taxable transaction,  the employee
will receive  long-term  capital gain or loss treatment  equal to the difference
between the amount  realized  and the option  price;  any gain  realized  upon a
disposition  other  than as set forth  above may result in  ordinary  income tax
treatment  to the  optionee;  generally,  the Company  receives no  deduction in
connection with the transaction;  and, certain  optionees may incur  alternative
minimum tax treatment under the Code upon exercise of an incentive stock option.

     Non-qualified Stock Options. The Company anticipates that all non-qualified
stock options  granted under the Plan will have the following  anticipated  (but
not guaranteed) federal income tax consequences, among others: the optionee will
recognize  no income at the time of grant;  upon  exercise of the  non-qualified
stock option,  the  individual to whom the option is granted should be deemed to
receive ordinary income at the time of exercise equal to the excess,  if any, of
the fair market value of the acquired  shares at such time over the option price
for 

                                       59
<PAGE>
such shares;  if the shares acquired upon the exercise of a non-qualified  stock
option are disposed of in a taxable  transaction,  the  individual  disposing of
such shares will have a realized  and  recognized  capital gain or loss equal to
the  difference,  if any,  between the amount realized and the adjusted basis of
such shares to the holder;  such gain or loss will be  long-term  or  short-term
depending  on whether or not such  shares are held for longer  than six  months;
and, the adjusted  basis  usually (but not always) will include the option price
plus any ordinary income described above with respect to such shares.

Form S-8 Registration of Shares of Common Stock
-----------------------------------------------
Issuable Pursuant to Options Under the Plan
-------------------------------------------

     The Company  registered  880,000 shares of Common Stock underlying  options
issuable  under  the  Plan  with  the  United  States  Securities  and  Exchange
Commission  (the  "SEC")  under  a Form  S-8  Registration  Statement  that  was
effective as of September 1995. The Company intends to file another registration
statement  on Form S-8 in the near  future to  register  the  additional  shares
issuable  pursuant to the  exercise  of options  that have been or may be issued
under the Plan.  In  addition,  the Company  intends to register on Form S-8 the
shares  underlining  option  grants  issued  outside the Plan for  approximately
1,300,000  shares of Common  Stock for Mr.  Roger  Peirce and 492,000  shares of
Common Stock for Mr. Evon Kelly.

Options Presently Outstanding Under the Plan

     As of August 31,  1998 there  were a total of 636,867  options  outstanding
under the Plan,  340,317 of which were vested at that date. Of the total options
outstanding at August 31, 1998,  226,867 were held by directors (two of whom are
also officers of the Company),  155,617 of which were vested,  100,000 were held
by other executive officers,  43,000 of which were vested, and 310,000 were held
by employees or  consultants of the Company,  141,700 of which were vested.  The
weighted average exercise price of all options  outstanding under the Plan as of
August 31, 1998, was $3.88.

                                       60
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

     The following tables set forth certain information regarding the beneficial
ownership  of the  Company's  Common  Stock and Series A  Preferred  Stock as of
August 31, 1998, by (i) each Director,  (ii) the Named Executive Officer and the
current Chief Executive Officer,  (iii) all persons,  including groups, known to
the Company to own  beneficially  more than five percent (5%) of the outstanding
Common Stock of the Company,  and (iv) all executive officers and directors as a
group.  A person (or group) is deemed to be a  beneficial  owner of Common Stock
that can be acquired by such person or group within 60 days from August 31, 1998
upon the  exercise of  warrants,  options or other  rights  exercisable  for, or
convertible  into,  Common Stock.  As of August 31, 1998,  there were a total of
12,361,548  shares of Common  Stock and  3,060,000  shares of Series A Preferred
Stock outstanding.

     Except as otherwise indicated, the address of each of the following persons
is c/o U.S. Wireless Data, Inc., 2200 Powell Street, Suite 800,  Emeryville,  CA
94608.


                                           Certain Holders of Common Stock
<TABLE>
<CAPTION>
                                                                       Shares of Common Stock
                                                                       ----------------------
                                                                       Beneficially Owned (1)
                                                                       ----------------------
                                                                          Number        Percent 
                                                                            of            of
Name of Beneficial Owner                                                  Shares         Class
------------------------                                                  ------         -----
<S>                                                                  <C>               <C>  
Roger L. Peirce.................................................       1,200,000 (2)     8.18%
Rod L. Stambaugh................................................         357,500 (3)      2.7%
Evon A. Kelly...................................................         312,000 (4)      2.3%
Richard S. Barton...............................................           5,000 (5)       *
Caesar Berger...................................................           8,750 (6)       *
Chester N. Winter...............................................         100,281 (7)      0.7%
Alvin C. Rice...................................................                 -0-       0%
Charles T. Russell..............................................                 -0-       0%
Robert E. Robichaud.............................................           24,500(8)       *
John M. Liviakis................................................       4,445,000 (9)     32.9%
  2420 "K" Street, Suite 220
  Sacramento, CA  95816
Robert B. Prag..................................................      1,865,000 (10)     13.8%
  2420 "K" Street, Suite 220
  Sacramento, CA  95816
Liviakis Group..................................................      5,720,000 (11)     42.4%
  2420 "K" Street, Suite 220
  Sacramento, CA  95816
entrenet Group, LLC.............................................        627,518 (12)      4.6%
  1304 Southpoint Boulevard, Suite 220
  Petaluma, CA  94954
RBB Bank Aktiengesellschaft.....................................      1,327,196 (13)      9.7%
  Burgring 16,
  8010 Graz, Austria
All directors and executive officers as a group (11 persons)....      2,169,562 (14)     14.2%
------------------
<FN>
 *    Represents less than 1% of outstanding shares.

                                       61
<PAGE>
(1)  Except as  specifically  indicated  in the  footnotes  to this  table,  the
     persons  named in this table have sole  voting  and  investment  power with
     respect to all shares of Common Stock shown as beneficially  owned by them,
     subject to community property laws where applicable.  Beneficial  ownership
     is determined in accordance with the rules of the United States  Securities
     and Exchange  Commission.  In computing  the number of shares  beneficially
     owned by a person and the  percentage  ownership of that person,  shares of
     Common  Stock  subject to  options,  warrants or rights held by that person
     that are currently  exercisable  or  exercisable,  convertible  or issuable
     within 60 days of August.  31, 1998, are deemed  outstanding.  Such shares,
     however,  are not  deemed  outstanding  for the  purpose of  computing  the
     percentage ownership of any other person.
(2)  Includes 29,086 shares,  underlying an "incentive stock option" and 970,914
     shares, underlying an "non-qualified option" which Mr. Peirce has the right
     to  acquire  within 60 days of August  31,  1998.  Also  includes,  200,000
     shares,  which Mr. Peirce has the right to acquire within 60 days of August
     31,  1998,  under  a  stock  option  issued  by Mr.  John  M.  Laviakis,  a
     significant  shareholder  of the Company.  Those options are subject to the
     same terms and conditions as the non-qualified  stock options issued by the
     Company.
(3)  Includes 5,000 shares,  which Mr. Stambaugh has the right to acquire within
     60 days of August. 31, 1998, through the exercise of stock options.
(4)  Includes 312,000 shares, which Mr. Kelly has the right to acquire within 60
     days of August. 31, 1998, through the exercise of stock options.
(5)  Includes 5,000 shares,  which Mr. Barton has the right to acquire within 60
     days of August. 31, 1998, through the exercise of stock options.
(6)  Includes 8,750 shares,  which Mr. Berger has the right to acquire within 60
     days of August. 31, 1998, through the exercise of stock options.
(7)  Includes 87,781 shares, which Mr. Winter has the right to acquire within 60
     days of August. 31, 1998, through the exercise of stock options.
(8)  Includes 24,500 shares, which Mr. Robichaud has the right to acquire within
     60 days of August. 31, 1998, through the exercise of stock options.
(9)  The  information  shown is based upon Schedule 13D  (Amendment No. 4) dated
     September  24, 1998 filed on behalf of Liviakis  Financial  Communications,
     Inc.  ("LFC"),  John M.  Liviakis,  Renee A.  Liviakis  and  Robert B. Prag
     (collectively  the "Liviakis  Group") and information  known to the Company
     based  on its  consulting  agreement  with  LFC and the  number  of  shares
     issuable to LFC under that agreement. John M. and Renee A. Liviakis are the
     owners of LFC and Robert B. Prag is an executive officer of LFC. The number
     of shares shown includes a total of 3,855,000  shares of Common Stock owned
     by Mr.  Liviakis as an  individual,  plus  590,000  shares of Common  Stock
     issued  and/or  issuable  to LFC and Mr.  Robert B. Prag (as  described  in
     footnote (10) to this table) pursuant to two consulting  agreements between
     the Company and LFC effective as of July 25, 1997 and August 1,1998.  Under
     the July 1997 agreement, the Company issued 300,000 shares as of August 31,
     1998  (225,000  shares to LFC and  75,000  shares to Mr.  Prag).  Under the
     August 1998 agreement, the Company was obligated to issue 290,000 shares as
     of August 31,  1998  (217,500  shares  issuable  to LFC and  75,500  shares
     issuable to Mr. Prag). See "Certain  Relationships and Related Transactions
     - Transactions with Liviakis Financial Communications, Inc."
(10) The  information  shown is based upon Schedule 13D  (Amendment No. 4) dated
     September  24, 1998 filed on behalf of the Liviakis  Group and  information
     known to the Company  based on its  consulting  agreement  with LFC and the
     number of shares issuable to LFC under that agreement. Robert B. Prag is an
     executive  officer of LFC. The number of shares  shown  includes a total of
     1,275,000  shares of Common Stock owned by Mr. Prag as an individual,  plus
     the full 590,000  shares of Common Stock issued and/or  issuable to LFC and
     Mr. Prag as  described  in footnote (9) to this table which are reported in
     the Schedule 13D/A as being subject to shared voting and dispositive  power
     between John M. and Renee A. Liviakis, Robert B. Prag and LFC. See "Certain
     Relationships  and  Related   Transactions  -  Transactions  with  Liviakis
     Financial Communications, Inc."
(11) The  information  shown is based upon Schedule 13D  (Amendment  No.4) dated
     September  24, 1998 filed on behalf of the  Liviakis  Group.  The number of
     shares shown  includes all shares of Common Stock included in footnotes (9)
     and  (10) to this  table as to  which  any  person  in the  Liviakis  Group
     exercises  sole or shared  voting and  disposition  power,  except that the
     590,000  shares  issuable  to  the  Liviakis  Group  under  the  consulting
     agreements  are included  only once in the share number shown despite being
     included in both Messrs.  Liviakis' and Prag's share ownership figures. See
     "Certain   Relationships  and  Related  Transactions  -  Transactions  with
     Liviakis Financial Communications, Inc

                                       62
<PAGE>
(12) Includes 328,750 shares, which were issued upon conversion of a convertible
     promissory  note issued as a consulting fee to entrenet as of May 20, 1998.
     Also  includes  280,000  shares  which  were  issued  to  entrenet  (or its
     designated  assignees) as a finder's fee (which became payable as of August
     6, 1997).  165,200 of these  280,000  shares have been  assigned to certain
     individual members of entrenet; the shares were issued as of April 3, 1998.
     Also  includes  10,435  shares of Common  Stock  underlying  a Common Stock
     Purchase  Warrant  issued  to  entrenet  as of  March  12,  1998,  which is
     presently   exercisable.   Also  includes  8,333  shares  of  Common  Stock
     underlying  a Common  Stock  Purchase  Warrant  issued  to  entrenet  as an
     advisory fee as of  September  12, 1998.  See  "Certain  Relationships  and
     Related Transactions - Transactions with entrenet Group, LLC."
(13) Includes  792,080  shares  issuable  upon  conversion  of  1,600,000 of the
     Company's  Series A Preferred  Stock,  and 465,116  shares of Common  Stock
     issuable upon the  conversion of $1,000,000 of the Company's 6% Convertible
     Debentures due July 21, 2000,  based on the applicable  discounts to market
     price as of the end of August 1998.  Also includes  50,000 shares of Common
     Stock  underlying a Common  Stock  Purchase  Warrant  issued to RBB Bank in
     conjunction  with  the  purchase  of the 6%  Convertible  Debentures.  Also
     includes  20,000 shares of Common Stock  underlying a Common Stock Purchase
     Warrant issued as interest on bridge loan, which is presently  exercisable.
     See "Certain Relationships and Related Transactions - Transactions with RBB
     Bank Aktiengesellschaft."
(14) Includes  all shares  underlying  options  and  warrants  as  described  in
     footnotes (2) - (8) of this table,  plus 58,500 shares  underlying  options
     issued to three additional  executive officers which are exercisable within
     60 days of August 31, 1998
</FN>
</TABLE>
                                       63
<PAGE>
                   Certain Holders of Series A Preferred Stock
<TABLE>
<CAPTION>
                                                                      Shares of Series A Preferred
                                                                      ----------------------------
                                                                      Stock Beneficially Owned (1)
                                                                      ----------------------------
                                                                        Number          Percent
                                                                          of              of
Name of Beneficial Owner                                                Shares           Class
------------------------                                                ------           -----
<S>                                                                  <C>              <C>
Rod L. Stambaugh.................................................        -0-               0%
Evon A. Kelly....................................................        -0-               0%
Richard S. Barton................................................        -0-               0%
Caesar Berger....................................................        -0-               0%
Chester N. Winter................................................        -0-               0%
Alvin C. Rice....................................................        -0-               0%
Roger L. Peirce .................................................        -0-               0%
Charles P. Russell ..............................................        -0-               0%
All directors and executive officers as a group (9 persons)......        -0-               0%
RBB Bank Aktiengesellschaft (2)..................................     1,600,000          52.3%
Burgring 16
8010 Graz Austria
The Endeavor Capital Fund........................................     1,000,000          32.7%
14/14 Divrei Chaim Street
Jerusalem  94479 Israel
CNCA - SCT Brunoy................................................      200,000            6.5%
Sub A/C BGP
30 Rue des Vallies
91300 Brunoy  France
------------------
<FN>
(1)  To the Company's knowledge,  except as otherwise indicated in the footnotes
     to this  table,  all  persons  named in this  table  have sole  voting  and
     investment  power with  respect to all shares of Series A  Preferred  Stock
     shown as  beneficially  owned by them,  subject to community  property laws
     where applicable. Beneficial ownership is determined in accordance with the
     rules of the United States Securities and Exchange Commission. There are no
     shares of Series A Preferred Stock, which are subject to options,  warrants
     or rights held by any person.  The Series A Preferred Stock is not publicly
     traded or registered under the Securities Exchange Act of 1934. It does not
     generally have voting rights except as specifically provided under Colorado
     law.
(2)  RBB Bank  Aktiengesellschaft  is the record owner of the shares.  RBB holds
     the shares as agent for 30  individuals  who share  voting  and  investment
     power  over the  shares.  The  Company  has  been  advised  that no  single
     individual in the group owns 5% or more of the shares of Series A Preferred
     Stock.
</FN>
</TABLE>
                                       64
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Cardservice International, Inc.

      Mr.  Caesar  Berger,  a  director  of the  Company,  is also an officer of
Cardservice International, Inc. ("CSI"). Mr. Roger Peirce, the Company's CEO and
Chairman,  is a non-voting member of the Board of Directors of CSI. CSI has been
involved with the Company in what is primarily a customer - vendor relationship,
and CSI  purchased  approximately  $178,000  and  $698,000  in product  from the
Company in the fiscal  years ended June 30,  1998,  and 1997,  respectively.  In
fiscal 1996, CSI advanced the Company $162,500 for the purchase of raw materials
in exchange for 142,544 shares of Common Stock, plus the royalty right described
in the following  paragraph.  The Company  valued the shares at 150% of the then
current  market  price  for  purposes  of  the  transaction.   CSI  was  granted
registration  rights on the underlying shares. In 1995, CSI was granted warrants
exercisable  for  100,000  shares of Common  Stock at $.10 per  share,  which it
exercised as of April 26, 1996.  Rather than exercise its  registration  rights,
CSI has sold  shares  from time to time under SEC Rule 144 and as of January 31,
1998,  CSI had sold all of the  shares  of  Common  Stock  it  acquired  through
exercise of the warrants and as partial consideration for the loan.

      In conjunction with the $162,500 loan, the Company obligated itself to pay
royalties to CSI on future  non-CSI  sales of POS-50(R)  product  built with the
inventory  purchased  by CSI,  in the amount of $150 per unit on the first 1,000
units and $100 per unit on any  additional  units.  The  Company  accrued  total
royalties to CSI of $56,750  since the  inception of this  agreement and through
the nine months ended March 31, 1998, all of which have been paid.

      Management  of  the  Company  believes  that  the  transactions  with  CSI
described  above were on terms at least as favorable as could have been obtained
from  unaffiliated  parties and all  transactions  with CSI were  ratified by at
least two independent directors.

      On September 30, 1998,  the Company  entered into a non-binding  letter of
intent with Cardservice  International,  Inc. to form a non-exclusive  strategic
partnership involving joint product and distribution initiatives.  The Letter of
intent also  includes a provision  pursuant to which a $1,000,000  direct equity
investment in USWD by CSI may be made if the terms of a definitive agreement can
be reached.

      On October 28, 1998 the Company  borrowed  $500,000 from Chuck  Burtzloff,
the CEO and 50% owner of Cardservice International, Inc. The note bears interest
at 8% per annum and is  payable  in full on the  earlier  of the  receipt by the
Company of proceeds from a sale of the Company's  Common Stock to Mr.  Burtzloff
(as discussed below under "Current  Financing  Initiatives") or January 1, 1999.
In consideration  for the loan, the Company also agreed to issue Mr. Burtzloff a
Common Stock Purchase  Warrant  exercisable to purchase  25,000 shares of Common
Stock at  $3.038  per share  through  October  27,  2001. 

Transactions with Liviakis Financial Communications, Inc. ("LFC") and Affiliates
of LFC

      In July of 1997,  the Company  entered  into a Consulting  Agreement  with
Liviakis Financial  Communications,  Inc. ("LFC") pursuant to which LFC provides
the Company  with  financial  and  business  consulting  and public and investor
relations services. The Company paid Liviakis consulting fees of $10,000 in cash
and has issued  300,000 shares of its Common Stock over the one-year term of the
Consulting Agreement. 75% of the shares were issued to LFC and 25% to Mr. Robert
B. Prag, an executive officer of LFC. The Company  registered the 300,000 shares
of Common  Stock  issuable  to LFC and Mr.  Prag in the  Registration  Statement
declared effective as of August 7, 1998.  Pursuant to the Consulting  Agreement,
the Company must also pay LFC cash equal to 2.5% of the gross proceeds  received
in any direct  financing  located for the Company by LFC. In connection with the
closing of the sale of  $3,060,000 of 8%  Convertible  Debentures as of December
10, 1998, the Company paid LFC $76,500,  and in conjunction  with the closing of
the sale of the  $2,000,000 of 6% Convertible  Subordinated  Debentures Due July
21,  2000,  the Company  paid LFC  $50,000,  as its finder's fee for locating JW
Genesis Securities,  Inc., the finder used by the Company in the offering of the
8% Convertible Debentures and the 6% Convertible Subordinated Debentures.

                                       65
<PAGE>
      The  Company  also sold a total of  3,500,000  shares of Common  Stock and
warrants  to  purchase  up to an  additional  1,600,000  shares of Common  Stock
exercisable  at $.01 per share (the  "Liviakis  Warrants") to two  affiliates of
LFC,  Messrs.  John Liviakis and Robert B. Prag, in August 1997, for $500,000 in
cash. Pursuant to this transaction, Messrs. Liviakis and Prag became significant
shareholders of the Company.  The Common Stock issued (and issuable  pursuant to
the Consulting Agreements and upon exercise of the Liviakis Warrants) to LFC and
Messrs.  Liviakis and Prag carries  registration rights (which include the right
to register any other  shares of the Company  which they may possess at the time
of any registration in which they have a right to include  shares),  including a
one-time demand registration right and unlimited "piggyback" registrations, with
the costs thereof to be borne by the Company.  The registration rights expire at
the earlier of three years from August 4, 1997 or at such time as all shares may
be sold  without  restriction  under SEC Rule 144.  On May 12,  1998,  1,200,000
shares of Common  Stock were issued to Mr. John  Liviakis  upon  exercise of his
Common Stock purchase warrants.  On September 18, 1998, 400,000 shares of Common
Stock were issued to Mr. Prag on exercise of his warrants.  The shares of Common
Stock  that LFC and  Messrs.  Liviakis  and Prag  acquired  by  exercise  of the
Liviakis  Warrants and under the July 1997 consulting  agreement are included in
the  Registration  Statement,  which  became  effective  as of August  7,  1998.
However,  LFC and  Messrs.  Liviakis  and Prag  have  agreed  that they will not
commence sales any of their shares in the Company prior to February 1, 1999.

      Since  the LFC  related  financing  transaction  and  the  July  1997  LFC
Consulting  Agreement were entered into by the Company at approximately the same
time,  the  Company  has  treated  these  transactions  as one  transaction  for
accounting  purposes.  To  properly  ascribe  a  fair  value  to the  July  1997
Consulting  Agreement,  the Company  obtained an  independent  valuation  of the
Company's  share  price from an  accredited  valuation  firm.  Based on the fair
market value of the Common Stock as  determined by the  valuation,  the total of
all shares issuable in the  transactions,  and the cash proceeds  received,  the
Consulting Agreement was valued at $2,418,000,  of which $2,272,000 was expensed
in fiscal 1998.  The  consulting  services will be amortized on a  straight-line
basis  over the term of the  Consulting  Agreement  (one  year) as an element of
operating expense,  within selling,  general and  administrative  expense in the
statement of operations, commencing with the July 25, 1997 effective date of the
agreement.

      Pursuant  to  the   agreement  by  which  they   purchased  the  Company's
securities,  in August 1997, Messrs. Liviakis and Prag were granted the right to
approve the appointment of a Chief Executive  Officer,  Chief Financial  Officer
and Vice  President  of Sales,  which they have  done.  They also were given the
right to approve  the  nominations  of up to two  non-employee  directors.  They
approved the appointment of Richard S. Barton as a director of the Company. See,
also, the paragraph below regarding the entry of the "New LFC Agreement.

      Between  October 14 and November 30, 1997,  the Company  received  several
bridge loans from LFC in the total amount of $475,000. The Company was obligated
to pay LFC  interest  on the amount  borrowed  at the rate of 9% per annum.  The
Company  paid LFC the amount due on these  loans,  with  interest  at the stated
rate,  from the proceeds of the sale of the 8%  Convertible  Debentures  sold on
December 10, 1997.

      On June 30, 1998,  the Company and LFC agreed to extend  their  consulting
relationship through the entry of a new consulting agreement covering the period
from August 1, 1998 through March 15, 1999 (the "New LFC Agreement").  The terms
of the New  LFC  Agreement  are  substantially  the  same  as the  original  LFC
Agreement.  For services to be rendered under the New LFC Agreement, LFC and Mr.
Prag are to receive  290,000  shares of Common  Stock  which are  issuable  as a
signing bonus upon execution of the New LFC Agreement, 75% to LFC and 25% to Mr.
Prag.  In  conjunction  with the entry of the New LFC  Agreement LFC and Messrs.
Liviakis and Prag agreed to a further lock-up of their Company shares,  pursuant
to which they will not be able to sell their Company  shares before  February 1,
1999,  even though  certain of those  shares are  included  in the  Registration
Statement, which was effective as of August 7, 1998. The 290,000 shares issuable
to LFC and Mr. Prag under the New LFC Agreement carry  registration  rights that
are  identical to those  covering  the prior  shares  issued or issuable to them
under their  original  subscription  agreements  and the Original LFC Agreement,
although they have agreed that the shares  issuable  under the New LFC Agreement
were not to be  included  in the  Registration  Statement,  which  was  declared
effective  as of  August  7,  1998.  The  Company  will  bear  the  expenses  of
registering  the shares.  LFC is entitled to a finder's fee of 2.5% of the gross
proceeds of any financing  that it introduces to the Company.  In addition,  the
Company has agreed to expand its Board of  Directors  to include two  additional
outside  directors who are acceptable to LFC. The appointment of Messrs.  Peirce
and Russell was approved by LFC.

                                       66
<PAGE>
      In September  1998,  the Company  negotiated a partial  redemption  of the
outstanding  Series A Preferred Stock with several of the security holders.  The
Company borrowed  $1,300,000 from Liviakis  Financial  Communications,  Inc. and
used  $1million  of that  money to redeem  $833,000  face  value of the Series A
Preferred  Stock.  All tangible and intangible  assets of the Company with three
exceptions  secure  the  note.  The  Company  paid  120% of face  value  for the
redemption. The note payable to LFC is due January 1, 1999 and bears interest at
8% per year. The note is secured by all available assets of the Company.

      Management of the Company believes that the transactions  with LFC and its
affiliates  described  above were on terms at least as  favorable  as could have
been  obtained  from  unaffiliated  parties  and all  transactions  with LFC and
Messrs.  Liviakis  and Prag  have  been  ratified  by at least  two  independent
directors.

Transactions with entrenet Group, LLC

      In June  1997,  the  Company  entered  into a  consulting  agreement  with
entrenet  Group,  LLC  ("entrenet"),  for purposes of  assisting  the Company in
strategic  planning,  the creation of a detailed business and marketing plan and
in locating financing sources.  For its services,  the Company issued a $150,000
convertible promissory note to entrenet, with interest payable at 10% per annum,
due in full on or before June 2, 1998.  Principal  and interest are  convertible
into Common Stock of the Company over the year ending June 2, 1998,  at $.50 per
share. In addition,  the Company was obligated to pay entrenet a finder's fee of
8% for any direct  financing  it  located  for the  Company,  payable in Company
securities  identical  to what was sold by the  Company  in any such  financing.
Entrenet  located  LFC and was  therefore  entitled  to a finder's  fee for that
$500,000 financing. A difference then developed between the Company and entrenet
over  interpretation of the provisions  specifying the consideration  payable to
entrenet as its finder's fee for locating  LFC. The matter was finally  resolved
by the Company and entrenet  agreeing  that the Company  would issue  entrenet a
total of 280,000 shares of its Common Stock at such time as the Company obtained
shareholder  approval for an increase in authorized Common Stock to no less than
40,000,000  shares.  This occurred on February 6, 1998. The Company also granted
entrenet  "piggyback  registration  rights"  covering all shares of Common Stock
issuable to it under the  promissory  note and as payment of the  finder's  fee,
which entitle entrenet to have their shares included in any  registration  filed
by the Company. Those shares are included in the Registration  Statement,  which
was effective as of August 7, 1998.

      As of March 12, 1998, the Company  entered into an agreement with entrenet
to provide  business  and  financial  consulting  services to the Company and to
assist the Company in locating additional  financing.  The term of the agreement
is for six months from March 12, 1998 and renews for additional  six-month terms
unless at least 60 days notice is given to terminate the agreement  prior to the
end of a term. For its advisory services under the agreement,  entrenet received
a fee of $60,000, payable in the form of a promissory note bearing 10% interest,
due on or before the earlier of March 11, 1999, or the receipt by the Company of
aggregate  gross proceeds from  financing of  $2,000,000.  The Company paid this
note in full from proceeds of the sale of its 6% Convertible  Debentures in July
1998. In addition, entrenet received a Common Stock Purchase Warrant to purchase
10,435 shares at $5.75 per share,  exercisable  until March 11, 2003. The shares
issuable  pursuant  to the  warrant  carry  piggyback  registration  rights that
entitle entrenet to have the shares registered at any time the Company effects a
registration  of its  securities  under the  Securities Act of 1933, as amended,
subject  to  exclusion  for   registrations  on  ineligible   forms.   Upon  the
consummation of any financing transaction entered into by the Company during the
term of the agreement (with the exception of financing from certain  identified,
excluded  sources)  or for two  years  after  termination  with  respect  to any
financing obtained from a source introduced to the Company by entrenet, entrenet
is entitled to receive cash compensation as follows: for debt financings,  2% of
the total amount of the financing,  payable in cash or in the form of a 10% note
due in one year; for equity financings, 7% of the total gross financing proceeds
(payable in cash),  unless  there is a licensed  investment  banker  entitled to
receive  compensation as a result of the  transaction,  in which case the amount
payable  to  entrenet  is reduced to 2 1/2% of the gross  proceeds  (payable  in
cash), plus a five year Common Stock purchase warrant which entitles entrenet to
purchase that number of shares of Common Stock equal in value (as  determined by
a defined  fair  market  price) to the full  amount of  compensation  payable to
entrenet in cash, at a per share exercise price equal to the then current market
value of the Common Stock (as defined); for mergers and acquisitions,  5% of the
total  consideration  paid or  received  in the  transaction  (payable in cash),
unless there is a licensed investment banker entitled to receive compensation as
a result of the  transaction,  in which case the amount  payable to  entrenet is
reduced to 3% 

                                       67
<PAGE>
(payable in cash) of such consideration,  plus a five year Common Stock purchase
warrant  which  entitles  entrenet to  purchase  that number of shares of Common
Stock equal in value (as  determined by a defined fair market price) to the full
amount of  compensation  payable to  entrenet in cash,  at a per share  exercise
price equal to the then current  market value of the Common Stock (as  defined).
If entrenet assists the Company in locating an executive-level  candidate who is
hired by the  Company,  entrenet  is  entitled  to  receive  a fee  equal to 30%
(payable in cash) of the candidate's total first year compensation.  The Company
terminated  this  agreement  as of  September  1998,  and agreed to pay entrenet
remaining  fees of  $20,000  and has  agreed  to issue a Common  Stock  Purchase
Warrant for 8,333 shares  exercisable at $2.40 per share,  through September 11,
2003.

      Management  of the Company  believes that the  transactions  with entrenet
described  above were on terms at least as favorable as could have been obtained
from unaffiliated  parties and all transactions with entrenet have been ratified
by at least two independent directors.

Transactions with ADATOM, Inc.

      In fiscal  1998,  the Company  purchased  office  furniture  and  computer
equipment in the approximate amount of $200,000 through ADATOM,  Inc., a company
owned by Richard S. Barton,  who is a director of the Company.  Mr.  Barton also
serves as an executive  officer of ADATOM.  ADATOM is in the business of selling
such furniture and equipment and the Company offered to purchase  through ADATOM
if it was able to meet quotes obtained by the Company from competing independent
suppliers  of the same  furniture  and  equipment.  ADATOM was able to meet such
quotes.  Management  of the  Company  believes  that the terms upon which it has
purchased  items from ADATOM are at least as favorable as it could have obtained
from  independent,   unaffiliated  parties.  The  Company  may  make  additional
purchases from ADATOM in the future, subject to the same conditions.

Transactions with RBB Bank Aktiengesellschaft

      RBB Bank Aktiengesellschaft owns, as agent, shares of the Company's Series
A Preferred Stock,  $1,000,000 of its 6% Convertible  Debentures and warrants to
purchase 70,000 shares of Common Stock.

      As of March 12,  1998,  the Company  entered  into an  agreement  with Mr.
Richard  P.  Draper,  and his  assignee  of  397,684  shares  of  Common  Stock,
Tillicombe International,  LDC ("Tillicombe") by which Mr. Draper and Tillicombe
agreed to allow the  Company  to assign its  rights in a call  option  which the
Company had on those  shares (the "Call  Option") to a third party in return for
payment to  Tillicombe  of $25,000 and the release of the  Company's  voting and
rights in the Call  Option as to 30,000 of those  shares.  The  Company  thereby
acquired  the right to assign  the Call  Option as to  367,684  of  Tillicombe's
shares.  The Company  acquired the Call Option in October 1995,  in  conjunction
with the dissolution of a subsidiary,  Direct Data,  Inc., which the Company had
acquired in 1994, in which Mr. Draper was a principal shareholder.  Through June
15,  1998,  the  Company  sold and  assigned  the Call Option on 250,000 of such
shares to RBB Bank.  RBB Bank  purchased  the Call Option in five  increments of
50,000  share  options  each,  and paid the Company 85% of the average last sale
price of the underlying shares over the five days prior to the date of acquiring
each Call Option, less the Call Option exercise price of $.25 per share. In each
transaction, RBB Bank paid the acquisition price for the Call Option, as well as
the exercise  price to Tillicombe  prior to taking  delivery of the shares.  The
Company realized a total of  approximately  $997,000 from the sale of these Call
Options to RBB Bank.

      Effective July 1, 1998, the Company issued a $250,000  promissory  note to
RBB Bank Aktiengesellschaft  which was payable in full on or before September 9,
1998.  The loan was intended as a short-term  bridge loan and was required to be
repaid from the proceeds of any aggregate equity  placements done by the Company
which  amount  to  at  least  $1,000,000  (from  which  aggregate  proceeds  any
additional  bridge  financings  received  between  the date of the note and such
equity  financings are excluded).  The note was secured by certain assets of the
Company,  including  all  accounts  receivable  (excluding  certain  receivables
pledged or which may be pledged in connection  with  inventory  financing),  all
inventory   (excluding  Tranz  Enablers  securing  amounts  owing  to  inventory
financiers,   and  certain  specified  inventory  previously  pledged  to  Omron
Systems), all fixed assets and all deposit accounts and intangible assets of the
Company.  In connection  with the issuance of the Note, the Company also granted
RBB Bank a right of first refusal to fund any such additional  bridge financings
needed by the Company.  This right must be exercised  within one day of RBB Bank
being  notified  of the  terms  of any  such  

                                       68
<PAGE>
additional  bridge  financing.  In conjunction  with this loan, the Company also
issued a Common Stock purchase warrants to RBB Bank to purchase 20,000 shares of
Common Stock at $4.375 per share,  exercisable  through  September 9, 2001.  The
warrant has antidilution provisions that protect the holders against dilution in
the event of certain transactions. The warrant also has "piggyback" registration
rights  entitling the holders to have the  underlying  shares  registered in any
registration done by the Company,  other than  registrations on ineligible forms
and the  Registration  Statement  which was effective as of August 7, 1998.  The
expenses of such registrations  (other than selling expenses) are to be borne by
the Company. This loan was repaid from the proceeds of the sale of the Company's
6% Convertible Subordinated Debentures Due July 21, 2000.

      As of July 10, 1998, the Company  reached  agreement with RBB Bank for its
participation in the purchase of $1,000,000 minimum and up to $4,000,000 maximum
of 6%  convertible  debentures  of the Company,  payable in full two years after
issuance,  if not  converted to Common Stock before that date. On July 22, 1998,
RBB Bank  purchased  $1,000,000  of the  Company's 6%  Convertible  Subordinated
Debentures  Due July 21,  2000,  together  with Common Stock  Purchase  Warrants
exercisable to purchase  50,000 shares at $4.50 per share through July 21, 2001.
Part of the  proceeds  obtained  from this sale was used to pay for the $250,000
loan  borrowed  from  RBB  Bank   Aktiengesellschaft   in  July  1,  1998.   See
"Management's  Discussion  of Financial  Condition  and Results of  Operations -
Financial  Condition,  Capital  Resources and Liquidity - $250,000 Loan from RBB
Bank Aktiengesellschaft"

      Management  believes that the  transactions  with RBB Bank described above
were  on  terms  at  least  as  favorable  as  could  have  been  obtained  from
unaffiliated parties and all transactions with RBB Bank have been ratified by at
least two independent directors.

                                       69
<PAGE>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.
         ---------

         The following Exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
   Exhibit
   Number        Description of Exhibit
   ------        ----------------------
<S>              <C>
   3.1           Amended Articles of Incorporation (8)

   3.2           Amended Bylaws (3)

   4.1           Representative's Warrant Agreement dated as of December 2, 1993 (5)

   4.2           Common Stock Purchase Warrant issued to James B. Walters on or about April 12, 1993 (5)

   4.3           Common Stock Purchase Warrant issued to Kenneth DeJohn on or about May 1, 1993 (5)

   4.4           Consulting Agreement dated August 15, 1992, as amended April 12, 1993, with James B. Walters (1)

   4.5           Form of Common Stock  Purchase  Warrants  issued to John  Liviakis and Robert Prag as of August 4,
                 1997 (This exhibit is included in Exhibit 10.13)

   4.6           Designation of Series A Preferred Stock (this exhibit is included in Exhibit 3.1)

   4.7           Common Stock Purchase Warrant dated December 10, 1997 issued to JW Genesis Securities, Inc. (10)

   4.8           Common Stock Purchase Warrant dated March 12, 1998, issued to entrenet Group, LLC (12)

   4.9           Promissory Note for $60,000 issued to entrenet Group, LLC, as of March 12, 1998 (12)

   4.10          Specimen Common Stock Certificate (14)

   4.11          Form of Registration  Rights Agreement - Issued to Series A Preferred  Stockholders as of December
                 10, 1997 (10)

   4.12          Form of  Subscription  Agreement  -  Entered  into  with  Series A  Preferred  Stockholders  as of
                 December 10, 1997 (10)

   4.13          Agreement to Amend Stock Purchase Warrants effective April 1, 1998 with James Walters (13)

   4.14          Promissory Note for $250,000 dated June 26, 1998, issued to RBB Bank Aktiengesellschaft (13)

   4.15          Common Stock Purchase Warrant dated June 26, 1998 issued to RBB Bank Aktiengesellschaft (13)

   4.16          Lock-up Letter Agreement  between the Company and Liviakis  Financial  Communications,  Inc., John
                 M. Liviakis and Robert B. Prag dated June 30, 1998 (13)

   4.17          Debenture Agreement for 6% Convertible Subordinated Debentures Due July 21, 2000 (11)


                                       70
<PAGE>
   4.18          Form  of  Common  Stock  Purchase  Warrant  issued  to 6%  Debenture  Purchasers  and  JW  Genesis
                 Securities, Inc. as of July 21 - 27, 1998 (11)

   4.19          Form of  Registration  Rights  Agreement for 6% Convertible  Subordinated  Debentures Due July 21,
                 2000 and  Common  Stock  Purchase  Warrants  issued  to 6%  Debenture  Purchasers  and JW  Genesis
                 Securities, Inc. as of July 21 - 27, 1998 (11)

   4.20          Modification  Agreement  with  Certain  Holders  of  Series  A  Preferred  Stock  Effective  as of
                 September 17, 1998

   4.21          Form of Common  Stock  Purchase  Warrant  to be issued to Certain  Holders  of Series A  Preferred
                 Stock  participating in the  modifications to the terms of the Series A Preferred Stock (which was
                 effective as of September 17, 1998)

   4.22          Form of Common Stock Purchase  Warrant issued to  Cardservice  International,  Inc. in conjunction
                 with the $500,000 loan made to the Company as of November 1, 1998

   4.23          Non-Qualified Common Stock Option issued to Evon A. Kelly effective as of August 4, 1997 (15)

   4.24          Non-Qualified Common Stock Option issued to Roger L. Peirce effective as of August 22, 1998 (15)

   10.1          License and Volume Purchase Agreement with OMRON Systems of America with Solectron Addendum (1)

   10.2          Promissory Note with OMRON Systems, Inc. (3)

   10.3          Release Agreement with Richard P. Draper (3)

   10.4          1992 Stock Option Plan, as amended (7) (15)

   10.5          Agreement for  Manufacture  and Purchase  between USWD,  Uniform  Industrial  Corp and Cardservice
                 International, Inc. (3)

   10.6          AT&T CDPD Value Added Reseller Agreement dated April 30, 1997* (6)

   10.7          Bell Atlantic AIRBRIDGE Packet Service Agreement dated August 12, 1997* (6)

   10.8          Engagement Agreement between USWD and entrenet Group, LLC dated June 3, 1997 (6)

   10.9          GTE Leasing Corporation Promissory Note dated August 6, 1997 (6)

   10.10         GTE  Mobilnet  Communications  Service and  Equipment  Agreement  dated
                 August 1, 1997* (6)

   10.11         Form of Demand  Note  issued to  private  investors  during the fourth
                 quarter of fiscal year 1997 (6)

   10.12         Liviakis Financial Communications,  Inc. Consulting Agreement and forms of Subscription Agreements for the
                 purchase of U.S.  Wireless Data,  Inc.  Common Stock and Warrants from John M. Liviakis and Robert
                 B. Prag and effective as of July 25, 1997 (6)

   10.13         Member Service  Provider Sales and Service Credit Card Processing  Agreement  between U.S.  Wireless Data,
                 Inc. and NOVA Information Systems, Inc. dated January 1, 1997* (6)

   10.14         Purchase Agreement with Unicard Systems, Inc. dated September 18, 1997* (6)

                                       71
<PAGE>
   10.15         Purchase Agreement with Wellex Systems Manufacturing & Distribution Group dated August 7, 1997 (6)

   10.16         Underwriting  Agreement  between the Company,  RAS Securities Corp.,  Walford & Company,  Incorporated and
                 Thomas James Associates, Inc. dated December 2, 1993 (2)

   10.17         Merchant  Marketing  and  Services  Agreement  with  National  Bank of
                 Commerce dated March 9, 1998* (12)

   10.18         Assignment  Agreement (with Escrow  Provisions) with Richard P.
                 Draper,  Tillicombe  International LDC and Ireland,  Stapleton,
                 Pryor & Pascoe,  P.C.,  as escrow  agent,  dated March 12, 1998
                 (12)

   10.19         Form of Option Purchase and Assignment  Agreement  (relating to
                 assignment of call option on Tillicombe stock) (12)

   10.20         Joint CDPD Sales and Marketing  Agreement  with Bell  Atlantic  Mobile dated as of March 23, 1998*
                 (12)

   10.21         Engagement Agreement between the Company and entrenet Group, LLC, dated
                 as of March 12, 1998 (12)

   10.22         Form of Settlement  and Mutual  Release  Agreement  between the
                 Company  and the Delle  Donne  Noteholders  entered  into as of
                 April 9, 1998 (12)

   10.23         Form of Settlement  and Mutual  Release  Agreement  between the
                 Company and  certain  Noteholders  entered  into as of April 7,
                 1998 (12)

   10.24         Note and Warrant  Purchase and Security  Agreement dated June 25, 1998 between the Company and RBB
                 Bank Aktiengesellschaft (13)

   10.25         Consulting  Agreement between the Company and Liviakis Financial  Communications,  Inc. dated June
                 30, 1998 (13)

   10.26         Joint Marketing and Operating  Agreement with Ameritech  Mobile  Communications,  Inc. dated July 16, 1998 (11)

   10.27         Amendment to Promissory Note with OMRON Systems, Inc. effective as of August 27, 1998

   10.28         Amendment dated  September 9, 1998 to GTE Mobilnet  Communications  Service and Equipment  Agreement dated
                 August 1, 1997

   10.29         Promissory Note ($1,300,000) issued to Liviakis Financial Communications, Inc. dated September 22, 1998

   10.30         Promissory Note ($500,000) issued to Chuck Burtzloff, Inc. dated October 28, 1998

   10.31         Employment Agreement between the Company and Evon A. Kelly dated August 21, 1998 (15)

   10.32         Employment Agreement between the Company and Roger L. Peirce dated August 17, 1998 (15)

   10.33         Offer Letter - Robichaud, dated August 21, 1997 (15)

   10.34         Offer Letter -  Mueller, dated November 24, 1997 (15)

                                       72
<PAGE>
   23.1          Consent of PricewaterhouseCoopers LLP

   27.1          Financial Data Schedule

   99.1          Letter of Intent with Cardservice International, Inc. dated September 30, 1998      

   99.2          Secretary's Certificate Re: Kelly Tax Indemnification Agree't
-----------------
<FN>
*        Confidential  treatment for certain  portions of this document has been
         requested by the Company pursuant to Commission Rule 24b-2  promulgated
         under  of  the  Securities   Exchange  Act  of  1934  and/or  Rule  406
         promulgated  under the  Securities  Act of 1933,  as  identified on the
         first page of the  document,  and at the specific  item in the document
         for which such treatment has been requested.  The omitted  material has
         been filed  separately  with the  Commission  pursuant  to Rules  24b-2
         and/or 406.

(1)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Registration  Statement on Form SB-2,  effective on or about
         December 2, 1993 (SEC File No. 33-69776).
(2)      Incorporated  by  reference  from the  like-named  exhibit  filed  with
         Amendment No. 5 to the Company's  Registration  Statement on Form SB-2,
         SEC File No. 33-69776-D (filed on December 2, 1993).
(3)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Annual  Report on Form 10-KSB for the Fiscal Year Ended June
         30, 1995, filed on October 13, 1996 (SEC Control No. 95201388).
(4)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Annual  Report on Form 10-KSB for the Fiscal Year Ended June
         30, 1996, filed on October 21, 1996 (SEC Control No. 96645557).
(5)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Annual  Report on Form  10-KSB/A  (Amendment  No. 2) for the
         Fiscal Year Ended June 30, 1997, filed on January 2, 1998.
(6)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Annual  Report on Form  10-KSB/A  (Amendment  No. 3) for the
         Fiscal Year Ended June 30, 1997, filed on February 25, 1998.
(7)      Incorporated by reference from the like-named  exhibit filed as Exhibit
         C to the  Company's  Definitive  Revised  Proxy  Statement for the 1997
         Annual  Meeting of  Shareholders  held on  February  6, 1998,  filed on
         January 14, 1998.
(8)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Quarterly Report on Form 10-QSB for the fiscal quarter ended
         December 31, 1997, filed on February 23, 1998.
(9)      Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Quarterly  Report on Form 10-QSB/A (1st  Amendment)  for the
         fiscal quarter ended December 31, 1997, filed on March 18, 1998.
(10)     Incorporated  by reference from the  like-named  exhibit filed with the
         Company's Current Report on Form 8-K Reporting an Event of November 14,
         1997 (earliest event reported), filed on December 17, 1997.
(11)     Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Current  Report on Form 8-K  Reporting  an Event of July 16,
         1998 (earliest event reported), filed on July 31, 1998.
(12)     Incorporated  by reference from the  like-named  exhibit filed with the
         Company's  Registration Statement on Form SB-2 (SEC File No. 333-52625)
         as of May 14, 1998.
(13)     Incorporated  by  reference  from the  like-named  exhibit  filed  with
         Amendment  No. 1 to the Company's  Registration  Statement on Form SB-2
         (SEC File No. 333-52625) as of as of July 16, 1998.
(14)     Incorporated  by  reference  from the  like-named  exhibit  filed  with
         Amendment  No. 2 to the Company's  Registration  Statement on Form SB-2
         (SEC File No. 333-52625) as of as of August 3, 1998.

                                       73
<PAGE>
(15)     This exhibit constitutes a "Management  Contract,  Compensatory Plan or
         Arrangement" required to be filed as an Exhibit to this Report.

(b)      Reports on Form 8-K.
         --------------------

         During the fiscal  quarter  ended June 30, 1998,  the Company filed the
         following Current Reports on Form 8K:

   (1)   Current  Report  reporting  an Event of May 14,  1998  (earliest  event
         reported),  which contained  information  under Item 5, "Other Events,"
         reporting  the filing of the Company's  Registration  Statement on Form
         SB-2 (SEC File No. 333-52625). The Form 8-K included a copy of the Form
         SB-2  Registration  Statement as an exhibit,  including  the  financial
         statements filed as part of the Form SB-2.
</FN>
</TABLE>


                                       74
<PAGE>

                                   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.

         Dated:  December 17, 1998 

                                             U.S WIRELESS DATA, INC.

                                             By: /s/ Roger L. Peirce   
                                                 ---------------------
                                                 Roger L. Peirce
                                                 Chief Executive Officer

              In accordance with the requirements of the Securities Exchange Act
of 1934,  this  Report has been  signed  below by the  following  persons in the
capacities and on the dates indicated.

Signatures                       Title                      Date
----------                       -----                      ----

/s/ Roger L. Peirce              Chief Executive Officer    December 17, 1998
-------------------              & Director (Principal     
Roger L. Peirce                  Executive Officer)
              

/s/ Rod L. Stambaugh             President & Director       December 17, 1998  
--------------------        
Rod L. Stambaugh

/s/Robert E. Robichaud           Chief Financial Officer,   December 17, 1998
----------------------           Secretary & Treasurer    
Robert E. Robichaud              (Principal Financial and  
                                 Accounting Officer)

/s/Richard S. Barton             Director                   December 17, 1998  
--------------------                
Richard S. Barton

/s/Caesar Berger                 Director                   December 17, 1998 
----------------                  
Caesar Berger

/s/Alvin C. Rice                 Director                   December 17, 1998 
----------------                  
Alvin C. Rice

/s/Charles T. Russell            Director                   December 17, 1998 
---------------------                
Charles T. Russell

/s/Chester N. Winter             Director                   December 17, 1998 
--------------------                 
Chester N. Winter