SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 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, 2003

| | [  ] | 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)

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

750
Lexington Avenue, New York, New York 10022
(Address of principal executive offices)   
   (Zip Code)

Registrant's
telephone number, including area code:     (212)
750-7766

Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Exchange Act$0.01 Par Value 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 no disclosure 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, 2002 were $2,521,000.
The aggregate market value of the issuers voting common equity held as of
September 25, 2002 by non-affiliates of the Issuer was approximately $4,311,000
based on the closing price of $0.32 as of September 25, 2002.

As
of September 25, 2002, the issuer had 15,062,000 shares of its $0.01 par
value common stock outstanding.

Transitional
Small Business Disclosure Format (check one):     Yes 
[  ]     No  [X]

DOCUMENTS INCORPORATED
BY REFERENCE:

The
following documents (or parts thereof) are incorporated by reference into the
following parts of this Form 10-KSB: Items 9-12 of Part III of this Annual
Report on Form 10-KSB are incorporated from the Registrants Proxy
Statement for the Annual Meeting of Stockholders, which Proxy Statement will be
mailed on or before October 28, 2002.

---

U.S.
Wireless Data, Inc.
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED JUNE 30, 2002
INDEX

`Page
                                                                                         ----

                                     PART I

Item 1.    DESCRIPTION OF BUSINESS .................................................       1
Item 2.    DESCRIPTION OF PROPERTIES ...............................................      15
Item 3.    LEGAL PROCEEDINGS .......................................................      15
Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .....................      15

                                    PART II

Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................      16
Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS ....................................      18
Item 7.    FINANCIAL STATEMENTS ....................................................      35
Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE ....................................................      67

                                    PART III

Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT .......................      67
Item 10.   EXECUTIVE COMPENSATION ..................................................      67
Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
           AND RELATED STOCKHOLDER MATTERS .........................................      67
Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..........................      67
Item 13.   EXHIBITS AND REPORTS ON FORM 8-K ........................................      68`

The Definitive Proxy
Statement for the 2002 Annual Meeting of the Registrant which will be filed with
the Commission within 120 days after the close of the fiscal year, is
incorporated by reference into Part III.

---

## Special Note
Regarding Forward-Looking Statements

We may, in discussions of
our future plans, objectives and expected performance in periodic reports filed
by us with the Securities and Exchange Commission (or documents incorporated by
reference therein) and in written and oral presentations made by us, include
projections or other forward-looking statements within the meaning of Section
27A of the Securities Exchange Act of 1933 or Section 21E of the Securities Act
of 1934, as amended. Such projections and forward-looking statements are based
on assumptions, which we believe are reasonable but are, by their nature,
inherently uncertain. In all cases, results could differ materially from those
projected. Some of the important factors that could cause actual results to
differ from any such projections or other forward-looking statements are
discussed below, and in other reports filed by us under the Securities Exchange
Act of 1934. Risks and uncertainties relating to forward-looking statements are
set forth in Item 6 under the caption Risk Factors, below. Our
forward looking statements are based on information available to us today, and
except as required by law, we undertake no obligation to update any forward
looking statement, whether as a result of new information, future events or
otherwise.

## PART I

## ITEM 1.
DESCRIPTION OF BUSINESS

OVERVIEW

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

We connect merchants to
credit card or other processors using wireless and other technologies. We make
it easy for the credit and debit card industries to deploy wireless solutions
through a single source, our Synapse platform. We aggregate wireless network
services, offering ubiquitous wireless coverage, and provide a single point of
terminal management, customer support and transaction reporting. For
strategically selected markets, we develop and deploy proprietary wireless
hardware products designed to enable card acceptance at points-of-sale or
nonconventional points-of sale with card acceptance (such as vending machines
and taxi meters). All of our efforts are aimed at providing the transaction
processing industry with the speed, mobility, and cost savings of wireless and
the ability to provide card acceptance to new market segments.

We have contracts with over
210 resellers, including eight of the top 10 merchant acquirers whose aggregate
U.S. market share in 2001 approximates 70% according to The Nilson Report. Our
clients process the vast majority of all POS transaction activity in the United
States and include: Bank of America, BuyPass, Cardservice International,
CardSystems, Concord EFS, First Data Merchant Services, First Horizon, Global
Payments, Lynk Systems, MSI, National Processing Company, Paymentech, Vital, and
many others.

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

---

## THE U.S.
WIRELESS DATA SUITE OF SOLUTIONS

## Emerging Markets

Synapse was designed to
help the electronic payments industry open doors to new and emerging markets. In
recent years, card associations, card issuers, credit card processors, and
merchant acquirers have desired a way to penetrate a variety of market segments
that are still largely cash-driven. These segments include mobile merchants,
in-home and other mobile service providers, ground transportation, quick service
restaurants, vending machines, and others. In the aggregate, we believe these
markets represent one of the final opportunities of significant growth for card
acceptance.

These market segments have
remained cash-oriented because of the technological gaps or unattractive costs
that have prevented them from employing non-cash payment systems. We developed
our Synapse platform of services and products to bridge the technological gaps
with wireless solutions that deliver real-time transaction authorizations, fast
transaction speeds, and reduce operating costs for the card accepting merchant.
In doing so, we provide the transaction processing industry with a valuable
opportunity to reach these large and untapped markets for card acceptance.

## Leading the
Migration from Dial-Up to Wireless

In addition to these new
market initiatives, we are strategically positioned to lead the migration from
dial-up to wireless technology in traditional retail POS environments. This
universe of fixed-location POS retailers (e.g. traditional storefront
businesses) is of special strategic importance to us, and is the focus of
significant product development and marketing efforts. There are more than 10
million existing POS terminals currently being used throughout the United
States. Our lead products in this segment, the Synapse Adapter and Synapse
Enabler, are designed to enable retailers POS terminals to communicate
with their processors on a wireless rather than wired basis. These
line-displacement products help retailers save money through reduced
telecommunications costs and improved customer service, which results from
faster transaction speeds.

Our line displacement
products also offer a significant financial inducement to the bankcard industry,
enabling merchant services providers to mark up the wireless service, and resell
it to the merchant at a profit. This opportunity is significant in the payments
industry because, for the first time, merchant services providers can harvest
telecom revenue from their merchant base. Given the competitive nature of the
reseller market, providing merchant acquirers with an additional line of revenue
offers significant motivation to convert existing accounts to wireless, and to
sell new or competitive accounts on the advantages that wireless delivers.

We seek to win significant
transaction volume in the $125 billion Quick Service Restaurant (fast food)
industry, which is seeking a fast-working credit card solution. Our proprietary
product for this industry is currently in Beta testing and is expected to be
rolled out with a top payment processor prior to the calendar year end, allowing
us to aggressively pursue this market.

In addition to replacing
the phone line for POS systems in fixed-location retail environments, our
Synapse Adapter can also replace the dial-line that connects the smaller, less
expensive off-premise ATMs that are typically deployed for the sole purpose of
dispensing cash. By converting a dial-up ATM to wireless, the ATM operator can
achieve cost savings compared to the cost of line-installation and monthly fees
associated with a wired dial line. The operator can also improve efficiency by
placing the ATM as soon as it is ordered, rather than having to wait for the
line to be installed by the local telephone company and paying for the placement
of the telephone-line jack. In addition, relocation of an underperforming ATM is
also much easier with wireless. This flexibility allows the operator to save
significant time and money when deploying an ATM, as a new machine may be moved
a number of times before a profitable location is found.

As we continue to grow our
relationships with ATM processors such as Concord EFS (owners of the STAR
transaction network), Lynk, and NYCE; we will seek to gain market share for
newly placed machines, as well as to penetrate the installed based of machines
that are dependent on dial-line connectivity.

## Pepsi and
Other Vending Opportunities

We plan to use our Synapse
platforms to transport data to provide solutions for various non-payment
applications or applications using a combination of payment and non-payment
data. On December 21, 2001, we announced a joint effort with Pepsi Cola North
America designed to (a) enable their soft drink vending machines to accept
credit cards, and (b) connect their vending machines to an always-on
wireless network, allowing bottlers to query the machine and gain real-time
information about machine inventory and cash and credit card transactions, as
well as the machines operational status.

---

Because accepting credit
cards reduces the barriers to consumption (e.g. not having enough or the
appropriate cash on hand), Pepsi and its bottlers expect to benefit from an
increase in sales. So far, pilot-testing has shown that Pepsi and its bottlers
can also expect to see increased profits, as it has been demonstrated that
credit card acceptance enables price increases to be implemented without
forfeiting volume. Further, through the telemetric capabilities (i.e., data
gathering and communicating) of the new machines, bottlers can instantly
ascertain the exact needs of each machine on a delivery route and adjust their
inventory and planned stops accordingly. This level of monitoring and reporting
at the bottler can improve operational efficiency and reduce operational costs.

Pepsi has purchased more
than 500 units to date for the purpose of conducting pilot-testing, as well as
initial roll-outs of the technology. We have units operating in a few cities at
various venues and the trials include some of Pepsis key bottlers. We are
also currently conducting product trials with several of the largest national
full service snack/beverage/foodservice providers.

Pepsi and its bottlers
place approximately 100,000 new vending machines each year that could be enabled
with wireless technology for wireless credit card acceptance and telemetry.
There are approximately 600,000 electronic vending machines already deployed in
the field that could be retrofitted for wireless card acceptance and telemetry.
In addition, we believe that Pepsis snack food vending subsidiary (Frito
Lay) represents an additional opportunity, as there are a large number of these
vending machines that are either in the field already, or that are shipped new
each year. There are more than 4.1 million vending machines in the U.S.,
offering a significant opportunity for the growth of credit card acceptance and
other services for vending machines.

## THE SYNAPSE
PLATFORM

In support of these and other
initiatives, we developed Synapse: a reliable, scalable, flexible proprietary
platform to deliver a broad, integrated suite of services to merchants, merchant
acquirers, credit card processors, vending machine deployers, ATM operators,
distributors, and others.

We developed Synapse to be
highly customizable, enabling our customers to select from among a broad range
of services and products. Synapse encompasses a choice of wireless networks;
wireless hardware (i.e. line-displacement products and wireless POS systems
manufactured by third-parties); and a myriad of processors, including credit
card, debit card, loyalty card, gift card, or proprietary hosts. Such
flexibility enables our customers and end-users to have it their way
 a message that is unique in the industry and that is communicated to the
market through our Synapse tagline: Making Wireless Easy.

Synapse brings together
multiple wireless networks, providing a latticework of wireless coverage that
delivers the only truly ubiquitous wireless service area in the U.S. While each
network offers its individual coverage footprint, providing less than 100%
coverage, the combination of these networks in Synapse assures the payments
industry of a single solution with the broadest coverage. By maximizing coverage
options for the payments industry, merchant services providers have solutions
for customers no matter where they conduct point of sale transactions.

Transaction processors
benefit from Synapse by not having to negotiate with each wireless carrier to
build and support connectivity, nor do they have to incur the up front and
on-going costs associated with the maintenance of such multiple connections.
They simply connect to the Synapse platform as a single point of contact. As new
terminals and transaction types become available, each transaction processor
will be able to use their existing Synapse connection to gain wireless access
with virtually no development expense or effort. As Synapse enables both
traditional and emerging markets to accept wireless payment processing, wireless
carriers benefit from an increase in traffic and simplified connectivity to the
processors.

In addition to providing a
wealth of turnkey merchant solutions, we are also making wireless easy by
supporting our solutions with an internet-based customer service infrastructure.
We provide easy-to-use features on our website that make setting up a merchant
with a wireless terminal a simple and quick process for our clients. Where once
it involved multiple parties, activating a terminal now takes a few moments
through a single online interface. Most importantly, our website features
real-time transaction reporting (for most applications) that provides an
up-to-the minute view of transaction activity at the customer point-of-sale.

We also add additional
convenience to our customers through internally developed search engines that
determine the quality of wireless coverage for various carriers by zip code.
This tool makes it easy for a merchant services provider to compare network
coverage strength and recommend the optimal solution to their customer.

---

## SERVICES AND
PRODUCTS

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues consist
of: (a) one-time, non-refundable service activation fees; (b) fees for
transactions delivered on wireless or other methods through our hosts; (c)
monthly minimum subscription fees for the availability of service; and (d) other
fees, including certain charges for telecommunications connections between us
and another party. Service revenues are generated from our Synapse Service. Most
U.S. Wireless Data services are designed to be device-independent and serve
multiple platforms that enable our clients to support a variety of protocols,
which result in supporting a variety of products and services. Revenue from
product sales are primarily derived from the sale of our proprietary Synapse
Adapter and Synapse Enabler products, and, since these products must send
transactions through our Synapse Wireless Service, sales of these products
typically generates Synapse Service revenues as described above. The following
provides more details on our service and product (equipment) offerings:

## SynapseSM
Wireless Services

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

## Synapse
Enabler for POS

The Synapse Enabler is a
proprietary device that we developed for the purpose of converting non-wireless
devices to a wireless medium. The Synapse Enabler is designed to interface with
devices, such as vending machines, taxi meters, and utility meters, using a
serial port connection. In addition, many dial-up point-of-sale terminals have
spare serial ports and the Synapse Enabler can interface with such devices, thus
wirelessly enabling them. The Synapse Enabler with T8 Hub can convert as
many as eight POS terminals to a single wireless connection, making it an ideal
solution for multi-lane environments such as quick service restaurants (fast
foods).

## Synapse
Adapter for POS or ATMs

The Synapse Adapter
is a proprietary device utilizing patented dial tone emulation technology
licensed from AT&T Wireless Services to provide our clients with a seamless
"plug and play" solution for the conversion of most conventional
dial-up point-of-sale terminals to a high speed, lower cost wirelessly enabled
device.

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

## Synapse
Enabler for Vending

In addition to
fixed-location, mobile, and portable wireless applications, we are actively
involved in integrating our propriety technology into existing devices at the
point of sale to create new opportunities for card acceptance. Vending machines
are one area in which we have made significant progress. The Synapse Enabler has
been integrated into vending machines in certain cities as part of a pilot
program for Pepsi-Cola North America to introduce credit card payments for their
vended products. In addition to enabling card payments on vending machines, the
Synapse technology delivers up to the minute information about inventory and
operational status of each vending machine, helping vendors become more
efficient in determining daily routes and contributing to keeping machines
operating at peak performance.

---

## Synapse
Wireless Payment Acceptance on Phones, Pagers and Other PDA Devices

The market for card payments
will likely become larger with the emergence of new payment devices based on
mobile phone, pager, and other devices such as personal planners and organizers,
referred to as beltware technology. We intend to offer beltware
solutions based on products from Creditel (cellular phones) and Comstar
(pagers).

## Synapse
Enabler for Transportation

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

## Other Services

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

## STRATEGY

We believe our experience
and capabilities have established us as the early market leader in providing
wireless transaction products and services. Our strategy is to extend our
leadership position by using our engineering expertise, software capabilities,
and our other resources to move quickly into new opportunities.

## Our Major
Initiatives

Our major initiatives to
serve the emerging market for wireless payment processing include:

|° | Card acceptance on Pepsi and other vending
machines.
|- | ----------------------------------------------------

|° | Card-enabled taximeters.
|- | ------------------------

|° | Line displacement products, including our Synapse Enabler with T8 Hub product
that enables multiple POS terminals to share a single high-speed wireless
connection at a fraction of the cost of conventional phone lines.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Connecting the leading wireless POS terminals and payment processors to our
platform.
|- | -------------------------------------------------------------------------------------

|° | The introduction of beltware solutions to the POS market, including
pagers, mobile phones and other PDA devices fitted with card processing
technology from USWD and our strategic alliances.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Supporting
Strategies

Our strategy includes the
following key elements:

|° | Continue to brand Synapse as the standard for wireless transaction processing.
By continuing to position Synapse as a neutral gateway between end user devices
(POS terminals, ATMs and other devices), carriers, and processors, and by
enabling seamless connectivity among these parties, coupled with efficient
management features, we intend to establish USWD as the standard for wireless
transaction processing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Leverage our current vending activities and relationships in an effort to
penetrate additional vending opportunities.
|- | ---------------------------------------------------------------------------------------------------------------------

|° | Leverage our established sales channels to further penetrate the market for
wireless POS. We generally sell our products and services to merchant acquirers,
independent sales organizations, and payment transaction processors. We focus
our primary marketing efforts on the merchant acquirers and independent sales
organizations that represent the vast majority of transaction activity in the
electronic payment marketplace. These companies resell the Synapse technology as
a turnkey system directly to merchants.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|° | Partner with POS terminal and ATM manufacturers to create Synapse compatible
products. A component in the success of Synapse will be the availability of
wireless devices for Synapse services, that can meet the requirements of our
targeted market segments. Most terminal manufacturers have developed Synapse
certified devices. As part of our "device neutral" strategy, we are
partnering with these manufacturers to continue developing products that are
certified for use with the Synapse platform.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Grow our list of Class A certifications with the industry's leading
payment processors. Class A solutions are fully supported by the
payment processor or merchant acquiring entity. As such, they are embraced by
the independent sales organization (ISO) sales channel for the
simplicity and ease with which they are sold and supported.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Expedite and lead the transaction industrys migration of POS and ATM
connectivity from conventional landlines to wireless technology. We intend to
exploit the larger market of wired POS terminals and ATMs through our Synapse
Adapter and Synapse Enabler products.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Explore opportunities to partner with companies with complementary technologies
or which will assist us in adding sites and generating transaction volume to
enhance and extend our position in the industry.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Explore new market opportunities applicable to and enhanced by wireless
(transportation, ATMs, vending, gaming, etc.), including markets for the
processing of other payment and/or non-payment applications such as telemetric
data, including usage and inventory data from utility or other meters and
vending machines or EBT transactions.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Monitor developments in the wireless arena, including the development of
next generation networks (such as GPRS) and seek arrangements to
broaden our offerings, giving our customers a wide variety of wireless network
and carrier choices utilizing our Synapse products and services.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Expand into selected international markets.
|- | -------------------------------------------

|° | Become a vehicle for the transportation of frequency and loyalty program
information.
|- | -------------------------------------------------------------------------------------

|° | Accommodate non-conventional payment and debit transactions.
|- | ------------------------------------------------------------

## SALES AND
MARKETING

We market Synapse services
and products to industry resellers, including merchant acquiring banks,
independent sales organizations, and card processors. These customers, in turn,
market and promote our services and products as a turnkey system directly to
merchants. In addition to our reseller channels, we jointly market the Synapse
system with bankcard associations, other card issuers, and wireless carriers.
Our sales strategy is to leverage these relationships, and to develop additional
strategic relationships, derived from business-to-business marketing, industry
and trade events, and referrals from our network of customers.

Our target markets
include:

|° | Conventional retailers.
|- | -----------------------

|° | Quick service restaurants.
|- | --------------------------

|° | Traditional restaurants.
|- | ------------------------

|° | Delivery services.
|- | ------------------

|° | Hotels.
|- | -------

|° | Financial institutions.
|- | -----------------------

|° | Ski resorts.
|- | ------------

|° | ATM processors.
|- | ---------------

|° | Transportation services such as taxicabs, limos, and buses.
|- | -----------------------------------------------------------

|° | Stadiums, arenas and amusement parks.
|- | -------------------------------------

|° | Golf tournaments, racetracks and other events.
|- | ----------------------------------------------

|° | Traditional landline based merchants that desire high speed transactions,
reduced communications costs and/or Synapse on-line reports.
|- | --------------------------------------------------------------------------------------------------------------------------------------

---

## INDUSTRY
BACKGROUND AND CURRENT TRENDS

## Historical
Growth of Card Acceptance

For many years, merchant
acquirers, transaction processors, and card issuers have been inducing card
accepting merchants to utilize electronic draft capture (EDC)
terminals to conduct safer on-line credit and debit card transactions. As a
result, the majority of the transaction dollars from merchant locations
accepting bankcards are processed by EDC terminals commonly known as POS
terminals. 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,
along with the transaction amount and terminal specification data to a front-end
processor for electronic on-line authorization. The front-end processor
authorizes the card with the card issuer, electronically captures the
transaction, generates an approval code and returns the data to the terminal,
which signals an attached electronic printer to print a customer receipt.

Today, growth not only
continues in traditional venues, recent developments in technology and the
market have spurred growth in new areas. We anticipate that we will take
advantage of the convergence of the following trends:

|° | Industry consolidation.
|- | -----------------------

|° | Continued growth of card use and acceptance.
|- | --------------------------------------------

|° | Growth of wireless communications.
|- | ----------------------------------

|° | Technology.
|- | -----------

## Industry
Consolidation

As with many fast growing
industries, the transaction processing industry has undergone rapid
consolidation. The cost of maintaining EDC systems, merchant requirements for
improved customer service and the demands for additional customer applications
has made it difficult for some banks and ISOs to remain competitive. Many of
these providers are unwilling or unable to invest the capital required to meet
these evolving demands, and are increasingly exiting the transaction processing
business or otherwise seeking alliance partners to provide transaction
processing for their customers. Many of the transaction processors utilize and
maintain legacy front-end systems that are difficult to adapt to new
technologies. Accordingly, transaction processors that utilize these systems
find it difficult to meet the increasing merchant demands for more sophisticated
products and services.

We offer major processors,
banks, and ISOs the ability to
quickly implement a wireless POS program. Our turnkey solution offloads the
burden of development and time to market traditionally associated with a major
initiative being driven by new technology. By outsourcing the development and
maintenance of special services, processors, banks, and ISOs can focus on
quickly bringing new revenue-enhancing products to the merchant marketplace.

## Continued
Growth of Card Use and Acceptance

The credit and debit card
industry has experienced significant growth during the last two decades, with
U.S. card purchase volume increasing from $187 billion in 1986 to $1.3 trillion
in 2000 according to the Credit Card Management Blue Book and The Nilson Report.
This trend is expected to continue through 2010, by which time annual card
volume will increase to nearly $9.5 trillion, according to The Nilson Report.
This growth is attributed to U.S. consumers adapting from cash to other
electronic payment methods and the international adoption of card based payment
products.

According to the Nilson
Report, the number of U.S. consumer purchases is projected to grow to 152
billion by 2010, up from 79 billion in 1999. Notably, the portion of these
payments transacted electronically is expected to rise from 25% or 28 billion to
47% or 71 billion during the same period with almost half coming from debit card
usage. This translates into an increase in the U.S. of card purchase volume from
$1.3 trillion in 2000 to a projected $4.8 trillion by 2010.

We have created a portfolio
of services and products that link the point of sale and card processors,
loyalty companies and other transaction companies. Accordingly, the forecasted
growth in the usage of card payments should increase the demand for the
connectivity that U.S. Wireless Data provides.

---

Merchant demand for card
acceptance solutions is being driven by the fact that consumers tend to spend
more when paying with cards than with cash. MasterCard and Visa cards are now
being accepted at locations such as the U.S. Postal Service, municipalities,
hospitals, and other places of business that have historically not been
considered card acceptors. One example is the fast food industry, which
currently has a low penetration rate with respect to credit card acceptance due
in large part to slow speeds associated with dial up technology. We view the
fast food industry as a key market segment for the deployment of Synapse
services.

Also adding to the rise in
card acceptance is the adaptation of mobile transaction processing from cash and
checks to credit and debit cards. This trend has paralleled America's demand for
convenience and desire to save time. The retail point of sale is now expected to
be located wherever the customer is located  and it is expected to take
plastic. Thus, a wide range of business services such as towing,
locksmiths, concessionaires, special event vendors, in-home appliance repair
services, mobile auto repair, door-to-door sales, and delivery services depend
almost exclusively on completing the sales transactions at the card holder's
location. Because Synapse wireless services are designed to make it easy for all
parties to facilitate card payment at the customer location, this segment of the
industry will continue to provide significant growth for our company.

## Growth of
Wireless Communications

Worldwide use of mobile
communications is growing rapidly, including the development of wireless
Internet-enabled phones, personal digital assistants and two-way pagers.
According to the CTIA, worldwide wireless subscriptions have grown from 340
thousand in 1985 to more than 128 million in 2001.

These hand-held devices are
already finding a home in the payment-acceptance industry through companies that
are outfitting them with card-readers. Because these devices will be somewhat
less expensive than wireless POS terminals made by the major terminal
manufacturers, they will be a popular payment acceptance tool for small
businesses and companies that operate a fleet of vehicles. Like POS terminals,
these new devices will need connectivity to the payment processors to complete a
transaction. We expect Synapse to be a major payment gateway for these devices
and we seek strategic relationships with the providers of such devices. In this
regard, we are introducing solutions on products from Creditel (cellular phones)
and Comstar (pagers).

In addition to the
introduction of new wireless devices for mobile communications, wireless has
become an alternative to landline communications for merchants in fixed
locations. The growth of payment acceptance discussed earlier is driving the
need for more telecommunications services. Current dial-up technology is not
sufficient to support this growth. For example, transactions using dial-up
technology take an average of 15  20 seconds, which is too long for fast
food and other queue sensitive businesses. Rewiring in order to take advantage
of improvements in technology is quite costly and time intensive. This suggests
that a growing percentage of the legacy terminals attached to telephone lines
will need to be replaced to meet the various technical and functional demands of
the changing marketplace. As a result, wireless technology is emerging as a
viable solution for merchants, including those currently transmitting via
conventional telephone lines.

## Technology

Compounding the limitation
of resources, technological capabilities required for the rapid and efficient
creation, processing, handling, storage and retrieval of information are
becoming increasingly complex. These capabilities require large development and
capital expenditures, in addition to processing expertise, and have contributed
to a trend toward the outsourcing of processing services that benefits us.

## KEY
DEVELOPMENTS DURING FISCAL YEAR 2002

## July 2001

| | ° | Concord EFS, a leading payment processor, entered into an agreement to offer our
wireless payment services for point of sale and ATM processing. In addition,
Concord will use our proprietary technology to convert current dial-up devices.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | Our Chairman and CEO testifies before U.S. Senate Committee on Agriculture,
Nutrition and Forestry regarding the benefits of wireless point of sale
transactions for farmers and participants in the U.S. Department of Agriculture
Food Stamp Program.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

## August 2001

| | ° | The New York State Federation of Taxi Drivers, Cynergy Data, Lipman USA and USWD
launch a program to install New York City livery cabs with wireless credit card
terminals.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | We announced the consolidation of our technical operations into the Company's
Palmer Lake, Colorado facility.
| | - | -------------------------------------------------------------------------------------------------------------

## September 2001

| | ° | Heidi R. Goff is appointed as President and Chief Operating Officer.
| | - | --------------------------------------------------------------------

## October 2001

| | ° | First Data Merchant Services has certified our Synapse(SM) technology, with the
Lipman 3010 wireless POS terminal, for wireless credit card transaction
processing.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

## December 2001

| | ° | Pepsi introduces credit card vending. Pepsi-Cola North America is implementing a
wireless technology system developed by USWD that will enable consumers to pay
for Pepsi soft drinks with credit cards.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## February 2002

| | ° | Wells Fargo Merchant Services and USWD provide new wireless credit card
technology for 80 taxicabs in Salt Lake City.
| | - | ---------------------------------------------------------------------------------------------------------------------

| | ° | USWD provides wireless POS terminals for the National Football Leagues
2001 Pro Bowl in Honolulu, Hawaiifor the second year in a row.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | ° | U.S. Senate supports wireless electronic benefit transfer services in Farm Bill;
our technology provided the pilot system.
| | - | --------------------------------------------------------------------------------------------------------------------------

## March 2002

| | ° | Cingular Wireless signs an agreement under which USWD will offer Cingular's
nationwide Mobitex wireless packet data network as part of its Synapse(SM)
wireless service for credit, debit, and EBT transactions, as well as ATM
transactions and data telemetry applications.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## April 2002

| | ° | USWD signs an agreement with Creditel(TM), a leading wireless technology and
turnkey business-services provider, to introduce PowerSwipe(TM) and
PowerPay(TM), two new payment products for mobile phones.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## May 2002

| | ° | Lynk and U.S. Wireless Data join forces to provide credit card acceptance via
wireless handheld terminals in all 90 North American cities that Ringling Bros.
and Barnum & Bailey Circus visit each year.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## KEY
DEVELOPMENTS TO DATE DURING FISCAL YEAR 2003

## July 2002

| | ° | USWD and NYCE Corporation (which processes nearly 100 million electronic
transactions each month) agree to work together to provide wireless technology
as an optional service to NYCEs ATM terminal deploying clients.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | Centrodyne and USWD introduce credit card-accepting taximeters in Dallas, TX.
| | - | -----------------------------------------------------------------------------

## August 2002

| | ° | Pepsi America announces placement of 80 new credit card-accepting vending
machines in Chicago.
| | - | ----------------------------------------------------------------------------------------------

| | ° | Adi Raviv is named as Chief Financial Officer.
| | - | ----------------------------------------------

---

## September 2002

| | ° | USWD sells NXT Corporation to Merchant-Link LLC, a subsidiary of Paymentech
L.P., for $5 million.
| | - | -------------------------------------------------------------------------------------------------

| | ° | USWD and Paymentech L.P. sign a three-year agreement stating that Paymentech or
its affiliates will purchase at least an aggregate of $3,472,500 of
wireless-based transaction processing services and products from USWD during
such period.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | Vital Processing Services launches new wireless payment services through a
reseller agreement with USWD.
| | - | --------------------------------------------------------------------------------------------------------

## STRATEGIC
RELATIONSHIPS

A key to our ability to
provide complete wireless transaction services to our customers are our
relationships with certain third parties, many of whom are our clients. These
relationships take significant time and resources to develop and implement.
Having these relationships provides us with an advantage in getting our products
and services to market. We maintain the strategic relationships described below:

## Third Party
Processors

We are aligned with all of
the major credit card processors that are both the client for our solutions and
our reseller partner. We have contracts with over 210 resellers, including eight
of the top 10 merchant acquirers whose aggregate U.S. market share in 2001
approximates 70% according to The Nilson Report. Our clients process the vast
majority of all POS and ATM transactions in the United States and include: Bank
of America, BuyPass, CardService International, CardSystems, Concord EFS, First
Data Merchant Services, First Horizon, Global Payments, Lynk Systems, MSI,
National Processing Company, Paymentech, Vital, and many others. Our
relationship involves certifying solutions to these processors based on specific
terminal/network combinations. Once certified to Class A level,
these processors take over the support function for merchants using the wireless
devices in the field. By providing these organizations with a simplified and
expedient method of incorporating wireless services and products into their
marketing efforts and operations, we have become the leading source of wireless
POS solutions for the bankcard industry.

In addition, we have
developed strategic relationships with the major processors of ATM transactions
over the PIN-secured debit networks, including Concord EFS, CoreData, EFT Logix,
and NYCE. Through these relationships, our Synapse Adapter converts dial-up ATMs
to wireless ATMs. This includes ATMs from the leading manufacturers such as
Cross International, Diebold, Fujitsu, Greenlink, Lipman USA, NCR, Synkey,
Tidel, Triton, and WRG Services,operating on such regional debit
networks as Cash Station®, Jeanie®, MAC®, MONEY STATION®,
NYCE®, STARsm, and national and international networks including American
Express®, Carte Blanche®, Diners Club®, Discover®,
MasterCard®/Cirrus®/Maestro®, and
VISA®/PLUS®/Interlink/VISA NET.

## Card Issuing
Organizations

Our wireless efforts are also
aligned with the card issuing organization (Visa, MasterCard, American Express,
and Discover) whose aim is to spread card acceptance to new, untapped markets,
and who are investing significant resources to that end. We maintain close
relationships with these associations and leverage our mutual interests in
reaching new markets whenever possible.

## Wireless
Carriers

We believe our
relationships with wireless carriers are mutually beneficial. As a result, we
are generally able to negotiate for favorable rates and for collaborative joint
marketing initiatives. Typically, we have agreements to purchase data network
service at predetermined rates based on volume. We currently offer wireless
service utilizing the Cellular Digital Packet Data (CDPD) networks
of AT&T Wireless Services, Alltel and Verizon Wireless; the DataTAC network
operated by Motient; and the Mobitex network operated by Cingular. We monitor
developments in the wireless arena, including the development of next
generation networks and seek arrangements to broaden our offerings, giving
our customers a wide variety of wireless network and carrier choices utilizing
our Synapse products and services. We are also exploring alternative
methodologies such as satellite.

---

## Other
telecommunications carriers

We also use
telecommunications services of traditional carriers to provide connectivity to
and from the wireless carriers, processors, and others.

## Terminal and
other device manufacturers or distributors

Our services increase the
usefulness of wired and wireless terminals or devices, and accordingly, we
believe our services will increase sales of these items. POSdevice
manufacturers have therefore assisted us in various connectivity and
certification projects we have undertaken. POS equipment manufacturers with
which we have strategic relationships include Hypercom, Ingenico/IVI, Intellect,
Linkpoint, Lipman, Symphony, Thales, and Tillsmith Systems. We also have
relationships with other device manufacturers or distributors, including
Centrodyne and Pulsar (taxi meters), Comstar (PDAs) and Creditel (cell
phones).

## COMPETITION

Our industry is new,
rapidly evolving and it is likely that we will have an increasing number of
competitors in the future. Our industry is characterized by constant
technological innovation. To be successful in this emerging market, we must be
able to sufficiently differentiate ourselves from other service providers.

The principal competitive
factors in the market, which we believe we possess include:

| | ° | Ability to deliver services when requested by customers.
| | - | --------------------------------------------------------

| | ° | Network and system engineering expertise.
| | - | -----------------------------------------

| | ° | High quality 24 hours a day, 7 days a week and 365 days a year customer service
for processors and ISOs.
| | - | --------------------------------------------------------------------------------------------------------

| | ° | Network capabilities, reliabilities, redundancy, quality of service, and
scalability.
| | - | -------------------------------------------------------------------------------------

| | ° | Variety of services offered.
| | - | ----------------------------

| | ° | Access to network resources, including circuits, equipment, and interconnection
capacity to other networks.
| | - | -----------------------------------------------------------------------------------------------------------

| | ° | Competitive price structures.
| | - | -----------------------------

| | ° | Ability to maintain and expand distribution channels.
| | - | -----------------------------------------------------

| | ° | Brand name recognition.
| | - | -----------------------

| | ° | Continued development and introduction of new state of the art products and
services.
| | - | -------------------------------------------------------------------------------------

| | ° | Network security.
| | - | -----------------

| | ° | Customer base.
| | - | --------------

We believe that merchants
prefer to purchase solutions from a single vendor in order to address their
needs. Our Synapse services support a broad range of devices and our
standards-based approach will continue to allow us to compete favorably with
larger companies whose products may not be able to support such a degree of
interoperability. We believe that our strategic relationships with major payment
processors and wireless carriers enable us to provide interoperability among a
broader spectrum of applications than our current and potential competitors.

We believe we have several
competitive advantages, including strong relationships and alliances with most
of the major processors, wireless carriers, and device manufacturers or
distributors. In addition, we are unique in that we are neutral towards devices,
carriers, merchant acquirers, and processors.

Nevertheless, we may not be
successful in differentiating ourselves or achieving widespread market
acceptance of our business. We may also face competition from companies
attempting to replicate our Synapse concepts. Furthermore, enterprises that have
already invested substantial resources may be reluctant or slow to adopt our
approach which may replace, limit or compete with their existing systems.
Potential competitors may bundle their products or incorporate similar services
in a manner that is more attractive to our potential customers than purchasing
and utilizing our services. In addition, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can. There are no assurances that
we would be able to either develop products and services that are comparable or
superior to those offered by our current or future competitors or adopt new
technologies to meet evolving industry standards and changes in customer
requirements.

---

Some of our potential
competitors may have longer operating histories and significantly greater
financial, technical, marketing and other resources than we do. In particular,
carriers and POS manufacturers have extensive customer bases and broad
customer relationships that they can leverage, including relationships with our
potential customers. These companies sometimes have significantly greater
customer support service capabilities than we do. Due to their greater financial
resources some of these companies have the ability to adopt aggressive pricing
policies. As a result, in the future we may have to adopt pricing strategies
that compete with such companies to attract and retain customers.

Finally, there are few
substantial barriers to entry to the wireless payment transaction market and we
expect to face additional competition from existing competitors and new market
entrants in the future.

## EMPLOYEES

We had 55 employees as of
June 30, 2002, and, as of September 15, 2002, after the sale of NXT, we had 45
employees, with primary locations in New York, New York, and Palmer Lake,
Colorado. None of our employees are represented by a labor union and we consider
our employee relations to be good.

## COMPANY HISTORY

We were founded in July
1991 for the purpose of designing, manufacturing and marketing wireless and
portable credit card and check authorization terminals. In December 1993, we
completed an initial public offering, raising approximately $12,200,000 through
the sale of 1,650,000 shares of common stock. In October 2000, we reincorporated
in Delaware.

Our initial strategy was to
manufacture and sell portable electronic payment terminals to communicate via
circuit switched cellular voice technology. We designed, manufactured and
marketed the POS-50(R), which was recognized as the world's first truly
integrated and portable wireless credit card and check authorization terminal.
The product was launched in the first quarter of 1994 and was marketed through
acquiring banks, POS hardware distributors, ISOs and by us directly.

The POS-50 allowed a
merchant to electronically capture a credit card, debit card, or check
transaction at the point of sale, virtually anywhere cellular voice service
existed. Due to its portable and wireless nature, the POS-50 was well suited for
the small to medium sized mobile retailer or service company. Examples of POS-50
customers included craft show vendors, sporting event concessionaires, towing
services, cart and kiosk vendors, and essentially any business
on-the-go that wanted to safely accept credit and debit cards for
their products and services.

While the POS 50 did
receive much recognition from various sectors of the credit card processing
industry as the first truly wireless point-of-sale terminal, only approximately
7,000 devices were sold between 1994 and 1998. Our failure to attract broad
market acceptance for our new device and, hence, more terminal sales, stemmed
primarily from five factors: (a) the cost of the device was very expensive to
manufacture versus traditional POS terminals, therefore, the price to our
customers was very high; (b) lack of broad terminal application certification by
front-end processors; (c) slow transaction speed; (d) our primary focus on the
development of the POS-50 technology left inadequate resources to market and
promote the new wireless device to the credit card processing industry and (e)
little acceptance of wireless as a viable technology. Due to these five factors,
we were unable to capture broad market acceptance and realize meaningful levels
of sales of the POS-50 terminal.

Starting in 1997, we
attempted to reposition our business from being solely a manufacturer of
wireless point-of-sale terminals to becoming a provider of transaction
processing services. This realignment was sought to augment our one-time
equipment sales with recurring revenue generated by the sale of wireless credit
and debit card processing services to retail merchants. In doing so, we set out
to offer a "one-stop" wireless solution directly to card accepting
merchants. The suite of services offered included the sale of our own wireless
POS terminals, including a device called the TRANZ-Enabler, which adopted
Verifone's wireline TRANZ devices to work wirelessly, the resale of the newly
introduced and speedier CDPD wireless services and the establishment of credit
card acceptance capabilities for merchant clients through our relationships with
two credit card acquiring institutions.

---

Throughout 1997 and 1998,
we focused our resources on selling, directly to merchants, a transaction
processing "solution" consisting of a terminal, CDPD airtime purchased
from major cellular providers, and transaction processing services. To
accomplish this, we began marketing our products and services through a series
of distribution and joint marketing agreements with the major CDPD service
providers. This effort required the creation of a large, regionalized sales
organization that trained and supported data sales representatives from each
respective cellular carrier. GTE Wireless was the first cellular organization
mobilized to sell our products and services followed by AT&T Wireless, Bell
Atlantic Mobile and, ultimately, Ameritech. The salesforce primarily included
individuals with wireless product expertise, rather than, individuals skilled in
the distribution of bank card products. In our efforts to provide a turnkey
solution to card accepting merchants, we had inadvertently positioned our
business in direct competition with the industry's largest acquirers, banks and
ISOs. This competitive stance resulted in disappointing sales and the perception
of us by the credit card industry as a direct competitor and not a provider of
value added services, thus hampering our ability to sell our services to many
players in the industry.

In August 1998, faced with
disappointing sales and high overhead expenses due to a recently expanded
sales-oriented headcount, we recognized the apparent danger of our competitive
posture and set out to re-orient ourselves as an enabler of the marketplace. It
was during this period that we began the development of Synapse's predecessor.

In May 1999, Dean M.
Leavitt, the founder and former President of US Data Capture, a credit card
processing company serving a broad spectrum of conventional card acceptors and
emerging markets, was hired as our Chairman and Chief Executive Officer. Mr.
Leavitt immediately began redirecting our resources in an effort to have Synapse
become recognized as the standard for the development, implementation and
management of wireless transaction processing solutions. To accomplish this
goal, we have repositioned ourself as an enabler of the merchant acquirer/ISO
marketplace on a "wholesale" basis and have, for the most part,
discontinued our direct marketing activities to end-user merchants. As part of
this strategy, we have re-positioned our business and technology to be
completely neutral with respect to POS terminal manufacturers, wireless
carriers, front-end and back-end processors, and merchant acquirers. In order to
facilitate this process, we have begun aligning ourself with strategic partners
such as merchant acquirers, terminal manufacturers, ISOs, front-end processors,
and terminal deployment companies through the execution of "Synapse
Agreements." As evidence of our neutrality strategy, we have de-emphasized
our development of proprietary terminals, focusing instead on our proprietary
Synapse host technology and the certification of other terminal manufacturers'
products on the Synapse platform. Furthermore, in May 1999, we entered into an
agreement with Motient (formerly American Mobile) under which we added that
company's communications technology to our Synapse suite of services, thereby
officially signaling the end to our CDPD-only orientation. In addition, as
evidence of our neutrality with respect to merchant acquirers and ISOs, we have
de-emphasized credit card acquisition activities and, in July 1999, we sold one
of our two merchant portfolios. We terminated our relationship with the other
portfolio during fiscal year 2001. As part of the strategy to re-orient USWD as
a neutral enabler of the credit card processing marketplace, our financial model
has been transformed from one that was based upon one-time product sales
revenues to one that now relies heavily upon the development of recurring
revenues generated from Synapse enabled sites.

In March 2000, the Company,
in order to finance the on-going operations, finalized a private placement with
Commonwealth Associates acting as the placement agent. The private placement was
closed in three tranches on March 17, 2000, March 28, 2000 and May 31, 2000, in
which an aggregate of 558.66 Units were sold at $100,000 per Unit for aggregate
gross proceeds of $55,866,000. Each Unit consists of 10,000 shares of the
Company's Series C Preferred Stock (convertible into 16,667 shares of common
stock on a postsplit basis) and warrants to purchase common stock equal to 25%
of the number of shares into which the Series C Preferred Stock is convertible.

On November 16, 2000, we
acquired the assets and assumed certain liabilities of Cellgate Technologies
LLC, a Delaware limited liability company in a cash and stock transaction. With
the acquisition of Cellgate and its proprietary technology, we obtained a unique
ability to accelerate our entry into the fixed wireless market by providing its
wireless solutions to the wired POS terminals and ATMs currently being used
throughout the United States.

On December 22, 2000, we
acquired NXT Corporation in a stock for stock transaction. NXT provides data
services and landline-based connectivity for credit-card transaction processing.
As previously disclosed, effective as of the close of business on August 31,
2002, we sold substantially all of the operating assets and operating
obligations associated with NXT to Paymentech, L.P. for $5 million.

---

## RESEARCH AND
DEVELOPMENT AND NETWORK OPERATIONS CENTERS

Our recent development
efforts have been directed almost exclusively toward Synapse services and
products. Our team of talented engineers and programmers are responsible for
developing software, hardware, new applications and interface technology that
allows our platforms to communicate with the various front-end card processors
or other entities. The network operating centers serve as our hub for
communications between the parties to a transaction, including, for example,
communications between wireless terminals and credit card authorization
processors. Included in our primary network operating center are our customer
care specialists. We train our customer care specialists to support our
customers with the operation of our services and provide twenty four hours,
seven days a week support.

## PATENTS AND
TRADEMARKS

Currently, we own U.S.
design patent no. 408812 on the TRANZ Enabler housing (issued in April 1999),
and have applied for U.S. and international patent protection on various
features of the Synapse technology. Specifically, we now have ten (10) patent
applications pending on the various processes and systems (and components
thereof) of the Synapse Technology, including the proprietary internet-based
interface and the transaction message formatting and communication protocol
software that performs various functions related to Synapse. In addition to our
patent protection, our software is also protected under copyright law. We may,
from time to time, pursue additional intellectual property protection on other
hardware, software and/or processes we develop where applicable.

We also have filed for U.S.
service mark registrations for the services we provide under the titles,
"Synapse", "Wireless Made Easy" and CardMeter.

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

## GOVERNMENT
REGULATION

We are not currently
subject to direct federal, state or local government regulation, other than
regulations that apply to businesses generally. The wireless network carriers we
contract with to provide airtime, our providers of other telecommunications
services, and some of our hardware and device suppliers are subject to
regulation by the Federal Communications Commission. Changes in FCC regulations
could affect the availability of wireless coverage or other services these
carriers are willing or able to sell to us. We could also be adversely affected
by developments in regulations that govern or may in the future govern the
Internet, the allocation of radio frequencies, or the placement of cellular
towers. Also, changes in these regulations could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of costs of litigation or increased service delivery
cost or could in some other manner have a material adverse effect on our
business, financial condition, or results of operations.

## IMPACT OF
ENVIRONMENTAL LAWS

We do not believe that we
are substantially affected by environmental laws and do not expect any material
impact as a result of such laws.

## INSURANCE

We believe that we maintain
the type and amount of insurance customary in our industry, including coverage
for general liability, product liability, property and casualty, business
interruption, and workers' compensation. Although there can be no assurance that
our property damage insurance will adequately compensate us for losses that we
may incur, we consider our insurance coverage to be adequate both as to risks
and amounts.

---

## ITEM 2.
DESCRIPTION OF PROPERTY

## FACILITIES:

We currently lease office
and operating space at the following locations:

`--------------------------------------------------------------------------------------------
        Location                               Business Use                          Square
                                                                                     Footage
---------------------------- ---------------------------------------------------------------
New York, New York           Corporate Headquarters and Sales and Marketing Offices,
                             Backup Network Center                                   11,700
---------------------------- ---------------------------------------------------------------
Palmer Lake, Colorado        Research and Development and Primary Network
                             Operations Center and Engineering Facility               6,100
---------------------------- ---------------------------------------------------------------
Bethesda, Maryland           Former NXT Gateway Services and Network Operations
                             Center                                                  18,500`

The New York and Colorado
leases expire in May 2010 and January 2003, respectively. The Bethesda space is
subleased to a third party for the remainder of the lease, which expires July
2009.

## ITEM 3. LEGAL
PROCEEDINGS

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

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

No matter was submitted to
a vote of our stockholders during the fourth quarter of our fiscal year ended
June 30, 2002.

---

## PART II

## ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information.

Our $0.01 par value common
stock (the "common stock") is traded in the over-the-counter market
and quoted on the OTC Electronic Bulletin Board under the symbol
"USWE." The following table sets forth, for the fiscal quarters
indicated, the range of high and low closing 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 2002                         High            Low
            -----------                         ----            ---

            Fourth quarter                    $ 2.59          $ 0.71
             Third quarter                      5.46            2.36
            Second quarter                      4.80            0.60
             First quarter                      1.33            0.52
            Fourth quarter                    $ 2.29          $ 1.01
             Third quarter                      5.22            1.91
            Second quarter                      6.00            1.38
             First quarter                     10.00            5.75

            Fiscal 2001                         High            Low
            -----------                         ----            ---`

There is no public trading
market for our Series C Preferred Stock or any of our securities other than the
common stock.

## (b) Holders.

As of September 18, 2002,
there were 239 holders of record of the Common Stock. There were also an
undetermined number of holders who hold their stock in nominee or
"street" name.

## (c) Dividends.

We have not declared cash
dividends on our common stock since our inception and we do not anticipate
paying any cash dividends in the foreseeable future.

## (d) Securities
Authorized for Issuance Under Equity Compensation Plans

The following table sets
forth information regarding outstanding options, warrants and rights, and shares
reserved for future issuance under our existing equity compensation plans as of
June 30, 2002. Our stockholder approved equity compensation plans consist of the
2000 Stock Option Plan and the 1992 Stock Option Plan.  We have a number of
options and warrants which were granted pursuant to equity compensation plans
not approved by security holders and such securities are aggregated in the
table below.

---

`___________________________________________________________________________________________________________
       Plan Category        Number of securities to   Weighted average exercise     Number of securities
                           be issued upon exercise      price of outstanding       remaining available for
                           of outstanding options,      options, warrants and    future issuance as of June
                          warrants and rights as of            rights                30, 2002 (excluding
                                June 30, 2002                                      securities reflected in
                                                                                         column (a))
___________________________________________________________________________________________________________

                                     (a)                         (b)                         (c)
___________________________________________________________________________________________________________
Equity compensation plans         3,494,000                     $3.57                    11,541,000
approved by security
holders
___________________________________________________________________________________________________________
Equity compensation plans         5,270,000                     $5.90                        --
not approved by security
holders
___________________________________________________________________________________________________________
Total                             8,764,000                     $4.97                    11,541,000
___________________________________________________________________________________________________________`

During fiscal 2002, except
as previously reported, there were no sales of our securities which were not
registered under the Securities Act of 1933, as amended.

We had authorized the
issuance of equity securities under the compensation plans listed below without
the approval of security holders:

On April 12, 1993, we
issued a 37,500 share common stock purchase warrant to an investor, exercisable
at $16.00. The warrant is fully vested and expires April 12, 2003.

On March 12, 1998, we
issued a 2,609 share common stock purchase warrant to entrénet Group, LLC
as a consulting fee, exercisable at $23.00 per share. The warrant is fully
vested and expires on March 11, 2003.

On September 12, 1998, we
issued a 2,083 share common stock purchase warrant to entrénet Group, LLC,
exercisable at $9.60. The warrant is fully vested and expires September 3, 2003.

On May 3, 1999, as part of
an employment agreement, we issued warrants to our Chief Executive Officer, to
purchase up to 1,343,750 shares of our common stock. Half of the warrants, or
671,875, are exercisable at $3.50 per share, the market price of the underlying
stock on the date of grant. The second 671,875 warrants have an exercise price
of $5.86 per share. The warrants are fully vested and expire May 3, 2009.

On January 20, 2000, we
issued a 5,625 share common stock purchase warrant to RBB Bank as an inducement
to redeem shares of Series B Preferred Stock and 6% Debentures held by RBB Bank,
exercisable at $6.00 per share. The warrant is fully vested and expires on July
6, 2004.

On February 15, 2000, we
issued an 87,500 share non-qualified common stock option (not under a Stock
Option Plan) to an executive officer. The options are exercisable at $9.72 per
share, which equals the fair market value at the date of grant, with one third
of the shares vesting annually. The options expire on the earlier of ten years
from the grant date or one year after cessation of the optionees
relationship with the Company.

On March 28, 2000, we
issued a 3,750 share common stock purchase warrant to an investor relations
firm, exercisable at $21.376. The warrant is fully vested and expires March 27,
2006.

On March 28, 2000, we
issued a 12,500 share common stock purchase warrant to an executive search firm,
exercisable at $21.376 per share. The warrant is fully vested and expires March
27, 2005.

On March 29, 2000, we
issued each of the four new members of the Board a nonqualified stock option for
62,500 shares of our common stock. The options are exercisable at $6.00 per
share, vest one third per yearly anniversary date following grant date and
expire on the earlier of ten years from the grant date or one year after
cessation of the optionees relationship with the Company. Due to Michael
Falks resignation from the Board on March 7, 2002, 20,833 shares of the
option granted to him are vested.

On March 31, 2000, we
issued a 37,500 share common stock purchase warrant to an investor, exercisable
at $9.12. The warrant is fully vested and expires April 30, 2004.

On May 3, 2000, we issued a
3,750 share common stock purchase warrant to an investor, exercisable at $6.00.
The warrant is fully vested and expires April 30, 2004.

On May 3, 2000, we issued a
2,500 share common stock purchase warrant to an investor, exercisable at $6.00.
The warrant is fully vested and expires April 30, 2004.

On May 4, 2000, we issued a
6,250 share common stock purchase warrant to an executive search firm,
exercisable at $12.750 per share. The warrant is fully vested and expires May 3,
2005.

On May 31, 2000, as part of
their compensation related to the private placement, Commonwealth Associates and
Peter J. Solomon Securities Company Limited received warrants to purchase an
aggregate of 167.599 Units (which are identical to the units sold in the Private
Placement). The warrants were exercisable at $100,000 per unit commencing on the
date of issuance and expire May 31, 2007. Effective September 7, 2000, the
warrants to purchase units consisting of (a) Series C Convertible Preferred
Stock and (b) additional warrants to purchase common stock at $6.00 per share
were amended so that such warrants are now exercisable, at $6.00 per share,
solely for the total number (3,491,625) of shares of common stock into which the
underlying Series C Convertible Preferred Stock and warrants would have been
convertible and exercisable. The change did not change the aggregate number of
shares of common stock which the holders would have received upon exercise in
full of the unit purchase warrants and conversion and exercise in full of the
underlying securities. The change also does not affect the aggregate purchase
price, which such holders would have paid for the underlying common stock.

---

On June 30, 2000, we issued
a 25,000 share common stock purchase warrant to James C. Free for consulting
services, exercisable at $9.875 per share. The warrant is fully vested and
expires June 30, 2005.

## (e)  Recent
Sales of Unregistered Securities.

During fiscal 2002, except
as previously reported, there were no sales of our securities which were not
registered under the Securities Act of 1933, as amended.

## ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS

## OVERVIEW

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

Effective as of the close
of business on August 31, 2002, we sold, for $5 million in cash, substantially
all of the operating assets and operating obligations associated with our
wholly-owned subsidiary, NXT Corporation (NXT), to Paymentech, L.P.
NXT provides data services and landline-based connectivity for credit-card
transaction processing. In accordance with generally accepted accounting
principles, we classified NXT as a discontinued operation in this report, and as
such have disclosed the NXT discussion under the heading Other
herein.

## RESULTS OF
OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 2002 AND 2001

## KEY METRICS

We utilize several basic
performance metrics to measure the progress of our operations. Some of the
metrics we rely upon include: (1) the number of resellers through which we sell
our various products and services; (2) the number of active sites that can
process transactions through our hosts; (3) the number of transactions processed
through our hosts; (4) the number of units of USWD products sold; and (5)
Adjusted EBITDA - Earnings before interest, taxes, depreciation, amortization
and other non-cash items.

## Resellers

As of June 30, 2002, we had
over 210 resellers under contract to sell our products and services as compared
to 150 as of June 30, 2001. As of June 30, 2002, more than 130 of these
resellers were actively engaged in the sale of one or more of our products or
services.

## Active Sites

Active wireless sites
(i.e., the number of activated terminals or other devices that can process
transactions through our hosts) have grown to over 14,300 as of June 30, 2002,
an increase of over 7,700 or 117% from the prior year. As of June 30, 2002, we
had over 11,300 merchants registered on Synapse.

## Transactions

Wireless transactions
processed for the twelve months ended June 30, 2002, were approximately 5.2
million, an increase of over 2.8 million or 122% from the same period of the
prior fiscal year. This increase was due to the growth in active wireless sites
and their respective transactions.

## Product Sales
in Units

Product sales in units for
the twelve months ended June 30, 2002 were 1,645, an increase of 520 units or
46% from the same period of the prior fiscal year. The increase was attributed
to the initial success in selling the Synapse Adapter in the first half of the
fiscal year ending June 30, 2002. Product sales in units also reflect sales of
our Synapse Enabler. Our Synapse Adapter generally provides for the conversion
of certain conventional dial-up POS terminals and dial-up ATMs to high
speed, low cost wirelessly enabled devices. Our Synapse Enabler was developed to
convert POS terminals or non-wireless devices to accept credit cards
wirelessly, including vending machines, taximeters, and other integrated
devices.

## REVENUE

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues consist
of: (a) one-time, non-refundable service activation fees; (b) fees for
transactions delivered on wireless or other methods through our hosts; (c)
monthly minimum subscription fees for the availability of service; and (d) other
fees, including certain charges for telecommunications connections between us
and a party. Service revenues are generated from our Synapse service. Most U.S.
Wireless Data services are designed to be device-independent and serve multiple
platforms that enable our clients to support a variety of protocols, hence, a
variety of products and services. Product sales are primarily derived from the
sale of our proprietary Synapse Adapter and Synapse Enabler products.

---

## Total Revenues

Total revenues were
$2,521,000 for the twelve months ended June 30, 2002, as compared to $1,232,000
for the prior fiscal year. This improvement from the prior year represents a
105% increase and was primarily attributed to the higher recurring monthly
service fees from the growth in the number of active sites. In addition, revenue
from product sales increased and the growth in the number of units sold also
contributed to the growth in active sites. On November 16, 2000, we acquired the
assets and assumed certain liabilities of Cellgate Technologies LLC
(Cellgate). Assuming the inclusion of total revenues from Cellgate
for the period in fiscal 2001 prior to our acquisition, total revenues for the
twelve months ended June 30, 2002 would have increased 98% from $1,276,000.
Revenues are discussed in more detail below.

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

`For the twelve months ended
                                                 June 30,
                                            2002            2001
                                      ---------------------------

Revenues

   Activation fees                           12%             12%

   Monthly fees                              58%             53%

   Transaction fees                           6%              7%

   Other fees                                 1%              0%
                                            ---             ---

      Total service revenues                 77%             72%

      Product sales                          23%             28%
                                            ---             ---

Total revenues                              100%            100%
                                            ===             ===`

## Service
Revenues

Activation Fees.
Revenue from activation fees, which is generated from activations of new sites
added through our proprietary Synapse service, was $313,000 for the twelve
months ended June 30, 2002, a $171,000 or 120% increase as compared to the prior
fiscal year. The increase is a direct result of the increase in the number of
new sites added and the applicable rate charged to each client.

Monthly Fees.Revenue from recurring monthly fees, which is generated from the number of
active sites that can process transactions through our Synapse service, was
$1,462,000 for the twelve months ended June 30, 2002, a $810,000 or 124%
increase as compared to the prior fiscal year. The increase is a direct result
of the increase in the number of active sites and the applicable rate charged to
each client.

Transaction Fees.Revenue from transaction fees for the twelve months ended June 30, 2002 was
$154,000, compared to $83,000 during the prior fiscal year, a $71,000 or 86%
increase. The increase is a direct result of the increase in the volume of
transactions due primarily to the number of active sites and the applicable rate
charged to each client.

## Product Sales

Product sales are primarily
derived from the sale of our proprietary wireless conversion devices, the
Synapse Adapter and the Synapse Enabler. Revenue from product sales increased
for the twelve months ended June 30, 2002 to $570,000 from $349,000 during the
prior fiscal year, a $221,000 or 63% increase. The increase was attributed to
the initial success in selling the Synapse Adapter in the first half of the
fiscal year ending June 30, 2002. The increase was also related to sales of our
Synapse Enabler and certain raw materials.

---

## GROSS PROFIT

Gross profit consists of
revenues, net of direct costs of sales. Costs of revenues consist primarily of
the cost for the initial setup and ongoing communications costs associated with
terminals connected through Synapse, costs of production of products such as the
Synapse Adapter and Enablers, and certain other carrier costs. Total gross
profit for the twelve months ended June 30, 2002 was $1,228,000, compared to
$521,000 for the prior fiscal year, a $707,000 or 136% increase.

Gross profit from services
for the twelve months ended June 30, 2002 was $1,127,000, compared to $382,000
for the prior fiscal year, a 195% increase.

Gross profit from product
sales for the twelve months ended June 30, 2002 was $101,000, compared to
$139,000 for the prior fiscal year, a 27% decrease. Eliminating the effect of an
inventory adjustment recorded in the year ended June 30, 2001, gross profit from
product sales for the twelve months ended June 30, 2002 increased 46% compared
to the prior fiscal year.

The improvement in gross
profit for the twelve months ended June 30, 2002 from the prior fiscal year was
attributed to volume increases in new activations of Synapse services, the
growth of active sites for Synapse services, and volume increases in product
sales.

## GROSS MARGIN

Total gross margin (gross
profit as a percentage of total revenues) for the twelve months ended June 30,
2002 increased to 48.7% from 42.3% for the prior fiscal year. This improvement
was attributed to the greater percentage of revenue related to services and a
decrease in cost of revenues related to lower carrier costs.

Gross margin from services
was 57.8% for the twelve months ended June 30, 2002 compared to 43.3% for the
prior fiscal year. This improvement was primarily attributed to the growth in
higher margin recurring monthly fees due to the growth in the number of active
sites. The mix of rates charged to our clients and a decrease in cost of
revenues related to lower carrier costs also contributed to the expansion of
gross margin from services.

Gross margin from product
sales was 17.7% for the twelve months ended June 30, 2002 compared to 39.8% for
the prior fiscal year. The decrease is primarily attributed to an inventory
adjustment recorded in the year ended June 30, 2001 and a larger mix of Synapse
Enablers for vending, which have a lower margin than our standard equipment
selling prices. We expect the margins on the Synapse Enablers for vending to
increase as additional units are deployed allowing us to benefit from cost
reductions based on volume.

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

`For the twelve months ended
                                                              June 30,
                                                       2002            2001
                                                    ---------------------------

Gross margin

   Services                                            57.8%           43.3%

   Product sales                                       17.7%           39.8%


Total gross margin, including inventory adjustment     48.7%           42.3%


Total gross margin, excluding inventory adjustment     48.7%           36.6%`

---

## OPERATING
EXPENSES

Total operating expenses
for the twelve months ended June 30, 2002 increased to $24,830,000 from
$19,728,000, an increase of $5,102,000 or 26% compared to the prior fiscal year.
The year-to-year comparison of total operating expenses is distorted by
depreciation and amortization, restructuring expense, impairment of goodwill and
intangibles, and writedown of inventory from previous acquisition. Excluding
these items, total operating expenses for the twelve months ended June 30, 2002
decreased to $12,066,000 from $15,461,000, a decrease of $3,395,000 or 22%
compared to the prior fiscal year. This decrease was due to the realization of
the cost savings from our acquisition consolidation plan initiated at the end of
fiscal year 2001, and further cost reduction efforts and efficiency gains,
including additional reductions in staff.

## Selling,
General, and Administrative Expenses

Selling, general, and
administrative expenses consist primarily of salaries and benefits for sales,
general and administrative personnel, advertising and promotion expenses,
professional fees, occupancy and general office expenses, travel expenses, other
general corporate purposes, and non-cash compensation. Selling, general, and
administrative expenses excluding non-cash compensation, were $9,889,000 for the
twelve months ended June 30, 2002 compared to $11,785,000 for the prior fiscal
year, a $1,896,000 or 16% decrease. The decreases are primarily attributed to
the successful implementation of our integration and consolidation plan for our
Cellgate and NXT acquisitions, and our continued cost reduction efforts.

Non-cash compensation
expense of $1,075,000 for the twelve months ended June 30, 2002 decreased
$405,000 or 27% from the prior fiscal year. The decrease was primarily related
to the elimination of amortization related to the resignation of a director on
March 7, 2002 who had received options in March 2000.

Selling, general and
administrative expenses including non-cash compensation, were $10,964,000 for
the twelve months ended June 30, 2002 compared to $13,265,000 for the prior
fiscal year, a $2,301,000 or 17% decrease.

## Research and
Development Expenses

Research and development
expenses consist primarily of engineering personnel costs for research, design
and development of the proprietary technology we use to integrate and develop
our products and services. Research and development expenses decreased to
$1,102,000 for the twelve months ended June 30, 2002 compared to $2,196,000 for
the prior fiscal year, a $1,094,000, or 50% decrease. The decrease is primarily
the result of reductions in the number of employees.

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

## Depreciation
and Amortization

Amortization of intangibles
includes amortization of goodwill, acquired workforce and intellectual property,
including core technology, customer relationships and contract rights.
Amortization of goodwill and intangibles were $2,889,000 for the twelve months
ended June 30, 2002, compared with $1,217,000 for the prior fiscal year, a
$1,672,000 or 137% increase. Goodwill and other intangibles for acquisitions are
being amortized over four to ten years. In the event that we complete additional
acquisitions, expenses relating to the amortization of intangibles could
increase in the future. We anticipate that amortization of intangibles will
dramatically decrease as a result of our sale of substantially all of the
operating assets and operating obligations associated with our wholly-owned
subsidiary, NXT Corporation and our writedown of intangibles related to our
acquisition of Cellgate Technologies LLC.

Depreciation and
amortization of fixed assets, leasehold improvements and software were $782,000
for the twelve months ended June 30, 2002, compared with $650,000 for the prior
fiscal year, a $132,000 or 20% increase. We anticipate a decrease in
depreciation and amortization of fixed assets, leasehold improvements, and
software as we expect our outlays for capital expenditures over the next year to
be minimal.

---

## Restructuring
Charge

During the fourth quarter of
fiscal year 2001, we recorded a restructuring charge of $2,400,000 related to
the consolidation and relocation of our former Bethesda, Maryland network
operations center with our research and development and operations center,
located in Palmer Lake, Colorado. In addition, we recorded pretax charges
totaling $625,000 or $0.05 per share, in the first quarter of fiscal year ending
June 30, 2002, related to severance payments to employees and benefits. During
the fourth quarter of fiscal year 2002, we reevaluated the balance of the
restructuring accrual as the Bethesda facility sublease was completed. It was
determined that in connection with vacating the Bethesda office, we
underestimated our original estimates of sublease income and overestimated
related costs. Accordingly, we reduced the restructuring accrual by $714,000.

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

|                                  |             
|--------------------------------- | ------------
|Balance at June 30, 2001          | $ 2,400,000 
|Charges against accrual (Bethesda
|rent payments, severance and     
|benefit payments)                 | (1,362,000) 
|Additions to accrual (severance  
|and benefits accrual)             | 625,000     
|Write down of accrual balance     | (714,000)   
|                                  |    
|Balance at June 30, 2002          | 949,000     
|Less current portion              | (262,000)   
|                                  |    
|Balance at June 30, 2002,        
|less current portion              | $    687,000
|                                  |    
|                                  |    
|                                 

The balance of the
restructuring charge accrual will be paid over the remaining lease term of our
former Bethesda office which expires July 2009.

## Impairment of
Goodwill and Intangibles

As discussed earlier in the
Gross Profit discussion above, product sales of the Synapse Adapter
are minimal and our expectation of future sales is the same. In the fourth
quarter of fiscal 2002, we recorded an impairment charge of $5.7 million on
goodwill and other intangibles to writedown our value of these acquired assets
to the present value of the net amount we now expect to realize over the
remaining expected life of this product. Goodwill has been completely eliminated
due to this impairment charge, and the remaining value of intangibles of
$1,059,000 as of June 30, 2002 will be amortized over their estimated remaining
life of four years.

## Writedown of
Inventory from Previous Acquisition

We acquired the rights and
inventory in the Cellgate Adapter (which we reintroduced as the Synapse Adapter)
from our acquisition in November 2000 of the assets and assumption of certain
liabilities of Cellgate. In the second half of fiscal year ended June 30, 2002,
product sales of the Synapse Adapter trailed off substantially as we found it
challenging to get clients to commit to purchases. We instituted a rental plan
that to date has shown marginal interest. The product was also introduced for
use with certain ATM cash dispensing machines, and although showing interest, we
have so far been unsuccessful in moving any significant volume of units. This
product is today solely based on the Cellular Digital Packet Data
(CDPD) wireless medium, which has certain coverage issues in various
markets and which the existing wireless carriers will ultimately migrate away
from as they move to next generation mediums. As a result, in the fourth quarter
of fiscal 2002, we recorded a charge of $3.48 million to writedown our inventory
of Synapse Adapters to the cost value of the number of units we now expect to
realize over the remaining expected life of this product.

---

## OTHER

Interest income for the
twelve months ended June 30, 2002 was $274,000, compared to $1,790,000 for the
same period in fiscal 2001. Interest income decreased due to lower cash balances
invested corresponding with the utilization of cash to fund our growth
expectations and the decline in interest rates over the period.

Interest expense for the
twelve months ended June 30, 2002 was $587,000, compared to $231,000 for the
prior fiscal year. The increase in interest expense was primarily related to the
financing under a capital lease for Synapse Adapters assumed with the
acquisition of Cellgate and amortization of a discount for the expected cash
payment of $500,000 due in December 2002 to the seller to us of NXT.

Other income (expense),
net, which consists primarily of: (a) rental income for a sublet facility, was
$87,000 for the twelve months ended June 30, 2002 compared to $207,000 for the
same period in fiscal year 2001, a $120,000 decrease due to the sublet
termination which occurred simultaneously with the expiration of the lease for
the facility; and (b) taxes of $178,000 for the twelve months ended June 30,
2002 compared to $64,000 for the same period in fiscal year 2001, a $114,000
increase.

## LOSS FROM
CONTINUING OPERATIONS

Loss from continuing
operations of $24,006,000 for the twelve months ended June 30, 2002 increased
$6,501,000 or 37% from the prior fiscal year. The increase in loss was primarily
attributed to the impairment and writedown charges previously discussed above,
partially offset by the increase in gross profit and reduction in operating
expenses exclusive of such impairment and writedown charges.

## DISCONTINUED
OPERATIONS

Income (loss) from
discontinued operations represents the net results of our wholly-owned
subsidiary, NXT. As previously disclosed, effective as of the close of business
on August 31, 2002, we sold substantially all of the operating assets and
operating obligations associated with NXT. NXT provides data services and
landline-based connectivity for credit-card transaction processing. The
improvement in net results for the twelve months ended June 30, 2002 to $321,000
from a loss of $1,752,000 was due primarily to growth in revenues of our NXT
services, reductions in telecommunications costs from third parties, the
successful implementation of our integration and consolidation plan of our
November 2000 acquisition of NXT, and our continued cost reduction efforts.

Loss on sale of
discontinued operations of $1,867,000 represents the difference between gross
proceeds received of $5,000,000 cash from the sale of substantially all of the
operating assets and operating obligations associated with NXT, less estimated
transaction costs of $872,000, and the net carrying value of assets and
liabilities sold of $5,995,000.

## NET LOSS

For the twelve months ended
June 30, 2002, net loss totaled $25.55 million or $1.92 per share, as compared
to a net loss of $19.26 million or $1.88, for the prior fiscal year.

## ADJUSTED EBITDA

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

---

We use a modified version
of EBITDA (Adjusted EBITDA) as an internal measure of operating
performance, which is net loss excluding net interest, other income, taxes,
depreciation and amortization, and certain other nonrecurring items. Adjusted
EBITDA loss for the twelve months ended June 30, 2002 was $9.8 million or $0.73
per share as compared to the same period last year of $13.5 million or $1.31 per
share. This improvement in Adjusted EBITDA loss of $3.7 million or approximately
28% is primarily attributed to substantially higher revenues and a reduction of
cost of revenues and operating expenses as discussed in prior sections.

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

`For the twelve months ended
                                                                        June 30,
                                                                 2002            2001
                                                                 ----            ----`

|                                                          |                  |                 
|--------------------------------------------------------- | ---------------- | ----------------
|Net loss                                                  | $(25,552,000)    | $(19,257,000)   
|Non-cash compensation                                     | 1,075,000        | 1,480,000       
|Depreciation and amortization                             | 3,671,000        | 1,867,000       
|Restructuring (recovery) expense                          | (89,000)         | 2,400,000       
|Impairment of goodwill and intangibles                    | 5,701,000        | --              
|Writedown of inventory acquired from previous acquisition | 3,481,000        | --              
|Income (loss) from discontinued operations                | (321,000)        | 1,752,000       
|Loss on sale of discontinued operations                   | 1,867,000        | --              
|Net interest and other                                    | 404,000          | (1,702,000)     
|                                                          |        |       
|Adjusted EBITDA loss                                      | $(9,763,000)     | $(13,460,000)   
|                                                          |        |       
|                                                          |        |       
|Adjusted EBITDA loss per share                            | $         (0.73) | $         (1.31)
|                                                          |        |       
|                                                          |        |       
|Net loss per share                                        | $         (1.92) | $         (1.88)
|                                                          |        |       
|                                                          |        |       
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## FINANCIAL
CONDITION, CAPITAL RESOURCES, AND LIQUIDITY

Since our inception we have
incurred significant losses and negative cash flow (assuming the positive cash
flow from capital transactions are excluded). As of June 30, 2002, we had an
accumulated deficit of approximately $134.1 million and had negative cash flow
of $15.34 million for the twelve months then ended.

---

At June 30, 2002 our
principal source of liquidity was $2.86 million in cash and cash equivalents. At
August 31, 2002, cash and cash equivalents aggregated approximately $1.91
million. In September 2002, we received a cash payment of $5 million
representing the gross proceeds from the sale of substantially all of the
operating assets and operating obligations associated with our wholly-owned
subsidiary, NXT Corporation, to Paymentech, L.P. We estimate $675,000 of cash
obligations are now due as a result of this transaction, and approximately
$300,000 is due in cash to settle NXTs net working capital liabilities
that remain with us. We are also actively negotiating to restructure a $500,000
cash payment due in December 2002 as part of a final obligation due from the
original acquisition of NXT, although there can be no assurance that such
restructuring will occur.

Paymentech is obligated
under the asset purchase agreement of NXT, subject to certain conditions in such
agreement, to purchase goods or services from us or our affiliates over three
(3) years in an amount aggregating at a minimum $3,472,500, with Paymentech
obligated to pay us at least $1,000,000 during the first year, in installments
of $83,333 per month, at least $1,150,000 during the second year, in
installments of $95,833 per month, and at least $1,322,500 during the third
year, in installments of $110,208. In addition, we estimate we will receive
approximately $30,000 per month for continuing to house certain NXT assets
located at our facilities and providing certain services for a limited period of
time during a transition.

We currently anticipate
negative cash flow approximating $1.90 million for each of the first two
quarters for fiscal 2003 (ignoring the net proceeds of the sale of NXT and any
remaining payment due for the original acquisition of NXT). Taking into account
all cash items, we currently anticipate no change in our cash balance at
December 31, 2002 relative to our June 30, 2002 cash balance of
$2.86 million. Furthermore, we anticipate negative cash flow to improve on a
quarterly basis beginning in the third quarter of fiscal 2003, as we believe a
large percentage of our operating costs are fixed and expect to increase our
revenues without incurring significant operating cost increases. We are also
focused on conserving cash, including restructuring certain obligations, and
improving our cash flow through growth in the number of active sites and various
product sales, including revenues from services and products for vending, and
continued reduction in operating expenses. We do not expect to achieve positive
cash flow from operations until the second half of calendar 2003.

Based on our current
estimates of revenue levels, operating costs and other cash outlays, we believe
we will have adequate cash balances until we achieve positive cash flow from
operations.  However, if our revenue estimates are too high or our cost
estimates too low, we may need to raise additional capital during the fiscal
year ending June 30, 2003.  In addition, our concerns about capital may
lead us to take additional steps to cut costs and, depending on whether we are
successful in our efforts to raise additional capital, may require us to
eliminate or curtail certain of our projects and take additional steps to
conserve cash that may adversely affect our operations.  In connection with
our efforts to raise capital, we have hired investment bankers and are exploring
a number of alternatives, including debt or equity financings and strategic
investments.  There can be no assurance that we will succeed in
raising capital, either on favorable terms or at all, pursuant to any of these
alternatives. If we raise additional funds, dilution to existing shareholders
may occur, particularly in light of the full ratchet antidilution
provisions of our Series C preferred stock and the related warrants.

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

## Seasonal
Variation of Business

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

---

## Historical
Cash Flows

Net cash used in operating
activities was $11.4 million during the twelve months ended June 30, 2002. This
primarily consisted of net operating losses and decreases in accounts payable,
accrued liabilities, and charges against the restructuring accrual, partially
offset by non-cash charges for depreciation and amortization, loss on sale of
discontinued operations, non-cash compensation, impairment of goodwill and
intangibles, and the write down of inventory from previous acquisition. Net cash
used in operating activities was $16.6 million during the twelve months ended
June 30, 2001. This primarily consisted of net operating losses, increases in
inventory and accounts receivable and a decrease in accounts payable, partially
offset by non-cash charges for depreciation and amortization, and non-cash
compensation and the accrual of a restructuring charge for the consolidation of
our facilities.

Net cash used in investing
activities was $3.7 million for the twelve months ended June 30, 2002. This was
primarily comprised of acquisition costs, purchases of equipment and an increase
in restricted cash. Net cash used in investing activities was $3.4 million for
the twelve months ended June 30, 2001. This was primarily comprised of
acquisition costs, purchases of equipment and tenant improvements to leased
property.

Net cash used in financing
activities for the twelve months ended June 30, 2002 of $0.3 million was
primarily comprised of payment of capital leases, partially offset by proceeds
from the exercise of stock warrants. Net cash used in financing activities for
the twelve months ended June 30, 2001 of $1.1 million was primarily comprised of
repayment of notes payables and payment of capital leases, partially offset by
proceeds from the exercise of stock warrants.

## CRITICAL
ACCOUNTING POLICIES

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

## Intangibles
and Recovery of Long-Lived Assets

Cost in excess of the fair
value of tangible and identifiable intangible net assets acquired is amortized
on a straight-line basis over four years. Identifiable intangible net assets
consist of completed technology, assembled workforce, trademarks, and acquired
customers.

In accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121), our policy is to review our long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment in value is considered to
have occurred when the sum of the expected future undiscounted cash flows is
less than the carrying amount of the asset. The measurement of the impairment
loss to be recognized is based upon the difference between the future cash flows
and the carrying amount of the assets. Based on the above assessment, no
impairment loss had been recognized during the year ended June 30, 2001,
however, a $5,701,000 impairment of goodwill and intangibles was recognized in
the fourth quarter of fiscal year June 30, 2002.

## Inventory
Valuation

Inventory is stated at the
lower of cost or market, cost being determined by the first-in, first-out
method. In the fourth quarter of fiscal 2002, we took a charge of $3.48 million
to cost of revenues to writedown our inventory of Synapse Adapters to the cost
value of the number of units we now expect to realize over the remaining
expected life of this product.

## Revenue
Recognition

We derive revenue primarily
from two sources: service revenues and product sales. Service revenues consist
of: (a) one-time, non-refundable service activation fees; (b) fees for
transactions delivered on wireless or other methods through our hosts; (c)
monthly minimum subscription fees for the availability of service; and (d) other
fees, including certain charges for telecommunications pipes between us and a
party. Service revenues are generated from our Synapse Service. Most U.S.
Wireless Data services are designed to be device-independent and serve multiple
platforms that enable our clients to support a variety of protocols, hence, a
variety of products and services. Product sales are primarily derived from the
sale of our proprietary Synapse Adapter and Synapse Enabler products.

---

Revenue is recognized when
earned. More specifically, revenue related to providing services and sales of
our products are as follows:

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

Product sales.Revenues from the sale of products (equipment) are recognized upon shipment.
Revenues from equipment under rental agreements and similar arrangements are
accounted for by the operating lease method and are recognized over the rental
term.

## RECENT
ACCOUNTING PROUNOUNCEMENTS

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

In June 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. We will adopt SFAS No. 142 effective for the
fiscal year beginning July 1, 2002. The adoption of SFAS No. 142 will reduce
amortization expense to $265,000 for each of the fiscal years 2003 through
2006.

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

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the disposal of
a segment of a business. This Statement also amends ARB No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. The provisions of this
Statement are required to be applied starting with fiscal years beginning after
December 15, 2001. We will adopt the impairment provisions of SFAS No. 144 in
the first quarter of the fiscal year ending June 30, 2003, however, we adopted
the provisions relating to discontinued operations during the fourth quarter of
the fiscal year ended June 30, 2002 relating to the sale of NXT.

---

In April 2002, the FASB
issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This Statement will be effective for us for the fiscal
year ending June 30, 2004. We have not determined the impact, if any, that this
statement will have on our financial statements.

In July 2002, the FASB
issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 will supersede Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
We have not determined the impact, if any, that this statement will have on our
financial statements.

## QUALITATIVE
AND QUANTITATIVE RISK

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

## RISK FACTORS

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

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

We have never been
profitable and have incurred substantial losses and negative cash flow (assuming
the positive cash flow from capital transactions are excluded) since our
inception. We had an accumulated deficit of approximately $134 million at June
30, 2002 and had a net loss of $25.55 million and $19.26 million for the years
ended June 30, 2002 and 2001, respectively. Our Synapse services and products
are relatively new and there is no history upon which to judge their prospects.
There is no assurance we will generate significant revenues from our services,
products, or otherwise, or that we will ever become profitable. There can be no
assurance that our services or products will gain market acceptance.

---

## The success of
our business plan is uncertain.

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

## We may need
additional cash.

Based on our current
estimates of revenue levels, operating costs and other cash outlays, we believe
we have enough cash for the next 12 months.  However, if our revenue
estimates are too high or our cost estimates too low, we may need additional
capital sooner than 12 months.  In addition, our concerns about capital may
lead us to take additional steps to cut costs and, depending on whether we are
successful in our efforts to raise additional capital, may require us to
eliminate or curtail certain of our projects and take additional steps to
conserve cash that may adversely affect our operations.  In connection with
our efforts to raise capital, we have hired investment bankers and will continue
to explore alternatives, including debt or equity financings and strategic
investments.  There can be no assurance that we will succeed in
raising additional capital, either on favorable terms or at all, pursuant to any
of these alternatives. The current environment is extremely unfavorable for
capital raising. The availability of funds for our operating activities is
critical to our continued operations. If we are unable to raise the necessary
capital, either externally or through internally generated cash flows, our
business, operating results, and financial condition will be materially
adversely affected.

Antidilution provisions
in our Series C preferred stock and warrants may hinder our financing efforts.

Our outstanding Series C
preferred stock and the related warrants contain provisions pursuant to which
they receive, subject to enumerated exceptions, full ratchet
antidilution protection for the issuance of common stock and common stock
equivalents at prices below the conversion price of the Series C Preferred Stock
and the exercise price of the warrants, which in both cases, is $6.00 per share.
For example, if we issued common stock in a financing for $1.00 per share, the
conversion and exercise prices of the Series C preferred stock and the warrants
would be reduced from $6.00 per share to $1.00 per share and the securities
would become convertible into six times the current number of shares of common
stock with regard to the Series C preferred stock. Although the antidilution
provision may be waived by the holders of a majority of such securities, in
light of the current market price of our common stock, any financing without
such a waiver would result in substantial dilution to the holders of our
securities. In light of the substantial impediment to financing posed by the
terms of the Series C preferred stock and warrants, we are considering the
possibility of seeking a permanent waiver of such antidilution provisions in
exchange for a substantial reduction in the conversion and exercise price of
such securities. If we do so, such transaction could entail substantial dilution
to the current holders of our securities.

Approximately 30% of our
revenue for the year ended June 30, 2002 was generated from one customer and,
accordingly, the loss of such customer could adversely affect our revenues.

As of June 30, 2002,
one customer accounted for approximately 30% of our revenues.
Although we are seeking to broaden our client base, no assurance can be made
that our efforts will be successful or that this current client will not
continue to account for a large concentration of our revenues. If any one
customer accounts for a significant portion of our revenues, the loss of such
customer could adversely affect our business, operating results, and financial
condition.

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

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

---

## Component
shortages or cost increases could curtail or adversely affect
production.

From time to time, supply
for key components in products lags behind worldwide demand. In the event that
supply of a key material component is delayed or curtailed, or should our
capital needs prevent us from ordering with sufficient lead time or the cost of
such materials materially increase, our ability to ship the related product in
desired quantities and in a cost effective and timely manner could be adversely
affected.

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

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

To that end, regarding our
currently pending patent applications, there can be no assurance that a patent
will issue on these applications either domestically or abroad or that patents
will issue from any patent application filed by our licensors or us in the
future or that the scope of any claims granted in any patent issued to us or
issued to our licensors will provide meaningful proprietary protection or a
competitive advantage to us. There can be no assurance that the validity or
enforceability of patents issued or licensed to us will not be challenged by
others or, if challenged, will be upheld by a court. In addition, there can be
no assurance that competitors will not be able to circumvent any patents issued
or licensed to us. Regarding our pending service marks, there is no assurance
that we will be able to secure significant protection for these marks.

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

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

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

The telecommunications,
hardware and software industries are characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement or other violations of intellectual property rights. As the number
of participants in our market increases, the possibility of an intellectual
property claim against us could increase. Any intellectual property claims, with
or without merit, could be time-consuming and expensive to litigate or settle,
could require us to enter into costly royalty arrangements, could divert
management attention from administering our business and could preclude us from
conducting our business. In this regard, in August 2002 we received a letter
suggesting the CardMeter wireless taximeter technology may infringe on a third
partys existing patent. Although we do not believe such infringement
exists, there can be no assurance that such third party will not pursue a patent
infringement claim.

---

## We could lose
our rights to our license with AT&T Wireless.

Our rights to a technology
that make the conversion from landline to wireless transactions possible for
traditional dial-up point of sale terminals and other dial-up devices are
dependent upon a license agreement with AT&T Wireless. We currently utilize
the technology with our Synapse Adapter. Under certain circumstances the license
agreement may be terminated and we would no longer have access to this
technology. Subject to the terms of an agreement, AT&T Wireless and its
affiliates may use the patents, but AT&T Wireless cannot license the patents
to a third party, except for certain instances, provided we maintain certain
minimum quantities of deployed units at certain anniversary dates, or, at our
election, pay a fee for any shortfall. Additionally, there can be no guarantees
that AT&T Wireless, its affiliates or any licensed third party will not
enter into competition with us for the application of this technology, and
should such competition arise, it could have an adverse effect on our operating
results and financial condition.

## Our acquisition
of NXT Corporation could require additional consideration payments.

Although we completed the
disposition of substantially all of the assets of NXT in August 2002, we may be
required to pay additional cash consideration of up to $500,000 and up to
2,242,000 shares of our common stock in December 2002 to the parties we
originally acquired such assets from pursuant to the terms of the original NXT
acquisition agreement. Although we are attempting to negotiate a restructuring
of the cash obligation, there can be no guarantee that such a restructuring will
occur on terms acceptable to us or at all.

## Unanticipated
delays in product schedules could affect product demand.

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

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

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

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

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

## We are
dependent on outside parties for our communications infrastructure.

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

---

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

If wireless usage continues
to increase rapidly, the wireless infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. Consequently, the emergence and growth of the market for our services
is dependent on future improvements to the entire wireless network. Many
companies in that industry are in financial distress. To the extent we rely on
such companies, we may be negatively impacted by the general economic
environment and by the difficulties impacting that industry.

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

Our future success will
depend upon our ability to keep pace with technological developments, respond to
evolving merchant demands and adopt new industry standards, including next
generation wireless data services. Failure to anticipate or respond
adequately to new industry standards, technological developments or significant
delays in product development could damage our potential position in the
marketplace, make our existing products or products under development obsolete
or unmarketable, and could result in less revenue or an inability to generate
profits. With our current financial and technical resources, we may not be able
to develop or market new services or enhancements to our existing service
offerings. It is possible that we could experience significant delays in these
endeavors. Any failure to successfully develop and market services and service
enhancements could have a material adverse effect on our business, operating
results, and financial condition. In this regard, AT&T Wireless has advised
us and others that it intends to transition from its current CDPD data service
to its next generation GPRS data service. Accordingly, we may incur additional
costs and expenses, or delays or interruptions in providing our services, while
we migrate to other CDPD providers or to other wireless services such as GPRS.

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

The market for our products
and services is highly competitive, including pressure to maintain competitive
pricing structures for credit card processing services. We have identified
potential competitors that may be logical candidates to develop similar products
and services. Barriers to entry in our business are relatively insubstantial and
companies with substantially greater financial, technical, marketing,
manufacturing, and human resources, as well as those with far greater name
recognition than us, may attempt to enter the market. We believe that our
ability to compete depends on brand recognition, price, distribution channels,
and quality of service. There can be no assurance that we will be able to
compete successfully in the market.

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

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

## We might not be
able to manage our growth.

We anticipate a period of
significant growth and the resulting strain on our managerial, operational,
financial, and other resources could be significant. Success in managing this
expansion and growth will depend, in part, upon the ability of senior management
to manage our growth effectively. Any failure to manage our growth and expansion
could have a material adverse effect on our business, operating results and
financial condition.

---

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

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

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

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

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

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

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

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

A significant aspect of our
strategy is to be able to market our products and services as working with all
major wireless protocols. Our business depends, in part, on our ability to
purchase sufficient capacity from the wireless and wireline carriers and the
security and reliability of their systems. If our current arrangements with
wireless and wireline carriers are terminated, if we are unable to enter into
arrangements with any new carriers, or if the terms of our arrangements are
altered or prices are increased, it may have a material adverse effect on our
business, operating results and financial condition. Additionally, these
carriers may develop or employ new technologies, or implement new industry
standards (including next generation wireless services) that may
require us to pay additional fees for such services or prevent us from employing
the services of these carriers which would have a material adverse effect on our
business, operating results, and financial condition.

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

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

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

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

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

---

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

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

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

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

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

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

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

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

## We face risks
relating to general economic conditions.

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

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

We had approximately
14,813,927 and 11,478,419 total shares of common stock outstanding as of June
30, 2002 and 2001, respectively, of which approximately 12,645,596 and 7,140,917
shares are in the public float, respectively. We have a substantial number of
additional shares of common stock that are either presently outstanding or
issuable upon conversion or exercise of other securities that were issued as
restricted securities, most of which are currently saleable under
SEC Rule 144. We are currently overdue with respect to our obligation to
register common stock underlying the Series C preferred stock and related
warrants sold in the private placement completed in May 2000. The registration
and subsequent sale of such securities may increase the number of shares traded
in the market and may thereby adversely affect the market for our common stock.

## Anti-takeover
provisions.

Our Articles of
Incorporation authorize the issuance of up to 25,000,000 shares of preferred
stock. Our Board is empowered, without stockholder approval, to issue a new
series of preferred stock with dividend, liquidation, conversion, voting or
other rights, which could adversely affect the voting power or other rights of
the holders of common stock. Such authority, together with certain provisions of
Delaware law and of our Articles of Incorporation and bylaws, may have the
effect of delaying, deterring or preventing a change in control, may discourage
bids for the common stock at a premium over the market price, and may adversely
affect the market price, and the voting and other rights of the holders, of the
common stock. We are currently exploring various financings and, if successful,
will issue additional shares of our preferred stock or common stock. In the
current financing environment it is likely that such a financing would be for a
new class of preferred stock. Under the Delaware Business Corporation Act, the
Board of Directors of a Delaware corporation may issue rights, options, warrants
or other convertible securities (hereinafter rights) entitling the
holders of the rights to purchase, receive or acquire shares or fractions of
shares of the corporation or assets or debts or other obligations of the
corporation, upon such terms as are determined by the Board. The Board is free,
subject to its fiduciary duties to stockholders, to structure the issuance or
exercise of the rights in a manner which may exclude significant
stockholders, as defined, from being entitled to receive such rights or to
exercise such rights or in a way which may effectively prevent a takeover of the
corporation by persons deemed hostile to management. Nothing presently contained
in our Articles of Incorporation prohibits the Board from using these types of
rights in this manner.

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

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

## Volatility of
common stock.

Our common stock is traded
in the over-the-counter market and quoted on the OTC Bulletin Board
(OTCBB) under the symbol USWE. The trading volume of the
common stock historically has been limited and sporadic, and the stock prices
have been volatile. For example, during the fiscal years ended June 30, 2002 and
2001, the common stock has traded at prices ranging from $0.52 to $5.46 and
$1.01 to $10.00, respectively. As a result of the limited and sporadic trading
activity, the quoted price for the common stock on the OTCBB is not necessarily
a reliable indicator of its fair market value.

---

## ITEM 7.
Financial Statements

`Independent Auditors' Reports ............................................... 36
Consolidated Balance Sheets as of June 30, 2002 and 2001 .................... 38
Consolidated Statements of Operations for the years
     ended June 30, 2002 and 2001 ........................................... 39
Consolidated Statements of Cash Flows for the years ended June 30, 2002
     and 2001 ............................................................... 40
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
     for the years ended June 30, 2002 and 2001 ............................. 41
Notes to Consolidated Financial Statements .................................. 42-66`

---

## INDEPENDENT
AUDITORS REPORT

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

We have audited the
accompanying consolidated balance sheet of U.S. Wireless Data, Inc. (the
Company) as of June 30, 2002, and the related consolidated
statements of operations, stockholders equity, and cash flows for the year
then ended. 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 audit.

We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of June 30, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
September 20, 2002
New York, New York

---

# INDEPENDENT
AUDITORS REPORT

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

We have audited the
accompanying consolidated balance sheet of U.S. Wireless Data, Inc. as of June
30, 2001, and the related consolidated statements of operations, changes in
stockholders equity and cash flows for the year then ended. 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 audit.

We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of U.S. Wireless Data, Inc. as of June
30, 2001, and the results of its operations and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. 
/s/ M.R.Weiser & Co. LLP
New York, New York
August 24, 2001

---

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

|                                                               | June 30, 
|-------------------------------------------------------------- | ---------
|
|ASSETS                                                         |          
|Current assets:                                                |          
|Cash and cash equivalents                                      |          
|Accounts receivable, net of allowance for                      |          
|doubtful accounts of $293,000 and $55,000                      |          
|at June 30, 2002 and 2001, respectively                        |          
|Inventory, net                                                 |          
|Notes receivable                                               |          
|Other current assets                                           |          
|Assets held for sale                                           |          
|                                                               | 
|Total current assets                                           |          
|Property and equipment, net                                    |          
|Restricted cash                                                |          
|Intangible assets, net                                         |          
|Other assets                                                   |          
|                                                               | 
|Total assets                                                   |          
|                                                               | 
|                                                               | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                           |          
|Current liabilities:                                           |          
|Accounts payable                                               |          
|Accrued liabilities                                            |          
|Other current liabilities                                      |          
|Accrued restructuring expense, current portion                 |          
|Obligation under capital lease, current portion                |          
|Purchase price payable, current portion                        |          
|                                                               | 
|Total current liabilities                                      |          
|Deferred rent expense                                          |          
|Accrued restructuring expense, less current portion            |          
|Other liabilities                                              |          
|Obligation under capital lease, less current portion           |          
|Purchase price payable, less current portion                   |          
|                                                               | 
|Total liabilities                                              |          
|                                                               | 
|Commitments and contingencies                                  |          
|Stockholders' equity:                                          |          
|Preferred stock, 25,000,000 shares authorized:                 |          
|Series C convertible, at $.01 par value, liquidation value     |          
|$10.00 per share, aggregating $39,413,000 and $55,145,000      |          
|at June 30, 2002 and June 30, 2001, respectively; 8,450,000    |          
|shares authorized, 3,941,325 and 5,514,475 issued and          |          
|outstanding at June 30, 2002 and June 30, 2001, respectively   |          
|Common stock, 200,000,000 shares authorized at $.01 par value; |          
|14,813,927 and 11,478,419 shares issued and outstanding at     |          
|June 30, 2002 and June 30, 2001, respectively                  |          
|Additional paid-in capital                                     |          
|Unearned compensation                                          |          
|Accumulated deficit                                            |          
|                                                               | 
|Total stockholders' equity                                     |          
|                                                               | 
|Total liabilities and stockholders' equity                     |          
|                                                               | 
|                                                               | 

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

---

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

|                                                 | For the years ended June 30, |                
|------------------------------------------------ | ---------------------------- | ---------------
|
|Revenues                                         |                              |                
|Service revenues                                 |                             
|Activation fees                                  |                              | $      313,000 
|Monthly fees                                     |                              | 1,462,000      
|Transaction fees                                 |                              | 154,000        
|Other fees                                       |                              | 22,000         
|                                                 |                    |                
|Total service revenues                           |                              | 1,951,000      
|Product sales                                    |                              | 570,000        
|                                                 |                    |                
|Total revenues                                   |                              | 2,521,000      
|                                                 |                    |                
|Cost of revenues                                 |                             
|Services                                         |                              | 824,000        
|Product sales                                    |                              | 469,000        
|                                                 |                    |                
|Total cost of revenues                           |                              | 1,293,000      
|                                                 |                    |                
|Gross profit                                     |                              | 1,228,000      
|                                                 |                    |                
|Operating expenses                               |                             
|Selling, general and administrative              |                             
|(Exclusive of non-cash compensation)             |                              | 9,889,000      
|Non-cash compensation                            |                              | 1,075,000      
|                                                 |                    |                
|Total selling, general and administrative ..     |                              | 10,964,000     
|                                                 |                    |                
|Depreciation and amortization                    |                              | 3,671,000      
|Research and development                         |                              | 1,102,000      
|Restructuring (recovery) expense                 |                              | (89,000        
|Impairment of goodwill and intangibles           |                              | 5,701,000      
|Writedown of inventory from previous acquisition |                              | 3,481,000      
|                                                 |                    |                
|Total operating expenses                         |                              | 24,830,000     
|                                                 |                    |                
|Loss from operations                             |                              | (23,602,000    
|                                                 |                    |                
|Interest income                                  |                              | 274,000        
|Interest expense                                 |                              | (587,000       
|Other income (expense), net                      |                              | (91,000        
|                                                 |                    |                
|Loss from continuing operations                  |                              | (24,006,000    
|                                                 |                    |                
|Discontinued operations:                         |                             
|Income (loss) from discontinued operations       |                              | 321,000        
|Loss on sale of discontinued operations          |                              | (1,867,000     
|                                                 |                    |                
|Net loss from discontinued operations            |                              | (1,546,000     
|                                                 |                    |                
|Net loss                                         |                              | $(25,552,000   
|                                                 |                    |                
|                                                 |                    |                
|Basic and diluted net loss per share:            |                             
|Loss from continuing operations                  |                              | $         (1.81
|Loss from discontinued operations                |                              | $         (0.11
|                                                 |                    |                
|Net loss per share                               |                              | $         (1.92
|                                                 |                    |                
|                                                 |                    |                
|Weighted average common shares outstanding       |                             
|basic and diluted                                |                              | 13,290,000     
|                                                 |                    |                
|                                                 |                    |                
|                                                 |                             

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

---

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

|                                                           | For the years ended June 30, |              
|---------------------------------------------------------- | ---------------------------- | -------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                      |                              |              
|Net loss                                                   |                              | $(25,552,000 
|Adjustments to reconcile net loss to net cash used in      |                             
|operating activities:                                      |                             
|Depreciation and amortization                              |                              | 3,671,000    
|Depreciation and amortization from discontinued operations |                              | 402,000      
|Loss on sale of discontinued operations                    |                              | 1,867,000    
|Bad debt expense                                           |                              | 274,000      
|Deferred rent                                              |                              | (94,000      
|Non-cash compensation                                      |                              | 1,075,000    
|Impairment of goodwill and intangibles                     |                              | 5,701,000    
|Write down of inventory from previous acquisition          |                              | 3,481,000    
|Loss on asset disposal                                     |                              | 21,000       
|Loss on sale of property and equipment                     |                              | --           
|Changes in assets and liabilities:                         |                             
|Accounts receivable                                        |                              | (119,000     
|Inventory                                                  |                              | (210,000     
|Notes receivable                                           |                              | 87,000       
|Other current assets                                       |                              | 116,000      
|Other assets                                               |                              | 57,000       
|Accounts payable                                           |                              | (379,000     
|Accrued liabilities                                        |                              | (572,000     
|Other current liabilities                                  |                              | 38,000       
|Accrued restructuring expense                              |                              | (1,440,000   
|                                                           |                    |              
|Net cash used in operating activities                      |                              | (11,576,000  
|                                                           |                    |              
|CASH FLOWS FROM INVESTING ACTIVITIES:                      |                             
|Purchase of property and equipment                         |                              | (445,000     
|Increase in segregated cash                                |                              | (398,000     
|Net payment for purchase acquisition, net of cash acquired |                              | (2,587,000   
|Increase in deposits                                       |                              | (63,000      
|Proceeds from sales of equipment                           |                              | --           
|                                                           |                    |              
|Net cash used in investing activities                      |                              | (3,493,000   
|                                                           |                    |              
|CASH FLOWS FROM FINANCING ACTIVITIES:                      |                             
|Issuance of common stock                                   |                              | 128,000      
|Proceeds from exercise of warrants and options             |                              | 409,000      
|Conversion of Series C preferred stock                     |                              | (16,000      
|Payments of obligations under capital lease                |                              | (795,000     
|Payment of notes payable                                   |                              | --           
|                                                           |                    |              
|Net cash used in financing activities                      |                              | (274,000     
|                                                           |                    |              
|Net decrease in cash                                       |                              | (15,343,000  
|Cash and cash equivalents, beginning of year               |                              | 18,205,000   
|                                                           |                    |              
|Cash and cash equivalents, end of year                     |                              | $   2,862,000
|                                                           |                    |              
|                                                           |                    |              

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

---

# U.S.
WIRELESS DATA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2002 and 2001

|                                  | Series C PreferredStockShares Amount | Common StockShares Amount | AdditionalPaid-inCapital | UnearnedCompensation | AccumulatedDeficit | TotalStockholdersEquity |           |             
|--------------------------------- | ------------------------------------ | ------------------------- | ------------------------ | -------------------- | ------------------ | ------------------------ | --------- | ------------
|Balance at June 30, 2000          |                                      | 5,586,600                 |                          | $ 56,000             |                    | 8,098,637                |           | $ 8,099,000 
|                                  |                                      |                           |                          |                      |                    |                          |           |             
|Exercise of stock warrants        |                                      | --                        |                          | --                   |                    | 1,572,000                |           | 16,000      
|Amortization of Non-cash          |                                     
|compensation                      |                                      | --                        |                          | --                   |                    | --                       |           | --          
|Issuance of common stock          |                                     
|and contingent consideration      |                                     
|to CellGate                       |                                      | --                        |                          | --                   |                    | 563,000                  |           | 6,000       
|Issuance of common stock and      |                                     
|contingent consideration          |                                     
|to NXT shareholders               |                                      | --                        |                          | --                   |                    | 1,125,000                |           | 11,000      
|Conversion of Preferred C stock . |                                      | (72,125                   | )                        | (1,000               | )                  | 119,782                  |           | 1,000       
|Adjustment to reflect             |                                     
|par and stated value change       |                                      | --                        |                          | --                   |                    | --                       |           | (8,018,000  
|Net loss                          |                                      | --                        |                          | --                   |                    | --                       |           | --          
|                                  |                              |                           |                   |                      |           |                          |  |             
|Balance at June 30, 2001          |                                      | 5,514,475                 |                          | $ 55,000             |                    | 11,478,419               |           | $    115,000
|                                  |                                      |                           |                          |                      |                    |                          |           |             
|Exercise of stock options         |                                      | --                        |                          | --                   |                    | 214,444                  |           | 2,000       
|Non-cash compensation             |                                      | --                        |                          | --                   |                    | 30,571                   |           | 1,000       
|Amortization of non-cash          |                                     
|compensation                      |                                      | --                        |                          | --                   |                    | --                       |           | --          
|Cancellation of options issued    |                                     
|to Board member                   |                                      | --                        |                          | --                   |                    | --                       |           | --          
|Issuance of options to advisor    |                                      | --                        |                          | --                   |                    | --                       |           | --          
|Issuance of contingent            |                                     
|consideration to Cellgate         |                                      | --                        |                          | --                   |                    | 468,750                  |           | 5,000       
|Conversion of Preferred C Stock . |                                      | (1,573,150                | )                        | (16,000              | )                  | 2,621,743                |           | 26,000      
|Net Loss                          |                                      | --                        |                          | --                   |                    | --                       |           | --          
|                                  |                              |                           |                   |                      |           |                          |  |             
|Balance at June 30, 2002          |                                      | 3,941,325                 |                          | $ 39,000             |                    | 14,813,927               |           | $    149,000
|                                  |                              |                           |                   |                      |           |                          |  |             
|                                  |                              |                           |                   |                      |           |                          |  |             
|                                  |                                      |                           |                          |                      |                    |                          |           |             

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

---

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

## NOTE 1 - THE
COMPANY

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

During the fiscal year
ended June 30, 2001, the Company changed its common stock from $1.00 stated
value to $0.01 par value.

## NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## Basis of
Consolidation and Asset Sale of Subsidiary

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

Effective as of the close
of business on August 31, 2002, we sold, for $5 million in cash, substantially
all of the operating assets and operating obligations associated with our
wholly-owned subsidiary, NXT, to Paymentech, L.P. (Paymentech). NXT
provides data services and landline-based connectivity for credit-card
transaction processing. We have classified NXT as a discontinued operation, and
have eliminated NXT from the discussion that follows except as indicated.

---

## Basis of
Presentation

The accompanying financial
statements included herein have been prepared in accordance with generally
accepted accounting principles.

## Use of
Estimates

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

## Reclassifications

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

## Stock Split

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

## Cash and Cash
Equivalents

Investments in money market
funds and highly liquid investments purchased with an original maturity of three
months or less are classified as cash equivalents. Cash equivalents are carried
at cost, which approximates fair value. The Company maintains all of its cash
balances with major financial institutions, which are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances aggregate
approximately $2,662,000 at June 30, 2002.

## 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. Equipment and furniture are depreciated on a straight-line basis
over their estimated useful lives (generally three to seven years). Leasehold
improvements are amortized on a straight-line basis over the term of the lease,
or the estimated useful lives, whichever is shorter. Maintenance and repairs are
charged to operations as incurred.

## Intangibles
and Recovery of Long-Lived Assets

Cost in excess of the fair
value of tangible and identifiable intangible net assets acquired have been
amortized on a straight-line basis over four to 10 years. Identifiable
intangible net assets consist of completed technology, assembled workforce,
trademarks, and acquired customers.

---

In accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of (SFAS 121), the Companys policy is to review its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment in value
is considered to have occurred when the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset. The measurement of the
impairment loss to be recognized is based upon the difference between the
present value of the expected future cash flows and the carrying amount of the
assets. Based on the above assessment, no impairment loss had been recognized
during the year ended June 30, 2001, however, a $5,701,000 impairment of
goodwill and intangibles was recognized in the fourth quarter of fiscal year
June 30, 2002 and the remaining estimated useful lives of such assets was
reduced to four years.

## Revenue
Recognition

The Company derives revenue
from two primary sources: service fees and product (equipment) sales.

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

Software development
revenue, which had been earned in NXT, was derived from the development of
customized software and is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is determinable, and collectibility is
probable.

On June 30, 2001, the
Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. Effective January 1, 2001,
activation revenue is recognized ratably over the estimated average life of a
customer contract. Prior to the adoption of SAB 101, the Company recognized
activation revenue as services were performed. As required by generally accepted
accounting principles, the Company has reflected the effects of the change in
accounting principle as if such change had been adopted as of January 1, 2001,
which is included in the results of operations for the year ended June 30, 2001.
The change in accounting principle resulted in a decrease in revenue and gross
profit for the year ended June 30, 2001 of approximately $66,000 and $33,000,
respectively.

Product Sales.
Product sales (i.e., sales of equipment) are primarily derived from the sale of
USWDs proprietary Synapse Adapter and Synapse Enabler products. Revenues
from product sales are recognized upon shipment. Revenues from products under
rental agreements and similar arrangements are accounted for by the operating
lease method and are recognized over the rental term.

## Customer
Concentration

During fiscal 2002 and
2001, one customer accounted for 30% and 38% of revenues, respectively.

---

## Cost of
Revenues

Cost of revenues for
services consist primarily of the cost for the initial setup and ongoing
communications costs associated with terminals connected through Synapse as well
as the costs of certain non-wireless carriers associated with revenues. Cost of
revenues for product sales consist primarily of the costs of production of
products, such as the Synapse Adapter and the Synapse Enabler, and other direct
costs of sales such as shipping.

## Research and
Development Costs

Research and development costs
are expensed as incurred. During the fourth quarter of 2001, the Company changed
the methodology for recording research and development expense. Previously, the
Company had been recording research and development expense based upon a
percentage allocation of certain departments. During the fourth quarter of
fiscal 2001, the Company determined a more accurate method of recording research
and development expense based upon certain departments as a whole. The costs
were originally reported in selling, general and administrative expense, and
have been reclassified to research and development expense.

## Advertising
and Promotion

Costs of advertising are
expensed as incurred. Advertising and promotion expense for the years ended June
30, 2002 and 2001 amounted to approximately $215,000 and $703,000, respectively.

## Income Taxes

The Company follows
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Since the Company has no prior history of profits, management cannot
assess the likelihood that the future benefit of these losses will be
recognized. Thus, a full valuation allowance has been recorded.

## Stock-based
Compensation

The Company accounts for
stock-based employee compensation arrangements using the intrinsic value method
in accordance with the provisions of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees,
and complies with the disclosure provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock Based
Compensation.

## Fair Value of
Financial Instruments

The carrying value of the Companys
financial instruments, including accounts receivable, accounts payable, notes
receivable, accrued liabilities and other liabilities, approximate their fair
values due to their relatively short maturities. The fair values of capitalized
lease obligations approximate carrying value based on their effective interest
rates compared to current market rates.

---

## Accounting for
Derivatives and Financial Instruments

SFAS No. 133 establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In July 1999, the Financial Accounting Standards Board (FASB) issued
SFAS No. 137, Deferral of the Effective Date of SFAS No. 133, which amends SFAS
No. 133, by deferring the effective date to fiscal years beginning after June
15, 2000. The Company adopted SFAS No. 133 for fiscal year ended June 30, 2001.
The adoption of SFAS No. 133 did not have an impact on the Companys
reported results of operations, financial position, or cash flows.

## Internally
Developed Software

Certain costs of developing
or obtaining software for internal use are required to be capitalized. No such
costs were incurred during the years ended June 30, 2002 and 2001.

## Recent
Accounting Pronouncements

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

In June 2001, the FASB
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
142 requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing recognized intangibles. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company will adopt SFAS No. 142 effective
for the fiscal year beginning July 1, 2002. The adoption of SFAS No. 142 will
reduce amortization expense to $265,000 for each of the fiscal years 2003
through 2006.

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

In August 2001, the FASB
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144,
supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. This Statement
also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are required to be
applied starting with fiscal years beginning after December 15, 2001. The
Company will adopt the impairment provisions of SFAS No. 144 in the first
quarter of the fiscal year ending June 30, 2003, however, the Company adopted
the provisions relating to discontinued operations during the fourth quarter of
the fiscal year ended June 30, 2002 relating to the sale of NXT (see Note 21).

---

In April 2002, the FASB
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. This
Statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
APB Opinion No. 30. This Statement also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This Statement will be effective for the Company for
the fiscal year ending June 30, 2004. The Company has not determined the impact,
if any, that this statement will have on its financial statements.

In June 2002, the FASB
issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 will supersede Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company has not determined the impact, if any, that this statement will have
on its financial statements.

## NOTE 3 -
ACQUISITIONS

## Cellgate Technologies
LLC

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

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

---

The purchase price was
calculated as follows:

|                                                             |           
|------------------------------------------------------------ | ----------
|Cash paid                                                    |           
|U.S. Wireless Data, Inc. Common Stock issued at closing      |           
|valued at $3.50 per share                                    |           
|Maximum cash that may be paid in one (1) year discounted     |           
|by 10% to present value                                      |           
|Maximum shares of U.S. Wireless Data, Inc. Common Stock that |           
|may be issued in one year valued at $3.50 per share          |           
|Closing costs                                                |           
|Fair Value of assumed liabilities as of November 16, 2000(a) |           
|                                                             | 
|Total purchase price                                         |           
|Less fair value of tangible assets acquired(a)               |           
|                                                             | 
|Total amount of acquired intangible assets and goodwill      |           
|                                                             | 
|                                                             | 

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

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

|                                       | AllocatedValue | UsefulLife  
|-------------------------------------- | -------------- | ------------
|Intellectual Property:                 |                |             
|AT&T Wireless IP technology            |                | $  2,600,000
|CBF 2000 design and Tellus agreement   |                | 1,700,000   
|Cellgate gateway application           |                | 200,000     
|Cellgate enterprise system             |                | 200,000     
|ATM wireless solution                  |                | 1,300,000   
|Acquired workforce                     |                | 250,000     
|Fair value of tangible assets acquired |                | 2,707,000   
|Goodwill                               |                | 2,289,000   
|                                       |      |             
|Total allocation of purchase price     |                | $11,246,000 
|                                       |      |             
|                                       |      |             

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

Had the acquisition of
Cellgate been completed as of July 1, 2000, revenues, net loss from continuing
operations, and net loss per share from continuing operations would have been
$1,276,000, $18,834,000 and $1.84, respectively, for the fiscal year ended June
30, 2001.

---

## NXT Corporation

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

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

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

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

The purchase price was
calculated as follows:

|                                                                   |           
|------------------------------------------------------------------ | ----------
|Shares of U.S. Wireless Data, Inc. Common Stock issued at closing, |           
|valued at $1.875 per share                                         |           
|Maximum cash that may be paid in two years discounted              |           
|by 10% to present value                                            |           
|Maximum shares U.S. Wireless Data, Inc. Common Stock that          |           
|may be issued in two years valued at $1.875 per share              |           
|Closing costs                                                      |           
|Assumed liabilities as of December 22, 2000                        |           
|                                                                   | 
|Total purchase price                                               |           
|Less the fair value of tangible assets acquired                    |           
|                                                                   | 
|Total amount of acquired intangible assets and goodwill            |           
|                                                                   | 
|                                                                   | 

---

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

|                                       | AllocatedValue | UsefulLife  
|-------------------------------------- | -------------- | ------------
|Intellectual Property:                 |                |             
|IP transaction switch                  |                | $  2,400,000
|Customer relationships                 |                | 1,700,000   
|Proprietary software                   |                | 864,000     
|Tools and value added components       |                | 190,000     
|Acquired workforce                     |                | 1,300,000   
|Fair value of tangible assets acquired |                | 2,976,000   
|Goodwill                               |                | 1,652,000   
|                                       |      |             
|Total allocation of purchase price     |                | $11,082,000 
|                                       |      |             
|                                       |      |             
|                                       |               

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

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

## NOTE 4 -
INVENTORY

|                       | June 30,  |            
|---------------------- | --------- | -----------
|
|Inventory consists of: |           |            
|Raw material           |           | $   210,000
|Work in process        |           | 43,000     
|Finished goods         |           | 547,000    
|                       |  |            
|                       |           | $   800,000
|                       |  |            
|                       |  |            
|                       |          

In the fourth quarter of
fiscal 2002, the Company recorded a charge of $3,481,000 to writedown the
inventory of Synapse Adapters to the cost value of the number of units the
Company now expects to realize over the remaining expected life of this product.

## NOTE 5 -
PROPERTY AND EQUIPMENT

|                                   | June 30,  |            
|---------------------------------- | --------- | -----------
|
|Property and equipment consist of: |           |            
|Equipment and furniture            |           | $ 2,904,000
|Leasehold improvements             |           | 478,000    
|Rental equipment                   |           | 440,000    
|Less accumulated depreciation      |          
|and amortization                   |           | (1,627,000 
|                                   |  |            
|                                   |           | $ 2,195,000
|                                   |  |            
|                                   |  |            
|                                   |          

Depreciation and
amortization expense was $782,000 and $650,000 for the years ended June 30,
2002 and 2001, respectively.

---

## NOTE 6 -
INTANGIBLE ASSETS

All of USWDs acquired
intangible assets are subject to amortization. There were no material
acquisitions of intangible assets during the fiscal year 2002. Amortization
expense related to intangible assets was $2,889,000 for fiscal year 2002 and
$1,217,000 for fiscal year 2001.

In the fourth quarter of
fiscal 2002, the Company recorded an impairment charge of $5,701,000 on goodwill
and other intangibles to writedown the value of the acquired assets of Cellgate
to the present value of the net amount the Company now expects to realize over
the remaining expected life of the Synapse Adapter product. Goodwill has been
completely eliminated due to this impairment charge, and the remaining
$1,059,000 value of intangibles from this acquisition as of June 30, 2002 will
be amortized over the estimated remaining life of four years.

The net carrying amount of
$5,927,000 as of June 30, 2002 of goodwill and other intangibles relating to the
NXT acquisition was reclassified to assets held for sale. Since the net proceeds
from the sale of NXT did not exceed the carrying value of the related net
assets, a loss on the carrying value of such assets has been recorded as of June
30, 2002 (see Note 21).

The components of
intangible assets are as follows:

Intangibles related to the
acquisition of Cellgate:

|             | June 30, 2002 | June 30, 2001 |         |             |         |             |        
|------------ | ------------- | ------------- | ------- | ----------- | ------- | ----------- | -------
|
|Intellectual |               | $6,000,000    |         | $(1,416,000 | )       | $(3,556,000 | )      
|property     |              
|Acquired     |               | 250,000       |         | (104,000    | )       | (115,000    | )      
|workforce    |              
|Goodwill     |               | 2,436,000     |         | (406,000    | )       | (2,030,000  | )      
|             |        |               |  |             |  |             | 
|Total        |               | $8,686,000    |         | $(1,926,000 | )       | $(5,701,000 | )      
|             |        |               |  |             |  |             | 
|             |        |               |  |             |  |             | 
|             |              

Intangibles related to the
acquisition of NXT:

|              | June 30, 2002 | June 30, 2001    |           |                  |           |                 
|------------- | ------------- | ---------------- | --------- | ---------------- | --------- | ----------------
|
|Intellectual  |               |                  |           |                  |           |                 
|property      |               | $ 3,454,000      |           | $  (907,000      | )         | $ 2,547,000     
|Acquired      |              
|workforce     |               | 1,300,000        |           | (390,000         | )         | 910,000         
|Marketing     |              
|related       |               | 1,700,000        |           | (637,000         | )         | 1,063,000       
|Goodwill      |               | 1,652,000        |           | (245,000         | )         | 1,407,000       
|Acquired      |              
|intangibles   |              
|from NXT      |               | 432,000          |           | (432,000         | )         | --              
|Balance       |              
|reclassified  |              
|to assets     |              
|held for sale |               | (8,538,000       | )         | 2,611,000        |           | (5,927,000      
|              |      |                  |  |                  |  |                 
|Total         |               | $             -- |           | $             -- |           | $             --
|              |      |                  |  |                  |  |                 
|              |      |                  |  |                  |  |                 
|              |              

---

## NOTE 7 
ACCRUED RESTRUCTURING EXPENSE

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

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

During the fourth quarter
of fiscal year 2002, the Company reevaluated the balance of the restructuring
accrual as the Bethesda facility sublease was completed. It was determined that
in connection with vacating the Bethesda office, we underestimated our original
estimates of sublease income and overestimated related costs. Accordingly, the
Company reduced the restructuring accrual by $714,000.

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

|                                             |          
|-------------------------------------------- | ---------
|Balance at June 30, 2001                     |          
|Charges against accrual (Bethesda rent       |          
|payments, severance and benefit payments)    |          
|Additions to accrual (severance and benefits |          
|accrual)                                     |          
|Write down of accrual balance                |          
|                                             | 
|Balance at June 30, 2002                     |          
|Less current portion                         |          
|                                             | 
|Balance at June 30, 2002, excluding          |          
|current portion                              |          
|                                             | 
|                                             | 
|                                             |          

The balance of the
restructuring charge accrual will be paid over the remaining lease term of our
former Bethesda office which expires July 2009.

## NOTE 8 -
ACCRUED LIABILITIES

|                                 | June 30,  |            
|-------------------------------- | --------- | -----------
|
|Accrued liabilities consists of: |           |            
|Accrued compensation             |           | $   588,000
|Accrued professional fees        |           | 20,000     
|Accrued vendor obligation        |           | 187,000    
|Other                            |           | 166,000    
|                                 |  |            
|                                 |           | $   961,000
|                                 |  |            
|                                 |  |            
|                                 |          

---

## NOTE 9 - CAPITAL
LEASE OBLIGATION

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

On July 29, 1999, Cellgate
entered into a Master Purchase and Lease Agreement with Tellus Technology Inc.
(Tellus) and Varilease Corporation (Varilease) in which
Tellus agreed to sell to Varilease and Varilease agreed to lease to the Company
wireless IP modem adapters (the Equipment Units). In connection
therewith, Cellgate entered into a separate Master Lease Agreement with
Varilease to lease Equipment Units. These agreements were assumed in the
purchase of assets and certain liabilities of Cellgate. At the end of the
period, and under the terms specified in the agreement, the Company may either
purchase the Equipment Units (at prices to be determined by the parties), extend
the lease for an additional twelve months (at specified rates), or return the
Equipment Units and purchase new units. On April 4, 2002, the Company entered an
agreement with Varilease to extend the term of the lease for an additional
twelve months. While in its possession, the Company bears the risk of loss for
any damaged Equipment Units. In connection with the lease agreement, the Company
has $50,000, which is maintained in an escrow account, included in restricted
cash. As of June 30, 2002, the Company recorded the fair value of the
capitalized lease obligation of $1,057,000.

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

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

|                                  |          
|--------------------------------- | ---------
|For fiscal year ending June 30:   |          
|2003                              |          
|2004                              |          
|                                  | 
|Total minimum payments required   |          
|Less amount representing interest |          
|                                  | 
|Present value of net minimum      |          
|lease payments                    |          
|Less current installments         |          
|                                  | 
|Obligations under capital leases, |          
|excluding current installments    |          
|                                  | 
|                                  | 

The carrying value of
assets under capital leases of $2,505,000, is included in inventory and
equipment at June 30, 2002.

---

## NOTE 10 
OTHER LIABILITIES

Other current liabilities
at June 30, 2002, consist of deferred revenue in the amount of $299,000. Other
current liabilities at June 30, 2001, consisted of deferred marketing in the
amount of $208,000 and deferred revenue in the amount of $53,000. The Company
received $300,000 from a shareholder for business development purposes, as part
of the NXT acquisition, which had been recorded as deferred marketing.

Other liabilities at June
30, 2002, consist of a $47,000 deposit due to the sub-lessor of our former
office space in Bethesda, MD. Other liabilities at June 30, 2001, consist of
$109,000 deposit due to the sub-lessor of our former office space in New York.

## NOTE 11 
STOCKHOLDERS EQUITY

On October 6, 2000,
authorized capital was increased to 225,000,000 shares, 200,000,000 of which are
$.01 par value common stock and 25,000,000 of which are $.01 par value preferred
stock. At June 30, 2002, the only preferred stock issued and outstanding is the
Series C Convertible Preferred Stock.

## NOTE 12 -
SERIES C CONVERTIBLE PREFERRED STOCK

Commowealth Associates,
L.P. (Commonwealth) acted as placement agent in the Private
Placement pursuant to which an aggregate of 558.66 Units were sold at $100,000
per Unit for aggregate gross proceeds of $55,866,000. The Private Placement was
closed in three tranches on March 17, 2000, March 28, 2000 and May 31, 2000.
Each Unit consists of 10,000 shares of the Companys Series C Preferred
Stock (which is initially convertible into 16,667 shares of Common Stock) and
warrants to purchase Common Stock equal to 25% of the number of shares into
which the Series C Preferred Stock is convertible.

The Series C Preferred
Stock has a liquidation preference of $10 per share, plus accrued and unpaid
dividends. The holders of Series C Preferred Stock are entitled to vote their
shares of Series C Preferred Stock on an as converted basis with the holders of
Common Stock as a single class on all matters submitted to a vote of the
shareholders, except as otherwise required by applicable law and except that the
holders of Series C Preferred Stock voting separately as a class have the right
to elect two directors to the Board of Directors.

Each share of Series C
Preferred Stock is convertible at any time, at the option of the holder, into a
number of shares of Common Stock determined by dividing the liquidation value by
the conversion price, initially $6.00 per share, which is subject to adjustment
for stock splits, recapitalizations and other similar events. If the Company
issues shares of Common Stock at a price per share less than the then current
conversion price, then, subject to certain exceptions, the conversion price will
be automatically reduced to such lower price and the number of shares issuable
upon conversion of the Series C Preferred Stock shall be increased
proportionately. The Series C Preferred Stock automatically converts into Common
Stock (a) if, at any time commencing three months after June 17, 2000, the
average closing bid price of the Companys Common Stock exceeds 300% of the
conversion price for 20 consecutive trading days or (b) upon a public offering
of the Companys securities that raises gross proceeds in excess of
$30,000,000.

---

The warrants issued in
connection with the Private Placement (the Unit Warrants) are
exercisable for a period of seven years for an aggregate number of shares of
Common Stock equal to 25% of the number of shares into which the Series C
Preferred Stock are convertible, at an exercise price equal to the then
applicable conversion price. The initial exercise price is $6.00 per share,
subject to adjustment under the same circumstances as the conversion price of
the Series C Preferred Stock. The Unit Warrants are callable for a nominal price
at the Companys option on 30 days notice to the holders of the Unit
Warrants if (a) the average closing bid price of the Companys Common Stock
for 20 consecutive trading days exceeds 300% of the exercise price, as adjusted,
(b) the Companys Common Stock is trading on a national securities exchange
or Nasdaq SmallCap or National Market Systems, and (c) a registration statement
covering the shares issuable upon exercise of the Unit Warrants has been
declared effective and the shares issuable upon exercise of the Unit Warrants
are not otherwise subject to any lock-up restrictions.

The terms of the Series C
Preferred Stock and the Unit Warrants may be amended, modified or waived by an
agreement among the Company, Commonwealth and a committee to be designated by
Commonwealth whose members hold in the aggregate not less than 20% of the
outstanding Series C Preferred Stock and not less than 20% of the outstanding
Unit Warrants.

The Company is obligated to
file a registration statement with respect to the shares of Common Stock
issuable upon conversion of the Series C Preferred Stock and exercise of the
Unit Warrants under the Securities Act within twelve months of the closing of
the Private Placement. The investors also have certain piggyback
registration rights with respect to the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and the exercise of the Unit
Warrants. As of June 30, 2002, the Company has not registered the Common Stock
underlying the Series C Preferred Stock and related Unit Warrants as required by
the agreement.

Several of the
Companys officers and directors purchased Units in the Private Placement.
Dean M. Leavitt, the Companys Chairman and Chief Executive Officer
purchased 2.5 Units, Charles I. Leone, the Companys Executive Vice
President, Chief Administrative Officer and Secretary purchased 1 Unit and
Robert E. Robichaud, the Companys former Chief Financial and Accounting
Officer, Treasurer and Secretary purchased .75 of a Unit. Edwin Cooperman, a
member of the Board, purchased 1 Unit and each of Michael S. Falk and Amy
Newmark, both also members of the Board, purchased 2.5 Units. Barry Kaplan, also
a member of the Board, purchased 25 Units. Mr. Kaplan also received from
Commonwealth at no charge a warrant to purchase 1.5 Units exercisable at
$100,000 per Unit (from the warrants Commonwealth received as compensation for
services in the Private Placement).

As part of its
compensation, Commonwealth received warrants to purchase 139.664 Units,
exercisable at $100,000 per Unit, a commission of $3,910,620, which is 7% of the
gross proceeds raised in the Private Placement, and a structuring fee of
$1,675,980, which is 3% of the gross proceeds raised in the Private Placement.
Pursuant to a prior agreement with Peter J. Solomon Securities Company Limited
(PJSC) relating to financing transactions entered into by the
Company, the Company issued to PJSC warrants to purchase 27.935 Units at
$100,000 per Unit and a fee of $400,000. The warrants are exercisable commencing
on the date of issuance and for seven years thereafter. The Company valued the
unit warrants at a fair value of $6.15 million.

---

As a condition to the
completion of the Private Placement, the Company agreed that the exercise price
of a warrant owned by Dean M. Leavitt, the Companys Chairman and Chief
Executive Officer, to purchase 671,875 shares of Common Stock should be reduced
from $12.00 per share to the market price of the Common Stock on January 4,
2000. In March 2000, the FASB issued Interpretation No. 44 Accounting for
Certain Transactions Involving Stock Compensation. The interpretation was
not effective until July 1, 2000. Had the interpretation been in effect on the
date of the repricing, the warrant would have been considered a variable warrant
at that time. In compliance with this new interpretation, the Company recorded
this as a variable warrant and will adjust compensation expense based upon the
Common Stock price difference from the closing Common Stock price on July 1,
2000 versus the closing Common Stock price at any measurement date multiplied by
the number of outstanding warrants at the measurement date. On June 30, 2002,
the closing stock price was less than the closing stock price at July 1, 2000,
therefore, no compensation expense has been recorded.

As a result of previous
financing arrangements and the Private Placement, Commonwealth is deemed to
control the Company.

## Authorization
and Stated Value

On March 10, 2000, the
Company authorized 8,450,000 shares as Series C Convertible Preferred Stock with
a stated value of $0.01 per share.

## Liquidation
Value

In the event of a
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, the holders of the Series C Preferred Stock will be entitled to
receive for each of their shares, prior and in preference to any distribution to
the holders of the Common Stock or other series of preferred stock, a
Liquidation Value equal to $10.00 per share, plus any accrued and unpaid
dividends.

## Optional
Conversion

Each Series C Preferred
Stock is convertible, at the option of the holder into a number of shares of
Common Stock determined by dividing (A) the Liquidation Value by (B) the
Conversion Price (6.00). During fiscal year 2002, 1,573,150 preferred shares
were converted into 2,621,743 shares of common stock. During fiscal year 2001,
72,125 preferred shares were converted into 119,782 shares of common stock.

## Automatic
Conversion

The Series C Preferred
Stock automatically converts into shares of Common Stock at the then Conversion
Price if, commencing three months after the Initial Closing, the average closing
bid price of the Common Stock exceeds 300% of the Conversion Price for 20
consecutive trading days. In addition, the Series C Preferred Stock
automatically converts into shares of Common Stock at the Conversion Price upon
a public offering of the Companys securities raising gross proceeds in
excess of $30,000,000.

---

## Ranking

The Company cannot create
or authorize any other stock ranking senior to the Series C Preferred Stock.

## Anti-dilution

In the event of any capital
reorganization or reclassification of the Company, or any consolidation or
merger of the Company, or sale, transfer, or lease of all or substantially all
of its assets which effects the holders of Common Stock in such a way that
entitles them to receive stock, securities, or assets with respect to or in
exchange for their shares, then the holder of the Series C Preferred Stock shall
have the right to purchase and receive such securities, or assets as would have
been issued and payable if the holders of the Series C Preferred Stock had
converted their shares into Common Stock immediately prior to such
reorganization, reclassification, consolidation, merger, or sale.

If at any time the Company
distributes to holders of Common Stock (i) securities, (ii) property, or (iii)
cash, without fair payment, then the holders of the Series C Preferred Stock,
upon conversion, shall be entitled to receive such securities, property or cash
that they would have received if they had converted their share into Common
Stock immediately prior to the distribution.

In the event the Company at
any time issues additional Common Stock, preferred stock, options, warrants or
convertible securities after the date or issuance of the Series C Preferred
Stock, at the purchase price lower than the Conversion Price, then, subject to
certain exceptions, the Conversion Price will be automatically reduced to such
lower purchase price and the number of shares issuable upon conversion of the
Preferred Shares shall be increased proportionately.

The anti-dilution rights
may be waived by a vote of the holders of at least 20% of the Series C Preferred
Stock.

## Voting Rights

The holders of Series C
Preferred Stock are entitled to one vote per share of Common Stock issuable upon
conversion of the Series C Preferred Stock as of the record date for any such
vote on all matters submitted to a vote of shareholders of the Company, and the
holders of Series C Preferred Stock will vote as a single class with the holders
of Common Stock on all matters, except as otherwise required under applicable
law and except that the holders of the Series C Preferred Stock are entitled to
elect two directors.

## Distribution
and Dividends

If any dividend is declared
on the Common Stock, the holders of the Series C Preferred Stock will be
entitled to receive dividends pari passu out of legally available funds as if
each such share of the Series C Preferred Stock had been converted to Common
Stock. No dividend shall be paid on the Common Stock at a rate greater than the
rate at which dividends are paid on the Series C Preferred Stock. Dividends to
the holder of Series C Preferred Stock will be non-cumulative.

---

## Modifications
and Waivers

The terms of the Series C
Preferred Stock may be amended, modified or waived by agreement of the Company,
the Placement Agent and a committee, to be designated by the Placement Agent
whose members hold in the aggregate not less than 20% of the outstanding Series
C Preferred Stock and 20% of the outstanding Warrants (the
Committee), provided however, that no such amendment, modification
or waiver which would decrease the number of Conversion Shares issuable upon the
exercise of the Series C Preferred Stock, or increase the Conversion Price
therefore (other than as a result of the waiver or modification of any
anti-dilution provisions) may be made without approval of the holders of at
least 50% of the outstanding Series C Preferred Stock.

## NOTE 13 -
STOCK OPTIONS

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

During the year ended June
30, 2002, $1,045,000 was charged to compensation expense relating to options
issued to three Board Members granted on March 29, 2000.

On May 16, 2002, the
Company engaged an investment banking firm as financial and strategic advisors
and, as part of their compensation, granted the firm options to purchase 150,000
shares of the Companys common stock at an exercise price equal to the
market price on the date of grant. The options vested immediately and have a
five-year term. The Company valued the option at $149,000, which was charged to
unearned compensation, with a corresponding amortization expense of $30,000
recorded as non-cash compensation expense for the fiscal year ended June 30,
2002. In determining the fair value of the option, the Company used the
Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the
following assumptions: dividend yield of zero, expected volatility of 123%, an
average expected option life of five years and an average risk-free interest
rate of 3.22% for June 30, 2002.

## Stock Option
Plan

In September 1992, the
Company adopted a combined incentive and a non-qualified stock option plan (the
1992 Plan), which, as amended, provided for the issuance of up to
670,000 shares of Common Stock under the plan. The Company no longer issues new
grants under the 1992 Plan. On January 4, 2000, the Board approved the
2000 Plan. The 2000 Plan authorizes a maximum of 15,000,000 shares
to be granted. Options granted under the plans generally vest over a period of
three years and must be exercised no later than ten years from the date of
grant.

---

The following table
summarizes information for stock options outstanding under the plans and outside
the plans at June 30, 2002:

|               | Outstanding Options | Options Exercisable |     |         |    
|-------------- | ------------------- | ------------------- | --- | ------- | ---
|
|$0.00 - $1.00  |                     | 8                   | .81 | $     0 | .61
|$1.01 - $1.50  |                     | 8                   | .96 | $     1 | .37
|$1.51 - $2.00  |                     | 9                   | .55 | $     1 | .80
|$2.01 - $2.50  |                     | 8                   | .78 | $     2 | .22
|$2.51 - $4.00  |                     | 7                   | .31 | $     3 | .05
|$4.01 - $6.00  |                     | 7                   | .71 | $     5 | .89
|$6.01 - $35.00 |                     | 8                   | .02 | $     8 | .77

Stock option transactions
relating to options granted under the plans and other stock options (discussed
below) for the years ended June 30, 2002 and 2001 were as follows:

## 1992 Stock
Option Plan

|                             | Number ofShares | WeightedAverage ExercisePrice PerShare
|---------------------------- | --------------- | --------------------------------------
|Balance at June 30, 2000     |                 | 402,509                               
|Granted                      |                 | --                                    
|Exercised                    |                 | --                                    
|Cancelled                    |                 | (54,625                               
|                             |          |                                       
|Balance at June 30, 2001     |                 | 347,884                               
|Granted                      |                 | --                                    
|Exercised                    |                 | (18,750                               
|Cancelled                    |                 | (116,564                              
|                             |          |                                       
|Balance at June 30, 2002     |                 | 212,570                               
|                             |          |                                       
|                             |          |                                       
|Exercisable at June 30, 2002 |                 | 162,848                               
|                             |          |                                       
|                             |          |                                       

---

## 2000 Stock
Option Plan

|                             | Number ofShares | WeightedAverage ExercisePrice PerShare
|---------------------------- | --------------- | --------------------------------------
|Balance at June 30, 2000     |                 | --                                    
|Granted                      |                 | 2,813,785                             
|Exercised                    |                 | --                                    
|Cancelled                    |                 | (205,385                              
|                             |         |                                       
|Balance at June 30, 2001     |                 | 2,608,400                             
|Granted                      |                 | 1,229,462                             
|Exercised                    |                 | (177,987                              
|Cancelled                    |                 | (378,978                              
|                             |         |                                       
|Balance at June 30, 2002     |                 | 3,280,897                             
|                             |         |                                       
|                             |         |                                       
|Exercisable at June 30, 2002 |                 | 716,663                               
|                             |         |                                       
|                             |         |                                       

## Outside the
Plans

|                             | Number ofShares | WeightedAverage ExercisePrice PerShare
|---------------------------- | --------------- | --------------------------------------
|Balance at June 30, 2000     |                 | 504,875                               
|Granted                      |                 | --                                    
|Exercised                    |                 | --                                    
|Cancelled                    |                 | (149,668                              
|                             |          |                                       
|Balance at June 30, 2001     |                 | 355,207                               
|Granted                      |                 | --                                    
|Exercised                    |                 | (17,707                               
|Cancelled                    |                 | (41,667                               
|                             |          |                                       
|Balance at June 30, 2002     |                 | 295,833                               
|                             |          |                                       
|                             |          |                                       
|Exercisable at June 30, 2002 |                 | 203,983                               
|                             |          |                                       
|                             |          |                                       
|                             |                

## Fair Value
Disclosures

Had compensation expense
for the Plans been determined based on the fair value of the options at the
grant dates for awards under the Plans 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 pro forma amounts indicated below:

|                                 | June 30, |                     
|-------------------------------- | -------- | --------------------
|
|Net loss                         |          |                     
|As reported                      |          | $    (25,552,000    
|Pro forma                        |          | $    (28,939,000    
|Basic and diluted loss per share |         
|As reported                      |          | $              (1.92
|Pro forma                        |          | $              (2.18
|                                 |         

The weighted average fair
value of options granted during the year ended June 30, 2002 and 2001 was $1.06
and $3.43 per option, respectively. In determining the minimum fair value of
each option, the Company used the Black-Scholes option-pricing model as
prescribed by SFAS No. 123 using the following assumptions: dividend yield of
zero, expected volatility of 140% and 180%, an average expected option life of
3.5 years and an average risk-free interest rate of 4.4% and 4.95% for June 30,
2002 and 2001, respectively.

---

## NOTE 14 -
STOCK WARRANTS

The following table
summarizes information about stock warrants outstanding at June 30, 2002:

|                        | Outstanding and Exercisable Warrants |           | 
|----------------------- | ------------------------------------ | --------- | 
|
|Range of exercise price |                                      |           | 
|                        |                                      |           | 
|$ 0.00 - $ 5.90         |                                      | 1,343,750 | 
|$ 5.91 - $ 6.00         |                                      | 6,017,766 | 
|$ 6.01 - $13.00         |                                      | 70,833    | 
|$13.01 - $23.00         |                                      | 56,359    | 
|                        |                                     

Provided  below are stock
warrant transactions for the year ended June 30, 2002.

|                             | Number of Shares | Weighted AverageExercise Price
|---------------------------- | ---------------- | ------------------------------
|Balance at June 30, 2002     |                  | 9,153,625                     
|Granted                      |                  | --                            
|Exercised                    |                  | --                            
|Cancelled                    |                  | (1,572,000                    
|                             |          |                               
|Balance at June 30, 2001     |                  | 7,581,625                     
|Granted                      |                  | --                            
|Exercised                    |                  | --                            
|Cancelled                    |                  | (92,917                       
|                             |          |                               
|Balance at June 30, 2002     |                  | 7,488,708                     
|                             |          |                               
|                             |          |                               
|Exercisable at June 30, 2002 |                  | 7,488,708                     
|                             |          |                               
|                             |          |                               
|                             |                 

As part of their
compensation related to the Private Placement, Commonwealth and PJSC received
warrants to purchase an aggregate of 167.599 Units (which are identical to the
units sold in the Private Placement). The warrants are exercisable at $100,000
per Unit commencing on the date of issuance and for seven years thereafter. The
Company valued the unit warrants at $6.15 million.

---

Effective September 7,
2000, unit purchase warrants to purchase units consisting of (a) Series C
Convertible Preferred Stock and (b) additional warrants to purchase Common Stock
at $6.00 per share were amended so that such warrants are now exercisable, at
$6.00 per share, solely for the total number (3,491,625) of shares of Common
Stock into which the underlying Series C Convertible Preferred Stock and
warrants would have been convertible and exercisable. The modified warrants are
held by Commonwealth and PJSC. The change does not change the aggregate number
of shares of Common Stock, which the holders would have received upon exercise
in full of the unit purchase warrants and conversion and exercise in full of the
underlying securities. The change also does not affect the aggregate purchase
price, which such holders would have paid for the underlying Common Stock. The
change in the agreement did not provide additional value to the warrant holders,
therefore the Company did not recognize the change.

## Note 15 - NET
LOSS PER SHARE

Earnings (loss) per common
share (EPS) is computed using SFAS No. 128, Earnings per Share. SFAS
No. 128 establishes standards for the computation, presentation, and disclosure
of earnings per share. Basic per share amounts are computed by dividing the net
loss available to common stockholders by the weighted average number of common
shares outstanding during the year. Diluted per share amounts incorporate the
incremental shares issuable upon the assumed exercise of the Companys
stock options and warrants and assumed conversion of convertible securities.
During fiscal years 2002 and 2001, such incremental amounts have been excluded
from the calculation since their effect would be anti-dilutive. Such stock
options, warrants and conversions could potentially dilute earnings per share in
the future.

The following table
reconciles the number of shares of common stock outstanding to the maximum
diluted shares of common stock for the years ended June 30, 2002 and 2001.

# U.S.
WIRELESS DATA INC.
CONSOLIDATED COMMON STOCK EQUIVALENTS

|                                             | As of June 30, |           
|-------------------------------------------- | -------------- | ----------
|
|Common stock outstanding                     |                | 14,814,000
|Series C Preferred Stock outstanding         |               
|in common stock equivalents                  |                | 6,569,000 
|                                             |       |           
|                                             |                | 21,383,000
|                                             |       |           
|Warrants                                     |               
|Outstanding related to the Private Placement |               
|Investor warrants                            |                | 2,328,000 
|Agent warrants                               |                | 2,328,000 
|Agent warrants                               |                | 582,000   
|Investment company warrants                  |                | 466,000   
|Investment company warrants                  |                | 116,000   
|Various outstanding                          |                | 325,000   
|Executive                                    |                | 1,344,000 
|                                             |       |           
|Total warrants                               |                | 7,489,000 
|                                             |       |           
|Options                                      |               
|Outstanding, 1992 Option Plan                |                | 213,000   
|Outstanding, 2000 Option Plan                |                | 3,281,000 
|Outstanding, Non-Plan                        |                | 296,000   
|                                             |       |           
|Total options                                |                | 3,790,000 
|                                             |       |           
|Common stock contingently                    |               
|issuable for acquisitions                    |                | 2,242,000 
|                                             |       |           
|Total shares outstanding or issuable         |                | 34,904,000
|                                             |       |           
|                                             |       |           

## NOTE 16 -
INCOME TAXES

At June 30, 2002 and 2001,
the Company had net operating loss carry-forwards for federal and state income
tax purposes of approximately $72 million and $50 million, respectively. Annual
utilization of the loss carry-forwards is subject to significant limitations due
to changes in the Companys ownership. Future changes in ownership could
further limit the utilization of these net operating loss carryforwards. If
unused, the carry-forwards will expire between 2009 and 2021.

---

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
carry-forwards. The tax effects of significant items comprising the
Companys deferred taxes are as follows:

|                                  | June 30,   |                    
|--------------------------------- | ---------- | -------------------
|
|Deferred tax assets               |            |                    
|Net operating loss carry-forwards |            | $ 24,365,000       
|Intangibles                       |            | 3,096,000          
|Inventory reserves                |            | 1,178,000          
|Loss on disposition of subsidiary |            | 635,000            
|Accrued restructuring expense     |            | 323,000            
|Other                             |            | 233,000            
|                                  |  |                    
|                                  |            | $ 29,830,000       
|Valuation allowance               |            | (29,830,000        
|                                  |  |                    
|                                  |            | $                --
|                                  |  |                    
|                                  |  |                    

Realization of deferred tax
assets is dependent upon future earnings. The Company has recorded a full
valuation allowance against the deferred tax assets since management believes
that it is more likely than not that these assets will not be realized.
Accordingly, no income tax benefit has been recorded because of the valuation
allowance. The valuation allowance increased during fiscal 2002 and 2001 by
$9,526,000 and $6,451,000 respectively, due to additional losses for which no
tax benefits were recorded.

## NOTE 17 -
EMPLOYEE BENEFIT PLAN

The Company maintains 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, subject to certain
limitations imposed by current tax law and regulations. During fiscal year 2002
and 2001, the Company contributed $81,000 and $42,000 to the Plan, respectively.

## NOTE 18 -
RELATED PARTIES

Commonwealth was retained
by the Company to provide financial advisory and other investment banking
services related to the acquisition of Cellgate and NXT. Investment banking fees
were paid to Commonwealth during fiscal year 2001, totaling $500,000. No fees
were paid during fiscal year 2002. See additional disclosures of related party
transactions in the Notes entitled Series C Convertible Preferred
Stock and the Note entitled Stock Options relating to options
granted to the Board of Directors.

The Company receives
payments for services provided to two shareholders, Paymentech, a subsidiary of
First USA Inc. and its subsidiary, MerchantLink, Inc. (MLI) and
American Express Travel related services Company, Inc. (Amex). The
Company obtained these relationships as part of the acquisition of NXT in
December 2000.

## Paymentech

During 2002 and 2001, the
Company recorded approximately $863,000 and $509,000, respectively, in revenue
from Paymentech for transaction fees, monthly data transport services, leased
line revenue, and software development services. At June 30, 2002 and 2001
accounts receivable from PTI were approximately $48,000 and $85,000,
respectively.

## MLI

MLI uses NXT for
transaction transport services as contracted for in a service agreement dated
June 21, 1996. The Company leased office space from MLI, which expired on August
30, 2001. During 2002 and 2001, the Company recorded costs related to the leased
office space and network monitoring fees of $56,000 and $134,000, respectively.
During 2002 and 2001, the Company recorded revenue from MLI of approximately
$3,731,000 and $1,086,000, respectively. Accounts receivables from MLI were
approximately $369,000 and $570,000, and accounts payables were $0 and $5,000 at
June 30, 2002 and 2001, respectively.

---

## Amex

Pursuant to an agreement
with Amex dated January 29, 1996 as amended on October 16, 1997, February 11,
1999, May 10, 1999, December 30, 1999, May 24, 2000, August 22, 2000 and
December 22, 2000, the Company provides to and receives from Amex various
services related to transport and management of credit card transactions. During
2002 and 2001, the Company recorded revenue from Amex of approximately $27,000
and $21,000, from transaction management fees, leased line reimbursements,
software development and other services. The Company also recognized costs of
sales to Amex of approximately $3,648,000 and $1,600,000 for transaction
transport services, host connection fees and transaction commissions during 2002
and 2001, respectively. Included in accounts payable balance was approximately
$869,000 and $670,000, due to Amex and $25,000 and $2,000, included in accounts
receivable due from Amex as of June 30, 2002 and 2001, respectively.

## NOTE 19 -
SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental  disclosure of
cash flow information:

$593,000 and $232,000 was
paid in cash for interest for the year ended June 30, 2002 and 2001,
respectively.

Supplemental  disclosure of
non-cash financing and investing activities:

Year ended June 30, 2002

|1. | Conversion of 1,573,150 shares of Series C Preferred Stock into 2,621,743 shares
of Common Stock.
|-- | -------------------------------------------------------------------------------------------------

|2. | Issuance of 468,750 shares of common stock to Cellgate  shareholders,  valued at
approximately $1,642,000.
|-- | ----------------------------------------------------------------------------------------------------------

Year ended June 30, 2001

|1. | Conversion of 72,125 shares of Series C Preferred  Stock into 119,782  shares of
Common Stock.
|-- | ----------------------------------------------------------------------------------------------

|2. | Issuance  of 563,000  shares of common  stock and 468,000  shares of  contingent
consideration to Cellgate shareholders,  valued at approximately  $1,969,000 and
$1,642,000, respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Issuance of 1,125,000 shares of common stock and 2,242,000 shares of contingent
consideration to NXT shareholders, valued at approximately $2,109,000 and
$4,203,000, respectively.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Change in par value from no par value and $1.00 stated value to $0.01 par value.
|-- | --------------------------------------------------------------------------------

|5. | The assets acquired and the liabilities assumed related to the acquisition of
Cellgate and NXT were $5,683,000 and $6,561,000, respectively.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------

## NOTE 20 -
COMMITMENTS AND CONTINGENCIES

The Company has entered
into leases for certain computer equipment and facility leases. Future minimum
lease payments under non-cancelable operating leases and the present value of
future minimum lease payments as of June 30, 2002, are as follows:

---

Rent expense for the fiscal
years ended June 30, 2002 and 2001 was $774,000 and $920,000, respectively.

As a security deposit for
the Companys New York facility, the Company maintains a letter of credit
in the amount of $456,300. The Company has restricted cash of $492,000 on
deposit in a money market fund as collateral for the letter of credit maintained
by the bank.

Included in restricted cash
is $175,000, which is held in a certificate of deposit as a security deposit and
$450,000, which is on deposit as collateral for a letter of credit maintained by
the bank for the Companys Bethesda facility.

The Company is obligated
through July 30, 2009 under a lease for its former office facility located in
Bethesda, Maryland. The future minimum lease commitment for the period July 1,
2002 through the date of expiration is $5,215,000. The Company has vacated the
space as of the close of business on July 31, 2002 and has subleased this
facility to a third party for approximately $4,038,000 in aggregate payments for
the balance of the Companys lease term.

The Company has employment
agreements with four of its executive officers. The agreements are for initial
terms of two years, with automatic one-year extensions after the initial term.
In May 2001, the Company renewed the employment agreement with its Chairman and
Chief Executive Officer for a new initial term of three years, with automatic
one-year extensions after the initial term. As of June 30, 2002, the employment
agreements commit the Company to annual salary compensation of $925,000. The
agreements include provisions for severance payments upon termination under
certain conditions.

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

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

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

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

---

## NOTE 21 
SALE OF NXT

Pursuant to an Asset
Purchase Agreement dated August 31, 2002 (the Agreement), we sold,
for $5 million in cash, substantially all of the operating assets and operating
obligations associated with our wholly-owned subsidiary, NXT to Paymentech,
which subsequently transferred the NXT assets and obligations to its
wholly-owned subsidiary Merchant-Link, LLC. Pursuant to a Transition Services
Agreement we entered into on the same date with Merchant-Link, LLC, certain of
the NXT assets will continue to be located in our Colorado facility and we will
provide certain services for payment to Merchant-Link, LLC for a limited period
of time. NXT provides data services and landline-based connectivity for
credit-card transaction processing. The assets to be sold, at their book values,
have been separately classified as Assets held for sale in the
accompanying balance sheets at June 30, 2002 and 2001.

Subject to certain
conditions in the Agreement, Paymentech is obligated under the Agreement to
purchase goods or services from us or our affiliates over three (3) years in an
amount aggregating at a minimum $3,472,500, with Paymentech obligated to pay us
at least $1,000,000 during the first year, in installments of $83,333 per month,
at least $1,150,000 during the second year, in installments of $95,833 per
month, and at least $1,322,500 during the third year, in installments of
$110,208 per month.

The results of operations
of NXT are reported as discontinued operations for all periods presented.
Revenues and loss from operations of NXT are as follows:

`Year Ended June 30,
                                        2002            2001
                                        ----            ----
Revenues                           $ 6,431,000     $ 2,900,000
Income (loss) from operations          321,000      (1,752,000)`

Assets of NXT held for
sale were as follows:

`June 30,
                                           2002           2001
                                           ----           ----
Fixed assets                         $     68,000   $    265,000
Goodwill                                1,407,000      1,520,000
Identified intangibles                  4,520,000      6,293,000
                                       ----------     ----------
Carrying value of assets                5,995,000      8,078,000
Writedown of assets held for sale      (1,867,000)         --
                                       ----------     ----------
Assets held for sale                 $  4,128,000   $  8,078,000
                                       ==========     ==========`

As a result of the NXT
transaction, the Company recorded a loss from the sale of $1,867,000, with no
tax benefit assumed, based on estimated net proceeds that will be received. This
loss may be adjusted if additional costs are incurred or changes arise in the
net carrying value of the net assets held for sale.

---

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

None.

## PART III

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

The information required by
this Item will be included in our Proxy Statement for the 2002 Annual Meeting of
the Shareholders under the caption Directors and Executive Officers"
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the fiscal year ended June 30, 2002, and is
incorporated herein by reference.

## ITEM 10.
EXECUTIVE COMPENSATION

The information required by
this Item will be included in our Proxy Statement for the 2002 Annual Meeting of
the Shareholders under the caption "Executive Compensation" which will
be filed with the Securities and Exchange Commission no later than 120 days
after the close of the fiscal year ended June 30, 2002, and is incorporated
herein by reference.

## ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

The information required by
this Item will be included in our Proxy Statement for the 2002 Annual Meeting of
the Shareholders under the caption "Security Ownership of Certain
Beneficial Owners and Management" which will be filed with the Securities
and Exchange Commission no later than 120 days after the close of the fiscal
year ended June 30, 2002, and is incorporated herein by reference. The
information required by this Item with regard to Section 201(d) of Regulation
S-B of the Act, Securities Authorized for Issuance Under Equity
Compensation Plans, is included in Item 5 of Part II hereof.

## ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by
this Item will be included in our Proxy Statement for the 2002 Annual Meeting of
the Shareholders under the caption "Certain Relationships and Related
Transactions" which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year ended June
30, 2002, and is incorporated herein by reference.

---

## ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K

# EXHIBITS AND
REPORTS ON FORM 8-K

## (a) Exhibits

## ExhibitNumber           
Description of Exhibit

|3.1 | Certificate of Incorporation (15)
|--- | ---------------------------------

|3.2 | Certificate of Amendment to the Certificate of Incorporation (15)
|--- | -----------------------------------------------------------------

|3.3 | Bylaws (13)
|--- | -----------

|4.1 | Specimen Common Stock Certificate (16)
|--- | --------------------------------------

|4.2 | 1992 Stock Option Plan, as amended (3)
|--- | --------------------------------------

|4.3 | Form of Stock Option Agreement under 1992 Stock Option Plan (9)
|--- | ---------------------------------------------------------------

|4.4 | 2000 Stock Option Plan (including forms) (13)
|--- | ---------------------------------------------

|4.5 | Common Stock Purchase Warrant issued to Kenneth DeJohn on or about May 1, 1993
(1)
|--- | ----------------------------------------------------------------------------------

|4.6 | Form of Common Stock Purchase Warrant issued to John Liviakis and Robert Prag as
of August 4, 1997 (5)
|--- | ------------------------------------------------------------------------------------------------------

|4.7 | Common Stock Purchase Warrant dated March 12, 1998, issued to entrenet Group,
LLC (5)
|--- | -------------------------------------------------------------------------------------

|4.8 | Agreement to Amend Stock Purchase Warrant effective April 1, 1998 with James
Walters (6)
|--- | ----------------------------------------------------------------------------------------

|4.9 | Form of Common Stock Purchase Warrants 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) (7)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 | Form of Common Stock Purchase Warrant issued to Charles Burtzloff in conjunction
with the $500,000 loan made to us as of November 1, 1998 (7)
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------

|4.11 | Form of Unit Warrant (10)
|---- | -------------------------

|4.12 | Form of Subscription Agreement (10)
|---- | -----------------------------------

|4.13 | Form of Placement Agent Warrant (10)
|---- | ------------------------------------

|4.14 | Form of Peter J.  Solomon Securities Company Limited Warrant (10)
|---- | -----------------------------------------------------------------

|4.15 | Form of Bold Street, LLC Warrant (10)
|---- | -------------------------------------

|4.16 | Form of Warrant Amendment Agreement, dated as of September 7, 2000, by and
between us and unit purchase warrant holders (11)
|---- | ----------------------------------------------------------------------------------------------------------------------------

|4.17 | Common Stock Purchase Warrant issued to Dean M. Leavitt as of May 3, 1999 (8)
|---- | -----------------------------------------------------------------------------

|4.18 | Form of Nonqualified Stock Option Certificate issued to Edwin M. Cooperman dated
March 29, 2000 (12)
|---- | ----------------------------------------------------------------------------------------------------

|4.19 | Form of Nonqualified Stock Option Certificate issued to Michael S. Falk dated
March 29, 2000 (12)
|---- | -------------------------------------------------------------------------------------------------

|4.20 | Form of Nonqualified Stock Option Certificate issued to Barry A. Kaplan dated
March 29, 2000 (12)
|---- | -------------------------------------------------------------------------------------------------

---

## ExhibitNumber           
Description of Exhibit

|4.21 | Form of Nonqualified Stock Option Certificate issued to Amy L. Newmark dated
March 29, 2000 (12)
|---- | ------------------------------------------------------------------------------------------------

|4.22 | Form of Nonqualified Stock Option Certificate issued to Charles I. Leone dated
February 15, 2000 (12)
|---- | -----------------------------------------------------------------------------------------------------

|4.23 | Form of Common Stock Purchase Warrant (originally issued to Dean M. Leavitt as
of May 3, 1999), as re-executed as of January 4, 2000 to reflect repricing
authorized as of such date (12)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.24 | Form of Common Stock Purchase Warrant for 22,500 shares issued to RBB Bank dated
January 20, 2000 (12)
|---- | ------------------------------------------------------------------------------------------------------

|4.25 | Form of Common Stock Purchase Warrant for 15,000 shares issued to
Lippert/Heilshorn & Associates, Inc. dated March 28, 2000 (12)
|---- | --------------------------------------------------------------------------------------------------------------------------------

|4.26 | Form of Common Stock Purchase Warrant for 50,000 shares issued to Cornell
Consulting International, Inc. dated March 28, 2000 (12)
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|4.27 | Form of Common Stock Purchase Warrant for 25,000 shares issued to Cornell
Consulting International, Inc. dated May 4, 2000 (12)
|---- | -------------------------------------------------------------------------------------------------------------------------------

|10.1 | Form of Amended and Restated Employment Agreement between us and Dean M. Leavitt
dated December 20, 2000 (17)
|---- | -------------------------------------------------------------------------------------------------------------

|10.2 | Indemnification Agreement between us and Dean M. Leavitt entered into as of May
3, 1999 (8)
|---- | -------------------------------------------------------------------------------------------

|10.3 | Form of Amended and Restated Employment Agreement between us and Charles I.
Leone dated September 7, 2000 (14)
|---- | --------------------------------------------------------------------------------------------------------------

|10.4 | Form of Employment Agreement between us and Rick J. DeVincenzo dated December
20, 2000 (17)
|---- | -------------------------------------------------------------------------------------------

|10.5 | Form of Employment Agreement between us and Heidi R. Goff dated October 10, 2001
(18)
|---- | -------------------------------------------------------------------------------------

|10.6 | Form of Employment Agreement between us and Adi Raviv dated August 15, 2002 *
|---- | -----------------------------------------------------------------------------

|10.7 | Form of lease agreement for the 20th floor at 750 Lexington Avenue dated May 22,
2000 (14)
|---- | ------------------------------------------------------------------------------------------

|10.8 | Asset Purchase Agreement dated August 31, 2002 (Sale of NXT) (19)
|---- | -----------------------------------------------------------------

_____________________________________

|* | Filed herewith.
|- | ---------------

|** | Confidential treatment for certain portions of this document were granted to us
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 was
filed separately with the Commission pursuant to Rules 24b-2 and/or 406.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB/A (Amendment No. 2) for the Fiscal Year Ended June 30,
1997, filed on January 2, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB/A (Amendment No. 3) for the Fiscal Year Ended June 30,
1997, filed on February 25, 1998.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference from the like-named exhibit filed as Exhibit C to our
Definitive Revised Proxy Statement for the 1997 Annual Meeting of Stockholders
held on February 6, 1998, filed on January 14, 1998.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference from the like-named exhibit filed with our Current
Report on Form 8-K Reporting an Event of July 16, 1998, filed on July 31, 1998.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(5) | Incorporated by reference from the like-named exhibit filed with our
Registration Statement on Form SB-2 (SEC File No. 333-52625) as of May 14,
1998.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from the like-named exhibit filed with Amendment No. 1
to our Registration Statement on Form SB-2 (SEC File No. 333-52625) as of July
16, 1998.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB for the Fiscal Year Ended June 30, 1998, filed on December
18, 1998.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from the like-named exhibit filed with our
Registration Statement on Form SB-2 (SEC File No. 333-81897), filed on June 30,
1999.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB for the Fiscal Year Ended June 30, 1999, filed on October
14, 1999.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference from the like-named exhibit filed with our Current
Report on Form 8-K/A Reporting an Event of March 28, 2000, filed on April 18,
2000.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference from the like-named exhibit filed with our Current
Report on Form 8-K Reporting an Event of September 7, 2000, filed on September
19, 2000.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from the like-named exhibit filed with our Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 2000, filed on May
15, 2000.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from the like-named exhibit filed with our Definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders held on September 7,
2000, filed on August 9, 2000.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB for the Fiscal Year Ended June 30, 2000, filed on
September 28, 2000.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference from the like-named exhibit filed with our Quarterly
Report on Form 10-QSB for the fiscal quarter ended September 30, 2000, filed on
November 14, 2000.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference from the like-named exhibit filed with our
Registration Statement on Form S-8, filed on December 8, 2000.
|---- | -----------------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference from the like-named exhibit filed with our Annual
Report on Form 10-KSB for the Fiscal Year Ended June 30, 2001, filed on
September 28, 2001.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference from the like-named exhibit filed with our Quarterly
Report on Form 10-QSB for the fiscal quarter ended December 31, 2001, filed on
February 14, 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference from the like-named exhibit filed with our Current
Report on Form 8-K Reporting an Event of August 31, 2002, filed on September 5,
2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

## (b) Reports on
Form 8-K

On June 28, 2002, we filed a
current report on Form 8-K reporting an Item 5 event (Pepsi Order, Management
Change).

---

## 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: September 30, 2002 
 
            
        
            
            
           
         
U.S. WIRELESS DATA, INC.
            
            
            
                
            
            
            
                  
      By: /s/ Dean M. Leavitt
             
            
            
            
            
            
            
            
            
            Dean
M. Leavitt
             
            
                  
            
     
            
            
            
            
            
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/ Dean M. Leavitt
----------------------------------
Dean M. Leavitt                       Chief Executive Officer and Chairman       September 30, 2002
                                      of the Board of the Company
                                      (Principal Executive Officer)
/s/ Adi Raviv
----------------------------------
Adi Raviv                             Executive Vice President and
                                      Chief Financial Officer
                                      (Principal Financial Officer)              September 30, 2002


/s/ Edwin M. Cooperman
----------------------------------
Edwin M. Cooperman                    Director                                   September 30, 2002

/s/ Barry A. Kaplan
----------------------------------
Barry A. Kaplan                       Director                                   September 30, 2002

/s/ Amy L. Newmark
----------------------------------
Amy L. Newmark                        Director                                   September 30, 2002

/s/ Lee Provow
----------------------------------
Lee Provow                            Director                                   September 30, 2002

/s/ Chester N. Winter
----------------------------------
Chester N. Winter                     Director                                   September 30, 2002`

---

## CERTIFICATIONS

I, Dean M. Leavitt, certify
that:

1. I have reviewed this
annual report on Form 10-KSB of U.S. Wireless Data, Inc.;

2. Based on my knowledge,
this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report; and

3. Based on my knowledge,
the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.

Date: September 30, 2002

/s/ Dean M. Leavitt
Dean M. Leavitt
Chief Executive Officer and
     Chairman of the Board of the Company
     (Principal Executive Officer)

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## CERTIFICATIONS

I, Adi Raviv, certify that:

1. I have reviewed this
annual report on Form 10-KSB of U.S. Wireless Data, Inc.;

2. Based on my knowledge,
this annual report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report; and

3. Based on my knowledge,
the financial statements, and other financial information included in this
annual report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report.

Date: September 30, 2002

/s/ Adi Raviv
Adi Raviv
Executive Vice President and
     Chief Financial Officer

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