<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington D.C., 20549

                          ----------------------------

                                   FORM 10-QSB

                          ----------------------------

(Mark One)
[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

         For the quarterly period ended September 30, 2003



[  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the transition period                    to



                        Commission file number: 001-15835



                               US DATAWORKS, INC.
        (Exact name of small business issuer as specified in its charter)



                  NEVADA                                84-1290152
     (State or other jurisdiction of                (I.R.S. employer
      incorporation or organization)              identification number)

      5301 HOLLISTER ROAD, SUITE 250
              HOUSTON, TEXAS                              77040
 (Address of principal executive offices)               (Zip Code)

                    Issuer's telephone number: (713) 934-3855


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 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 [ ]

Number of shares of Common Stock outstanding as of September 30, 2003:
20,312,562

Transitional Small Business Disclosure Format (Check one): YES [ ]  NO [X]

<PAGE>

                               US DATAWORKS, INC.

                                TABLE OF CONTENTS
                                -----------------

                                  FORM 10-QSB

                    QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
                                                                            Page
                                                                            ----

PART I - FINANCIAL INFORMATION...............................................F-1

      Item 1.     Financial Statements.......................................F-1

                  BALANCE SHEET..............................................F-1

                  STATEMENTS OF OPERATIONS...................................F-3

                  STATEMENTS OF CASH FLOW....................................F-4

                  NOTES TO UNAUDITED FINANCIAL STATEMENTS....................F-7

      Item 2.     Management's Discussion and Analysis........................1

      Item 3.     Controls and Procedures.....................................7

PART II - OTHER INFORMATION...................................................8

      Item 1.     Legal Proceedings...........................................8

      Item 2.     Changes in Securities and Use of Proceeds...................8

      Item 4.     Submission of Matters to a Vote of Security Holders.........9

      Item 6.     Exhibits and Reports on Form 8-K...........................10

SIGNATURE....................................................................12

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
                               US DATAWORKS, INC.

                                  BALANCE SHEET
                               September 30, 2003

                                   (UNAUDITED)

<CAPTION>
                                     ASSETS
<S>                                                                          <C>
CURRENT ASSETS
     Cash and cash equivalents ...........................................   $    59,036
     Accounts receivable, net of allowance for doubtful accounts of $0 ...       836,393
     Prepaid expenses and other current assets ...........................       226,923
                                                                             ------------

           Total current assets ..........................................     1,122,352

PROPERTY AND EQUIPMENT, net ..............................................       695,837
GOODWILL, net ............................................................    14,133,629
OTHER ASSETS .............................................................        10,294
                                                                             ------------

                  TOTAL ASSETS ...........................................   $15,962,112
                                                                             ============

   The accompanying notes are an integral part of these financial statements.

                                      F-1
</TABLE>

<PAGE>

<TABLE>
                                     US DATAWORKS, INC.

                                       BALANCE SHEET
                                     September 30,2003

                                        (UNAUDITED)

                            LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                           <C>
CURRENT LIABILITIES
     Note payable - related party .........................................   $     39,000
     Current portion of capital lease obligations .........................          3,317
     Current portion of convertible promissory notes,
         net of unamortized discount of $56,163 ...........................      1,397,127
     Deferred revenue .....................................................         45,605
     Accounts payable .....................................................      1,044,912
     Accrued expenses .....................................................        495,697
     Interest payable, including $139,002 related parties .................        152,301
     Due to related party .................................................         43,000
                                                                              -------------
           Total liabilities ..............................................      3,220,959
                                                                              -------------

COMMITMENTS
SHAREHOLDERS' EQUITY
     Convertible Series A preferred stock, $0.0001 par value 800,000 shares
         authorized, 260,000 shares issued and outstanding,
         $2.50 liquidation preference, dividends of $219,993 in arrears ...             26
     Convertible Series B preferred stock, $0.0001 par value
         700,000 shares authorized, 629,666 shares issued and outstanding
         $0.75 liquidation preference, dividends of $123,421 in arrears ...             63
     Common stock, $0.0001 par value
         90,000,000 shares authorized and 20,312,562 shares issued
         and outstanding ..................................................          2,031
     Common stock committed, 419,024 shares ...............................        839,309
     Additional paid-in capital ...........................................     50,145,729
     Accumulated deficit ..................................................    (38,246,005)
                                                                              -------------
           Total shareholders' equity .....................................     12,741,153
                                                                              -------------

                  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..............   $ 15,962,112
                                                                              =============

   The accompanying notes are an integral part of these financial statements.

                                      F-2
</TABLE>
<PAGE>

<TABLE>
                                              US DATAWORKS, INC.

                                           STATEMENTS OF OPERATIONS

                                                  (UNAUDITED)

<CAPTION>
                                                             FOR THE THREE MONTHS ENDED       FOR THE SIX MONTHS ENDED
                                                                   SEPTEMBER 30,                    SEPTEMBER 30,
                                                            -----------------------------   -----------------------------
                                                                2003            2002            2003             2002
                                                            -------------   -------------   -------------   -------------
<S>                                                         <C>             <C>             <C>             <C>
REVENUES
     Software licensing revenues ........................   $    565,300    $    204,900    $    712,867    $    707,550
     Software maintenance revenues ......................         64,998          81,647         114,144         137,464
     Professional service revenues ......................        328,510          31,100         618,560         245,764
                                                            -------------   -------------   -------------   -------------

         Total revenues .................................        958,808         317,647       1,445,571       1,090,778

Cost of sales ...........................................        205,542         218,595         349,655         387,922
                                                            -------------   -------------   -------------   -------------

         Gross profit ...................................        753,266          99,052       1,095,916         702,856

OPERATING EXPENSES
     General and administrative .........................        912,561         611,796       1,839,274       1,457,641
     Depreciation and amortization ......................         68,123          75,849         136,631         153,640
                                                            -------------   -------------   -------------   -------------
         Total operating expense ........................        980,684         687,645       1,975,905       1,611,281
                                                            -------------   -------------   -------------   -------------

LOSS FROM OPERATIONS ....................................       (227,418)       (588,593)       (879,989)       (908,425)
                                                            -------------   -------------   -------------   -------------

OTHER INCOME (EXPENSE)
     Financing costs ....................................       (159,783)         (1,678)     (1,209,288)        (18,460)
     Interest expense ...................................       (630,602)       (240,043)       (940,948)       (478,561)
     Interest expense - related parties .................        (49,323)        (18,733)       (113,360)        (30,445)
     Loss on extinguishment of debt .....................       (635,259)             --        (635,259)             --
     Loss on extinguishment of debt - related parties ...     (1,722,631)             --      (1,722,631)             --
     Other income (expense) .............................             --            (348)             --           1,244
                                                            -------------   -------------   -------------   -------------

         Total other income (expense) ...................     (3,197,598)       (260,802)     (4,621,486)       (526,222)
                                                            -------------   -------------   -------------   -------------

LOSS BEFORE PROVISION FOR INCOME TAXES ..................     (3,425,016)       (849,395)     (5,501,475)     (1,434,647)
PROVISION FOR INCOME TAXES ..............................             --              --              --              --
                                                            -------------   -------------   -------------   -------------

NET LOSS ................................................   $ (3,425,016)   $   (849,395)   $ (5,501,475)   $ (1,434,647)
                                                            =============   =============   =============   =============

BASIC AND DILUTED LOSS PER SHARE
     Total basic and diluted loss per share .............   $      (0.21)   $      (0.07)   $      (0.35)   $      (0.13)
                                                            =============   =============   =============   =============

BASIC AND DILUTED WEIGHTED-AVERAGE SHARES
OUTSTANDING .............................................     16,540,417      11,360,444      15,870,636      11,179,961
                                                            =============   =============   =============   =============

                  The accompanying notes are an integral part of these financial statements.

                                                     F-3
</TABLE>
<PAGE>

<TABLE>
                                    US DATAWORKS, INC.

                                  STATEMENTS OF CASH FLOW
                          For the Six Months Ended September 30,

                                        (unaudited)

<CAPTION>
                                                                                2003           2002
                                                                            ------------   ------------
<S>                                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss from continuing operations ..................................   $(5,501,474)   $(1,434,647)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
     Depreciation and amortization of property and equipment ............       136,630        153,640
     Loss on extinguishment of debt .....................................       635,259             --
     Loss on extinguishment of debt - related party .....................     1,722,631             --
     Loss on disposal of property and equipment .........................            --         50,556
     Interest charges on convertible promissory notes ...................       620,217        342,056
     Issuance of stock for accrued interest .............................        77,403             --
     Issuance of stock for services rendered ............................            --        140,623
     Issuance of stock for legal settlement .............................            --          2,900
     Issuance of stock for lock-up agreement ............................            --            400
     Issuance of stock for extension of notes payable due date ..........            --            616
     Issuance of warrants for extension of notes payable due date .......     1,084,505             --
     Issuance of warrants for settlement of dispute .....................       262,755             --
     Issuance of warrants for services ..................................        96,750          1,875
     Issuance of warrants for stock cancellation agreement ..............        45,693             --
     Issuance of warrants for convertible promissory note conversions ...         7,340             --
     (Increase) decrease in
       Accounts receivable ..............................................      (366,612)      (327,468)
       Work in progress .................................................            --         11,312
       Prepaid expenses and other current assets ........................       (46,003)       (94,397)
       Other assets .....................................................        12,129          5,738
     Increase (decrease) in
       Deferred revenue .................................................      (195,845)      (149,417)
       Accounts payable .................................................       245,676        282,557
       Accrued expenses .................................................       (74,947)       201,964
       Interest payable .................................................          (215)        11,240
       Interest payable - related parties ...............................        44,927         56,445
       Notes payable ....................................................       (60,600)
                                                                            ------------   ------------

Net cash used in continuing operations ..................................    (1,253,781)      (744,007)
Net cash used in discontinued operations ................................            --        (69,245)
                                                                            ------------   ------------
Net cash used in operating activities ...................................    (1,253,781)      (813,252)
                                                                            ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment ...................................        (9,671)       (15,670)
   Repayments to related parties ........................................            --        (66,506)
                                                                            ------------   ------------
Net cash used in investing activities ...................................        (9,671)       (82,176)
                                                                            ------------   ------------

        The accompanying notes are an integral part of these financial statements.

                                           F-4
<PAGE>


                                    US DATAWORKS, INC.

                                  STATEMENTS OF CASH FLOW
                          For the Six Months Ended September 30,

                                        (unaudited)


                                                                                2003          2002
                                                                            ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Additions to capital lease obligations ...............................         5,671
   Payments on capital lease obligations ................................        (9,081)        (4,629)
   Proceeds from notes payable ..........................................        10,000        188,682
   Repayment of notes payable ...........................................      (109,099)      (141,591)
   Proceeds from notes payable - related party ..........................            --        390,000
   Repayment of notes payable - related party ...........................            --        (96,000)
   Proceeds from convertible promissory notes ...........................     1,615,000        627,500
   Repayment of convertible promissory notes ............................       (50,000)       (10,000)
   Repayment of note payable related to discontinued operations .........      (151,442)            --
   Proceeds from exercise of employee stock options .....................         2,875             --
   Proceeds from subscription receivables ...............................            --         21,010
   Proceeds from exercise of warrants ...................................            --          2,098
                                                                            ------------   ------------
Net cash provided by financing activities ...............................     1,313,924        977,070
                                                                            ------------   ------------
Net increase (decrease) in cash and cash equivalents ....................        50,472         81,642
Cash and cash equivalents, beginning of period ..........................         8,564        134,016
                                                                            ------------   ------------
Cash and cash equivalents, end of period ................................   $    59,036    $   215,658
                                                                            ============   ============

Supplemental disclosures of cash flow information
   Interest paid ........................................................   $    57,975    $    94,795
                                                                            ============   ============
</TABLE>


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

     During the six months ended September 30, 2003, the Company completed the
following:

     o   In April 2003, the Company issued 72,487 shares of common stock that it
         had committed to issue during the year ended March 31, 2003.

     o   Two notes payable to former officers of the Company amounting to
         $220,000 were forgiven pursuant to their terms that stated if the
         Company had not raised cumulative gross proceeds from debt and/or
         equity financing of $5,000,000 by the second anniversary of the notes,
         then the notes would be forgiven. As the Company did not raise these
         proceeds, the notes have been forgiven.

     o   In June and July 2003, pursuant to the terms of the Series A
         Convertible Preferred Stock conversion, the holder converted 380,000
         shares of Series A Convertible Preferred Stock into 1,623,535 shares of
         the Company's common stock.

     o   Recorded convertible note payable discounts of $187,813 related to the
         issuance of warrants attached to promissory notes to purchase 136,593
         shares of common stock. During the six months ended September 30, 2003,
         the Company recognized $150,603 in interest expense related to the
         accretion of convertible promissory note discounts related to warrants
         attached to the promissory notes issued in the six month period ended
         September 30, 2003 and those issued in prior periods.

     o   Recorded interest expense of $469,614 related to the issuance of
         convertible promissory notes with fixed conversion features.

   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>

     o   Recorded debt discount of $262,755 related to warrants to purchase up
         to $1,000,000 of common stock at a price equal to 50% of the average
         stock price for 10 consecutive days immediately prior to the exercise,
         but not less than $0.30 per share. These warrants were issued to settle
         the Company's obligations under notes and warrants entered into in 2001
         and 2002 with an investor. During the six months ended September 30,
         2003, the Company recognized $262,755 in interest expense related to
         the accretion of this debt discount.

     o   As an inducement to four investors in connection with their agreement
         to convert 80.37% of the principal and accrued interest underlying
         their existing promissory notes worth $887,500, during the three months
         ended June 30, 2003, the Company recorded financing costs of $1,084,505
         related to (i) a reduction in the conversion price on the previously
         issued convertible promissory notes and (ii) a reduction in the
         exercise price on previously issued warrants to purchase 568,000
         shares of common stock.

     o   In July 2003, the Company renegotiated the terms of $1,353,000 of 12%
         per annum demand promissory notes due the Company's Chief Executive
         Officer, Mr. Ramey. The note agreements were entered into during fiscal
         2002 and 2003 to fund the Company's operations. In exchange for the 12%
         demand notes, the Company issued Mr. Ramey a new promissory note
         bearing interest at 7% per annum, maturing July 10, 2004, and
         convertible into shares of common stock at a conversion price of $0.80
         per share. Mr. Ramey was also issued a warrant to purchase 1,691,250
         shares of common stock at an exercise price of $0.80 per share. The
         excess of the fair value of the beneficial conversion feature of the
         note and the fair value of the warrants over the carrying amount of the
         debt is $1,722,631 and has been recorded as a loss on extinguishment of
         debt-related party for the six month period ended September 30, 2003.

     o   In July 2003, the Company entered into an agreement for financial
         advisory and strategic/competitive advisory services and issued a
         warrant to purchase 100,000 shares of common stock at an exercise price
         of $1.15 per share. The fair value of the warrants of $96,750 has been
         recorded as an operating expense for the six-month period ended
         September 30, 2003.

     o   In September 2003, the Company successfully negotiated the conversion
         of $834,168 of remaining debt related to discontinued operations. In
         exchange for the debt, the holder was issued 417,084 shares of common
         stock and a warrant to purchase 208,542 shares of common stock at an
         exercise price of $2 per share. The excess of the fair value of the
         shares and warrants issued over the carrying amount of the debt is
         $635,259 and has been recorded as a loss on extinguishment of debt for
         the six month period ended September 30, 2003.

    o    On June 30, 2003, the Company agreed to sell to five accredited
         investors an aggregate of 1,111,112 shares of its common stock for an
         aggregate purchase price of $500,000 pursuant to a Securities Purchase
         Agreement. The investors purchased these shares from the Company on
         July 9, 2003. On August 4, 2003, the five accredited investors agreed
         to surrender their common stock in exchange for convertible promissory
         notes totaling $500,000, due August 4, 2004 with interest at 10% per
         annum, and warrants to purchase an additional 15,000 shares of common
         stock with an exercise price of $1.34 per share. The warrants may be
         exercised at any time after August 4, 2003. The promissory notes are
         convertible into common stock at $0.45 per share. The non-cash expense
         of this stock repurchase of $45,693 has been recorded as financing
         costs for the three and six month periods ended September 30, 2003.

     During the six months ended September 30, 2002, the Company completed the
following:

     o   In April and May 2002, the Company issued 284,852 shares of common
         stock that it had committed to issue during the year ended March 31,
         2002.

     o   In July and August 2002, the Company converted $157,500 of convertible
         promissory notes into 271,833 shares of common stock. At September
         30, 2002, the stock certificates had not been issued and therefore the
         full amount is included in common stock committed.

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>

                               US DATAWORKS, INC.

                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

1.   ORGANIZATION AND BUSINESS

     US Dataworks, Inc. (the "Parent" or the "Company"), a Nevada corporation,
develops, markets, and supports payment processing software for the financial
services industry. Its customer base includes many of the largest financial
institutions as well as credit card companies, government institutions, and
high-volume merchants in the United States. It also has a strategic alliance
with BancTec, Inc. and through October 2002, with CheckFree Corporation to
license the Company's software for its banking customers and Thomson Financial
Publishing, a unit of Thomson Corporation, to incorporate its EPICWare database
into the Company's products. Prior to acquiring US Dataworks, Inc., a Delaware
corporation, effective March 31, 2001, the Company was a financial services
company specializing in the integration of proprietary software applications
with Applications Service Provider ("ASP") services and an internet service
provider ("ISP"). During July and December 2001, the Company started shutting
down its ISP and ASP operations, respectively, and at March 31, 2002 all ISP and
ASP activities had ceased.

     As of May 18, 1999, the Company, previously known as New World Publishing,
Inc. ("New World"), a Colorado corporation, entered into an Agreement and Plan
of Reorganization with Communications Television, Inc. ("CTV"), a California
corporation (incorporated on July 20, 1998), whereby all of the outstanding
shares of common stock of CTV were exchanged for an aggregate of 3,804,033
shares of New World. For accounting purposes, the transaction has been treated
as a recapitalization of CTV, with CTV as the accounting acquirer (reverse
acquisition), and has been accounted for in a manner similar to a pooling of
interests. The operations of New World have been included with those of CTV from
the acquisition date. New World was incorporated in Colorado on December 28,
1994. New World had minimal assets and liabilities at the date of the
acquisition and did not have significant operations prior to the acquisition. As
of November 11, 1999, CTV's name was changed to Sonicport.com, Inc.

     On October 12, 1999, a special meeting of the shareholders was held, and
the shareholders approved the following actions: (i) the change of name to
"Sonicport.com, Inc." from "New World Publishing, Inc." (ii) the adoption of the
1999 Stock Option Plan, and (iii) the change of the state of incorporation to
Nevada from Colorado. As of October 18, 1999, New World Publishing, Inc.'s named
was changed to Sonicport.com, Inc. In February 2000, Sonicport.com, Inc.
effected its change of state of incorporation from Colorado to Nevada. In
February 2001, Sonicport.com, Inc.'s name was changed to Sonicport, Inc. On
March 21, 2002, the Company dissolved Sonicport.com, Inc., a California
corporation. As of March 26, 2002, Sonicport, Inc.'s name was changed to US
Dataworks, Inc. On May 23, 2002, the Company combined with US Dataworks, Inc., a
Delaware corporation, and US Dataworks, Inc., a Delaware corporation, was
dissolved.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation
     ---------------------

     The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B.

     Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
normal, recurring adjustments considered necessary for a fair presentation have
been included. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB/A for the year ended March 31, 2003. The results of
operations for the six months ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2004.

                                      F-7
<PAGE>

     Going Concern
     -------------

     The Company has received a report from its independent auditors on the
financial statements as of and for the year ended March 31, 2003 that includes
an explanatory paragraph describing the uncertainty as to the Company's ability
to continue as a going concern. These consolidated financial statements
contemplate the ability to continue as such and do not include any adjustments
that might result from this uncertainty.

     Revenue Recognition
     -------------------

     The Company recognizes revenues in accordance with the provisions of the
American Institute of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition." The Company licenses its software products under
nonexclusive, nontransferable license agreements. These arrangements do not
require significant production, modification, or customization, therefore,
revenue is recognized when a license agreement has been signed, delivery of the
software product has occurred, the related fee is fixed or determinable, and
collectibility is probable. If professional services were provided in
conjunction with the installation of the software licensed, revenue is
recognized when these services have been provided.

     For license agreements that include a separately identifiable fee for
contracted maintenance services, such revenues are recognized on a straight-line
basis over the life of the maintenance agreement noted in the agreement, but
following any installation period of the software.

     Cash and Cash Equivalents
     -------------------------

     For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.

     Property and Equipment
     ----------------------

     Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives as follows:

         Furniture and fixtures                  5 years
         Telephone equipment                     5 to 10 years
         Computer equipment                      5 years
         Computer software                       5 years
         Leasehold improvements                  Shorter of initial lease period
                                                 or useful life of asset

     Maintenance and minor replacements are charged to expense as incurred.
Gains and losses on disposals are included in the results of operations.

     Impairment of Long-Lived Assets
     -------------------------------

     The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount exceeds the fair value of the assets.

     Goodwill
     --------

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which was
effective for fiscal years beginning after December 15, 2001. SFAS 142 prohibits
the amortization of goodwill and intangible assets with indefinite useful lives
but requires that these assets be reviewed for impairment at least annually or
on an interim basis if an event occurs or circumstances change that could
indicate that their value has diminished or been impaired. Other intangible
assets will continue to be amortized over their estimated useful lives. The
Company evaluates the remaining useful lives of these intangibles on an annual
basis to determine whether events or circumstances warrant a revision to the
remaining period of amortization. Pursuant to SFAS 142, goodwill is no longer
being amortized.

                                      F-8
<PAGE>

     Fair Value of Financial Instruments
     -----------------------------------

     The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash and cash equivalents, accounts receivable,
prepaid expenses and other current assets, accounts payable, accrued expenses,
and due to related party, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for notes payable, notes payable -
related parties, and note payable - affiliate also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same or the difference is immaterial.

     Stock Options
     -------------

     SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current implicit
value accounting method specified in Accounting Principles Bulletin ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," to account for
stock-based compensation. The Company has elected to use the implicit value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation.

     Income Taxes
     ------------

     The Company accounts for income taxes under the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each period-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income taxes, if
applicable, represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.

     Loss per Share
     --------------

     The Company calculates loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic loss per share is computed by dividing the loss
available to common shareholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock
equivalents had been issued and if the additional common shares were dilutive.

                                      F-9
<PAGE>

     The following potential common stock equivalents have been excluded from
the computation of diluted net loss per share for the periods presented because
the effect would have been anti-dilutive (Options and Warrants typically convert
on a one for one basis, see conversion details of the preferred stock in
footnote 8 for the common stock shares issuable upon conversion):

<TABLE>
<CAPTION>
                                                                  FOR THE SIX MONTHS ENDED
                                                                        SEPTEMBER 30,
                                                                 --------------------------
                                                                    2003            2002
                                                                 -----------    -----------
     <S>                                                          <C>              <C>
     Options outstanding under the Company's stock option
       plans                                                      2,209,000        444,500
     Options granted outside the Company's stock
       option plans                                                 656,000        210,050
     Warrants issued in conjunction with convertible Series B
       preferred stock                                               26,733        125,933
     Warrants issued in conjunction with private placements         110,000        106,300
     Warrants issued as a financing cost for notes payable
       and convertible notes payable                                933,124        705,437
     Warrants issued in conjunction with lock-up
       agreements                                                    14,000        145,952
     Warrants issued for services rendered                          367,800        348,400
     Warrants issued as part of the acquisition of
       the Subsidiary                                                67,200         67,200
     Convertible Series A preferred stock                           260,000        640,000
     Convertible Series B preferred stock                           629,666        629,666
</TABLE>


     Reclassifications
     -----------------

     Certain amounts included in the prior year financial statements have been
reclassified to conform with the current year presentation. Such
reclassification did not have any effect on reported net loss.

     Estimates
     ---------

     The preparation of financial statements 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 date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

     Concentrations of Credit Risk
     -----------------------------

     The Company sells its products throughout the United States and extends
credit to its customers. It also performs ongoing credit evaluations of such
customers. The Company does not obtain collateral to secure its accounts
receivable. The Company evaluates its accounts receivable on a regular basis for
collectibility and provides for an allowance for potential credit losses as
deemed necessary.

     Two customers of the Company accounted for 52% and 17% of the Company's net
sales for the three months ended September 30, 2003. Three customers of the
Company accounted for 35%, 13% and 19%, respectively, of the Company's net sales
for the six months ended September 30, 2003. Two customers of the Company
accounted for 57% and 35% of the Company's net sales for the three months ended
September 30, 2002. One customer of the Company accounted for 13% of the
Company's net sales for the six months ended September 30, 2002. Additionally,
the Company's strategic resellers accounted for 62% and 40% of the Company's net
sales for the six months ended September 30, 2003 and 2002, respectively.

     At September 30, 2003, amounts due from strategic resellers or significant
customers accounted for 73% and 6%, respectively, of accounts receivable.

                                      F-10
<PAGE>

3.   ACQUISITION

     Effective March 31, 2001, and with a closing date of April 2, 2001, the
Parent acquired 100%, or 3,571,429 shares, of the outstanding common stock of US
Dataworks, Inc. (the "Subsidiary"), a Delaware corporation (formerly known as
Allstate Dataworks, Inc.), in exchange for 2,933,333 new shares of the Parent's
common stock and warrants to purchase 200,000 shares of the Parent's common
stock. The warrants have an exercise price of $3.65, vest immediately, and
expire on April 2, 2006. In addition, certain shareholders of the Parent
transferred their ownership in 800,000 shares of the Parent's common stock to
the shareholders of the Subsidiary and committed to return 440,000 shares of the
Parent's common stock to the Parent in exchange for promissory notes in the
amount of $220,000. These shareholders had returned 305,600 shares at June 30,
2001. Of the Subsidiary's shares, 175,714 were acquired from officers of the
Subsidiary who are also officers of the Parent.

     The acquisition has been recorded using the purchase method, which is in
conformity with generally accepted accounting principles in accordance with APB
16, "Business Combinations." The purchase price has been allocated to the assets
acquired and liabilities assumed based on the estimated fair values at the date
of acquisition. The excess of the purchase price over the estimated fair value
of the net assets acquired is attributed to goodwill. The results of operations
of US Dataworks have been included in the Company's financial statements from
April 1, 2001.

     The aggregate purchase price was $17,437,262. The value of the 2,933,333
new shares of the Parent's common stock issued and the 800,000 shares
transferred by certain shareholders of the Parent to the shareholders of the
Subsidiary of $16,893,334 was determined based on the average closing market
price of the Parent's common stock over the period consisting of two days before
and after the terms of the acquisition agreement were agreed to and announced.
The value of the warrants to purchase 200,000 shares was determined to be
$543,928 and was derived using the Black Scholes option pricing model using the
following assumptions: expected life of 2 years, risk-free interest rate of
5.49%, expected volatility of 100% and expected dividend yield of 0%.

4.   PROPERTY AND EQUIPMENT

     Property and equipment at September 30, 2003 consisted of the following:

           Furniture and fixtures                                 $      21,067
           Office and telephone equipment                                81,097
           Computer equipment                                           155,686
           Computer software                                          1,183,000
           Leasehold improvements                                        13,517
                                                                  --------------
                                                                      1,454,367
           Less accumulated depreciation and amortization             (758,530)
                                                                  --------------
           TOTAL                                                  $     695,837
                                                                  ==============


     Depreciation and amortization expense for the six months ended September
30, 2003 and 2002 was $136,630 and $153,640, respectively.

5.  NOTES PAYABLE - RELATED PARTIES

     On January 22, 2001, the Company entered into a note payable with an
advisory board member and shareholder for $50,000. The note is
non-interest-bearing, is unsecured, and is due on demand. As of September 30,
2003, the outstanding balance on the note payable was $39,000.

     On April 1, 2003, two notes payable to former officers of the Company
amounting to $220,000 were forgiven pursuant to their terms that stated if the
Company had not raised cumulative gross proceeds from debt and /or equity
financing of $5,000,000 by the second anniversary of the notes, then the notes
would be forgiven. As the Company did not raise these proceeds, the notes have
been forgiven.

     During fiscal 2003 and 2002, the Company issued promissory notes in an
aggregate principal amount of $1,353,000 to Mr. Ramey, our Chief Executive
Officer bearing an interest rate of 12% per annum. On July 10,

                                      F-11
<PAGE>

2003, the Company consolidated these promissory notes into one promissory note
for $1,353,000, bearing an interest rate of 7% per annum, pursuant to the
Subordinated, Convertible Note and Warrant Agreement. This promissory note may
be converted into shares of the Company's common stock at a conversion price
equal to the lesser of (i) $0.16 per share or (ii) the closing bid price of our
common stock as listed on the American Stock Exchange on the trading day
immediately prior to the date of a change of control of US Dataworks or the date
of Mr. Ramey's notice of voluntary conversion of the promissory note.
Alternatively, if the Company sells shares of Series C Preferred Stock for gross
proceeds of $7,500,000, then the promissory note will automatically convert into
shares of Series C Preferred Stock at a conversion price equal to the Series C
Preferred Stock purchase price. In connection with this promissory note, the
Company issued to Mr. Ramey a warrant to purchase 1,691,250 shares of its common
stock at an exercise price of $0.80 per share. The principal amount and accrued
interest is due and payable upon demand after July 10, 2004. As of September 30,
2003, Mr. Ramey elected to fully convert the promissory note and accrued
interest of $21,277. On September 30, 2003, the Company issued Mr. Ramey
1,717,847 shares of common stock pursuant to the conversion. The excess of the
fair value of the beneficial conversion feature of the note and the fair value
of the warrants over the carrying amount of the debt is $1,722,631 and has been
recorded as a loss on extinguishment of debt-related party for the six month
period ended September 30, 2003.

6.   CONVERTIBLE PROMISSORY NOTES

     Convertible promissory notes at September 30, 2003 consisted of the
following:

<TABLE>
<CAPTION>
     <S>                                                                             <C>
     Redeemable, Convertible Promissory Notes:
     -----------------------------------------

     Convertible promissory notes, interest at 10% per annum, unsecured due          $   213,837
          July 2003 through June 2004, net of unamortized discount of $56,163

     Convertible Promissory Notes:
     -----------------------------

     Convertible promissory note, interest at 5% per annum, and 12% original             500,000
          issue discount, unsecured due June 30, 2004
     Convertible promissory notes, interest at 10% per annum, unsecured,                 250,000
          due August 4, 2004

     Convertible Promissory Notes Guaranteed by Chief Executive Officer:
     -------------------------------------------------------------------

     Convertible promissory note, interest at 8% per annum, secured by a                 433,290
          personal guarantee by the Chief Executive Officer of the
          Company, due on November 30, 2004
                                                                                     ------------

                                                                                     $ 1,397,127
                                                                                     ============
</TABLE>

     Redeemable, Convertible Promissory Notes
     ----------------------------------------

     As of September 30, 2003, the Company has 17 convertible promissory notes
outstanding payable to 15 individuals pursuant to Subscription Agreements
entered into from July 5, 2002 through June 7, 2003, for gross proceeds in the
aggregate of $270,000. The units issued consisted of 17 convertible promissory
notes and warrants to purchase 32,000 shares of the Company's common stock.

     The Company has the option to redeem the notes at any time prior to the
notes' maturity date at 105% of the face value of the note, plus accrued
interest, if any, at any time prior to the maturity date. The notes are
convertible at 80% of the average closing price for the 20 trading days
immediately preceding the conversion date. The notes earn interest at 10% per
annum, the principal and any unpaid interest are due one year following the
issuance date of the note, and interest is payable in cash on a quarterly basis.

     The warrants to purchase 32,000 shares of the Company's common stock are
exercisable at prices ranging from $0.45 to $.90 per share and expire three
years from the date of issuance.

     The Company allocates the proceeds received from debt or convertible debt
with detachable warrants or shares of common stock using the relative fair value
of the individual elements at the time of issuance. The amount

                                      F-12
<PAGE>

allocated to the warrants as a debt discount was calculated at $23,053 and will
be recognized as interest expense over the period until the notes mature. In the
event the debt is settled prior to the maturity date, an expense will be
recognized based on the difference between the carrying amount and the amount of
the payment. During the six months ended September 30, 2003, the Company
recognized $8,011 in interest expense related to the accretion of the debt
discount recorded on these convertible promissory notes.

     In accordance with generally accepted accounting principles, the difference
between the conversion price and the Company's stock price on the date of
issuance of the notes is considered to be interest expense. It will be
recognized in the statement of operations during the period from the issuance of
the notes to the time at which the notes first become convertible. During the
six months ended September 30, 2003, the Company recognized $85,288 in interest
expense related to the beneficial conversion features of these convertible
promissory notes.

     Convertible Promissory Notes
     ----------------------------

     On June 30, 2003, the Company entered into a Convertible Debentures and
Warrants Agreement with an accredited investor. Pursuant to this agreement, on
July 29, 2003, the investor purchased a debenture in the principal amount of
$500,000 bearing an interest rate of 5% per annum and a 12% original issue
discount. The debentures may be converted into shares of the Company's common
stock at any time at a conversion price equal to the closing bid price of the
common stock as listed on the American Stock Exchange on the trading day
immediately before the date of conversion. Pursuant to the agreement, the
investor also received a warrant exercisable through June 30, 2006 to purchase
10,000 shares of common stock at an exercise price of $1.44 per share. Using the
Black-Scholes valuation model the Company has determined the value of the
warrant to be $22,654 and has included this amount as a non-cash financing cost
as of July 29, 2003.

     On June 30, 2003, the Company agreed to sell to five accredited investors
an aggregate of 1,111,112 shares of its common stock for an aggregate purchase
price of $500,000 pursuant to a Securities Purchase Agreement. The investors
purchased these shares from the Company on July 9, 2003. On August 4, 2003, the
five accredited investors agreed to surrender their common stock in exchange for
convertible promissory notes totaling $500,000, due August 4, 2004 with interest
at 10% per annum, and warrants to purchase an additional 10,000 shares of common
stock with an exercise price of $1.34 per share. The warrants may be exercised
at any time after August 4, 2003. The promissory notes are convertible into
common stock at $0.45 per share. On September 15, 2003, one of the investors
elected to convert his promissory note for $250,000 into common shares and was
issued 555,556 shares of common stock prior to September 30, 2003. The non-cash
expense of this stock repurchase of $45,693 has been recorded as financing costs
for the three and six month periods ended September 30, 2003.

     Convertible Promissory Notes Guaranteed by Chief Executive Officer
     ------------------------------------------------------------------

     In June 2003, the Company executed a new note with an existing Convertible
Promissory Note holder in the amount of $480,000. This note replaces the
existing note of $150,000 and includes penalties and interest from a settlement
with the Company of $330,000. A payment of $35,000 was due upon signing and
principal and interest payments of $20,000 are due on a quarterly basis through
November of 2004. On that date all remaining principal and interest outstanding
is due. This note bears interest at 8% and is guaranteed by the Chief Executive
Officer of the Company.

     In addition to the note, the Company issued a warrant to purchase up to
$1,000,000 of the Company's common stock not to exceed 2,300,000 shares. The
exercise price of the warrant is 50% of the average stock price for 10
consecutive days immediately prior to the exercise, but not less than $0.30 per
share. The warrant is exercisable in thirds after specific number of days
following the earlier of i) the Company receiving an Effectiveness Notice
confirming the completion of a registration statement filed with the Securities
and Exchange Commission or ii) one year from the date of issue. The Company
allocates the proceeds received from debt with detachable warrants using the
relative fair value of the individual elements at the time of issuance. The
amount allocated to the warrants as a debt discount was calculated at $262,755
and will be recognized as interest expense over the period until the notes
mature. In the event the debt is settled prior to the maturity date, an expense
will be recognized based on the difference between the carrying amount and the
amount of the payment. During the six months ended September 30, 2003, the
Company recognized $262,755 in interest expense related to the accretion of the
debt.

     On October 8, 2003 the full amount of the note and all accrued interest was
paid in full.

                                      F-13
<PAGE>

7.   COMMITMENTS AND CONTINGENCIES

     Litigation
     ----------

     On July 19, 2002, an individual and former director of US Dataworks, H. J.
Frazier, filed a lawsuit against US Dataworks in Los Angeles Superior Court
alleging breach of debenture agreement. In the complaint, the plaintiff prays
for damages in the amount of $275,000, plus prejudgment interest and cost of
suit. US Dataworks and Mr. Frazier have reached a settlement pursuant to which
US Dataworks will make monthly payments in the amount of $23,800 per month until
March 1, 2003. On March 1, 2003, US Dataworks has the option to pay the
remaining balance or to make monthly payments in the amount of $26,167 through
August 1, 2003. US Dataworks also agreed to pay Mr. Frazier's attorney's fees
and costs, up to a maximum of $5,000, and reimburse Mr. Frazier for the cost of
the suit. Upon payment in full, Mr. Frazier will dismiss the lawsuit with
prejudice. On August 1, 2003, the settlement amount was paid in full.

8.   STOCKHOLDERS' EQUITY

     PREFERRED STOCK

     The Company has 10,000,000 authorized shares of $0.0001 par value preferred
stock. The preferred stock may be issued in series, from time to time, with such
designations, rights, preferences, and limitations as the Board of Directors may
determine by resolution.

     Convertible Series A Preferred Stock
     ------------------------------------

     The Company has 800,000 authorized shares of $0.0001 par value convertible
Series A preferred stock. On April 11, 2000, the Company issued 800,000 shares
of its voting convertible Series A preferred stock (the "Series A") to an
investor for gross proceeds of $2,000,000. The Series A has a liquidation
preference of $2.50 per share and carries a 15% cumulative dividend payable on
each April 1 and October 1. The Company has the right to redeem the Series A at
any time after issuance at a redemption price of $2.70 per share, plus any
accrued but unpaid dividends, except if the Company redeems the Series A within
60 days of issuance, the redemption price shall be $2.50. The Series A is
convertible into shares of common stock as determined by dividing $2.50 by 60%
of the average closing bid price of the Company's common stock for the 10
trading days prior to the conversion. On May 19, 2000, the Company redeemed
160,000 shares of the Series A for $400,000. In June and July 2003, pursuant to
the Series A conversion terms, the holder converted 380,000 shares of Series A
and was issued 1,623,535 shares the Company's common stock.

     At September 30, 2003, there were accumulated, undeclared dividends in
arrears of $219,993, or $0.85 per share.

     Subsequent to September 30, 2003, 260,000 shares of Series A were converted
by the holder and the Company was obligated to issue 370,751 shares of the
Company's common stock pursuant to the Series A conversion terms.

     Convertible Series B Preferred Stock
     ------------------------------------

     The Company has 700,000 authorized shares of $0.0001 par value convertible
Series B preferred stock.

     In August and October 2000, the Company issued 509,333 and 133,666 units
respectively, in a private placement for gross proceeds of $382,000 and
$100,250, respectively. Each unit consisted of one share of its voting
convertible Series B preferred stock (the "Series B") and a warrant to purchase
one share of the Company's common stock. The Series B has a liquidation
preference of $0.75 per share and carries a 10% cumulative dividend payable on
each March 1 and September 1. The Company has the right to redeem the Series B
at any time after issuance at a redemption price of $0.83 per share, plus any
accrued but unpaid dividends. The Series B is convertible upon issuance into
common stock at $3.75 per share. The warrant entitles the holder to purchase one
share of the Company's common stock at $6.25 per share, which represents 115% of
the market value of the Company's stock at the closing date.

     In May 2001, an investor in the Company's convertible Series B preferred
stock rescinded its acquisition and returned 13,333 shares and warrants for the
purchase of 2,667 shares of common stock to the Company in exchange for the
return of its investment of $10,000.

                                      F-14
<PAGE>

     At September 30, 2003, there were accumulated, undeclared dividends in
arrears of $123,421 or $0.20 per share.

     COMMON STOCK

     Financing Agreement
     -------------------

     On June 30, 2003, the Company entered into an agreement with an
institutional investor for an equity line financing of up to $4,000,000. The
institutional investor has agreed to purchase the Company's common stock at 87%
percent of the volume weighted average price on the date in question during each
draw down pricing period, subject to certain adjustments as set forth in the
agreement. The Company may sell up to $4,000,000 of its common stock, with a
minimum commitment of $1,500,000, to the institutional investor under the equity
line on trading days on which our closing price per share is $0.50 or more.
Subject to the satisfaction of the minimum closing price and certain other
conditions, the Company has the right to determine the timing and amount of each
sale so long as the sale will not cause the institutional investor to own more
than 4.999% of the Company's outstanding common stock. Pursuant to a
registration rights agreement, the Company agreed to file a registration
statement for the resale of the shares of its common stock issued to the
institutional investor in connection with the equity line.

     Common Stock and Warrants
     -------------------------

     During the six months ended September 30, 2003, the Company completed the
following:

     o   In April 2003, issued 72,487 shares of common stock that it had
         committed to issue during the year ended March 31, 2003.

     o   During the six months ended September 30, 2003, $657,500 of convertible
         promissory notes and accrued interest thereon were converted into
         850,363 shares of common stock based upon a conversion price equal to
         80% of the average closing price for the 20 trading days immediately
         preceding the conversion date. During the six months ended September 30
         2003, stock certificates for 848,423 shares of common stock were
         issued. At September 30, 2003, the stock certificates for 1,940 shares
         of common stock on $5,141 of the convertible promissory notes converted
         had not been issued and therefore this amount is included in common
         stock committed.

     o   On June 25, 2003, we amended four convertible promissory notes totaling
         $887,500 that were issued in March 2001 such that 80.37% of the
         outstanding principal and accrued and unpaid interest converted into
         2,088,949 shares of the Company's common stock at a conversion price of
         $0.35 per share. At the holder's option on September 30, 2003, the
         remaining balance converted at an exercise price of $0.35 per share
         into 510,157 shares.

     o   In June 2003, a $200,000 Convertible Promissory Note was converted into
         598,701 shares pursuant to terms of the note.

     o   On June 30, 2003, the Company agreed to sell to five accredited
         investors an aggregate of 1,111,112 shares of its common stock for an
         aggregate purchase price of $500,000 pursuant to a Securities Purchase
         Agreement. The investors purchased these shares from the Company on
         July 9, 2003. In connection with this agreement, the Company issued
         warrants to purchase an aggregate of 150,000 shares of our common stock
         with an exercise price of $1.34 per share. The warrants may be
         exercised at any time. On August 4, 2003, the five accredited investors
         agreed to surrender their common stock in exchange for convertible
         promissory notes totaling $500,000, due August 4, 2004 with interest at
         10% per annum, and warrants to purchase an additional 10,000 shares of
         common stock with an exercise price of $1.34 per share. The warrants
         may be exercised at any time after August 4, 2003. The

                                      F-15
<PAGE>

         promissory notes are convertible into common stock at $0.45 per share.
         On September 15, 2003, one of the investors elected to convert his
         promissory note for $250,000 into common shares and was issued 555,556
         shares of common stock prior to September 30, 2003.

     o   In July 2003, the Company renegotiated the terms of $1,353,000 of 12%
         per annum demand promissory notes due the Company's Chief Executive
         Officer, Mr. Ramey. The note agreements were entered into during fiscal
         2002 and 2003 to fund the Company's operations. In exchange for the 12%
         demand notes, the Company issued Mr. Ramey a new promissory note
         bearing interest at 7% per annum, maturing July 10, 2004, and
         convertible into shares of common stock at a conversion price of $0.80
         per share. Mr. Ramey was also issued a warrant to purchase 1,691,250
         shares of common stock at an exercise price of $0.80 per share.

     o   In September 2003, the Company successfully negotiated the conversion
         of $834,168 of remaining debt related to discontinued operations. In
         exchange for the debt, the holder was issued 417,084 shares of common
         stock and a warrant to purchase 208,542 shares of common stock at an
         exercise price of $2 per share.

     o   During the six months ended September 30, 2003, pursuant to the Series
         A Convertible Preferred Stock conversion terms, the holder converted
         380,000 shares of Series A Convertible Preferred Stock and the Company
         issued 1,623,535 shares of the Company's common stock.

     Common Stock and Warrants as a Financing Cost
     ---------------------------------------------

     o   In May and June 2003, the Company issued warrants to purchase 568,000
         shares of common stock to several note holders as consideration for the
         note holders extending the maturity date of $887,500 of their
         promissory notes with the Company. Under the terms of the agreement,
         the holders exercised the warrants through a net issuance exercise. By
         doing so, the aggregate number of shares issued due to the exercise of
         the warrants was 387,273 shares of common stock. These shares were
         issued on July 2, 2003.

     o   In June 2003, as partial settlement of an existing note and warrant
         agreement, the Company issued a warrant to purchase up to $1,000,000 of
         the Company's common stock not to exceed 2,300,000 shares. The exercise
         price of the warrant is 50% of the average stock price for 10
         consecutive days immediately prior to the exercise, but not less than
         $0.06 per share. The warrant is exercisable in thirds after specific
         amounts of days following the earlier of i) the Company receiving an
         effectiveness notice confirming the completion of a registration
         statement filed with the Securities and Exchange Commission or ii) one
         year from the date of issue.

     o   In July 2003, the Company entered into an agreement for financial
         advisory and strategic/competitive advisory services and issued a
         warrant to purchase 100,000 shares of common stock at an exercise price
         of $1.15 per share. The warrant is exercisable through June 30, 2006.

9.   SUBSEQUENT EVENTS

     Sale of Common Stock and Debentures
     -----------------------------------

     In October 2003, the Company sold 1,825,000 shares of common stock ("Common
Stock") for an aggregate purchase price of $3,650,000, and sold $575,000
aggregate principal amount of 1% Convertible Debentures (the "Debentures"). In
connection with the sale of the Common Stock and Debentures, the Company also
issued warrants to purchase 1,056,250 shares of Common Stock (the "Warrants,"
and collectively, with the Common Stock and Debentures, the "Securities") in a
private placement to 11 institutional investors. The maturity date of the
Debentures is October 2, 2004. The sale of the Securities resulted in gross
proceeds to the Company, prior to the exercise of the Warrants, of approximately
$4.2 million. The Debentures are convertible into Common Stock at a conversion
price of $2.00 per share (the "Conversion Price"), subject to standard
anti-dilution adjustments. The

                                      F-16
<PAGE>

Warrants are fully vested and exercisable at any time until October 2, 2006 at
an exercise price of $2.00 per share (the "Exercise Price"), subject to standard
anti-dilution adjustments. In the event the average closing price of the Common
Stock during the period of November 24, 2003 through December 8, 2003 (the
"Price Reset Period") is less than $2.00 per share, the per share purchase price
of the Common Stock (the "Purchase Price"), the Conversion Price and the
Exercise Price shall be adjusted to equal the average closing price for the
Price Reset Period, discounted by 25%; provided, however, the Purchase Price,
Conversion Price or the Exercise Price shall not be less than $0.60 per share.
The beneficial conversion feature of the Debenture will be amortized as
financing costs from the date of issuance to the time at which the note first
becomes convertible. The amount allocated to the warrants as a debt discount
will be recognized as interest expense over the period until the note matures.

                                      F-17
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

     The following discussion and analysis of our financial condition and
results of operations should be read with the unaudited consolidated financial
statements and related notes included elsewhere in this Report.

     When used in this Report, the words "expects," "anticipates," "believes,"
"plans," "will" and similar expressions are intended to identify forward-looking
statements. These are statements that relate to future periods and include, but
are not limited to, statements as to statements regarding benefits related to
our strategic alliances, our critical accounting policies, expectations
regarding our revenue, adequacy of cash, statements regarding our growth and
profitability, investments in marketing, promotion, and operating
infrastructure, our need for future financing, and our ability to respond to
rapid technological change. Forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not limited
to, those discussed below, as well as risks related to our ability to develop
and timely introduce products that address market demand, the impact of
alternative technological advances and competitive products, market
fluctuations, our ability to obtain future financing, loss of a strategic
partnership and the risks set forth below under "Factors that May Affect Our
Results." These forward-looking statements speak only as of the date hereof. US
Dataworks expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

     All references to "US Dataworks," "we," "us" or "our" means US Dataworks,
Inc.

     MICRworks, Returnworks, Remitworks and Remoteworks are trademarks of US
Dataworks. Other trademarks referenced herein are the property of their
respective owners.

OVERVIEW

     US Dataworks is a developer of payment processing software, serving several
of the top banking institutions, credit card issuers, and the United States
Government. We generate revenue from the licensing, system integration and
maintenance of our core products: MICRworks, Returnworks, Remitworks and
Remoteworks for the financial services industry. The software we developed is
designed to enable organizations to transition from traditional paper-based
payment and billing processes to electronic solutions. US Dataworks' products
include check processing, point-of-purchase transactions and turnkey Automated
Clearing House, or ACH, payments. Our products are designed to provide
organizations with an in-house solution that will complement and enhance such
organizations' existing technologies, systems and operational workflow. US
Dataworks' strategy is to identify, design and develop products that fill
specific niches in the financial transaction processing industry.

CRITICAL ACCOUNTING POLICIES

     The following discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
those related to revenue recognition and concentration of credit risk. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

     We believe that of the significant accounting policies used in the
preparation of our consolidated financial statements (see Note 2 to the
Financial Statements), the following are critical accounting policies, which may
involve a higher degree of judgment, complexity and estimates.

     REVENUE RECOGNITION

     We recognize revenues in accordance with the provisions of the American
Institute of Certified Public Accountants' Statement of Position 97-2, "Software
Revenue Recognition." We license our software products under non-exclusive,
non-transferable license agreements. These arrangements do not require
significant production, modification, or customization, therefore, revenue is
recognized when a license agreement has been signed, delivery of the software
products has occurred, the related fee is fixed or determinable, and
collectibility is probable. If professional services are provided in conjunction
with the installation of the software license, revenue is recognized when these
services have been provided.

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     For license agreements that include a separately identifiable fee for
contracted maintenance services, such revenues are recognized on a straight-line
basis over the life of the maintenance agreement noted in the license agreement,
but following any installation period of the software.

     CONCENTRATIONS OF CREDIT RISK

     We extend credit to our customers and perform ongoing credit evaluations of
our customers. We do not obtain collateral from our customers to secure our
accounts receivables. We evaluate our accounts receivable on a regular basis for
collectibility and provide for an allowance for potential credit losses as
deemed necessary.

RESULTS OF OPERATIONS

     The results of operations reflected in this discussion include the
operations of US Dataworks for the six months ended September 30, 2003 and 2002.

     REVENUE

     Revenue increased by $641,161 or 202% to $958,808 for the three months
ended September 30, 2003 from $317,647 for the three months ended September 30,
2002. The increase in revenue was primarily attributable to an increase of
$360,400 or 176% in license fees and by an increase in service revenue of
$297,410 or 956%. The increase in license fees is principally due to the
licensing through a reseller in the quarter ended September 30, 2003 of our
software product suite to Capital One, a large credit card processing company.
This customer accounted for 52% of our total revenue for the quarter. Service
revenue in the current quarter is more representative of our recent historical
activity level than the unusually low level of activity in the corresponding
quarter in the prior year.

     Revenue increased by $354,793 or 33% to $1,445,571 for the six months ended
September 30, 2003 from $1,090,778 for the six months ended September 30, 2002.
The increase in revenue was primarily attributable to an increase of $372,796 or
152% in service revenues.

     COST OF SALES

     Cost of sales decreased by $13,053 or 6% to $205,542 for the three months
ended September 30, 2003 from $218,595 for the three months ended September 30,
2002. Cost of sales decreased by $38,267 or 10% to $349,655 for the six months
ended September 30, 2003 from $387,922 for the three months ended September 30,
2002. The decreases in both the three and six month periods were primarily
attributable to our professional staff devoting a greater amount of time on
research and development activities and a corresponding smaller amount of time
on maintenance and support activities for existing customers.

     OPERATING EXPENSES

     Total operating expenses increased by $293,039 or 43% to $980,684 for the
three months ended September 30, 2003 from $687,645 for the three months ended
September 30, 2002. Total operating expenses increased by $364,624 or 23% to
$1,975,905 for the six months ended September 30, 2003 from $1,611,281 for the
six months ended September 30, 2002. The increases were primarily attributable
to increases in legal and accounting fees incurred in the current period due to
the higher level of financing and capital restructuring transactions as compared
to the same period in the prior year.

     OTHER EXPENSES

     Other expenses, including interest expense and financing costs, increased
$2,936,796 or 1,126% to $3,197,598 for the three months ended September 30, 2003
from $260,802 for the three months ended September 30, 2002. The increase was
primarily due to $3,044,722 of non-cash financing charges related to the
following nonrecurring transactions:

     o   $339,806 non-cash interest expense related to amortization of
         beneficial conversion features and warrants granted with promissory
         notes totaling $815,000 to five investors in July and August 2003.

     o   $635,259 non-cash loss on extinguishment of debt due to conversion in
         September 2003 of $834,168 of debt related to discontinued operations
         in exchange for 417,084 shares of common stock and a warrant to
         purchase 208,542 shares of common stock at $2 per share.

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    o    $1,722,631 non-cash loss on extinguishment of debt-related parties due
         to exchange of debt instruments in July 2003 of $1,353,000 of demand
         promissory notes due to our Chief Executive Officer, Charles Ramey
         entered into during fiscal 2002 and 2003 to fund our operations. The
         former 12% per annum demand notes were exchanged for 7% per annum
         convertible notes, due in July 2004, convertible into shares of common
         stock at an exercise price of $0.80 per share. Mr. Ramey was also
         issued a warrant to purchase 1,691,250 shares of common stock at an
         exercise price of $0.80 per share.

     o   $250,276 non-cash interest expense related to the full amortization of
         previously issued debt discount on warrants issued with a promissory
         note in June 2003 as partial settlement of a previously existing note
         and warrant agreement.

     o   $96,750 non-cash financing costs related to the issuance in July 2003
         of a warrant to purchase 100,000 shares of common stock at an exercise
         price of $1.15 per share pursuant to a financial advisory and
         strategic/competitive advisory services agreement.

     Other expenses, including interest expense and financing costs, increased
$4,095,264 or 778% to $4,621,486 for the six months ended September 30, 2003
from $526,222 for the six months ended September 30, 2002. The increase was
primarily due to five transactions noted above occurring in the three months
ended September 30, 2003 as well as $1,084,505 of non-cash financing charges
recorded in June 2003 pursuant to (i) the reduction in the conversion price of
four existing convertible promissory notes and (ii) the reduction in the
exercise price of previously issued warrants to purchase 568,000 shares of
common stock. The reductions in the conversion price and warrant exercise price
were granted to four investors in connection with their agreement to convert
80.37% of the principal and accrued interest underlying their existing $887,500
promissory notes.

     NET LOSS

     Net loss increased by $2,575,621 or 303% to a net loss of $3,425,016 for
the three months ended September 30, 2003 from $849,395 for the three months
ended September 30, 2002.

     Net loss increased by $4,066,828 or 283% to a net loss of $5,501,475 for
the six months ended September 30, 2003 from $1,434,647 for the six months ended
September 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents increased by $50,472 to $59,036 at September 30,
2003 from $8,564 at March 31, 2003. Cash used for operating activities was
$1,253,781 in the six months ended September 30, 2003 compared to $813,252 to
the same period in the prior year. Net loss from continuing operations reduced
cash by $5,501,474 and $1,434,647 in the six months ended September 30, 2003 and
2002, respectively.

     Cash used for investing activities of $9,671 and $82,176 in the six months
ended September 30, 2003 and September 30, 2002, respectively, was due to
equipment purchases, and in the six months ended September 30, 2002 we repaid
our affiliates $66,506.

     Financing activities provided cash of $1,313,924 in the six months ended
September 30, 2003 and included the issuance of $1,615,000 in convertible
promissory notes. Subsequent to September 30, 2003, we received an aggregate of
$4,225,000 pursuant to the sale of 1,825,000 shares of common stock for a
purchase price of $3,650,000 and a $575,000 Debenture due October 2, 2004 with
interest at 1%, convertible into 287,500 shares of common stock. The common
stock and the Debenture were sold with attached warrants to purchase 1,056,250
shares of common stock at an exercise price of $2 per share.

     Financing activities provided cash of $977,070 for the six months ended
September 30, 2002 and included the issuance of $188,682 in promissory notes,
$627,500 in convertible promissory notes and $390,000 in demand promissory notes
due to a related party.

     Until we achieve profitability and the ability to generate positive cash
flow from our operations, we recognize that we need the infusion of cash. Based
upon the financing obtained in October 2003 and our current level of operations,
we believe that we have sufficient cash resources to finance our operations
through the remainder of fiscal 2004. Nevertheless, we are continuing to
actively pursue various financing options. However, there can be no assurance
that we will achieve profitable operating results or that we will be able to
raise additional funds on favorable terms or at all.

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FACTORS THAT MAY AFFECT OUR RESULTS

WE HAVE A GENERAL HISTORY OF LOSSES AND MAY NOT OPERATE PROFITABLY IN THE
FUTURE.

     We have incurred significant losses for the last two fiscal years.
Operations in the future, our net losses and negative cash flow may continue for
the foreseeable future. As of September 30, 2003, our accumulated deficit was
$38,246,005. Our auditors have included an explanatory paragraph in their
Independent Auditor's Report included in our audited financial statements for
the years ended March 31, 2003 and 2002 filed with our annual report on Form
10-KSB/A for fiscal year ended March 31, 2003, to the effect that our loss from
operations for the year ended March 31, 2003, and the accumulated deficit at
March 31, 2003 raise substantial doubt about our ability to continue as a going
concern. We believe that our planned growth and profitability will depend in
large part on our ability to continue to promote our brand name and gain clients
and expand our relationship with clients for whom we would provide licensing
agreements and system integration. Accordingly, we intend to invest heavily in
marketing, strategic partnerships, development of our client base, and
development of our marketing technology and operating infrastructure. If we are
not successful in promoting our brand name and expanding our client base, it
will have a material adverse effect on our financial condition and our ability
to continue to operate our business.

IF WE ARE UNSUCCESSFUL IN RAISING ADDITIONAL CAPITAL IN THE FUTURE, WE MAY BE
UNABLE TO CONTINUE TO OPERATE.

     We believe we currently have adequate cash to fund anticipated cash needs
for at least the next six months. Our independent auditors have advised us
regarding uncertainty as to our ability to continue as a going concern. We will
need to raise additional capital in the future and are actively pursuing various
financing options. Any equity financing may be dilutive to shareholders, and
debt financing, if available, will increase expenses and may involve restrictive
covenants. We may be required to raise additional capital, at times and in
amounts, which are uncertain, especially under the current capital market
conditions. Under these circumstances, if we are unable to obtain additional
capital or are required to raise it on undesirable terms, it may have a material
adverse effect on our financial condition, which could require us to:

     o   curtail our operations significantly;

     o   sell significant assets;

     o   seek arrangements with strategic partners or other parties that may
         require us to relinquish significant rights to products, technologies
         or markets; or

     o   explore other strategic alternatives including a merger or sale of US
         Dataworks.

OUR OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS CAUSED BY MANY FACTORS WHICH
COULD CAUSE US TO FAIL TO ACHIEVE OUR REVENUE OR PROFITABILITY EXPECTATIONS,
WHICH IN TURN COULD CAUSE OUR STOCK PRICE TO DECLINE.

     Our operating results can vary significantly depending upon a number
factors, many of which are outside our control. Factors that may affect our
quarterly operating results include:

     o   market acceptance of and changes in demand for our products and
         services;

     o   gain or loss of clients or strategic relationships;

     o   announcement or introduction of new software, services and products by
         us or by our competitors;

     o   our ability to build brand recognition;

     o   timing of sales to customers;

     o   price competition;

     o   our ability to upgrade and develop systems and infrastructure to
         accommodate growth;

     o   our ability to attract and integrate new personnel in a timely and
         effective manner;

     o   our ability to introduce and market products and services in accordance
         with market demand;

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     o   changes in governmental regulation;

     o   reduction in or delay of capital spending by our clients due to the
         effects of terrorism, war and political instability; and

     o   general economic conditions, including economic conditions specific to
         the financial services industry.

     In addition, each quarter we derive a significant portion of our revenue
from agreements signed at the end of the quarter. Our operating results could
suffer if the timing of these agreements is delayed. Depending on the type of
agreements we enter into, we may not be able to recognize revenue under these
agreement in the quarter in which they are signed. Some or all of these factors
could negatively affect demand for our products and services, and our future
operating results.

     Most of our operating expenses are relatively fixed in the short-term. We
may be unable to adjust spending rapidly to compensate for any unexpected sales
shortfall, which could harm our quarterly operating results. Because of the
emerging nature of the markets in which we compete, we do not have the ability
to predict future operating results with any certainty. Because of the above
factors, you should not rely on period-to-period comparisons of results of
operation as an indication of future performances.

WE MAY NOT BE ABLE TO MAINTAIN OUR RELATIONSHIPS WITH STRATEGIC PARTNERS, WHICH
MAY CAUSE OUR CASH FLOW TO DECLINE.

     We may not be able to maintain our relationships with strategic partners.
These strategic relationships are a core component of our sales and distribution
strategy. The loss of a strategic partner could harm our financial results.

BECAUSE A SMALL NUMBER OF CUSTOMERS HAS HISTORICALLY ACCOUNTED FOR AND MAY IN
FUTURE PERIODS ACCOUNT FOR SUBSTANTIAL PORTIONS OF OUR REVENUE, OUR REVENUE
COULD DECLINE BECAUSE OF DELAYS OF CUSTOMER ORDERS OR THE FAILURE TO RETAIN
CUSTOMERS.

     We have a small number of customers that account for a significant portion
of our revenue. Our revenue could decline because of a delay in signing
agreements with a single customer or the failure to retain an existing customer.
We may not obtain additional customers. The failure to obtain additional
customers and the failure to retain existing customers will harm our operating
results.

IF GENERAL ECONOMIC CONDITIONS DO NOT IMPROVE, WE MAY EXPERIENCE DECREASED
REVENUE OR LOWER GROWTH RATES.

     The revenue growth and profitability of our business depends on the overall
demand for computer software and services in the product segments in which we
compete. Because our sales are primarily to major banking and government
customers, our business also depends on general economic and business
conditions. A softening of demand caused by a weakening of the economy may
result in decreased revenue or lower growth rates. As a result, we may not be
able to effectively promote future license revenue growth in our application
business.

WE MAY NOT BE ABLE TO ATTRACT, RETAIN OR INTEGRATE KEY PERSONNEL, WHICH MAY
PREVENT US FROM SUCCESSFULLY OPERATING OUR BUSINESS.

     We may not be able to retain our key personnel or attract other qualified
personnel in the future. Our success will depend upon the continued service of
key management personnel. The loss of services of any of the key members of our
management team or our failure to attract and retain other key personnel could
disrupt operations and have a negative effect on employee productivity and
morale and harm our financial results.

WE OPERATE IN A MARKET THAT IS INTENSELY AND INCREASINGLY COMPETITIVE, AND IF WE
ARE UNABLE TO COMPETE SUCCESSFULLY, OUR REVENUE COULD DECLINE AND WE MAY BE OR
BE UNABLE TO GAIN MARKET SHARE.

     The market for financial services software is relatively new and highly
competitive. Our future success will depend on our ability to adapt to rapidly
changing technologies, evolving industry standards, product offerings and
evolving demands of the marketplace.

     Some of our competitors have:

     o   longer operating histories;

     o   larger installed customer bases;

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     o   greater name recognition and longer relationships with clients; and

     o   significantly greater financial, technical, marketing and public
         relations resources than US Dataworks.

     Our competitors may also be better positioned to address technological and
market developments or may react more favorably to technological changes. We
compete on the basis of a number of factors, including;

     o   breadth and quality of services;

     o   creative design and systems engineering expertise;

     o   pricing;

     o   technological innovation; and

     o   understanding clients' strategies and needs.

Competitors may develop or offer strategic services that provide significant
technological, creative, performance, price or other advantages over the
services offered by US Dataworks. If we fail to gain market share or lose
existing market share, our financial condition, operating results and business
could be adversely affected and the value of the investment in us could be
reduced significantly. We may not have the financial resources, technical
expertise or marketing, distribution or support capabilities to compete
successfully.

WE MAY BE RESPONSIBLE FOR MAINTAINING THE CONFIDENTIALITY OF OUR CLIENT'S
SENSITIVE INFORMATION, AND ANY UNAUTHORIZED USE OR DISCLOSURE COULD RESULT IN
SUBSTANTIAL DAMAGES AND HARM OUR REPUTATION.

     The services we provide for our clients may grant us access to confidential
or proprietary client information. Any unauthorized disclosure or use could
result in a claim against us for substantial damages and could harm our
reputation. Our contractual provisions attempting to limit these damages may not
be enforceable in all instances or may otherwise fail to adequately protect us
from liability for damages.

OUR PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE SIGNIFICANT
VOTING POWER AND MAY TAKE ACTIONS THAT MAY BE DIFFERENT THAT ACTIONS SOUGHT BY
OUR OTHER SHAREHOLDERS.

     Our principal shareholders, executive officers, directors and their
affiliates, in the aggregate, own more than 31% of our outstanding common stock.
These shareholders, if they act together, will be able to control our management
and affairs and all matters requiring shareholder approval, including the
election and removal of directors and approval of significant corporate
transactions. This influence over our affairs might be adverse to the interest
of our other shareholders. In addition, this concentration of ownership may
delay or prevent a change in control and might have an adverse effect on the
market price of our common stock.

FUTURE SALES OF OUR COMMON STOCK MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO DECLINE.

     As of September 30, 2003, there were approximately 20,312,562 shares of
common stock outstanding, of which at least 9,814,528 are restricted securities
under the Securities Act, a minority of which are held by affiliates of US
Dataworks. These restricted securities will be eligible for sale from time to
time upon expiration of applicable holding periods under Rule 144 under the
Securities Act. If these holders sell in the public market, these sales could
cause the market price of our common stock to decline. This also could make it
more difficult for us to raise funds through future offerings of our common
stock.

IF WE DO NOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS MAY
SUFFER, WE MAY LOSE REVENUE OR WE MAY BE REQUIRED TO SPEND SIGNIFICANT TIME AND
RESOURCES TO DEFEND OUR INTELLECTUAL PROPERTY RIGHTS.

     We rely on a combination of patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect our
intellectual property rights. If we are unable to adequately protect our
intellectual property, our business may suffer from the piracy of our technology
and the associated loss in revenue. Any patents that we may hold may not
sufficiently protect our intellectual property and may be challenged by third
parties. Our efforts to protect our intellectual property rights, may not
prevent the misappropriation of our intellectual property. Other parties may
also independently develop similar or competing products that do not infringe
upon our intellectual property rights. These infringement claims or any future
claims could cause us to spend significant time and resources to defend our
intellectual property rights, redesign our products or develop or license a
substitute technology. We may be unsuccessful in acquiring or developing
substitute technology and any required license

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may be unavailable on commercially reasonable terms, if at all. In the event of
litigation to determine the validity of any third party claims or claims by us
against such third party, such litigation, whether or not determined in our
favor, could result in significant expense and divert the efforts of our
technical and management personnel, regardless of the outcome of such
litigation.

ITEM 3.  CONTROLS AND PROCEDURES

     (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain
"disclosure controls and procedures," as such term is defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934 (the "Exchange Act"), that are
designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognized that disclosure controls and procedures, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.

     Based on their evaluation as of a date within 90 days prior to the filing
date of this Quarterly Report, our Chief Executive Officer and Chief Financial
Officer have concluded that, subject to the limitations noted above, our
disclosure controls and procedures were effective to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to them by others within those entities, particularly during the period in
which this Quarterly Report was being prepared.

     (b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

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                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On July 19, 2002, an individual and former director of US Dataworks, H. J.
Frazier, filed a lawsuit against US Dataworks in Los Angeles Superior Court
alleging breach of debenture agreement. In the complaint, the plaintiff prays
for damages in the amount of $275,000, plus prejudgment interest and cost of
suit. US Dataworks and Mr. Frazier have reached a settlement pursuant to which
US Dataworks will make six monthly payments in the amount of $23,800 per month
until March 1, 2003. On March 1, 2003, US Dataworks had the option to pay the
remaining balance of $142,800 or to make monthly payments in the amount of
$26,167 through August 1, 2003. US Dataworks agreed to pay Mr. Frazier's
attorney's fees and costs, up to a maximum of $5,000, and reimburse Mr. Frazier
for the cost of the suit. On August 1, 2003, the settlement amount was paid in
full and the lawsuit has been dismissed.

ITEM 2.  CHANGES IN SECURITIES

Rights Plan
-----------

     On July 23, 2003, our Board of Directors adopted a stockholder rights plan,
pursuant to which one preferred stock purchase right (a "Right") was distributed
for each share of Common Stock held as of September 2, 2003. Each Right, when
exercisable, will entitle the holder to purchase one one-thousandth of a share
of our Series X Participating Preferred Stock at a price of $4.00 per
one-thousandth of a share (the "Purchase Price"), subject to antidilution
adjustments.

     In general, if a person or group (an "Acquiring Person") acquires, or
obtains the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of our common stock, then each Right (other than those held
by an Acquiring Person) will entitle the holder to receive, upon exercise,
shares of common stock (or, under certain circumstances, a combination of
securities or other assets) having a value of twice the Purchase Price. In
addition, if following the announcement of the existence of an Acquiring Person
the Company is involved in a business combination or sale of 50% or more of its
assets or earning power, each Right (other than those held by an Acquiring
Person) will entitle the holder to receive, upon exercise, shares of our common
stock or shares of the acquiring entity, whichever is the surviving entity,
having a market value of twice the Purchase Price. When the foregoing rights
arise, any Rights owned by an Acquiring Person will immediately become void. The
Board of Directors will also have the right, after there is an Acquiring Person,
to cause each Right (except those that have become void) to be exchanged for
shares of our common stock or substitute consideration.

     We may redeem the Rights at a price of $0.001 per Right before the
existence of an Acquiring Person is announced. The Rights expire on July 24,
2013.

     This summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, was filed as
an exhibit to our Registration Statement on Form 8-A filed on July 23, 2003.

Sales of Unregistered Securities
--------------------------------

     On August 4, 2003, five accredited investors agreed to surrender their
common stock in exchange for convertible promissory notes totaling $500,000, due
August 4, 2004 with interest at 10% per annum, and warrants to purchase an
additional 15,000 shares of common stock with an exercise price of $1.34 per
share. The warrants may be exercised at any time after August 4, 2003. The
promissory notes are convertible into common stock at $0.45 per share.

     On July 11, 2003, we issued to a financial advisory firm, as partial
consideration for financial advisory services to be provided to us a warrant to
purchase 100,000 shares of our common stock at an exercise price of $1.15 per
share.

     On August 18, 2003, we entered into an agreement to sell $315,000 aggregate
principal amount of 10% Convertible Debentures to four accredited investors. The
Convertible Debentures are convertible into common stock at a conversion price
of equal to 80% of the average closing price for the period of the twenty
trading days immediately preceding the conversion date however not less than
$0.50 per share.

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     On October 2, 2003, we entered into an agreement to sell 1,825,000 shares
of our common stock for an aggregate purchase price of $3,650,000, to sell
$575,0000 aggregate principal amount of 1% Convertible Debentures and to issue
warrants to purchase 1,056,250 shares of common stock in a private placement to
11 institutional investors. The Convertible Debentures are convertible into
common stock at a conversion price of $2.00 per share, subject to standard
anti-dilution adjustments. The warrants are fully vested and exercisable at any
time until October 2, 2006 at an exercise price of $2.00 per share, subject to
standard anti-dilution adjustments. In the event the average closing price of
the common stock during the Price Reset Period is less than $2.00 per share, the
per share purchase price of the common stock, the Conversion Price of the
Convertible Debentures and the Exercise Price of the Warrants shall be adjusted
to equal the average closing price for the Price Reset Period, discounted by
25%, but not below $0.60 per share.

     The issuances disclosed in this Item 2 were made to accredited investors
and were deemed to be exempt from registration under the Securities Act of 1933
in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated
thereunder.

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

     On September 8, 2003, we held our 2003 Annual Meeting of Stockholders, at
which meeting our Stockholders approved the following (all tabulations reflect
share numbers on a pre-split basis):

      (a) Election of the following directors

                                         FOR                         WITHHELD
                                         ---                         --------
     Class I Directors:

     Joe Abrell                          62,175,750                  222,322

     John L. Nicholson, M.D.             62,175,750                  222,322

     The terms of directors Hayden D. Watson, Thomas L. West, Jr., Charles E.
Ramey and Terry Stepanik continued beyond the 2003 Annual Meeting of
Stockholders.

     (b) Approving the Subordinated, Convertible Note and Warrant Agreement with
Charles E. Ramey:

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     22,814,1671           1,229,399                 316,811

     (c) An amendment to the Company's Amended and Restated 2000 Stock Option
Plan to increase the number of shares available for issuance thereunder from
8,000,000 shares to 15,000,000 shares:

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     21,922,005            1,904,945                 533,367

     (d) An amendment to the Company's Amended and Restated 2000 Stock Option
Plan to increase the maximum number of shares subject to options granted to any
employee during the term of the plan from 2,000,000 shares to 8,000,000 shares:

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     60,068,823            1,628,531                 807,050

                                       9
<PAGE>

     (e) An amendment to the Company's Amended and Restated 2000 Stock Option
Plan to increase the number of options granted to non-employee members of the
Board of Directors.

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     59,826,637            2,030,052                 647,715

     (f) An amendment to the Company's Amended and Restated 2000 Stock Option
Plan to permit the granting of restricted share awards.

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     60,367,152            1,814,534                 322,718

     (g) Approving the grant of discretionary authority to the Board of
Directors to effect a reverse stock split of the Company's outstanding shares of
Common Stock, Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock at a ratio within the range from one-for-five to one-for-ten.

                          FOR             AGAINST         ABSTAIN
------------------------- --------------- --------------- ----------------------
Common Stock              59,879,791      2,445,353       179,260
------------------------- --------------- --------------- ----------------------
Series A Preferred Stock  4,385,964       0               0
------------------------- --------------- --------------- ----------------------
Series B Preferred Stock  490,333         0               52,000
------------------------- --------------- --------------- ----------------------

     (h) Ratify the appointment of Ham, Langston & Brezina, LLP as the Company's
independent auditors.

     FOR                   AGAINST                   ABSTAIN
     ---                   -------                   -------

     61,580,580            312,025                   611,799

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits.

     The exhibits listed below are required by Item 601 of Regulation S-B.

        EXHIBIT
         NUMBER                   DESCRIPTION OF DOCUMENT
         ------                   -----------------------
          4.1    Registration Agreement dated September 30, 2003 between the
                 Registrant and ACI Communications Holdings, Inc.

          10.1+  Employment Agreement dated April 2, 2003 between the Registrant
                 and Terry Stepanik.

          10.2+  Employment Agreement dated April 2, 2003 between the Registrant
                 and Mario Villareal.

          10.3+  Employment Agreement dated May 13, 2003 between the Registrant
                 and Charles E. Ramey.

          10.4+  Employment Agreement dated September 6, 2003 between the
                 Registrant and John J. Figone.

          10.5   Amended and Restated 2000 Stock Option Plan.

          10.6   Form of Nonstatutory Stock Option Agreement.

          10.7   Common Stock Purchase and Warrant Agreement dated September 30,
                 2003 between the

                                       10
<PAGE>

        EXHIBIT
         NUMBER                   DESCRIPTION OF DOCUMENT
         ------                   -----------------------

                 Registrant and ACI Communications Holdings, Inc.

          10.8   Form of Common Stock Purchase Warrant between the Registrant
                 and ACI Communications Holdings, Inc.

          10.9   Advisory Agreement dated June 6, 2003 between the Registrant
                 and Merriman Curhan Ford & Co.

          31.1   Certification by Chief Executive Officer pursuant to 13a-14(a).

          31.2   Certification by Chief Financial Officer pursuant to 13a-14(a).

          32.1   Statement of Chief Executive Officer and Chief Financial
                 Officer under 18 U.S.C.ss. 1350.

-----------------------
              + Indicates management contract or compensatory plan or
arrangement.

     (b) Reports on Form 8-K.

     The Company has filed a current report on Form 8-K on July 10, 2003
reporting under Item 5 an equity line financing transaction and the sale of
common stock and warrants to certain accredited investors.

     The Company has filed a current report on Form 8-K on July 25, 2003
reporting under Item 5 the adoption of a Rights Plan.

                                       11
<PAGE>

                                    SIGNATURE


     In accordance with the requirements of the Exchange Act, the registrant
caused to report to be signed on its behalf by the undersigned, thereunto duly
authorized.

     Dated:  November 14, 2003

                                 US DATAWORKS, INC.



                                 By /s/ John S. Reiland
                                    --------------------------------------------
                                                   John S. Reiland
                                               Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                       12
<PAGE>

                                  EXHIBIT INDEX

    EXHIBIT
     NUMBER                   DESCRIPTION OF DOCUMENT
     ------                   -----------------------

      4.1     Registration Agreement dated September 30, 2003 between the
              Registrant and ACI Communications Holdings, Inc.

      10.1+   Employment Agreement dated April 2, 2003 between the Registrant
              and Terry Stepanik.

      10.2+   Employment Agreement dated April 2, 2003 between the Registrant
              and Mario Villareal.

      10.3+   Employment Agreement dated May 13, 2003 between the Registrant and
              Charles E. Ramey.

      10.4+   Employment Agreement dated September 6, 2003 between the
              Registrant and John J. Figone.

      10.5    Amended and Restated 2000 Stock Option Plan.

      10.6    Form of Nonstatutory Stock Option Agreement.

      10.7    Common Stock Purchase and Warrant Agreement dated September 30,
              2003 between the Registrant and ACI Communications Holdings, Inc.

      10.8    Form of Common Stock Purchase Warrant between the Registrant and
              ACI Communications Holdings, Inc.

      10.9    Advisory Agreement dated June 6, 2003 between the Registrant and
              Merriman Curhan Ford & Co.

      31.1    Certification by Chief Executive Officer pursuant to 13a-14(a).

      31.2    Certification by Chief Financial Officer pursuant to 13a-14(a).

      32.1    Statement of Chief Executive Officer and Chief Financial Officer
              under 18 U.S.C.ss. 1350.


-----------------------------
         + Indicates management contract or compensatory plan or arrangement.

                                       13