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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-50280
 
 iPayment, Inc.
  Delaware
    
    62-1847043(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)40 Burton Hills Boulevard, Suite 415Nashville, Tennessee
    
    37215(Address of principal executive offices)
    
    (Zip Code)
  o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 o þ
 Title of each class
    
    Shares Outstanding at August 15, 2011(Common stock, $0.01 par value)
    
    100




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1.Financial StatementsConsolidated Balance Sheets as of June 30, 2011 (successor,
unaudited) and December 31, 2010 (predecessor)
    
    
    3Unaudited Consolidated Statements of Operations  May 24,
2011 through June 30, 2011 (successor); April 1, 2011
through May 23, 2011 (predecessor); January 1, 2011 through
May 23, 2011 (predecessor); three and six months ended June
30, 2010 (predecessor)
    
    
    4Unaudited Consolidated Statements of Cash Flows  May 24,
2011 through June 30, 2011 (successor); January 1, 2011
through May 23, 2011 (predecessor); Six months ended June
30, 2010 (predecessor)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A)
    
    
    16Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    26Item 1A.Risk Factors
    
    
    27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3.Defaults Upon Senior Securities
    
    
    33Item 4.Removed and Reserved
    
    
    33Item 5.Other Information
    
    
    33Item 6.Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT INDEX
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements.
 iPAYMENT, INC.
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2011
    
    
    2010Successor
    
    
    Predecessor(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,084
    
    
    $
    1Accounts receivable, net of allowance for doubtful accounts of $998 and $735 at
June 30, 2011 and December 31, 2010, respectively
    
    
    27,016
    
    
    
    27,542Prepaid expenses and other current assets
    
    
    1,650
    
    
    
    1,191Deferred tax assets
    
    
    
    
    
    
    2,073Total current assets
    
    
    29,750
    
    
    
    30,807Restricted cash
    
    
    555
    
    
    
    556Property and equipment, net
    
    
    5,492
    
    
    
    4,766Merchant portfolio and other intangible assets, net of accumulated amortization
of $5,674 and $177,600 at June 30, 2011 and December 31, 2010, respectively
    
    
    248,252
    
    
    
    156,734Goodwill
    
    
    694,736
    
    
    
    527,978Deferred tax assets, net
    
    
    
    
    
    
    4,324Other assets, net
    
    
    24,287
    
    
    
    10,464Total assets
    
    $
    1,003,072
    
    
    $
    735,629LIABILITIES and STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,728
    
    
    $
    3,265Income taxes payable
    
    
    291
    
    
    
    11,818Accrued interest
    
    
    7,635
    
    
    
    2,573Accrued liabilities and other
    
    
    15,779
    
    
    
    17,060Current portion of long-term debt
    
    
    250
    
    
    
    5,823Total current liabilities
    
    
    27,683
    
    
    
    40,539Deferred tax liabilities, net
    
    
    35,437
    
    
    
    Long-term debt
    
    
    769,414
    
    
    
    619,144Other liabilities
    
    
    2,663
    
    
    
    3,505Total liabilities
    
    
    835,197
    
    
    
    663,188Commitments and contingencies (Note 8)EquityCommon stock, $0.01 par value; 1,000 shares authorized, 100 shares issued and
outstanding at June 30, 2011 and December 31, 2010
    
    
    167,756
    
    
    
    20,055Retained earnings
    
    
    119
    
    
    
    52,386Total stockholders equity
    
    
    167,875
    
    
    
    72,441Total liabilities and stockholders equity
    
    $
    1,003,072
    
    
    $
    735,629
   3




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iPAYMENT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Period From
    
    
    Three
    
    
    Period From
    
    
    SixMay 24
    
    
    April 1
    
    
    Months
    
    
    May 24
    
    
    January 1
    
    
    Monthsthrough
    
    
    through
    
    
    Ended
    
    
    through
    
    
    through
    
    
    EndedJune 30,
    
    
    May 23,
    
    
    June 30,
    
    
    June 30,
    
    
    May 23,
    
    
    June 30,2011
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2011
    
    
    2010Successor
    
    
    Predecessor
    
    
    Predecessor
    
    
    Successor
    
    
    Predecessor
    
    
    PredecessorRevenues
    
    $
    77,519
    
    
    $
    107,077
    
    
    $
    183,933
    
    
    $
    77,519
    
    
    $
    276,690
    
    
    $
    343,473Operating expenses:Interchange
    
    
    42,262
    
    
    
    57,051
    
    
    
    98,544
    
    
    
    42,262
    
    
    
    147,779
    
    
    
    189,541Other costs of services
    
    
    26,104
    
    
    
    33,733
    
    
    
    55,605
    
    
    
    26,104
    
    
    
    88,474
    
    
    
    106,206Selling, general and administrative
    
    
    1,728
    
    
    
    2,446
    
    
    
    3,303
    
    
    
    1,728
    
    
    
    6,736
    
    
    
    6,385Total operating expenses
    
    
    70,094
    
    
    
    93,230
    
    
    
    157,452
    
    
    
    70,094
    
    
    
    242,989
    
    
    
    302,132Income from operations
    
    
    7,425
    
    
    
    13,847
    
    
    
    26,481
    
    
    
    7,425
    
    
    
    33,701
    
    
    
    41,341Other expense:Interest expense, net
    
    
    7,237
    
    
    
    7,677
    
    
    
    11,449
    
    
    
    7,237
    
    
    
    15,578
    
    
    
    22,820Other (income) expense, net
    
    
    (4
    )
    
    
    18,834
    
    
    
    602
    
    
    
    (4
    )
    
    
    18,804
    
    
    
    372Income (loss) before income taxes
    
    
    192
    
    
    
    (12,664
    )
    
    
    14,430
    
    
    
    192
    
    
    
    (681
    )
    
    
    18,149Income tax provision (benefit)
    
    
    73
    
    
    
    (3,849
    )
    
    
    6,121
    
    
    
    73
    
    
    
    572
    
    
    
    7,619Net income (loss)
    
    $
    119
    
    
    $
    (8,815
    )
    
    $
    8,309
    
    
    $
    119
    
    
    $
    (1,253
    )
    
    $
    10,530
   4




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iPAYMENT, INC.
 
 CONSOLIDATED STATEMENTS of CASH FLOWS
   Period FromMay 24
    
    
    January 1
    
    
    Six Monthsthrough
    
    
    through
    
    
    EndedJune 30
    
    
    May 23
    
    
    June 30,2011
    
    
    2011
    
    
    2010Successor
    
    
    Predecessor
    
    
    PredecessorCash flows from operating activitiesNet income (loss)
    
    $
    119
    
    
    $
    (1,253
    )
    
    $
    10,530Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activitiesDepreciation and amortization
    
    
    5,921
    
    
    
    16,441
    
    
    
    20,775Noncash interest expense and other
    
    
    301
    
    
    
    7,791
    
    
    
    1,292Changes in assets and liabilities, excluding effects of redemption:Accounts receivable
    
    
    478
    
    
    
    48
    
    
    
    460Prepaid expenses and other current assets
    
    
    (2
    )
    
    
    (457
    )
    
    
    356Other assets
    
    
    (491
    )
    
    
    (3,972
    )
    
    
    (1,433
    )Accounts payable and income taxes payable
    
    
    (431
    )
    
    
    (10,632
    )
    
    
    (3,547
    )Accrued interest
    
    
    2,102
    
    
    
    2,959
    
    
    
    (151
    )Accrued liabilities and other
    
    
    (8,342
    )
    
    
    6,219
    
    
    
    (4,552
    )Net cash (used in) provided by operating activities
    
    
    (345
    )
    
    
    17,144
    
    
    
    23,730Cash flows from investing activitiesChange in restricted cash
    
    
    1
    
    
    
    
    
    
    
    12Expenditures for property and equipment
    
    
    (584
    )
    
    
    (1,571
    )
    
    
    (1,309
    )Acquisitions of merchant portfolios
    
    
    (3,600
    )
    
    
    
    
    
    
    Payments for prepaid residual expenses
    
    
    (371
    )
    
    
    (539
    )
    
    
    (4,484
    )Net cash used in investing activities
    
    
    (4,554
    )
    
    
    (2,110
    )
    
    
    (5,781
    )Cash flows from financing activitiesNet repayments on line of credit
    
    
    (7,500
    )
    
    
    (15,500
    )
    
    
    (10,450
    )Repayments of debt
    
    
    (3,500
    )
    
    
    (615,138
    )
    
    
    (7,500
    )Net dividends paid to parent company
    
    
    
    
    
    
    (135,539
    )
    
    
    Proceeds from issuance of long-term debt, net of discount
    
    
    
    
    
    
    768,125
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (11,000
    )
    
    
    1,948
    
    
    
    (17,950
    )Net (decrease) increase in cash and cash equivalents
    
    
    (15,899
    )
    
    
    16,982
    
    
    
    (1
    )Cash and cash equivalents, beginning of period
    
    
    16,983
    
    
    
    1
    
    
    
    2Cash and cash equivalents, end of period
    
    $
    1,084
    
    
    $
    16,983
    
    
    $
    1Supplemental disclosure of cash flow information:Cash paid during the period for income taxes
    
    $
    70
    
    
    $
    11,518
    
    
    $
    10,520Cash paid during the period for interest
    
    $
    4,847
    
    
    $
    11,596
    
    
    $
    21,679Non-cash increases in assets from redemption:Intangible assets
    
    $
    103,125
    
    
    $
    
    
    
    $
    Goodwill
    
    $
    166,759
    
    
    $
    
    
    
    $
    
   5




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Notes to Consolidated Financial Statements
 (1) Organization, Business and Basis of Presentation
 Organization
   Business
     6




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Basis of Presentation
  Use of Estimates
  Revenue and Cost Recognition
  Other Costs of Services
   7




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Financial Instruments
  
    
    Level 1: Observable quoted prices in active markets for identical assets and
liabilities.
    
    Level 2: Observable quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant assumptions are
observable in the market.
    
    Level 3: Model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of
assumptions that market participants would use in pricing the asset or liability.
Valuation techniques include use of option pricing models, discounted cash-flow models
and similar techniques.
  Derivative Financial Instruments
     8




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Amortization of Intangible Assets
    Common Stock
  (2) Equity Redemption, Refinancing and Change in Control
   9




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10




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(3) Acquisitions
     (4) Other Intangibles
 Payments for Prepaid Residual Expenses
  (5) Long-Term Debt
     11




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12




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(6) Segment Information and Geographical Information
  (7) Income Taxes
      (8) Comprehensive Income (Loss)
    13




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(9) Commitments and Contingencies
 Legal Proceedings
  (10) Recent Accounting Pronouncements
  (11) Related Party Transactions
    (12) Subsequent Events
   14




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15




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A).
 Forward-Looking Statements May Prove Inaccurate
  Executive Overview
    16




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Critical Accounting Policies
  Accounting for Goodwill and Intangible Assets.
      17




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Revenue and Cost Recognition.
 Reporting Revenue
Gross as a Principal Versus Net as an Agent.
    Reserve for Merchant Losses
 Income Taxes.
  18




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Seasonality
  Off-Balance Sheet Arrangements
   19




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Results of Operations:
 The results of operations for the three months ended June 30, 2011 and the six months ended June
30, 2011 are the combined results of the predecessor and successor entities to facilitate
comparison of operations. See Note 2 to the consolidated financial statements.
 Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 (in thousands, except
percentages)
 Three months ended
    
    
    % of Total
    
    
    Three months ended
    
    
    % of Total
    
    
    ChangeJune 30, 2011
    
    
    Revenue
    
    
    June 30, 2010
    
    
    Revenue
    
    
    Amount
    
    
    %Combined
    
    
    
    
    
    
    PredecessorRevenues
    
    $
    184,596
    
    
    
    100.0
    %
    
    $
    183,933
    
    
    
    100.0
    %
    
    $
    663
    
    
    
    0.36Operating ExpensesInterchange
    
    
    99,313
    
    
    
    53.8
    
    
    
    98,544
    
    
    
    53.6
    
    
    
    769
    
    
    
    0.78Other costs of services
    
    
    59,837
    
    
    
    32.4
    
    
    
    55,605
    
    
    
    30.2
    
    
    
    4,233
    
    
    
    7.61Selling, general and
administrative
    
    
    4,174
    
    
    
    2.3
    
    
    
    3,303
    
    
    
    1.8
    
    
    
    871
    
    
    
    26.37Total operating expenses
    
    
    163,324
    
    
    
    88.5
    
    
    
    157,452
    
    
    
    85.6
    
    
    
    5,873
    
    
    
    3.73Income from operations
    
    
    21,272
    
    
    
    11.5
    
    
    
    26,481
    
    
    
    14.4
    
    
    
    (5,210
    )
    
    
    (19.67
    )Other expensesInterest expense, net
    
    
    14,914
    
    
    
    8.1
    
    
    
    11,449
    
    
    
    6.2
    
    
    
    3,465
    
    
    
    30.26Other expenses, net
    
    
    18,830
    
    
    
    10.2
    
    
    
    602
    
    
    
    0.3
    
    
    
    18,227
    
    
    
    3,027.74Total other expense
    
    
    33,744
    
    
    
    18.3
    
    
    
    12,051
    
    
    
    6.6
    
    
    
    21,692
    
    
    
    180.00Income (loss) before income taxes
    
    
    (12,472
    )
    
    
    (6.8
    )
    
    
    14,430
    
    
    
    7.8
    
    
    
    (26,902
    )
    
    
    (186.43
    )Income tax (benefit) provision
    
    
    (3,776
    )
    
    
    (2.0
    )
    
    
    6,121
    
    
    
    3.3
    
    
    
    (9,897
    )
    
    
    (161.69
    )Net income (loss)
    
    $
    (8,696
    )
    
    
    (4.7
    )
    
    $
    8,309
    
    
    
    4.5
    
    
    $
    (17,005
    )
    
    
    (204.66
    )
 Revenues.
 Interchange Expenses
 Other Costs of Services.
 Selling, General and Administrative.
  20




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Other Expense.
 Income Tax
  21




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Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 (in thousands, except
percentages)
 Six months ended
    
    
    % of Total
    
    
    Six months ended
    
    
    % of Total
    
    
    ChangeJune 30, 2011
    
    
    Revenue
    
    
    June 30, 2010
    
    
    Revenue
    
    
    Amount
    
    
    %Combined
    
    
    
    
    
    
    PredecessorRevenues
    
    $
    354,209
    
    
    
    100.0
    %
    
    $
    343,473
    
    
    
    100.0
    %
    
    $
    10,736
    
    
    
    3.1Operating ExpensesInterchange
    
    
    190,041
    
    
    
    53.7
    
    
    
    189,541
    
    
    
    55.2
    
    
    
    500
    
    
    
    0.3Other costs of services
    
    
    114,578
    
    
    
    32.3
    
    
    
    106,206
    
    
    
    30.9
    
    
    
    8,372
    
    
    
    7.9Selling, general and
administrative
    
    
    8,464
    
    
    
    2.4
    
    
    
    6,385
    
    
    
    1.9
    
    
    
    2,079
    
    
    
    32.6Total operating expenses
    
    
    313,083
    
    
    
    88.4
    
    
    
    302,132
    
    
    
    88.0
    
    
    
    10,951
    
    
    
    3.6Income from operations
    
    
    41,126
    
    
    
    11.6
    
    
    
    41,341
    
    
    
    12.0
    
    
    
    (215
    )
    
    
    (0.5
    )Other expensesInterest expense, net
    
    
    22,815
    
    
    
    6.4
    
    
    
    22,820
    
    
    
    6.6
    
    
    
    (5
    )
    
    
    (0.0
    )Other expenses, net
    
    
    18,799
    
    
    
    5.3
    
    
    
    372
    
    
    
    0.1
    
    
    
    18,427
    
    
    
    4,953.5Total other expense
    
    
    41,614
    
    
    
    11.7
    
    
    
    23,192
    
    
    
    6.8
    
    
    
    18,422
    
    
    
    79.4Income (loss) before income taxes
    
    
    (488
    )
    
    
    (0.1
    )
    
    
    18,149
    
    
    
    5.3
    
    
    
    (18,637
    )
    
    
    (102.7
    )Income tax provision
    
    
    646
    
    
    
    0.2
    
    
    
    7,619
    
    
    
    2.2
    
    
    
    (6,973
    )
    
    
    (91.5
    )Net income (loss)
    
    $
    (1,134
    )
    
    
    (0.3
    )
    
    $
    10,530
    
    
    
    3.1
    
    
    $
    (11,664
    )
    
    
    (110.8
    )
 Revenues.
 Interchange Expenses
 Other Costs of Services.
 Selling, General and Administrative.
 Other Expense.
 Income Tax
  22




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Liquidity and Capital Resources
    Operating activities
   Investing activities
    23




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Financing activities
    Contractual Obligations
  Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    years(in thousands)New Senior Secured Credit Facilities
    
    $
    371,500
    
    
    $
    250
    
    
    $
    7,500
    
    
    $
    7,500
    
    
    $
    356,250New Senior Notes
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000Interest (1)
    
    
    408,035
    
    
    
    62,830
    
    
    
    125,660
    
    
    
    125,588
    
    
    
    93,957Operating lease obligations
    
    
    10,565
    
    
    
    1,352
    
    
    
    2,534
    
    
    
    2,344
    
    
    
    4,335Purchase obligations (2)(3)(4)
    
    
    2,630
    
    
    
    2,614
    
    
    
    16
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,192,730
    
    
    $
    67,046
    
    
    $
    135,710
    
    
    $
    135,432
    
    
    $
    854,542
 (1)
    
    Future interest obligations are calculated using current interest
rates on existing debt balances as of June 30, 2011, and assume no
principal reduction other than mandatory principal repayments in
accordance with the terms of the debt instruments as described in Note
5 to our consolidated financial statements.(2)
    
    Purchase obligations represent costs of contractually guaranteed
minimum processing volumes with certain of our third-party transaction
processors.(3)
    
    We are required to pay FDMS an annual processing fee through 2011
related to the FDMS Merchant Portfolio and the FDMS Bank Portfolio.
The minimum fee for 2011 will be at least 70% of such fee paid to FDMS
in 2010, or at least $3.8 million.(4)
    
    We have agreed to utilize FDMS to process at least 75% of our
consolidated transaction sales volume in any calendar year through
2011. The minimum commitments for such years are not calculable as of
June 30, 2011, and are excluded from this table.   24




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Effects of Inflation
  
 Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk.
     
 Item 4.
    
    Controls and Procedures.
 Evaluation of disclosure controls and procedures
  Changes in internal control over financial reporting
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PART II  OTHER INFORMATION
 Item 1. Legal Proceedings Bruns v. E-Commerce Exchange Inc.
(“ECX”), et al, Orange County Superior Court, State of California,
Case No. 00CC02450 (coordinated under the caption “TCPA
Cases,” Los Angeles County Superior Court, State of California, Case
No. JCCO 43500) (the “Bruns Lawsuit”) and related case Truck
Insurance Exchange v. E-Commerce Exchange, Inc. et al, Superior Court of Orange
County, State of California, Civil Action No. 30-2010- 00340649 (the
“TIC Declaratory Action”) 
    
The
Bruns Lawsuit and the related declaratory judgment action filed by Truck
Insurance Exchange (“TIE”) against E-Commerce Exchange, Inc.
(“ECX”) (the “TIC Declaratory Action”) were last
updated in our Quarterly Report for the first quarter ended March 30,
2011, filed on Form 10-Q with the Securities and Exchange Commission on
May 12, 2011. Since we last reported on this matter, supplemental briefing
in the California Court of Appeals was completed and on August 2, 2011,
oral argument was presented to the Appellate Court panel assigned to the case.
The Appellate Court has ninety days from August 2, 2011, which is until
October 31, 2011, to issue its opinion. We continue to believe that the claims
asserted against us in the Bruns Lawsuit are without merit, that the trial
court properly granted our Motion for Mandatory Dismissal and properly granted
judgment dismissing the lawsuit with prejudice. However, we cannot predict with
any certainty how the California Court of Appeals might rule, nor can we
predict with any certainty the likely outcome it may have on the lawsuit and
the claims asserted against ECX. We intend to continue to vigorously defend
ourselves in this matter. However, there can be no assurance that we will be
successful or prevail in our defense, therefore, there can be no assurance that
a failure to prevail will not have a material adverse effect on our business,
financial condition or results of operations. 
    
We
last reported in regards to the TIC Declaratory Action, that the parties were
engaged in certain settlement discussions, that the Court had continued the
hearing on TIE’s Motion for Summary Adjudication (the
“MSA”) to June 16, 2011 and the Trial Date to August 1,
2011, along with all related trial date matters. Since we last reported, the
parties have continued to engage in settlement discussions, the June 16,
2011 hearing on TIE’s MSA was taken off calendar, the August 1,
2011 Trial Date was vacated by the Court, and the Court set an order to show
cause for dismissal, for August 16, 2011. As of the date of this Quarterly Report
the parties are continuing to pursue such settlement possibility but have not
reached an understanding for terms of settlement. Although we intend to
vigorously defend ourselves and we believe that we have meritorious defenses to
assert to the claims, the ultimate outcome of the TIC Declaratory Action and
the associated potential liability cannot be predicted with certainty and there
can be no assurance that we will be successful or prevail in our defenses.
Should TIE prevail on its MSA, or later at trial, ECX will be responsible for
paying the costs and expenses incurred in defending the underlying Bruns
Lawsuit, and in the event we are not successful and judgment is awarded against
ECX in the underlying Bruns Lawsuit there will be no funds provided by
insurance for payment of any judgment that may be awarded against our
subsidiary, ECX, and therefore, there can be no assurance that a failure to
prevail will not have a material adverse effect on our business, financial
condition or results of operations.




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L. Green d/b/a Tisas Cakes v. Northern Leasing Systems, Inc., Online Data Corporation, and
iPayment, Inc., United States District Court, Eastern District of New York, Case No.
09CV05679-RJD-SMG.
   Vericomm v. iPayment, Inc., et al United States District Court, Central District of California,
Case No. 2:2011-cv-00608-MMM-AGR
   
 Item 1A.
    
    Risk Factors.
 Certain risks associated with our business are discussed in our Annual Report for the year ended
December 31, 2010, filed on Form 10-K with the SEC on March 21, 2011, under the heading Risk
Factors Relating to Our Business in Item 1A of that report. Except as set forth below, we do not
believe there have been any material changes in these risks during the six months ended June 30,
2011.
 Our business could be adversely affected by a deteriorating economic environment that causes our
merchants to experience adverse business conditions, as they may generate fewer transactions for us
to process or may become insolvent, thereby increasing our exposure to chargeback liabilities.
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Due to the refinancing of our debt that was completed in the second quarter of 2011, the risk
factors included under
the heading Risks Relating to Our Indebtedness in our Annual Report for the year ended December
31, 2010, filed on Form 10-K with the SEC on March 21, 2011 should be replaced with the following
risk factors.
 Our substantial debt, and any funds we may distribute to Holdings to service its debt, could
adversely affect our financial condition and prevent us from fulfilling our obligations to holders
of the New Senior Notes.
   
    
    increase our vulnerability to adverse general economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, thereby reducing the availability of our cash flow to fund
investments, capital expenditures, working capital and for other general corporate
purposes;
    
    limit our ability to make required payments under our debt agreements, including the
indenture governing the New Senior Notes, or the Indenture, and the credit agreement
governing our New Senior Secured Credit Facilities;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
    
    limit our ability to withstand competitive pressures;
    
    place us at a competitive disadvantage compared to our competitors that have
proportionately less debt than we have;
    
    create a perception that we may not continue to support and develop certain products or
services;
    
    increase our exposure to rising interest rates because a portion of our debt is at
variable interest rates; and
    
    limit our ability to borrow additional funds on terms that are satisfactory to us or at
all.
  We may incur more debt, which could exacerbate the risks associated with our substantial leverage.
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We may not be able to generate sufficient cash flow from operations to meet our debt service
obligations.
   Substantially all of our operations are conducted at the subsidiary level, which may materially
adversely affect our ability to service our debt.
  The Indenture, as well as other agreements governing our debt, include financial and other
covenants that impose restrictions on our financial and business operations.
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Payment of principal and interest on the New Senior Notes will be effectively subordinated to our
secured debt to the extent of the value of the assets securing that debt.
  The New Senior Notes and related guarantees will be structurally subordinated to debt of our
nonguarantor subsidiaries.
  We may be unable to repay or repurchase the New Senior Notes at maturity.
  Under certain circumstances, a court could cancel the New Senior Notes or void the related
guarantees under fraudulent conveyance laws.
  
    
    we or any guarantor were insolvent or rendered insolvent by reason of the issuance of
the New Senior Notes or the incurrence of the guarantee, as applicable;
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
    
    the issuance of the New Senior Notes or the incurrence of the guarantee left us or any
guarantor, as applicable, with an unreasonably small amount of capital to carry on our or
its business; or
 
    
    we or any guarantor intended to, or believed that we or such guarantor would, incur
debts beyond our or such guarantors ability to pay such debts as they mature.
  
    
    the sum of its debts, including contingent liabilities, were greater than the fair
saleable value of all of its assets; or
 
    
    if the present fair saleable value of its assets were less than the amount that would be
required to pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
 
    
    it could not pay its debts as they become due.
   Our unrestricted subsidiaries under the Indenture will not be subject to any of the covenants in
the Indenture and will not guarantee the New Senior Notes, and we may not be able to rely on the
cash flow or assets of those unrestricted subsidiaries to pay any of our debt, including the New
Senior Notes.
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We may not have the ability to raise the funds necessary to finance the change of control offer
required by the Indenture.
    The interests of our equity holders may not be aligned with the interests of the holders of the New
Senior Notes.
   Changes in the financial and credit markets or in our credit ratings could adversely affect the
market prices of the New Senior Notes and, if issued, the exchange notes.
  
    
    the prevailing interest rates being paid by companies similar to us;
 
    
    our ratings with major credit rating agencies; and
 
    
    the overall condition of the financial and credit markets.
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Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    (Removed and Reserved).
 
 Item 5.
    
    Other Information.
  
 Item 6.
    
    Exhibits.
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SIGNATURES
  iPayment, Inc.Date:      August 15, 2011
    By:
    /s/      Carl A. GrimstadCarl A. GrimstadChairman, Chief Executive Officer and President
(Principal Executive Officer)Date:      August 15, 2011
    By:
    /s/  Mark C. MonacoMark C. MonacoChief Financial Officer
(Principal Financial and Accounting Officer)  34




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EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Credit Agreement, dated as of May 6, 2011, among iPayment, Inc., iPayment Holdings, Inc., the
guarantors and lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent,
incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the SEC
on May 12, 2011.10.2
    
    
    Security Agreement, dated as of May 6, 2011, among iPayment, Inc., iPayment Holdings, Inc.,
the guarantors party thereto and JPMorgan Chase Bank N.A., as administrative agent,
incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed with the SEC
on May 12, 2011.10.3
    
    
    Pledge Agreement, dated as of May 6, 2011, among iPayment, Inc., iPayment Holdings, Inc., the
guarantors party thereto and JPMorgan Chase Bank N.A., as administrative agent, incorporated
by reference to Exhibit 10.3 of the Current Report on Form 8-K filed with the SEC on May 12,
2011.31.1
    
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a 
14(a) (as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002), filed herewith.31.2
    
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a 
14(a) (as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002), filed herewith.32.1
    
    
    Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a 
14(b) and 18 U.S.C. 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002), filed herewith.32.2
    
    
    Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a 
14(b) and 18 U.S.C. 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002), filed herewith.
 
  35