UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 PIPELINE DATA INC.   Form 10-KSBA    |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2004  |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from __________ to __________  Delaware
        
        13-3953764(State or other jurisdiction of
        
        (I.R.S. Employerincorporation or organization)
        
        Identification No.)  1515 Hancock Street, Suite 301, Hancock Plaza, Quincy, Massachusetts 02169-5243 (Address of principal executive offices) (Zip Code)  Issuers telephone number: (617) 405-2600 Securities registered under Section 12(g) of the Exchange Act: Common Stock $0.001 par value  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes No |_|  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| State issuers revenues for its most recent fiscal year. $24,097,575 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) As of August 11, 2006, there were 52,282,920 shares of the registrants common stock, par value $0.001 issued and outstanding. As of August 11, 2006, the market value of securities held by non-affiliates is $20,874,433 based on the average of the high and low bid prices as reported by Yahoo.com. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions. 
            DOCUMENTS INCORPORATED BY REFERENCE  If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (Securities Act). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).   Transitional Small Business Disclosure Format (Check one): Yes |_|; No |X|         PIPELINE DATA INC. DECEMBER 31, 2004 ANNUAL REPORT ON FORM 10-KSBA EXPLANATORY NOTE  This second amendment (the "Amendment") to the Annual Report on Form 10-KSB of Pipeline Data Inc. (the  "Company") for the fiscal year ended December 31, 2004, as filed with the  Securities  and Exchange  Commission  on March 31, 2005 (the "Original Form 10-KSB") and first amended on October 11, 2005 is required as correction of an error pursuant to Statement of Financial Accounting Standards No. 154,  Accounting Changes and Error Corrections. The error was discovered regarding the Companys treatment of certain intangible assets having an indefinite life. After review it was determined that the intangible assets had a life of seven years and that required amortization expenses to be recorded.  Amortization expense of $403,098 has been recorded and this also reduced the value and basis in the balance sheet accounts of the Merchant portfolio and the Retained deficit. Also amended in the
financial statement was additional language in the revenue recognition note.        PART I.   FINANCIAL INFORMATION  ITEM 1.  FINANCIAL STATEMENTS  The consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.  In the opinion of the Company, all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial position of the Company as of December 31, 2004, and the results of its operations and changes in its financial position from January 1, 2004, through December 31, 2004, have been made.       INDEX TO FINANCIAL STATEMENTS Part I  Financial Information  Pipeline Data Inc.PageItem I  Financial InformationBalance Sheets as of December 31, 2004 and 2003
        F-4Statements of Operations for the for the years ended December 31,
2004 and 2003
        F-5Statements of Stockholders Equity for the years ended December 31,
2004 and 2003
        F-6- F-7Statements of Cash Flows for the for the years ended December 31, 2004
and 2003
        F-8Notes to Financial Statements
        F-9 F-27            DRAKEFORD & DRAKEFORD, LLC CERTIFIED PUBLIC ACCOUNTANTS    REPORT OF INDEPENDENT ACCOUNTANTS  To the Shareholders  and  Directors  of Pipeline Data Inc.  We have audited the consolidated balance sheets of Pipeline Data, Inc.  as of December 31,2004, and 2003,and the related consolidated statements of operations, changes in stockholders equity (deficiency), and  cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above, amended as described in Note A, present fairly, in all material respects, the consolidated financial position of Pipeline Data, Inc., as of December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.  S/Drakeford & Drakeford, LLC -------------------------------------  March 29, 2005, except for Note A as to which the date is August 12, 2006.         PIPELINE DATA, INC.  CONSOLIDATED BALANCE SHEETS  December 31, 2004
        December 31, 2003ASSETSCURRENT ASSETSCash and cash equivalents
        $    693,852
        $    95,120Accounts receivable
        518,906
        294,957Interest receivable
        21,584
        5,394Inventory
        40,087
        21,910Advances and prepaid expenses
        79,644
        51,316Note receivable
        175,000
        85,000Total current assets
        1,529,073
        553,697PROPERTY AND EQUIPMENT, net
        347,092
        135,258OTHER ASSETSRestricted cash
        2,011,022
        0Investment- preferred stock
        0
        172,309Merchant portfolio
        4,819,556
        2,441,842Residual rights purchase
        665,456
        0Deferred and debt issuance costs
        567,168
        0Note receivable
        550,000
        0Deposits
        31,867
        850Goodwill
        2,324,762
        176,005Total other assets
        10,969,831
        2,791,006TOTAL ASSETS
        $  12,845,996
        $  3,479,961LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
        $    615,166
        $   429,743Taxes payable
        15,547
        30,942Lease obligations-equipment
        14,766
        4,839Loan payable-revolving line of credit
        43,987
        36,228Notes payable
        878,522
        12,500Total current liabilities
        1,567,988
        514,252LONG-TERM LIABILITIESOfficer loans payable
        0
        100,000Lease obligations-equipment
        62,717
        13,039Officers right of mandatory redemption (Note H)
        0
        2,500,000Laurus Master Fund convertible debt
        4,954,813
        0Notes payable-convertible 8%
        739,204
        726,023Total long-term liabilities
        5,756,734
        3,339,062STOCKHOLDERS EQUITY (DEFICIT)Preferred stock, authorized 5,000,000 shares $.001 par valueeach. At December 31, 2004 and  2003, there are 0 and 5,000shares outstanding, respectively
        0
        5Common stock authorized 95,000,000 shares, $.001each. At December 31, 2004 and December  31, 2003, thereare 26,102,022 and 13,146,250 shares outstanding respectively
        26,101
        13,146Deferred compensation
        34,126
        0Additional paid-in capital
        7,999,691
        1,451,821Retained Earnings (deficit)
        (2,538,644)
        (1,838,325)Total stockholders equity (deficit)
        5,521,274
        (373,353)TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
        $   12,845,996
        $    3,479,961==========
        ==========  The accompanying notes are an integral part of these statements.  F-4       PIPELINE DATA, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended  December 31, 2004
        December 31, 2003Revenue
        $    15,565,134
        $  10,246,955Interchange
        8,267,961
        5,736,108Cost of services sold
        4,000,070
        2,605,904Cost of goods sold
        175,939
        190,946Total cost of goods and services sold
        12,443,970
        8,532,958Gross profit
        3,121,164
        1,713,997Operating ExpensesSalaries and payroll cost
        1,928,121
        1,152,865Selling, general and administrative
        1,140,923
        773,123Depreciation and amortization
        449,226
        93,380Total operating Expenses
        3,518,270
        2,019,368Net (loss) from operations
        (397,106)
        (305,371)Other income and expensesInterest and other income
        64,266
        24,235Interest expense
        (367,479)
        (76,812)Total other income (expenses)
        (303,213)
        (52,577)Income (loss)
        $    (700,319)
        $    (357,948)=========
        ==========Basic  earnings (loss) per common share
        $          (.03)
        $           (.03)Weighted average shares outstanding, basic
        21,107,818
        12,902,851  The accompanying notes are an integral part of these statements.  F-5      PIPELINE DATA, INC.  CONSOLIDATED  STATEMENT OF STOCKHOLDERS EQUITY ( DEFICIT)  AdditionalCommon stock
        Paid-in
        Accumulated
        DeferredShares              Amount
        Capital
        Loss
        Compensation
        Total  Balance at December 31, 2002
        12,706,723
        $     12,707
        $1,324,896
        $  (1,480,377)
        $               0
        $    (142,769)Issuance of common stock for services
        160,979
        161
        29,839
        
        
        30,000Conversion of 8% convertible note
        43,686
        43
        15,191
        
        
        15,234Sale of common stock on August 8, 2003
        134,286
        134
        46,739
        
        
        46,873Issuance of common stock on December 31, 2003for services and debt
        100,576
        101
        35,156
        
        
        35,257Net loss for the year ended December  31, 2003
        _________
        _______
        ________
        (357,948)
        _________
        (357,948)Balance at December 31,2003
        13,146,250
        13,146
        1,451,821
        (1,838,325)
        0
        (373,353)Conversion of 3,000 shares of series A preferredconv. stock to 3,000,000 shares of common
        3,000,000
        3,000
        1,497,000
        
        
        1,500,000(5,000 shares of series A preferred conv.) Canceled
        
        
        5Issuance of common stock for services
        218,319
        218
        116,482
        
        
        116,700Issuance of common stock for residual rights
        32,952
        33
        29,967
        
        
        30,000Issuance of common stock for additional portfolio
        2,367,764
        2,368
        2,071,078
        
        
        2,073,446Issuance of common stock-employment agreements
        69,422
        69
        86,708
        
        
        86,777Exercise of warrants
        106,665
        107
        37,203
        
        
        37,310Exercise of stock options
        10,000
        10
        3,490
        
        
        3,500Conversion of 8% conv. note to common stock
        1,170,153
        1,170
        408,384
        
        
        409,554Issuance of common stock for interest
        256,497
        256
        123,237
        
        
        123,493Issuance of common stock due to earnings level
        5,674,000
        5,674
        2,124,366
        
        
        2,130,040Issuance of common stock for note payment
        50,000
        50
        49,950
        
        
        50,000Deferred stock compensation, net of unvestedstock bonus outstanding
        
        
        
        
        34,126
        34,126   F-6       Net loss for the year ended December  31, 2004
        ________
        _______
        _________
        (700,319)
        ________
        (700,319)Balance at December 31, 2004
        26,102,022
        $  26,101
        $ 7,999,691
        $ (2,538,644)
        $      34,126
        $  5,521,274========
        ======
        ========
        =========
        ========
        ========  The accompanying notes are an integral part of this statement.  F-7       PIPELINE DATA, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  For the year  ended
        For the year endedDecember 31, 2004
        December 31, 2003  OPERATING ACTIVITIESNet (loss)
        $  ( 700,319)
        $  (357,948)Adjustments for noncash and nonoperating items:Depreciation and amortization
        449,226
        93,380Common stock for services, other
        248,321
        65,257Conversion of 8% convertible notes
        5,800
        18,350Changes in operating assets and liabilities:Receivables
        (223,949)
        (41,250)Note receivable
        (640,000)
        (84,000)Accrued interest receivable
        (16,190)
        875Inventory
        (18,177)
        7,584Deposits
        (31,017)
        0Advances and prepaid expenses
        (28,328)
        (44,976)Officer loans payable
        (100,000)
        (11,552)Accounts payable and accrued expenses
        165,015
        63,165Accrued salaries
        3,258
        18,598Payroll taxes and withholdings
        17,150
        (5,930)Other loans and notes payable
        (4,741)
        (112,572)Lease obligations-equipment
        9,927
        4,839Taxes payable
        (15,395)
        (42,828)Cash  (used) by operating activities
        (879,419)
        (429,008)INVESTING ACTIVITIESCapital expenditures
        (257,962)
        (28,541)Merchant portfolio
        (574,582)
        0Residual rights purchase
        (665,456)
        0Debt issuance costs
        (567,168)
        0Change in restricted cash
        (2,011,022)
        0Proceeds from preferred stock
        172,309
        36,674Cash provided (used) by investing activities
        (3,903,881)
        8,133FINANCIAL ACTIVITIESProceeds from sale of stock
        172,309
        46,873Proceeds from lease financing
        60,988
        18,392Proceeds from convertible notes
        289,400
        383,120Proceeds from exercise of warrants
        37,310
        0Purchase of preferred stock from officer
        (1,000,000)
        0Lease obligation payments
        (11,310)
        (5,353)Proceeds from Laurus convertible debt
        6,000,000
        0Loan payments
        (166,665)
        (12,500)Cash provided by financing activities
        5,382,032
        430,532NET  INCREASE  IN CASH
        598,732
        9,657CASH BALANCE BEGINNING OF PERIOD
        95,120
        85,463CASH BALANCE END OF PERIOD
        $   693,852
        $   95,120NON CASH ACTIVITIES:Interest
        $    367,479
        $     54,821Corporate income taxes
        $               0
        $              0 The accompanying notes are an integral part of these statements  F-8        PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2004  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  1.
        Nature of Operations/ Basis of Presentation  Nature of Operations Pipeline Data, Inc. (the Company), was incorporated in June 1997 in the state of Delaware. On March 19, 2002, the Company acquired all of the stock of SecurePay.com, Inc., (SecurePay) and on August 26, 2002, acquired all of the stock of Northern Merchant Services, Inc.(Northern Merchants). The Company is a custom credit card transaction processor that serves as a intermediary between the customer and the financial networks for the acceptance of credit card payments by merchants.  Basis of Presentation The accompanying consolidated financial statements of the parent holding company,  Pipeline Data, Inc., and its  majority-controlled subsidiaries,  SecurePay.com, Inc. and Northern Merchant Services, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America.   The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  All significant  intercompany accounts and transactions have been eliminated.  Change in Accounting Principle  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS ( INTANGIBLE ASSETS AND AMORTIZATION EXPENSE )  The accompanying audited financial statements of Pipeline Data Inc. have been amended and restated for the years ended December 31, 2003, 2004 and 2005. Subsequent to the balance sheet date, the Company treated certain intangible assets with having an indefinite life and now have amended and restated the years that were affected by establishing a definite life of the intangible assets of seven years. The basis of the intangible assets and amortization expense were affected by this accounting principle error.   F-9       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2004  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  1. Nature of Operations/ Basis of Presentation (continued)  Change in Accounting Principle (continued)  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS ( INTANGIBLE ASSETS AND AMORTIZATION EXPENSE )  The following table illustrates the correction of error as shown on the face of the Companys statement of stockholders equity and the effect it has on operations and loss per share.  2004
        2003Retained deficit, at beginning of year,
as adjusted/previously reported
        $  1,838,325
        $   1,480,377Prior-period adjustment-error in life of
intangible assets-amortization expense
        403,098
        58,158Retained deficit, at beginning of year,
as restated
        $  2,241,423
        $   1,538,535Net loss
        297,221
        299,790Retained deficit, at end of year, restated
        $  2,538,644
        $1,838,325Effect of loss per share
        $            .02
        $           .01   For the year ended December 31, 2005, the change only affects the carryforward balance sheet accounts of the Merchant portfolio and the beginning retained deficit balance. The statement of operations and loss per share were not affected.  This amendment and restatement is required as correction of an error pursuant to Statement of Financial Accounting Standards No. 154,  Accounting Changes and Error Corrections. The intangibles were valued as follows:   F-10       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2004  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  1. Nature of Operations/ Basis of Presentation (continued)  Change in Accounting Principle (continued)   2004
        2003Merchant portfolio, residual rights
and other intangibles, as previously reported
        $ 5,222,654
        $ 2,500,000Less: amortization expense
        403,098
        58,158Merchant portfolio, residual rights
and other intangibles, as amended
        $ 4,819,556
        $ 2,411,842  2.
        Cash Equivalents  Investments having an original maturity of 90 days or less that are readily convertible into cash have been included in, and are a significant portion of, the cash and cash equivalents balances.  Restricted Cash:  Restricted cash represents funds held-on-deposit with Laurus Master Fund, Ltd. (as defined in the Restricted Account Agreement), per closing and delivery agreement as of August 31, 2004. (Note-J).  3.
        Inventories  Inventories consist of technical parts and supplies valued at the lower of cost or market.  F-11       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2004  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  4.
        Property and Equipment  Property and equipment are stated at cost and are depreciated principally on methods and at rates designed to amortize their costs over their estimated useful lives.  The estimated service lives of property and equipment are principally as follows:  Furniture and fixtures
        5- 7 yearsComputer equipment
        3- 7 yearsComputer software
        2- 7 years   Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.  In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. The Company does not believe the adoption of these standards will have a material impact on the Companys financial statements.  5.
        Accounts and Notes Receivable  The Company uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $18,572 and $9,729 at December 31, 2004 and 2003, respectively. The Company has three demand notes totaling $175,000 at the simple rate of 10% per annum and two secured promissory notes in the amount of $550,000 together with interest at the rate equal to 6% per annum due on or before July 7, 2007 and May 7, 2008. The $500,000 note is secured by 1,000,000 shares, subject to calls for additional shares in the event that the average closing bid price per share in any 30 day period decreases below $.65 per share.   F-12        PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004   NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)   6.
        Revenue and Cost Recognition -Restated  The Company and subsidiaries derive revenues primarily from the electronic processing of credit, charge and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services based on a percentage of the dollar amount of each transaction and in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee transaction and may also be charged miscellaneous fees, including fees for handling charge backs, monthly minimums, equipment rentals, sales or leasing and other miscellaneous services. Revenues are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations (MasterCard and Visa) under revenue sharing agreements pursuant to which such parties receive payments based primarily on processing volume for particular
groups of merchants. Included in cost of goods and services sold are the expenses covering interchange and bank processing directly attributable to the furnishing of transaction processing and other services to the Companys merchant customers and are recognized simultaneously with the recognition of revenue.  We follow the requirements of EITF 99-19,Reporting Revenue Gross as a Principal Versus Netas an Agent,in determining our revenue reporting. Generally, we report revenues at the time of sale on a gross basis where we are the primary obligor in the arrangement, have latitude in establishing the price of the services, change the product and perform part of the service, have discretion in supplier selection, have latitude in determining the product and service specifications to meet our clients needs, and assume credit risk.  7.
        Advertising Cost  Advertising cost are expensed as incurred. Advertising expense totaled $ 34,773 for 2004 and $ 19,056 for 2003.   F-13       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004    NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)    8.
        Recent Accounting Pronouncements  New accounting statements issued, and adopted by the Company, include the following:  In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 14 "Business Combinations" ("SFAS 141"), which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. As a result, use of the pooling-of-interests method is prohibited for business combinations initiated thereafter. SFAS 141 also establishes criteria for the separate recognition of intangible assets acquired in a business combination. The adoption of SFAS 141 did not have a material impact on the Company's results of operations, financial position or cash flows.  In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other intangible assets having indefinite lives no longer be amortized to earnings, but instead be subject to periodic testing for impairment. Intangible assets determined to have definitive lives will continue to be amortized over their useful lives. This Statement is effective for the Company's 2003 fiscal year. However, goodwill and intangible assets acquired after June 30, 2001 are subject immediately to the non-amortization and amortization provisions of this Statement. The total amount assigned to intangible assets that are not subject to amortization during the year 2004 was $3,446,246 accounted for on the balance sheet as Merchant portfolio of $2,780,812 and Residual rights of $665,456. The total carrying amount of intangibles not subject to amortization is $5,946,268 in the following asset categories:  December 31, 2004Merchant portfolio
        $5,280,812Residual rights purchase
        665,456Total
        $5,946,268========   .  F-14       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  8.  Recent Accounting Pronouncements (continued)   In October 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which excludes from the definition of long-lived assets goodwill and other intangibles that are not amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS 144 also expands the reporting of discontinued operations to include components of an entity that have been or will be disposed of rather than limiting such discontinuance to a segment of a business. This Statement is effective for the Company's 2003 fiscal year, and early adoption is permitted. The adoption of SFAS 144 did not have a material impact on the Company's results of operations, financial position or cash flows  In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  Among other provisions, this Statement eliminates the requirement that gains and losses from extinguishment of debt be classified as extraordinary items. The Company will adopt SFAS 145 in fiscal 2003, and has determined it will not impact the Company's financial position, results of operations or cash flows.  In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than when a company commits to an exit plan as was previously required. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt SFAS 146 in fiscal 2003, and has determined it will not impact the Company's financial position, results of operations or cash flows.  In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." This statement amends SFAS No. 123, transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The Company accounts for stock-based employee compensation arrangements  in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS 123 and SFAS 148.  F-15       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004   NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  8.  Recent Accounting Pronouncements (continued)   In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others," was issued. This interpretation requires the initial recognition and initial measurement, on a prospective basis only, to guarantees issued or modified after December 31, 2002. Additionally, certain disclosures requirements are effective for financial statements ending after December 15, 2002. There were no disclosures required of the Company in the fiscal 2002 and 2003 financial statements.  In January 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest Entities,"     ("VIE's") was issued. This interpretation clarifies situations in which entities shall be subject to consolidation. This interpretation is effective for all VIE's created after January 31, 2003. The Company does not believe that the adoption of this interpretation will have any impact on its financial statements.    NOTE B--EARNINGS PER SHARE  Basic net earnings (loss)  per  common  share is  computed  by  dividing  the net earnings  (loss) by the weighted average number of common shares outstanding  during the period.  Diluted net earnings (loss) per common share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.      F-16       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE C - INCOME TAXES  The Company  provides for the tax effects of  transactions  reported in the financial statements. The provision if any, consists of taxes currently due plus deferred taxes related primarily to differences  between the basis of assets and liabilities for financial and income tax reporting.  The deferred tax assets and liabilities,  if any,  represent  the future tax  return  consequences  of those differences,  which will  either be taxable  or  deductible  when the assets and liabilities  are recovered or settled.  As of December 31, 2004, the Company had no material current tax liability, deferred tax assets, or liabilities to impact on the Company's  financial  position because the deferred tax asset related to the Company's net  operating  loss carry forward and was fully offset by a valuation allowance.  At December 31, 2004,  the Company has net operating  loss carry  forwards for income tax purposes of $2,024,920.  These carry  forward  losses are  available to offset future taxable income, if any, and expire in the year 2012.  The components of the net deferred tax assets are as follows:  Deferred tax assets:Net operating loss carry forward
        $   604,816Current year loss
        101,055Deferred revenue
        367Deferred stock compensation
        18,819Total deferred tax assets
        725,057Deferred tax liabilities:Difference between book and taxdepreciation and amortization
        94,403Capital loss
        10,747Total deferred tax liabilities
        105,150Net deferred tax asset beforevaluation allowance
        $     619,907Valuation allowance
        ( 619,907)Net deferred tax asset
        $             -0-=========   The Company  recognized  no income tax benefit from the loss  generated for the period  from the date of  inception  to  December 31, 2004.  SFAS No. 109 requires  that a valuation  allowance  be provided if it is more likely than not that some  portion or all of a  deferred  tax asset  will not be  realized.  The Company's  ability to realize  benefit of its  deferred tax asset will depend on the  generation  of  future  taxable  income.  Because  the  Company  has yet to recognize  significant  revenue  from  the  sale of its  products,  the  Company believes that a full valuation allowance should be provided.  F-17       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE D - COMMITMENTS AND CONTINGENCIES  Lease agreements  The offices of the Company's  subsidiary,  SecurePay,  Inc. are located at 1599 Washington Street,  Braintree,  Massachusetts  at a monthly rental of $1,410. The term of this lease shall be for three years with self-renewing unless terminated in writing no later than one hundred and eighty (180) days before each expiration. Each lease year shall be subject to a rent increase not to exceed the most current consumer price index increase from the prior year. Each extension shall be for the same terms as the original lease.  The operations center for  SecurePay is located at 13339 North  Central  Expressway  Suite 103, Dallas,  Texas. This is a four year lease that commenced on June 2002. An initial deposit of $850 and monthly rental of $768 is required on the leased square foot area of 865 square feet. As of September 22, 2004, the Company expanded its operations center to One Point
Royal, 4400 Northpoint Parkway, Alpharetta, Georgia and signed a lease with Highwoods DLF 98/29,LP. This is a sixty-two month lease with annual rent from $38,070 to $64,273. Total base rent for the sixty-two months is $304,699.04.  Beginning January 1, 2005 Pipeline Data, Inc. will pay the sum of $3,400 per month in rent and have the occupancy rites to the property at 166 West 72nd  street. This sub-lease will extend for a period of six months and terminate June 30, 2005. In taking possession of the rental property January 1, 2005, Pipeline Data, Inc. will bear the full responsibility for all utilities and maintenance of the property.  Leases-Related Party: The offices of Northern Merchant Services, Inc. is located in Brasher Falls, New York, and has an annual lease with Kevin and Nancy Weller, officers of the Company. The lease commenced on September 2002, with monthly rental of $1,000. The lease can be renewed annually with the option of the landlord not to renew, with just cause.  Capital Equipment Lease: On January 28, 2003, the Company entered into a capital equipment lease with Hewlett Packard Financial Services Company, Murray Hill, New Jersey.  The initial term of the lease is for a period of 48 months with a base lease amount of $661.77 per month and an advance lease payment of $1,412.87. The lease has an equipment purchase option on  all or none and as-is, where-is basis, without any representations or warranties, including no warranties of merchantability or fitness for a particular purpose. The equipment consist of five servers ($17,025), ten network products ($1,986.60), and four units of software ($3,559.50). The Company has an option to renew the Lease at the then Fair Market Rental Value and also has an option to return the equipment on or before the last day of the Lease term or purchase the equipment for $1.00. On July 1, 2004, the Company entered into two capital leases
with American Express Business Finance for software installation services and equipment and MAS200 software. Both leases are for a term of sixty months with a buyout option of $1.00. Monthly payments on the equipment and software are $908.03 and $256.60 for the software installation services. On September 16, 2004, the Company entered into a capital lease with Ikon Financial Services for fax, copier and printer equipment. This lease is for a term of sixty months with a buyout option of $1.00 and monthly payments of $520.16.  F-18       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004    NOTE E - STOCK OPTION ISSUANCES  In February  2001, the company  instituted the 2001-02 Non Statutory  Stock Incentive  Plan in order to award  stock  options,  restricted  stock  and stock bonuses to selected  individuals  who make  contributions  to the success of our company. This plan was extended to the year 2004.  During the year ended December 31, 2004, the Companys Board of Directors approved the grant of 430,478 stock options also to key employees and independent consultants with a weighted average exercise price of $0.95.  Of the 430,478 options awarded to employees during the year, vest one-third each year beginning January 1, 2005. The options awarded to the Directors at December 31, 2004, (94,737 options), vest on January 1, 2005. The independent consultants options of 30,000 shares, vest one-third each year beginning January 1, 2005.  The above options shall have piggyback registration rights and shall be included in any S-8 registration statement.  As of December 31, 2004,  no options have been  exercised  and the Company has reserved an aggregate of 2,968,115  shares of common stock pending the exercise of the options. In addition, the Company has contractual obligations to issue 1,500,000 and 1,000,000 stock options pursuant to employment agreements.  Stock option activity is summarized as follows:  Options outstanding at beginning of year
        2,547,637Forfeited
        -0-Exercised
        (10,000)Issued
        430,478Options outstanding at end of the period
        2,968,115=======   F-19       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE E - STOCK OPTION ISSUANCES (continued)  In December 2004, the FASB issued SFAS No. 123 (Revised 2004),Share-Based Payment(SFAS No. 123R). This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options or showing proforma disclosure only. This standard is effective as of July 2005 and will apply to all awards granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior awards. SFAS No. 123R permits public companies to adopt its requirements using one of three methods: the modified prospective method, the modified retrospective method to January 1, 2005, or the modified retrospective method to all prior years for which SFAS No. 123 was effective. We have not yet determined which adoption method to
utilize. Further, we have not yet decided whether we will adopt the provisions of this standard on July 1, 2005, as required, or earlier, as allowed.  The Company  applies APB No. 25 in accounting for its employee stock option plans  and,  accordingly,  recognizes  employee  compensation  expense  for  the difference  between  the fair  value of the  underlying  common  shares  and the exercise  price of the option at the date of grant.  The effect of applying SFAS No. 123 on pro forma net loss as stated above is not necessarily  representative of the effects on reported  net loss for future years due to, among other things (1) the vesting period of the stock options and (2) the fair value of additional stock options in future years (3) the exercise price was equal to or higher than the market price as of the date of the grant.  Our accounting policy for the issuance of equity instruments in exchange for goods or services received from other than employees are accounted for based on the fair value of the consideration received or the equity instrument issued, whichever is more reliably measurable.  NOTE F  RELATED PARTY TRANSACTIONS  The Companys subsidiary, Northern Merchant Services, Inc., leases office space from Kevin and Nancy Weller. (see Note D) See Note I for details of repurchase of 5,000 shares of the Companys preferred stock from Kevin and Nancy Weller.  When the acquisitions of SecurePay and Northern Merchant Services, Inc. were purchased, certain earn-in capabilities based upon revenue milestones achieved were recorded as a contingency based on SFAS No.141-Business Combinations. Since the future earnings was achieved during the end of this quarter, the consideration paid in stock (5,800,000 shares of common stock), was recorded as an additional cost to the Company. The Northern Merchant Services, Inc. acquisition amounted to an additional 2,000,000 shares of common stock at a price of $.22 per share and the acquisition of SecurePay.com, Inc. amounted to 3,800,000 shares of common stock at a price of $.46 per share. An additional 4,800,000 shares of common stock are being held in escrow for the earn-in capabilities with the deadline for meeting these revenue targets terminating on March 31, 2005 for SecurePay and August 31, 2005 for Northern Merchant Services, Inc. (see note for accounting for goodwill)  Chasm Holding, Inc., a related party, was paid $244,554 during the year 2004 for management services.  F-20        PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004   NOTE G  SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS  Borrowings under Revolving Line of Credit  The Companys revolving line of credit with a major credit card company amounted to $43,987 and $36,228 at December 31, 2004 and December 31, 2003, respectively.  Details of Short-Term Debt:  December 31, 2004
        2003Ladco Financial Group
        $              0
        $      12,500Laurus Master Fund
        $    878,522
        $              0Details of Long-Term Debt:Laurus Master Fund
        $ 4,954,813
        $               0Officers Loan Payable
        $               0
        $    100,0008% Convertible notes
        $    739,204
        $    726,023Officer preferred stock subjectto mandatory redemption (see Note I)
        $              0
        $  2,500,000   F-21       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE G  SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (continued)  Conversion of Convertible Note:  The Holder shall have the right, at its option, at any time during the term of the Convertible Note, to convert the principal amount of the Convertible Note, or any portion of such principal amount, into that number of fully paid and nonassessible shares of Common Stock (as such shares shall be constituted) determined pursuant to the terms of the agreement. The term Conversion Amount means, with respect to any conversion on of the Convertible Note, the sum of (1) the principal amount of the Convertible Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the determined interest rate.  Capital Lease Obligations:  See Note D-Lease Agreements for lease obligation with Hewlett Packard Financial Services Company, Murray Hill, New Jersey, American Express Business Finance and Ikon Financial Services.  As of December 31, 2004, the current portion amounted to $14,766, and the long-term portion amounted to $62,717.  NOTE H  ADOPTION OF STATEMENT OF FINANCIAL STANDARDS (SFAS) NO. 150  In May of 2003 the Financial Accounting Standards Board (FASB) issued SFAS No. 150- Accounting for certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability or an asset. The effective date of SFAS No. 150 is the beginning of the first interim period beginning after June 15, 2003. Also, restatement of financial statements of prior periods presented is not permitted.  By adopting SFAS No. 150, the Company recognizes the requirement to repurchase 5000 shares of Series A Preferred Convertible Stock that were  issued to Kevin Weller and Nancy Smith-Weller, officers of the Company, that was part of the acquisition of Northern Merchant Services, Inc.(NMSI). This preferred convertible stock was issued in conjunction with the acquisition agreement of NMSI from the Wellers. Under the terms of the agreement, the stock must be repurchased by August 26, 2005 for a sum of $2,500,000. The Wellers have the option of refusing this offer. They may convert the Preferred shares at any time, in whole or in part, to common stock at a rate of $0.50 per common share, reducing the repurchase commitment on a pro-rata basis.  F-22       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE H  ADOPTION OF STATEMENT OF FINANCIAL STANDARDS (SFAS) NO. 150 (continued)  INTANGIBLE ASSET-MERCHANT PORTFOLIO  In adopting the new (SFAS) No. 150, the Company hired an independent third-party appraiser to render a reasonable value of the acquisition and carrying value of the purchase price and transaction costs associated with the business acquisitions of NMSI. Management will periodically evaluate whether certain circumstances may affect the estimated useful lives or the recoverability of the unamortized balance of the intangible asset using both objective and subjective factors. Objective factors include managements best estimates of projected future earnings and cash flows and analysis of recent sales and earnings trends. Subjective factors include competitive analysis and the Companys strategic focus.  NOTE I  DEBT/FINANCING  Debt/Financing:  On February 27, 2004, the Company entered into a Secured Convertible Term Note (the Loan Agreement) with Laurus Master Fund, LTD., c/o Ironshore Corporate Services Ltd., Grand Cayman, Cayman Islands. The Loan Agreement provides for borrowings of  two million dollars, together with any accrued and unpaid interest, to be paid on February 27, 2007, if not sooner paid. Interest payable on this Note shall accrue at a rate per annum equal to the prime rate published in The Wall Street Journal from time to time, plus two percent (2%). Amortizing payments of the aggregate principal amount outstanding under this Loan Agreement at any time shall begin on September 1, 2004 and shall recur on the first calendar day of each succeeding month thereafter until the maturity date. Monthly payments shall be $33,333.00 and will be increased to $41,667.00 from April 1, 2005 through March 1, 2007.  Laurus Master Fund also agreed to make available to the Company, subject to the terms and conditions set forth in the agreement, an additional aggregate principal amount of up to $1,000,000 in increments of $500,000. This option was exercised on June 16, 2004, in the amount of $1,000,000.  On August 31, 2004, the Company entered into another Secured Convertible Term Note with Laurus Master Fund, LTD. in the amount of three million dollars which is convertible into shares of the Companys common stock, $.001 par value per share at an initial fixed conversion price of $1.00 per share of common stock.  Under Article II of the Loan Agreement, there is a conversion repayment option. Subject to the terms of the Loan Agreement, Laurus Master Fund, LTD., shall have the sole option to determine whether to elect to accept payment of the monthly amount on each repayment date either in cash or in shares of Common Stock, or a combination of both. This election notice has to be delivered to the Company in writing by the fifth business day prior to each amortization date.  F-23       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE I  DEBT/FINANCING (continued)  Also, on February 27, 2004, the Company entered into a Common Stock Purchase Warrant with Laurus Master Fund, LTD., that entitles Laurus Master Fund to purchase from the Company, from and after the Issue Date  and at any time or from time to time before February 27, 2011, up to 500,000 fully paid and nonassessable shares of common stock, $.001 par value per share, at the applicable exercise price per share as follows:  (i)
        a price of $1.25 125% of the Fixed Conversion Price for the first 166,667 shares acquired, (ii)
        a price of $1.50 125% of the Fixed Conversion Price for the next 166,667 shares acquired, (iii)
        a price of $1.75 125% of the Fixed Conversion Price for any additional shares acquired.  All stock conversion prices and exercise prices are subject to adjustment for stock splits, stock dividends or similar events. In conjunction with the term loan, Laurus Capital Management, LLC  was paid a fee of $105,000.  Of the $2,000,000 from Laurus Master Fund, $1,000,000 was used to repurchase 2,000 shares of Pipeline Data, Inc.s preferred stock from Kevin and Nancy  Weller.  On August 31, 2004, the Company entered into a Common Stock Purchase Warrant with Laurus Master Fund, LTD., that entitles Laurus Master Fund to purchase from the Company, from and after the Issue Date, and at any time or from time to time before August 31, 2011, up to 600,000 fully paid and nonassessable shares of common stock, $.001 par value per share, at the applicable exercise price per share as follows:  (i)
        a price of $1.25 125% of the Fixed Conversion Price for the first 200,000 shares acquired, (ii)
        a price of $1.50 125% of the Fixed Conversion Price for the next 200,000 shares acquired, (iii)
        a price of $1.75 125% of the Fixed Conversion Price for any additional shares acquired.  All stock conversion prices and exercise prices are subject to adjustment for stock splits, stock dividends or similar events. In conjunction with the term loan, Laurus Capital Management, LLC was paid a fee of $125,000.   NOTE J  MERCHANT PORTFOLIO AND RESIDUAL RIGHTS PURCHASE   Asset Purchase Agreement   F-24       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004   NOTE J  MERCHANT PORTFOLIO AND RESIDUAL RIGHTS PURCHASE (continued)  On March 15, 2004, Northern Merchant Services, Inc. (a subsidiary of the Company) entered into an Asset Purchase Agreement with Leslie E. McElhiney, Michael Hornung, and Patricia Thornton, for Residuals Rights which relate to certain merchant accounts. As consideration for the assets sold, Northern Merchants shall pay an aggregate purchase price of $131,363.00 plus 21,968 shares of restricted Pipeline Data, Inc. common stock to McElhiney; $42,093.33 plus 0 shares to Hornung; and, $94,624.68 plus 10,984 shares of restricted Pipeline Data, Inc. common stock to Thornton.  On May  18,  2004,  we entered into an asset purchase agreement to purchase the Residual Rights to 1801 merchant accounts representing $68,911,363 in annual consumer charge volume on a historical basis from Millennium  Merchant  Services,  Inc.  and  Kent Stiritz in a series of transactions. A total of 4.2 million shares of our common stock have been set aside for the purchase of the Residual  Rights  (subject to adjustments in the event of a reverse stock split or other stock recombination and with a price adjustment right over a three month look back period).  To date, 2,246,764 shares of our common stock have been issued to Mr. Stiritz.  On May 25, 2004, our subsidiary  Northern Merchant  Services,  Inc. purchased from United  Processing Corporation  Ltd.  its Residual Rights under two merchant solicitation agreements representing an aggregate of  2,300 merchant accounts and 36,174,287 annual consumer charge volume on a historical basis. The aggregate  purchase  price was $312,000 and 21,000 shares of our common stock.  The two merchant agreements under which Residual Rights were  transferred  are: (i) an Agreement  dated April 30, 1996 with EFS  NATIONAL BANK and (ii) an Agreement dated April 2, 1998 with NATIONAL PAYMENT SYSTEMS, INC., a New York Corporation, d/b/a Card Payment Systems.  On October 1, 2004 our subsidiary, Pipeline Data Portfolio Acquisitions, Inc purchased the Residual Rights to an aggregate of 511 merchant accounts representing $10,496,180 in annual consumer change volume, on a historical basis, from Diversified Debit and Credit, Inc for an aggregate purchase price of $119,372.  On December 1, 2004, our subsidiary Pipeline Data Portfolio Acquisitions, Inc purchased the Residual Rights from an aggregate of 238 merchant accounts representing $4,021,176 in annual consumer charge volume on a historical basis from Merchant Select Services, Inc.  The purchase price was $56,320.  F-25       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004  NOTE K- ACCOUNTING FOR GOODWILL  Cost in excess of net assets of businesses acquired (goodwill) represents the unamortized excess of the cost of acquiring a business over the fair values of the net assets received at the date of acquisition.  Amount Initially Assigned to Goodwill in Business Combination Subsequently Revised:  During the year 2004, there was the completion of earn-ins from two acquisitions made in 2002 which led to the recognition of goodwill as follows: (see Note-F)  Goodwill was recognized related to earn-ins payable to the former stockholders of Northern Merchant Services, Inc. for reaching goals related to the original sale of their company to Pipeline Data, Inc. in 2002. Goodwill in the amount of $440,000 was recognized. The full amount of goodwill is expected to be deductible for tax purposes. It will be amortized on a straight line basis over a fifteen year life.  Additional goodwill recognized related to earn-ins of the former SecurePay.com, Inc. stockholders when SecurePay.com, Inc. was acquired by Pipeline Data, Inc. in 2002. Goodwill in the amount of $1,708,757 was recognized. The full amount of goodwill is expected to be deductible for tax purposes. It will be amortized on a straight line basis  over a fifteen year life.  The aggregate amount of goodwill acquired during the year 2004 was $2,148,757. No impairment loss was recognized.   NOTE L  SUBSEQUENT EVENTS  As of March 11, 2005, the Company and Laurus Master Fund, LTD., amended the terms of (i) that certain Registration Rights Agreement, dated as of June 16, 2004, and (ii) that certain Registration Rights Agreement, dated as of August 31, 2004, have agreed to make certain changes to each Registration Rights Agreement as set forth as follows:  Laurus has agreed to cancel that certain Common Stock Purchase warrant issued by Company dated August 31, 2004, and the Company will issue a replacement  warrant for 600,000 shares of the Common Stock of the Company exercisable at $1.40 per share and the Company shall issue an additional common stock purchase warrant to Laurus to purchase up to 100,000 shares of the Common Stock of the Company.  On March 16, 2005, Pipeline Data, Inc. announced that it had signed a letter of intent to acquire Florida-based Charge.com. Under the terms of the agreement, Pipeline Data, Inc. will purchase Charge.com for $7.5 million in cash, $3.5 million in the form of a promissory note, 5 million shares of Pipeline Data,  F-26       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2004   NOTE L  SUBSEQUENT EVENTS (continued)  Inc.s common stock and an additional 1 million shares of Pipeline Data, Inc.s common stock based on Charge.com fulfilling certain performance requirements.  During 2005 the following merchant portfolios were acquired using funds from the Laurus financing: On February 21, 2005, our subsidiary Pipeline Data Portfolio Acquisitions, Inc. purchased the Residual Rights from an aggregate 830 merchant accounts from CPS of new York, Inc. for the purchase price of $1,090,011 and on March 1, 2005, purchased 775 merchant accounts from Advanced Internet Services, LLC. for an aggregate purchase price of $589,589 plus 64,010 shares of our restricted common stock.   F-27       Item 13. Exhibits.  (a) The following exhibits are included as part of this report:   Exhibit No
        Description23.2
        Consent of Drakeford & Drakeford, Certified Public Accountant 31.1
        Rule 13 (a)-14(a)/15(d)-14(a) Certifications 31.2
        Rule 13 (a)-14(a)/15(d)-14(a) Certifications 32
        Section 1350 Certifications       SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIPELINE DATA INC. (Registrant)  By:
        /s/ MacAllister Smith
        
        By:
        /s/ Donald GruneisenName:
        MacAllister Smith
        
        Name:
        Donald GruneisenTitle:
        Chief Executive Officer and President
        
        Title:
        Chief Financial Officer(Principal Financial and Accounting Officer)  Date: August 15, 2006  In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement was signed by the following persons in the capacities and on the dates stated.  /s/ Jack Rubinstein
        Chairman of the Board,Jack Rubinstein
        August 15, 2006/s/ MacAllister Smith
        Chief Executive Officer,MacAllister Smith
        President, DirectorAugust 15, 2006/s/ Kevin Weller
        DirectorKevin Weller
        August 15, 2006       Exhibit 31.1 CERTIFICATIONS I, MacAllister Smith, certify that: 1.
        I have reviewed this annual report on Form 10-KSBA of Pipeline Data, Inc; 2.
        Based on my knowledge,  this  annual report does not contain any untrue  statement of a material fact or omit to state a material fact  necessary to make the statements  made, in light of the  circumstances  under which such statements  were made, not misleading with respect to the period covered by this annual report; 3.
        Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this  annual  report,  fairly  present  in all material respects the financial  condition,  results of operations and cash flows of the  registrant  as of, and for,  the  periods  presented  in this annual report; 4.
        The  registrants  other  certifying  officers  and I are  responsible  for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have: a)
        Designed  such  disclosure  controls  and  procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure  that material  information  relating  to  the  registrant, including  its consolidated subsidiaries,  is made known to us by others within those entities,  particularly  during  the  period in which  this  annual report is being prepared; b)
        Evaluated the  effectiveness of the registrants  disclosure  controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation  (the Evaluation Date); and c)
        Disclosed in this  report  any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the registrants internal control over financial reporting; and 5.
        The registrants other certifying  officers and I have disclosed,  based on our most recent evaluation of internal control over financial reporting,  to the  registrants  auditors  and the audit committee of  registrants  board of directors (or persons  performing  the equivalent functions): a)
        All  significant  deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to adversely  affect the  registrants  ability to record,  process, summarize  and  report  financial  information; and b)
        Any fraud, whether or not material, that involves management or other employees who have a  significant  role in the  registrants  internal control over financial reporting. August 15, 2006  By:
        /s/ MacAllister SmithName:
        MacAllister SmithTitle:
        Chief Executive Officer, President         Exhibit 31.2 I, Donald Grunseisen, certify that: 1.
        I have reviewed this annual report on Form 10-KSB of Pipeline Data, Inc; 2.
        Based on my knowledge,  this annual  report does not contain any untrue  statement of a material fact or omit to state a material fact  necessary to make the statements  made, in light of the  circumstances  under which such statements  were made, not misleading with respect to the period covered by this annual report; 3.
        Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this annual  report,  fairly  present  in all material respects the financial  condition,  results of operations and cash flows of the  registrant  as of, and for,  the  periods  presented  in this annual report; 4.
        The  registrants  other  certifying  officers  and I are  responsible  for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have: a)
        Designed  such  disclosure  controls  and  procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure  that material  information  relating  to  the  registrant, including  its consolidated subsidiaries,  is made known to us by others within those entities,  particularly  during  the  period in which  this annual report is being prepared; b)
        Evaluated the  effectiveness of the registrants  disclosure  controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation  (the Evaluation Date); and c)
        Disclosed in this  report  any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the registrants internal control over financial reporting; and 5.
        The registrants other certifying  officers and I have disclosed,  based on our most recent evaluation of internal control over financial reporting,  to the  registrants  auditors and the audit committee of  registrants  board of directors (or persons  performing  the equivalent functions): a)
        All  significant  deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to adversely  affect the  registrants ability to record,  process, summarize  and  report  financial  information; and b)
        Any fraud, whether or not material, that involves management or other employees who have a significant  role in the  registrants  internal control over financial reporting. August 15, 2006  By:
        /s/ Donald GruneisenName:
        Donald GruneisenTitle:
        Chief Financial Officer          Exhibit 32  CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Annual Report of Pipeline Data Inc., a Delaware corporation (the Company), on Form 10-KSBA for the quarter ended December 31, 2005, as filed with the Securities and Exchange Commission (the Report), MacAllister Smith, Chief Executive Officer of the Company and , Donald Grunseisen Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.  By:
        /s/ MacAllister Smith
        
        By:
        /s/ Donald GruneisenName:
        MacAllister Smith
        
        Name:
        Donald GruneisenTitle:
        Chief Executive Officer and President
        
        Title:
        Chief Financial Officer(Principal Financial and Accounting Officer)  Date: August 15, 2006 [A signed original of this written statement required by Section 906 has been provided to Pipeline Data Inc. and will be retained by Pipeline Data Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]