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

                               PIPELINE DATA INC.
                                   Form 10-KSB



X    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 For the fiscal year ended December 31, 2003

_    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. Employer
           incorporation or organization)             Identification No.)


                   1599 Washington Street, Braintree, MA 02184

         ---------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                    Issuer's telephone number: (781)843-3812
         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. $10,246,955

<PAGE>



     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 December  31,  2003,  there were  13,146,250
shares  of  the   registrant's   common  stock,  par  value  $0.001  issued  and
outstanding.  As of March 26,  2004,  the  market  value of  securities  held by
non-affiliates is $4,276,216 based on the average of the high and low bid prices
as reported by  Yahoo.com.  for the 60 day period  ending March 26, 2004.  These
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commissions, and may not reflect actual transactions.

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest  practicable  date.  13,174,822 shares of common
stock, par value $0.001, as of March 26, 2004.


                       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



<PAGE>



                                TABLE OF CONTENTS


Item Number and Caption

PART I

ITEM 1. Business.............................................................. 2

ITEM 2. Properties............................................................26

ITEM 3. Controls and Procedures...............................................26

ITEM 4. Submission of Matters to a Vote of Security Holders...................26

PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters..............27

ITEM 6. Management's Discussion and Analysis of Financial Condition and
               Results of Operations..........................................31

ITEM 7. Financial Statements................................................. 37

ITEM 8. Changes in and Disagreements with Accountants on
               Accounting and Financial Matters.............................. 38

PART III

ITEM 9. Directors and Executive Officers..................................... 38

ITEM 10. Executive Compensation.............................................. 41

ITEM 11. Security Ownership of Certain Beneficial Owners and
            Management....................................................... 46

ITEM 12. Certain Relationships and Related Transactions...................... 49

ITEM 13. Exhibits and Reports on Form 8-K.................................... 62

<PAGE>



               ANNUAL REPORT ON FORM 10KSB FOR PIPELINE DATA INC.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


     To the extent that the information  presented in this Annual Report on Form
10-KSB for the year ended  December 31, 2003  discusses  financial  projections,
information  or  expectations  about the products or markets of our company,  or
otherwise   makes   statements   about  future  events,   such   statements  are
forward-looking.  We are making these forward-looking  statements in reliance on
the safe harbor  provisions of the Private  Securities  Litigation Reform Act of
1995.   Although  we  believe   that  the   expectations   reflected   in  these
forward-looking  statements  are based on  reasonable  assumptions,  there are a
number of risks and  uncertainties  that could  cause  actual  results to differ
materially from such forward-looking  statements.  These risks and uncertainties
are  described,  among other  places in this  Annual  Report,  in  "Management's
Discussion and  Analysis".  Readers are cautioned not to place undue reliance on
these  forward-looking  statements,  which speak only as of the date hereof.  In
addition,  we disclaim any obligations to update any forward-looking  statements
to reflect events or  circumstances  after the date of this Annual Report.  When
considering  such  forward-looking  statements,  readers should keep in mind the
risks  referenced  above  and the other  cautionary  statements  in this  Annual
Report.


<PAGE>

                                     PART I

Item 1. Business.

Company Background and History


     We are a Delaware  corporation that was  incorporated in June 1997.  During
1998, we researched  and developed an online system to easily access and deliver
requested  information from industry  members of the healthcare,  pharmaceutical
and  biotechnology  industries to subscribers to our site. This research focused
on refining  the process in which we receive the relevant  information  from the
individual, quickly relate this information to the customer, and then relay back
to the customer the relevant  information he or she  requested.  We launched the
initial  beta-version  of our website in August 1999.  Our website is located at
http://www.pipelinedata.com

     During our  development  period,  management  devoted  the  majority of its
efforts  to  initiating  the  process of the web site  design  and  development,
obtaining new customers for sale of consulting  services,  developing sources of
supply,  developing and testing its marketing  strategy and finding a management
team to begin the process of:  completing  its marketing  goals;  furthering its
research and development for its products;  completing the documentation for and
selling initial shares through the company's private placements;  and completing
the documentation  for the company's  initial public offering.  These activities
were funded by the company's management and investments from stockholders.

     On November 1, 2000, we loaned  $200,000 to Accu-Search  Inc., a New Jersey
corporation.  In  consideration of the issuance of the loan,  Accu-Search,  Inc.
granted us a  perpetual,  non-transferable  and  non-sublicensable  royalty free
license to utilize an automated software process which will enable us to improve
the functionality of our website. The loan was evidenced by Accu-Search,  Inc.'s
promissory note that accrues interest at the rate of 12% annually. The principal
amount of the promissory note together with accrued interest was due and payable
on December 31, 2001.

     On March  14,  2002,  Accu-Search  renegotiated  their  note with us. As of
December  31,  2002,  the  balance of  principal  and  interest  due  aggregated
$230,000.  We agreed to settle this  balance due as follows.  We  converted  the
$228,000 into preferred stock of  Accu-Search.  They remitted an upfront payment
of $23,447 in cash.  In addition,  Accu-Search  will pay our company 3% interest
quarterly  equally $6,840,  per quarter and will provide Pipeline Data two years
web  access  to  Accu-Search's  on-line  data  and map  system.  Contracts  were
finalized and monies delivered on or about July 12, 2002..


                                        2
<PAGE>

     Our relationship  with Accu-Search and our report from Rainbow Media helped
result  in our  concentrating  more  on the  data-base  delivery  aspect  of our
business.

     On March 8th, 2002, Jack  Rubinstein,  our chairman of the board,  lent our
company  $100,000 for working capital  purposes.  The promissory note evidencing
this transaction has a term of one year and bears simple interest at the rate of
8%. The principal and interest of the note is  convertible  into common stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. On March 8, 2003, the
note was renegotiated and the term was extended to March 8, 2005.

     Our goal has been to become a pipeline  of data to the  public.  After much
research and  negotiation,  we acquired all of the stock of SecurePay,  on March
19,  2002.  SecurePay  is  an  integrated  provider  of  transaction  processing
services,  gateway  services,  related software  application  products and value
added services primarily to small-to-medium  sized merchants operating either in
the physical "brick and mortar" world, mobile merchant (wireless) or the virtual
world of the Internet.  SecurePay developed and began marketing technologies and
services that provide secure,  convenient means of making and accepting payments
over the  Internet,  wireless  devices and Web  (TCP/IP)  connected  PC and cash
registers.  SecurePay  provides  transaction  processing  support  for all major
credit and charge cards, including Visa, MasterCard, American Express, Discover,
Diner's  Club and JCB, and also  provides  access to debit card  processing  and
check  verification  services.  It  provides  merchants  with a broad  range  of
transaction processing services,  including authorizing card transactions at the
point-of-sale,  capturing  and  transmitting  transaction  data,  effecting  the
settlement of payments and  assisting  merchants in resolving  billing  disputes
with their customers.  In addition,  SecurePay has developed several value-added
software applications that can be delivered to its customers and updated via its
proprietary  host  network  (the  "SecurePay  Host").  The  capabilities  of the
SecurePay  Host  result in rapid  response  time and its  substantial  bandwidth
facilitates  the delivery of  sophisticated  value added  services.  SecurePay's
ability to effectively employ technology,  together with the capabilities of the
SecurePay Host, enable it to respond quickly and effectively to the changing and
diverse needs of its merchant customers.

     As a  result  of  this  transaction,  SecurePay  became  our  wholly  owned
subsidiary.  The acquisition of SecurePay was  accomplished by a stock for stock
exchange in which we acquired all of the issued and outstanding  common stock of
SecurePay  in exchange for the  issuance of seven  million six hundred  thousand
(7,600,000) newly issued shares of our common stock. The former  shareholders of
SecurePay  have  certain  earn-in  capabilities  based upon  revenue  milestones
achieved within a specified  period of time.  Seven million six hundred thousand
(7,600,000)  shares of our common  stock are being  held in escrow.  If and when
SecurePay's  gross revenue run rate reaches  $100,000 per month as determined by
our  most  recent  Form 10Q or Form  10K,  then we  shall  issue  an  additional
3,800,000 shares of our common stock to former shareholders of SecurePay. If and
when SecurePay's gross revenue run rate reaches $200,000 per month as determined
by the most  recent  Form 10Q or Form  10K  then we  shall  issue an  additional
3,800,000 of our shares of common stock to former  SecurePay  shareholders.  The
deadline for meeting these revenue targets terminates on March 31, 2005.

                                        3
<PAGE>

     With the acquisition of SecurePay,  Mr. Rubinstein remained as our chairman
of the board.  MacAllister  Smith joined our board and became our  president and
chief  executive  officer.  Mr.  Smith  has  held  ownership  positions  in  two
transaction  processing  companies  that have  successfully  merged  with public
companies, Pinnacle Financial Technologies, Access Services, Inc. Previously, he
was regional vice president for NOVA Information Systems,  Inc. (NYSE: NIS). Mr.
Anthony Reynolds became our chief technology officer.

     On August 26, 2002, we acquired all the capital stock of Northern  Merchant
Services.  Northern  Merchant  Services,  Inc.  ("NMSI") is an independent sales
organization which markets and services electronic credit card authorization and
payment  systems to  merchants  located  throughout  the United  States.  NMSI's
operating and growth strategies focus on expanding NMSI's customer base of small
and medium-sized  merchants  through bank referrals,  direct sales,  independent
sales  agents,  trade and other  association  affiliations,  merchant  portfolio
purchases and superior  customer  service.  NMSI has experienced rapid growth in
its total  merchant  portfolio  base which has  fostered  significant  growth in
NMSI's revenues and earnings.  This increase in revenues has resulted  primarily
from new merchant contracts generated through NMSI's marketing and sales efforts
and revenue enhancements with existing merchants.

     As a result of this  transaction,  NMSI became our wholly owned subsidiary.
The acquisition of NMSI was  accomplished by a stock for stock exchange in which
we acquired all of the issued and  outstanding  common stock of NMSI in exchange
for (i) five  thousand  shares  of series A  preferred  convertible  stock  (the
"Preferred  Shares"),  each  preferred  share is  convertible  into one thousand
(1,000) shares of our common stock at the  conversion  price of $0.50 per common
share and (ii) one  million  of our  common  shares.  In  addition,  the  former
shareholders  of NMSI have  certain  earn-in  capabilities  based  upon  account
retention  milestones  achieved within a specified period of time. Each time the
NMSI, as our wholly owned subsidiary,  attains 5,000 merchant accounts, we shall
issue to the former shareholders of NMSI an aggregate of one million (1,000,000)
common  shares,  up to an aggregate of 3,000,000  common  shares.  This earn- in
restriction  shall  expire  on  the  fourth  anniversary  of  the  date  of  the
acquisition agreement governing the transaction.


     We agreed that  during the  36-month  period  from the date (the  "36-month
Period") of the NMSI Acquisition  Agreement (August 26, 2005), we would offer to
repurchase the Preferred  Shares from the Kevin and Nancy Weller for $2,500,000.
In the event we failed to do this, the merchant  portfolio  would revert back to
the  Wellers.  On  February  27,  2004  we  complied  with  this  provision  and
repurchased  2,000  Preferred  Shares for $1,000,000  and the Wellers  exercised
their option to convert 3,000  Preferred  Shares into  3,000,000  million common
shares.  As a result of this  transaction,  the NMSI merchant  portfolio  cannot
revert back to the Wellers.

     Kevin  Weller,  president  of NMSI  has  been  appointed  to our  board  of
directors and president of the NMSI subsidiary.  Nancy Weller, vice president of
NMSI has been appointed vice president of the NMSI  subsidiary.  Kevin and Nancy
Weller are married.

     A part of the NMSI  Acquisition  Agreement,  the Wellers are  afforded  the
opportunity  to borrow an  aggregate  amount of $200,000  from our  company.  On
November 18, 2003,  Kevin Weller borrowed $85,000 from our company pursuant to a
promissory note with a term of eighteen  months bearing  interest at the rate of
4%. This note was paid in full on March 10, 2004.


     On February 27, 2004, we entered into a financing  arrangement  with Laurus
Master Fund, Ltd.  ("Laurus  Funds"),  a financial  institution  specializing in
funding small and micro-capitalization companies, to provide our company with up
to $3.0 million in financing. Under the arrangement, we issued $2,000,000 of our
6% convertible  term notes at a conversion  price of $1.00 to Laurus Funds,  and
Laurus  Funds  agreed,  subject  to certain  conditions,  to  purchase  up to an
additional  $1,000,000  of  Pipeline's  6%  convertible  term  notes.  Under the
arrangement,  Laurus  Funds was also  issued  warrants to purchase up to 500,000
shares of our common stock.  We used $1,000,000 of the proceeds of the financing
to fulfill our  repayment  obligation  under the NMSI  Acquisition  Agreement to
repurchase  a portion of the Weller  stock and  intend to use the  remainder  to
acquire merchant portfolios in order to grow our business.

     The principal  documents involved are a Securities  Purchase  Agreement,  a
Security Agreement,  a Convertible Term Note, a warrant to purchase common stock
of the Company and a  registration  rights  agreement.  All of the documents are
dated February 27, 2004.

     The Term Loan has a term of three years and accrues interest at the greater
of prime plus 2% or 6%. Interest shall be payable monthly in arrears  commencing
on April 1,  2004,  and on the  first  day of each  consecutive  calendar  month
thereafter.  Monthly  payments shall  commence at the rate of  $33,333.00.  From
April 1, 2005 through March 1, 2007, the monthly amortization shall be increased
to $41,667.00

     On a month by month basis,  the interest  rate is subject to  adjustment in
0.25%  increments in the event certain  conditions  are met,  including that the
common stock  underlying  the  conversion of the  convertible  term note and the
warrant  issued  to Holder  are  registered  with the  Securities  and  Exchange
Commission and whether and to what extent the average price of the stock exceeds
or is less than the fixed conversion price.  Notwithstanding the foregoing,  the
interest rate will not exceed the interest rate as of February 27, 2004.

     The Laurus  Funds  also has the  option to convert  all or a portion of the
Term Loan into  shares of the our common  stock at any time,  subject to certain
limitations,  at a fixed  conversion  price of $1.00 per share. The Term Loan is
secured by a blanket lien on all our assets.  In conjunction with the Term Loan,
the Laurus  Funds was paid a fee of $105,000  and received a warrant to purchase
up to 500,000 shares of the Company's  common stock at prices ranging from $1.25
per share to $1.75 per share.  All stock  conversion  prices and exercise prices
are subject to adjustment for stock splits, stock dividends or similar events.

     We agreed to file a registration statement with the Securities and Exchange
Commission covering the shares issuable upon conversion of the Term Loan and the
exercise of Laurus' warrants.

     GunnAllen  Financial,  Inc.  received a finder's  fee with  respect to this
transaction.  The arrangement with GunnAllen  provided for the following fee: 3%
Cash 2%  Stock on  first  million  dollars  raised,  2% Cash 2% Stock on  second
million dollars  raised,  1. 5% Cash 1.5% Stock on third million dollars raised,
1% Cash 1% Stock on fourth million dollars raised,  and 1% Cash thereafter.  The
issued stock is subject to piggyback  registration  rights.  The  financing  was
exempt from registration under the Securities Act of 1933, as amended,  pursuant
to Regulation D of the Securities Act.

                                        4
<PAGE>

Industry Overview

     Card-based  payment  processing  for  merchants  has  emerged as one of the
fastest  growing   segments  of  the  transaction   processing   industry.   The
proliferation  in the  uses and  types  of  credit  cards,  rapid  technological
advances in transaction  processing and financial  incentives  offered by credit
card issuers have contributed greatly to wider merchant acceptance and increased
consumer use of such cards. For example,  industry sources indicate that the use
of credit cards, and thus the business of credit card transaction processing, is
an  ever-growing  trend  within the world of consumer  and  business-to-business
non-cash payments.  Industry research shows that this market will surpass the $2
trillion  transaction  mark in 2005.  Credit  cards have  grown at a  compounded
annual growth rate of  approximately  15.6%,  with 2000  eclipsing 20% worldwide
growth.

     Electronic credit card transaction  processing services encompass a variety
of  functions  including  data  capture,  communication  and  authorization  and
settlement.  A typical transaction begins when a customer presents a credit card
to a merchant for payment.  The card is swiped  through an electronic  terminal,
which  has  been  placed  with  the  merchant  by a bank or a  non-bank  service
provider.  The cardholder' purchase is electronically  authorized by the issuing
bank.  Simultaneously,  pertinent  data relating to the  transaction is recorded
electronically  by the terminal and transferred to a processor where the data is
stored for use in settlement and client  reporting.  Both the  authorization and
data  capture  functions of the terminal  involve  transmissions  of data via an
electronic  network.  The processor  transmits the total merchant  charge to the
card  issuing   institution   through  the  Visa  and  MasterCard   credit  card
associations  and arranges for funds to be transferred  to the merchant's  bank.
The  merchant's  account  is  credited  with the full  retail  purchase  amount,
generally within 48 to 72 hours, and the card issuer then enters the transaction
on the cardholder's monthly statement.

The Business of our Subsidiary SecurePay
----------------------------------------------------
Business Summary

     SecurePay  is a custom  credit  card  transaction  processor  serving  as a
gateway  intermediary  between the customer and the  financial  networks for the
acceptance of credit card payments by merchants.  Every credit card  transaction
worldwide  is  processed  by a  third-party  working  in  conjunction  with  the
financial  networks.  SecurePay  processes all major card types  including Visa,
MasterCard, Amex, Discover and JCB. Presently, SecurePay's proprietary solutions
include:  wireless applications operating on cell phone networks, PDA devices to
support mobile merchant card acceptance applications,  proprietary shopping cart
solutions,  virtual  credit card  terminals  and multiple  custom  interfaces to
support Value Added Resellers.


                                        5
<PAGE>

Merchant Services Provided By SecurePay
---------------------------------------------------
     Authorization Services

     SecurePay provides electronic  transaction  authorization  services for all
major  credit  and  charge  cards  originating  from  wireless  devices  and the
Internet.  Authorization generally involves approving a cardholder's purchase at
the  point-of-sale  after verifying that the card is not lost or stolen and that
the purchase  amount is within the  cardholder's  credit or account  limit.  The
electronic  authorization  process for a credit card transaction begins when the
merchant  "swipes"  the card  through its POS  terminal or via the  Internet and
enters the dollar amount of the  purchase.  After  capturing  the data,  the POS
terminal  transmits  the  authorization  request via the  SecurePay  Host to the
Company's  switching center,  where the data is routed to the appropriate credit
card association for  authorization.  The transaction is approved or declined by
the credit card association, and the response is transmitted back to SecurePay's
switching center, where it is routed to the appropriate merchant.

     Data Capture and Reporting Services

     At the time of authorization, data relating to the transaction, such as the
purchase price and card number,  is stored by the SecurePay Host. This maximizes
accurate  transaction  reconciliation  with each  merchant and protects  against
potential  loss of data.  The file is maintained by SecurePay in its database to
allow it to run its proprietary fraud detection software program against each of
the  day's  transactions  processed  via  the  SecurePay  Host  and  to  provide
customized  reporting  applications.  This  information also allows SecurePay to
provide  merchants  with  information  services such as  specialized  management
reports,  accounting  export files and to assist in its other  customer  service
operations. Merchants can access this archived information through the SecurePay
Host which allows the  merchant  direct  access to its database  through a PC or
wireless device.

     Software Application Products And Value-Added Services

     In  addition  to card  transaction  processing,  SecurePay  offers  related
software   application   products  and  value-added  services  to  its  merchant
customers. These products and services are designed to run on Internet connected
Windows-based PCs and wireless  devices.  Offering a broad range of products and
services  historically  unavailable  to  small-to-medium  sized  merchants is an
integral  part of  SecurePay's  strategy  of  focusing  on these  merchants  and
differentiating  itself  among the banks and  Independent  Sales  Organization's
("ISO")  serving this market segment.  Management  believes that the quality and
reliability of its products and services enhance  SecurePay's ability to attract
and retain merchant customers.


                                        6


<PAGE>

SecurePay currently offers a variety of products and services, each with a
differing application, including the following:
-------------------------------------------------------------------------------

     Virtual Terminal

     SecurePay's  virtual  terminal is the core  SecurePay  Host  product  which
allows  payment  processing  via any  Internet  connected  device.  Its  virtual
terminal  allows a card  reader  attached  to a PC to read the  entire  magnetic
stripe  across  the  Internet,  thereby  qualifying  a  merchant  for the lowest
possible  fees for card  acceptance.  The virtual  terminal  can process  sales,
voids,  forces and  returns.  The address  verification  system  (AVS)  confirms
shipping and cardholder address  information to protect merchants from fraud. It
will process  recurring  transactions  and allows  access to the entire suite of
reporting functions.  All transactions are encrypted using industry standard SSL
technology.


     Shopping Cart Technology

     The  shopping  cart  (Easy  Shop)  is  one  of  the  most   powerful,   yet
user-friendly  carts on the market  that is fully  integrated  to a  proprietary
gateway.  The shopping cart gives  merchants an easy way to create either a "Buy
Now"  button on their Web site or a simple  HTML link to the Easy Shop cart.  It
can be used with any Web site. Core features include sales tax and shipping cost
calculations,  real-time card processing,  automatic customer  configuration and
e-mail  order  notification,  advance  cart  support for product  size and color
selections, unlimited number of products supported, product import and export to
accounting  applications,  support of  downloadable  items (soft  goods) such as
documents,  program images and audio files,  promotion of items and coupons, and
allowance  of order  viewing  summaries  by date or order  detail via quick link
technologies.


     Gateway

     SecurePay's  gateway  solutions allow VAR's and  programmers  access to the
card  authorization  systems by integrating  their product to SecurePay for card
processing.  The company supports five different  program  interfaces,  allowing
flexibility to programmers who wish to create their own custom applications.



                                        7
<PAGE>

    Palm and Windows CE Based Devices


     SecurePay has developed a proprietary payment application utilizing Palm OS
and Windows CE to allow the  acceptance of card payment over  wireless  Internet
connected  PDA and cell  phone  devices.  In  addition  to the many  third-party
applications available,  the SecurePDA and Cell phone based applications provide
functionality  and value added features that  previously were the domain of only
the  largest  companies.  The  SecurePDA  and cell phone  applications  features
include: store and forward, signature capture, error correction,  full reporting
and customizable  data fields and a price point less than any other  traditional
wireless card processing  devices on the market. . The wireless solution enables
it to process transactions  utilizing airwaves,  as opposed to traditional phone
lines, for wireless transaction  authorization and processing.  Wireless enabled
transaction authorization and processing in environments where traditional phone
lines are unavailable,  inconvenient  and/or  prohibitively  expensive,  affords
merchants  increased  flexibility,  mobility  and  security in  processing  card
transactions.  Further, wireless technology allows merchants that have relied on
paper-based processing, where the ability to check if a card is stolen or credit
limits  exceeded  is  generally  unavailable  or  inconvenient,  to  convert  to
electronic  processing.  In so doing,  such  merchants can also avoid the higher
rates imposed by both Visa and MasterCard for  paper-based  transactions  or key
entered transactions.



The Business of Our Subsidiary NMSI
---------------------------------------------

     Business Summary

     NMSI targets small and medium-sized merchants as its primary customer base.
These merchants  generally have a lower volume of credit card transactions,  are
difficult to identify and have  traditionally  been  underserved  by credit card
processors.  Management  of NMSI  estimates  that  there are  approximately  3.2
million  merchant  locations in the United States  currently  accepting Visa and
MasterCard   credit  cards  in  the  small  merchant  market  segment  and  that
approximately 2.0 million of such small merchant  locations  utilize  electronic
processing  for credit  card  transactions.  Management  believes  the small and
medium-sized  merchant market offers NMSI significant  growth  opportunities for
the  "first  time"   installation  and  subsequent   servicing  of  credit  card
authorization and payment systems.

                                        8
<PAGE>

     NMSI  utilizes  exclusive   contractual   relationships  with  banks/direct
salespersons,   trade  associations,   distributors  and  wholesalers  to  reach
merchants  that would  otherwise  be  difficult  to  identify  and locate  using
customary marketing  practices.  Pursuant to these  relationships,  banks/direct
salespersons  endorse the processing  systems  marketed and serviced by NMSI and
participate in originating new customers for NMSI.  Through the use of its field
sales force,  management  believes  NMSI's cost  structures  will continue to be
competitive with the cost structures of its competitors.

     Management believes increased competition in the industry and other factors
have  pressured  certain  competitors  to  dispose  of all or a portion of their
merchant  portfolios.  As a result,  management  believes many opportunities for
portfolio  purchases  exist  as the  industry  continues  to  consolidate.  NMSI
believes it has the management  experience  necessary to successfully  integrate
purchased  merchant  portfolios on a  cost-effective  basis,  thereby  achieving
better economies of scale.

     NMSI provides  comprehensive  customer service and support to its merchants
requiring  consultative  problem  solving  and  account  management.  Management
believes that providing  cost-effective,  reliable and responsive service is the
most  effective   long-term  strategy  to  retain  its  merchant  base.  Through
internally  generated sales of merchant accounts,  purchases of merchant account
portfolios,  retention of merchants  and the  increasing  use and  acceptance of
credit  cards,  management  believes  NMSI has  developed  a stable and  growing
recurring base of revenues.

     Market Outlook

     Historically,   the  larger  acquiring  banks  have  marketed  credit  card
processing services to national and regional merchants, not emphasizing small to
medium-sized  merchants,  as small merchants are often difficult to identify and
expensive  to service.  This created an  opportunity  for  non-banks,  including
independent  service  organizations  such as NMSI,  that recognized the business
potential  of  providing   electronic   processing  to  these  small  merchants.
Management  estimates  that there are  approximately  3.2 million small merchant
locations nationwide accepting Visa and MasterCard credit cards. The transaction
processing  industry has  undergone  rapid  consolidation  over the last several
years with the three largest acquirers controlling over 50% of the market share.
Merchant  requirements  for  improved  customer  service  and  the  demands  for
additional  customer  applications have made it difficult for some community and
regional banks and independent service organizations to remain competitive. Many
of these  providers  are  unwilling or unable to invest the capital  required to
meet those evolving demands, and are leaving the transaction processing business
or  otherwise  seeking  partners  to provide  transaction  processing  for their
customers.  Despite this ongoing consolidation,  the industry remains fragmented
with respect to the number of entities providing  merchant services.  Management
believes  that these factors will result in  continuing  industry  consolidation
over the next several years.

     Operating Strategy

     Focus on Small to  Medium-Sized  Merchants.  NMSI has focused its marketing
efforts  on small to  medium-sized  merchants,  which  have  traditionally  been
underserved by processing banks.  Management  believes it understands the unique
characteristics  of this  market  segment and has  tailored  its  marketing  and
servicing efforts  accordingly.  NMSI is able to provide  electronic  processing
systems at rates that generally are lower than those  available from small local
processors as a result of its transaction volume.

                                        9

<PAGE>

     Create Bank/Direct Sales Relationships. NMSI utilizes exclusive contractual
relationships with banks/direct salespersons to reach small merchants that would
otherwise  be  difficult  to  identify  and  locate  using  customary  marketing
practices.  Pursuant to these relationships,  banks/direct  salespersons endorse
the  processing  systems  marketed  and  serviced  by NMSI  and  participate  in
originating new customers for NMSI.

     Minimize Marketing  Expense.  Using the leads generated by its banks/direct
sales  relationships  provides  NMSI with a  cost-effective  means of contacting
small merchants that traditionally have been difficult to reach.

     Deliver   Customer   Service   Support.   Management   believes   providing
cost-effective,  reliable and responsive service is the most effective long-term
strategy to retain its merchant base.  The size of NMSI's  merchant base enables
it to support a  customer  service  program  designed  to  provide  consultative
problem  solving  and  account  management.  NMSI is  continuing  to upgrade its
customer  service  information  systems by installing  new hardware and creating
proprietary  software  applications to further  enhance the customer  service it
provides and to accommodate future growth.

     Increase Operating Efficiencies.  Currently, NMSI outsources its processing
and network  services  from  third-parties  which have excess  capacity  and the
expertise to handle NMSI's needs.

     Management  believes  because  its  merchant  base  generates   significant
transaction volume in the aggregate, NMSI has been able to negotiate competitive
pricing from its processing and network  providers at favorable rates.  NMSI has
achieved   significant   reductions  in  certain   operating   expenses  through
operational  efficiencies,  economies of scale and improved labor  productivity.
The Company intends to outsource  processing and network  services as long as it
is  economically  more  attractive  than to develop and support  these  services
within  NMSI,  allowing  management  to  focus on its core  business  of  sales,
marketing and customer service.

     Maintain a Stable and Growing  Recurring  Revenue  Base.  Through  merchant
retention  and  increased  credit  card use,  NMSI has  developed  a stable  and
recurring  base of revenues.  In addition to its high  customer  service  level,
NMSI's endorsements from banks/direct salespersons provide an additional link to
its merchants that tend to reduce attrition.  Furthermore,  management  believes
that the size of the  merchants it services  make the  merchants  less likely to
change providers because of the up-front costs associated with a transfer.

     Growth Strategy

     NMSI's growth  strategy is to pursue  internal  growth through its internal
and  independent  marketing  venues  and  to  acquire   complementary   merchant
portfolios. Through the use of its bank/direct sales relationships, NMSI obtains
new merchant accounts by offering  merchants  technologically  advanced products
and  services  with better  levels of service than those  obtainable  from other
sources.  In  addition  to  increasing  its  penetration  of the small  merchant
segment,  management  intends to continue  NMSI's  growth  through  purchases of
merchant  portfolios  from banks and other  independent  service  organizations,
assuming adequate financing and acceptable transaction terms are achieved.

     Marketing

     NMSI's marketing  strategy is to solicit  prospective  merchants  primarily
through NMSI's banks/direct sales marketing programs.  Under these arrangements,
NMSI obtains the  exclusive  endorsement  of the bank and  receives  initial and
ongoing marketing assistance from the bank to its customers.

                                       10

<PAGE>

     Portfolio Acquisitions

     NMSI expects to acquire selected merchant portfolios that complement NMSI's
existing customer base of small to medium-sized merchants.  NMSI will perform an
extensive review of the cash flow  characteristics of each portfolio,  the types
of  business  conducted  therein,  the  credit  status of the  merchants  in the
portfolio,  NMSI's  ability  to  control  attrition  of the  portfolio  and  the
opportunities the portfolio provides for revenue enhancement and cost reduction.
The Company will determine a valuation of each portfolio acquisition opportunity
based on a combination of these factors.

     Management   believes  the   consolidation   activity  in  the  transaction
processing  industry  offers NMSI many  opportunities  for portfolio  purchases.
NMSI's past management experience,  coupled with operating efficiencies,  should
enhance NMSI's ability to successfully  integrate  purchased merchant portfolios
on a cost-effective basis.

     Smaller  independent  service  organizations  are NMSI's  primary source of
portfolio  acquisitions.   Typically  these  service  organizations  have  built
portfolios to the limits of their servicing capabilities,  are facing increasing
competitive  pressures  from  larger,  lower cost  providers  and/or are seeking
additional  liquidity.  Another source of portfolio  acquisitions are commercial
banks  which,  in an effort to lower  their  internal  overhead,  often  sell or
outsource their credit card servicing  operations,  creating the opportunity for
buyers to acquire the existing  merchant  portfolio.  Often, the  small-merchant
portion of these  portfolios is viewed as being  unattractive by acquiring banks
or  third-party  processors and can be acquired at favorable  terms.  Management
believes the  portfolio  acquisition  market will  continue to be an  attractive
source of new customers in the future.

     Processing Relationships

     NMSI markets and services  electronic credit card authorization and payment
systems  pursuant to contractual  relationships  with processing  banks that are
members of Visa and MasterCard.  Under such  contractual  relationships,  NMSI's
processing  banks  process  merchant  credit  card   transactions   pursuant  to
contracts,  the terms of which have been  negotiated by NMSI and approved by the
processing bank.  NMSI's processing banks withhold from the merchants a discount
rate and various fees for the processing of each credit card  transaction.  From
NMSI's discount rate revenues, amounts are paid to the issuing bank, the network
service provider, Visa or MasterCard and to the processing bank.

     Generally  NMSI's  agreements with processing banks contain aspects of both
marketing and service.  The marketing  portions of the agreements permit NMSI to
originate new merchants  which then enter into  contractual  agreements with the
processing banks for processing of credit card transactions. The service portion
of the  agreements  permits  NMSI  to  provide  appropriate  service  (including
terminal  programming  and shipping,  employee  training,  equipment  supply and
repair and  operational  support) to the  merchants  solicited to process on the
processing  banks' systems.  Although the marketing portion of the agreements is
limited as to time, the service portion of these agreements is not. Accordingly,
NMSI has a right to continue to receive revenues from these processors,  so long
as NMSI remains in compliance with the service agreement.


                                       11
<PAGE>

   Agreements With Processing Banks

     To date, NMSI relied on three banks to process the credit card transactions
of NMSI's clients. At this time, NMSI's agreement with its principal  processing
bank, Nova Information Systems, Inc., a subsidiary of US Bankcorp (NIS), applies
to approximately 80% of NMSI's aggregate merchant base. NMSI has agreements with
its processing banks to provide for NMSI to continue to receive revenues as long
as the merchants  subject to the agreement process credit card transactions with
the banks,  NMSI  provides the  appropriate  service to the  merchants  and NMSI
otherwise  remains in compliance with the terms of the agreement.  Under the NIS
agreement,  NMSI  bears  no  liability  for  any  unfulfilled  chargebacks.  The
agreement with the second processing bank also provides for no liability,  while
the third has limited  liability.  Each of NMSI's  processing  agreements may be
terminated by either party in the event of default of obligations, insolvency or
receivership,  or failure to make payments when due or to abide by the rules and
regulations of Visa and MasterCard.  NMSI solicits,  on a  non-exclusive  basis,
merchants to process transactions with the processing banks.


     Network Services

     Networks  provide an electronic  connection or pathway between the merchant
and NMSI's  processing  bank and are paid a fixed  amount per  transaction.  All
appropriate  parties  receive  pertinent  information  from  merchants  via  the
networks.  NMSI's relationships with its processing banks enable it to negotiate
directly with network service  providers to obtain volume  discounts for network
services.

     Discount Rate And Fees

     The  primary  source of revenue for NMSI is the  discount  rate paid by the
merchant  for each credit  card  transaction  processed  for that  merchant.  In
addition to revenues derived from the discount rate, NMSI receives periodic fees
from most of its merchants for providing various services which are reflected in
the table below as "Average  Fees per  Transaction."  The discount rate and fees
are negotiated by NMSI, within the terms of NMSI's processing  agreements,  with
each of the merchants to which NMSI provides services. NMSI contracts with third
parties  to  provide  a  portion  of the  services  to the  merchant,  including
communication  networks,  transaction  processing  and  monthly  preparation  of
detailed  merchant  statements.  Additionally,  NMSI  complies  with the pricing
structures  established by Visa and MasterCard  associations for the interchange
fee paid to the retail consumers' card-issuing banks and the associations' fees.

     The  primary  costs  incurred  by NMSI in  delivering  its  services to the
merchants are:

(i)  an interchange fee paid to the  card-issuing  bank which is set by the Visa
     and MasterCard  associations and which is calculated as a percentage of the
     transaction amount and/or an associated transaction fee,

(ii) a fee calculated as a percentage of the transaction  amount that is paid to
     the Visa or MasterCard association which is established by the member banks
     of the Visa and MasterCard associations,

(iii)a fixed,  per-transaction fee paid to the network service provider which is
     negotiated between NMSI and the network service provider and

(iv) a  fixed,  per-transaction  fee  paid  to  the  processing  bank  which  is
     negotiated between NMSI and the processing bank. Management believes, based
     on information  received from NMSI's merchant customers,  that the range of
     discount rates offered by other service providers is approximately  1.4% to
     4.0%. The discount rates offered by NMSI are within this range.

                                       12
<PAGE>

     With  Standard  pricing  models  illustrated  below when a  merchant  has a
$100.00 sale the breakdown  will be as follows with a discount rate of 1.79% and
a per item of $.25

Sale                                      $100.00
Cost to merchant    $100.00 x 1.79% =       $1.79
Transaction fee                            $  .25
Total cost                                  $1.94
Northern Merchant Costs
Discount cost                                1.59%
Per item Cost                               $ .19
Northern Merchant Profit
Discount spread                               .20%
Per item spread                             $ .06
Total Profit                                $ .26

     Costs vary  depending on volume as well as industry  type.  In this example
this was a retail  transaction  based on  competitive  buy  rates.  Examples  of
different industry types are mail  order/telephone  order,  lodging,  as well as
supermarket.

     In most cases,  in accordance  with NMSI's  contracts  with its  processing
banks,  the funds  collection  and  disbursement  function for each of the items
listed  above is performed on behalf of NMSI by the  processing  bank.  At month
end, the processing  bank collects the total discount rate and various fees from
the merchants  via  electronic  withdrawal  and disburses to each of the service
providers its fees, except for the interchange fee paid to the card-issuing bank
for which the  disbursements  are made  daily.  Shortly  after  month  end,  the
processing  bank disburses to NMSI the remainder of the funds collected from the
merchant.  Several  factors  can alter the  profitability  to NMSI for  merchant
transactions.  Primarily,  these  include (i)  improper  use of the card reading
terminal  by the  merchant  resulting  in  higher  interchange  fees paid to the
card-issuing  bank, (ii) lower than  anticipated  average dollar sales of credit
card transactions  thereby reducing NMSI's gross transaction margin because many
of the transaction costs are fixed,  (iii) the inability to collect the discount
rate because of insufficient funds in the merchant's bank account.

     Merchant Clients

     NMSI serves a diverse portfolio of small to medium-sized  merchant clients,
primarily in general retail industries.  Currently, no one customer accounts for
more  than  7.0% of  NMSI's  charge  volume.  This  client  diversification  has
contributed  to NMSI's  growth  despite the varying  economic  conditions of the
regions in which its merchants are located.

     Merchant  attrition  is an expected  aspect of the credit  card  processing
business.  Historically,  NMSI's attrition has related to merchants going out of
business,   merchants   returning  to  local   processing   banks  or  merchants
transferring to competitors for rates NMSI was unwilling to match.

     Merchant  fraud is another  expected  aspect of the credit card  processing
business.  Generally,  NMSI  is  not  responsible  for  fraudulent  credit  card
transactions  of its  merchants.  Examples of merchant  fraud include  inputting
false sales transactions or false credits. NMSI and its processing banks monitor
merchant charge volume,  average charge and number of  transactions,  as well as
check for unusual patterns in the charges, returns and chargebacks processed. As
part of its fraud  avoidance  policies,  NMSI  generally  will not  process  for
certain types of businesses which provide future services  wherein  incidents of
fraud have been common. Generally, NMSI is not responsible for cardholder fraud.
NMSI  evaluates its risks and estimates the potential loss for  chargebacks  and
merchant fraud based on historical  experience  and maintains a reserve  account
for potential losses.

                                       13


<PAGE>

   Merchant Services

     Management  believes  providing  cost-effective,  reliable and  responsible
service  is the most  effective  method  of  retaining  merchant  clients.  NMSI
maintains  personnel and systems  necessary for providing such services directly
to merchants and has developed a comprehensive  program  involving  consultative
problem solving and account management. NMSI maintains a 24-hour a day help desk
to respond to inquiries from merchants  regarding  terminal,  communication  and
training issues. Service personnel provide terminal application  consultation by
telephone and regularly  reprogram  terminals via telephone lines to accommodate
particular merchant needs regarding program enhancements,  terminal malfunctions
and Visa and MasterCard regulations.  In addition,  merchants may obtain direct,
personal  assistance  in  reconciling   network  and  communications   problems,
including  problems with network outages and local phone company services.  NMSI
has an ongoing program to further  enhance the customer  service it provides and
to  accommodate  future  growth of NMSI's  merchant  base.  In  connection  with
upgrading NMSI's customer service  information system, the Company will continue
to purchase  new  hardware  and  software.  NMSI may sell or lease a credit card
terminal  to its  merchant  customers.  NMSI's  terminals  are  "down-loadable,"
meaning  additional  services,  such as  authorization  or payment  services for
additional  credit cards, can be installed in the terminal  electronically  from
NMSI's  offices  without the  necessity of  replacement  equipment or an on-site
installation  visit.  Additionally,  peripheral  equipment  such as pin pads and
printers can easily be forwarded to the merchants upon request. NMSI also loans,
tests and ships  point-of-sale  terminals  directly to merchant  locations,  and
provides complete  repair-or-replacement  services for malfunctioning terminals.
Generally,  NMSI can arrange for delivery of replacement  terminals by overnight
courier.

Distribution methods of the products or services
-----------------------------------------------------------

     Distribution methods of our subsidiary SecurePay

     Marketing

     To reach its  target  market  segment  in a  cost-effective  manner  and to
further its market  penetration,  SecurePay  markets its services  through three
principal  channels:  (i) bank alliances through which it offers its services to
merchants in cooperation with community and regional banks,  allowing  SecurePay
to capitalize on the presence of those banks in particular  geographic  markets;
(ii)  partnering  with  ISO's  that  market  and sell  SecurePay's  services  to
merchants  and  (iii)  direct   sales,   to  allow   cost-effective   access  to
small-to-medium  sized  merchants  dispersed  throughout  the United  States and
otherwise to  supplement  the bank  alliance  and ISO  partnering  channels.  In
addition,   SecurePay  engages  in  marketing  efforts  that  include  marketing
agreements with various trade and other associations and marketing through VAR's
that integrate its transaction  processing  services with  specialized  business
management software.

     Bank Alliances

     SecurePay's  marketing  efforts  are  directed at forming  bank  alliances.
Through these relationships,  it offers its services to merchants in cooperation
with  community  and regional  banks,  allowing  SecurePay to  capitalize on the
presence of those  banks in  particular  geographic  markets.  SecurePay's  bank
alliances consist of three types of relationships:  (i) relationships created as
a result of SecurePay's acquisition of a bank's merchant portfolio,  pursuant to
which it provides  transaction  processing  services on a co-branded  basis with
such bank ("Acquisition  Alliances");  (ii) agent bank  relationships  where the
bank purchases its services and markets and resells those  services  directly to
merchants ("Agent Bank Alliances");  and (iii) bank referral relationships where
the bank refers to SecurePay  merchants  who desire or otherwise  inquire  about
transaction  processing services ("Bank Referral Alliances").  These include for
example,  the Bridgeview Bank and Trust agreement,  with its one-hundred  active
outside sales agents,  as well as multiple  branch offices that offer  SecurePay
products.

                                       14
<PAGE>

     Acquisition Alliances

     An integral  part of  SecurePay's  overall  strategy is to offers banks the
opportunity to transfer  management  and  operational  responsibility  for their
merchant  gateway  portfolios to the it, while  continuing to offer  transaction
processing  services  on a  co-branded  basis  in  cooperation  with  SecurePay.
SecurePay  can  often  effect  an  invisible  transition  of  services  from the
merchants' perspective. To further ease the transition process and to assist its
Acquisition  Alliance  partners,  SecurePay  has created an  intensive  training
program  whereby  its  personnel  train and  educate  its  Acquisition  Alliance
partners in all aspects of SecurePay's transaction processing services, software
application products and value-added services.

     SecurePay  compensates  its Bank Alliance  Partners  through varying means.
Acquisition  alliance partners  typically are compensated by remitting to them a
residual for each transaction processed by SecurePay for merchants  attributable
to the  alliance.  SecurePay  compensates  its Bank Referral  Alliance  partners
typically by paying them a one-time  referral fee. Agent Bank Alliance  partners
are not directly  compensated  by it,  rather,  they derive revenue by reselling
SecurePay's services to merchants at a price determined by the Agent Bank.

     ISO Partnering

     Generally,  ISO  partnering  involves  engaging  an ISO to market  and sell
SecurePay's  products and services on a non-exclusive basis. An ISO that desires
to refer a merchant  customer to SecurePay  will procure the merchant and submit
it to SecurePay on the merchant's behalf. Thereafter, the ISO will sell or lease
hardware and software to the  merchant.  SecurePay  compensates  ISO's by paying
them a residual for each transaction  processed by it for merchants  referred to
SecurePay by them, or they derive revenue by reselling its services to merchants
at a price determined by the ISO. The ISO's  determination of whether to refer a
particular merchant to SecurePay depends on a variety of factors,  including the
terms of the  residual  offered  by  SecurePay  and the  industry  in which  the
merchant conducts its business.  SecurePay currently has over sixty ISO reseller
agreements in place.

     Direct Sales

     SecurePay  continues  to expand  its  direct  sales  activities.  SecurePay
intends to deploy a  telemarketing  sales  force to  generate  further  internal
growth from existing  relationships with regional and community banks, ISO's and
merchant trade and other associations. Management believes that its direct sales
and telemarketing  efforts  constitute a significant  opportunity to augment its
bank alliance and ISO partnering efforts.

     Other Marketing Efforts

     In  addition  to bank  alliances,  ISO  partnering  and  direct  sales  and
telemarketing,  SecurePay  engages in other  marketing  efforts that  management
believes complement and diversify further its overall marketing strategy:

     Association Marketing

     Through its association marketing program,  SecurePay negotiates and enters
into marketing agreements with various trade and other associations. Pursuant to
these  relationships,  associations  endorse and promote to their membership the
transaction  processing  services  provided by  SecurePay,  creating  additional
opportunities for SecurePay to reach small-to-medium sized merchants.

                                       15
<PAGE>

     Marketing Through VAR's and Strategic Partners

     SecurePay's   marketing   efforts  are  diversified   further  through  the
integration of its transaction processing services with the specialized business
management  software  of a growing  number of VAR's.  VAR's  perform a marketing
function   for   SecurePay   since  their   software   often  is  offered  on  a
fully-integrated   basis  with  SecurePay's   transaction  processing  services,
creating additional opportunities for the Company to reach small-to-medium sized
merchants.  SecurePay  has fifteen  shopping  cart  VAR's,  and  numerous  ISP's
(Internet  Service  Providers).  SecurePay is a Strategic  Partner of Palm, Inc.
providing it with highly specialized integrated payment solutions.

     SecurePay  periodically  reviews its  marketing  efforts  and  distribution
channels to minimize  channel  conflict.  Although  channel  conflict among bank
alliances,  ISO  partnering  and  direct  sales  marketing  may  occur,  to date
SecurePay  has not  experienced  any  significant  conflict  while  pursuing its
overall sales strategy.

     Customer Service And Support

     SecurePay is dedicated to providing reliable and effective customer service
and support to its merchant  customers.  The  information  access and  retrieval
capabilities of networked systems,  where real-time  information is available to
any of its customer service representatives, allow it to provide a high level of
customer  service,  reporting  and support to  small-to-medium  sized  merchants
historically available only to much larger merchants.

     SecurePay plans to maintain a 24-hour-a-day,  seven-day-a-week help line at
its operations center in Dallas,  Texas.  SecurePay will measures the efficiency
of its customer service through certain  quantitative data such as the number of
rings prior to operator  pick-up,  the number of abandoned  calls, the number of
calls  per day and the  number  of calls per  customer  service  representative.
SecurePay  will develop  comprehensive  programs and procedures for training its
customer service  representatives to assist its merchant clients in a timely and
efficient manner with any problems, issues or concerns they may have. Management
is  dedicated  to  providing   outstanding  customer  service  and  support  and
continually  reviews its policies and  procedures  in an effort to improve these
services.

     Distribution Methods of our Subsidiary NMSI

     Marketing

     To reach its  target  market  segment  in a  cost-effective  manner  and to
further  its market  penetration,  our company has  determined  to combined  the
strengths  of its  two  subsidiaries  and  market  its  services  through  three
principal  channels:  (i) bank alliances through which it offers its services to
merchants in  cooperation  with  community  and regional  banks,  allowing it to
capitalize on the presence of those banks in particular geographic markets; (ii)
partnering  with ISO's that market and sell our services to merchants  and (iii)
direct sales, to allow cost-effective  access to small-to-medium sized merchants
dispersed  throughout  the United States and  otherwise to  supplement  the bank
alliance and ISO partnering channels.


                                       16

<PAGE>

     Bank Alliances

     NMSI's  has  an  established  marketing  strategy  to  solicit  prospective
merchants primarily through NMSI's banks/direct sales marketing programs.  Under
these  arrangements,  NMSI  obtains the  exclusive  endorsement  of the bank and
receives  initial  and  ongoing  marketing  assistance  from  the  bank  to  its
customers.

     Acquisition Alliances

     An integral part of our overall strategy is to offers banks the opportunity
to  transfer  management  and  operational  responsibility  for  their  merchant
portfolios,  while  continuing  to offer  transaction  processing  services on a
co-branded  basis in  cooperation  with NMSI.  We can often  effect an invisible
transition  of services  from the  merchants'  perspective.  To further ease the
transition  process and to assist its Acquisition  Alliance  partners,  NMSI has
created an intensive  training  program  whereby its personnel train and educate
its  Acquisition   Alliance  partners  in  all  aspects  of  NMSI's  transaction
processing services, software application products and value-added services.


     NMSI  compensates  its  Bank  Alliance   Partners  through  varying  means.
Acquisition  alliance partners  typically are compensated by remitting to them a
residual for each  transaction  processed by NMSI for merchants  attributable to
the alliance.  NMSI compensates its Bank Referral Alliance partners typically by
paying  them a one-time  referral  fee.  Agent Bank  Alliance  partners  are not
directly  compensated  by it,  rather,  they derive  revenue by  reselling  NMSI
services to merchants at a price determined by the Agent Bank.

     Direct Sales

     We will  continue to expand NMSI's  direct sales  activities.  We intend to
deploy a  telemarketing  sales force to generate  further  internal  growth from
existing  relationships  with regional and community  banks,  ISO's and merchant
trade and other  associations.  Management  believes  that its direct  sales and
telemarketing  efforts constitute a significant  opportunity to augment its bank
alliance and ISO partnering efforts.

     Other Marketing Efforts

     In addition to bank alliances and direct sales and telemarketing, we engage
in other  marketing  efforts that management  believes  complement and diversify
further its overall marketing strategy:

     Association Marketing

     Through  association  marketing  programs,  we  negotiate  and  enter  into
marketing  agreements  with various  trade and other  associations.  Pursuant to
these  relationships,  associations  endorse and promote to their membership the
our transaction processing services,  creating additional opportunities to reach
small-to-medium sized merchants.

     Customer Service And Support

     NMSI is dedicated to providing  reliable and effective customer service and
support  to  its  merchant  customers.  The  information  access  and  retrieval
capabilities of networked systems,  where real-time  information is available to
any of its  customer  service  representatives,  allows a high level of customer
service,  reporting and support to small-to-medium sized merchants  historically
available only to much larger merchants.


                                       17
<PAGE>

     NMSI  maintains  a call  center.  We will  measure  the  efficiency  of its
customer service through certain  quantitative  data such as the number of rings
prior to operator  pick-up,  the number of abandoned  calls, the number of calls
per day and the number of calls per  customer  service  representative.  We will
develop comprehensive  programs and procedures for training its customer service
representatives  to assist our merchant clients in a timely and efficient manner
with any problems,  issues or concerns they may have. Management is dedicated to
providing  outstanding  customer service and support and continually reviews its
policies and procedures in an effort to improve these services.

Competitive  business  conditions  and the small  business
issuer's competitive position in the industry and methods of competition
-------------------------------------------------------------------------------

     Competitive Position of Our Subsidiary SecurePay:

     The market for providing gateway, credit, charge and debit card transaction
services to the  small-to-medium  sized merchant  segment served by SecurePay is
highly  competitive.  SecurePay  competes in this market segment on the basis of
price,  the  availability  of related  products  and  services,  the  quality of
customer  service and support,  and transaction  processing  speed,  quality and
reliability.  SecurePay's  principal  competitors in this market segment include
other  smaller  vertically   integrated  processors  or  gateway  companies  and
independent service organizations.


     As a result of its  experience  in payment  processing,  SecurePay has been
able to develop  operating  efficiencies  which  SecurePay  believes allow it to
competitively bid for new business. In addition,  SecurePay has continually made
technological  improvements  and is thus able to respond to the unique  needs of
merchants in various industries. Management believes that the quality, speed and
reliability   of  the   SecurePay   Host  and  the  breadth,   flexibility   and
user-friendliness of its software application products and services constitute a
competitive advantage.

     The  SecurePay  cell  phone  application   provides  distinct   competitive
advantages.   It  is  considerably  less  expensive  than  traditional  wireless
terminals,   which   can  have  a  price   point  up  to  70%   higher.   It  is
multi-functional, featuring a PDA, digital phone and wireless modem all within a
single unit.  Competing  wireless  terminals,  by contrast,  are single function
only. In addition,  the SecurePay  application  offers  superior  coverage area.
While traditional  wireless  terminals feature only one mode of network coverage
which prohibits  connection in many areas,  SecurePay features up to three modes
of cellular network coverage.

     Competitive Position of Our Subsidiary NMSI:

     The market for placing and maintaining electronic credit card authorization
and payment systems with retail merchants is highly  competitive.  NMSI competes
in this  market on the basis of  technological  capability,  quality of customer
service, price, support and availability of additional features.

     Industry  participants  have  elected  to  sell,  merge  or form  strategic
alliances  in recent  years which has prompted  many small  independent  service
organizations and other providers to examine these such options.


                                       18

<PAGE>

     NMSI's  principal  competitors  are local banks.  NMSI also  competes  with
larger,   vertically-integrated  transaction  processors  as  well  as  numerous
competitors that provide certain merchant services while using third-parties for
network and other services.  In addition,  NMSI competes with large regional and
national   banks  that  have  internal   sales  forces  and/or  have   developed
relationships  with independent  service  organizations  that are competitors of
NMSI.   Management   believes  that  by  utilizing  NMSI's   bank/direct   sales
relationships,  NMSI has a distinct competitive advantage in maintaining primary
relationships  with the  underserved,  small to medium  merchant  segment of the
market.

     Larger, more fully integrated companies may penetrate NMSI's segment of the
market. Moreover, many of NMSI's competitors have access to significant capital,
management,  marketing  and  technological  resources  are greater than those of
NMSI,  and there can be no  assurance  NMSI will  continue to be able to compete
successfully  with banks,  other  transaction  processors  and merchant  service
providers.

     Patents, trademarks, licenses, franchises,  concessions, royalty agreements
or labor contracts, including duration;


     We have no patents, trademarks, franchises, concessions, royalty agreements
or labor contracts.

     SecurePay is  continuously  developing  software for use in four  principal
areas:  (i)  applications  for Internet  based and wireless  transactions;  (ii)
transaction  switching;(iii)  the SecurePay Host; and (iv) customer  service and
fraud.  SecurePay regards its proprietary  software as protected by trade secret
and copyright laws of general applicability. SecurePay attempts to safeguard its
software through the protection afforded by the above-referenced  laws, employee
and  third-party  non-disclosure  agreements,  licensing  agreements  and  other
methods  of  protection.  Despite  these  precautions,  it may be  possible  for
unauthorized third- parties to copy, obtain or reverse engineer certain portions
of  SecurePay's  software  or to  otherwise  obtain  or  use  other  information
SecurePay regards as proprietary.  While SecurePay's competitive position may be
affected  by  its  ability  to  protect  its  software  and  other   proprietary
information,  management  believes that the protection  afforded by trade secret
and copyright laws is less significant to SecurePay's success than other factors
such as the knowledge,  ability and experience of SecurePay's  personnel and the
continued pursuit and implementation of its operating strategies.

     SecurePay   currently  licenses  certain  software  from  third-parties  to
supplement  its internal  software  and  technology  development  and to shorten
time-to-market software application product deliveries.

                                       19
<PAGE>


     Our  subsidiary  NMSI has no  patents,  trademarks,  licenses,  franchises,
concessions, royalty agreements or labor contracts.


Risk Factors

     In addition to the risks and other  considerations  discussed  elsewhere in
this annual  report,  set forth below is a  discussion  of certain  risk factors
relating  to our  business  and  operations.  These risk  factors are drafted in
"Plain  English"  format  in  accordance  with Rule 421 of the  Securities  Act.
Accordingly,   references   to  "we"  and  "our"  refer  to  Pipeline   and  its
subsidiaries.

Our dependence upon VISA and MasterCard registration and
financial institution sponsors
-------------------------------------------------------------------------------

     Our subsidiary,  NMSI, must be sponsored by a financial institution that is
a principal member of the VISA and MasterCard  credit card associations in order
to process bankcard transactions.  Our designation with VISA and MasterCard as a
certified  processor and our status as a member  service  provider are dependent
upon the  sponsorship of member  clearing banks and our continuing  adherence to
the standards of the VISA and MasterCard  credit card  associations.  The member
financial  institutions of VISA and MasterCard set these standards.  Some of the
member  financial  institutions  of  VISA  and  MasterCard  provide  transaction
processing  services in direct  competition  with our services.  In the event we
fail to comply  with  these  standards,  VISA or  MasterCard  could  suspend  or
terminate  our  designation  as a certified  processor or our status as a member
service provider. The termination of our member service provider registration or
our status as a certified  processor,  or any changes in the VISA or  MasterCard
rules that prevent our  registration  or otherwise  limit our ability to provide
transaction processing and marketing services for VISA or MasterCard, would have
a material  adverse effect on our business,  financial  condition and results of
operations.


Increased consolidation in the marketplace has an impact on price and
availability of acquisition, joint venture and alliance opportunities
-------------------------------------------------------------------------------

     Historically,  growth  strategy  has  been  materially  dependent  upon the
purchase  of  additional   merchant  portfolios  and  acquisition  of  operating
businesses and transaction  processing  assets. We face significant  competition
from other transaction processors for available  acquisition,  joint venture and
alliance opportunities. These acquisitions potentially deprive us of acquisition
opportunities.  We cannot give any  assurances  that the  historical  or current
level of acquisition  opportunities will continue to exist, that we will be able
to acquire merchant portfolios,  operating businesses and transaction processing
assets  that  satisfy  our  criteria,  or that any such  transaction  will be on
favorable terms.

We may be unable to accurately analyze risks associated with purchased merchant
portfolios, joint ventures or business combinations
-------------------------------------------------------------------------------

     When we  evaluate  a  potential  purchase  of a merchant  portfolio,  joint
venture  or  business  combination,  we  conduct a due  diligence  review of the
related  merchant   portfolio.   The  review  process  includes   analyzing  the
composition  of the  merchant  portfolio,  applying  our uniform  standards  and
underwriting  guidelines to the merchant  portfolio  and  attempting to identify
high-risk merchants included in the merchant portfolio.  Notwithstanding,  these
due diligence efforts, however, it is not possible to properly assess all of the
risk attributes  associated with a purchased or otherwise  acquired portfolio or
otherwise identify all of the high-risk merchants. Incorrect risk assessments of
our purchased or otherwise  acquired  portfolios may result in excessive  losses
from chargebacks or merchant fraud.

                                       20

<PAGE>

We may experience higher than anticipated costs and expenses in the event of
delays in the conversion of merchant portfolios to our network
-------------------------------------------------------------------------------

     At the time of consummation of merchant portfolio  purchases,  combinations
or  joint  ventures,  merchants  in a  purchased  portfolio  typically  are  not
operating on the SecurePay Network and may not use the same merchant  accounting
processors that we use.

     Until we convert  each  newly-purchased  merchant  to our  Network  and our
merchant  accounting  processors,  we do not fully realize the anticipated  cost
savings and synergies from the portfolio purchase, business combination or joint
venture.  We have  little,  if any,  control over the  performance  of the other
networks  and  processors.  We  typically  are not able to apply  fully our risk
management and fraud avoidance practices to these merchants and we must continue
to pay third  parties  for  processing  services,  which  reduces  our  economic
benefits in the merchant portfolio.

     In certain  circumstances,  third party  processors  may claim an ownership
interest in certain of the purchased  merchant  relationships  to which they are
party.  If those claims are  successful,  they could impede the conversion  and,
correspondingly,  reduce the cost savings and synergies anticipated to be gained
by virtue of the purchased or otherwise acquired portfolio.

     As a result of any acquisitions of merchant  portfolios,  and other smaller
acquisitions,  our failure to complete  these  conversions  in  accordance  with
management plans could have a material adverse effect on our financial condition
and results of operations.

Our acquisition strategy may require substantial capital resources and
additional indebtedness
-------------------------------------------------------------------------------

     Our acquisition strategy may require substantial capital resources,  and is
likely to result in the need for  additional  indebtedness.  We cannot  give any
assurances that we will be able to obtain  financing for future  acquisitions on
favorable terms.


High levels of competition may have a material adverse effect on our business,
financial condition and results of operations
-------------------------------------------------------------------------------

     The credit, charge and debit card transaction  processing services business
is highly  competitive.  Many of our current and  prospective  competitors  have
substantially  greater  financial,  technical  and marketing  resources,  larger
customer bases,  longer  operating  histories,  more developed  infrastructures,
greater name recognition  and/or more established  relationships in the industry
than we have.  Our  competitors  may be able to adopt  more  aggressive  pricing
policies than we can,  develop and expand their service  offerings more rapidly,
adapt to new or emerging  technologies and changes in customer requirements more
quickly,  take advantage of acquisitions and other  opportunities  more readily,
achieve  greater  economies  of  scale,  and  devote  greater  resources  to the
marketing and sale of their services.  Because of these competitive  factors and
due to our  relatively  small size and  financial  resources we may be unable to
compete successfully.

                                       21
<PAGE>

Increased merchant attrition may have a material adverse effect on our business,
financial condition and results of operations
-------------------------------------------------------------------------------

     We  experience  attrition  in our merchant  base in the ordinary  course of
business resulting from several factors,  including business closures, losses to
competitors and conversion-related  losses Increased merchant attrition may have
a material adverse effect on our financial  condition and results of operations.
We  cannot  give any  assurances  that we will not  experience  higher  rates of
merchant attrition.

Increases in interchange rates may adversely affect our profitability
-------------------------------------------------------------------------------

     VISA and MasterCard have increased their respective  interchange rates each
year.  Although we historically have reflected these increases in our pricing to
merchants,  there can be no assurance that merchants will continue to assume the
entire impact of the future increases or that transaction processing volumes and
merchant attrition will not be adversely affected by the increases.

Increases in chargebacks or merchant fraud may adversely affect our
Profitability where we have contractually obligated ourselves

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

     When a billing  dispute  between a cardholder and a merchant is resolved in
favor of the  cardholder,  the transaction is "charged back" to the merchant and
the amount of the transaction is credited to the cardholder. Reasons for billing
disputes include, among others:

     . nonreceipt of merchandise or services;

     . unauthorized use of a credit card; and

     . quality of the goods sold or the services rendered by that merchant.

     If we are not able to collect chargeback amounts from a merchant's account,
or if the merchant  refuses or is not able due to bankruptcy or other reasons to
reimburse us for the  chargeback,  we bear the loss for the amount of the refund
paid to the  cardholder.  We attempt to reduce our  exposure  to such  losses by
performing periodic credit reviews on our merchant customers and adjusting rates
based, in part, on the merchant's credit risk, business or industry.

     In  addition,  we maintain a reserve  account to offset  potential  losses.
However,  we cannot give any assurances that we will not experience  significant
losses from  chargebacks  in the future.  Increases in  chargebacks  not paid by
merchants  may  have  a  material  adverse  effect  on our  business,  financial
condition and results of operations.

Increases in processing costs may adversely affect our profitability
-------------------------------------------------------------------------------

     We are subject to certain  contractual  volume obligations that if not met,
will cause our  processing  cost to increase and therefore may adversely  affect
our  ability  to attain  and  retain  new and  existing  merchants.  This  could
materially adversely affect our growth and profitability.

                                       22
<PAGE>

We bear the risk of fraud committed by our merchant customers where we have
contractually obligated ourselves to do so.
-------------------------------------------------------------------------------

     Currently,  we have contractually  obligated  ourselves to bear the risk of
fraud committed by approximately 10% of our merchant customers. We bear the risk
of losses  caused by  fraudulent  credit card  transactions  initiated  by these
merchant  customers.  Examples of merchant fraud include  inputting  false sales
transactions or false credits which then result in a chargeback.


     We monitor merchant transactions against a series of standards developed to
detect  merchant  fraud.  In addition,  we maintain a reserve  account to offset
potential  losses.  Despite our efforts to detect merchant fraud, it is possible
that we will  experience  significant  amounts of merchant  fraud in the future,
which may have a material  adverse effect on our business,  financial  condition
and results of operations.


We may become  subject  to certain  State  taxes that  currently
are not passed through to our merchants
-------------------------------------------------------------------------------

     We, like other transaction  processing  companies,  may be subject to state
taxation of certain  portions of our fees charged to merchants for our services.
Application  of this  tax is an  emerging  issue in the  transaction  processing
industry  and the states  have not yet  adopted  uniform  guidelines.  If we are
required to pay such taxes and are not able to pass this tax expense  through to
our merchant customers,  our financial condition and results of operations could
be adversely affected.

We must continue to update and develop technological capabilities and new
products in order to compete.
-------------------------------------------------------------------------------

     Because the transaction  processing  industry and the software  application
products  and  value-added  services  of  the  type  that  we  offer  have  been
characterized by rapidly changing technology and the development of new products
and services,  we believe that our future  success will depend,  in part, on our
ability to  continue  to improve  our  products  and  services  and to offer our
merchant customers new products and services. We cannot give any assurances that
we will  continue to develop  successful  new  products and services or that our
newly-developed  products and services will perform  satisfactorily or be widely
accepted in the marketplace.

Future Sales of Our Common Stock Could Cause the Price of Our Shares to
Fluctuate and Even Decline.
-------------------------------------------------------------------------------

     There may be  significant  volatility  in the market for the common  stock,
based on a variety of factors,  including the  following:  future  announcements
concerning us or our competitors;  changes in quarterly  operating results;  the
gain or loss of significant  contracts;  the entry of new  competitors  into our
markets;  changes in management;  announcements of technological  innovations or
new products by us or our competitors;  and other events and circumstances  some
of which are beyond our control.


                                       23
<PAGE>

We could be subject to liability due to security risks both to users of our
merchant services and to the uninterrupted operation of our systems.
-------------------------------------------------------------------------------

     Security and privacy concerns of users of online commerce  services such as
our  merchant  services  may inhibit the growth of the Internet and other online
services, especially as a means of conducting commercial transactions.

     We rely on secure  socket layer  technology,  public key  cryptography  and
digital  certificate  technology  to provide  the  security  and  authentication
necessary  for  secure   transmission  of  confidential   information.   Various
regulatory and export  restrictions may prohibit us from using the strongest and
most secure  cryptographic  protection available and thereby expose us to a risk
of data  interception.  Because some of our  activities  involve the storage and
transmission of confidential personal or proprietary information, such as credit
card numbers,  security  breaches and fraud schemes could damage our  reputation
and expose us to a risk of loss or and  possible  liability.  In  addition,  our
payment transaction services may be susceptible to credit card and other payment
fraud schemes  perpetrated by hackers or other criminals.  If such fraud schemes
become  widespread  or  otherwise  cause  merchants  to lose  confidence  in our
services in particular,  or in Internet payments systems generally, our business
could suffer.

     Additionally,  our wireless  networks  may be  vulnerable  to  unauthorized
access by hackers or others,  computer  viruses and other  disruptive  problems.
Someone who is able to circumvent  security  measures could  misappropriate  our
proprietary information or cause interruptions in our operations. We may need to
expend significant  capital or other resources  protecting against the threat of
security breaches or alleviating problems caused by breaches. Although we intend
to continue to implement and improve our security measures,  persons may be able
to circumvent the measures that we implement in the future. Eliminating computer
viruses and  alleviating  other  security  problems  may require  interruptions,
delays or  cessation  of service to users  accessing  Web pages that deliver our
services, any of which could harm our business.

We rely on the Internet infrastructure, and its continued commercial viability,
over which we have no control and the failure of which could substantially
undermine our business strategy.
-------------------------------------------------------------------------------

     Our success  depends,  in large part, on other  companies  maintaining  the
Internet  system  infrastructure.  In particular,  we rely on other companies to
maintain a reliable network backbone that provides adequate speed, data capacity
and security and to develop  products that enable  reliable  Internet access and
services.  If the Internet  continues to  experience  significant  growth in the
number of users,  frequency of use and amount of data transmitted,  the Internet
system infrastructure may be unable to support the demands placed on it, and the
Internet's  performance or reliability  may suffer as a result of this continued
growth.

     In addition,  the Internet could lose its commercial viability as a form of
media  due to  delays  in the  development  or  adoption  of new  standards  and
protocols to process increased levels of Internet activity. Any such degradation
of Internet  performance or reliability  could cause advertisers to reduce their
Internet  expenditures;  in recent months,  in fact,  advertisers  have begun to
attribute less value to advertising  on the Internet.  Furthermore,  any loss in
the  commercial  viability of the  Internet  would have a  significant  negative
impact  on  our  merchant  services.  If  other  companies  do not  develop  the
infrastructure or complementary products and services necessary to establish and
maintain the Internet as a viable commercial medium, or if the Internet does not
become a viable  commercial  medium or platform for advertising,  promotions and
electronic commerce our business could suffer.

                                       24

<PAGE>

     Our systems and operations at are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events.
------------------------------------------------------------------------------

     Our  systems  could  fail or  become  unavailable,  which  would  harm  our
reputation,  result in a loss of current and potential customers and could cause
us to  breach  existing  agreements.  Our  success  depends,  in  part,  on  the
performance,  reliability  and  availability  of our  services.  Our systems and
operations  could  be  damaged  or  interrupted  by  fire,  flood,  power  loss,
telecommunications failure, Internet breakdown, break-in, earthquake and similar
events.  We would  face  significant  damage  as a result  of these  events.  In
addition, our systems use sophisticated software which may in the future contain
bugs that could interrupt service. For these reasons we may be unable to develop
or successfully  manage the  infrastructure  necessary to meet current or future
demands for reliability and scalability of our systems.

     If the  volume  of  traffic  on our Web sites or our  customers'  Web sites
increases  substantially,  we must respond in a timely  fashion by expanding and
upgrading   our   technology,   transaction-processing   systems   and   network
infrastructure.  If we do not  expand in a timely  fashion  we could  experience
periodic  capacity  constraints which may cause temporary  unanticipated  system
disruptions,  slower  response times and lower levels of customer  service.  Our
business  could be harmed if we are  unable to  accurately  project  the rate or
timing of increases, if any, in the use of our products and application services
or expand and  upgrade  our  systems and  infrastructure  to  accommodate  these
increases in a timely manner.

     We depend upon third party  suppliers,  such as Sprint,  and  distributors,
such as Concord EFS, who could terminate their  relationship  with us, who could
compete against us, or increase the prices for their goods and services.

     Although we have contractual  relationships  with our suppliers,  there are
risks of  breach,  that we may not comply  with  minimum  supply or  performance
standards and risk termination or price increase.  We cannot assure you that our
suppliers  will  not:   compete   directly  against  us;  enter  into  exclusive
arrangements with our competitors;  or stop selling their products or components
to us at commercially reasonable prices, or at all.

There are potential conflicts of interest as our company lacked sufficient
disinterested directors to ratify certain past transactions.
-------------------------------------------------------------------------------

     Our board of directors unanimously ratified all past transactions.  In some
cases,  fewer than two members of our three member  board of directors  were not
interested in the transaction.

Number of total employees and number of full time employees.

     As of  the  date  of  this  filing,  we had 23  full-time  employees  and 1
part-time employees. SecurePay has 9 employees. NMSI has 15 employees.


     Our employees are not  represented by any labor union,  and we consider our
relationship with them to be good.

Legal Proceedings.

Pipeline:

     The  are no  material  legal  proceedings  pending  or,  to our  knowledge,
threatened against us or our subsidiary NMSI.

Our Subsidiary SecurePay:

     Except for that certain suit in the United States District Court of Arizona
by Net MoneyIN,  Inc. (plaintiff) vs. Mellon Financial Corp., et al (defendants)
(Cause No.  CV-01-441-TUC-RCC),  there are no material legal proceedings pending
or, to our knowledge,  threatened against SecurePay.  The outstanding lawsuit is
an industry wide suit against numerous defendants based on intellectual property
infringement.  A default  judgment  has been  rendered  against  several  of the
parties,  including  SecurePay.  Removal of this  judgment  is  currently  being
sought. SecurePay views this suit to be without merit.



                                       25

<PAGE>

Reports to security holders.

     As a  reporting  company,  we are  required  to file  annual and  quarterly
reports, proxy and information  statements,  and other information regarding our
company with the  Securities  and Exchange  Commission.  The public may read and
copy any  materials we file with the SEC at the SEC's Public  Reference  Room at
450  Fifth  Street,  N.W.,  Washington,   D.C.  20549.  The  public  may  obtain
information on the operation of the Public  Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy
and information  statements,  and other information  regarding issuers, like us,
that file electronically with the SEC at (http://www.sec.gov).

Item 2. Properties.


     Our  principal  place  of  business  and  the  offices  of  our  subsidiary
SecurePay, are at 1599 Washington Street, Braintree, Massachusetts, for which we
pay $1,410 per month plus associated expenses.

     The  operations  center for  SecurePay  is located at 13339  North  Central
Expressway Suite 103, Dallas, Texas. SecurePay's main office telephone number is
(781)843-3812.  Pipeline  Data's  web site is  http://www.pipelinedata.com  NMSI
maintains its corporate  headquarters at 12 West Main Street, Brasher Falls, NY.
NMSI's main office  telephone number is  315-389-5574.  An additional  office is
located in Tupper Lake, NY.

Item 3.  Controls and Procedures

     As of December 31, 2003, an evaluation was performed  under the supervision
and with the participation of the Company's management,  including the Corporate
Executive  Committee  ("CEC")  and CFO, of the  effectiveness  of the design and
operation of the Company's  disclosure  controls and  procedures.  Based on that
evaluation, the Company's management,  including the CEC and CFO, concluded that
the Company's  disclosure  controls and procedures were effective as of December
31,  2003.  There have been no  significant  changes in the  Company's  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to December 31, 2003.

     Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our principal executive officers and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.

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

     We  submitted  the  election  of  directors  and  officers  as  well as the
amendment of the stock  option plan to the  shareholders  of our  Company.  As a
company that reported  under Section  15(d) of the  Securities  Exchange Act, we
were not subject to the proxy  rules of Section 14 and did not seek  approval of
this transaction  through the  solicitation of proxies.  As of March 1, 2004, we
became subject to these rules.

                                       26
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

(a) Market information.

     Our common stock and class A redeemable  warrants  commenced trading on the
OTC  Bulletin  Board on October  19, 2000 under the  trading  symbol  "PPDA" and
"PPDAW,"  respectively.  Our class B redeemable  warrants trade under the symbol
"PPDAZ". The following table sets forth the highest and lowest prices quoted for
our common stock,  class A redeemable  warrants and class B redeemable  warrants
during the three quarters between January 1, 2003 and December 31, 2003, and the
closing quote for those  securities on March 26, 2004.  The  quotations  reflect
inter-dealer prices, with no retail mark-up,  mark-down or commissions,  and may
not represent actual  transactions.  The information  presented has been derived
from the OTC Bulletin Board.

Quarter ended 3/31/03

        Security                          High                        Low
        --------                          ----                        ---
        common stock                      $.25                       $.15
        class A redeemable warrant        $.02                       $.02
        class B redeemable warrant        $.02                       $.02

Quarter ended 6/30/03

        Security                          High                        Low
        --------                          ----                        ---
        common stock                      $.35                       $.08
        class A redeemable warrant        $.05                       $.02
        class B redeemable warrant        $.02                       $.02

Quarter ended 9/30/03

        Security                          High                        Low
        --------                          ----                        ---
        common stock                      $.23                       $.13
        class A redeemable warrant        $.10                       $.02
        class B redeemable warrant        $.05                       $.02

Quarter ended 12/31/03

        Security                          High                        Low
        --------                          ----                        ---
        common stock                      $.65                       $.21
        class A redeemable warrant        $.19                       $.05
        class B redeemable warrant        $.10                       $.04

     As of March 26,  2004,  our stock  our stock  closed at $1.20,  our class A
warrants closed at $.30 and our class B warrants closed at $.70.


  (b) Holders.

     As of December 31, 2003 there were 55  shareholders of record of our common
stock. This number does not include shares held in street name.

                                       27
<PAGE>

   (c) Dividends.

     Our company has never  declared or paid any cash  dividends  on its capital
stock. We currently intend to retain all available funds and any future earnings
of our business for use in the  operation of our business and do not  anticipate
paying any cash dividends in the foreseeable  future.  The declaration,  payment
and amount of future  dividends,  if any, will depend upon the future  earnings,
results of  operations,  financial  position  and  capital  requirements  of our
company, among other factors, and will be at the sole discretion of our board of
directors.

     Under the  Delaware  General  Corporation  Law,  our  company  may only pay
dividends  out of capital and  surplus,  or out of certain  enumerated  retained
earnings,  as those terms are defined in the Delaware  General  Corporation Law.
The  payment of  dividends  on our common  stock is,  therefore,  subject to the
availability  of capital  and  surplus or  retained  earnings as provided in the
Delaware General Corporation Law.

(d) Recent sales of securities.

     The following material  transactions have occurred in the past fiscal year.
They are identified below:



     Pursuant to the NMSI  Acquisition  Agreement,  dated,  August  26th,  2002,
whereby we  purchased  our NMSI  subsidiary,  we agreed  that during the initial
36-month  period of the this  agreement  (August  26,  2005),  we would offer to
repurchase the Preferred  Shares from the Kevin and Nancy Weller for $2,500,000.
In the event we failed to do this, the merchant  portfolio  would revert back to
the  Wellers.  On  February  27,  2004  we  complied  with  this  provision  and
repurchased  2,000  Preferred  Shares for $1,000,000  and the Wellers  exercised
their option to convert 3,000 shares into 3,000,000  million shares. As a result
of this  transaction,  the NMSI  merchant  portfolio  cannot  revert back to the
Wellers.

     A part of the NMSI  Acquisition  Agreement,  the Wellers are  afforded  the
opportunity  to borrow an  aggregate  amount of $200,000  from our  company.  On
November 18, 2003,  Kevin Weller borrowed $85,000 from our company pursuant to a
promissory note with a term of eighteen  months bearing  interest at the rate of
4%. This note was paid in full on March 10, 2004.

     On February 27, 2004, we entered into a financing  arrangement  with Laurus
Master Fund, Ltd.  ("Laurus  Funds"),  a financial  institution  specializing in
funding small and micro-capitalization companies, to provide our company with up
to $3.0 million in financing. Under the arrangement, we issued $2,000,000 of our
6% convertible  term notes at a conversion  price of $1.00 to Laurus Funds,  and
Laurus  Funds  agreed,  subject  to certain  conditions,  to  purchase  up to an
additional  $1,000,000  of  Pipeline's  6%  convertible  term  notes.  Under the
arrangement,  Laurus  Funds was also  issued  warrants to purchase up to 500,000
shares of our common stock.  We used $1,000,000 of the proceeds of the financing
to fulfill our  repayment  obligation  under the NMSI  Acquisition  Agreement to
repurchase  a portion of the Weller  stock and  intend to use the  remainder  to
acquire merchant portfolios in order to grow our business.


     On March 14, 2002,  Accu-Search  renegotiated their note with us. We agreed
to convert the $200,000 note with  interest  totaling  $224,000  into  preferred
stock of  Accu-Search.  They also paid an upfront  payment of $4,000 in cash. In
addition,  Accu-Search  will  provide  Pipeline  Data two  years  web  access to
Accu-Search's  on-line data and map system.  Contracts were finalized and signed
and monies  delivered  on or about April  30th,  2002.  During 2003  $63,528 was
received  from  Accu-Search  representing  payments  of interest of 24,620 and a
partial redemption of Accu-Search's preferred shares of $38,908

     On March 8th, 2002, Jack  Rubinstein,  our chairman of the board,  lent our
company  $100,000 for working capital  purposes.  The promissory note evidencing
this transaction has a term of one year and bears simple interest at the rate of
8%. The principal and interest of the note is  convertible  into common stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. On March 8, 2003, the
note was renegotiated and the term was extended to March 8, 2005.


                                       28

<PAGE>


     As of the December 31, 2003, our company issued  $726,023.44 in convertible
debt. The outstanding  notes have a two year term, accrue interest at the annual
interest  rate of 8% and have 33% warrant  coverage.  The  conversion  price for
notes issued prior to November 1, 2003 is $.35 per share.  The conversion  price
for notes issued after November 1, 2003 is $.50 per share.  per share. The names
and amounts of the recipients are as follows:



<TABLE>
<CAPTION>

8% Convertible Note

Date                 Name                   Amount
<S>                 <C>                     <C>

6.17.02              Michael Greenburg      20,000

6.17.02              Robert Erlichman       15,000

7.9.02               Elaine Greenburg        5,000

7.16.02              Barbara Klein          10,000

7.18.02              Hal Denton            100,000

8.28.02              Pearl Holloway          7,000

9.11.02              G. Timothy Kane        10,000

9.12.02              Jerry Trevor           25,000

9.20.02              Chandler Smith          4,000

9.29.02              Chasm Holdings         58,029.31

10.4.02              DSM Realty              15,000

10.15.02             Don Swift                5,000

10.17.02             Brian Kornreich         25,000

11.25.02             Chasm Holdings           5,000

12.31.02             Chasm Holdings          20,524.13

3.12.03              Cara J. Fascione       200,000

3.31.03              Chasm Holdings          26,120

6.9.03                William Haas            5,000

6.26.03               Lane Gordon            50,000

5.6.03                Chasm Holdings          2,000

9.25.03               Chasm Holdings         15,000

9.2.03                Michael Greenburg       8,000

10.27.03              Chasm Holdings          8,950

10.31.03              Lane Gordon            50,000

11.13.03              Lane.Gordon            50,000

12.18.03              Tracy Bertolino         1,400
</TABLE>


     * On January 1, 2003,  DSM Realty  converted its note into 43,686 shares of
Pipeline common stock.

                                       29
<PAGE>

Item 6. Management's Discussion and Analysisor Plan of Operation.



               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

            CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDING

                           DECEMBER 31, 2002 AND 2003

     The following  discussion relates to the results of our operations to date,
and our financial condition:

     This annual report  contains  forward  looking  statements  relating to our
Company's  future economic  performance,  plans and objectives of management for
future operations, projections of revenue mix and other financial items that are
based  on the  beliefs  of,  as well  as  assumptions  made  by and  information
currently  known to, our  management.  The words  "expects,  intends,  believes,
anticipates,  may, could, should" and similar expressions and variations thereof
are intended to identify forward-looking  statements.  The cautionary statements
set forth in this  section are  intended to  emphasize  that actual  results may
differ materially from those contained in any forward looking statement.

     On August 26, 2002, we  consummated  an  acquisition  of Northern  Merchant
Services, Inc. ("NMSI"), a New York corporation.  We issued five thousand shares
of Series A Preferred Convertible Stock. Each share of stock is convertible into
1,000  shares of our common  stock at the  conversion  price of $0.50 per common
share and one million of our common  shares in  exchange  for all of the capital
stock of NMS. The  transaction  has been accounted  using the purchase method of
accounting,  and the  purchase  price  of the  transaction  is based on the fair
market value of our common stock issued. The purchase price was allocated to the
NMSI's  assets  acquired and  liabilities  assumed by our company based on their
relative  fair  market  values at the  acquisition  date for as the  issuance of
shares of common stock.

                                       30


<PAGE>


     We agreed that  during the  36-month  period  from the date (the  "36-month
Period") of the NMSI Acquisition  Agreement (August 26, 2005), we would offer to
repurchase the Preferred  Shares from the Kevin and Nancy Weller for $2,500,000.
In the event we failed to do this, the merchant  portfolio  would revert back to
the  Wellers.  On  February  27,  2004  we  complied  with  this  provision  and
repurchased  2,000  Preferred  Shares for $1,000,000  and the Wellers  exercised
their option to convert 3,000 shares into 3,000,000  million shares. As a result
of this  transaction,  the NMSI  merchant  portfolio  cannot  revert back to the
Wellers.

     Our subsidiary  Northern Merchant Services,  Inc. ("NMSI") is the successor
entity to Northern Merchant Services,  a New York sole  proprietorship  company,
which  started  business in 1997.  This transfer was accounted for as a purchase
with the recording of the net assets acquired at their fair value.

     NMSI is engaged in the business of promoting  the sale of and  marketing of
credit card indebtedness  service,  leasing services,  Internet services,  scan,
debit, of certain providers of such services.

     A part of the NMSI  Acquisition  Agreement,  the Wellers are  afforded  the
opportunity  to borrow an  aggregate  amount of $200,000  from our  company.  On
November 18, 2003,  Kevin Weller borrowed $85,000 from our company pursuant to a
promissory note with a term of eighteen  months bearing  interest at the rate of
4%. This note was paid in full on March 10, 2004.


Critical Accounting Policies and Estimates
-------------------------------------------

     The  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets,  liabilities,  revenues
and expenses,  and our related  disclosure of contingent assets and liabilities.
On an on-going  basis,  we evaluate our  estimates,  including  those related to
revenue recognition, bad debts, intangible assets and income taxes.


     We believe  the  following  critical  accounting  policies  and the related
judgments and estimates  affect the  preparation of our  consolidated  financial
statements.


     We recognize  revenue when it is earned and record  accounts  receivable at
that time. We do not account for revenue based on  contractual  arrangements  in
advance of their being earned.  Our 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 per 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.  We do not  account  for  revenue  based  on  contractual
arrangements  in advance of their  being  earned.  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 char-  acteristics 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.

     The Company  adopted SFAS No. 150 as of September 30, 2003. By adopting the
new statement,  the Company recognized 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.

     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.  Portfolio's  and customer  lists are generally
amortized over five to seven years.

     We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.  If the financial
condition of our customers  were to  deteriorate,  resulting in an impairment of
their ability to make  payments,  additional  allowances  may be required  which
would result in an additional general and  administrative  expense in the period
such determination was made.

                                       31


<PAGE>

     We do not have any of the following:

     o    Off-balance sheet arrangements.

     o    Certain trading activities that include  non-exchange traded contracts
          accounted for at fair value.

     o    Relationships  and  transactions  with persons or entities that derive
          benefits  from any  non-independent  relationships  other than related
          party transactions discussed herein.

                                       32
<PAGE>



<TABLE>
<CAPTION>
                               PIPELINE DATA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS






     For the years ended
                                                                          December 31, 2002          December 31,
2003

<S>                                                                       <C>                        <C>



Revenue                                                                      $    3,499,820          $  10,246,955

Cost of goods and services sold                                                   2,720,701              8,532,958

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

          Gross profit                                                             779,119               1,713,997

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

Operating Expenses
    Salaries and payroll costs                                                     935.678               1,152,865
    Selling, general and administrative                                            504,615                 773,123
    Depreciation and Amortization                                                    8,761                  35,222

                                                                                     -----                  ------

          Total operating Expenses                                               1,449,054               1,961,210

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


          Net Income (loss) from operations                                       (669,935)               (247,213)

Other income and expenses
     Interest income                                                                28,413                  24,235
     Interest expense                                                              (18,062)                (76,812)

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

           Total other income (expenses)                                            10,351                 (52,577)
                                                                                   (50,577)                 10,351

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

                  Income (loss)                                                $  ( 659,584)          $  ( 299,790)

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


Basic  earnings (loss) per common share                                   $           (0.06)        $         (.02)

                                                                             ================        ===============

Weighted average shares outstanding, basic                                       11,986,890             12,902,851

</TABLE>


                                       33
<PAGE>

Results of Operations 2003 Compared with 2002
----------------------------------------------

     For the year ended December 31, 2003, the company generated net revenues of
$10,246,955  as compared to revenues of $3,499,820  for the year ended  December
31, 2002. The company's cost of goods and services sold aggregated $8,532,958 as
compared to $2,720,701  for the year ended December 31, 2002 and yielded a gross
profit of  $1,713,997  as compared to $779,119  for the year ended  December 31,
2002. The company's general and administrative costs aggregated  approximately $
773,123 for the year ended  December  31,  2003 as compared to $504,615  for the
year ended  December  31,  2002  consisting  of the  following  categories  as a
percentage  of  revenues  for the year ended  December  31,  2003:  Rent  39,696
(0.387%)  Professional  Fees 114,091  (1.113%)  Telephone  76,837 (.750%) Postal
8,596 (.084%) Office 15,512 (.151%)

     The company  increased  its cash  position to $95,120 at December  31, 2003
from a balance of $85,463 as of December 31, 2002.  The company  continued to be
funded in part from an  increase in  accounts  payable  and accrued  expenses by
$63,165. The company expended cash to increase accounts receivable by $41,250 at
December 31, 2003. On November 1, 2000, we loaned $200,000 to Accu-Search  Inc.,
a New  Jersey  corporation.  The  loan  was  evidenced  by  Accu-Search,  Inc.'s
promissory note that accrues interest at the rate of 12% annually. The principal
amount of the promissory note together with accrued interest was due and payable
on December 31, 2001.  Subsequent to the date of the financial  statements,  the
Company  agreed  to  exchange  $228,000  of debt for  37,004  shares of Series A
Convertible  Preferred Stock and remit payment of $23,447.  Management  believes
that it will be able to fund the company  through its present cash  position and
the continuation of revenue  producing  activities by its subsidiaries  Northern
Merchant  Services,Inc  and  SecurePay.com,  Inc.  It may  need to seek  further
capital  through  exercise of its warrants or by other capital  raising needs in
order to continue to grow the company.



     Management believes that it is moving toward profitability.  Pipeline plans
to attain profitability and meet cash flow needs going forward as follows:

     1.   Management   believes  that  the  increase  in  revenue  Pipeline  has
          experienced  will  continue  as a  result  of  the  operations  of its
          subsidiaries,  NMSI  and  SecurePay.  NMSI  is  an  independent  sales
          organization  which  markets  and  services   electronic  credit  card
          authorization and payment systems to merchants located  throughout the
          United  States.  NMSI's  operating  and  growth  strategies  focus  on
          expanding  NMSI's  customer base of small and  medium-sized  merchants
          through bank referrals,  direct sales, independent sales agents, trade
          and other association  affiliations,  merchant portfolio purchases and
          superior  customer   service.   SecurePay  is  a  custom  credit  card
          transaction  processor serving as a gateway  intermediary  between the
          customer and the financial  networks for the acceptance of credit card
          payments by merchants. An integral aspect of SecurePay's operating and
          growth  strategy  focuses on offering a broad  range of  products  and
          services  historically  unavailable to small-to-medium sized merchants
          so as to  differentiate  itself among the banks and Independent  Sales
          Organization's  serving this market segment.  Management believes that
          the quality and  reliability  of its  products  and  services  enhance
          SecurePay's ability to attract and retain merchant customers.

     2.   Repayment  of the  Accu-search  loan.  On November 1, 2000,  we loaned
          $200,000  to   Accu-Search   Inc.,  a  New  Jersey   corporation.   In
          consideration of the issuance of the loan,  Accu-Search,  Inc. granted
          us a perpetual,  non-transferable and  non-sublicensable  royalty free
          license to utilize an automated  software process which will enable us
          to improve the functionality of our website. The loan was evidenced by
          Accu-Search,  Inc.'s promissory note that accrues interest at the rate
          of 12% annually.  While no assurance can be given,  we anticipate that
          we will maintain an ongoing  working  relationship  with  Accu-Search,
          Inc. The principal amount of the promissory note together with accrued
          interest was due and payable on December 31, 2001.



                                       34


<PAGE>

          We agreed to exchange  $228,000 of debt for 37,004  shares of Series A
          Convertible Preferred Stock and remit payment of $23,447.


          On March 14,  2002,  Accu-Search  renegotiated  their note with us. We
          agreed to convert the $200,000  note with interest  totaling  $224,000
          into preferred stock of Accu-Search. They also paid an upfront payment
          of $4,000 in cash. In addition, Accu-Search will provide Pipeline Data
          two years web access to  Accu-Search's  on-line  data and map  system.
          Contracts were  finalized and signed and monies  delivered on or about
          July 12th,  2002.  During 2003 $63,528 was received  from  Accu-Search
          representing  payments of interest of 24,620 and a partial  redemption
          of Accu-Search's preferred shares of $38,908

  Other aspects of our Financial Condition

     3.   Pipeline is seeking to eliminate non-recurring expenses.

     4.   Pipeline is seeking to eliminate non-cash charges,  such as payment in
          stock for services rendered to Pipeline.


Liquidity and Capital Resources
-------------------------------
Working Capital, Debt and Liquidity.
------------------------------------

     For the eight  months ended  August 31,  2002,  the net income  reported by
Northern  Merchant  Services  was  passed  through  to Kevin  Weller  and  Nancy
Smith-Weller and was reported on their personal income tax returns.

     An audit by Internal  Revenue  Service on the  records of Kevin  Weller and
Nancy  Smith-Weller  d/b/a  Northern  Merchant  Services  for the  2000 tax year
resulted  in an  additional  income tax  liability  of  $62,970 to the  Internal
Revenue Service and $10,033 to the State of New York. As of March 15, 2004 these
liabilities were fully paid.

     On March 8th, 2002, Jack  Rubinstein,  our chairman of the board,  lent our
company  $100,000 for working capital  purposes.  The promissory note evidencing
this transaction has a term of one year and bears simple interest at the rate of
8%. The principal and interest of the note is  convertible  into common stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. On March 8, 2003, the
note was renegotiated and the term was extended to March 8, 2005.

     Our company is obligated through it subsidiary,  SecurePay, to repay monies
borrowed on a revolving line of credit with American  Express as of December 31,
2002 and December 31, 2003  aggregating  $59,071 and $22,833  respectively.  The
repayments are to be made monthly with interest.

     As of the December 31, 2003, our company issued  $726,023.44 in convertible
debt. The outstanding  notes have a two year term, accrue interest at the annual
interest rate of 8% and have 33% warrant  coverage at a conversion price of $.35
per share and for convertible notes issued after November 1, 2004 the conversion
price was $.50 per share.

     Management  believes  that it will be able to fund the company  through its
present cash position and the  continuation of revenue  producing  activities by
its subsidiaries  SecurePay and NMSI It may need to seek further capital through
exercise of its warrants or by other capital  raising needs in order to continue
to grow the company.

                                       35
<PAGE>


Management's Review of Company Progress

     For the quarter  ended  December 31,  2003,  the EBITDA loss was reduced to
$718 from $41,448 for the previous  quarter.  During the past eighteen  months ,
the company's  subsidiary,  SecurePay  undertook the  development of an enhanced
suite  of  payment  processing  tools in  anticipation  of a new  sales  program
focusing on new merchant account growth.  Management  believes that the enhanced
suite of payment  tools  including  online  shopping  cart,  secured  processing
gateway,  virtual  terminal and wireless cell phone solutions  affords  Pipeline
Data a distinct  competitive  edge over other  marketers  of payment  processing
services by  offering  its  customers  highly  competitive  pricing and a single
source for all their Internet- based card acceptance  needs. The  implementation
and direct-to-merchant marketing of this enhanced suite of card acceptance tools
was completed in the third quarter of 2003.  The results of  implementation  and
marketing have been a substantial  increase in 4th quarter  account sales by our
subsidiary  SecurePay,  reduction of losses  attributable to R&D costs,  and the
provision of yet another avenue of account growth for our subsidiary, NMSI.

     In February of 2004, Pipeline Data consummated a financing arrangement with
Laurus Master Fund. This arrangement  provides  Pipeline with up to $3.0 million
in expansion capital.  The company has immediately  deployed $1.0 million of the
proceeds to close out the outstanding financing arrangement with Nancy and Kevin
Weller  relating  to the  original  acquisition  of  NMSI.  The  effect  of this
transaction  will be to allow  Pipeline  to  finally  realize  the full value of
revenues generated by the NMSI portfolio.  Additionally, the effect of this loan
repayment is to  irrevocably  integrate  NMSI as a  wholly-owned  subsidiary  of
Pipeline Data Inc. The company  intends on using the remaining $2.0 million from
the Laurus financing  arrangement to acquire portfolios and operating  companies
which will be  accretive to  Pipeline's  bottom line  profitability.  Management
believes  that it can achieve a  substantial  rate of return on the placement of
the remaining funds through its extensive long-term industry relationships.

     The  company  has been  extremely  pleased  with the results of its organic
sales  efforts and external  sales  initiatives.  Pipeline  plans to add several
internal  employees to exclusively  focus on its successful  internet  marketing
initiative.  The resources  afforded the company by the Laurus transaction point
strongly to enhanced acquisition  activity in the coming year. In addition,  the
extremely  positive  performance of the company's stock has made the prospect of
more ambitious financing initiatives more likely and viable.

     As we  look  ahead  to  2004,  we are  excited  by the  prospects  for  our
shareholders.  The first  quarter 2004 will begin to reflect the benefits of the
company's  enhanced suite of card acceptance tools.  Additional  momentum in new
account  growth  is also  expected.  Management  expects  our NMSI  division  to
maintain its record of continued  increases to its merchant  base,  as it posted
sustained  growth from both its agent and bank channels  which serve as referral
sources  for company  products  and  services.  All told,  Pipeline  confidently
expects that its impressive year over year growth rate will continue unabated.

                                       36
<PAGE>


     Item 7. Financial Statements. Following pages F-1 - F-14


                                       37


<PAGE>


                                     PART I

                          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, 2003,  and the results of its  operations and changes
in its financial  position from January 1, 2003, through December 31, 2003, have
been made.


<PAGE>



                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


Part 1 - Financial Information
                                                                                                           Page
<S>                                                                                                        <C>

Item 1 - Financial Statements


      Balance Sheets as of December 31, 2003 and 2002                                                        F-4


      Statements of Operations for the years ended December 31,
         2003 and    2002                                                                                    F-5




      Statements of Stockholders' Equity  for the years ended December 31,
            2003 and 2002                                                                                    F-6



      Statements of Cash Flows for the years ended December 31, 2003
            and 2002                                                                                        F-7





      Notes to Financial Statements                                                                       F-8 - F-20

</TABLE>


<PAGE>




                           DRAKEFORD & DRAKEFORD, LLC
                          CERTIFIED PUBLIC ACCOUNTANTS

                         A LIMITED LIABILITY CORPORATION
                            ACCOUNTANTS & CONSULTANTS









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  31,2003,  and  2002,and  the  related  consolidated  statements  of
operations, changes in stockholders' equity (deficiency), and cash flows for the
years ended  December  31, 2003 and 2002.  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  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of Pipeline
Data,  Inc., as of December 31, 2003 and 2002, and the 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 24, 2004







<PAGE>


<TABLE>
<CAPTION>

                               PIPELINE DATA, INC.

                           CONSOLIDATED BALANCE SHEET

                                                                               December 31, 2003      December 31, 2002
                                   ASSETS


<S>                                                                             <C>                   <C>


CURRENT ASSETS
    Cash and cash equivalents                                                      $     95,120            $    85,463
    Accounts receivable                                                                 294,957                253,707
     Interest receivable                                                                  5,394                  6,269
     Inventory                                                                           21,910                 29,494
     Advances and prepaid expenses                                                       51,316                  6,340
     Note receivable                                                                     85,000                  1,000
                                                                                         ------                  -----

           Total current assets                                                         553,697                382,273
                                                                                        -------                -------

PROPERTY AND EQUIPMENT, net                                                             135,258                126,705
                                                                                        -------                -------

OTHER ASSETS
     Investment- preferred stock                                                        172,309                208,983
     Merchant portfolio                                                               2,500,000                      0
     Deposits                                                                               850                    850
     Goodwill                                                                           176,005                176,005
                                                                                        -------                -------

              Total other assets                                                      2,849,164                385,838
                                                                                      ---------                -------

                       TOTAL ASSETS                                                $  3,538,119             $  894,816
                                                                                   ------------             ----------

         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued expenses                                          $    306,183           $    243,018
    Accrued salaries                                                                     72,974                 54,376
    Payroll taxes and withholdings                                                       50,586                 56,516
    Taxes payable                                                                        30,942                 73,770
    Lease obligations-equipment                                                           4,839                      0
    Loan payable-revolving line of credit                                                36,228                 11,300
    Notes payable                                                                        12,500                150,000
                                                                                         ------                -------

            Total current liabilities                                                   514,252                588,980
                                                                                        -------                -------

LONG-TERM LIABILITIES
     Officer loans payable                                                              100,000                111,552
     Lease obligations-equipment                                                         13,039                      0
     Note payable                                                                             0                 12,500
     Officers right of mandatory redemption (Note H)                                  2,500,000                      0
     Notes payable-convertible 8%                                                       726,023                324,553
                                                                                        -------                -------

            Total long-term liabilities                                               3,339,062                448,605
                                                                                      ---------                -------

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred stock, authorized 5,000,000 shares $.001 par value
     each. At December 31, 2003 and  2002, there are 5,000
     shares outstanding, respectively                                                         5                      5
      Common stock authorized 95,000,000 shares, $.001
      each. At December 31, 2003 and December  31, 2002, there
      are 13,146,250 and 12,706,723 shares outstanding respectively                      13,146                 12,707

     Additional paid-in capital                                                       1,451,821              1,324,896
    Retained Earnings (deficit)                                                      (1,780,167)            (1,480,377)
                                                                                     -----------            -----------

         Total stockholders' equity (deficit)                                          (315,195)              (142,769)
                                                                                       ---------              ---------

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $    3,538,119          $     894,816
                                                                                  =============           ============

The accompanying notes are an integral part of these statements.

</TABLE>


<PAGE>


<TABLE>
<CAPTION>



                               PIPELINE DATA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS






                                                                                       For the years ended
                                                                          December 31, 2003          December 31, 2002
<S>                                                                       <C>                        <C>





Revenue                                                                    $    10,246,955           $  3,499,820
                                                                           ---------------           ------------

Cost of services sold                                                            8,342,012              2,357,262
Cost of goods sold                                                                 190,946                363,439
                                                                                  --------                -------

          Total cost of goods and services sold                                  8,532,958              2,720,701
                                                                                 ---------              ---------

          Gross profit                                                           1,713,997                779,119
                                                                                 ---------                -------

Operating Expenses
    Salaries and payroll cost                                                    1,152,865                935,678
    Selling, general and administrative                                            773,123                504,615
    Depreciation and amortization                                                   35,222                  8,761
                                                                                    ------                  -----

          Total operating Expenses                                               1,961,210              1,449,054
                                                                                 ---------              ---------


          Net Income (loss) from operations                                       (247,213)              (669,935)

Other income and expenses
     Interest income                                                                24,235                 28,413
     Interest expense                                                              (76,812)               (18,062)
                                                                                   ========               ========

           Total other income (expenses)                                           (52,577)                10,351
                                                                                   --------                ------

                  Income (loss)                                               $  ( 299,790)          $  ( 659,584)
                                                                              -------------          -------------


Basic  earnings (loss) per common share                                    $         (.02)        $         (.06)
                                                                           ===============        ===============

Weighted average shares outstanding, basic                                      12,902,851             11,986,890




</TABLE>


The accompanying notes are an integral part of these statements.

<PAGE>


<TABLE>
<CAPTION>

                               PIPELINE DATA, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

                                                                                           Additional
                                                                 Common stock               Paid-in       Accumulated
                                                           Shares         Amount            Capital           Loss           Total



<S>                                                     <C>               <C>              <C>           <C>                 <C>
Balance at December 31, 2001                            10,986,890        $    10,987   $ 1,045,349         $ (820,793)  $   235,543

 On August 26, 2002, Northern Merchant Services,
  Inc. was acquired for 1,000,000 shares of Pipeline
  Common stock                                           1,000,000          1,000            95,003                           96,003
( 5,000 shares of series A preferred conv. stock as
    further consideration in it's August 26, 2002                                                45                                5
    acquisition )
Issuance of common stock for services                      386,500            387            84,832                           85,219

Sale of common stock on September 30, 2002                 333,333            333            99,667                          100,000

Net loss for the year ended December  31, 2002                                               ______           (659,584)    (659,584)
                                                       -------------   -------------------   ------           ---------   ----------
                                                                __     _
                                                               ---     -

Balance at December 31, 2002                              12,706,723     $     12,707  $   1,324,896      $  (1,480,377)  $(142,769)

Issuance of common stock for services                      160,979            161            29,839                           30,000

Conversion of 8% convertible note                           43,686             43            15,191                           15,234

Sale of common stock on August 8, 2003                     134,286            134            46,739                           46,873

Issuance of common stock on December 31, 2003
 for services and debt                                     100,576            101            35,156                           35,257

Net loss for the year ended December  31, 2003           _________        _______          ________           (299,790)    (299,790)
                                                       -----------                                            ---------    ---------

Balance at December 31, 2003                            13,146,250      $  13,146       $ 1,451,821       $ (1,780,167)   $(315,195)
                                                        ==========      =========       ===========       ============= ============

</TABLE>

The accompanying notes are an integral part of this statement.



<PAGE>


<TABLE>
<CAPTION>


                               PIPELINE DATA, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                For the year            For the year ended
                                                                               ended December 31,           December 31, 2002
                                                                                    2003
<S>                                                                             <C>                     <C>


OPERATING ACTIVITIES
    Net (loss)                                                                    $  ( 299,790)             $  (659,584)
    Adjustments for noncash and nonoperating items:
            Depreciation and amortization                                               35,222                    8,761
          Common stock for services                                                     65,257                   85,219
          Conversion of 8% convertible notes                                            18,350                        0
     Changes in operating assets and liabilities:
         Receivables                                                                   (41,250)                (202,189)
         Note receivable                                                               (84,000)                 229,000
         Accrued interest receivable                                                       875                   (6,269)
         Inventory                                                                       7,584                  (29,494)
         Advances and prepaid expenses                                                 (44,976)                  (6,340)
          Officer loans payable                                                        (11,552)                 112,552
                Accounts payable and accrued expenses                                   63,165                  137,483
                Accrued salaries                                                        18,598                   54,376
                Payroll taxes and withholdings                                          (5,930)                  56,516
                Other loans and notes payable                                         (112,572)                 137,253
                Lease obligations-equipment                                              4,839                        0
                Taxes payable                                                          (42,828)                  73,770
                                                                                       --------                  ------

     Cash  (used) by operating activities                                             (429,008)                  (8,946)
                                                                                      ---------                  -------

INVESTING ACTIVITIES
    Capital expenditures                                                               (28,541)                 (99,886)
     Proceeds from preferred stock                                                      36,674                        0
                                                                                        ------                        -

    Cash used by investing activities                                                    8,133                  (99,886)
                                                                                         -----                  --------

FINANCIAL ACTIVITIES
    Proceeds from sale of stock                                                         46,873                  100,000
    Proceeds from lease financing                                                       18,392                        0
    Proceeds from convertible notes                                                    383,120                        0
    Lease obligation payments                                                           (5,353)                       0
    Loan payments                                                                      (12,500)                       0
                                                                                       --------                       -

    Cash provided by financing activities                                              430,532                  100,000
                                                                                       -------                  -------

NET  INCREASE  (DECREASE) IN CASH                                                        9,657                   (8,832)

    CASH BALANCE BEGINNING OF PERIOD                                                    85,463                   94,295
                                                                                        ------                   ------

    CASH BALANCE END OF PERIOD                                                      $   95,120               $   85,463
                                                                                    ----------               ----------

    NON CASH ACTIVITIES:
            Interest                                                              $     54,821             $     18,062
            Corporate income taxes                                             $             0          $             0
            Note receivable conversion to investment stock                     $             0              $   228,000
            Business acquisition-NMS                                           $             0             $     96,003

</TABLE>

The accompanying notes are an integral part of these statements


<PAGE>




                               PIPELINE DATA, INC.


                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2003


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.

2.   Inventories

     Inventories  consist of technical parts and supplies valued at the lower of
cost or market.

3.       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.

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.


<PAGE>



                               PIPELINE DATA, INC.


                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2003


NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
<TABLE>
<CAPTION>
                    POLICIES (continued)

4.   Property and Equipment (continued)

     The estimated  service lives of property and equipment are  principally  as
follows:
<S>                       <C>                                      <C>


                           Furniture and fixtures            5- 7 years
                           Computer equipment                3- 7 years
                           Computer software                 2- 7 years
</TABLE>

     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 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 $9,729 and $4,700 at December 31, 2003 and 2002, respectively.

6.  Revenue and Cost Recognition

     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


<PAGE>




                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003



NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                    POLICIES (continued)



6.  Revenue and Cost Recognition (continued)

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.


7.        Advertising Cost

     Advertising  cost are expensed as incurred.  Advertising  expense totaled $
19,056 for 2003 and $ 14,194 for 2002.


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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003





NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                    POLICIES (continued)




8. Recent Accounting Pronouncements (continued)



     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  adoption  of SFAS 142 did not have an impact  on the  Company's
results of operations, financial position or cash flows.



     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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003

NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                    POLICIES (continued)

8.  Recent Accounting Pronouncements (continued)

     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.

     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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003



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.



  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, 2003, 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.
<TABLE>
<CAPTION>

     At December 31, 2003, the Company has net operating loss carry forwards for
income tax purposes of  $1,886,611.  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 asset as of are as follows:
<S>     <C>                                                       <C>

         Deferred tax asset:
         Net operating loss carry forward                         $  1,886,611
         Valuation allowance                                      $  (1,886,611)
         Net deferred tax asset                                   $     -0-
</TABLE>


     The Company  recognized  no income tax benefit from the loss  generated for
the  period  from the date of  inception  to  December  31,  2003.  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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003






NOTE D - COMMITMENTS AND CONTINGENCIES

     Lease agreements

     The Company previously  occupied office space at the office of the Chairman
of the Board at 250 East  Hartsdale  Avenue,  Hartsdale,  New  York,  10530 at a
monthly  rental of $500.  This office has been closed and now  headquartered  in
Braintree,  Massachusetts.  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.


                              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.

<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003





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, 2002,  the Company's  Board of Directors
approved the grant of 1,265,000  stock options to key employees and  independent
consultants  with a weighted average exercise price of $0.37. As of December 31,
2002, none of these option shares were vested.

     During the year ended December 31, 2003,  the Company's  Board of Directors
approved  the  grant  of  647,637  stock  options  also  to  key  employees  and
independent  consultants with a weighted average exercise price of $0.60. During
the year a total of 100,000  stock  options were  forfeited  that had a weighted
average  exercise price of $0.35.  Of the 467,636  options  awarded to employees
during the year, vest one-third each year beginning January 1, 2004. The options
awarded to the  Directors  at December  31,  2003,  (150,001  options),  vest on
January 1, 2004. The  independent  consultant's  options of 30,000 shares,  vest
one-third each year beginning January 1, 2004.

     The above options  shall have  piggyback  registration  rights and shall be
included in any S-8 registration statement.


     As of December 31, 2003, no options have been exercised and the Company has
reserved an aggregate of 2,547,637  shares of common stock  pending the exercise
of the options.
<TABLE>
<CAPTION>

      Stock option activity is summarized as follows:
<S>                                                       <C>


      Options outstanding at beginning of year             2,000,000
      Granted                                                647,637
      Exercised                                                  -0-
      Forfeited                                              100,000
                                                             -------

      Options outstanding at end of the period             2,547,637
</TABLE>




<PAGE>




                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003




NOTE E - STOCK OPTION ISSUANCES (continued)


     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.


NOTE F - RELATED PARTY TRANSACTIONS

     On November 18, 2003,  Kevin  Weller,  an officer of the Company,  issued a
note  payable to the Company in the amount of  $85,000.  This note has been made
pursuant to that certain  employment  agreement  between Weller and the Company.
(see Note G )

     The Company's subsidiary,  Northern Merchant Services,  Inc., leases office
space from Kevin and Nancy Weller. (see Note D )







<PAGE>




                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003

NOTE G - NOTE RECEIVABLE

     In November 2000, the Company  advanced  $200,000 to  Accu-Search,  Inc. as
evidenced by a note receivable  which was due on December 31, 2001 with interest
at 12% per annum. As a further inducement for the note,  Accu-Search,  Inc. gave
Pipeline  Data,  Inc.  a  perpetual  non-transferable  license  in an  automated
software process to convert multiple inputted documents into transmittable Adobe
PDA  formats.  The  software  may only be used for the  licensed  technology  to
increase  the  functionality  of its own  web-site  by being able to convert any
documentation  it receives  into Adobe PDF format.  The Company  does not have a
valuation  on this asset.  Accu-Search,  Inc.  renegotiated  their note with the
Company in July 2002,  and the Company  agreed to exchange  $228,000 of debt for
37,004  shares of Series A  Convertible  Preferred  Stock and remit  payment  of
$23,447.  At December 31, 2002 the only note  receivable  was for $1,000 with no
stated  interest  that was scheduled to be repaid on a monthly  basis.  Original
note was for $12,000.  As of December 31, 2003, this note has been paid in full.
In October and  November  2003,  the Company  advanced  Kevin  Weller a total of
$85,000 at the rate of four  percent  (4%) per annum to be repaid in whole or in
part at any time  without  premium  or  penalty.  (see  notes to  related  party
transactions)

NOTE H - 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 $36,228 and $11,300 at December  31, 2003 and  December  31,  2002,
respectively.

<TABLE>
<CAPTION>
         Details of Short-Term Debt:


                                                          December 31,

                                                2003                    2002
                                                ----                    ----
<S>                                      <C>                        <C>
           Ladco Financial Group         $   12,500                  $ 150,000
                                        -----------                  -----------



         Details of Long-Term Debt:

         Ladco Financial Group          $        0                 $     12,500
         Officer's Loan Payable         $  100,000                 $    111,552
         8% Convertible notes           $  726,023                 $    324,553
         Officer preferred stock subject
           to mandatory redemption
          (see Note I)                 $ 2,500,000                 $          0
</TABLE>



<PAGE>




                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003


NOTE H - 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. As of December 31, 2003,
the current portion  amounted to $4,839,  and the long-term  portion amounted to
$13,039.


NOTE I - 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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003


NOTE I - 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 J - SUBSEQUENT EVENTS

         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.  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.


<PAGE>



                               PIPELINE DATA, INC.


                    NOTES TO FINANCIAL STATEMENTS (continued)

                                December 31, 2003


NOTE J - SUBSEQUENT EVENTS (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 Master Fund 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.

                Asset Purchase Agreement

     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.


<PAGE>

     Item 8. Changes In and  Disagreements  With  Accountants  on  Accounting an
Financial Disclosure.

     There have been no changes in, and no disagreements with, our company's
public accountants.


PART III

     Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons.
Directors, Executive Officers, Promoters And Control Persons

     Our Current Officers and Directors

     Our chairman, Jack Rubinstein has held office since inception.  Pursuant to
our transaction with SecurePay,  Mr. Jack Rubinstein remained as Chairman of the
Board of Pipeline  Data.  MacAllister  Smith is our president,  chief  executive
officer  and  director.  Phillip  Chait  is  our  Secretary.   Pursuant  to  our
acquisition  agreement  with  SecurePay,  two  additional  board  member  may be
selected  by  MacAllister  Smith and one board  member may be  selected  by Jack
Rubinstein.  Pursuant  to our  agreement  with  NMSI,  Kevin  Weller  became our
director as well as the President and Director of our  subsidiary,  NMSI.  Nancy
Weller is Vice  President  and a Director of NMSI.  Donald W.  Gruneisen  is the
Chief  Financial  Officer of Pipeline and our two  subsidiaries,  SecurePay  and
NMSI. Anthony Reynolds will become our chief technology officer.

     Our board of directors is comprised of only one class of director. Each
director is elected to hold office until the next annual meeting of shareholders
and until his  successor  has been elected and  qualified.  Officers are elected
annually by our board of  directors  and hold office until  successors  are duly
elected  and  qualified.  The  following  is a  brief  account  of the  business
experience  during the past five years of each director and executive officer of
our company.

     Listed below are our officers and directors and their previous experience.
The directors have been elected by the present stockholders and shall serve for
terms of one year, or until their successors are elected and have qualified.
officers are appointed by, and serve at the pleasure of, the board of directors.

     Officers And Directors


     Jack Rubinstein, 55, Chairman of the Board

     Mr.  Rubinstein,  age 55, is, since commencement of its operations in 1991,
the  General  Partner of DICA  Partners,  an  investment  hedge fund  located in
Hartsdale,  New York.  Mr.  Rubinstein  also acts as a management  and financial
consultant to various public companies in the  telecommunications  industry.  He
was a founding public board member of CD Radio, Inc. and aided in the funding of
the Molloy  Group,  a help desk  software  developer.  Mr.  Rubinstein is also a
founding  member  of The  Capital  Market  Advisors  Network,  a  consortium  of
consultants  aiding the capital  market  needs of  emerging  private and smaller
public companies.


                                       39
<PAGE>

     Mr.  Rubinstein  began his  business  career as a  securities  analyst with
Shearson  Hammill & Co.,  specializing in the electrical  equipment and business
services  industries.  After seven years as an analyst, he joined Bear Stearns &
Co.  where  he was a  Director,  managing  the  proceeds  of  corporate  insider
securities sales. At Bear Stearns,  he also managed the derivatives  investments
of several senior officers, as well as a few select individual clients. In 1988,
Mr.  Rubinstein  joined  Morgan  Stanley & Co.  where,  in  addition  to serving
corporate officers and select individual  clients,  he provided his expertise to
private  investment  partnerships.  Mr.  Rubinstein  is a  graduate  of  Cornell
University and received an MBA in Finance from New York University.

     MacAllister Smith, 41, Pipeline and SecurePay,  President,  Chief Executive
Officer and Director

     Mr.  Smith  has over ten years of  experience  in the  merchant  processing
industry  and has held  ownership  positions in three  companies  that have been
merged with public  corporations.  Mr.  Smith was most  recently  Regional  Vice
President of Nova Information Systems, (employed from 1996 to 1998), (NYSE:NIS),
a $2 billion  corporation and one of the three largest credit card processors in
the industry. He was President and CEO of Pinnacle Financial Technologies, Inc.,
(employed  from  1994-1998),a  nationally  recognized  firm  and  a  pioneer  in
electronic  benefits  transfer  (EBT)  programs.  The  company  merged with Nova
Information Systems in 1998. Mr. Smith was also co-founder and Senior Partner of
AccesServices,  Inc.  (employed from 1997 to 1998). He was part of the team that
designed and built a nationwide  network processing switch for retail and online
MasterCard,  Visa,  American  Express and debit card  transactions.  The company
merged with Digital Courier Technologies, Inc. (NASDAQ:DCTI) in 1999.


     Donald W.  Gruneisen,  48,  Pipeline,  SecurePay and NMSI,  Chief Financial
Officer

     Mr. Gruneisen has over 20 years of experience in the volatile,  high-growth
telecommunications  industry, with expertise in the areas of finance, management
accounting and top executive  corporate  management.  Mr. Gruneisen holds an MBA
from Clarkson University in Accounting and Management Information Systems and is
a certified  public  accountant  with  twelve  years  experience  as a corporate
officer  (including  serving in  positions  of chief  executive  officer/general
manager).  He has been the  treasurer and director of finance of NMSI since July
2001.  From June 2000 to July 2001,  Mr.  Gruneisen  was a consultant  providing
strategic guidance with  specialization in billing,  accounting,  and tax issues
associated with the telecommunications  industry and financial management.  From
January 1999 to June 2000, he was a senior accountant at Whalen, Davey & Looney,
LLP.  From 1977 to 1998, he worked for  Nicholville  Telephone  Company,  a $3.5
million ESOP-owned local exchange  carrier/utility.  He started with the company
in 1977 as an accountant  and  accounting  manager and  ultimately  became chief
executive  officer,  general manager and treasurer from 1990 to 1998. His duties
included the management of interests in industry  wireless and network  services
and joint ventures, including the sale of some interests.


                                       40
<PAGE>

     Phillip Chait, 40, Pipeline Data, Inc, and SecurePay, Secretary

     Mr. Chait has over ten years experience in the merchant processing industry
and has held an  ownership  position  in two  companies  that  have been sold to
national  corporations.  He was  most  recently  the  Assistant  Clerk  for Nova
Information  Systems  (NYSE:  NIS).  He was Vice  President  and COO of Pinnacle
Financial  Technologies,  Inc.,  a nationally  recognized  firm and a pioneer in
electronic  benefits  transfer  (EBT)  programs.  The  company  merged with Nova
Information  Systems in 1998. Mr. Chait also served as CFO and Senior Partner of
Access Services,  Inc. His team formed,  designed and built a nationwide network
processing  switch  for  MasterCard,  Visa,  American  Express  and  debit  card
transactions.  The  company  merged  with  Digital  Courier  Technologies,  Inc.
(NASDAQ: DCTI) in 1999.

     Kevin J. Weller,  37, Northern Merchant  Services,  President and Director,
Pipeline, Director

     Mr. Weller has 8 years experience in the payment processing  industry.  His
entry was in 1992 with  Netcom  Data Corp.  as a sales  representative.  He left
Netcom  in 1997.  In  August  1997,  Mr.  Weller  co-founded  Northern  Merchant
Services.  Since 1997 he has consistently  placed Northern  Merchant Services at
the top of Nova  Information  Systems MSP  Program in new  account  acquisition.
Northern Merchant Service has amassed over 6,000 customers prior its acquisition
by Pipeline.  Northern  Merchant  Services was also selected as 2002 business of
the year by the St.  Lawrence  County  Chamber of Commerce.  Mr.  Weller holds a
degree in Business Administration from SUNY Canton.

     Nancy  Smith-Weller,  41, Northern  Merchant  Services,  Vice President and
Secretary

     Ms.  Smith-Weller  has over 5 years  experience in the merchant  processing
industry.  She comes from a strong marketing  background,  with over 15 years of
experience  in that  field.  In August 1997 she co-  founded  Northern  Merchant
Services,  where her  responsibilities  have ranged from internal operations and
accounting  to marketing.  She is active in her local  community and sits on the
local county economic  development  committee.  She is active in the upstate New
York drive to bring business to the north country.  Northern  Merchant  Services
was awarded  Business of the Year 2002 for St. Lawrence  County,  New York. From
1997 to  present,  NMSI  has  continually  ranked  in the top 5 for new  account
acquisitions for Nova Information Systems MSP program.

     Anthony Reynolds, 44, Pipeline, Chief Technology Officer

     Mr.  Reynolds has over five years of experience  in the payment  processing
and gateway industry.  He has extensive experience working with Internet related
companies  and has hosted and  produced a  nationally  syndicated  radio show on
various Internet concepts. He was responsible for overall operational control of
ten Toy's "R" Us retail  outlets  with sales in excess of $80 million  annually,
(employed  from 1982 - 1985) and worked to develop and  integrate  their initial
e-commerce campaign.  Additional duties have included serving as Chief Technical
Officer for Ipubco,  (employed  from  1995-2000)  an Internet  based  publishing
company.   Mr.   Reynolds   holds   certificates   from   Richmond   College  in
telecommunications, computer programming, land technologies, data communications
and satellite communications.

                                       41


<PAGE>

     Item 10. Executive Compensation


     Pursuant to the acquisition agreement between our company and NMSI, we have
entered into employment agreements with Kevin Weller and Nancy Weller.  Pursuant
to Mr. Weller's agreement, Mr. Weller shall be:

     - paid a salary of $200,000 per annum,

     - appointed a director of our company,

     - appointed president of NMSI, a subsidiary of our company,

     - afforded the opportunity to borrow an amount when added to the amount
     borrowable by Nancy Weller shall equal up to an aggregate of $200,000.

     Pursuant to the employment  agreement with Nancy Weller,  Mrs. Weller shall
be:

     - paid a salary of $150,000 per annum,

     - appointed vice-president of NMSI a subsidiary of our company,

     - afforded the opportunity to borrow an amount when added to the amount
     borrowable by Kevin Weller shall equal up to an aggregate of $200,000.

     On November  18,  2003,  Kevin  Weller  borrowed  $85,000  from our company
pursuant to a promissory note with a term of eighteen months bearing interest at
the rate of 4%. This note was paid in full on March 10, 2004.


                                       42
<PAGE>


     The following  table sets forth  information  concerning  compensation  for
services rendered to our company by its Chairman, President and by its executive
officers who earned $100,000 or more for the year ended December 31, 2003.

Compensation was received by and for services rendered to our company.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE


                             Long Term Compensation


                                                        Restricted       Securities
Name and                                Other Annual        Stock        Underlying    LTIP          All
Principal           Salary    Bonus     Compensation        Award(s)     Options       Payout         Other
Position              ($)      ($)           ($)                        ($)        /SARs (#)  ($) Compensation
----------           ----     ------   ---------------  ----------    ----------    -------    ------------------
<S>                  <C>      <C>      <C>              <C>           <C>           <C>         <C>


2003
Jack
Rubinstein(1)         -0-         -0-     -0-               -0-            66,667       -0-            -0-
Board
Chairman

MacAllister        70,854         -0-     -0-               -0-           279,291       -0-            -0-
Smith(2)

Phillip            70,854         -0-     -0-               -0-            25,833       -0-            -0-
Chait(3)

Kevin
Weller (4)        200,000        3,846 7,213                -0-           160,000       -0-            -0-

Nancy             150,000        2,885 7,661                -0-            51,250       -0-            -0-
Weller (5)

Donald             50,000        2,885 3,658                -0-            34,167        -0-           -0-
Gruneisen (6)

2002
Jack
Rubinstein(1)         -0-         -0-         -0-          100,000         96,666         -0-          -0-
Board
Chairman

MacAllister          78,029       -0-         -0-          100,000        446,666         -0-          -0-
Smith(2)

Phillip              70,000       -0-         -0-          100,000          -0-           -0-          -0-
Chait(3)

Kevin
Weller (4)           71,035       -0-         -0-            -0-           96,668         -0-          -0-

Nancy                53,726       -0-         -0-            -0-           -0-            -0-          -0-
Weller (5)

Donald               13,853       -0-         -0-            -0-           -0-            -0-          -0-
Gruneisen (6)

2001
Jack
Rubinstein(1)         -0-         -0-         -0-           160,000       350,000         -0-          -0-
Board
Chairman


</TABLE>

                                       43
<PAGE>

     No Board of Directors' fees have been paid.

     (1) On December 31, 2003,  Jack  Rubinstein was awarded options to purchase
66,667  shares of common stock at the exercise  price of $0.60.  On December 28,
2002,  Jack  Rubinstein was awarded  options to purchase 96,666 shares of common
stock at the above  market  exercise  price of  $0.35.  On June 28,  2002,  Jack
Rubinstein  was  awarded  100,000  shares  of common  stock in lieu of  monetary
compensation.  On October 1, 2001, Fali Rubinstein was awarded 160,000 shares of
restricted   stock  in  lieu  of  monetary   compensation   for   research   and
administrative  services rendered to our company.  The ownership of these shares
is attributed to Jack  Rubinstein.  On February 28, 2001,  Jack  Rubinstein  was
awarded  options to  purchase  350,000  shares of our common  stock at the above
market  exercise price of $2.50.  These options were  rescinded.  On October 18,
2001, Jack  Rubinstein was awarded options to purchase  350,000 shares of at the
market price of $0.40 per share.  On March 8th, 2002,  Jack  Rubinstein lent our
company  $100,000 for working capital  purposes.  The promissory note evidencing
this transaction has a term of one year and bears simple interest at the rate of
8%. The principal and interest of the note is  convertible  into common stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. Mr.  Rubinstein,  our
chairman  of  the  board  is  entitled  to  receive  an  incentive  bonus  and a
performance  bonus as  determined by the board.  On March 8, 2003,  the note was
renegotiated  and the term was extended to March 8, 2005.  Mr.  Rubinstein,  our
Chairman of the Board,  is entitled to receive a performance  bonus for services
rendered since 2002 of up to $180,000, payable in cash or kind, as determined by
the Board of Directors.

     (2) On December 31, 2003, MacAllister Smith was awarded options to purchase
279,291 shares of common stock at the exercise  price of $0.60.  On December 28,
2002,  MacAllister Smith was awarded options to purchase 96,666 shares of common
stock at the above market exercise price of $0.35. On June 28, MacAllister Smith
was awarded 100,000 shares of common stock in lieu of monetary compensation.  On
March 15, 2002, MacAllister Smith was awarded options to purchase 350,000 shares
of our common stock at the market price of $0.40 per share to replace options he
received from SecurePay.  Pipeline paid MacAllister  Smith 749,496 shares of our
common stock for his interest in SecurePay.  His sister, Catherine Brannon, owns
50% of Chasm Holdings,  which received  4,118,545 shares of our common stock for
her interest in SecurePay. This has not been listed as compensation as it was in
consideration of assets. MacAllister Smith has been awarded a salary of $240,000
per annum, which is currently being deferred on partial basis. MacAllister Smith
is entitled to receive an  incentive  bonus up to an amount  equal to his salary
and a performance  bonus as  determined by the board,  upon meeting or exceeding
certain  financial,  sales or other goals set forth by the board of directors of
our  company.  Mr.  Smith is also  entitled to an  automobile  or an  automobile
allowance of $700 per month.

     (3) On December 31,  2003,  Phillip  Chait was awarded  options to purchase
25,833 shares of common stock at the exercise  price of $0.60.  On June 28, 2002
Phillip  Chait  Smith was  awarded  100,000  shares  of common  stock in lieu of
monetary  compensation.  Mr. Chait's  sister,  Barbara Klein,  owns 50% of Chasm
Holdings,  which received  4,118,545 shares of our common stock for her interest
in  SecurePay.   This  has  not  been  listed  as  compensation  as  it  was  in
consideration of assets. Phillip Chait has been awarded a salary of $100,000 per
annum,  which is currently  being deferred on partial  basis.  Mr. Chait is also
entitled to an automobile or an automobile allowance of $600 per month.

                                       44

<PAGE>



     (4) On December 31, 2003,  Kevin  Weller,  was awarded  options to purchase
160,000 shares of common stock at the exercise  price of $0.60.  On December 28,
2002,  Kevin  Weller,  was awarded  options to purchase  96,668 shares of common
stock at the above  market  exercise  price of $0.35.  Salary  indicated is from
August  26,  2002  to  December  31,  2002.  Pursuant  to the  NMSI  Acquisition
Agreement,  on August 26,  2002,  Mr.  Weller was issued (i) two  thousand  five
hundred shares of series A preferred convertible stock (the "Preferred Shares"),
each  preferred  share is  convertible  into one thousand  (1,000) shares of our
common  stock at the  conversion  price of $0.50 per common  share and (ii) five
hundred thousand of our common shares. We agreed that during the 36-month period
from the date (the "36-month Period") of the NMSI Acquisition  Agreement (August
26, 2005), we would offer to repurchase the Preferred  Shares from the Kevin and
Nancy  Weller for  $2,500,000.  In the event we failed to do this,  the merchant
portfolio  would  revert back to the  Wellers.  On February 27, 2004 we complied
with this provision and repurchased  2,000  Preferred  Shares for $1,000,000 and
the Wellers  exercised  their  option to convert  3,000  shares  into  3,000,000
million shares.  As a result of this  transaction,  the NMSI merchant  portfolio
cannot  revert  back  to  the  Wellers.  In  addition,  he has  certain  earn-in
capabilities based upon account retention milestones achieved within a specified
period of time.  Each time the NMSI,  as our wholly  owned  subsidiary,  attains
5,000  merchant  accounts,  we shall issue to Mr.  Weller five hundred  thousand
(500,000)  common shares,  up to an aggregate of 1,500,000  common shares.  This
earn- in restriction  shall expire on the fourth  anniversary of the date of the
acquisition  agreement pursuant to which we acquired NMSI. Further Mr. Weller is
being  afforded  the  opportunity  to borrow an amount  when added to the amount
borrowable  by Nancy  Weller  shall equal up to an  aggregate  of  $200,000.  On
November 18, 2003,  Kevin Weller borrowed $85,000 from our company pursuant to a
promissory note with a term of eighteen  months bearing  interest at the rate of
4%. This note was paid in full on March 10, 2004. None of the foregoing has been
listed as compensation as it was in consideration of assets.  Mr. Weller is paid
a salary of $200,000 per annum.  Mr.  Weller is entitled to receive an incentive
bonus up to an amount equal to his salary and a performance  bonus as determined
by the board, upon meeting or exceeding certain financial,  sales or other goals
set forth by the board of directors of our company.  Mr. Weller is also entitled
to an automobile or an automobile allowance of $600.00 per month minimum.  Kevin
and Nancy Weller are married.


     (5) On December 31, 2003,  Nancy  Weller,  was awarded  options to purchase
51,250  shares of common stock at the exercise  price of $0.60.  Pursuant to the
NMSI Acquisition  Agreement,  on August 26, 2002, Mrs. Weller was issued (i) two
thousand  five  hundred  shares of series A  preferred  convertible  stock  (the
"Preferred  Shares"),  each  preferred  share is  convertible  into one thousand
(1,000) shares of our common stock at the  conversion  price of $0.50 per common
share and (ii)five hundred thousand of our common shares.  We agreed that during
the  36-month  period  from  the  date  (the  "36-month  Period")  of  the  NMSI
Acquisition  Agreement  (August  26,  2005),  we would offer to  repurchase  the
Preferred Shares from the Kevin and Nancy Weller for $2,500,000. In the event we
failed to do this, the merchant  portfolio would revert back to the Wellers.  On
February  27,  2004 we  complied  with  this  provision  and  repurchased  2,000
Preferred  Shares for  $1,000,000  and the  Wellers  exercised  their  option to
convert  3,000  shares  into  3,000,000  million  shares.  As a  result  of this
transaction,  the NMSI merchant portfolio cannot revert back to the Wellers.  In
addition,  she has certain  earn-in  capabilities  based upon account  retention
milestones  achieved  within a specified  period of time. Each time the NMSI, as
our wholly owned subsidiary,  attains 5,000 merchant accounts, we shall issue to
Mrs. Weller five hundred thousand (500,000) common shares, up to an aggregate of
1,500,000  common shares.  This earn- in restriction  shall expire on the fourth
anniversary  of the  date of the  acquisition  agreement  pursuant  to  which we
acquired NMSI.  Further Mrs.  Weller is being afforded the opportunity to borrow
an amount when added to the amount  borrowable by Kevin Weller shall equal up to
an aggregate of $200,000.  On November 18, 2003,  Kevin Weller borrowed  $85,000
from our company  pursuant to a promissory  note with a term of eighteen  months
bearing  interest  at the rate of 4%.  This  note was paid in full on March  10,
2004.  None of the  foregoing  has  been  listed  as  compensation  as it was in
consideration  of assets.  Mrs.  Weller is paid a salary of $150,000  per annum.
Mrs.  Weller is entitled to receive an incentive  bonus up to an amount equal to
his salary and a performance  bonus as determined by the board,  upon meeting or
exceeding  certain  financial,  sales or other  goals  set forth by the board of
directors of our company.  Mrs.  Weller is also  entitled to an automobile or an
automobile  allowance of $600.00 per month  minimum.  Kevin and Nancy Weller are
married.


     (6) On December 31, 2003, Donald Gruneisen, was awarded options to purchase
34,167  shares of common stock at the exercise  price of $0.60.  On December 18,
2002,  Donald  Gruneisen was awarded options to purchase 75,000 shares of common
stock at the above market exercise price of $0.35,  37,500 to vest on January 1,
2003 and 37,500 to vest on January 1, 2004.  Gruneisen is currently  receiving a
salary of $50,000, $10,000 of which is deferred until 2003.

     Additional Employee Benefits



     Employees are provided health insurance.

                                       45

<PAGE>

     Relationships Amongst Management

     Kevin and Nancy Weller are married. There are no other family relationships
amongst the management of the company.

     The  following  table sets forth the option and stock  appreciation  rights
granted  during the fiscal  year  ended  December  31,  2003,  to our  company's
Chairman of the Board and each of our company's officers and directors.


<TABLE>
<CAPTION>

                            Option/SAR Grants in Last Fiscal Year
                                      Individual Grants
       (a)                  (b)                    (c)                  (d)         (e)
                    Number of Securities    Options/SARs Granted    Exercise or
                  Underlying Options/SARs  to Employees in Fiscal   Base Price    Expiration
      Name              Granted (#)                 Year              ($/Sh)          Date
<S>                <C>                     <C>                      <C>             <C>

Jack Rubinstein,
Chairman of the                                                    $0.60 per      December 31,
Board                66,667 options                  13.5%          share          2008

MacAlllister                                                       $0.60 per      December 31,
Smith               279,291 options                  62.5%          share          2008

Kevin Weller                                         13.5%         $0.60 per      December 31,
                     160,000 options                                Share          2008

Don Gruneisen                                        10.5%         $0.60 per      December 31,
                      34,167 options                                Share          2008

</TABLE>



     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.  The  Incentive  Plan was amended on December 1st, 2003 to increase the
number of options awardable by 2,000,000 to 4,000,000 options.

     During the year ended  December 31, 2003,  the company issued the following
options: 30,000 Options to Sheila Corvino Esq., for legal services, strike price
$0.60.

     During the year ended  December 31, 2002,  the company issued the following
options:  200,000  Options to Sheila  Corvino Esq., for legal  services,  strike
price $0.35. 150,000 Options to Sheila Corvino Esq., for legal services,  strike
price $0.40.  350,000  Options to MacAllister  Smith for services,  strike price
$0.40.  150,000 Options to R. Scott Barter for analytical and financial research
services, strike price $0.35.

     The following are options  granted on December 18, 2002:  50,000 options to
Jody Latimer for sales work  performed,  strike  price $0.35.  25,000 to vest on
January 1, 2003 and 25,000 to vest on January 1, 2004. 50,000 options to Barbara
Denis for  services,  strike price $0.35.  25,000 to vest on January 1, 2003 and
25,000 to vest on January  1,  2004.  75,000  options  to Donald  Gruneisen  for
accounting  services,  strike price $0.35. 37,500 to vest on January 1, 2003 and
37,500 to vest on  January  1,  2004.  96,666  options  to Jack  Rubinstein  for
directorial  services,  strike price $0.35. All 96,666 shares to vest on January
1, 2003.  96,666 options to MacAllister Smith for directorial  services,  strike
price $0.35.  All 96,666  shares to vest on January 1, 2003.  96,666  options to
Jack Rubinstein for directorial services,  strike price $0.35. All 96,666 shares
to vest on January  1, 2003.  96,668  options  to Kevin  Weller for  directorial
services, strike price $0.35. All 96,668 shares to vest on January 1, 2003.

     The above options  shall have  piggyback  registration  rights and shall be
included in any S-8 registration statement.


                                       46
<PAGE>
                 Stock option activity is summarized as follows:


               Options outstanding at beginning of year 2,000,000

               Granted                                    647,637

               Forfeited                                  100,000

               Exercised                                    -0-
                                                          --------


               Options outstanding at end of the period 2,547,637



     Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following tables set forth certain information regarding the beneficial
ownership  of shares of common stock of the company by our  officers,  directors
and those  holders of five  percent  (5%) or more of stock in our company  after
completion  of the  distribution  of our class B redeemable  warrants.  Based on
information  furnished by these individuals  and/or groups, we believe that they
are the beneficial owners of the common stock listed below, and unless otherwise
noted, have sole investment and voting power with respect to such shares, except
in those cases where community property laws may apply.

     Prior to the  distribution  and  according  to the records  provided by the
company (which currently has 13,146,250 shares of common stock outstanding), the
officers,  directors  and  holders  of five  percent  (5%) or more of our common
stock, owned the following number of shares:

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial ownership of our common stock as of December 31, 2003, as to (a) each
person (or group of affiliated  persons)  known by us to own  beneficially  more
than 5% of our outstanding common stock, (b) each of our directors,  (c) all our
directors, executive officers as a group.


     Except as  otherwise  indicated,  the persons  named in the table have sole
voting and  investment  power with respect to all shares of common stock held by
them.

                                       47


<PAGE>


Percentage of shares beneficially owned is based on 13,146,250 shares of our
common stock outstanding as of December 31, 2003.
Beneficially
   Name                             Owned                    Owned
--------------------            ------------------ -----------------------

Jack Rubinstein(1)                     1,008,750                8.4%
Chairman of the Board
370 Clayton Road
Scarsdale, NY  10583-1504

MacAllister Smith(2)                     849,496                7.1%
President and CEO
And Director
1599 Washington Street
Braintree, Massachusetts 02184

Chasm Holdings(2)                      4,118,545               34.4%
1599 Washington Street
Braintree, Massachusetts 02184

Gilbert Anthony Reynolds                850,000                9.2%
Chief Technology Officer
13339 North Central
Expressway Suite 103
Dallas, Texas.

Paul Chiumento                         1,100,000                9.2%
58 Delwyn Barnes Drive
Whitinsville, MA 01588


Kevin Weller (3)                         510,000                4.2%
12 West Main Street
Brasher Falls, NY

Nancy Weller(3)                          511,000                4.2%
12 West Main Street
Brasher Falls, NY


                                ALL DIRECTORS AND
                               EXECUTIVE OFFICERS
AS A GROUP
(3 persons)                           UPDATE               39.4%



                                       48
<PAGE>


     (1) On December 31, 2003,  Jack  Rubinstein was awarded options to purchase
66,667  shares of common stock at the exercise  price of $0.60.  On December 28,
2002,  Jack  Rubinstein was awarded  options to purchase 96,666 shares of common
stock at the above  market  exercise  price of $0.35.  On October 1, 2001,  Fali
Rubinstein was awarded  160,000  shares of restricted  stock in lieu of monetary
compensation for research and  administrative  services rendered to our company.
Fali Rubinstein and Jack  Rubinstein are married.  The ownership of these shares
is attributed  to Jack  Rubinstein.  On October 18, 2001,  Jack  Rubinstein  was
awarded  options to purchase  350,000 shares of at the market price of $0.40 per
share.  These options are immediately  exercisable.  Further,  subsequent to the
2001 fiscal  year end,  on March 8th,  2002,  Jack  Rubinstein  lent our company
$100,000 for working  capital  purposes.  The promissory  note  evidencing  this
transaction  has a term of one year and bears simple interest at the rate of 8%.
The  principal  and  interest of the note is  convertible  into common  stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. On March 8, 2003, the
note  was  renegotiated  and the  term  was  extended  to  March  8,  2005.  Mr.
Rubinstein,  our  Chairman of the Board,  is  entitled to receive a  performance
bonus for services  rendered  since 2002 of up to  $180,000,  payable in cash or
kind, as determined by the Board of Directors.


     (2) Chasm  Holdings is 50% owned by Catherine  Brannon who is the sister of
MacAllister Smith. The other 50% owner is Barbara Klein, Phillip Chait's sister.
On June 28, 2002,  100,000  Shares of  unregistered  common stock were issued to
MacAllister Smith in lieu of fees outstanding. On December 31, 2003, MacAllister
Smith was awarded  options to  purchase  279,291  shares of common  stock at the
exercise  price of $0.60.  On December 28, 2002,  MacAllister  Smith was awarded
options to purchase  446,666 shares of common stock at the above market exercise
price of $0.35.

     (3) Kevin Weller is a director of our company. Nancy Weller is his wife and
her shares may be  attributed  to him.  On December  31,  2003,  Mr.  Weller was
awarded options to purchase 160,000 shares of common stock at the exercise price
of $0.60.  On December  28,  2002,  Mr.  Weller was awarded  options to purchase
96,668  shares  of  common  stock  at  the  above  market   exercise   price  of
$0.35.Pursuant to the NMSI Acquisition Agreement,  on August 26, 2002, Kevin and
Nancy  Weller  were  issued  (i) five  thousand  shares  of  series A  preferred
convertible stock (the "Preferred Shares"),  each preferred share is convertible
into one thousand  (1,000) shares of our common stock at the conversion price of
$0.50 per common share and (ii) one million of our common shares. We agreed that
during the  36-month  period from the date (the  "36-month  Period") of the NMSI
Acquisition  Agreement  (August  26,  2005),  we would offer to  repurchase  the
Preferred Shares from the Kevin and Nancy Weller for $2,500,000. In the event we
failed to do this, the merchant  portfolio would revert back to the Wellers.  On
February  27,  2004,  we complied  with this  provision  and  repurchased  2,000
Preferred  Shares for  $1,000,000  and the  Wellers  exercised  their  option to
convert  3,000  shares  into  3,000,000  million  shares.  As a  result  of this
transaction, the NMSI merchant portfolio cannot revert back to the Wellers.



                                       49

<PAGE>
     Item 12. Certain Relationships and Related Transactions.

     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.  The  Incentive  Plan was amended on December 1st, 2003 to increase the
number of options awardable by 2,000,000 to 4,000,000 options.


     During the year ended  December 31, 2003,  the company issued the following
options: 30,000 Options to Sheila Corvino Esq., for legal services, strike price
$0.60. 66,667 options to Jack Rubinstein for directorial services,  strike price
$0.60.  279,291 options to MacAllister  Smith for directorial  services,  strike
price $0.60.  160,000 options to Kevin Weller for directorial  services,  strike
price $0.60. 34,167 options to Donald Gruneisen for accounting services,  strike
price $0.60. options to Donald Gruneisen for accounting  services,  strike price
$0.60.

     The following are options  granted on December 18, 2002:  50,000 options to
Jody Latimer for sales work  performed,  strike  price $0.35.  25,000 to vest on
January 1, 2003 and 25,000 to vest on January 1, 2004. 50,000 options to Barbara
Denis for  services,  strike price $0.35.  25,000 to vest on January 1, 2003 and
25,000 to vest on January  1,  2004.  75,000  options  to Donald  Gruneisen  for
accounting  services,  strike price $0.35. 37,500 to vest on January 1, 2003 and
37,500 to vest on  January  1,  2004.  96,666  options  to Jack  Rubinstein  for
directorial  services,  strike price $0.35. All 96,666 shares to vest on January
1, 2003.  96,666 options to MacAllister Smith for directorial  services,  strike
price $0.35.  All 96,666  shares to vest on January 1, 2003.  96,666  options to
Jack Rubinstein for directorial services,  strike price $0.35. All 96,666 shares
to vest on January  1, 2003.  96,668  options  to Kevin  Weller for  directorial
services, strike price $0.35. All 96,668 shares to vest on January 1, 2003.

     The following material  transactions have occurred in the past fiscal year.
They are identified below:

     Pursuant to the NMSI  Acquisition  Agreement,  dated,  August  26th,  2002,
whereby we  purchased  our NMSI  subsidiary,  we agreed  that during the initial
36-month  period of the this  agreement  (August  26,  2005),  we would offer to
repurchase the Preferred  Shares from the Kevin and Nancy Weller for $2,500,000.
In the event we failed to do this, the merchant  portfolio  would revert back to
the  Wellers.  On  February  27,  2004  we  complied  with  this  provision  and
repurchased  2,000  Preferred  Shares for $1,000,000  and the Wellers  exercised
their option to convert 3,000 shares into 3,000,000  million shares. As a result
of this  transaction,  the NMSI  merchant  portfolio  cannot  revert back to the
Wellers.

     A part of the NMSI  Acquisition  Agreement,  the Wellers are  afforded  the
opportunity  to borrow an  aggregate  amount of $200,000  from our  company.  On
November 18, 2003,  Kevin Weller borrowed $85,000 from our company pursuant to a
promissory note with a term of eighteen  months bearing  interest at the rate of
4%. This note was paid in full on March 10, 2004.

     On March 14, 2002,  Accu-Search  renegotiated their note with us. We agreed
to convert the $200,000 note with  interest  totaling  $224,000  into  preferred
stock of  Accu-Search.  They will also pay an upfront payment of $4,000 in cash.
In  addition,  Accu-Search  will provide  Pipeline  Data two years web access to
Accu-Search's  on-line data and map system. Final contracts were being finalized
and it is expected that this  transaction  should be signed and monies delivered
on or about July 12, 2002.

     On March 8th, 2002, Jack  Rubinstein,  our chairman of the board,  lent our
company  $100,000 for working capital  purposes.  The promissory note evidencing
this transaction has a term of one year and bears simple interest at the rate of
8%. The principal and interest of the note is  convertible  into common stock of
Pipeline at the then current market price of $0.35 per share.  Upon conversion ,
Mr.  Rubinstein  shall  receive  warrants  equal to 100% of the number of shares
converted with minimum warrant issuance of 100,000 shares. On March 8, 2003, the
note was renegotiated and the term was extended to March 8, 2005.

     Mr.  Rubinstein,  our  Chairman  of the  Board,  is  entitled  to receive a
performance bonus for services rendered since 2002 of up to $180,000, payable in
cash or kind, as determined by the Board of Directors.


                                       50

<PAGE>

     As of December 31, 2003,  our company  issued  $726,023.44  in  convertible
debt. The outstanding  notes have a two year term, accrue interest at the annual
interest rate of 8% and have 33% warrant  coverage at a conversion price of $.35
per share.  Beginning  November 1, 2003 the conversion price was $.50 per share.
The names and amounts of the recipients are as follows:

<TABLE>
<CAPTION>

8% Convertible Note

Date                 Name                   Amount
<S>                 <C>                     <C>

6.17.02              Michael Greenburg      20,000

6.17.02              Robert Erlichman       15,000

7.9.02               Elaine Greenburg        5,000

7.16.02              Barbara Klein          10,000

7.18.02              Hal Denton            100,000

8.28.02              Pearl Holloway          7,000

9.11.02              G. Timothy Kane        10,000

9.12.02              Jerry Trevor           25,000

9.20.02              Chandler Smith          4,000

9.29.02              Chasm Holdings         58,029.31

10.4.02              DSM Realty              15,000

10.15.02             Don Swift                5,000

10.17.02             Brian Kornreich         25,000

11.25.02             Chasm Holdings           5,000

12.31.02             Chasm Holdings          20,524.13

3.12.03              Cara J. Fascione       200,000

3.31.03              Chasm Holdings          26,120

6.9.03                William Haas            5,000

6.26.03               Lane Gordon            50,000

5.6.03                Chasm Holdings          2,000

9.25.03               Chasm Holdings         15,000

9.2.03                Michael Greenburg       8,000

10.27.03              Chasm Holdings          8,950

10.31.03              Lane Gordon            50,000

11.13.03              Lane.Gordon            50,000

12.18.03              Tracy Bertolino         1,400
</TABLE>


     * On January 1, 2003,  DSM Realty  converted its note into 43,686 shares of
Pipeline common stock.


                                       51
<PAGE>




     Item 13. Exhibits and Reports on Form 8-K.

     (a) The following exhibits are included as part of this report:

     EXHIBIT NUMBER DESCRIPTION LOCATION



     (b) Reports on Form 8-K.

     A report on Form 8-K has been  filed on March 1, 2004.  The  purpose of the
Form 8-K is to report the financing arrangement with Laurus Master Fund, Ltd., a
financial  institution  specializing  in funding small and  micro-capitalization
companies, to provide our company with up to $3.0 million in financing.

                                       52


<PAGE>






                                   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.


     Date: March 30, 2004




     Pipeline Data Inc..

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

(Registrant)




     /s/ MacAllister Smith

     -----------------------------------------
     MacAllister Smith

     President


     /s/ Donald Gruneisen

    -----------------------------------------
     Donald Gruneisen

Chief Financial Officer
(Principal Financial and
Accounting Officer)

<PAGE>



CERTIFICATIONS

     I, MacAllister Smith, 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-14 and 15d-14) for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures  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 as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   Presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  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  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal  controls;  and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

March 30, 2004



     /s/ MacAllister Smith

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

     MacAllister Smith

     President



<PAGE>


     I, Donald Gruneisen, 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-14 and 15d-14) for the registrant and have:

     a)   Designed  such  disclosure  controls  and  procedures  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 as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   Presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  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  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


     March 30, 2004


     /s/ Donald Gruneisen

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

     Donald Gruneisen

     Chief Financial Officer



<PAGE>





     EXHIBIT 99.1


     CERTIFICATION PURSUANT TO

     18 U.S.C. SECTION 1350,

     AS ADOPTED PURSUANT TO

     SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection  with the Annual Report of Pipeline Data Inc. (the "Company")
on Form 10-KSB for the year ended December 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, MacAllister Smith,
President,  Chief  Executive  Officer,  and  Director  and I, Donald  Gruneisen,
Principal  Financial Officer,  certify,  pursuant to 18 U.S.C.  Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of section 12(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, as of, and for the periods presented in the Report.



     /s/ MacAllister Smith


     Principal Executive Officer


     /s/Donald Gruneisen


     Principal Financial
     Officer, Principal Accounting Officer


     March 30, 2004



     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.



<PAGE>