UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549    PIPELINE DATA INC.  Form 10-KSB    xANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2007  oTRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from __________ to
    __________
  Delaware
    
    13-3953764(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
   1515 Hancock Street, Suite 301, Hancock Plaza, Quincy, Massachusetts 02169-5243 (Address of principal executive offices) (Zip Code)  Issuer's telephone number: (617) 405-2600 Securities registered under Section 12(g) of the Exchange Act: Common Stock $0.001 par value  Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YesxNoo  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  Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. Large Accelerated Filer __ Accelerated Filer __ Non-Accelerated
Filerx  State issuer's revenues for its most recent fiscal year:
$49,903,000  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 March 11, 2008, there were
49,776,603 shares of the registrant's common stock, par value $0.001 issued and
outstanding. As of March 11, 2008, the market value of securities held by
non-affiliates is $16,842,443 based on the average of the high and low bid
prices as reported by Yahoo.com. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not reflect actual
transactions.  1
        DOCUMENTS INCORPORATED BY REFERENCE  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: the proxy information statement for the year
ended December 31, 2007.   Transitional Small Business Disclosure Format (Check one):
      Yeso; Nox
   2
    TABLE OF CONTENTS   Item Number and CaptionPART IITEM 1.
    Business
    5ITEM 2.
      Properties
    26ITEM 3. Legal
      Proceedings
    26ITEM 4. Submission of Matters to a Vote of
      Security Holders
    27PART IIITEM 5. Market for Common Equity and Related
      Stockholder Matters
    27ITEM 6. Management's Discussion and Analysis
      of Financial Condition andResults of
      Operations
    28ITEM 7. Financial
      Statements
    36ITEM 8. Changes in and Disagreements with
      Accountants onAccounting and Financial
      Matters
    71ITEM 8A(T) Controls and
      Procedures
    71ITEM 8B Other
      Information
    72PART IIIITEM 9. Directors, Executive Officers,
      Promoters and Control Persons and Corporate
      Governance
    73ITEM 10. Executive
      Compensation
    73ITEM 11. Security Ownership of Certain
      Beneficial Ownersand Management
    73ITEM 12. Certain Relationships and Related
      Transactions, and Director Independence
    73ITEM 13.
      Exhibits
    73ITEM 14.Principal Accountant Fees and
      Services
    73
     3
      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, 2007 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.     4
      PART I  Item 1. Business.  BUSINESS  Overview of our Business and our Development  We
are a value-added provider of merchant payment processing services and related
software products. We deliver credit and debit card-based payment processing
solutions primarily to small to medium-sized merchants who operate either in a
physical "brick and mortar" business environment, over the Internet, or in
mobile or wireless settings via cellular-based wireless devices. We also target
new customers for our mobile wireless transaction processing and municipal
payment processing services. We believe our experience and knowledge in
providing payment processing services to small to medium-sized merchants gives
us the ability to effectively evaluate and manage the payment processing needs
and risks that are specific to small businesses  Our primary customer base consists of small to medium-sized merchants.
According to the Nilson Report, there are approximately 4.9 million merchants in
the United States, representing 6.1 million locations, of which we estimate
there to be 3.2 million small to medium-sized merchants currently accepting Visa
and MasterCard credit cards. Additionally, just under 600,000 new businesses
open every year in the United States. We believe that the small to medium-sized
merchant market offers us significant growth opportunities for the "first time"
installation and subsequent servicing of credit card authorization and payment
systems.  We
market and sell our products and services through an in-house sales force
utilizing multiple lines of origination, including the Internet, call generation
and other marketing media. We also market and sell our products and services by
utilizing contractual relationships with 50 commercial banks and financial
institutions comprising 460 bank branch locations, 48 credit unions, 30
Independent Sales Organizations(ISOs)/Value Added Resellers (VARs) and a
national cell phone carrier.  Our revenues are derived primarily from the electronic processing of
credit, charge and debit card transactions that are authorized and captured
through third-party networks. Typically, fees charged to merchants for these
processing services are based on a variable percentage of the dollar amount of
each transaction, as well as an additional pre-determined transaction fee; we
refer to these fees as interchange fees in this prospectus. Merchant customers
may also be charged miscellaneous fees, including statement fees, annual fees,
monthly minimums fees, fees for handling payment chargebacks, gateway fees 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 (such as 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 have outsourced a portion of our
services to third-party processors including, but not limited to, CTS Holdings,
Inc. (a wholly owned subsidiary of First Data Corp), Nova Information Systems,
Inc. and Wells Fargo Bank, to whom, in each case, we remit a portion of the fee
income for services they provide. In March 2008, we entered into a new bank
sponsorship agreement with Palm Dessert National Bank. This arrangement has just
commenced and, thus, as of the date of this report, we have not serviced
merchant relationships pursuant to this arrangement.  We
were formed as a Delaware corporation in June 1997, and operate through several
wholly owned subsidiaries:  SecurePay.com, Inc., which we refer to herein as SecurePay acquired
      in March 2002;Northern Merchant Services, Inc., which we refer to herein as NMSI
      and acquired in August 2002;Pipeline Data Processing, Inc., which we formed and refer to herein
      as PDP;Pipeline Data Portfolio Acquisitions, Inc, which we formed and
      refer to herein as Pipeline Acquisitions;Aircharge, Inc., which we refer to herein as Aircharge and acquired
      effective September 30, 2005;Charge.com, Inc., which we refer to herein as Charge, and acquired
      on December 19, 2005;Cardaccept.com, Inc., which we formed and refer to herein as
      Cardaccept.comPaynet Systems, Inc., which we refer to herein as Paynet and
      acquired on July 3, 2006; andValadata, Inc., which we refer to herein as Valadata, and acquired
      on July 11, 2006.
  Our wholly owned subsidiary, SecurePay, is a custom credit card
transaction processor serving as a gateway intermediary between the customer and
the financial networks for the acceptance of card payments by merchants. Most
card transactions worldwide are processed by a third-party working in
conjunction with the financial networks. SecurePay processes all major card
types including Visa, MasterCard, American Express, Discover and JCB. Presently,
SecurePay's solutions include: payment gateway solutions, virtual credit card
terminals, proprietary shopping carts and wireless applications operating on
cell phone networks to support mobile merchant card acceptance.  5
    Our wholly-owned subsidiary, NMSI, is an Independent Sales Organization,
or ISO, which we define as any non-bank party that sells card-based payment
processing services to merchants. In accordance with our overall operating and
growth strategies, NMSI seeks to enlarge its customer base of small to
medium-sized merchants through merchant portfolio acquisitions, as well as
through bank referrals, direct sales, independent sales agents and trade
association affiliations. It seeks to retain its customer base through efficient
operations and superior customer service.  To
further our internal growth strategy, we formed PDP as our wholly-owned
wholesale processing division in July 2004. Our primary objective with the
formation of PDP is to grow the number of merchant accounts serviced by
targeting the wholesale processing industry. PDP conducts underwriting and risk
management operations in-house. We consider underwriting and risk management
highly important to our operations. We outsource our remaining processing
services to third parties, including the evaluation and acceptance of card
numbers and receipt and settlement of funds. By outsourcing these non-core
services, we believe we can achieve lower costs per transaction through higher
volume purchasing.  Our acquisitions have enhanced our revenues and increased our portfolio
of merchant accounts. To this end, we formed Pipeline Acquisitions in November
2004 to locate merchant portfolios that complement our existing customer base of
small to medium-sized merchants. Pipeline Acquisitions performs 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, our
ability to control attrition of the portfolio and the opportunities the
portfolio provides for revenue enhancement and cost reduction. Pipeline
Acquisitions then determines a valuation of each portfolio acquisition
opportunity based on a combination of these factors and moves to acquire the
acquisition candidate.  We
have employed a strategy of entering financing arrangements to facilitate our
business development. During the year ended December 31, 2006, we entered a
financing arrangement with several institutional investors to issue $37.0
million of convertible notes and warrants. The notes issued on June 29, 2006 and
maturing four years from the date of issuance, can be converted into Pipeline
common stock at the conversion price of $1.30 per share. 11,100,000 warrants
were issued with an exercise price of $1.40 (the "Centrecourt Financing"). We
used the proceeds of the Centrecourt Financing to repay the $15.0 million
Sheridan note and the $2.0 million obligation to CAMOFI Master LDC, and to fund
the purchase price for Valadata, Inc. and Paynet Systems, Inc.  On
January 12, 2006, our stockholders approved a reverse stock split. The reverse
stock split, however, has not yet been implemented. Readers should note that
unless otherwise indicated all share information in this Business section is
presented on a pre-reverse stock split basis. Readers should also note that when
we use the term "recurring revenue payments"
" herein, we do not mean to imply
that such revenue payments are guaranteed, but rather that services for which
payments are made are provided continually over a period of time, as opposed to
on a one-time basis.  On
July 3, 2006, we acquired Paynet Systems, Inc. by acquiring all of the
outstanding capital stock of Paynet Systems, Inc. Additional goodwill was
recognized because certain milestones were reached requiring us to pay the
former Paynet Systems, Inc. shareholders an additional $3.0 million in cash and
1.61 million shares of restricted common stock valued at $1.6 million,
determined by prices as of March 31, 2007 and June 30, 2007, the dates these
milestones were met.  On
July 11, 2006, we acquired Valadata, Inc., a retail merchant credit card
processing provider catering primarily to the restaurant industry. We also
acquired a separate retail portfolio. The purchase price for Valadata was $5.4
million in cash and an additional $1.5 million over the next two years, subject
to performance milestones. The purchase price for the separate retail portfolio
was $500,000. The Company determined that the performance milestones were not
met as of July 11, 2007 and that no further obligation exists to the former
shareholders of Valadata, Inc. However, we did calculate the residuals of the
all underlying seller agents of Valadata and made milestone payments to all
agents who reached their performance milestones. The former shareholders of
Valadata, Inc. disagree with our determination. In October 2007, L60, Inc.
(comprised of former Valadata shareholders) filed suit against Pipeline
Data, Inc. in Maricopa County Superior Court.  In its complaint, L60
alleges that Pipeline and Valadata breached certain agreements made in
connection with Pipeline's acquisition of Valadata, and seeks around $1.5M, plus
attorneys' fees and costs.  Pipeline vigorously dispute the claims, have
filed an answer denying any liability and have countersued plaintiff and
various related parties for, among other things, breach of contract
and tortious interference with contractual relationships.  Pipeline's
counterclaims seek compensatory and punitive damages, as well as attorneys'
fees.  In February of 2008, the Court
dismissed Pipeline's tort claims without prejudice to the extent they
are grounded in their contracts with L60;but their contract
claims against L60 and its principals remain, as well as a claim for tortious
interference against a third party.  The case is now proceeding to
discovery.  On
November 29, 2007, we signed a binding letter of intent to acquire Innovative
Resource Alliance ("IRA"), the parent corporation of TenderCard(TM), a gift,
loyalty and stored value solutions provider with over 12,000 merchants based in
Falmouth, Massachusetts and Merchant Services Network ("MSN"), a retail merchant
services provider based in West Palm Beach, Florida, in exchange for up to 25.7
million shares of our company common stock, subject to certain earn in
provisions. The transaction is subject to (a) the approval of the company's
boards of directors of PPDA and IRA and (b) the completion of the acquisition of
CoCard Marketing Group, LLC ("CoCard"); (c) the receipt of financing to fund the
CoCard acquisition and the transactions contemplated by the merger contemplated
by this Letter of Intent and (c) the per share price of equity raised to fund
this transaction being no less than $1.30.  The parties contemplate the merger of our wholly owned subsidiary into
IRA in consideration for the issuance to the former IRA stockholders of up to
Twenty Five Million Seven Hundred Thousand (25,700,000) shares of our
unregistered common stock (the "Shares"), subject to certain ratchet up
provisions, in accordance with the following formula and in accordance with our
stock price subject to a maximum share issuance of Twenty Eight Million Seven
Hundred Thousand 28,700,000 shares. The issuance of shares is contemplated as
follows:  a.  13,700,000 shares immediately upon close and distributed
pro-rata to IRA shareholders based on a conversion ratio to be agreed upon in
the definitive agreement (the "Conversion Ratio")  b.  12,000,000 shares issued and escrowed for distribution to
IRA shareholders pursuant to the Conversion Ratio according to the following
earn in formula  (i)
    2,000,000 shares immediately upon closing the purchase of an
      identified portfolio reviewed by the
parties;
  (ii)
    10,000,000 shares to be distributed to IRA shareholders upon the
      occurrence of the following events:
  6
    a.
    1,000,000 shares for each additional $70,000 per month of average
      net recurring revenue (which means the average of receipts minus the sum
      of interchange, all costs of services and residual payments owed).
  (iii)
    This earn-in provision expires July 1, 2009 unless further extended
      by our board of directors.
 As
merged, Pipeline Data/IRA intends to acquire COCARD(R) Marketing Group, LLC
("COCARD"), a Nashville, Tennessee-based merchant services provider catering
primarily to small and medium-sized retail accounts. COCARD currently services
over 25,000 merchants. IRA and CCOCARD entered into a Definitive Merger
Agreement to acquire COCARD for approximately $101 million in cash entered into
on October 22, 2007.  Both the IRA and COCARD transactions are currently pending further
negotiations and completion of financing. No assurance can be given that either
transaction will be consummated.  Our Strategy  Our strategy is to build our business through organic growth and
efficiency. We intend to aggressively grow the number of merchant accounts
serviced through the solicitation of new merchant accounts and the acquisition
of merchant portfolios and compatible businesses that feature recurring revenue
payments. We intend to achieve efficiency by creating a processing and servicing
operation that is efficient and scalable, meaning that we can easily expand our
operations without significantly increasing our fixed costs. Management has
extensive experience in the payment processing business and a history of
providing reliable, customer-focused service to our merchants. Our platform of
services is very flexible, enabling merchant customization and scalability to
meet the requirements of high transaction volumes.  Our strategic objectives are to:   Make strategic acquisitions of merchant account portfolios and of
      compatible payment
businesses.
  We intend to continue to expand our merchant base by acquiring other
providers of payment processing services, as well as portfolios of merchant
accounts. The small to medium-sized merchant segment of the payment processing
market is serviced by many independent providers of payment processing services
that lack the resources to generate sufficient scale in this underserved market.
We believe opportunities exist for us to purchase these businesses when their
resources begin to limit their ability to continue to grow independently. Other
sources of portfolio acquisitions include commercial banks, which, in an effort
to focus on their core competencies, often sell or outsource their card-based
payment processing operations, creating the opportunity for buyers to acquire
their existing merchant portfolios.  Expand our portfolio of merchant
  clients.
  Our target market is small to medium-sized merchants who use payment
processing services. We are seeking to expand our market presence through our
internal sales efforts, banks and ISOs, as well as mobile merchants who use
wireless payment processing services.  Our experience in the industry, coupled with our ability to evaluate and
manage the risks related to providing payment processing services, allows us to
accept and approve a high rate of merchant applications and, we believe,
positions us well to continue to increase the size of our sales team and the
number of new applications our existing team members refer to us.   Grow our relationships with banks and
  ISOs.
  We have found relationships with banks to be a cost-effective and
valuable method of reaching small to medium-sized merchants that would otherwise
be difficult to identify and locate using customary marketing practices.
Pursuant to these relationships, banks endorse the processing systems we market
and service and participate in referring new customers. We believe the
utilization of ISOs to be another effective way of increasing the volume of
merchant referrals.   Maintain a stable and growing recurring revenue
      base.
  Through merchant retention and increased credit card use, we have
developed what we believe is a stable and recurring base of revenues. In
addition to our high customer service level, endorsements from banks and direct
salespersons provide an additional link to our merchants that should tend to
reduce attrition. Furthermore, we believe that the size of the merchants we
service make the merchants less likely to change providers because of the
up-front costs associated with a transfer.   Increase operating
efficiencies.
  Generally, we outsource our processing and network services to
third-parties which have excess capacity and the expertise to handle our needs.
We believe that because our merchant base generates significant transaction
volume in the aggregate, we have been able to negotiate competitive pricing from
our processing and network providers. We have achieved significant reductions in
certain operating expenses through operational efficiencies, economies of scale
and improved labor productivity. We will outsource processing and network
services as long as it is economically more attractive than to develop and
support these services within our company, allowing management to focus on its
core business of sales, marketing and customer retention.   7
    The Products and Services We Provide  Merchant Payment Processing Services  We
provide comprehensive services and support to merchants accepting credit and
debit-based payment cards, including the various services described
below:  Application Evaluation/ Underwriting. We
      recognize that there are varying degrees of risk associated with different
      merchants based on the nature of their businesses, processing volume and
      average transaction amounts. We apply varying levels of scrutiny in our
      application evaluation and underwriting of prospective merchants accounts,
      ranging from basic due diligence for merchants with a low risk profile to
      a more thorough and detailed review for higher risk merchants. The results
      of this review serve as the basis for our decision whether to accept or
      reject a merchant account and also provide the criteria for establishing
      rolling reserve requirements, processing limits and average transaction
      amounts and pricing, which assist us in monitoring merchant transactions
      for those accounts that exceed pre-determined
  criteria.
  Merchant Set-up and Training. After we
      establish a contract with a merchant, we create the software configuration
      that is downloaded to the merchant's credit card terminal or computer.
      This configuration includes the merchant identification number, which
      allows the merchant to accept Visa and MasterCard, as well as any other
      payment cards such as American Express, Discover and Diners Club provided
      for in the contract. The configuration might also accommodate check
      verification and gift and loyalty programs. If a merchant requires a
      pin-pad to accept debit cards, the configuration allows for the terminal
      or computer to communicate with the peripheral device. After the download
      has been completed, we may conduct a training session on the use of the
      products.Card Transaction Processing. A transaction
      begins with authorization of the customer's credit or debit card. The
      transaction data is captured by the processor and electronically
      transmitted to the issuer of the card, which then determines the
      availability of credit or debit funds. The issuer then communicates an
      approval decision back to the merchant through the purchaser. This process
      typically takes less than five seconds. After the transaction is
      completed, the processor transmits the final transaction data to the card
      issuer for settlement of funds. Generally, we outsource these services to
      third-party processors.Risk Management/Detection of Fraudulent
      Transactions. Our risk management staff relies on
      the criteria set by the underwriting department to assist merchants in
      identifying and avoiding fraudulent transactions by monitoring exceptions
      and providing access to other resources for fraud detection. By employing
      these and other risk management procedures, we enable our merchants to
      balance the risk of fraud against the loss of a valid
      transaction.Merchant Service and Support. We provide
      merchants with ongoing service and support. Customer service and support
      includes answering billing questions, responding to requests for supplies,
      resolving failed payment transactions, troubleshooting and repair of
      equipment, educating merchants on Visa and MasterCard compliance and
      assisting merchants with pricing changes and purchases of additional
      products and services. We maintain a toll-free helpline, which is staffed
      by our customer service representatives.Chargeback Service. In the event of a
      billing dispute between a cardholder and a merchant, we assist the
      merchant in investigating and resolving the dispute as quickly and as
      accurately as possible. Before instructing the cardholder's bank to debit
      the merchant's account for the chargeback, we provide the merchant with
      the opportunity to demonstrate that the transaction was valid. If the
      merchant is unable to demonstrate that the transaction was valid and the
      dispute is resolved in favor of the cardholder, the transaction is charged
      back to the merchant, and that amount is credited to the cardholder. This
      service is provided by third parties on our behalf.Merchant Reporting. We organize our
      merchants' transaction data into various files for merchant accounting
      purposes. We use this data to provide merchants with information, such as
      charge volume, discounts, fees and funds held for reserves to help them
      track their account activity. Merchants may access this archived
      information through our customer service representatives or online through
      our Internet-based customer service
system.
  The transactions for which we provide processing services involve the
following third parties:  Merchants. Merchants are the businesses that
accept payment cards, including Visa and MasterCard, for their merchandise and
services.  Sponsoring Banks. Sponsoring banks are financial
institutions that are card association members and provide the funds on behalf
of the card user, enabling merchants to accept payment cards.  8
    Processors. Processors, which may include banks,
gather sales information from merchants, obtain authorization for merchants'
transactions from card issuers, facilitate the collection of funds from
sponsoring banks for payment to merchants and provide merchant accounting and
settlement services on our behalf.  Virtual Terminal/Gateway  Our virtual terminal and gateway is the core SecurePay product which
allows payment processing via any Internet connected device. The virtual
terminal and gateway can process sales, voids, forces and returns. Our address
verification system 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.  Wireless Authorization Services  We provide electronic transaction authorization services for all major
credit cards originating from certain wireless cell phone and PDA devices and
transactions originating over 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
wireless terminal or enters the card via the Internet and enters the dollar
amount of the purchase. After capturing the data, the device transmits the
authorization request via the SecurePay system to our switching center, where
the data is routed to the appropriate credit card association network for
authorization. The transaction is approved or declined by the credit card
association, and the response is transmitted back to our 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 encrypted and stored by the SecurePay
system. The system maximizes accurate transaction reconciliation with each
merchant and protects against potential loss of data. The data collected also
allows us to provide merchants with information services such as specialized
management reports, accounting export files and to assist in our other customer
service operations. Merchants can access this archived information through the
SecurePay system, which allows the merchant direct access to our database
through a PC or wireless device.  Cell Phone and PDA Devices  The SecurePay gateway allows the acceptance of credit card payments over
wireless Internet devices, such as certain cell phones that utilize Palm OS,
Java and Windows CE platforms. The wireless solution enables the merchant 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. We intend to aggressively market our products and services
to the wireless and mobile merchant sector. We believe the wireless and mobile
transaction processing market is poised for exploitation, and, therefore, will
market a suite of products and services through our Aircharge subsidiary to
service mobile transaction processing merchants. In its May 2004 report, "Mobile
Merchants POS Terminals: Revisiting Untethered Card Acceptance," research firm
the TowerGroup stated that "Targeting mobile merchants, plumbers, non-store
retailers, restaurants and taxi and limousine services who accept a majority of
payments through cash and checks will greatly affect the wireless market,
especially through handheld devices."  Shopping Cart Technology  The shopping cart (Easy Shop) is a powerful, yet user-friendly tool that
is fully integrated into our 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 most Web sites. 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 and Communication Interfaces  Our gateway solutions allow value added resellers (VAR) and programmers
access to the card authorization systems by integrating their product to our
system for card processing. We have eight different communication objects
allowing flexibility to programmers who wish to create their own custom
applications.  Software Application Products and Value-Added Services  In addition to card transaction processing, we offer related software
application products and value-added services to our merchant customers. These
products and services are designed to run on Internet connected Windows-based
PCs and wireless devices. For example, our payment gateway enables merchants to
securely pass customer credit card information to a processing center for
verification. When combined with the SecurePay shopping cart, or previously
existing shopping cart, multiple items or  9
    combinations of items may be purchased. The SecurePay Web terminal is an
Internet-based product that allows merchants to accept orders over the
telephone. Unlike many traditional credit card terminals, a Web terminal allows
merchants to input certain data required by Visa and MasterCard in order to
qualify for the lowest possible processing rates. Offering a broad range of
products and services historically unavailable to small to medium-sized
merchants is an integral part of our strategy of focusing on these merchants and
differentiating ourselves among the banks and ISOs serving this market segment.
We believe that the quality and reliability of our products and services enhance
our ability to attract and retain merchant customers.  Primary Sources of Revenue  Our primary source of revenue 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, we receive periodic fees from most of
our merchants for providing various services. We negotiate the discount rate and
fees with each of the merchants to whom we provide services. We contract 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, we comply 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 we incur in delivering our services to 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 we negotiate with the network service provider and (iv) a fixed,
per transaction fee paid to the processing bank which we negotiate with the
processing bank. We believe, based on information received from our merchant
customers, that the range of discount rates offered by other service providers
is approximately 1.4% to 4.0%. The discount rates we offer are within this
range.  In most cases, in accordance with our contracts with processing banks,
the funds collection and disbursement function for each of the items listed
above is performed on our behalf. At month's 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 us the
remainder of the funds collected from the merchant. We then disburse funds to
agents and other service providers. Several factors can alter our profitability
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 our gross transaction margin because
many of the transaction costs are fixed and (iii) the inability to collect the
discount rate, chargeback or other fees because of insufficient funds in the
merchant's bank account.  Industry Overview and Our Market  Over the past ten years, the usage of non-cash forms of payment, such as
credit and debit cards, has steadily increased. According to The Nilson Report,
a leading industry publication that tracks the transaction processing industry,
purchases by U.S. consumers using credit will grow from $1.89 trillion in 2003
to $2.81 trillion in 2008 (8% CAGR) and credit cards will comprise 47.7% of all
transactions by 2009, up from 38.8% in 2004. In its most recent publication on
transaction processing, leading equity research firm Raymond James Financial
reported that overall credit card transactions will grow domestically from an
estimated 26.6 billion transactions in 2006 to 36.2 billion by 2010. Raymond
James reported that total credit card purchase volume will grow from $1.8
trillion in 2006 to $2.6 trillion by 2010, with average tickets increasing from
$70.10 per transaction to $71.50 over the same period. The evident shift in
electronic payment reflects the expanding role of technology and its impact on
consumer spending within retail, financial and banking sectors, which is likely
to continue in the foreseeable future.  The significant industry drivers appear to include convenience,
incentive-based programs, and a maturing demographic shift in younger U.S.
adults migrating towards a cashless society. We believe there is a great
opportunity in the transaction processing business to procure small to
medium-sized merchants in retail environments, online transactions via
e-commerce, mobile payment processing, municipal payment processing and other
areas.  The Small to Medium-sized Merchant Market  Small to medium-sized merchants generally have a lower volume of credit
card transactions, are difficult to identify and have traditionally been
underserved by credit card processors. We expect the small to medium-sized
merchants we target to increasingly accept and benefit from the increased usage
of card-based payment systems. By 2015, the majority of consumer payments around
the world will have moved from cash to other payment mechanisms, according to
Theodore Iacobuzio, managing director for TowerGroup's Executive Research
Office. In its research report, "The Cashless, Cardless Society: Coming Soon to
a Paypoint Near You," the TowerGroup said it believes payments will move
increasingly toward a "pay-as-you-go" model that will enable consumers to use
the Internet to buy what they want wherever they are. Although payments will
increasingly move through the Web rather than cash or even plastic, the majority
will still be funded by traditional bank relationships and run through
established payment networks and infrastructure. Iacobuzio states, "While
certain non-traditional players may make headway in taking share of new payments
mechanisms, we believe that the payments network as a whole will remain firmly
in the grip of financial services institutions." Further, The Federal Services
Policy Committee of the Federal Reserve System reported that the year 2003
marked the first time in United States history that electronic payment
transactions (44.5 billion) exceeded the number of check transactions (36.7
billion). This expected shift in electronic payments is likely to continue for
the foreseeable future and reflects the expanding role of technology and its
impact on consumer spending within retail, financial and banking businesses. As
a result, many small to medium-sized businesses are seeking, and we expect many
new small to medium-sized businesses to seek, to provide customers with the
ability to pay for merchandise and services using credit or debit cards,
including those in industries that have historically accepted cash and checks as
the only forms of payment for their merchandise and services. Our historic and
continuing strategy is to expand our company by aggressively growing the number
of merchant accounts serviced and by creating a processing and servicing
operation that is efficient and scalable. We believe this will allow us to more
easily expand our operations without significantly increasing our fixed costs.
We also intend to grow the number of accounts we service through a combination
of external acquisitions and internal sales efforts. We have created an
efficient and scalable processing and servicing operation by employing talented
team members, utilizing state-of-the-art  10
    technology and differentiating between what should be serviced in house
and what should be outsourced, in order to maximize resources while providing
better service to our clients. We believe that the development of our company to
date demonstrates how we have implemented our strategy.  The proliferation of credit and debit cards has made the acceptance of
card-based payment a necessity for businesses, both large and small, in order to
remain competitive. We believe that these businesses are experiencing increased
pressure to accept card-based payment methods in order to remain competitive and
to meet consumer expectations. As a result, many of these small to medium-sized
businesses are seeking, and we expect many new small to medium-sized businesses
to continue to seek to provide customers with the ability to pay for merchandise
and services using credit or debit cards, including those in industries that
have historically accepted cash and checks as the only forms of payment for
their merchandise and services. Historically, the larger acquiring banks have
marketed credit card processing services to national and regional merchants and
have not focused on small to medium-sized merchants, as small to medium-sized
merchants are often perceived as too difficult to identify and expensive to
service. This created an opportunity for non-banks, such as our company, which
recognized the business potential of providing electronic processing to these
small to medium-sized merchants. We have focused our marketing efforts on small
to medium-sized merchants, which have traditionally been underserved by
processing banks. We understand the unique characteristics of this market
segment and have tailored our marketing and servicing efforts accordingly. We
are able to provide electronic processing systems at rates that generally are
lower than those available from small local processors as a result of our
transaction volume. We serve a diverse portfolio of small to medium-sized
merchants. No single merchant accounted for more than 3% of our aggregate
transaction volume for 2007. This merchant diversification makes us less
sensitive to shifting economic conditions in the industries or regions in which
our merchants operate. We believe that the loss of any single merchant would not
have a material adverse effect on our financial condition or results of
operations.  Merchant attrition is an expected aspect of the credit card processing
business. Historically, our attrition has related to merchants going out of
business, merchants returning to local processing banks or merchants
transferring to competitors for rates we were unwilling to match. We expect
merchant attrition in the ordinary course of business, however, we believe the
low average transaction volume of the merchants whose accounts we service make
them less likely to change providers because of the inconveniences associated
with a transfer. During 2007, we experienced an average monthly attrition of
approximately 1% of our total charge volume, taking into consideration each of
the acquisitions during this period. Much of our attrition is related to newly
formed small businesses that ultimately fail. Because the transaction volumes of
these unsuccessful businesses typically never reach meaningful levels; they
do not significantly contribute to the profitability of our business.
Accordingly, our merchant attrition related to failed businesses does not
significantly reduce our revenues.  Merchant fraud is another expected aspect of the credit card processing
business. Currently, we are responsible for fraudulent credit card transactions
of our merchants on approximately 50% of our merchant customers, but we expect
this percentage to increase in calendar year 2007. Examples of merchant fraud
include inputting false sales transactions or false credits. We, along with our
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 our fraud avoidance policies, we generally
will not process for certain types of businesses which provide future services
wherein incidents of fraud have been common.  Generally, we are not responsible for cardholder fraud. We evaluate our
risks and estimate the potential loss for chargebacks and merchant fraud based
on historical experience. We also maintain a rolling reserve account, meaning we
withhold a varying percentage of at risk merchants' processing volume, for
potential losses. Generally, our agreements with merchants are for three years
and automatically renew for additional one-year periods unless otherwise
terminated. Our sponsoring banks are also a party to these agreements. The
merchants are obligated to pay for all chargebacks, fines, assessments and fees
associated with their merchant account, and in some cases, statement fees, and
monthly minimum fees and early termination fees. Generally, the sponsoring bank
may terminate the agreement for any reason on 30 days notice, and the merchant
may terminate the agreement on 30 days notice, subject to the payment of any
applicable early termination fees. Typically, the agreement may also be
terminated by the sponsoring bank immediately upon a breach by the merchant of
any of its terms. Generally, the merchant may not assign the agreement without
the prior written consent of the sponsoring bank.  We
believe that we have extensive experience and resources in assessing the risks
associated with providing payment-processing services to small to medium-sized
merchants. These risks include the limited operating history that many of the
small to medium-sized merchants we serve have and the risk that these merchants
could be subject to a higher rate of insolvency, which could adversely affect us
financially.  Marketing and Sales of our Services and Products  In
order to reach our target market in an effective and cost-efficient manner, we
market our services through four principal channels: (i) Internet marketing,
utilizing optimal search engine placement and affiliate referral programs (ii)
;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 sales; (iii) partnering with ISOs that market and sell our
services to merchants and (iv) bank alliances, through which we offer our
services to merchants in cooperation with community and regional banks, allowing
us to capitalize on the presence of those banks in particular geographic
markets. . In addition, we utilize other marketing efforts that encompass
cross-selling our Aircharge and SecurePay products. We also make use of various
trade and other associations, as well as VARs to further market our products and
services.  Internet Market  We
market over the Internet, targeting small to medium-sized e-commerce businesses.
Internet marketing methods used include pay per click advertising, search engine
positioning through our Charge.com subsidiary, our CardAccept and Paynet.com
brands and our affiliate Internet marketing.  Direct Sales  We
will continue to expand our direct sales activities. We currently employ and
intend to expand a telemarketing sales force to generate further internal
growth. We believe that our direct sales and telemarketing efforts constitute a
significant opportunity to expand our business.  11
    Independent Sales Organization Partnering  Generally, ISO partnering involves engaging an ISO to market and sell our
products and services on a non-exclusive basis. An ISO that desires to refer a
merchant customer to us will procure the merchant and submit it to us on the
merchant's behalf. Thereafter, the ISO will sell or lease hardware and software
to the merchant.  Our marketing efforts are diversified further through the integration of
our transaction processing services with the specialized business management
software of a growing number of ISOs. ISOs perform a marketing function for us
since their software often is offered on a fully-integrated basis with our
transaction processing services, creating additional opportunities for us to
reach small to medium-sized merchants.  We
compensate ISOs by paying them a residual payment for each transaction processed
by it for merchants they refer to us, or they derive revenue by reselling our
services to merchants at a price determined by the ISO. The ISO's determination
of whether to refer a particular merchant to our company depends on a variety of
factors, including the terms of the residual we offer and the industry in which
the merchant conducts its business.  We periodically review our marketing efforts and distribution channels to
minimize channel conflict. Although conflict among bank alliances, ISO
partnering and direct sales marketing may occur, to date we have not experienced
any significant conflict while pursuing our overall sales strategy.  Bank Alliances We
have an established marketing strategy of forming alliances with regional and
community banks and offer our services to merchants through these banks. Under
these arrangements, we obtain the exclusive endorsement of the bank and receive
both its initial and ongoing marketing assistance. Our bank alliances consist of
two types of relationships: (i) agent bank relationships, where the bank
purchases our services and markets and resells those services directly to
merchants (which we refer to herein as Agent Bank Alliances); and (ii) bank
referral relationships, where the bank refers our company to merchants who
desire or otherwise inquire about transaction processing services (which we
refer to herein as Bank Referral Alliances).  We
compensate our bank alliance partners through varying means. We compensate our
Bank Referral Alliance partners typically by paying them a one-time referral
fee. Agent Bank Alliance partners are not directly compensated, but rather, they
derive revenue by reselling our services to merchants at a price determined by
the Agent Bank.  Other Marketing Efforts  In
addition to bank alliances, ISO/VAR partnering and direct sales, telemarketing
and Internet marketing, we engage in other marketing efforts that we believe
complement and diversify further our overall marketing strategy. Through our
Aircharge subsidiary, we provide wireless, mobile payment solutions and, through
our SecurePay subsidiary, we provide gateway solutions and Internet card
acceptance tools.  Association Marketing  Through our association marketing program, 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
transaction processing services we provide, creating additional opportunities
for us to reach small to medium-sized merchants.  Customer Service and Support  We
are dedicated to providing reliable and effective customer service and support
to our merchant customers. The information access and retrieval capabilities of
networked systems, where real-time information is available to any of our
customer service representatives, allow us to provide a high level of customer
service, reporting and support to small to medium-sized merchants that were
historically available only to much larger merchants.  We
maintain a call center for customers of our SecurePay, NMSI, Charge.com,
CardAccept, Valadata, Paynet System, and Aircharge subsidiaries, as well as for
bank customers who are brought to us through direct bank referrals. We measure
the efficiency of our 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 are developing comprehensive programs and procedures for
training our customer service representatives to assist our merchant clients in
a timely and efficient manner with any problems, issues or concerns they may
have. We are dedicated to providing outstanding customer service and support and
continually review our policies and procedures in an effort to improve these
services.  Relationships with Sponsors and Processors  In
order to provide payment processing services for Visa and MasterCard
transactions, we must be sponsored by a financial institution that is a
principal member of the Visa and MasterCard card associations. Additionally, we
must be registered with Visa as an ISO and with MasterCard as a Member Service
Provider.  We
have agreements with several banks that sponsor us for membership in the Visa
and MasterCard card associations and settle card transactions for our merchants.
Our sponsoring banks include US Bancorp and Wells Fargo Bank N.A. In March 2008,
we entered into a new bank sponsorship agreement with Palm Dessert National
Bank. This arrangement has just commenced and, thus, as of the date of this
report, we have not serviced merchant relationships pursuant to this
arrangement. All may terminate their agreements with us if we materially breach
the agreements and do not cure the breach within 30 days, if our membership with
Visa or MasterCard terminates, if we enter bankruptcy or file for bankruptcy, or
if applicable laws or regulations, including Visa and MasterCard regulations,
change to prevent either the applicable bank or us from performing our services
under the agreement. We have agreements with our processing banks to provide for
us to continue to receive revenues so long as (i) the merchants subject to the
agreements process credit card transactions with the banks, (ii) we provide
appropriate service to the merchants and (iii) we otherwise remain in compliance
with the terms of the agreement. We provide transaction processing and
transmittal, transaction authorization and data capture, and access to various
reporting tools pursuant to non-exclusive contractual relationships with
processing banks that are members of Visa and MasterCard. These processors
include CTS Holdings, Inc. (a wholly owned subsidiary of First Data Corp) and
Nova Information Systems, Inc. Our processing banks withhold from the merchants
a discount rate and various fees for the processing  12
    of
each credit card transaction. From our discount rate revenues, amounts are paid
to the issuing bank, the network service provider, Visa or MasterCard and to the
processing bank.  Generally, our agreements with processing banks contain aspects of both
marketing and service. The marketing portions of the agreements permit us to
originate new merchants. The service portions of the agreements permit us to
provide services (including terminal programming and shipping, employee
training, equipment supply and repair and operational support) to the merchants
solicited. Although the marketing portions of the agreements have limited terms,
the service portions of these agreements do not. Accordingly, we have a right to
continue to receive revenues from these processors, so long as we remain in
compliance with the service agreements.  To
date, we have relied primarily on two banks/processors to process our clients'
credit card transactions: Wells Fargo Bank N.A./CTS Holdings, Inc., or
Wells/CTS, and U.S. Bancorp/Nova Information Systems, Inc., or USB/NIS.
Currently, our arrangement with our principal bank/processor, Wells/CTS,
constitutes approximately 75% of our aggregate merchant base. Our arrangement
with our second largest bank/processor, USB/NIS, constitutes approximately 16%
of our aggregate merchant base. The remaining 9% of our aggregate merchant base
consists of various rights to receive recurring revenue payment agreements,
which, in the main, do not subject us to chargeback liability but have limited
contractual rights to the merchants serviced. Our primary processing agreements
may be terminated by either party in the event of default, insolvency or
receivership, failure to make payments when due or to abide by the rules and
regulations of Visa and MasterCard. As we have only recently entered into our
sponsorship agreement with Palm Dessert National Bank, we have not serviced
merchant relationships pursuant to this arrangement.  Competition and our Competitive Position in the Market  The payment processing industry is highly competitive. We compete in this
market on the basis of:  quality of service;support and reliability of service;ability to evaluate, undertake and manage risk;speed in approving merchant applications;technological capability;price; andavailability of additional
features.
  Both large and small companies compete with us in providing payment
processing services and related services. Large competitors include First Data
Merchant Services Corp., Global Payments, Inc., iPayment, Heartland Payment
Systems, Inc. and Nova Information Systems, Inc., a subsidiary of U.S. Bancorp,
that serve a broad market spectrum from large to small merchants and provide ATM
and other payment-related services and systems, in addition to card-based
payment processing. There are also a large number of smaller competing
transaction processors that provide various services to small to medium-sized
merchants. We also compete with local, regional and national banks that have
internal sales forces and/or have developed relationships with independent
service organizations that are our competitors. Many of our competitors have
substantially greater capital resources than we have and operate as subsidiaries
of financial institutions or bank holding companies, which may allow them on a
consolidated basis to own and conduct depository and other banking activities
that we do not have the regulatory authority to own or conduct.  We believe we have core strengths which will allow us to compete in our
industry. These include:   Our focus on small to medium-sized merchants.We believe that our specific focus on small to medium-sized
      merchants, in addition to our understanding of the needs and risks
      associated with providing payment processing services to small to
      medium-sized merchants, gives us a competitive advantage over larger
      competitors which have a broader market perspective and over competitors
      of a similar or smaller size that may lack our extensive experience and
      resources.Our utilization of bank/direct sales relationships. We utilize bank/direct sales relationships to provide us a
      distinct competitive advantage in maintaining primary relationships with
      the underserved, small to medium-sized merchant segment of the
      market.
   13
     Our scalable, efficient operating structure. We believe that as a result of our experience in payment
      processing, we have been able to develop operating efficiencies which we
      believe allow us to competitively bid for new business. Our scalable,
      efficient operating structure allows us to easily expand our operations
      without significantly increasing our fixed costs. We conduct our
      underwriting and risk management operations in-house, where we believe we
      can add the most value due to our management's experience and expertise in
      these areas. We consider underwriting and risk management highly important
      to our operations. We outsource our remaining processing services to third
      parties, including the evaluation and acceptance of card numbers and
      receipt and settlement of funds. By outsourcing these non-core services,
      we are able to maintain a highly efficient operating structure. We believe
      there is sufficient capacity among third parties to meet our current and
      future outstanding needs. Many of our contracts include pricing terms that
      are more favorable to us as the transaction volume generated by our
      merchant base increases.Technical monitoring and value of the SecurePay
      system. We continually monitor and make
      technological improvements to our system and thus are able to respond to
      the specific needs of merchants in various industries. We also maintain
      that the quality, speed and reliability of the SecurePay system and the
      breadth, flexibility and user-friendliness of our software application
      products and services constitute a competitive advantage.Advantages of our cell phone payment application. Our cell phone application also provides distinct competitive
      advantages. It is considerably less expensive than traditional wireless
      terminals, which can have a price point up to 70% higher. Competing
      wireless terminals, by contrast, are single function only. In addition,
      our cell phone application offers superior coverage area.Proven acquisition and integration strategy. We have significant experience acquiring providers of payment
      processing services, as well as portfolios of merchant accounts, having
      acquired several portfolios of merchant accounts, including Charge.com in
      December 2005, Aircharge in September, 2005 and Valadata and Paynet in
      2006. We have enhanced revenues and improved operating efficiencies of our
      acquired entities by improving the services, support and benefits we offer
      to the ISOs that serve the entities and merchant accounts we acquire. In
      addition, we have increased operating efficiencies of many of the
      businesses we have acquired by conducting profitability analyses of
      acquired merchant accounts and reducing processing fees and
      overhead.Strong position and substantial experience in our target
      market. We believe our understanding of the
      payment processing needs and risks of small to medium-sized merchants
      provides us with a competitive advantage over larger service providers
      that have a broader market perspective. We also believe that we have a
      competitive advantage over service providers of a similar or smaller size
      that may lack our extensive experience and resources.Experienced, efficient sales force. We
      market our services primarily through our contractual relationships with
      over 30 ISOs/VARs throughout the United States. Although it is not
      customary in our industry to obligate ISOs to refer their merchant
      applications to any one processing provider, many currently refer a
      majority of their new merchant applications to us as a result of our
      strong relationships with them. Our sales approach provides us with an
      experienced sales force which markets our services with minimal direct
      investment in sales infrastructure and management. We continually strive
      to strengthen these relationships by delivering superior service and
      support.
   Comprehensive underwriting and risk management
      systems. Through our experience and cumulative
      knowledge in assessing risks associated with providing payment processing
      services to small to medium-sized merchants, we have developed business
      procedures and systems that provide effective risk management and fraud
      prevention solutions. Through our underwriting processes, we evaluate
      merchant applicants and balance the risks of accepting a merchant against
      the benefit of the charge volume we anticipate the merchant will generate.
      We believe our systems and procedures enable us to identify potentially
      fraudulent activity and other questionable business practices quickly,
      thereby minimizing our losses and those of our merchants.Superior Internet marketing.We have a
      comprehensive Internet-based sales organization through our subsidiary,
      Charge.com, which capitalizes on highly optimized search engine placement,
      extensive affiliate channels, unique referral programs and a dynamic
      Internet marketing sales team.
  Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements  We have no patents, trademarks, franchises, concessions or royalty
agreements. We are continuously developing software for use in four principal
areas: (i) applications for Internet-based and wireless transactions; (ii)
transaction switching; (iii) the SecurePay suite of products and (iv) customer
service and fraud. We regard our proprietary software as protected by trade
secret and copyright laws of general applicability and attempt to safeguard our
software through the protection afforded by the above-referenced laws,
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 our
software or to otherwise obtain or use other information we regard as
proprietary. While our competitive  14
    position may be affected by our ability to protect our software and other
proprietary information, we believe that the protection afforded by trade secret
and copyright laws is less significant to us than other factors such as the
knowledge, ability and experience of our personnel and the continued pursuit and
implementation of our operating strategies.  We currently license certain software from third-parties to supplement
our internal software and technology development and to shorten time-to-market
software application product deliveries.  Employees and Labor Contracts  As of December 31, 2007, we employed 122 full-time and 2 part-time
personnel, including 15 information systems and technology, 14 operations and 95
sales and administration. Many of our employees are highly skilled, and we
believe our future viability will depend in large part on our ability to attract
and retain such employees. We have employment agreements with several
individuals, including our chief operating officer, chief financial officer, our
chief technology officer and chief marketing officer. None of our employees are
represented by a labor union, and we have experienced no work stoppages. We
consider our employee relations to be good.   15
    RISK FACTORS AND CAUTIONARY STATEMENTS  An investment in our securities involves a high degree of risk. In
addition to the other information in this annual report, including our financial
statements and related footnotes, you should carefully consider the following
risk factors before deciding to invest in our securities. If any of the
following risks actually occur, it is likely that our business, financial
condition and operating results would be harmed. As a result, the trading price
of our common stock could decline, and you could lose part or all of your
investment.  Risks Relating to our Business  We have a history of operating losses and will need to generate
significant revenue to meet future obligations and achieve or maintain our
profitability.  We
are engaged in the payment processing and services business and have acquired
payment processing related businesses and portfolios of merchant accounts to
grow our business, both of which require substantial capital and other
expenditures. As a result, we have not maintained profitability and may continue
to incur losses in the future. We had net losses of $2.0 and $2.3 million for
the years ended December 31, 2007 and 2006, respectively. We intend to continue
to acquire businesses and merchant account portfolios. In addition, we expect
our cash needs to increase significantly within the next two years to meet
potential earn-out and share retirement obligations under existing merger and
acquisition agreements.  As
a result of these continuing and new expenses, we need to generate significant
revenues to achieve and maintain profitability. To date, our operations have
been supported through, cash flow from operations, sales of our securities and
by financings, including the Centrecourt Financing. If we do not continue to
increase our revenues, our business, results of operations and financial
condition could be materially and adversely affected. We have incurred
substantial levels of debt, which could impair our financial and operating
flexibility.  We
have incurred substantial debt in connection with the financing of our
operations and acquisitions. We incurred debt in the principal amount of $37.0
million in connection with the Centrecourt Financing. We used the proceeds of
the Centrecourt Financing to repay a $15.0 million promissory note issued to
Sheridan Capital Advisors, LLC and a $2.0 million convertible promissory note
issued to CAMOFI Master LDC, as well as to fund the purchase price for Valadata
and Paynet. We may incur additional debt in the future in order to pursue our
acquisition strategy or for other purposes. Substantial indebtedness could
impair our ability to obtain additional financing for working capital
expenditures or further acquisitions. Covenants governing any indebtedness we
incur would likely restrict our ability to take specific actions, including our
ability to pay dividends or distributions, redeem or repurchase our capital
stock, issue, sell or allow distributions on capital stock of our subsidiaries,
enter into transactions with affiliates, merge, consolidate or sell our assets,
or make capital expenditure investments. In addition, the use of a substantial
portion of the cash generated by our operations is used to cover debt service
obligations. Security interests granted on our assets could limit our financial
and business flexibility.  If an event of default occurs under the secured note we issued in
connection with the Centrecourt Financing, it could result in a material adverse
effect on our business operating results, or financial condition as the
investors maintain a first priority security interest in all of our assets and
the assets of our business.  On
June 29, 2006, we issued $37.0 million in convertible notes in connection with
the Centrecourt Financing. The investors in the Centrecourt Financing have a
first priority security interest in all of our assets. Investors should be aware
that the following events constitute events of default under these
notes:  failure to pay interest and principal payments when
    due;
  a breach of any material covenant or term or condition in the note
      in any agreement made in connection therewith;
or
  a default or event default occurring under any of the agreements
      made in connection with the note or any other material agreement, lease,
      mortgage, indenture agreement, factoring agreement, or other instrument,
      to which the company or any of its subsidiaries is bound;
  or
  breach of any warranty or material representation made in the note
      or in any agreement made in connection therewith;
  or
    any form of bankruptcy or insolvency proceeding instituted by or
      against us which is not vacated in sixty (60) days;
  or
  a change in control.
  In connection with the Centrecourt Financing, we agreed to certain
restrictions on our activities that could negatively impact our ability to
obtain financing from other sources.  So
long as any portion of the principal amount of the convertible notes remains
outstanding, we are restricted from incurring additional indebtedness other than
certain permitted indebtedness, which includes certain purchase money
indebtedness incurred in connection with the acquisition of capital assets
subject to certain financial conditions and indebtedness approved by a majority
of holders of our convertible notes. To the extent that additional debt
financing is required for us to conduct our operations, these restrictions could
materially and adversely impact our ability to achieve our operational
objectives.  The conversions of the $37 million Centrcourt Financing convertible note
could adversely impact our common stock resulting in greater dilution to our
stockholders.  16
     The market price of our common stock significantly impacts the extent to
which the notes issued in connection with the Centrecourt Financing are
convertible into shares of our common stock and the dilution that will occur to
our stockholders. The $37.0 million note is convertible into 28.5 million shares
of common stock.  If requested, we have a requirement to repurchase up to 9,398,058 shares
of our common stock issued to the former shareholders of Charge.com. If
requested, we will be required raise money to satisfy this obligation. If left
unsatisfied, it could result in a defaulted obligation and have a material
adverse effect on our business operating results or financial condition of our
company.  On
March 4, 2008, the sixth amendment (the "Amendment") to the Agreement and Plan
of Merger (the "Merger Agreement") among our company, Charge.com Acquisition,
Inc., Charge.com, David Danzig and Gregory Danzig was entered into by Pipeline,
Charge.com Acquisition, Inc., David Danzig and Gregory Danzig, on behalf of
himself and Kauai Investment Holdings, LLC ("Kauai"). Pursuant to the Amendment,
Gregory Danzig, Kauai and David Danzig have been provided with additional time
to determine whether to exercise their rights under the Merger Agreement to sell
their shares of Pipeline common stock back to Pipeline. Under the Amendment, if
the Danzigs and Kauai want Pipeline to purchase all of such shares, they must
notify Pipeline of such decision on or between March 4, 2008 and 5:00 p.m.
(Eastern Daylight Time) on April 30, 2008 (the "Put Right"). If Gregory Danzig,
Kauai or David Danzig chooses to have Pipeline repurchase the shares of Pipeline
common stock issued to him or it under the Merger Agreement at the per share
purchase price of $1.4763 per share ("Per Share Purchase Price"), subject to
interest assessment as set forth below, then Pipeline is obligated to do so by
May 1, 2008. If Gregory Danzig, Kauai and/or David Danzig (the "Selling
Shareholders") exercises the Put Right in accordance with the terms of the
Amendment, Pipeline must pay the Selling Shareholders in cash by May 1, 2008 the
Per Share Purchase Price, plus interest, for each share of Pipeline common stock
to be so repurchased. Any such payment of the Per Share Purchase Price made
after March 1, 2008. will incur interest at the rate of 18% per annum based on
the aggregate unpaid amount until paid for in full in cash, as assessed on a pro
rata daily basis on the date of payment. Interest will be assessed on the shares
of Pipeline common stock actually sold by the Selling Shareholders to Pipeline.
In the event the Danzigs and Kauai exercise their "put right", we will be
required raise money to satisfy this obligation. If left unsatisfied, it could
result in a defaulted obligation and have a material adverse effect on our
business operating results or financial condition of our company  Additional authorized shares of our common stock and preferred stock
available for issuance may adversely affect the market for our common
stock.  We
are authorized to issue 150,000,000 shares of our common stock. As of December
31, 2007, there were 49,773,603 shares of common stock issued and outstanding.
We may also issue up to 28,578,205 shares in connection with the conversion of
both a $175,000 convertible promissory note issued to former Aircharge
stockholders and the previously mentioned $37.0 million convertible notes.
Additionally, we have 15.3 million warrants, with an average exercise price of
$1.42 and 10.7 million options, with an average exercise price of $1.42,
outstanding as of December 31, 2007. The combination of shares outstanding as of
December 31, 2007, plus the potential shares that could be issued through the
conversion of convertible notes payable, warrants and stock options outstanding
is 104,354,076 shares of our common stock. As of December 31, 2007, there were
49,773,603 shares of our common stock outstanding, plus 1,622,490 potential
shares that are vested and "in the money", thus equating to 51,396,093 shares
outstanding or "in the money" common stock equivalents as of December 31, 2007.
To the extent we issue securities in future acquisitions or financings that are
convertible into or exchangeable for equity securities, investors will
experience further dilution.  In
addition to the above referenced shares of common stock which may be issued
without stockholder approval, we have five million (5,000,000) shares of
authorized preferred stock, the terms of which may be fixed by our board of
directors. We have issued preferred stock in the past, and our board of
directors has the authority, without stockholder approval, to create and issue
one or more additional series of such preferred stock and to determine the
voting, dividend, conversion and other rights of holders of such preferred
stock. The issuance of any of such series of preferred stock will have an
adverse effect on the holders of common stock.  We face uncertainty about additional financing for our future capital
needs, which may prevent us from growing our business.  If
we are unable to increase our revenues, we will need to raise additional funds
to finance our future capital needs. Additional financing may be required if
we:   Decide to expand faster than planned;Need to respond to competitive pressures; orneed to acquire complementary products, businesses or
      technologies.
  If
we raise additional funds through the sale of equity or convertible debt
securities, these transactions may dilute the value of our outstanding common
stock or trigger contractual obligations to issue additional shares of our
common stock to investors in the Centrecourt Financing. We may also decide to
issue securities, including debt securities, which have rights, preferences and
privileges senior to our common stock. We cannot assure you that we will be able
to raise additional funds on terms favorable to us, or at all. If future
financing is not available or is not available on acceptable terms, we may not
be able to fund our future needs. This may prevent us from increasing our market
share, capitalizing on new business opportunities, remaining competitive in our
industry or continuing our business operations as a whole.  The full impact of our 2006 acquisitions on our operating results is not
fully reflected in our historical financial results, which, as a result, are not
necessarily indicative of our future results of operations.  We
have expanded our card-based payment processing services through the acquisition
of Valadata and Paynet Systems. Accordingly, our results for the fiscal year
ended December 31, 2006, may not be indicative of results to be expected in
future periods.  17
    Increased consolidation in the market in which we operate will have an
impact on price and availability of acquisition, joint venture and alliance
opportunities.  Historically, our growth strategy has been materially dependent upon the
purchase of additional merchant portfolios and the acquisition of operating
businesses. This strategy will continue in the future. We face significant
competition from other transaction processors for available acquisition, joint
venture and alliance opportunities. These transaction processors potentially
deprive us of acquisition opportunities and may cause the purchase price of such
transactions to increase. We cannot give any assurances that the historical or
current level or pricing of acquisition opportunities will continue to exist,
that we will be able to acquire merchant portfolios, operating businesses or
transaction processing assets that satisfy our criteria or that any such
transaction will be on favorable terms.  We have faced, and may in the future face, significant chargeback
liability if our merchants refuse or cannot reimburse chargebacks resolved in
favor of their customers.  We
have potential liability for chargebacks associated with the transactions we
process. If a billing dispute between a merchant and a cardholder is not
ultimately resolved in favor of the merchant, the disputed transaction is
"charged back" to the merchant's bank and credited to the account of the
cardholder.  We
also have potential liability for losses caused by fraudulent credit card
transactions. Card fraud occurs when a merchant's customer uses a stolen card
(or a stolen card number in a card-not-present transaction) to purchase
merchandise or services. In a traditional "card-present transaction," if the
merchant swipes the card, receives authorization for the transaction from the
card issuing bank and verifies the signature on the back of the card against the
paper receipt signed by the customer, the card issuing bank remains liable for
any loss. In a fraudulent "card-not-present" transaction, even if the merchant
receives authorization for the transaction, the merchant is liable for any loss
arising from the transaction. Many of the merchants that we serve are businesses
that transact a percentage of their sales over the Internet or in response to
telephone or mail orders. Because their sales are card-not-present transactions,
these merchants are more vulnerable to customer fraud. Because we target
merchants that process card-not-present transactions over the Internet, by
telephone and by mail, we experience and expect to continue to experience
chargebacks arising from cardholder fraud. Such chargebacks could negatively
impact our financial results. Moreover, if we, or our processing banks, are
unable to collect the chargeback from the merchant's account, or if the merchant
ceases operations, refuses or is financially unable due to bankruptcy or other
reasons to reimburse the merchant's bank for the chargeback, we bear the loss
for the amount of the refund paid to the cardholder's bank. We are not insured
against this risk.  We face potential liability for merchant or customer fraud. We may not be
able to accurately anticipate this liability, which could result in lost sales
to us.  Merchant fraud occurs when a merchant, rather than a customer, knowingly
uses a stolen or counterfeit card or card number to record a false sales
transaction, or intentionally fails to deliver the merchandise or services sold
in an otherwise valid transaction. Any time a merchant is unable to satisfy a
chargeback, we are responsible for that chargeback. We have established systems
and procedures to detect and reduce the impact of merchant fraud. In addition to
credit review, we monitor merchant transactions against a series of standards
developed to detect merchant fraud and excessive chargebacks. We apply varying
levels of scrutiny in our evaluation of applications and underwriting of
prospective merchants accounts, ranging from basic due diligence for merchants
with a low-risk profile to a more thorough and detailed review for higher risk
merchants. The results of this review serve as the basis for our decision
whether to accept or reject a merchant account, and also provide the criteria
for establishing whether to maintain a reserve of a portion of a merchant's
processing volume, the particular reserve requirements, processing limits,
average transaction amounts and pricing. It also assists us in monitoring
merchant transactions for those accounts that exceed pre-determined criteria. We
maintain rolling reserves, meaning we withhold a varying percentage of at risk
merchants' processing volume, to offset potential losses. On merchants whom we
have instituted a rolling reserve, we maintain an average of 15% of processing
volume. Despite our efforts to detect merchant fraud, we cannot assure you that
these measures are or will be effective. It is possible that we will experience
significant amounts of merchant fraud in the future, which could increase our
chargeback liability. Increased chargeback liability may have a material adverse
effect on our business, financial condition, results of operations and ability
to continue business operations.  If our merchants experience adverse business conditions, they may
generate fewer transactions for us to process or become insolvent, increasing
our exposure to chargeback liabilities.  General economic conditions have caused some of the merchants we serve to
experience difficulty in supporting their current operations and implementing
their business plans. If these merchants make fewer sales of their products and
services, we will have fewer transactions to process, resulting in lower
revenues.  In
addition, in a recessionary environment, the merchants we serve could be subject
to a higher rate of insolvency which could adversely affect us financially. We
bear credit risk for chargebacks related to billing disputes between credit card
holders and bankrupt merchants. If a merchant seeks relief under bankruptcy laws
or is otherwise unable or unwilling to pay, we may be liable for the full
transaction amount of a chargeback.  We rely on bank sponsors, which have substantial discretion with respect
to certain elements of our business practices, in order to process bankcard
transactions; if these sponsorships are terminated and we are not able to secure
or migrate merchant portfolios to new bank sponsors, we will not be able to
conduct our business.  Because we are not a bank, we are unable to belong to and directly access
the Visa and MasterCard bankcard associations. Visa and MasterCard operating
regulations require us to be sponsored by a bank in order to process bankcard
transactions. We are currently registered with Visa and MasterCard through the
sponsorship of banks that are members of the card associations. Our sponsoring
banks include US Bancorp and Wells Fargo Bank N.A. In March 2008, we entered
into a new bank sponsorship agreement with Palm Dessert National Bank. This
arrangement has just commenced and, thus, as of the date of this report, we have
not serviced merchant relationships pursuant to this arrangement. If all these
sponsorships are terminated and we are unable to secure a bank sponsor, we will
not be able to process bankcard transactions. Furthermore, our agreements with
our sponsoring banks give the sponsoring banks substantial discretion in
approving certain elements of our business practices, including our
solicitation, application and qualification procedures for merchants, the terms
of our agreements with merchants, the processing fees that we charge, our
customer service levels and our use of ISOs, which we define as any non-bank
party that sells card-based payment processing services to merchants, that
markets and services electronic credit card authorization and payment  18
    systems to merchants located throughout the United States. We are unable
to guarantee that our sponsoring banks' actions under these agreements will not
be detrimental to us.  If we, or our bank sponsors, fail to adhere to the standards of the Visa
and MasterCard credit card associations, our registrations with these
associations could be terminated and we could be required to stop providing
payment processing services for Visa and MasterCard.  Substantially all of the transactions we process involve Visa or
MasterCard. If we, or our bank sponsors, fail to comply with the applicable
requirements of the Visa and MasterCard credit card associations, Visa or
MasterCard could suspend or terminate our registration. The termination of our
registration or any changes in the Visa or MasterCard rules that would impair
their or our registration could require us to stop providing payment processing
services.  We rely on other card payment processors and service providers; if they
fail or no longer agree to provide their services, our merchant relationships
could be adversely affected and we could lose business.  We
rely on agreements with several other large payment processing organizations to
enable us to provide card authorization, data capture, settlement, and merchant
accounting services and access to various reporting tools for the merchants we
serve. We also rely on third parties to whom we outsource specific services,
such as reorganizing and accumulating daily transaction data on a
merchant-by-merchant and card issuer-by-card issuer basis and forwarding the
accumulated data to the relevant bankcard associations. Our card payment
processors include CTS Holdings, Inc. (a wholly owned subsidiary of First Data
Corp.) and Nova Information Systems, Inc.  The termination by our service providers of their arrangements with us or
their failure to perform their services efficiently and effectively may
adversely affect our relationships with the merchants whose accounts we serve
and may cause those merchants to terminate their processing agreements with
us.  To acquire and retain merchant accounts, we depend on a group of banks
and ISOs as referral sources and loss of any of these referral sources may cause
us to lose an effective method of marketing our products and services to
merchants.  We
have contractual relationships with 50 commercial banks and financial
institutions, comprising 460 bank branch locations, and 48 credit unions, 30
Independent Sales Organizations(ISOs)/Value Added Resellers (VARs) and a
national cell phone carrier that serve as referral sources for our products and
services to merchants seeking to establish an account with a payment processor.
Our failure to maintain our relationships with these banks could adversely
affect our revenues and internal growth and increase our merchant
attrition.  We
have contractual relationships with more than 30 ISOs/VARs to market our
services to merchants seeking to establish an account with a payment processor.
Our failure to maintain our relationships with our existing ISOs and those
serving other service providers that we may acquire, and to recruit and
establish new relationships with other ISOs, could adversely affect our revenues
and internal growth and increase our merchant attrition. On occasion, we
experience increases in interchange and sponsorship fees; if we cannot pass
these increases along to our merchants, our margins will be reduced.  We
pay interchange fees or assessments to card associations for each transaction we
process using their credit and debit cards. From time to time, the card
associations increase the interchange fees that they charge processors and the
sponsoring banks. At their sole discretion, our sponsoring banks have the right
to pass any increases in interchange fees on to us. In addition, our sponsoring
banks may seek to increase their Visa and MasterCard sponsorship fees to us, all
of which are based upon the dollar amount of the payment transactions we
process. If we are not able to pass these fee increases along to merchants
through corresponding increases in our processing fees, our margins will be
reduced.  Unauthorized disclosure of merchant and cardholder data, whether through
breach of our computer systems or otherwise, could expose us to protracted and
costly litigation.  We
collect and store sensitive data about merchants and cardholders, including
names, addresses, social security numbers, drivers license numbers, checking and
savings account numbers and payment history records, such as account closures
and returned checks. In addition, we maintain a database of cardholder data
relating to specific transactions, including payment card numbers and cardholder
addresses, in order to process the transactions and for fraud prevention and
other internal processes. If a person penetrates our network security or
otherwise misappropriates sensitive merchant or cardholder data, we could be
subject to liability or business interruption. These claims also could result in
protracted and costly litigation.  Although we generally require that our agreements with our ISOs and
service providers who have access to merchant and customer data include
confidentiality obligations that restrict these parties from using or disclosing
any customer or merchant data except as necessary to perform their services
under the applicable agreements, we cannot assure you that these contractual
measures will prevent the unauthorized disclosure of merchant or customer data.
In addition, our agreements with financial institutions require us to take
certain protective measures to ensure the confidentiality of merchant and
consumer data. Any failure to adequately take these protective measures could
result in protracted or costly litigation. Although we have fulfilled our
requirements to an authorized Visa/MasterCard compliance auditor regarding
cardholder information and security procedures and as of September 2007 have
been certified compliant as a Visa/MasterCard merchant payment processor, we
could fail to maintain compliance. Noncompliance could result in material
interruptions in our ability to store and transmit card data.  Increased attrition in merchant charge volume due to an increase in
closed merchant accounts that we cannot anticipate or offset with new accounts
may reduce our revenues.  We
experience attrition in merchant charge volume in the ordinary course of
business resulting from several factors, including business closures, transfers
of merchants' accounts to our competitors and account "closures" that we
initiate due to heightened credit risks relating to, and contract breaches by, a
merchant. During 2007, we experienced average attrition of 1% of merchant
transaction charge volume per month. In addition, substantially all of our
processing contracts with merchants may be terminated by either party on
relatively short notice, allowing merchants to move their processing accounts to
other providers with minimal financial liability and cost. Increased attrition
in merchant charge volume may have a material adverse effect on our financial
condition and results of operations. We may not be able to accurately predict
the level of attrition in the future, particularly in connection with our recent
acquisitions of merchant account portfolios. If we are unable to increase our
transaction volume or establish accounts with new merchants in order to counter
the effect of this attrition, or, if we experience a higher level of attrition
in merchant charge volume than we anticipate, our revenues will
decrease.  19
     The loss of key personnel or damage to their reputations could adversely
affect our relationships with ISOs, card associations, bank sponsors and our
other service providers, which would adversely affect our
business.  Our ability to run our business depends upon the continued services of
our senior management and other key employees, in particular MacAllister Smith,
our Chief Executive Officer, all of whom have substantial experience in the
payment processing industry and the small to medium-sized merchant markets in
which we offer our services. In addition, our ability to execute our business
strategy will depend in large part upon the reputation and influence within the
industry of Mr. Smith, who has, along with our other senior managers, over
their years in the industry, developed long-standing and highly favorable
relationships with ISOs, card associations, bank sponsors and other payment
processing and service providers. We would expect that the loss of the services
of one or more of our key employees, particularly Mr. Smith, would have an
adverse effect on our operations. We would also expect that any damage to the
reputation of our senior managers, including Mr. Smith, would adversely
affect our business. Currently, we do not maintain "key person" life insurance
on any employees.  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.  The payment processing industry is highly competitive and such
competition is likely to increase, which may further adversely influence our
prices to merchants, and as a result, our profit margins.  The market for card processing services is highly competitive. The level
of competition has increased in recent years, and other providers of processing
services have established a sizable market share in the small to medium-sized
merchant processing sector. Some of our competitors are financial institutions,
subsidiaries of financial institutions or well-established payment processing
companies that have substantially greater capital and technological, management
and marketing resources than we have. Some of our competitors are large
associations, such as Costco, BJ's Wholesale Club, chambers of commerce,
community associations and trade associations that may offer lower rates based
on a better buy rate or as a "loss leader" and, thus, attract customers who
"shop price" or, alternatively, attract business out of association loyalty.
There are also a large number of small providers of processing services that
provide various ranges of services to small to medium-sized merchants. Our
competition may influence the prices we can charge, attract employees and our
sales force away from us and requires us to control costs aggressively in order
to maintain acceptable profit margins. In addition, our competitors continue to
consolidate as large banks merge and combine their networks. This consolidation
may also require that we increase the consideration we pay for future
acquisitions and could adversely affect the number of attractive acquisition
opportunities presented to us.  Increased attrition in merchant charge volume due to an increase in
closed merchant accounts that we cannot anticipate or offset with new accounts
may reduce our revenues.  We
experience attrition in merchant charge volume in the ordinary course of
business resulting from several factors, including business closures, transfers
of merchants' accounts to our competitors and account "closures" that we
initiate due to heightened credit risks relating to, and contract breaches by, a
merchant. During 2006, we experienced average attrition of 1% of merchant
transaction charge volume per month. In addition, substantially all of our
processing contracts with merchants may be terminated by either party on
relatively short notice, allowing merchants to move their processing accounts to
other providers with minimal financial liability and cost. Increased attrition
in merchant charge volume may have a material adverse effect on our financial
condition and results of operations. We may not be able to accurately predict
the level of attrition in the future, particularly in connection with our recent
acquisitions of merchant account portfolios. If we are unable to increase our
transaction volume or establish accounts with new merchants in order to counter
the effect of this attrition, or, if we experience a higher level of attrition
in merchant charge volume than we anticipate, our revenues will
decrease.  Our operating results are subject to seasonality, and if our revenues are
below our seasonal norms during our historically stronger third and fourth
quarters, our net income could be lower than expected.  We
have experienced in the past, and expect to continue to experience, seasonal
fluctuations in our revenues as a result of consumer spending patterns.
Historically, revenues have been weaker during the first two quarters of the
calendar year and stronger during the third and fourth quarters. If, for any
reason, our revenues are below seasonal norms during the third or fourth
quarter, our operating results could be negatively affected.  Our systems may fail due to factors beyond our control, which could
interrupt our business or cause us to lose business and would likely increase
our costs.  We
depend on the efficient and uninterrupted operations of our computer network
systems, software and data centers. We do not presently have fully redundant
systems. Our systems and operations could be exposed to damage or interruption
from fire, natural disaster, power loss, telecommunications failure,
unauthorized entry and computer viruses. Our property and business interruption
insurance may not be adequate to compensate us for all losses or failures that
may occur. Defects in our systems, errors or delays in the processing of payment
transactions or other difficulties could result in:   additional development costs;diversion of technical and other resources;loss of merchants;loss of merchant and cardholder
data;
   20
     negative publicity;harm to our business or reputation; orexposure to fraud losses or other
  liabilities.
  We face uncertainty about additional financing for our future capital
needs, which may prevent us from growing our business.  If
we are unable to increase our revenues, we will need to raise additional funds
to finance our future capital needs. Additional financing may be required if
we:   Decide to expand faster than planned;need to respond to competitive pressures; orneed to acquire complementary products, businesses or
      technologies.
  If
we raise additional funds through the sale of equity or convertible debt
securities, these transactions may dilute the value of our outstanding common
stock or trigger contractual obligations to issue additional shares of our
common stock related to the Centrecourt Financing. We may also decide to issue
securities, including debt securities, which have rights, preferences and
privileges senior to our common stock. We cannot assure you that we will be able
to raise additional funds on terms favorable to us, or at all. If future
financing is not available or is not available on acceptable terms, we may not
be able to fund our future needs. This may prevent us from increasing our market
share, capitalizing on new business opportunities, remaining competitive in our
industry or continuing our business operations, as a whole.  We currently rely solely on common law to protect our intellectual
property; should we seek additional protection in the future, we may fail to
register our trademarks or otherwise obtain intellectual property protection,
causing us to potentially lose our rights to use these marks.  Currently, we have no patents or trademarks or copyrights and we rely on
common law rights to protect our marks and logos. We do not rely heavily on the
recognition of our marks to obtain and maintain business. We have recently
applied for trademark registration for certain of our marks. However, we cannot
assure you that any such applications will be approved. Even if they are
approved, these trademarks may be challenged by others and/or invalidated. Our
trademark registrations may not be approved because third parties own these
trademarks, or our use of these trademarks may be restricted or completely
prohibited unless we enter into agreements with these parties, which may not be
available on commercially reasonable terms or at all.  New and potential governmental regulations designed to protect or limit
access to consumer information could adversely affect our ability to provide the
services we provide our merchants.  Due to the increasing public concern over consumer privacy rights,
governmental bodies in the United States and abroad have adopted, and are
considering adopting additional laws and regulations restricting the purchase,
sale and sharing of personal information about customers. For example, the
Gramm-Leach-Bliley Act requires non-affiliated third-party service providers to
financial institutions to take certain steps to ensure the privacy and security
of consumer financial information. We believe our present activities fall under
exceptions to the consumer notice and opt-out requirements contained in this law
for third -party service providers to financial institutions because we provide
business-to-business services and not business-to-consumer services. The law,
however, is new and there have been very few rulings on its interpretation. We
believe that current legislation permits us to access and use this information
as we do now. The laws governing privacy generally remain unsettled, however,
and even in areas where there has been some legislative action, such as the
Gramm-Leach-Bliley Act and other consumer statutes, it is difficult to determine
whether and how existing and proposed privacy laws will apply to our business.
Limitations on our ability to access and use customer information could
adversely affect our ability to provide the services we offer to our merchants
or could impair the value of these services.  Several states have proposed legislation that would limit the use of
personal information gathered using the Internet. Some proposals would require
proprietary online service providers and Web site owners to establish privacy
policies. Congress has also considered privacy legislation that could further
regulate use of consumer information obtained over the Internet or in other
ways. The Federal Trade Commission has also recently settled a proceeding with
one on-line service regarding the manner in which personal information is
collected from users and provided to third parties. Our compliance with these
privacy laws and related regulations could materially affect our
operations.  Changes to existing laws or the passage of new laws could, among other
things:   create uncertainty in the marketplace that could reduce demand for
      our services;Limit our ability to collect and to use merchant and cardholder
      data;increase the cost of doing business as a result of litigation costs
      or increased operating costs; or
   21
     in some other manner have a material adverse effect on our
      business, results of operations and financial condition.
  We are subject to federal and state laws regarding anti-money laundering,
including the Patriot Act, and if we break any of these laws we could be subject
to significant fines and/or penalties, and our ability to conduct business could
be limited.  We
are subject to U.S. federal anti-money laundering laws and the requirements of
the Office of Foreign Assets Control, which prohibit us from transmitting money
to specified countries or on behalf of prohibited individuals. The money
transfer business has been subject to increased scrutiny following the events of
September 11, 2001. The Patriot Act, enacted following those events, mandates
several new anti-money laundering requirements. The federal government or the
states may elect to impose additional anti-money laundering requirements.
Changes in laws or regulations that impose additional regulatory requirements,
including the Patriot Act, could increase our compliance and other costs of
doing business, and therefore have an adverse effect on our results of
operation.  Failure to comply with the laws and regulatory requirements of federal
and state regulatory authorities could result in, among other things, revocation
of required registrations, loss of approved status, termination of contracts
with banks, administrative enforcement actions and fines, class action lawsuits,
cease and desist orders and civil and criminal liability. The occurrence of one
or more of these events could materially adversely affect our business,
financial condition and results of operations.  If
we were to inadvertently transmit money on behalf of, or unknowingly conduct
business with, a prohibited individual, we could be required to pay significant
damages, including fines and penalties. Likewise, any intentional or negligent
violation of anti-money laundering laws by our employees could lead to
significant fines and/or penalties, and could limit our ability to conduct
business in some jurisdictions.  Risks Relating to
Acquisitions  We may not be able to integrate recently acquired companies or potential
future acquisitions into our company, and resources available to assist our
acquired companies may be insufficient.  We
have made strategic acquisitions and we intend to continue to make such
acquisitions in accordance with our business plan. On July 11, 2006, we acquired
Valadata and on July 3, 2006, we acquired Paynet Systems. Each acquisition
involves a number of risks, including:  the diversion of our management's attention to the assimilation and
      ongoing assistance with the operations and personnel of the acquired
      business, which could strain management's
  resources;
  the potential for our affiliated companies to grow rapidly and
      adversely affect our ability to assist our affiliated companies as
      intended;
  Possible adverse effects on our results of operations and cash
      flows,
  Possible inability by us to achieve the intended objective of the
      acquisition;
  Possible inability by acquisition target to achieve promised goals;
      and
  Possible inability by acquisition target to retain and maintain
      strategic contracts.
  Our inability to assist our affiliated companies as intended or to
acquire and integrate businesses under our business plan could negatively impact
our operations, financial results and cash flows. We have previously acquired, and expect to continue to acquire, other
providers of payment processing services and portfolios of merchant processing
accounts. These acquisitions entail risks in addition to those incidental to the
normal conduct of our business, and failure to make acquisitions in general
could significantly impair our growth.  To
date, our revenue growth has been generated in large part through acquisitions
of complementary businesses and portfolios of accounts. We expect such
acquisitions to be key to our growth strategy going forward. We may not be able
to find suitable acquisition candidates or to consummate acquisitions on
favorable terms, if at all. Our failure to make such acquisitions could have a
material adverse effect on our ability to grow our company.  Moreover, even if we make such acquisitions, revenues generated, or
expenses incurred, by acquired businesses or account portfolios may not comport
to our projections, resulting in losses or a decline in revenue and profits, if
any, as well as potential impairment charges.  In
evaluating and determining the purchase price for a prospective acquisition, we
estimate the future revenues from that acquisition based on the historical
transaction volume of the acquired provider of payment processing services or
portfolio of merchant accounts. Following an acquisition, it is customary to
experience some attrition in the number of merchants serviced by an acquired
provider of payment processing services or included in an acquired portfolio of
merchant accounts. Should the rate of post-acquisition merchant attrition exceed
the rate we have forecasted, the revenues generated by the acquired providers of
payment processing services or portfolio of accounts may be less than we
estimated, which could result in losses or a decline in profits, as well as
potential impairment of asset charges.  22
     We may fail to uncover all liabilities of acquisition targets through the
due diligence process prior to an acquisition, exposing us to potentially large,
unanticipated costs.  Prior to the consummation of any acquisition, we perform a due diligence
review of the provider of payment processing services or portfolio of merchant
accounts that we propose to acquire. Our due diligence review, however, may not
adequately uncover all of the contingent or undisclosed liabilities we may incur
as a consequence of the proposed acquisition. If any undiscovered, contingent or
undisclosed liabilities materialize, our results of operations could be
negatively affected.  Acquisitions that we may undertake would involve a number of inherent
risks, any of which could cause us not to realize the anticipated benefits to
result.  Our strategy has been and will likely continue to include expanding our
operations and capabilities through acquisitions of businesses and assets.
Acquisition transactions involve various inherent risks, such as:  uncertainties in assessing the value, strengths and potential
      profitability of, and identifying the extent of all weaknesses, risks,
      contingent and other liabilities (including environmental liabilities) of,
      acquisition or other transaction candidates;the potential loss of key customers, management and employees of an
      acquired business;the ability to achieve identified operating and financial synergies
      anticipated to result from an acquisition or other
    transaction;problems that could arise from the integration of the acquired
      business; andunanticipated changes in business, industry or general economic
      conditions that affect the assumptions underlying the acquisition or other
      transaction rationale.
  Any one or more of these factors could cause us not to realize the
benefits anticipated to result from the acquisition of businesses or assets or
could result in unexpected liabilities associated with acquisition
candidates.  We may not fully maximize our business relationship with Sprint Nextel
Corp.  We
acquired Aircharge in part due to its classification as a national "Industry
Solutions Partner" of Sprint Nextel Corp. (NYSE:S). We believe that this
classification should allow us to provide credit card acceptance solutions to
Sprint Nextel Corp.'s business customers. There can be no assurance, however,
that Sprint Nextel Corp. will continue such classification or that such
classification will be successfully integrated into our business model. If
Sprint Nextel Corp. does not continue such classification or we are unable to
successfully integrate such classification into our business model, there can be
no assurance that Sprint Nextel Corp. will continue to provide us with such
access to their customers.  The inability of the sellers of companies we may acquire to fulfill their
indemnification obligations to us under our acquisition agreements could
increase our liabilities, our costs for acquisition and adversely affect our
results of operations and financial position.  We
have required in the past, and expect that in the future, under our acquisition
agreements, the respective sellers will agree to retain responsibility for and
indemnify us against damages resulting from certain third-party claims or other
liabilities. Our inability to obtain such agreements or the failure of any
seller to satisfy its obligations with respect to claims and retained
liabilities covered by the acquisition agreements could have an adverse effect
on our results of operations and financial position, as claimants may
successfully assert that we are liable for those claims and/or retained
liabilities. In addition, we expect that certain obligations of the sellers to
indemnify us will terminate upon expiration of the applicable indemnification
periods and will not cover damages in excess of the applicable coverage limits.
The incurrence of unexpected losses and assertion of third-party claims after
the expiration of the applicable indemnification period or in excess of the
applicable coverage limit, or the failure of any seller to satisfy its
indemnification obligations with respect to breaches of its representations and
warranties, could have an adverse effect on our results of operations and
financial position.  We may encounter delays and operational difficulties in completing the
necessary transfer of data processing functions and connecting systems links
required by acquisitions, resulting in increased costs for, and a delay in the
realization of revenues from, acquisitions.  The acquisition of a provider of payment processing services, as well as
a portfolio of merchant processing accounts, requires the transfer of various
data processing functions and connecting links to our systems and those of our
own third -party service providers. If the transfer of these functions and links
does not occur rapidly and smoothly, payment processing delays and errors may
occur, resulting in a loss of revenues, increased merchant attrition and
increased expenditures to correct the transitional problems, which could
preclude our attainment of or reduce our operating results.  Special non-recurring and integration costs associated with acquisitions
could adversely affect our operating results in the periods following these
acquisitions.  In
connection with some acquisitions, we may incur non-recurring severance
expenses, restructuring charges and change of control payments. These expenses,
charges and payments, as well as the initial costs of integrating the personnel
and facilities of an acquired business with those of our existing operations,
may adversely affect our operating results during the initial financial periods
following an acquisition. In addition, the integration of newly-acquired
companies may lead to diversion of management attention from other ongoing
business concerns.  Our facilities, personnel and financial and management systems may not be
adequate to effectively manage the future expansion we believe necessary to
increase our revenues and remain competitive.  23
     We
anticipate that future expansion will be necessary in order to increase our
revenues. In order to effectively manage our expansion, we may need to attract
and hire additional sales, administrative, operations and management personnel.
We cannot assure you that our facilities, personnel, financial and management
systems and controls will be adequate to support the expansion of our operations
and provide adequate levels of service to our merchants and ISOs. If we fail to
effectively manage our growth, our business could be harmed.  24
     We have significant intangible assets and goodwill, the carrying value of
which we may have to reduce if our revenues relating to these assets
decline.  We
have acquired numerous intangible assets related to purchased portfolios of
merchant accounts and business operations. These intangible assets represent a
substantial portion of our total assets. Statement of Financial Accounting
Standards Nos. 141 and 142 require us to periodically re-examine the value of
our purchased assets. A material decline in the revenues and more importantly
profits generated from any of our purchased portfolios of merchant accounts or
business operations could reduce the fair value of the portfolio or operations.
In that case, we may be required to reduce the carrying value of the related
intangible asset and/or goodwill. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Estimates" or our attached audit financials for a discussion of how
we test impairment of assets. Additionally, changes in accounting policies or
rules that affect the way in which we reflect these intangible assets in our
financial statements, or the way in which we treat the assets for tax purposes,
could have a material adverse effect on our financial condition.  Risks Relating to Our Company Generally  Our executive officers, directors and principal stockholders have
substantial control over our business, and their interests may not be aligned
with the interests of our other stockholders.  As
of December 31, 2007, our officers and directors beneficially own approximately
44% of our outstanding common stock. Accordingly, these stockholders, acting
together, will be able to exert significant influence over all matters requiring
stockholder approval, including the election and removal of directors and any
merger, consolidation or sale of all or substantially all of our assets. In
addition, these stockholders may dictate the day-to-day management of our
business. This concentration of ownership could have the effect of delaying,
deferring or preventing a change in control, or impeding a merger or
consolidation, takeover or other business combination or a sale of all or
substantially all of our assets.  Future sales of our common stock, or the perception in the public markets
that these sales may occur, could depress our stock price.  Sales of substantial amounts of our common stock in the public market, or
the perception in the public markets that these sales may occur, could cause the
market price of our common stock to decline. This could also impair our ability
to raise additional capital through the sale of our equity securities or to make
acquisitions through the issuance of additional shares of our common stock or
other equity securities.  We
currently have a significant number of shares of common stock which may be
issued in the future. As of December 31, 2007, there are 49.8 million shares of
our common stock outstanding. In addition, there are 10.7 million options to
purchase an equal number of shares outstanding under our Non-Statutory Incentive
Stock Option Plan, including, without limitation, options issued to executives
of Aircharge and options issued to the principals of Charge.com. We also
anticipate that: (i) pursuant to our acquisition of Aircharge, we may issue
additional shares in connection with the conversion of a $175,000 promissory
note; and (ii) pursuant to our 2006 Centrecourt Financing, we may issue up to an
additional 49,418,134 shares in connection with the conversion of convertible
promissory notes and the exercise of warrants or pursuant to certain
anti-dilution provisions.  In
addition, from time to time, certain of our stockholders may be eligible to sell
all or some of their shares of common stock pursuant to Rule 144, promulgated
under the Securities Act of 1933, as amended, subject to certain limitations. In
general, pursuant to Rule 144 as recently amended, a stockholder (or
stockholders whose shares are aggregated) who has satisfied a six month holding
period may sell their securities. Any substantial sale of our common stock
pursuant to Rule 144 or pursuant to any resale prospectus may have a material
adverse effect on the market price of our securities.  Failure to achieve and maintain effective internal controls in accordance
with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse
effect on our business and operating results. In addition, current and potential
stockholders could lose confidence in our financial reporting, which could have
an adverse effect on our stock price.  Effective internal controls are necessary for us to provide reliable
financial reports and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, our operating results could be harmed.
Commencing December 15, 2007, we are required to document and test our internal
control procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting. Although we
intend to augment our internal controls procedures and expand our accounting
staff, there is no guarantee that this effort will be adequate.  During the course of our testing, we may identify deficiencies which we
may not be able to remediate in time to meet the deadline imposed by the
Sarbanes-Oxley Act for compliance with the requirements of Section 404. In
addition, if we fail to maintain the adequacy of our internal accounting
controls, as such standards are modified, supplemented or amended from time to
time, we may not be able to ensure that we can conclude on an ongoing basis that
we have effective internal controls over financial reporting in accordance with
Section 404. Moreover, in the course of our testing, financial reporting
deficiencies may be uncovered which could cause us to restate our financial
results. Failure to achieve and maintain an effective internal control
environment could cause us to face regulatory action and also cause investors to
lose confidence in our reported financial information, either of which could
have an adverse effect on our stock price.  As
of the filing of this Form 10-KSB, we are required to document, evaluate,
and test our internal control procedures under Section 404 of the
Sarbanes-Oxley Act and the related rules of the Securities and Exchange
Commission. Effective internal controls are necessary for us to produce reliable
financial reports and are important in helping prevent financial fraud. If we
are unable to achieve and maintain adequate internal controls, our business and
operating results could be harmed.  Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses, which as a smaller public company
may be disproportionately high.  Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act, new SEC regulations and
stock market rules, are creating uncertainty for development companies such as
ours. These new and changing laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of specificity, and as a
result, their application in practice may evolve over time as new  25
    guidance is provided by regulatory and governing bodies, which could
result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. As a
result, our efforts to comply with evolving laws, regulations and standards will
likely result in increased general and administrative expenses and a diversion
of management time and attention from revenue-generating activities to
compliance activities. In particular, our efforts to comply with Section 404 of
the Sarbanes-Oxley Act and the related regulations regarding our required
assessment of our internal controls over financial reporting and our independent
registered public accounting firm's audit of that assessment will require the
commitment of significant financial and managerial resources. We expect these
efforts to require the continued commitment of significant resources. Further,
our board members, chief executive officer and chief financial officer could
face an increased risk of personal liability in connection with the performance
of their duties. As a result, we may have difficulty attracting and retaining
qualified board members and executive officers, which could slow our business.
If we are unable to fully comply with new or changed laws, regulations and
standards, or if our efforts differ from the activities intended by regulatory
or governing bodies due to ambiguities related to practice, our reputation may
be harmed and our stock price may suffer.  The price of our common stock may be volatile, which could cause our
investors to incur trading losses and fail to resell their shares at or above
the price they paid for them. Our securities are currently quoted on the OTCBB
and, thus, your ability to sell your shares in the secondary market may be
limited.  We
do not currently maintain an active market for our common stock, and we cannot
predict the extent to which investor interest will lead to the development of an
active and liquid trading market in our common stock. The failure to achieve and
maintain an active and liquid market for our common stock means that you may not
be able to dispose of your common stock in a desirable manner and the price for
our shares may fluctuate greatly.  Moreover, some companies that have had volatile market prices for their
securities have been subject to securities class action suits filed against
them. If a suit were to be filed against us, regardless of the outcome, it could
result in substantial costs and a diversion of our management's attention and
resources. This could have a material adverse effect on our business, results of
operations and financial condition.  Our certificate of incorporation, our bylaws and Delaware law contain
provisions that preserve our current management.  Our certificate of incorporation and by-laws may discourage, delay or
prevent a change in our management team that stockholders may consider
favorable. These provisions include:  authorizing the issuance of "blank check" preferred stock without
      any need for action by stockholders;eliminating the ability of stockholders to call special meetings of
      stockholders;permitting stockholder action by written consent;
  andestablishing advance notice requirements for nominations for
      election to the board of directors or for proposing matters that can be
      acted on by stockholders at stockholder
meetings.
  These provisions could allow our board of directors to affect your rights
as a stockholder since our board of directors can make it more difficult for
common stockholders to replace members of the board. Because our board of
directors is responsible for appointing the members of our management team,
these provisions could in turn affect any attempt to replace our current
management team.  Provisions of Delaware law could discourage a takeover you may consider
favorable or could cause current management to become entrenched and difficult
to replace.  We
are subject to provisions of the Delaware corporation law that, in general,
prohibit any business combination with a beneficial owner of 15% or more of our
common stock for three years unless the holder's acquisition of our stock was
approved in advance by our board of directors. These provisions could affect our
stock price adversely.  Penny stock regulations may impose certain restrictions on the
marketability of our securities.  The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. Our common stock and
warrants may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser"s written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities.  Investors should be aware that, according to the Commission, the market
for penny stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include:   26
     Control of the market for the security by one or a few
      broker-dealers that are often
      related to the promoter or issuer;Manipulation of prices through prearranged matching of purchases
      and sales and
      false and misleading press releases;"Boiler room" practices involving high pressure sales tactics and
      unrealistic price
      projections by inexperienced salespersons;Excessive and undisclosed bid-ask differentials and markups by
      selling broker-dealers; andThe wholesale dumping of the same securities by promoters and
      broker-dealers
      after prices have been manipulated to a desired level, along with
      the inevitable
      collapse of those prices with consequent investor
    losses.
   We do not intend to pay cash dividends on our common stock in the
foreseeable future.  We
currently anticipate that we will retain all future earnings, if any, to finance
the growth and development of our business and do not anticipate paying cash
dividends on our common stock in the foreseeable future. Any payment of cash
dividends will depend upon our financial condition, capital requirements,
earnings and other factors deemed relevant by our board of directors. Further,
under the terms of a loan agreement, we are restricted from paying cash
dividends and making other distributions to our stockholders.   Item 2. Properties.  Our principal executive offices are located in approximately 10,425
square feet of leased office space in Quincy, Massachusetts. We also lease
approximately 9,158 square feet of office space in Alpharetta, Georgia, 5,578
square feet in Brasher Falls, NY and 1,525 square feet in Gurnee, Illinois and
space in a data center located in Suwanee, Georgia. All of our facilities are
insured. We believe that these facilities are adequate for our current
operations and, if necessary, can be replaced with little disruption to our
company  Item 3. Legal Proceedings.  Pipeline:  On
June 29, 2006, the Company entered into a $37 million convertible debt financing
with a group of institutional investors. Under the terms of agreement, the
Company issued convertible notes that accrue interest at a rate of 8% per annum,
payable quarterly in arrears beginning on October 2, 2006. A member of the
lending group which loaned our Company $1,000,000 is Iroquois Master Fund
Ltd.  On April 10, 2007, Iroquois Master Fund provided our Company a
written default notice stating that the Company had failed to pay interest on
their note and provided us their wire details. Immediately upon receipt of the
wire details, the Company made full payment of the interest due. The Company's
position is that there was miscommunication of payment details and a good faith
attempt on the Company's part to communicate this to Iroquois Master Fund. The
Company's position is after payment of interest, management believed in good
faith that the matter was addressed to the satisfaction of both parties On April
20, 2007; the Company received a second default notice seeking penalties and
stating their rights under default. The Company promptly paid the $3,406 penalty
to the account provided.  The lenders' rights under default are the payment
of 125% of the principal amount due plus interest and penalties. Iroquois Master
Fund has filed suit against the Company on June 19, 2007 in the Supreme Court of
the State of New York County of New York for breach of contract.  The
Company firmly believes that it has acted in good faith and plaintiff's claim is
without merit. The Company has retained counsel and will vigorously defend
this action. The case citation is Iroquois Master Fund, Ltd. v. Pipeline Data,
Inc., Index No. 602059/2007, Supreme Court of the State of New York, County of
New York. While the case is still pending, the Company and Iroquois Master Fund,
Ltd. have postponed further filings.  On
July 11, 2006, we acquired Valadata, Inc., a retail merchant credit card
processing provider catering primarily to the restaurant industry. We also
acquired a separate retail portfolio. The purchase price for Valadata was $5.4
million in cash and an additional $1.5 million over the next two years, subject
to performance milestones. The purchase price for the separate retail portfolio
was $500,000. The Company determined that the performance milestones were not
met as of July 11, 2007 and that no further obligation exists to the former
shareholders of Valadata, Inc. However, we did calculate the residuals of the
all underlying seller agents of Valadata and made milestone payments to all
agents who reached their performance milestones. The former shareholders of
Valadata, Inc. disagree with our determination. In October 2007, L60, Inc.
(comprised of former Valadata shareholders) filed suit against Pipeline
Data, Inc. in Maricopa County Superior Court.  In its complaint, L60
alleges that Pipeline and Valadata breached certain agreements made in
connection with Pipeline's acquisition of Valadata, and seeks around $1.5M, plus
attorneys' fees and costs.  Pipeline vigorously dispute the claims, have
filed an answer denying any liability and have countersued plaintiff and
various related parties for, among other things, breach of contract
and tortious interference with contractual relationships.  Pipeline's
counterclaims seek compensatory and punitive damages, as well as attorneys'
fees.  In February of 2008, the Court  27
    dismissed Pipeline's tort claims without prejudice to the
extent they are grounded in their contracts with
L60, but their contract claims against L60 and its principals
remain, as well as a claim for tortious interference against a third
party.  The case is now proceeding to discovery.  28
    Garner Gifts contingent payment  Our payment processor First Data Merchant Services Corporation informed
us of suspected fraudulent activity by a merchant that could result in a loss of
approximately $150,000.  We believe that such loss should be paid by First
Data Merchant Services Corporation pursuant to their indemnification
requirements in the ISO Services and Marketing Agreement, as amended, between
our companies.  They disagree.  We filed suit against them on October
29, 2007.  The case citation is Pipeline Data, Inc. v. First Data Merchant
Services Corporation, Garner Gifts, and Delayna Garner, United States District
Court for the Eastern District of New York.   We settled this action
in February 2008 with First Data Merchant Services Corporation and they
returned approximately $100,000 to our account. 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.  Item 4. Submission of Matters to a Vote of Security
Holders.  Our annual meeting of stockholders was held on Wednesday, May 23, 2007 at
the Embassy Suites located at 5955 Northpoint Parkway, Alpharetta, Georgia 30022
at 10:00 a.m. EDT, to elect seven (7) members of our Board of Directors to serve
until the next annual meeting of stockholders, and until their successors have
been duly elected and qualified; and to ratify and approve the appointment of
our independent auditors for the fiscal year ending December 31,
2006.  No
items were submitted for shareholder approval in the fourth quarter
2007.  PART II  Item 5. Market for Common Equity and Related Stockholder
Matters.  (a) Market information.  The company's $0.001 par value common stock is listed on the NASD OTCBB
under the ticker symbol "PPDA". The following table sets forth the highest and
lowest prices quoted for our common stock, during the most recent eight quarters
between January 1, 2006 and December 31, 2007. The closing quote for our common
stock on March 11, 2008 was $0.60. The quotations reflect inter-dealer prices,
with no retail mark-up, mark-down or commissions, and may not represent actual
transactions.   Year Ended December 31, 2007
    Year Ended December 31, 2006Three months ended:
    High Bid
    Low Ask
    High Bid
    Low AskMarch 31
    1.30
    0.81
    $1.70
    $1.03June 30
    1.20
    0.80
    $1.65
    $1.25September 30
    0.97
    0.52
    $1.50
    $1.20December 31
    0.94
    0.57
    $1.35
    $1.08
   (b) Holders.
  As
of December 31, 2007, there were approximately 930 shareholders of record of our
common stock.  (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.  29
    Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.  This discussion contains forward looking statements relating to our
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, would" 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. Overview We
are an integrated provider of merchant payment processing services and other
related software products. We currently deliver credit and debit card-based
payment processing solutions to small to medium-sized merchants who operate
either in a physical "brick and mortar" business environment, over the Internet,
or in mobile or wireless settings via cellular-based wireless devices. Our
payment processing services enable merchants to process both traditional
card-present, "swipe" transactions, as well as card-not-present transactions.
Significant market research supports the following on the company's
industry:  The Nilson Report, a leading industry publication that tracks the
      transaction processing industry, reported purchases by U.S. consumers
      using credit cards will grow to $2.28 trillion in 2008. Additionally,
      forecasts estimate that purchase volume by U.S. consumers using Visa
      credit cards will increase 63% from 2003 through 2008, while MasterCard
      usage is projected to increase by 46% during the same period.In a most recent publication on transaction processing, leading
      equity research firm, Raymond James Financial, reported that overall
      credit card transactions will grow domestically from an estimated 26.6
      billon transactions in 2006 to 36.2 billion by 2010. Total credit card
      purchase volume will grow from $1.8 trillion in 2006 to $2.6 trillion by
      2010, with average tickets increasing from $70.10 per transaction to
      $71.50 over the same period.
  A
traditional card-present transaction occurs whenever a cardholder physically
presents a credit or debit card to a merchant at the point-of-sale.
Card-not-present transactions occur whenever the customer does not physically
present a payment card at the point-of-sale and may occur over the Internet or
by mail, fax or telephone. An overview of our customer base and operational
focus is as follows:  We derive the majority of our revenue from fee income related to
      payment transaction processing, which is primarily comprised of a
      percentage of the dollar amount of each transaction we process, as well as
      a flat fee per transaction. In the event we have outsourced any of our
      services provided in the transaction, we remit a portion of the fee income
      to the third-parties that have provided these
  services.
  Our primary customer base consists of small to medium-sized
      merchants. These merchants generally have a lower volume of credit card
      transactions, yet are not as price sensitive as larger merchants. The
      company believes these are difficult to identify and traditionally have
      been underserved by credit card processors.
  We market and sell our products and services through an in-house
      sales force utilizing multiple lines of origination, including the
      Internet, call generation and other marketing
  media.
  We also market and sell our products and services by utilizing
      contractual relationships with 50 commercial banks and financial
      institutions comprising 460 bank branch locations, 48 credit unions, 30
      Independent Sales Organizations(ISOs)/Value Added Resellers (VARs) and a
      national cell phone carrier.
  Pipeline is one of only a handful of companies to be deemed by Visa
      as both Visa Cardholder Information Security Program (CISP) compliant and
      an authorized merchant payment processor.
  Pipeline distinguishes itself from competitors by its VISA
      certification, its technology, its operating efficiencies and its
      marketing ability.
  Pipeline's technology
includes:
  Online proprietary digital applications,Proprietary shopping cart and gateway services,Wireless cellular phone software to enable mobile card payment
      acceptance.
  Overview - Financial and Operational Highlights - Twelve months ended
December 31, 2007  Revenues increased $8.1 million or 19% to $49.9 million for the
      year ended December 31, 2007 from $41.8 million for the year ended
      December 31, 2006.Gross Profit, which is defined as total revenue less interchange
      fees, cost of services sold and cost of goods sold, increased 19.0% to $
      17.7 million for the year ended December 31, 2007 from $14.9 million
      during the year ended December 31, 2006.
   30
     EBITDA before adjustments increased 70% from $3.4 million for the
      year ended December 31, 2006 to $5.8 million for the year ended December
      31, 2007.Net cash provided by operating activities increased $1.1 million or
      52.6% to $3.1 million for the year ended December 31 2007 from $2.0
      million for the year ended December 31, 2006.Basic and diluted net loss per share attributable to common equity
      holders improved $0.01 per share from a loss of $0.05 per share for the
      year ended December 31, 2007 compared to a loss of $0.04 per share for the
      year ended December 31, 2006.
  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 require us to make
estimates and judgments that affect our reported assets, liabilities, revenues
and expenses, as well as our related disclosure of contingent assets and
liabilities. Estimates include, among other things, capitalized customer
acquisition costs, loss reserves, certain accounts payable and accrued expenses,
certain tax assets and liabilities, convertible debt, amortization, valuation of
intangibles and equity instruments. On an ongoing basis, we evaluate our
estimates.  Actual results could differ from those estimates. We
believe the following critical accounting policies and the related judgments and
estimates affect the preparation of our consolidated financial
statements. Revenue and Cost Recognition We
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 chargebacks, monthly minimums, equipment rentals,
sales or leasing and other miscellaneous services. Revenues are reported gross of amounts paid to sponsor banks, as well as
interchange and assessments paid to credit card associations (MasterCard and
Visa) under revenue sharing agreements pursuant to which such parties receive
payments based primarily on processing volume for particular groups of
merchants. Included in cost of goods and services sold are the expenses covering
interchange and bank processing directly attributable to the furnishing of
transaction processing and other services to our merchant customers and are
recognized simultaneously with the recognition of revenue. We
follow the requirements of EITF 99-19, "Reporting Revenue Gross as a Principal
Versus Net as an Agent", in determining our revenue reporting. Generally, we
report revenues at the time of sale on a gross basis where we are the primary
obligor in the arrangement, have latitude in establishing the price of the
services, change the product and perform part of the service, have discretion in
supplier selection, have latitude in determining the product and service
specifications to meet our clients needs and assume credit risk. Revenues
generated from certain portfolios are reported net of interchange, as required
by EITF 99-19, where we may not have credit risk, or the ultimate responsibility
for the merchant accounts. This amount includes interchange paid to card issuing banks and
assessments paid to credit card associations pursuant to which such parties
receive payments based primarily on processing volume for particular groups of
merchants.  Merchant Deposits and Loss Reserves  We
follow the Financial Accounting Standards Board Interpretation No. 45:
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others ("FIN 45"), which requires all
guarantees to be recorded at their fair value at inception. We believe our
potential liability for the full amount of the operating losses discussed above
is a guarantee under FIN 45. We estimate the fair value of these guarantees by
adding a fair value margin to our estimate of losses. This estimate of losses is
comprised of known losses and a projection of future losses based on a
percentage of direct merchant credit card and debit card sales volumes
processed. Disputes between a cardholder and a merchant periodically arise due
to the cardholder's dissatisfaction with merchandise quality or the merchant's
service, and the disputes may not always be resolved in the merchant's favor. In
some of these cases, the transaction is ''charged back'' to the merchant and the
purchase price is refunded to the cardholder by the credit card-issuing
institution. If the merchant is unable to fund the refund, we are liable for the
full amount of the transaction. We maintain deposits from certain merchants as
an offset to potential contingent liabilities that are the responsibility of
such merchants. At December 31, 2007 and December 31, 2006, we held merchant
deposits totaling $538,000 and $266,000, respectively. Additionally, we have a
recovery team that is responsible for collecting "charge backs". Our company
evaluates its ultimate risk and records an estimate of potential loss for charge
backs related to merchant fraud based upon an assessment of actual historical
fraud loss rates compared to recent processing volume levels. At December 31,
2007 and December 31, 2006, our loss reserve totaled $214,000 and $81,000
respectively. Deferred Customer Acquisition Costs Deferred customer acquisition costs consist of up-front signing bonus
payments made to sales personnel (our sales force), and cash payments made to
external vendors resulting in the establishment of new merchant relationships.
Deferred acquisition costs represent incremental, direct customer acquisition
costs that are recoverable through future operations, contractual minimums,
and/or penalties in the case of early termination. The deferred customer
acquisition costs are amortized over the three-year term of the contract the
merchant enters into with us. In the event the customer cancels the contract or
ceases operations, we expense the un-amortized balance of deferred acquisition
costs. Generally, the acceleration or expensing of any unamortized deferred
acquisition cost is offset by a termination fee the company charges the customer
for opting out of their contractual obligation.  During the year ended  31
    December 31, 2007, we incurred $3.3 million of customer acquisition
related expenses, of which, $658,388 was capitalized.  During the year
ended December 31, 2006, we incurred $2.8 million of customer acquisition
related expenses of which, $438,178 was capitalized.  We amortized $625,143
and $423,846 of previously capitalized customer acquisition costs for the year
ended December 31, 2007 and 2006, respectively. Management evaluates the deferred customer acquisition costs for
impairment at each balance sheet date by comparing, on a pooled basis by vintage
quarter of origination, the active accounts against the original acquired
accounts in relationship to the carrying amount of the deferred customer
acquisition costs. Our deferred customer acquisition cost was approximately
$483,000 and $450,000 as of December 31, 2007 and December 31, 2006,
respectively.  Accounting for Goodwill and Intangible Assets 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.
Goodwill and intangible assets acquired after June 30, 2001 were subject
immediately to the non-amortization and amortization provisions of this
Statement. We
apply Statement No. 142 to our merchant portfolios and residual rights purchases
and estimate the life of our merchant portfolios for accounting purposes to be
seven years. The amortization expense represents a recognition and estimated
allocation of the initial cost of the acquired merchant portfolios and residual
rights as a non-cash expense against the income generated by these assets. We
have intangible assets, which consist primarily of customer relationships and
are recorded in connection with acquisitions at their fair value based on the
net present value of the customer relationship. Customer relationships are
amortized over their estimated useful lives using a straight line basis which
takes into consideration expected customer attrition rates over a seven year
period. Intangible assets with estimated useful lives are reviewed for
impairment in accordance with SFAS No. 144, while intangible assets that are
determined to have indefinite lives are reviewed for impairment at least
annually in accordance with SFAS No. 142.  Share-Based Payments In
December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment
("SFAS No. 123R"). This standard requires expensing of stock options and other
share-based payments and supersedes SFAS No. 123, which had allowed companies to
choose between expensing stock options and showing pro forma disclosure only.
This standard was effective as of January 2006 and applies to all awards
granted, modified, cancelled or repurchased after that date, as well as the
unvested portion of prior awards. Income Taxes We
recognize deferred income tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of our assets and
liabilities and expected benefits of utilizing net operating loss and credit
carry forwards. Deferred income tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The impact
on deferred income taxes of changes in tax rates and laws, if any, are reflected
in the consolidated and combined financial statements in the period
enacted.  Results of Operations  Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 The following table shows certain income statement data as a percentage
of revenue for the year ended December 31, 2007 compared to the year ended
December 31, 2006 (in thousands of dollars):   Year Ended
      December 31, 2007
    % ofRevenue
    
    Year Ended December 31, 2006
      (restated)
    % ofRevenue
    
    Change
    % ChangeRevenue
    
    49,903
    100.0%
    
    41,814
    100.0%
    
    8,089
    19%Interchange
    
    23,157
    46.4%
    
    18,543
    44.3%
    
    4,614
    25%Other cost of services/goods sold
    
    9,030
    18.1%
    
    8,345
    20.0%
    
    685
    8%Total costs of services and goods sold
    
    32,187
    64.5%
    
    26,888
    64.3%
    
    5,299
    20%Gross profit
    
    17,716
    35.5%
    
    14,926
    35.7%
    
    2,790
    19%Salaries and payroll costs
    
    6,645
    13.3%
    
    6,163
    14.7%
    
    482
    8%Other selling, general and administrative
    
    5,464
    10.9%
    
    3,352
    8.0%
    
    2,112
    63%Customer acquisition cost amortization
    
    625
    1.3%
    
    424
    1.0%
    
    201
    47%Depreciation and amortization
    
    3,114
    6.2%
    
    2,373
    5.7%
    
    741
    31%Total operating expenses
    
    15,848
    31.8%
    
    12,312
    29.4%
    
    3,536
    29%
   32
     Income from operations
    
    1,868
    3.7%
    
    2,614
    6.3%
    
    (746)
    -29%Other income (expenses)
    
    (6,116)
    -12.3%
    
    (6,739)
    -16.1%
    
    623
    -9%Loss before income taxes
    
    (4,248)
    -8.5%
    
    (4,125)
    -9.9%
    
    (123)
    3%Income tax benefit
    
    (2,278)
    -4.6%
    
    (1,839)
    -4.4%
    
    (439)
    24%Net loss
    
    (1,970)
    -3.9%
    
    (2,286)
    -5.5%
    
    316
    -14%
  Comparisons of year ended December 31, 2007 and year ended December 31,
2006 Changes in revenues, interchange expense, other costs of goods and
services sold, and gross profit were primarily a result of our acquisitions of
Paynet Systems, Inc. and Valadata, Inc. in July 2006 and of organic growth. .
 During the year ended December 31, 2007, we incurred $3.3 million of
customer acquisition related expenses, of which, $658,388 was capitalized. 
During the year ended December 31, 2006, we incurred $2.8 million of customer
acquisition related expenses of which, $438,178 was capitalized. Revenues Revenues increased $8.1 million or 19% to $49.9 million for the year
ended December 31, 2007 from $41.8 million for the year ended December 31, 2006.
This increase was primarily attributable to a combination of internal sales and
marketing efforts, the purchase of selective merchant account portfolios and the
successful integration of Valadata and Paynet Systems acquired in July 2006. Interchange Expenses Interchange expenses increased $4.6 million or 25% to $23.2 million for
the year ended December 31, 2007 from $18.5 million for the year ended December
31, 2006. The increase was primarily attributable to a 15% increase in
processing volume to $1.5 billion for the year ended December31, 2007 and the
transactional characteristics of the acquired portfolios. Other Cost of Goods and Services Sold Other costs of goods and services sold increased $0.7 million or 8% to
$9.0 million for the year ended December 31, 2007 as compared to $8.3 million
for the year ended December 31, 2006.This resulted from and increased processing volume and an increase in
assessments from credit card associations. Gross Profit Gross profitincreased
$2.8 million or 19% to $17.8 million for the year ended December 31, 2007 from
$14.9 million for the year ended December 31, 2006. Operating Expenses Total operating expenses increased $3.5 million or 29% to $15.8 million
for the year ended December 31, 2007 from $12.3 million for the year ended
December 31, 2006. The increase in operating expense is attributable to the
increase in personnel, sales and marketing and depreciation and amortization of
assets. The major components of operating expense include;  Salaries and payroll related costs increased $482,000 or 8.0% to
      $6.6 million for the year ended December 31, 2007 as compared to $6.2
      million for the year ended December 31, 2006. The increase was due
      primarily to the expansion of our sales and marketing efforts, which
      included additional personnel and the resulting expenses related to
      managing higher processing volume.  2007 salaries and payroll cost
      included one time payments of $205,000, share-based payments of $143,000
      and a reduction of $81,000 to share-based payments for the forfeiture of
      options during the year ended December 31, 2007.Selling, general and administrative expenses increased $2.1 million
      or 63% to $5.5 million for the year ended December 31, 2007 as compared to
      $3.4 million for the year ended December 31, 2006; these expenses for the
      year ended December 31, 2007 include $193,000 of share based payments
      compared to $241,000 for the year ended December 31, 2006. A $494,000
      increase was due primarily to a planned increase in our advertising and
      marketing efforts.  We anticipate seeing the results of these
      expenditures represented in subsequent quarters. Another variable
      influencing the increase in general and administrative costs is the
      expansion of our facilities in the fourth quarter of 2006. Additionally we
      experienced an increase of $794,000 in the amount of bad debt and charge
      back related expenses. This increase reflects additional assumed liability
      that Pipeline anticipated based on contractual negotiations which reduced
      our overall cost of services and led to an increase in gross profits.
       Non-merger related legal, litigation professional, consulting, audit
      -and review related expenses increased $387,000 during the year ended
      December 31, 2007 compared to the year ended December 31, 2006.Deferred customer acquisition cost amortization increased $201,000
      or 47% to $625,000 for the year ended December 31, 2007 as compared to
      $424,000 for the year ended December 31,
2006.
   33
     Depreciation and amortization increased $741,000 or 31% to $3.1
      million for the year ended December 31, 2007 as compared to $2.4 million
      for the year ended December 31, 2006. The increase was mainly attributable
      to the amortization and depreciation of assets acquired in the Paynet and
      Valadata acquisitions plus the amortization of acquired portfolios.
  Operating Income Operating income decreased $0.75 million to $1.9 million for the year
ended December 31, 2007 from $2.6 million for the year ended December 31, 2006.
This decrease is primarily attributable to increased general and administrative
expenses. Other Income and Expenses Other income and expenses decreased $0.6 million to $6.1 million for the
year ended December 31, 2007 from $6.7 million for the year ended December 31,
2006. Other expenses primarily consisted of $6.3 million related to interest
expense for the year ended December 31, 2007, which included cash interest of
$3.0 million, accrued late filing penalties under the registration payment
arrangement of $0.2 million and $3.0 million of non-cash amortization of debt
issuance costs and discount on long-term debt. Income Tax Income tax benefit increased to $2.3 million for the year ended December
31, 2007 from a tax benefit of $1.8 million for the year ended December 31,
2006. The decrease was primarily due to changes in net deferred tax assets and
deferred tax liability balances as of the end of the year. Net Loss As
a result of the above factors, net loss decreased from $2.3 million for the year
ended December 31, 2006 to $2.0 million for the year ended December 31,
2007.  Balance Sheet Information  December 31, 2007
    
    December 31, 2006 (restated)Selected Balance Sheet Data
    
    (in thousands)Cash and cash equivalents
    
    $
    995
    
    $
    2,770Other current assets
    
    
    2,979
    
    
    3,675Property and equipment, net
    
    
    1,395
    
    
    1,117Goodwill
    
    
    43,459
    
    
    38,822Merchant portfolios, residual rights and other intangibles,
      net
    
    
    13,569
    
    
    15,586Other assets
    
    
    3,845
    
    
    3,054Total assets
    
    $
    66,242
    
    $
    65,024Accounts payable and other current liabilities
    
    $
    3,902
    
    $
    2,513Long-term debt and notes payable
    
    
    31,841
    
    
    31,914Total liabilities
    
    
    35,743
    
    
    34,427Total temporary equity
    
    
    13,486
    
    
    12,577Total stockholders' equity
    
    
    17,013
    
    
    18,020Total liabilities and stockholders' equity
    
    $
    66,242
    
    $
    65,024
   December 31, 2007 Compared to December 31, 2006 Total assets increased $1.2 million or 2% to $66.2 million at December
31, 2007 from $65.0 million at December 31, 2006. The increase was primarily
attributable to increases in goodwill as a result of acquisition contingency
payments related to the Paynet Systems acquisition and the merchant portfolio
 acquired from Paynet Systems and Valadata. Additionally, deferred
acquisition and financing costs, restricted cash, and property and equipment
expanded commensurate with business growth. Cash and cash equivalents decreased
by $1.8 million or 64%, as the result of cash flow from operations being less
than that used by financing and investing activities.  Receivables, which primarily result from merchant processing fees from
our merchants during the processing month and the collection of those fees from
our merchants at the beginning of the following month, as well as recognizing
other revenue on an accrual basis and collecting the funds in the ensuing  34
    periods, decreased $0.4 million, or 13%, to $2.6 million at December 31,
2007 from $3.0 million at December 31, 2006. The decrease in receivables from
merchants was primarily due to the impact of the collection of receivables and
the collection of annual fees in fourth quarter of 2007.  Property and equipment, net increased $278,000, or 25%, due to the
continued build-out of our technology infrastructure, primarily for the hardware
and software required for the expansion of the company's core operating platform
and secure payment gateway.  Goodwill and other intangibles with an indefinite life increased $4.6
million or 12% and merchant portfolio residual rights decreased a net amount of
$2.0 million, or -13%, which reflects the result of our acquisition of $749,000
in merchant portfolios, as well as purchase contingency payments of $5.2 million
related to our acquisition of Paynet Systems, Inc and the final contingent
payment from a merchant portfolio acquired in 2006.  Total liabilities increased $1.3 million or 4% to $35.7 million at
December 31, 2007 from $34.4 million at December 31, 2006. The rise was
primarily due to increases in of $2.7 million in our secured convertible notes
net of unamortized discount, and a decrease in net deferred tax liabilities $1.2
million. Temporary equity increased to $13.5 million at December 31, 2007 from
$12.6 million at December 31, 2006 as a result of amendments to the Charge.com
acquisition agreement, increasing the price at which the Company may be required
to repurchase our shares of stock from former Charge.com stockholders. 
Total stockholders' equity decreased $1.0 million from December 31, 2006,
primarily due to net losses during the year ended December 31, 2007.  Effects of Inflation Our monetary assets, consisting primarily of cash and receivables, are
not significantly affected by inflation. Our non-monetary assets, consisting
primarily of intangible assets and goodwill, are not affected by inflation. We
believe that replacement costs of equipment, furniture and leasehold
improvements will not materially affect our operations. However, the rate of
inflation affects our expenses, such as those for employee compensation and
telecommunications, which may not be readily recoverable in the price of
services offered by us. Liquidity and Capital Resources  Year Ended December 31,2007
    2006Selected Statement of Cash Flows Data
    (in thousands)Cash flows from operations
    $3,066
    $2,009Cash flows (used in) investing activities
    (4,341)
    (18,807)Cash flows from (used in) financing activities
    (500)
    17,314Total change in cash
    (1,775)
    516Cash balance, period end
    $995
    $2,770
  At
December 31, 2007, we had a cash balance of $1.0 million compared to $2.8
million at December 31, 2006. Our working capital, defined as current assets
less current liabilities, was $72,000 at December 31, 2007 and $3.9 million at
December 31, 2006. The decease in working capital resulted primarily from a the
final contingent payment made on our acqusition of Paynet Systems. Our cash
requirements include cost of revenues, selling, general and administrative
expenses, income taxes, debt service payments, capital expenditures, systems
development Our principal sources of funds are cash generated by operations and
borrowings. Cash flow from operations may not be sufficient over the next twelve
months to fund operations and debt repayment obligations. We may continue to
need debt and/or equity financing to meet our obligations.   Management
believes, but can not assure that this is achievable.  Contingent cash payments over the next twelve months are as follows.
Pursuant to the Charge.com acquisition, each of the former Charge.com
shareholders (the "Charge Shareholders") has the right to sell up to 9,398,058
shares of Pipeline common stock back to Pipeline at a price of $1.4763 per
share.  The former shareholders must notify Pipeline of their decision
between March 4, 2008 and 5:00 p.m. (Eastern Daylight Savings Time) on April 30,
2008 (the "Put Right"). If a Charge Shareholder exercise their Put Right, the
Company must purchase the shares by no later than May 1, 2008 at the purchase
price, plus interest at the annual rate of 18% from March 1, 2008.
  If the Charge Shareholders exercised their Put Right we would need
debt and/or equity financing to meet this obligation.  If such financing
could not be raised, we would attempt to re-negotiate the Put Right or liquidate
certain assets to pay this obligation.  Cash Flow Provided by (Used in) Operating Activities Net cash provided by operating activities was $3.1 million for the year
ended December 31, 2007, an increase of $1.1 million compared to $2.0 million
for the year ended December 31, 2006. Cash interest expense consumed $3.1
million for the year ended December 31, 2007, an increase of $0.4 million from
$2.7 million for the year ended December 31, 2006. Cash Flow Provided by (Used in) Investing Activities Net cash used by investing activities was $4.3 million for the year ended
December 31, 2007 as compared to a use of $18.8 million for the year ended
December 31, 2006. $3.0 million in cash was paid to the former Paynet Systems,
stockholders related to 2006 acquisition of that company as a result of certain
milestones that were reached in 2007. An additional $663,000 was used related to
the current, pending acquisitions. Total capital expenditures for the year ended December 31, 2007 were
$512,000 compared to $592,000 invested in the year ended December 31, 2006.
These expenditures were primarily related to the continued build-out of our
technology infrastructure. We anticipate that these expenditures may increase as
we further develop our technology. Cash Flow Provided by (Used in)Financing Activities  35
    Net cash used by financing activities was $0.5 million for the year ended
December 31, 2007 as compared to $17.3 million provided by financing activities
for the year ended December 31, 2006. Cash used in financing activities during
2007 includes $468,000 for the payment of lease and loan obligations and $36,000
for the purchase of treasury stocks.  36
    Off-Balance Sheet Arrangements We have not entered into any transactions with third- parties or
unconsolidated entities whereby we have financial guarantees, subordinated
retained interest, derivative instruments, or other contingent arrangements that
expose us to material continuing risks, contingent liabilities, or other
obligations. Non-GAAP Measures Pipeline Data, Inc. presents its financial results in accordance with
generally accepted accounting principles in the United States (GAAP). However,
in order to provide the investment community with a broader means of evaluating
the operating performance of our operations and our use in determining permitted
indebtedness related to the Centrecourt Financing, Pipeline Data is providing
non-GAAP measures, including earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Any non-GAAP measures should be considered in context
with the GAAP financial presentation and should not be considered in isolation
or as an alternative to cash flow from operating activities or as a substitute
for GAAP net earnings.  Other companies may calculate EBITDA differently
than we do and may not be comparable to similarly titled measures reported by
other companies. Reconciliation of GAAP Financial Measures to Non-GAAP Financial
Measures The following table reconciles the differences between Pipeline Data's
net loss as determined under US generally accepted accounting principles (GAAP)
and EBITDA as well as EBITDA adjusted for certain non recurring and non-cash
transactions.  (Amounts in thousands)
    
    Year ended December 31,2007
    2006Net loss
    
    
    (1,970)
    (2,286)Interest expense
    
    
    6,274
    4,721Income tax benefit
    
    
    (2,278)
    (1,839)Depreciation and amortization
    
    
    3,114
    2,372Amortization of customer acquisition costs
    
    
    625
    424EBITDA
    
    
    5,765
    3,392Non-recurring salary compensation
    
    
    205
    143Stock-based compensation classified as salaries
    
    
    143
    423Loss on early retirement of debt
    
    
    0
    2,140Other non-recurring expenses (1)
    
    
    164
    0Forfeitures of  stock based compensation
    
    
    (81)
    0Stock-based payments for services
    
    
    193
    241Adjusted EBITDA
    
    
    6,389
    6,339
  (1) Includes expenses related to professional services and litigations
not expected to be recurring.  New accounting pronouncements  In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157").
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. We are currently evaluating the impact on our
consolidated financial statements of SFAS 157, which will become effective for
us on January 1, 2008 for financial assets and January 1, 2009 for non-financial
assets.  In
February 2007, the Financial Accounting Standards Board issued SFAS 159,
"The Fair Value Option for Financial Assets and Financial Liabilities". SFAS
No. 159 amends SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective of SFAS No. 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 is expected to expand the
use of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. SFAS
No. 159 applies to all entities, including not-for-profit organizations.
Most of the provisions of SFAS No. 159 apply only to entities that elect
the fair value option. However, the amendment to SFAS No. 115 applies to
all entities with available-for-sale and trading securities. Some requirements
apply differently to entities that do not report net income. This statement is
effective as of the beginning of each reporting entity's first fiscal year that
begins after November 15, 2007. The Company has not yet determined the
effect of SFAS No. 159 on its financial position, operations or cash flows.  37
     In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
The new standard will significantly change the financial accounting and
reporting of business combination transactions in the consolidated financial
statements. It will require an acquirer to recognize, at the acquisition date,
the assets acquired, the liabilities assumed, and any non-controlling interest
in the acquiree at their full fair values as of that date. In a business
combination achieved in stages (step acquisitions), the acquirer will be
required to remeasure its previously held equity interest in the acquiree at its
acquisition-date fair value and recognize the resulting gain or loss in
earnings. The acquisition-related transaction and restructuring costs will no
longer be included as part of the capitalized cost of the acquired entity but
will be required to be accounted for separately in accordance with applicable
generally accepted accounting principles in the U.S. SFAS No. 141(R)
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.  In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements." The statement clarifies the definition of a
non-controlling (or minority) interest and requires that non-controlling
interests in subsidiaries be reported as a component of equity in the
consolidated statement of financial position and requires that earnings
attributed to the non-controlling interests be reported as part of consolidated
earnings and not as a separate component of income or expense. However, it will
also require expanded disclosures of the attribution of consolidated earnings to
the controlling and non-controlling interests on the face of the consolidated
income statement. SFAS No. 160 will require that changes in a parent's
controlling ownership interest, that do not result in a loss of control of the
subsidiary, are accounted for as equity transactions among shareholders in the
consolidated entity therefore resulting in no gain or loss recognition in the
income statement. Only when a subsidiary is deconsolidated will a parent
recognize a gain or loss in net income. SFAS No. 160 is effective for
fiscal years beginning on or after December 15, 2008, and will be applied
prospectively except for the presentation and disclosure requirements that will
be applied retrospectively for all periods presented. The Company is currently
evaluating the impact of SFAS No. 160 to its financial position and results
of operations.         [The remainder of this page has been left blank intentionally.]  38
    Item 7. Financial Statements.  The following consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. The financial statements appear in the following "F"
pages. The remainder of this annual report follows the financial
statements.   39
     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, 2007, and the results of its operations and changes
in its financial position from January 1, 2007 through December 31, 2007 have
been made.     F-1    INDEX TO FINANCIAL STATEMENTS   Part 1 - Financial InformationPageItem 1 - Financial StatementsBalance Sheets as of December 31, 2006 and 2007
    F-4Statements of Operations for the years ended December 31, 2006 and
      2007
    F-5Statements of Stockholders' Equity for the years ended December 31,
      2006 and 2007
    F-6Statements of Cash Flows for the years ended December 31, 2006 and
      2007
    F-8Notes to Financial Statements
    F-9 - F-34
    F-2    DRAKEFORD & DRAKEFORD, LLC NEW YORK, NEW YORK    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To
the Shareholders and Directors of Pipeline Data Inc.
  We
have audited the consolidated balance sheet of Pipeline Data Inc. as of December
31,2007 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 2007 and
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Also, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 consolidated financial position of
Pipeline Data Inc., as of December 31, 2007 and the consolidated results of its
operations and its cash flows for the two years then ended, in conformity with
accounting principles generally accepted in the United States of
America.    /s/Drakeford & Drakeford, LLC ------------------------------------- New York, New York  March 27, 2008   F-3    PIPELINE DATA INC.  CONSOLIDATED BALANCE SHEETS   December 31, 2007
    December 31, 2006(restated)ASSETSCURRENT ASSETSCash and cash equivalents
    $ 995,238
    $  2,770,494Accounts receivable, net
    2,645,825
    3,028,719Interest receivable
    -
    7,778Inventory
    91,697
    95,184Prepaid expenses and other current assets
    96,032
    243,125Note receivable
    145,408
    300,000Total current assets
    3,974,200
    6,445,300PROPERTY AND EQUIPMENT, net
    1,395,226
    1,117,380OTHER ASSETSRestricted cash
    976,228
    564,575Merchant portfolios, residual rights and other intangibles,
      net
    13,569,381
    15,585,602Debt issuance costs
    924,396
    1,294,154Deferred  customer acquisition costs, net
    482,856
    449,611Notes receivable, net
    746,454
    693,792Deferred acquisition costs
    714,382
    52,040Goodwill and other intangibles with indefinite lives
    43,458,990
    38,821,893Total other assets
    60,872,687
    57,461,667TOTAL ASSETS
    $66,242,113
    $65,024,347LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS'
      EQUITYCURRENT LIABILITIESAccounts payable
    $ 754,843
    $   1,522,229Accrued expenses
    1,539,670
    582,710Notes payable
    192,070
    -Capital lease obligations
    84,173
    60,765Accrued acquisition costs
    579,911
    -Merchant deposits and loss reserve
    751,833
    347,670Total current liabilities
    3,902,500
    2,513,374LONG-TERM LIABILITIESNotes payable-senior secured convertible
    30,358,148
    27,695,571Notes payable-World Products Inc shareholders
    -
    525,000Capital lease obligations
    79,892
    53,443Deferred rent on operating lease
    41,259
    -Deferred tax liabilities, net
    1,361,700
    3,640,109Total long-term liabilities
    31,840,999
    31,914,123Total liabilities
    35,743,499
    34,427,497COMMITMENTS AND CONTINGENCIESTEMPORARY EQUITYCommon stock subject to put obligations, 9,398,058 shares, issued
      and outstanding
    13,485,527
    12,576,951Total temporary equity
    13,485,527
    12,576,951STOCKHOLDERS' EQUITY
   F-4     Preferred stock, $.001 par value: 5,000,000 shares
      authorized,no shares issued or outstanding at December 31, 2007 and December
      31, 2006
    -
    -Common stock,  $.001 par value: 150,000,000 shares
      authorized,40,465,545 and 38,618,079 shares issued at December 31, 2007 and
      December 31, 2006, respectively
    40,471
    38,618Additional paid-in capital
    23,471,652
    22,474,263Accumulated deficit
    (6,425,776)
    (4,455,722)Less: 90,000 and 30,000  shares of treasury stock, at cost, at
      December 31, 2007 and December 31, 2006, respectively
    (73,260)
    (37,260)Total stockholders' equity
    17,013,087
    18,019,899TOTAL LIABILITIES, TEMPORARY EQUITY  AND STOCKHOLDERS'
      EQUITY
    $ 66,242,113
    $ 65,024,347
  The accompanying notes are an integral part of these financial
statements.  F-5    PIPELINE DATA INC.  CONSOLIDATED STATEMENTS OF OPERATIONS   Year Ending December 31, 2007
    Year Ending December 31,2006(restated)
  Revenue
    $49,902,993
    $41,813,817Interchange
    23,157,262
    18,542,700Cost of services sold
    8,649,664
    7,971,977Cost of goods sold
    380,483
    373,408Total cost of services and goods sold
    32,187,409
    26,888,085Gross profit
    17,715,584
    14,925,732Operating expensesSalaries and payroll cost
    6,644,840
    6,163,245Selling, general and administrative
    5,463,996
    3,352,297Customer acquisition cost amortization
    624,819
    423,846Depreciation
    253,275
    141,189Amortization
    2,861,156
    2,231,315Total operating expenses
    15,848,086
    12,311,892Income from operations
    1,867,498
    2,613,840Other income and expensesInterest and other income
    158,338
    121,540Interest expense
    (6,274,299)
    (4,720,526)Loss on early retirement of debt
    _________
    (2,140,107)Total other expenses
    (6,115,961)
    (6,739,093)(Loss) before income taxes
    (4,248,463)
    (4,125,253)Income tax benefits/provision for income tax
    (2,278,409)
    (1,839,438)Net loss attributable to common equity holders prior to deemed
      dividend
    (1,970,054)
    (2,285,815)Deemed dividend on common stock subject to put
    obligation
    (908,576)
    (2,896,952)Net loss after deemed dividend
    $(2,878,630)
    $(5,182,767)Basic and diluted net loss per share attributable to common equity
      holders:
    $(0.04)
    $(0.05)Basic and diluted net loss per share after deemed
      dividend:
    $(0.06)
    $(0.12)Weighted average number of common shares outstanding-basic and
      diluted
    48,762,004
    44,324,014
  The accompanying notes are an integral part of these financial
statements.  F-6    PIPELINE DATA INC.  CONSOLIDATED STATEMENT OF TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY  Common Stock
    Common Stock
    Additional
    Accumulated
    Treasury
    TotalSubject to put obligation
    
    Paid-inShares
    Amount
    Shares
    Amount
    Capital
    Deficit
    Stock
  Balance at December 31, 2005
    9,398,058
    $ 9,679,999
    29,196,012
    $ 29,196
    $ 9,230,367
    (2,169,907)
    $ 0
    $ 22,549,862Common stock previously subscribed
    
    
    5,999,628
    6,000
    5,774,207Common stock for services
    
    
    128,574
    129
    374,497
    
    
    374,626Vesting of options granted to employees
    
    
    
    
    282,979
    
    
    282,979Vesting of options granted to outside consultant
    
    
    
    
    7,574
    
    
    7,574Exercise of stock options
    
    
    356,098
    356
    37,541
    
    
    37,897Exercise of warrants
    
    
    674,281
    674
    708,369
    
    
    709,043Conversion of 8% convertible notes
    
    
    485,742
    485
    322,248
    
    
    322,733Interest on 8% convertible notes
    
    
    111,077
    111
    84,860
    
    
    84,971Fair value of warrants issued with convertible debt
    
    
    
    
    4,329,000
    
    
    4,329,000Fair value of warrants issued for advisory/underwriting
      fee
    
    
    
    
    437,500
    
    
    437,500Beneficial conversion feature on convertible debt
    
    
    
    
    5,803,863
    
    
    5,803,863Deferred tax liability on beneficial conversion feature
      and warrants
    
    
    
    
    (4,260,123)
    
    
    (4,260,123)Acquisitions/Mergers
    
    
    1,666,667
    1,667
    2,238,333
    
    
    2,240,000Deemed dividend on stock subject to put obligation
    
    2,896,952
    
    
    (2,896,952)
    
    
    0Purchase of treasury stock
    
    
    (30,000)
    
    
    
    (37,260)
    (37,260)Net loss for the year December 31, 2006
    ________
    ________
    ________
    ________
    _________
    (2,285,815)
    ________
    (2,285,815)Balance at December 31, 2006
    9,398,058
    $ 12,576,951
    38,588,079
    $ 38,618
    $ 22,474,263
    $ (4,455,722)
    $ (37,260)
    $ 30,596,850Common stock for services
    
    
    231,668
    232
    109,698
    
    
    109,930Vesting of options granted to employees
    
    
    
    5
    158,023
    
    
    158,028Exercise of stock options
    
    
    2,895
    3
    2,760
    
    
    2,763Acquisitions/Mergers
    
    
    1,612,903
    1,613
    1,635,484
    
    
    1,637,097Deemed dividend on stock subject to put obligation
    
    908,576
    
    
    (908,576)
    
    
    -Purchase of treasury stock
    
    
    (60,000)
    
    
    
    (36,000)
    (36,000)Net loss for the year December 31, 2007
    
    
    
    
    
    (1,970,054)
    
    (1,970,054)
   F-7     Balance at December 31, 2007
    9,398,058
    $ 13,485,527
    40,375,545
    $ 40,471
    $ 23,471,652
    $ (6,425,776)
    $ (73,260)
    $ 30,498,614
   F-8    PIPELINE DATA INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS   Year Ending December 31, 2007
    Year Ending
      December 31,2006(restated)OPERATING ACTIVITIES:Net (loss)
    $  (1,970,054)
    $   (2,285,815)Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:Depreciation and amortization
    3,114,431
    2,372,504Amortization of deferred customer acquisition costs
    625,143
    423,846Loss on early retirement of debt
    -
    2,140,107Stock based compensation
    238,872
    696,126Amortization of debt issuance cost
    369,758
    200,406Amortization of discount on  long-term debt
    2,662,577
    1,382,045Deferred taxes, net
    (2,278,409)
    (1,839,438)Imputed interest income
    (42,561)
    (26,000)Allowance for chargebacks and losses
    (52,991)
    57,459Changes in operating assets and liabilities:Accounts receivable
    435,886
    (1,543,000)Interest receivable
    7,778
    49,436Inventory
    3,486
    (23,495)Prepaid expenses and other current assets
    189,238
    (99,686)Deferred account acquisition costs
    (658,388)
    (438,178)Other
    (271,824)
    (127,799)Accounts payable and accrued expenses
    247,667
    723,015Merchant deposits
    404,163
    347,670Accrued rent
    41,259
    ________Net cash  provided by operating activities
    3,066,031
    2,009,203INVESTING ACTIVITIES:Capital expenditures
    (511,785)
    (592,055)Merchant portfolio and residual rights purchase
    (168,628)
    (2,027,223)Notes receivable
    144,492
    (114,900)Deferred acquisition costs
    (662,669)
    -Acquisitions of businesses
    (3,000,000)
    (15,717,318)Change in restricted cash
    (142,027)
    (355,795)Net cash used in investing activities
    (4,340,617)
    (18,807,291)FINANCING  ACTIVITIES:Proceeds from senior secured convertible notes, net
    -
    26,349,693Warrants and beneficial conversion feature
    -
    10,650,307Debt issuance cost
    -
    (1,477,060)Debt service payments
    (370,670)
    (17,000,000)Loss on early retirement of debt, net
    -
    (1,863,000)Warrant and stock option exercise
    2,763
    746,735Lease obligation payments
    (96,763)
    (55,497)Purchase of treasury stock
    (36,000)
    (37,260)Net cash provided by (used in) financing activities
    (500,670)
    17,313,918Net  increase (decrease) in cash and cash equivalents
    (1,775,256)
    515,830Cash and cash equivalents, beginning of period
    2,770,494
    2,254,664
   F-9     Cash and cash equivalents, end of period
    $995,238
    $2,770,494Supplemental disclosures:Cash paid during the year for:Interest
    $3,110,862
    $2,678,740Non cash investing and financing activities:Common stock issued as contingent acquisition cost
    $1,637,097Accrued merchant portfolio acquisitions
    $579,911Capital expenditures from lease prepayments and proceeds from lease
      Financing
    $146,620Accounts receivable converted to notes receivable
    $18,938Deemed dividend on common stock subject to put
    obligation
    $908,576
  The accompanying notes are an integral part of these financial
statements  F-10     PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE A - ORGANIZATION AND OPERATIONS  Nature of Operations  Pipeline Data Inc. (the "Company") was incorporated in June 1997 in the
State of Delaware. The Company is an integrated provider of merchant payment
processing services and related software products throughout the United States.
The Company delivers credit and debit card-based payment processing solutions
primarily to small and medium-sized merchants who operate either in a physical
business environment, over the Internet, or in mobile or wireless settings via
cellular-based wireless devices that the Company sells.  Basis of Financial Statement Presentation The accompanying consolidated financial statements include those of
Pipeline Data, Inc. (the "Company") and its subsidiaries. The consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. All intercompany balances
and transactions with the Company's subsidiaries have been eliminated upon
consolidation. Certain prior year amounts have been reclassified to conform to
the current year presentation.  At
December 31, 2007, the Company had a cash balance of $1.0 million compared to
$2.8 million at December 31, 2006. Cash flow from operations may not be
sufficient over the next twelve months to fund operating and debt obligations.
Over the next twelve months, the Company has a contingent cash payment to the
former shareholders of Charge.com, Inc.  Pursuant to the Charge.com
acquisition, each of the former Charge.com shareholders (the "Charge
Shareholders") has the right to sell up to 9,398,058 shares of Pipeline common
stock back to Pipeline at a price of $1.4763 per share.  The former shareholders must notify the Company of their decision between
March 4, 2008 and 5:00 p.m. (Eastern Daylight Savings Time) on April 30, 2008
(the "Put Right"). If a Charge Shareholder exercises their Put Right, the
Company must purchase the shares by no later than May 1, 2008 at the purchase
price, plus interest at an annual rate of 18% from March 1, 2008.   If
the Charge Shareholders exercised their Put Right we would need debt and/or
equity financing to meet this obligation.  Management believes, but can not
assure that this is achievable.  If such financing could not be raised, we
would attempt to re-negotiate the Put Right, reduce our operating expenses and
capital expenditures or liquidate certain assets to pay this
obligation.  Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Estimates include, among
other things, capitalized customer acquisition costs, loss reserves, certain
accounts payable and accrued expenses, certain tax assets and liabilities,
convertible debt, amortization, valuation of intangibles, merchant portfolios,
potential liabilities under registration rights agreement and equity
instruments. On an ongoing basis, the Company evaluates their estimates. 
Actual results could differ from those estimates.  F-11    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE A - ORGANIZATION AND OPERATIONS (continued)  Concentrations The majority of the Company's merchant processing activity is processed
by two key vendors. The Company believes that these vendors maintain appropriate
backup systems and alternative arrangements to avoid a significant disruption of
processing in the event of an unforeseen event. Substantially all of the Company's revenue is derived from processing
Visa and MasterCard bank card transactions. Because the Company is not a
"member bank" as defined by Visa and MasterCard, in order to process these
bank card transactions the Company has entered into  sponsorship agreements
with banks that are "member banks" and paid applicable fees. The agreements with
the bank sponsors require, among other things, that the Company abide by the
by-laws and regulations of the Visa and MasterCard associations. NOTE B -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  We believe the following critical accounting policies and the related
judgments and estimates affect the preparation of our consolidated financial
statements. Cash and Cash Equivalents For purposes of reporting cash flows, highly liquid instruments purchased
with original maturities of three months or less are considered cash
equivalents. The carrying amounts reported in the Consolidated Balance Sheets
for these instruments approximate their fair value. Restricted Cash  Cash held on deposit to cover potential merchant losses or cash set aside
for contractual obligations is classified as Restricted Cash on the Consolidated
Balance Sheets. Additional restricted cash was also set aside by the Company per
the contractual obligation with the former owners of Valadata requiring the
Company to escrow funds in the event the acquired entity meets earn-out
thresholds. As of August 2007, it was determined that it was not necessary to
maintain it.  Inventories  Inventories consist of point-of-sale terminal equipment held for sale to
merchants, resellers and distributors. Inventories are valued at the lower of
cost or market price. Cost is arrived at using the first-in, first-out method.
Market price is estimated based on current sales of equipment.  F-12     PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)  Accounts Receivable, net  The Company uses the allowance method to account for uncollectible
accounts receivable. We maintain allowances for the estimated losses from
doubtful accounts which result when our customers are unable 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. Accounts
receivable are presented net of an allowance for doubtful accounts of $12,800 as
of December 31, 2007 and $65,791 as of December 31, 2006.  Notes Receivable  The Company has demand notes aggregating $145,408 as of December 31, 2007
and $300,000 as of December 31, 2006 at the simple rate of 10-18% per annum and
a long term secured promissory note, due August 1, 2008, with a balance, net of
discount of $746,453 as of December 31, 2007 and $693,792 as of December 31,
2006. The face amount of the note is $750,000 and $739,900 as of December 31,
2007 and December 31, 2006, respectively. Interest is imputed at the rate of 6%.
The note is secured by 1,000,000 shares of the Company's common
stock.  Property and Equipment, net  Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method for financial
reporting purposes and primarily accelerated methods for tax purposes. For
financial reporting purposes, equipment is depreciated over five to seven years.
Leasehold improvements and property acquired under capital leases are amortized
over the useful life of the asset or the lease term, whichever is shorter.
Depreciation expenses for property and equipment for the years ended December
31, 2007 and 2006 was $253,275 and $ 141,189, respectively. Repairs and maintenance are expensed as incurred. Expenditures that
increase the value or productive capacity of assets are capitalized.  F-13    PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued) Revenue and Cost Recognition We 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 chargebacks, monthly minimums,
equipment rentals, sales or leasing and other miscellaneous services. Revenues
are reported gross of amounts paid to sponsor banks as well as interchange and
assessments paid to credit card associations (MasterCard and Visa) under revenue
sharing agreements pursuant to which such parties receive payments based
primarily on processing volume for particular groups of merchants. Included in
cost of goods and services sold are the expenses covering interchange and bank
processing directly attributable to the furnishing of transaction processing and
other services to our merchant customers and are recognized simultaneously with
the recognition of revenue. We follow the requirements of EITF 99-19, Reporting Revenue Gross as a
Principal Versus Net as an Agent, in determining our revenue reporting.
Generally, we report revenues at the time of sale on a gross basis where we are
the primary obligor in the arrangement, have latitude in establishing the price
of the services, change the product and perform part of the service, have
discretion in supplier selection, have latitude in determining the product and
service specifications to meet our clients needs and assume credit risk.
Revenues generated from certain portfolios are reported net of interchange, as
required by EITF 99-19, where we may not have credit risk, or the ultimate
responsibility for the merchant accounts. This amount includes interchange paid to card issuing banks and
assessments paid to credit card associations pursuant to which such parties
receive payments based primarily on processing volume for particular groups of
merchants.  Merchant Deposits and Loss Reserves  The Company follows the Financial Accounting Standards Board
Interpretation No. 45: Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN
45") requires all guarantees be recorded at their fair value at inception. We
believe our potential liability for the full amount of the operating losses
discussed above is a guarantee under FIN 45. We estimate the fair value of these
guarantees by adding a fair value margin to our estimate of losses. This
estimate of losses is comprised of known losses and a projection of future
losses based on a percentage of direct merchant credit card and debit card sales
volumes processed. Disputes between a cardholder and a merchant periodically
arise due to the cardholder's dissatisfaction with merchandise quality or the
merchant's service, and the disputes may not always be resolved in the
merchant's favor. In some of these cases, the transaction is ''charged back'' to
the merchant and the purchase price is refunded to the cardholder by the credit
card-issuing institution. If the merchant is unable to fund the refund, the
Company is liable for the full amount of the transaction. The Company maintains
deposits from certain merchants as an offset to potential contingent liabilities
that are the responsibility of such merchants. Additionally, the Company has a
recovery team that is responsible for collecting "charge backs". The Company
evaluates its ultimate risk and records an estimate of potential loss for
chargebacks related to merchant fraud based upon an assessment of actual
historical fraud loss rates compared to recent processing volume levels. The
Company believes that the liability recorded as loss reserves approximates fair
value.  F-14    PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)  Deferred Customer Acquisition Costs Deferred customer acquisition costs consist of up-front signing bonus
payments made to sales personnel (the Company's sales force), and cash payments
made to external vendors resulting in the establishment of new merchant
relationships. Deferred acquisition costs represent incremental, direct customer
acquisition costs that are recoverable through future operations, contractual
minimums, and/or penalties in the case of early termination. The deferred
customer acquisition costs are amortized over the three-year term of the
contract the merchant enters into with the Company. In the event the customer
cancels the contract or ceases operations, the Company expenses the un-amortized
balance of deferred acquisition costs. Generally, the acceleration or expensing
of any unamortized deferred acquisition cost is off-set by a termination fee the
company charges the customer for opting out of their contractual obligation. Management evaluates the deferred customer acquisition costs for
impairment at each balance sheet date by comparing, on a pooled basis by vintage
quarter of origination the active accounts against the original boarded accounts
in relationship to the carrying amount of the deferred customer acquisition
costs. A summary of the activity in deferred customer acquisition costs, net for
the years ended December 31, 2007 and 2006 is a follows:  2007
    2006Balance at beginning of period
    $449,611
    $435,279Capitalized customer deferred acquisition costs
    658,388
    438,178Less amortization expense
    (625,143)
    (423,846)Balance as of end of period
    $482,856
    $449,611
  Accounting for Goodwill and Intangible Assets 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. Goodwill and intangible assets acquired after June 30, 2001 were
subject immediately to the non-amortization and amortization provisions of this
Statement. For the years 2006 and 2007, we applied Statement No. 142 to our merchant
portfolios and residual rights purchases and revised our estimated life of our
merchant portfolios. We estimate for accounting purposes the useful life to be
seven years. The amortization expense represents a recognition and estimated
allocation of the initial cost of the acquired merchant portfolios and residual
rights as a non-cash expense against the income generated by these
assets. The Company has intangible assets which consist primarily of customer
relationships and are recorded in connection with acquisitions at their fair
value based the net present value of the customer relationship. Customer
relationships are amortized over their estimated useful lives using a straight
line basis which takes into consideration expected customer attrition rates over
a seven -year period. Intangible assets with estimated useful lives are reviewed
for impairment in accordance with SFAS No. 144 while intangible assets that are
determined to have indefinite lives are reviewed for impairment at least
annually in accordance with SFAS No. 142.  F-15    NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)  Reclassifications  The prior period presentation of certain accounts has been changed to
conform to the current year presentation.  Share-Based Payments In December 2004, the FASB issued SFAS No. 123 (Revised 2004),
Share-Based Payment ("SFAS No. 123R"). This standard requires expensing of stock
options and other share-based payments and supersedes SFAS No. 123, which had
allowed companies to choose between expensing stock options and showing pro
forma disclosure only. This standard is effective as of January 2006 and will
apply to all awards granted, modified, cancelled or repurchased after that date
as well as the unvested portion of prior awards. SFAS No. 123R permits public
companies to adopt its requirements using one of three methods: the "modified
prospective" method, the "modified retrospective" method to January 1, 2005, or
the "modified retrospective" method to all prior years for which SFAS No. 123
was effective. We elected to adopt the modified prospective method described in
FAS 123R which specifies that compensation expense for options granted prior to
the effective date be recognized in the consolidated statement of income over
the remaining vesting period of those options, and that compensation expense for
options granted subsequent to the effective date be recognized in the
consolidated statement of income over the vesting period of those options. In
addition, in accordance with the implementation of the modified prospective
method, prior period amounts have not been restated. As permitted by SFAS No. 123, prior to January 1, 2006, we followed APB
Opinion No. 25, which accounts for share-based payments to employees using the
intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of SFAS No. 123R fair
value method will have a significant impact on our consolidated results of
operations, although it will have no impact on our cash flows. The impact of the
adoption of SFAS No. 123R for the twelve months ended December 31, 2006 was to
increase compensation expense of $282,979 with corresponding tax benefit of
$85,870, resulting in a net reduction of earnings of $166,689. We made the
decision to accelerate the vesting of outstanding stock options during the
quarter ended, March 31, 2006 and in doing so recognize the remaining cost of
stock options outstanding from prior years. Computer Software Computer software includes the fair value of software acquired in
business combinations, purchased software and capitalized software development
costs. Purchased software is recorded at cost and amortized using the
straight-line method over a 3-5 year period and software acquired in business
combinations is recorded at its fair value and amortized using straight-line
method over their estimated useful lives, ranging from three to five
years. Income Taxes The Company recognizes deferred income tax assets and liabilities for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities and expected benefits of utilizing net
operating loss and credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The impact on deferred income taxes of changes in tax
rates and laws, if any, are reflected in the consolidated and combined financial
statements in the period enacted.  F-16    PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)  Earnings per common share Basic earnings per common share is computed by dividing reported net loss
available to common shareholders by the weighted average shares outstanding
during the period. Net losses for purposes of computing basic and diluted
earnings per share attributable to common shareholders are calculated as show
below for all periods presented. Diluted earnings per common share is computed by dividing reported
earnings available to common shareholders by the weighted average shares
outstanding during the period and the impact of securities that, if exercised,
would have a dilutive effect on earnings per share. All options with an exercise
price less than theaverage
market shareprice for the period
generally are assumed to have a dilutive effect on earnings per common share.  Years ended December 31,2007
    
    
    2006Net loss attributable to common equity holders for purposes of
      computing
      basic and diluted earnings per share
    
    $
    (1,970,054)
    
    $
    (2,285,815)Less: Deemed dividend on common stock subject to put
      obligation
    
    
    (908,576)
    
    
    (2,896,952)Net loss for purposes of computing basic and diluted earnings per
      share
    
    $
    (2,878,630)
    
    $
    (5,182,767)Weighted average shares outstanding - basic and
    diluted
    
    
    48,762,004
    
    
    44,324,014Basic and diluted  (loss) per common share attributable to
      common equity holders:
    
    $
    (0.04)
    
    $
    (0.05)Basic and diluted  (loss) per common share after deemed
      dividend:
    
    $
    (0.06)
    
    $
    (0.12)
  Each of (i) stock options to purchase 10,750,329 shares of common stock,
(ii) warrants to purchase 15,285,714 shares of common stock (iii) senior secured
debt convertible into 28,461,538 shares of common stock and (iv) a note
convertible into 116,667 share of common stock , all outstanding as of December
31, 2007 were potentially dilutive and were not included within basic and
diluted earnings per share because of the reported net loss. To do so would have
been anti-dilutive for the years ended December 31, 2007 and 2006. Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to
cash flow, market, or foreign currency risks. The Company reviews the terms of convertible debt, equity instruments and
other financing arrangements to determine whether there are embedded derivative
instruments, including embedded conversion options that are required to be
bifurcated and accounted for separately as a derivative financial instrument.
Also, in connection with the issuance of financing instruments, the Company may
issue freestanding options or warrants that may, depending on their terms, be
accounted for as derivative instrument liabilities, rather than as equity. The
Company may also issue options or warrants to non-employees in connection with
consulting or other services they provide. Derivative financial instruments are initially measured at their fair
value. For derivative financial instruments that are accounted for as
liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value
reported as charges or credits to income. For option-based derivative financial
instruments, the Company uses the Black-Scholes option pricing model to value
the derivative instruments. To the extent that the initial fair values  F-17    of
the freestanding and/or bifurcated derivative instrument liabilities exceed the
total proceeds received, an immediate charge to income is recognized, in order
to initially record the derivative instrument liabilities at their fair value. The discount from the face value of the convertible debt or equity
instruments resulting from allocating some or all of the proceeds to the
derivative instruments, together with the stated interest on the instrument, is
amortized over the life of the instrument through periodic charges to income,
usually using the effective interest method.  The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is reassessed at the
end of each reporting period. If reclassification is required, the fair value of
the derivative instrument, as of the determination date, is reclassified. Any
previous charges or credits to income for changes in the fair value of the
derivative instrument are not reversed. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within 12
months of the balance sheet date. Advertising The Company expenses advertising costs as they are incurred. 
Advertising expenses for the years ended December 31, 2007 and 2006 were
$1,069,659 and $575,521, respectively.  New accounting pronouncements
  In
March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets" - an amendment to FASB SFAS  No. 140. Statement 156 requires that
an entity recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a service
contract under certain situations. The new standard is effective for fiscal
years beginning after September 15, 2006. The adoption of SFAS No.156 did not
have a material impact on the Company's financial position and results of
operations.  In
July 2006, the Financial Accounting Standards Board issued Interpretation No.
48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109". This interpretation clarifies the accounting for uncertainty
in income taxes recognized in a company's financial statements and establishes
guidelines for recognition and measurement of a tax position taken or expected
to be taken in a tax return. We have adopted this statement which became
effective on January 1, 2007.   The Company has not made any
adjustments as a result of the adoption of this interpretation.  In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157").
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. We are currently evaluating the impact on our
consolidated financial statements of SFAS 157, which will become effective for
us on January 1, 2008 for financial assets and January 1, 2009 for non-financial
assets.  In
February 2007, the Financial Accounting Standards Board issued SFAS 159,
"The Fair Value Option for Financial Assets and Financial Liabilities". SFAS
No. 159 amends SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective of SFAS No. 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 is expected to expand the
use of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. SFAS
No. 159 applies to all entities, including not-for-profit organizations.
Most of the provisions of SFAS No. 159 apply only to entities that elect
the fair value option. However, the amendment to SFAS No. 115 applies to
all entities with available-for-sale and trading securities. Some requirements
apply differently to entities that do not report net income. This statement is
effective as of the beginning of each reporting entity's first fiscal year that
begins after November 15, 2007. The Company has not yet determined the
effect of SFAS No. 159 on its financial position, operations or cash flows.  In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations."
The new standard will significantly change the financial accounting and
reporting of business combination transactions in the consolidated financial
statements. It will require an  F-18    acquirer to recognize, at the acquisition date, the assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree at their
full fair values as of that date. In a business combination achieved in stages
(step acquisitions), the acquirer will be required to remeasure its previously
held equity interest in the acquiree at its acquisition-date fair value and
recognize the resulting gain or loss in earnings. The acquisition-related
transaction and restructuring costs will no longer be included as part of the
capitalized cost of the acquired entity but will be required to be accounted for
separately in accordance with applicable generally accepted accounting
principles in the U.S. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements." The statement clarifies the definition of a
non-controlling (or minority) interest and requires that non-controlling
interests in subsidiaries be reported as a component of equity in the
consolidated statement of financial position and requires that earnings
attributed to thenon-controlling
interests be reported as part of consolidated earnings and not as a separate
component of income or expense. However, it will also require expanded
disclosures of the attribution of consolidated earnings to the controlling and
non-controlling interests on the face of the consolidated income statement. SFAS
No. 160 will require that changes in a parent's controlling ownership
interest, that do not result in a loss of control of the subsidiary, are
accounted for as equity transactions among shareholders in the consolidated
entity therefore resulting in no gain or loss recognition in the income
statement. Only when a subsidiary is deconsolidated will a parent recognize a
gain or loss in net income. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008, and will be applied prospectively
except for the presentation and disclosure requirements that will be applied
retrospectively for all periods presented. The Company is currently evaluating
the impact of SFAS No. 160 to its financial position and results of
operations.  NOTE C - ACQUISITIONS  The results of operations and financial position of the entities acquired
during the twelve month period ended December 31, 2006 are included in the
Consolidated and Combined Financial Statements from and after the date of
acquisition. The purchase price of each acquisition was allocated to the assets
acquired and liabilities assumed based on independent and third party assisted
valuations with any excess cost over fair value being allocated to goodwill.  The Paynet Systems Acquisition:  On
July 3, 2006, we acquired Paynet Systems, Inc. by acquiring all of the
outstanding capital stock of Paynet Systems, Inc, an e-commerce and retail
merchant credit card processing provider. The total cost of Paynet Systems was
$10,890,996. In 2007 additional goodwill was recognized because certain
milestones were reached requiring us to pay the former Paynet Systems, Inc.
shareholders an additional $3.0 million in cash and 1.61 million shares of
restricted common stock valued at $1.6 million, determined by prices as of March
31, 2007 and June 30, 2007, the dates these milestones were met. These
contingent payments resulted in an increase in the amount of goodwill recognized
of $4.6 million. The assets acquired and liabilities assumed in the Paynet
Systems acquisition were as follows:   Cash
    
    
    $0Trade receivables
    
    
    0Plant, property and equipment
    
    
    0Computer software
    
    
    0Intangible assets
    
    
    3,304,249Goodwill
    
    
    7,586,747Liabilities assumed
    
    
    0Total Purchase Price
    
    
    $10,890,996
   F-19    PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE C - ACQUISITIONS (continued)  The Valadata Acquisition:  On July 11, 2006, we acquired Valadata, Inc., by acquiring all of the
outstanding capital stock of Valadata, Inc, a retail merchant credit card
processing provider catering primarily to the restaurant industry. The total
cost of the Valadata acquisition was $5,766,456. Our wholly owned subsidiary,
Valadata Acquisition, Inc. was formed to merge into Valadata, Inc. The assets
acquired and liabilities assumed in the Valadata acquisition were as follows:  Cash
    
    
    $134Trade receivables
    
    
    0Plant, property and equipment
    
    
    0Computer software
    
    
    0Intangible assets
    
    
    2,609,901Goodwill
    
    
    3,156,421Liabilities assumed
    
    
    0Total Purchase Price
    
    
    $5,766,456
  In
the event certain milestones were reached, we would have paid the former
Valadata shareholders up to an additional $1.5 million over the next two years.
The Company determined that the performance milestones were not met as of July
11, 2007 and that no further obligation exists to the former shareholders of
Valadata, Inc. However, we did calculate the residuals of the all underlying
seller agents of Valadata and made milestone payments to all agents who reached
their performance milestones. The former shareholders of Valadata, Inc. disagree
with our determination. In October 2007, L60, Inc. (comprised of former Valadata
shareholders) filed suit against Pipeline Data, Inc. in Maricopa County
Superior Court.  In its complaint, L60 alleges that Pipeline and Valadata
breached certain agreements made in connection with Pipeline's acquisition
of Valadata, and seeks around $1.5M, plus attorneys' fees and costs. 
Pipeline vigorously dispute the claims, have filed an answer denying any
liability and have countersued plaintiff and various related parties for,
among other things, breach of contract and tortious interference with
contractual relationships.  Pipeline's counterclaims seek compensatory and
punitive damages, as well as attorneys' fees.  In February of 2008,
the Court dismissed Pipeline's tort claims without prejudice to the
extent they are grounded in their contracts with
L60, but their contract claims against L60 and its principals
remain, as well as a claim for tortious interference against a third
party.  The case is now proceeding to discovery.  Northern Merchant Services, Inc. As a part of our agreement to acquire Northern Merchant Services, Inc in
2002, we agreed to issue additional shares of our common stock to the sellers
upon the achievement of certain milestones. The final one million shares earn-in
was earned in 2006 when Kevin and Nancy Weller successfully (i) oversaw and
opened a new facility in Brasher Falls and (ii) developed and launched a
government payment processing solution. The shares related to this milestone
have been issued. This issuance of stock increased the amount of goodwill
related to the acquisition by $1,300,000.   F-20     PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE D - GOODWILL AND OTHER INTANGIBLES WITH INDEFINITE
LIVES  The changes to the goodwill balance during the years ended December 31,
2007 and 2006 are as follows:  2007
    2006Balance at beginning of period
    $38,821,893
    $24,556,638Goodwill acquired
    -
    14,265,255Additions resulting from payment of contingent
      consideration
    4,637,097
    -Goodwill amortized or impaired
    -
    -Balance at end of period
    $43,458,990
    $38,821,893
  On
July 3, 2006, we acquired Paynet Systems, Inc. by acquiring all of the
outstanding capital stock of Paynet Systems, Inc.  Additional goodwill was
recognized in 2007 because certain milestones were reached requiring us to pay
the former Paynet Systems, Inc. shareholders an additional $3.0 million in cash
and 1.61 million shares of restricted common stock valued at $1.6 million,
determined by prices as of March 31, 2007 and June 30, 2007, the dates these
milestones were met.  NOTE E - MERCHANT PORTFOLIOS, RESIDUAL RIGHTS AND OTHER INTANGIBLES,
NET  During the year ended December 31, 2007, we purchased merchant processing
portfolios totaling $748,539.  The purchase price paid for the merchant
processing portfolios has been assigned to merchant portfolios, residual rights
and other intangibles in the accompanying consolidated balance sheet and is
being amortized over the expected life of seven years. The changes to the merchant portfolio, residual rights and other
intangibles balance during the years ended December 31, 2007 and 2006 are as
follows:  2007
    2006Merchant portfolio, residual rights and other intangibles balance
      at beginning of period
    $15,585,602
    $9,855,679Portfolios and residual rights acquired
    748,539
    7,897,192Portfolios, residual rights and other intangibles
      amortized
    (2,764,760)
    (2,167,269)Merchant portfolio, residual rights and other intangibles balance
      at end of period
    $13,569,381
    $15,585,602
   F-21    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007   NOTE F - 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, 2007, the Company
had deferred tax assets of $1,632,483, deferred tax liabilities of $2,994,183,
and no material current tax liability. As of December 31, 2006, the Company had
deferred tax assets of $2,284,498, deferred tax liabilities of $5,924,607, and
no material current tax liability.  At
December 31, 2007, the Company has net operating loss carryforwards for income
tax purposes of approximately $5.1 million. These carry forward losses are
available to offset future taxable income, if any, and expire in the year 2027. The components of income tax expense for the years ended December 31,
were as follows:  2007
    2006Current:Federal
    $
      0
    $
      0State
    0
    0Deferred:Federal
    (1,918,660)
    (1,438,613)State
    (359,749)
    (400,825)Total
      provision for income taxes
    $(2,278,409)
    $(1,839,438)
   F-22    PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2007  NOTE F- INCOME TAXES (continued) The components of the net deferred tax assets and liabilities are as
follows:  December 31,2007
    2006Deferred tax assets:Net operating loss carry forward
    
    
    $1,396,490
    $2,042,911Difference between book and tax depreciation and amortization
    
    
    0
    84,067Deferred revenue
    
    
    11,566
    20,472Loss reserve and accounts receivable allowance
    
    
    86,261
    0Charitable contributions carry forward
    
    
    2,469
    0Stock-based compensation
    
    
    135,697
    137,048Total
      deferred tax assets before valuation allowance
    
    
    1,632,483
    2,284,498Valuation allowance
    
    
    0
    0Total deferred tax assets
    
    
    1,632,483
    2,284,498Deferred tax liabilitiesDifference between book and tax depreciation and
      amortization
    
    
    $1,496,163
    $2,202,885Discount on debt
    
    
    1,498,020
    3,721,722Total deferred tax liabilities
    
    
    2,994,183
    5,924,607Net deferred tax asset (liability)
    
    
    ($1,361,700)
    ($3,640,109)
  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. Based on the Company's forecast of future taxable income,
management determined that a valuation allowance related to deferred tax assets
was not required as of December 31, 2007.  The differences in Federal taxes provided and the amounts determined by
applying the federal statutory tax rate to income (loss) from continuing
operations for the years ended December 31, 2007 and 2006 are as
follows:  Year ended
      December 31,
 2007
    2006
 $ Amount
    Percentage
    $ Amount
    PercentageU.S Federal income tax at the statutory rate
    $(1,444,477)
    (34%)
    $(1,402,587)
    (34%)U.S State taxes
    (254,908)
    (6%)
    (247,515)
    (6%)Changes in valuation allowance
    (0)
    (0%)
    (0)
    (0%)Non-deductible expenses and other
    (579,024)
    (13%)
    (189,336)
    (5%)Provision for (benefit from)
      income taxes
    $(2,278,409)
    (53%)
    $(1,839,438)
    (45%)
      F-23   On
January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"). This Interpretation clarifies accounting for uncertainty in income taxes
recognized in an enterprise's financial statements. FIN 48 establishes
guidelines for recognition and measurement of a tax position taken or expected
to be taken in a tax return.  The Company has not made any adjustments, and
there is no impact, as a result of the adoption of this interpretation. 
The company reports interest and penalties associated with its tax positions, if
any, as interest expense.  F-24    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE G - COMMITMENTS AND CONTINGENCIES  Operating Leases  We lease various office spaces, computer data center storage space and
certain equipment under operating leases with remaining terms ranging up to six
years. Our facilities are located in Quincy, Massachusetts; Brasher Falls New
York; Gurnee, Illinois; Alpharetta, Georgia and Suwanee, Georgia. The majority
of the office space lease agreements contain renewal options.  Our future minimum lease commitments under noncancelable leases are as
follows at December 31, 2007 and 2006.  Twelve Months Ending December 31
    2007
    2006Year 1
    $ 437,682
    $ 356,560Year 2
    420,532
    372,856Year 3
    354,435
    377,242Year 4
    270,691
    321,968Year 5
    164,558
    270,691Later years
    169,494
    334,052Total minimum payments required
    $ 1,817,392
    $ 2,033,369
  Total rent expense for the twelve months ended December 31, 2007
and 2006was $ 459,893 and $ 275,954,
respectively.  Lease-Related Party  The office 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. A five year lease commenced on January 1, 2006 with monthly
rental of $3,000.  Capital Leases  The following is a schedule by year of future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments as of December 31, 2007 and 2006.  Twelve Months Ending December 31
    2007
    2006Year 1
    $ 107,083
    $ 75,010Year 2
    77,127
    42,987Year 3
    12,461
    13,981Year 4
    0
    4,746Year 5
    0
    0Later years
    0
    0Total minimum payments required
    $ 196,671
    $ 136,724Less: amount representing interest
    32,606
    22,516Present value of net minimum lease payments
    $ 164,065
    $ 114,208Net book value of equipment under lease
    $ 238,750
    $ 209,126
      F-25  Valadata , Inc contingent payment  On July 11, 2006, when we acquired Valadata, Inc, we agreed to pay
approximately an additional $1.5 million over the next two years subject to
performance milestones. These payments are secured by a security agreement
granting a continuing security interest in the assets of Valadata, Inc. 
The Company determined that the performance milestones were not met as of July
11, 2007 and that no further obligation exists to the former shareholders of
Valadata, Inc. However, we did calculate the residuals of the all underlying
seller agents of Valadata and made milestone payments to all agents who reached
their performance milestones. The former shareholders of Valadata, Inc. disagree
with our determination and have an action against us in Superior court of the
State of Arizona, County of Maricopa.  The case citation is L60,
Incorporated v. Pipeline Data, Inc., Valadata, Inc., and John Does I-X,
 No. CV2007-016849, Superior Court of the State of Arizona, County of
Maricopa and the complaint is dated September 15, 2007.  Iroquois Master Fund, Ltd suit  On June 29, 2006, the Company entered into a $37 million convertible debt
financing with a group of institutional investors. Under the terms of agreement,
the Company issued convertible notes that accrue interest at a rate of 8% per
annum, payable quarterly in arrears beginning on October 2, 2006. A member of
the lending group which loaned our Company $1,000,000 is Iroquois Master Fund
Ltd.  On April 10, 2007, Iroquois Master Fund provided our Company a
written default notice stating that the Company had failed to pay interest on
their note and provided us their wire details. Immediately upon receipt of the
wire details, the Company made full payment of the interest due. The Company's
position is that there was miscommunication of payment details and a good faith
attempt on the Company's part to communicate this to Iroquois Master Fund. The
Company's position is after payment of interest, management believed in good
faith that the matter was addressed to the satisfaction of both parties On April
20, 2007; the Company received a second default notice seeking penalties and
stating their rights under default. The Company promptly paid the $3,406 penalty
to the account provided.  The lenders' rights under default are the payment
of 125% of the principal amount due plus interest and penalties. Iroquois Master
Fund has filed suit against the Company on June 19, 2007 in the Supreme Court of
the State of New York County of New York for breach of contract.  The
Company firmly believes that it has acted in good faith and plaintiff's claim is
without merit.  The Company has retained counsel and will vigorously defend
this action. The case citation is Iroquois Master Fund, Ltd. v. Pipeline Data,
Inc., Index No. 602059/2007, Supreme Court of the State of New York, County of
New York. While the case is still pending, the Company and Iroquois Master Fund,
Ltd. have postponed further filings.  Merchant portfolio residual rights acquisitions  On February 1, 2006 we acquired a merchant portfolio requiring an
additional payment in shares of common stock. This will result in the issuance
of 483,259 additional shares of stock with an aggregate fair value of $579,911
determined by quoted market price of $1.20 per agreement.  Under the terms certain processing services agreements we are required to
purchase merchant accounts at a value of approximately $2.4 million if the agent
exercises that right.  Garner Gifts contingent payment  On
October 29, 2007, we filed suit against our payment processor, First Data
Merchant Services Corporation, for the return of approximately $150,000 that
they deducted from our account to cover suspected fraudulent activity by a
merchant.  The case citation is Pipeline Data, Inc. v. First Data
Merchant Services Corporation, Garner Gifts, and Delayna Garner, United States
District Court for the Eastern District of New York.   We settled
this action in February 2008 with First Data Merchant Services Corporation and
they returned approximately $100,000 to our account.  Our Subsidiary SecurePay.com, Inc 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) 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.  F-26    .PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE H - STOCK OPTIONS AND WARRANTS  Stock-Based Compensation  The Company has adopted the provisions of Statement of Financial
Accounting Standards No 123 (Revised 2004) "Share Based Payments" (FAS 123R), as
of January 1, 2006. The provisions of FAS 123R require a company to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date value of the award. That cost is recognized
in the statement of operations over the period during which an employee is
required to provide service for the award.  The total share based payments included in wages and selling, general and
administrative expenses was $254,370 and $664,206 for the years ended December
31, 2007 and 2006, respectively.  The Company estimates the grant date fair value of the stock options it
issues using a Black-Scholes valuation model. The Company determines an expected
volatility assumption by referencing the average volatility experienced by six
of its public company peers. The Company used an average of a peer group because
it does not have sufficient historical volatility data related to market trading
of its own common stock. The Company estimates the expected life of a stock
option based on the simplified method for "plain-vanilla" stock options as
provided by the Staff of the SEC in Staff Accounting Bulletin 107. The
simplified method is used because, at this point, the Company does not have
sufficient historical information to develop reasonable expectations about
future exercise patterns. The Company's dividend yield assumption is based on
actual dividends expected to be paid over the expected life of the stock
option. The risk-free interest rate assumption for stock options granted is
determined by using U.S. treasury rates of the same period as the expected
option term of each stock option. The weighted-average fair value of options
granted during the year ended December 31, 2007 was $0.14.  Assumptions utilized are shown as follow:  Year endedDecember 31, 2007Expected volatility
    
    39.2%Expected life
    
    4.1 yrsExpected dividends
    
    0Risk-free interest rate
    
    4.7%
  As
of December 31, 2007, the Company has reserved an aggregate of 10,716,554
shares of common stock pending the exercise of the options.  Stock option activity is summarized as
  follows:Options
    Weighted - Average Exercise Price
    Weighted-Average Remaining Contractual Term
    Aggregate
      Intrinsic ValueOptions outstanding, December 31, 2006
    9,517,200
    $    1.39
    3.5
    $    2,069,769Forfeited
    (1,303,766)
    1.50
    -Exercised
    (2,895)
    0.95
    -Issued
    2,506,012
    1.57
    --Options outstanding,
      December 31, 2007
    10,716,554
    $    1.42
    3.8
    $     664,322Options exercisable,
      December 31, 2007
    7,741,332
    $   1.36
    3.0
    $    
664,322
   F-27     The intrinsic value of options exercised during the year ended December
31, 2007 was $550.   The following table summarizes information related to stock options
      outstanding and exercisable as of December 31, 2007:Options Outstanding
    Options ExercisableRange of Exercise Prices
    Number of Options
    Weighted Average Remaining Contractual Life
    Weighted Average Exercise Price
    Number of Options
    Weighted Average Remaining Contractual Life
    Weighted Average Exercise Price0.00 - 0.99
    2,156,054
    2.0
    $ 0.58
    2,121,358
    1.9
    $ 0.581.00-1.24
    2,200,586
    3.4
    $ 1.08
    1,838,313
    3.0
    $ 1.081.25-1.49
    1,244,914
    5.4
    $ 1.30
    450,000
    4.3
    $ 1.251.50-1.74
    1,532,500
    4.4
    $ 1.50
    1,024,165
    3.6
    $ 1.501.75+
    3,582,500
    4.4
    $ 2.14
    2,307,496
    3.3
    $ 2.28Total
    10,716,554
    3.8
    $ 1.42
    7,741,332
    3.0
    $ 1.36
   Warrants As of December 31, 2007, the Company has reserved an aggregate of
15,285,714 shares of common stock pending the exercise of the warrants. 971,233
of our publicly traded Class B Warrants expired on December 31, 2007,  Warrant activity is summarized as follows:WarrantsWarrants outstanding, December 31, 2006
    16,389,923Exercised
    -Expired
    (1,104,209)Issued
    -Warrants outstanding, December 31, 2007
    15,285,714
   The following table summarizes information related to warrants
      outstanding and exercisable as of December 31, 2007:Strike Price
    Number of Warrants
    Weighted Average Remaining Contractual Life
    Weighted Average Exercise Price0.00 - 0.99
    285,714
    0.2
    $ 0.351.00-1.24
    700,000
    2.8
    $ 1.101.25-1.49
    11,966,667
    3.5
    $ 1.401.50-1.74
    250,001
    3.3
    $ 1.501.75+
    2,083,332
    3.5
    $ 1.77Total
    15,285,714
    3.4
    $ 1.42
   F-28    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE H - STOCK OPTIONS AND WARRANTS (continued) Stock-Based Compensation (continued)  A
summary of the non-vested restricted stock unit activity for the year ended
December 31, 2007 is presented below.  Non-vested Shares
    Yearended
      December 31, 2007
    Weighted-Average Grant-Date Fair ValueSharesNon-vested at December 31. 2006
    93,334
    $0.96Granted
    -
    -Vested
    (46,667)
    $0.96Non-vested at December 31, 2007
    46,667
    $   0.96
  NOTE I -  RELATED PARTY TRANSACTIONS The office 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. A five year lease commenced on January 1, 2006 with monthly
rental of $3,000.  The Company entered into a consulting services agreement with Capital
Advisory Services in 2007. Our Chairman, Jack Rubinstein, is a partner of
Capital Advisory Services.  The total charged to operating expenses for the
years ended December 31, 2007 and 2006 was $20,000 and $100,000,
respectively.  $10,000 was payable to Capital Advisory Services at December
31, 2007 and $20,000 payable at December 31, 2006.  When Northern Merchant Services, Inc. was purchased, certain earn-in
capabilities based upon milestones achieved were recorded as a contingency based
on SFAS No.141-Business Combinations. To date, an additional 3,000,000 shares of
our common stock have been issued pursuant to these milestones. The final
1,000,000 shares related to this earn-in were issued during 2006.  F-29    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007 NOTE J - SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS  Debt/Financing:  (a) Senior Secured Convertible Notes  The Company, on June 29, 2006 entered into a series of Senior Secured
Convertible Notes having an aggregate principal amount of $37,000,000 due on
June 29, 2010 and included the issuance of warrants to purchase 11,100,000
shares of the Company's common stock at $1.40    The note holders
have a first priority security interest in all of our assets.  Interest accrues at 8% per annum on the outstanding principal amount and
is payable on the first day of each calendar quarter, starting October 1, 2006.
 Note holders may convert their notes into common stock of the Company at a
fixed conversion rate of $1.30 per share.  Conversions are subject to a
restriction limiting the note holder to holding a maximum of 4.9% of the
Company's common stock currently outstanding immediately after giving effect to
the conversion.  The notes also contain standard anti-dilution
provisions  The Company has the option, at any time, to redeem up to 25% of the
original Debenture principal amount, in cash, in an amount equal to the sum of
(i) 115% of the principal amount of the Debenture outstanding, plus accrued and
unpaid interest, if on or prior to June 29, 2008 and the sum of (ii) 110% of the
principal amount of the Debenture outstanding, plus accrued and unpaid interest
through maturity.  The note is convertible at the sole discretion of the
Holders unless value of the common stock exceeds 250% of the conversion price
for 20 consecutive days. Then the Company may cause the holder to convert all or
part of the then outstanding principal, up to 25% of the average trading
volume.  Any converted shares are not puttable back to the Company by the
Holder.  In
connection with the convertible note, the Company issued to the holder of the
note a five-year warrant to purchase up to 11,100,000 shares of the Company's
common stock at an exercise price of $1.40 per share. The warrants are
exercisable on the sole discretion of the Holders.  Any warrants converted
to shares are not puttable back to the Company, nor can Holder's demand a cash
settlement of warrants.  Cashless exercises are permissible. The Company has entered into a Registration Rights Agreement with each of
the Holders of our convertible notes and warrants issued in connection with
Senior Secured Convertible Notes to register the underlying common stock
thereunder. The Registration Rights Agreement provides that we will file a
registration statement with the SEC within 45 days of June 29, 2006. The
Registration Rights Agreement requires us to register an amount of common stock
equal to 125% of the Registrable Securities which as defined under the
Registration Rights Agreement includes the shares of our common stock issuable
upon the conversion of the convertible note and the exercise of the warrants to
purchase 11,100,000 shares of common stock at $1.40 per share, or an aggregate
of 39,561,538 shares. The Company is required to keep the Registration Statement
continuously effective until all Registrable Securities have been sold.  F-30    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE J - SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (continued)  Debt/Financing (continued):  Pursuant to a Registration Rights Agreement, the Company agreed to
"prepare and file with the Securities and Exchange Commission a Registration
Statement covering the resale of 125% of the shares into which the convertible
notes and warrants were convertible for an offering to be made on a continuous
basis pursuant to Rule 415 as promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933  or pay each holder
monthly in cash as partial liquidated damages 1.25% of the aggregate purchase
price paid by such holder for the convertible notes and warrants for the first
six months, which shall increase to 1.5% thereafter.  A
Registration Statement for 11,100,000 shares of common stock underlying warrants
at $1.40 and 10,000,000 shares of common stock underlying the convertible
promissory notes at $1.30 per share was deemed effective December 6,
2006.   The Company registered all shares that were currently possible
to be registered under Rule 415.   The Company is required to register
the remaining 18,461,538 shares of our common stock underlying the convertible
note as well as an additional 25% of the aggregate shares registered pursuant to
our registration rights agreement and will continue to act with due diligence to
register these shares when allowed by the Securities and Exchange Commission.
Effectiveness of these additional registrations is subject to the approval of
the Securities and Exchange Commission.  Management believes that it has
complied with the registration agreement however, if the Company was deemed
responsible for penalties, the maximum penalty assessable could be $6.5
million.  On a separate matter, the Company has accrued an interest
expense, estimated at $331,982, related to the initial late filing of the
registration statement pending any settlement.  Long-term debt as of December 31, 2007 and December 31, 2006 consists of
the following:  December 31,
    December 31,2007
    2006Notes payable-World Products Inc. shareholders, payable at LIBOR,
      convertible at $1.50 per share, due September  2007
    $0
    $525,000Deferred rent on operating leases
    41,259
    -Other promissory notes and capital leases
    164,065
    114,208Senior secured, interest payable at 8.00% due June 29, 2010,
      convertible at $1.30 per share
    37,000,000
    37,000,00037,205,324
    37,639,208Less current portion
    (84,173)
    (60,765)Unamortized discount on long-term debt of beneficial conversion
      feature and warrants
    (6,641,852)
    (9,304,429)Long-term debt, excluding current portion
    $ 30,479,299
    $28,274,014
   Capital Lease Obligations  See Note G-Lease Agreements for lease obligations with VAResources, Key
Equipment, Highline Funding, LLC, Ikon Financial Services and US Express
Leasing. As of December 31, 2007, the current portion amounted to $84,173, and
the long-term portion amounted to $79,892. As of December 31, 2006, the current
portion amounted to $60,765, and the long-term portion amounted to
$53,443.  F-31    PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007  NOTE J - SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (continued)  Notice of Default on Senior Securities  On
June 29, 2006, the Company entered into a $37 million convertible debt financing
with a group of institutional investors. Under the terms of agreement, the
Company issued convertible notes that accrue interest at a rate of 8% per annum,
payable quarterly in arrears beginning on October 2, 2006. A member of the
lending group which loaned our Company $1,000,000 is Iroquois Master Fund
Ltd.  On April 10, 2007, Iroquois Master Fund provided our Company a
written default notice stating that the Company had failed to pay interest on
their note and provided the Company with their wire details. Immediately upon
receipt of the wire details, the Company made full payment of the interest due.
The Company's position is that there was miscommunication of payment details and
a good faith attempt on the Company's part to communicate this to Iroquois
Master Fund. The Company's position is after payment of interest, management
believed in good faith that the matter was addressed to the satisfaction of both
parties.  On April 20, 2007 the Company received a second default notice
from Iroquois Master Fund Ltd. seeking penalties and stating their rights under
default. The Company promptly paid the $3,406 penalty to the account
provided.  The lenders' rights under default are the payment of 125% of the
principal amount due plus interest and penalties. Iroquois Master Fund has filed
suit against the Company on June 19, 2007 in the Supreme Court of the State of
New York County of New York for breach of contract.  The Company firmly
believes that it has acted in good faith and plaintiff's claim is without
merit.  The Company has retained counsel and will vigorously defend this
action. The case citation is Iroquois Master Fund, Ltd. v. Pipeline Data, Inc.,
Index No. 602059/2007, Supreme Court of the State of New York, County of New
York.  F-32     PIPELINE DATA INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 NOTE K - PENSION PLAN-DEFINED CONTRIBUTION  During the third quarter of 2006, the Company adopted a Simple IRA Plan.
Under this plan the Company matched employee contribution up to one percent of
eligible compensation. The amount recognized as an expense during the years
ended December 31, 2007 and 2006 was $26,041 and $18,378,
respectively.   NOTE L  - TEMPORARY EQUITY  Common shares subject to put obligation  Between December 17, 2007 and December 28, 2007, the former shareholders
of Charge.com had the right to put to the Company up to 9,398,058 shares of
Company common stock at a per share price of $1.37785 per share or $12,949,114
plus interest at the annual rate of 12% accruing from September 28, 2007 to
October 30, 2007 and at the annual rate of 18% accruing from October31, 2007
until paid.  The former shareholders of Charge.com decided not to exercise
their Put Right in consideration of a higher per share purchase price and a
later opportunity to exercise their Put Right.  On March 4, 2008, the
parties amended the Agreement and Plan of Merger dated as of December 19, 2005
to provide the former shareholders of Charge.com, Inc the right, between March
4, 2008 and 5:00 PM (Eastern Daylight Savings Time) April 30, 2008, to require
the Company to repurchase up to 9,398,058 shares of Company common stock at a
price of $1.4763 per share. If a former shareholder exercises its Put Right, the
Company must purchase the shares by no later than April 30, 2008 at the purchase
price, plus interest at an annual rate of 18% from March 1, 2008.
  The Company has reviewed this arrangement under the terms of Topic
No. D-98: "Classification and Measurement of Redeemable Securities" and consider
this application to require that the shares be considered temporary equity and
classified as common shares subject to put obligations.  The provisions of
this agreement will be assessed at each balance sheet date to determine if the
agreement is no longer conditional. The Company has a Call Right until no later than April 30, 2008 to
purchase some or all of the former shareholders' stock at $1.4763 per share,
plus interest at an annual rate of 18% from March 1, 2008. Management believes
it has a number of solutions to address this upcoming deadline.  The increase in temporary equity during the year ended December 31, 2007
is attributable to the January 3, 2008 amendment which increases the redemption
value of the stock.  This deemed dividend is offset by a charge to
additional paid-in capital..  NOTE M  - SUBSEQUENT EVENTS  Notes payable-World Products shareholders  During October 2007, $350,000 was paid to the former shareholders of
World Products, Inc. The term of the remaining $175,000 note has been extended
to April 21, 2008.  Innovative Resource Alliance, Inc. acquistion  On
November 29, 2007, we signed a binding letter of intent to acquire Innovative
Resource Alliance ("IRA"), the parent corporation of TenderCard(TM), a gift,
loyalty and stored value solutions provider with over 12,000 merchants based in
Falmouth, Massachusetts and Merchant Services Network ("MSN"), a retail merchant
services provider based in West Palm Beach, Florida, in exchange for up to 25.7
million shares of our company common stock, subject to certain earn in
provisions. The transaction is subject to (a) the approval of the company's
boards of directors of PPDA and IRA and (b) the completion of the acquisition of
CoCard Marketing Group, LLC ("CoCard"); (c) the receipt of financing to fund the
CoCard acquisition and the transactions contemplated by the merger contemplated
by this Letter of Intent and (c) the per share price of equity raised to fund
this transaction being no less than $1.30.  F-33     The parties contemplate the merger of our wholly owned subsidiary into
IRA in consideration for the issuance to the former IRA stockholders of up to
Twenty Five Million Seven Hundred Thousand (25,700,000) shares of our
unregistered common stock (the "Shares"), subject to certain ratchet up
provisions, in accordance with the following formula and in accordance with our
stock price subject to a maximum share issuance of Twenty Eight Million Seven
Hundred Thousand 28,700,000 shares. The issuance of shares is contemplated as
follows:  a.            13,700,000
shares immediately upon close and distributed pro-rata to IRA shareholders based
on a conversion ratio to be agreed upon in the definitive agreement (the
"Conversion Ratio")  b.           12,000,000
shares issued and escrowed for distribution to IRA shareholders pursuant to the
Conversion Ratio according to the following earn in formula  (iv)
    2,000,000 shares immediately upon closing the purchase of an
      identified portfolio reviewed by the
parties;
  (v)
    10,000,000 shares to be distributed to IRA shareholders upon the
      occurrence of the following events:
  a.
    1,000,000 shares for each additional $70,000 per month of average
      net recurring revenue (which means the average of receipts minus the sum
      of interchange, all costs of services and residual payments owed).
  (vi)
    This earn-in provision expires July 1, 2009 unless further extended
      by our board of directors.
 As
merged, Pipeline Data/IRA intends to acquire COCARD(R) Marketing Group, LLC
("COCARD"), a Nashville, Tennessee-based merchant services provider catering
primarily to small and medium-sized retail accounts. COCARD currently services
over 25,000 merchants. IRA and CCOCARD entered into a Definitive Merger
Agreement to acquire COCARD for approximately $101 million in cash entered into
on October 22, 2007.  Both the IRA and COCARD transactions are currently pending further
negotiations and completion of financing. No assurance can be given that either
transaction will be consummated.   F-34    Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.  There have been no disagreements with, our company's public accountants.  Item 8A(T).Controls and Procedures.  Evaluation of Disclosure Controls and Procedures  Under the supervision and with the participation of our management,
including our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") we evaluated the effectiveness of our disclosure controls and procedures
as of December 31, 2007. Based upon that evaluation, our CEO and CFO
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective. Management Report on Internal Control over Financial Reporting Our management team is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes those policies and
procedures that: Pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; Provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of the Company's management and directors; and Provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial
statements. Any system of internal control over financial reporting, however well
designed and operated, may not prevent or detect all misstatements. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. In addition, the design of any control system is based, in part,
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of internal control systems, there is only
reasonable assurance that the Company's system of internal control over
financial reporting will succeed in achieving its goals under all potential
future conditions. As of the end of the Company's 2007 fiscal year, management conducted an
assessment of the effectiveness of the Company's internal control over financial
reporting based on the framework established in Internal Control Over Financial
Reporting - Guidance for Smaller Public Companies issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on our
assessment and those criteria, our management believes that Pipeline Data, Inc.
maintained effective internal control over financial reporting as of December
31, 2007.  This annual report does not include an attestation report of the
company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.  Changes in Internal Controls In connection with the restatement of the Company's financial statements
for the years ended December 31, 2005 and December 31, 2006, we re-evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures to determine their effectiveness (as defined in Rule 13a-15(e) under
the Securities Act, as amended) as of  the periods then ended. We looked
specifically into the effectiveness of our disclosure controls and procedures in
terms of classification issues involved in the evaluation of accounting
implications associated with non-routine contracts and non-routine complex
equity transactions.  We found that we needed further support in
classifying and reporting these transactions.    As a result, we
have expanded our accounting staff to include an additional qualified
professional who commenced his duties during the fourth quarter of 2007. We
retained the assistance of a qualified third party accounting firm to assist in
the review of complex non-routine transactions. We have implemented additional
review procedures in the preparation of the Company's financial statements and
we continue to schedule members of our accounting staff for continuing
professional education.  Based on these changes, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures to determine their
effectiveness (as defined in Rule 13a-15(e) under the Securities Act, as
amended) as of December 31, 2007.  Based on that evaluation and the changes
that we have discussed above, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this report our
disclosure controls and procedures were effective  71    Item 8B. Other Information.  On
July 17, 2007 the Audit Committee of the Board of Directors of Pipeline Data
Inc. (the "Company") ended its relationship with  Drakeford &
Drakeford, LLC as the Company's independent registered public accounting
firm.  The audit reports of Drakeford & Drakeford, LLC on the Company's
consolidated financial statements as of and for the fiscal years ended December
31, 2002, December 31, 2003, December 31, 2004, December 31, 2005 and December
30, 2006 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles.  During the fiscal years ended December 31, 2002, December 31, 2003,
December 31, 2004, December 31, 2005 and December 30, 2006 and for the interim
period through July 17, 2007, the date the Company's engagement of Drakeford
& Drakeford, LLC  ended, there were no disagreements with Drakeford
& Drakeford, LLC  on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to Drakeford & Drakeford, LLC  's satisfaction, would have
caused them to make reference to the subject matter of the disagreement in
connection with their reports.  During the fiscal years ended December 31, 2002, December 31, 2003,
December 31, 2004, December 31, 2005 and December 30, 2006 and for the interim
period through July 17, 2007, the date the Company's engagement of Drakeford
& Drakeford, LLC ended, Drakeford & Drakeford, LLC did not advise the
Company of any reportable events under Item 304(a)(1)(iv) and (v) of Regulation
S-K promulgated under the Securities Exchange Act of 1934.  The Audit Committee of the Company's Board engaged J.H. Cohn LLP as the
Company's new independent registered public accounting firm. During the fiscal
years ended December 31, 2002, December 31, 2003, December 31, 2004, December
31, 2005 and December 30, 2006 and for the interim period through July 17, 2007,
the date the Company's engagement of Drakeford & Drakeford, LLC  ended,
neither the Company nor anyone acting on the Company's behalf consulted J.H.
Cohn LLP regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and
neither a written report nor oral advice was provided to the Company by J.H.
Cohn LLP that J.H. Cohn LLP concluded was an important factor considered by the
Company in reaching a decision as to any accounting, auditing or financial
reporting issues; or (ii) any matter that was either the subject of a
"disagreement" or "event," as those terms are described in Item 304(a)(1)(iv)
and (v) of Regulation S-K.  On November 21, 2007, J.H. Cohn LLP informed the Audit Committee of the
Board of Directors (the "Audit Committee") of Pipeline Data Inc. (the "Company")
that it had resigned as the Company's independent registered public accounting
firm. J.H. Cohn LLP had been engaged as our independent registered public
accounting firm on July 17, 2007 and had performed review procedures in
connection with our unaudited condensed consolidated financial statements
included in our reports on Form 10-QSB for the quarterly periods ended June 30,
2007 and September 30, 2007, but it never audited any of our consolidated
financial statements.  During the fiscal quarters ended June 30, 2007 and September 30, 2007 and
for the interim period through November 21, 2007, the date the Company's
engagement of J.H. Cohn LLP ended, there were no disagreements with J.H. Cohn
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to J.H. Cohn
LLP's satisfaction, would have caused them to make reference to the subject
matter of the disagreement in connection with their reports to the Audit
Committee.  During the fiscal quarters ended June 30, 2007 and September 30, 2007 and
for the interim period through November 21, 2007, the date the Company's
engagement of J.H. Cohn LLP ended, J.H. Cohn LLP did not advise the Company of
any reportable events under Item 304(a)(1)(v) of Regulation S-K promulgated
under the Securities Exchange Act of 1934 other than as follows: In connection
with its review procedures related to our unaudited condensed consolidated
financial statements included in our report on Form 10-QSB for the quarterly
periods ended June 30, 2007, J.H. Cohn LLP advised the Company's management and
the Audit Committee that certain common stock issued by the Company that was
subject to a repurchase obligation that had previously been classified in our
financial statements as permanent equity should have been classified as
temporary equity, and thus, that we did not have the internal controls necessary
to develop reliable financial statements.  On January 4, 2008, the Audit Committee of the Company's Board engaged
Drakeford & Drakeford, LLC as the Company's independent registered public
accounting firm. Drakeford & Drakeford, LLC served as the Company's
independent registered public accounting firm during the fiscal years ended
December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005 and
December 30, 2006 and for the interim period through July 17, 2007. From July
17, 2007 to November 21, 2007 the Audit Committee of the Company's Board engaged
J.H. Cohn LLP. During the fiscal quarters ended June 30, 2007 and September 30,
2007 and for the interim period through, the date the Company's engagement of
J.H. Cohn ended and the Company's engagement of Drakeford & Drakeford
commenced, neither the Company nor anyone acting on the Company's behalf
consulted Drakeford & Drakeford regarding either (i) the application of
accounting principles to a specified transaction, either completed or proposed
(other than to discuss issues related to J.H. Cohn LLP's advice to the Company's
management and the Audit Committee that certain common stock issued by the
Company that was subject to a repurchase obligation that had previously been
classified in our financial statements as permanent equity and should have been
classified as temporary equity); or the type of audit opinion that might be
rendered on the Company's financial statements, and neither a written report nor
oral advice was provided to the Company by Drakeford & Drakeford that
Drakeford & Drakeford concluded was an important factor considered by the
Company in reaching a decision as to any accounting, auditing or financial
reporting issues; or (ii) any matter that was either the subject of a
"disagreement" or "event," as those terms are described in Item 304(a)(1)(iv)
and (v) of Regulation S-K.  72      PART III  Item 9. Directors, Executive Officers, Promoters and Control Persons and
Corporate Governance  The information required by this Item 9 is incorporated herein by
reference from the section captioned "Corporate Governance", "Our Management
Team," and "Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive proxy statement for the 2008 annual meeting of stockholders
to be filed not later than April 30, 2008 with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "2007 Proxy Statement").  Item 10. Executive Compensation  The information required by this Item 10 is incorporated by reference
from the section captioned "Executive Compensation" of the 2008 Proxy
Statement.  Item 11. Security Ownership of Certain Beneficial Owners and
Management.  The information required by this Item 11 is incorporated by reference
from the section captioned "Stock Ownership Information" of the 2008 Proxy
Statement  Item 12. Certain Relationships and Related Transactions, and Director
Independence.  The information required by this Item 12 is incorporated by reference
from the section captioned "Certain Relationships and Related Party
Transactions" of the 2008 Proxy Statement. Item 13. Exhibits (A) EXHIBITS  31.1
    Certifications of Chief Executive Officer Pursuant to Section 302
      of the Sarbanes-Oxley Act of 200231.2
    Certifications of Chief Financial Officer Pursuant to Section 302
      of the Sarbanes-Oxley Act of 200232
    Certifications of Chief Executive Officer and Chief Financial
      OfficerPursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
   Item 14. Principal Accountant Fees and Services.  The following table sets forth the aggregate fees billed to Pipeline Data
Inc for the years ended December 31, 2006 and 2007, by Drakeford &
Drakeford, LLC.  2007
    
    2006Audit Fees
    $87,000
    (a)
    $134,440
    (a)Audit Related Fees
    0
    
    0Tax Fees
    0
    
    5,800All Other Fees
    0
    
    62,000
    (c)$87,000
    
    $202,240
  The following table sets forth the aggregate fees billed to Pipeline Data
Inc for the year ended December 31, 2007, by J.H. Cohn, LLP.  2007Audit Fees
    $67,720
    (b)Audit Related Fees
    0Tax Fees
    0All Other Fees
    1,100$68,820
   (a)
    
    Comprised of fees for financial statement audit and review of
      financial statements included in our Form 10-KSB annual report and Form
      10-QSB quarterly report, and services that are normally provided by the
      independent registered public accounting firm in connection with statutory
      and regulatory filings or engagements.(b)
    
    Comprised of fees for financial statement audit and review of
      financial statements included in our Form 10-QSB quarterly reports, and
      services that are normally provided by the independent registered public
      accounting firm in connection with statutory and regulatory filings or
      engagements.(c)
    
    For the year ended December 31, 2006, fees in the amount of $62,000
      were billed for audits and due diligence work related to the acquisitions
      of Paynet Systems, Inc and Valadata, Inc.
   73    SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. PIPELINE DATA INC. (Registrant)  By:
    /s/ MacAllister
      Smith
    
    By:
    /s/ Donald
    GruneisenName:
    MacAllister Smith
    
    Name:
    Donald GruneisenTitle:
    Chief Executive Officer and
      President
    
    Title:
    Chief Financial
      Officer(Principal Financial and Accounting
      Officer)
  Date: March 28, 2008 Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities as directors and on the dates indicated.  /s/ JACK RUBINSTEIN
    
    
    
    DirectorJACK RUBINSTEIN
    
    March 28, 2008/s/ KEVIN WELLER
    
    
    
    DirectorKEVIN WELLER
    
    March 28, 2008/s/ MACALLISTER SMITH
    
    
    
    DirectorMACALLISTER SMITH
    
    March 28, 2008/s/ JOHN M REEDER
    
    
    
    DirectorJOHN M REEDER
    
    March 28, 2008/s/ HAROLD DENTON
    
    
    
    DirectorHAROLD DENTON
    
    March 28, 2008/s/ MICHAEL GREENBURG
    
    
    
    DirectorMICHAEL GREENBURG
    
    March 28, 2008/s/ LARRY GOLDSTEIN
    
    ________________________________
    
    DirectorLARRY GOLDSTEIN
    
    March 28, 2008
  Exhibit 31.1 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-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:
 a)
    Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;
 b)
    Designed such internal control over financial reporting, or caused
      such internal control over financial reporting to be designed under our
      supervision, to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements for
      external purposes in accordance with generally accepted accounting
      principles
 c)
    Evaluated the effectiveness of the registrant's disclosure controls
      and procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation (the
      "Evaluation Date"); and
 d)
    Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter that has materially affected, or that is
      reasonably likely to materially affect, the registrant's internal control
      over financial reporting; and
 5.
    The registrant's other certifying officers and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors (or persons performing the equivalent
      functions):
 a)
    All significant deficiencies and material weaknesses in the design
      or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information;
  and
 b)
    Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      control over financial
reporting.
 March 28, 2008  By:
    /s/ MacAllister
      SmithName:
    MacAllister SmithTitle:
    Chief Executive Officer,
      President
  Exhibit 31.2 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-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:
 a)
    Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;
 b)
    Designed such internal control over financial reporting, or caused
      such internal control over financial reporting to be designed under our
      supervision, to provide reasonable assurance regarding the reliability of
      financial reporting and the preparation of financial statements for
      external purposes in accordance with generally accepted accounting
      principles
 c)
    Evaluated the effectiveness of the registrant's disclosure controls
      and procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation (the
      "Evaluation Date"); and
 d)
    Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter that has materially affected, or that is
      reasonably likely to materially affect, the registrant's internal control
      over financial reporting; and
 5.
    The registrant's other certifying officers and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors (or persons performing the equivalent
      functions):
 a)
    All significant deficiencies and material weaknesses in the design
      or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information;
  and
 b)
    Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      control over financial
reporting.
  March 28, 2008  By:
    /s/ Donald
    GruneisenName:
    Donald GruneisenTitle:
    Chief Financial
    Officer
   Exhibit 32  CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Annual Report of Pipeline Data Inc., a Delaware
corporation (the "Company"), on Form 10-KSBA for the quarter ended December 31,
2005, as filed with the Securities and Exchange Commission (the "Report"),
MacAllister Smith, Chief Executive Officer of the Company and Donald Gruneisen,
Chief Financial Officer of the Company, respectively, do each hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to
his knowledge: (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.  By:
    /s/ MacAllister
      Smith
    
    By:
    /s/ Donald
    GruneisenName:
    MacAllister Smith
    
    Name:
    Donald GruneisenTitle:
    Chief Executive Officer and
      President
    
    Title:
    Chief Financial
      Officer(Principal Financial and Accounting
      Officer)
  Date: March 28, 2008 [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.]   74