UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 PIPELINE DATA INC.   Form 10-KSBA    |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2005  |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from __________ to __________  Delaware
        
        13-3953764(State or other jurisdiction of
        
        (I.R.S. Employerincorporation or organization)
        
        Identification No.)  1515 Hancock Street, Suite 301, Hancock Plaza, Quincy, Massachusetts 02169-5243 (Address of principal executive offices) (Zip Code)  Issuers telephone number: (617) 405-2600 Securities registered under Section 12(g) of the Exchange Act: Common Stock $0.001 par value  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes No |_|  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| State issuers revenues for its most recent fiscal year. $24,097,575 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) As of August 11, 2006, there were 52,282,920 shares of the registrants common stock, par value $0.001 issued and outstanding. As of August 11, 2006, the market value of securities held by non-affiliates is $20,874,433 based on the average of the high and low bid prices as reported by Yahoo.com. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions. 
            DOCUMENTS INCORPORATED BY REFERENCE  If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (Securities Act). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).   Transitional Small Business Disclosure Format (Check one): Yes |_|; No |X|         PIPELINE DATA INC. DECEMBER 31, 2005 ANNUAL REPORT ON FORM 10-KSBA EXPLANATORY NOTE  This amendment (the "Amendment") to the Annual Report on Form 10-KSB of Pipeline Data Inc. (the  "Company") for the fiscal year ended December 31, 2005, as filed with the  Securities  and Exchange  Commission  on April 4, 2006 (the "Original Form 10-KSB") is required as correction of an error pursuant to Statement of Financial Accounting Standards No. 154,  Accounting Changes and Error Corrections. The error was discovered regarding the Companys treatment of certain intangible assets having an indefinite life. After review it was determined that the intangible assets had a life of seven years and that required amortization expenses to be recorded.  Since amortization expense had already been recorded for the year 2005, the only adjustment needed was made to the balance sheet accounts of the Merchant portfolio and the Retained deficit. Also amended in the financial statement
was additional language in the revenue recognition note. Included in this Amendment are the amended and restated financial statements for the Company.        PART I.   FINANCIAL INFORMATION  ITEM 1.  FINANCIAL STATEMENTS  The consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.  In the opinion of the Company, all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial position of the Company as of December 31, 2005, and the results of its operations and changes in its financial position from January 1, 2005, through December 31, 2005, have been made.       INDEX TO FINANCIAL STATEMENTS Part I  Financial Information  Pipeline Data Inc.PageItem I  Financial InformationBalance Sheets as of December 31, 2005
        F-4Statements of Operations for the for the years ended December 31,
2005 and 2004
        F-5Statements of Operations for the three months ended December 31,
2005 and 2004
        F-6Statements of Stockholders Equity for the years ended December 31,
2005 and 2004
        F-7-8Statements of Cash Flows for the for the years ended December 31, 2005
and 2004
        F-9Notes to Financial Statements
        F-10 F-33            DRAKEFORD & DRAKEFORD, LLC CERTIFIED PUBLIC ACCOUNTANTS    REPORT OF INDEPENDENT ACCOUNTANTS  To the  Shareholders  and  Directors  of Pipeline Data Inc.  We have audited the consolidated balance sheet of Pipeline Data Inc.  as of December 31,2005 and the related consolidated statements of operations, changes in stockholders equity, and  cash flows for the years ended December 31, 2005 and 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above, amended as described in Note A, present fairly, in all material respects, the consolidated financial position of Pipeline Data Inc., as of December 31, 2005 and the consolidated results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.    S/ Drakeford & Drakeford, LLC -------------------------------------  March 10, 2006, except for Note A as to which the date is August 12, 2006          PIPELINE DATA INC.  CONSOLIDATED BALANCE SHEET  December 31, 2005ASSETS  CURRENT ASSETSCash and cash equivalents
        $  2,254,664Accounts receivable
        1,518,830Interest receivable
        57,214Inventory
        71,689Advances and prepaid expenses
        139,322Note receivable
        175,000Total current assets
        4,216,719PROPERTY AND EQUIPMENT, net
        666,514OTHER ASSETSRestricted cash
        75,489Merchant portfolio, residual rights and other intangibles
        9,855,679Deferred acquisition and debt issuance costs
        932,938Notes receivable
        750,000Deposits
        53,521Deferred tax assets, net
        780,138Goodwill
        24,556,638Total other assets
        37,004,403TOTAL ASSETS
        $  41,887,636LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses
        $   1,320,334Lease obligations-equipment
        35,376Notes payable
        15,600,000Total current liabilities
        16,955,710LONG-TERM LIABILITIESNotes payable-World Products Shareholders
        525,000Note payable-Camofi Master LDC
        1,400,000Lease obligations-equipment
        134,330Notes payable-convertible 8%
        322,734Total long-term liabilities
        2,382,064STOCKHOLDERS EQUITYPreferred stock, $.001 par value: 5,000,000 shares authorized,no shares issued or outstanding at December 31, 2005Common stock,  $.001 par value: 95,000,000 shares authorized,38,594,070 shares issued and outstanding at December 31, 2005
        38,594Common stock subscribed
        5,780,207Deferred stock compensation and unvested stock bonus
        29,797Additional paid-in capital
        18,871,151Retained Earnings (deficit)
        (2,169,887)Total stockholders equity
        22,549,862TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
        $41,887,636 The accompanying notes are an integral part of these statements.  F-4      PIPELINE DATA INC.  CONSOLIDATED STATEMENTS OF OPERATIONS For the years endedDecember 31, 2005          December 31, 2004  Revenue
        $    24,097,575
        $    15,565,134Interchange
        12,049,353
        8,267,961Cost of services sold
        5,377,176
        4,000,070Cost of goods sold
        148,076
        175,939Total cost of goods and services sold
        17,574,605
        12,443,970Gross profit
        6,522,970
        3,121,164Operating ExpensesSalaries and payroll cost
        3,676,989
        1,928,121Selling, general and administrative
        1,705,680
        1,140,923Depreciation and amortization
        833,964
        449,226Total operating Expenses
        6,216,633
        3,518,270Net income (loss)  from operations
        306,337
        (397,106)Other income and expensesInterest and other income
        75,375
        64,266Interest expense
        (792,788)
        (367,479)Total other income (expenses)
        (717,413)
        (303,213)(Loss) before income tax benefit
        (411,076)
        (700,319)Benefit from income taxes
        779,833
        0Net income (loss)
        $    368,757
        $   (700,319)Basic and diluted earnings (loss) per common share:Earnings (loss) per shareBasic
        $         0.01
        $          (.03)Diluted
        $         0.01
        N/AWeighted average number of shares outstanding:Basic
        27,909,673
        21,107,818Diluted
        29,312,083
        N/A The accompanying notes are an integral part of these statements.  F-5      PIPELINE DATA INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  For the three months endedDecember 31, 2005
        December 31, 2004Revenue
        $     7,062,713
        $  4,442,941Interchange
        3,399,801
        2,373,199Cost of services sold
        1,462,106
        1,072,435Cost of goods sold
        62,294
        47,434Total cost of goods and services sold
        4,924,201
        3,493,068Gross profit
        2,138,512
        949,873Operating ExpensesSalaries and payroll cost
        1,188,192
        629,113Selling, general and administrative
        591,690
        437,590Depreciation and amortization
        752,221
        419,880Total operating Expenses
        2,532,103
        1,486,583(Loss)  from operations
        (393,591)
        (536,710)Other income and (expenses)Interest income
        22,801
        24,171Interest expense
        (297,026)
        (136,854)Total other  (expenses)
        (274,225)
        (112,683)(Loss) before income tax benefit
        (667,816)
        (649,393)Benefit from income taxes
        526,062
        0Net (loss)
        $  (141,754)
        $     (649,393)Basic and diluted  (loss) per common share:(Loss) per shareBasic
        $         (0.01)
        $            (.03)Diluted
        N/A
        N/AWeighted average number of shares outstanding:Basic
        30,436,164
        25,525,334Diluted
        N/A
        N/A The accompanying notes are an integral part of these statements.  F-6      PIPELINE DATA INC.  CONSOLIDATED  STATEMENT OF STOCKHOLDERS EQUITY AdditionalCommon stock
        Paid-in
        Accumulated
        DeferredShares              Amount
        Capital
        Loss
        Compensation
        Total  Balance at December 31, 2003
        13,146,250
        13,146
        1,451,821
        (1,838,325)
        0
        (373,353)Conversion of 3,000 shares of series A preferredconv. stock to 3,000,000 shares of common
        3,000,000
        3,000
        1,497,000
        
        
        1,500,000( 5,000 shares of series A preferred conv.) Canceled
        
        
        5Issuance of common stock for services
        218,319
        218
        116,482
        
        
        116,700Issuance of common stock for residual rights
        32,952
        33
        29,967
        
        
        30,000Issuance of common stock for additional portfolio
        2,367,764
        2,368
        2,071,078
        
        
        2,073,446Issuance of common stock-employment agreements
        69,422
        69
        86,708
        
        
        86,777Exercise of warrants
        106,665
        107
        37,203
        
        
        37,310Exercise of stock options
        10,000
        10
        3,490
        
        
        3,500Conversion of 8% conv. note to common stock
        1,170,153
        1,170
        408,384
        
        
        409,554Issuance of common stock for interest
        256,497
        256
        123,237
        
        
        123,493Issuance of common stock due to earnings level
        5,674,000
        5,674
        2,124,366
        
        
        2,130,040Issuance of common stock for note payment
        50,000
        50
        49,950
        
        
        50,000Deferred stock compensation, net of unvestedstock bonus outstanding
        
        
        
        
        34,126
        34,126Net loss for the year ended December  31, 2004
        ________
        _______
        _________
        (700,319)
        ________
        (700,319)Balance at December 31, 2004
        26,102,022
        26,101
        7,999,691
        (2,538,644)
        34,126
        5,521,274Common stock subscribed
        
        
        
        
        
        5,780,207Issuance of common stock for interest andconversion of principal on Laurus debt
        199,880
        200
        199,680
        
        
        199,880   F-7       Conversion of 8% convertible notes &interest to common stock
        828,571
        828
        289,171
        
        
        289,999Exercise of warrants
        342,857
        343
        121,342
        
        
        121,685Issuance of common stock for services
        297,332
        297
        78,420
        
        
        78,717Issuance of common stock for additional portfolio
        64,010
        64
        70,347
        
        
        70,411Issuance of common stock for employmentagreements/Unvested stock bonus
        153,340
        153
        190,929
        
        (4,329)
        186,753Conversion of stock options
        308,000
        308
        (308)
        
        
        0Acquisitions/Mergers
        10,298,058
        10,300
        9,921,879
        
        
        9,932,179Net income for the year ended December  31, 2005
        ________
        _______
        _________
        368,757
        ________
        368,757Balance at December 31, 2005
        38,594,070
        $  38,594
        $ 18,871,151
        $ (2,169,887)
        $   29,797
        $ 22,549,862 The accompanying notes are an integral part of this statement.  F-8      PIPELINE DATA INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  For the year  ended
        For the year endedDecember 31, 2005
        December 31, 2004  OPERATING ACTIVITIES:Net Income (loss)
        $   368,757
        $  ( 700,319)Adjustments for noncash and nonoperating items:Depreciation and amortization
        833,964
        449,226Common stock for services, debt, portfolio, and other, net
        1,368,613
        254,121Deferred taxes
        (780,138)
        0Acquisitions of businesses, net of cash
        (2,157,780)
        0Changes in operating assets and liabilities:Receivables
        (999,924)
        (223,949)Note receivable
        0
        (640,000)Accrued interest receivable
        (35,630)
        (16,190)Inventory
        (31,602)
        (18,177)Deposits and other
        (51,654)
        (31,017)Advances and prepaid expenses
        (59,678)
        (28,328)Officer loans payable
        0
        (100,000)Accounts payable and accrued expenses
        645,634
        170,028Other loans and notes payable
        0
        (4,741)Lease obligations-equipment
        20,610
        9,927Cash  used by operating activities
        (878,828)
        (879,419)INVESTING ACTIVITIES:Capital expenditures
        (434,971)
        (257,962)Merchant portfolio and residual rights purchase
        (1,738,645)
        (1,240,038)Acquisitions of businesses
        (7,700,000)
        0Note receivable-non-current
        (200,000)
        0Deferred acquisition and debt issuance costs
        (365,770)
        (567,168)Change in restricted cash
        1,935,533
        (2,011,022)Proceeds from preferred stock
        0
        172,309Cash used by investing activities
        (8,503,853)
        (3,903,881)FINANCING  ACTIVITIES:Proceeds from sale of stock
        0
        172,309Proceeds from lease financing
        125,797
        60,988Proceeds from convertible notes
        0
        289,400Proceeds from exercise of warrants
        121,685
        37,310Purchase of preferred stock from officer
        0
        (1,000,000)Lease obligation payments
        (54,184)
        (11,310)Proceeds from Laurus, Camofi, Sheridan notes
        17,000,000
        6,000,000Loan payments
        (6,249,805)
        (166,665)Cash provided by financing activities
        10,943,493
        5,382,032NET  INCREASE  IN CASH
        1,560,812
        598,732CASH BALANCE BEGINNING OF PERIOD
        693,852
        95,120CASH BALANCE END OF PERIOD
        $  2,254,664
        $   693,852NON CASH ACTIVITIES:Interest
        $     792,788
        $    367,479Corporate income taxes
        $                0
        $               0 The accompanying notes are an integral part of these statements  F-9       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2005  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  1.
        Nature of Operations/ Basis of Presentation  Nature of Operations  Pipeline Data Inc. (the Company), was incorporated in June 1997 in the state of Delaware. We are an integrated 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 business environment, over the Internet, or in mobile or wireless settings via cellular-based wireless devices that the Company sales.  Basis of Presentation The accompanying consolidated financial statements of the parent holding company,  Pipeline Data Inc., and its  wholly-owned subsidiaries,  SecurePay.com, Inc., Northern Merchant Services, Inc.,  Pipeline Data Processing, Inc., Pipeline Data Portfolio Acquisitions, Inc., Aircharge, Inc., Cardaccept.com, Inc.  and Charge.com Acquisition, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America.   The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  All significant  intercompany
accounts and transactions have been eliminated. Change in Accounting Principle  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (INTANGIBLE ASSETS AND AMORTIZATION EXPENSE )  The accompanying audited financial statements of Pipeline Data Inc. have been amended and restated for the years ended December 31, 2003, 2004 and 2005. Subsequent to the balance sheet date, the Company treated certain intangible assets with having an indefinite life and now have amended and restated the years that were affected by establishing a definite life of the intangible assets of seven years. The basis of the intangible assets and amortization expense were affected by this accounting principle error.   F-10       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2005  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  1.
        Nature of Operations/ Basis of Presentation (continued)  Change in Accounting Principle (continued)  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (INTANGIBLE ASSETS AND AMORTIZATION EXPENSE )  The following table illustrates the correction of error as shown on the face of the Companys statement of stockholders equity and the effect it has on operations and loss per share.  2004
        2003Retained deficit, at beginning of year, as adjusted/previously reported
        $  1,838,325
        $   1,480,377Prior-period adjustment-error in life of intangible assets-amortization expense
        403,098
        58,158Retained deficit, at beginning of year, as restated
        $  2,241,423
        $   1,538,535Net loss
        297,221
        299,790Retained deficit, at end of year, restated
        $  2,538,644
        $1,838,325Effect of loss per share
        $            .02
        $           .01  For the year ended December 31, 2005, the change only affects the carryforward balance sheet accounts of the Merchant portfolio and the beginning retained deficit balance. The statement of operations and loss per share were not affected.  This amendment and restatement is required as correction of an error pursuant to Statement of Financial Accounting Standards No. 154,  Accounting Changes and Error Corrections. The intangibles were valued as follows:   F-11       PIPELINE DATA, INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2005  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  1.
        Nature of Operations/ Basis of Presentation (continued)  Change in Accounting Principle (continued)   2004
        2003Merchant portfolio, residual rights    and other intangibles, as previously   reported
        $ 5,222,654
        $ 2,500,000Less: amortization expense
        403,098
        58,158Merchant portfolio, residual rights    and other intangibles, as amended
        $ 4,819,556
        $ 2,411,842   Use of Estimates  The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   F-12       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS  December 31, 2005  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  2.
        Cash Equivalents  Investments having an original maturity of 90 days or less that are readily convertible into cash have been included in, and are a significant portion of, the cash and cash equivalents balances.  Restricted Cash:  Restricted cash of $ 75,489 represents funds held-on-deposit with processing banks pursuant to agreements to cover potential merchant losses.  3.
        Inventories Inventories consist of finished products of technical parts and supplies valued at the lower of cost or market.  4.
        Accounts and Notes Receivable, net  The Company uses the allowance method to account for uncollectible accounts receivable. Accounts receivable are presented net of an allowance for doubtful accounts of $ 123,251. The Company has three demand notes aggregating $175,000 at the simple rate of 10% per annum and six long term secured promissory notes aggregating $750,000 together with interest at the rate equal to 6%-10% per annum due on or before July 7, 2007 and May 7, 2008. The $750,000 notes are secured by 1,000,000 shares, subject to calls for additional shares in the event that the average closing bid price per share in any 30 day period decreases below $.65 per share.  5.
        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, 2005 and 2004 was $ 88,266 and $ 38,250,  F-13        PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  5.
        Property and Equipment, net (continued)  respectively. Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.  6.
        Revenue and Cost Recognition-Restated  The Company and subsidiaries derive revenues primarily from the electronic processing of credit, charge and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services based on a percentage of the dollar amount of each transaction and in some instances, additional fees are charged for each transaction. Certain merchant customers are charged a flat fee transaction and may also be charged miscellaneous fees, including fees for handling charge backs, monthly minimums, equipment rentals, sales or leasing and other miscellaneous services. Revenues are reported gross of amounts paid to sponsor banks as well as interchange and assessments paid to credit card associations (MasterCard and Visa) under revenue sharing agreements pursuant to which such parties receivepayments based
primarily on processing volume for particular groups of merchants. Included in cost of goods and services sold are the expenses covering interchange and bank processing directly attributable to the furnishing of transaction processing and other services to the Companys merchant customers and are recognized simultaneously with the recognition of revenue.  We follow the requirements of EITF 99-19,Reporting Revenue Gross as a Principal Versus Netas an Agent,in determining our revenue reporting. Generally,  we report revenues at the time of sale on a gross basis where we are the primary obligor in the arrangement, have latitude in establishing the price of the services, change the product and perform part of the service, have discretion in supplier selection, have latitude in determining the product and service specifications to meet our clients needs, and assume credit risk.   F-14       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)   6.
        Revenue and Cost Recognition (continued)  We are aware, however, that the SEC accounting staff has recently raised certain revenue recognition concerns regarding companies in our industry. There is a risk that if the SEC were to determine that our current revenue recognition policies were incorrect, such policies may need to be altered and our recognition of revenues on a going forward basis.  Moreover, this change may require us to restate prior financial statements to reflect lower revenue numbers. However, as there would be a corresponding reduction in our reported cost of services sold, we do not believe that any such change in revenue recognition policy would require us to restate our previous  net earnings or stockholders equity results.   7.
        Reserve for Losses on Merchant Accounts  We maintain a reserve for merchant losses necessary to absorb chargeback and other losses for merchant transactions that have been previously processed and which have been recorded as revenue. We analyze the adequacy of our reserve for merchant losses each reporting period. The reserve for merchant losses is comprised of three components: (1) specifically identifiable reserves for merchant transactions for which losses are probable and estimable, (2) a calculated reserve based upon historical loss experience applied to the previously processed transactions, and (3) a management analysis component for concentration issues and general macroeconomic and other factors. At December 31, 2005   our reserve for losses on merchant accounts included in accrued liabilities and other totaled $ 85,911.  8.
        Advertising Cost  Advertising cost are expensed as incurred. Advertising expense totaled $ 55,300 for 2005 and $ 34,773 for 2004.  F-15       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   9.
        Recent Accounting Pronouncements  In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised 2004),Share-Based Payment(SFAS No. 123R). This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options or showing pro forma disclosure only. SFAS 123R also supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95,  Statement of Cash Flows. This standard will be adopted by us 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 shall use the modified prospective method. We will adopt the provisions of this standard on January 1, 2006 and will apply to all awards granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior awards on that date. As permitted by SFAS No. 123, we currently follow APB Opinion No. 25 which provides for the accounting for share-based payments to employees and directors using the intrinsic value method and, as such, we generally recognized no compensation cost for such stock options. We are currently in the process of assessing the impact that SFAS No. 123R will have on our consolidated income statement in 2006. The historical pro forma income statement disclosure may not be indicative of future results due to the uncertainty of the number of new option grants as well as the assumptions and valuation method used.    NOTE B--EARNINGS PER SHARE  Basic net earnings (loss)  per  common  share is  computed  by  dividing  the net earnings  (loss) by the weighted average number of common shares outstanding  during the period.  Diluted net earnings (loss) per common share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.   F-16       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE B--EARNINGS PER SHARE (Continued)  A reconciliation of basic to diluted weighted average common shares outstanding is as follows for the years ended:  Year 2005
        Income available
        Common shares
        Per share amountBasic earnings per share
        $ 368,757
        27,909,673
        $ .01Effects of dilutive securities:Stock options
        0
        1,059,598
        .00Warrants
        0
        95,402
        .00Stock subscribed
        0
        247,410
        .00Diluted earnings per share
        $ 368,757
        29,312,083
        $ .01Year 2004
        Income available
        Common shares
        Per share amountBasic loss per share
        $(297,221)
        21,107,818
        $(.01)Effects of dilutive securities:N/A    NOTE C - INCOME TAXES  The Company  provides for the tax effects of  transactions  reported in the financial statements. The provision if any, consists of taxes currently due plus deferred taxes related primarily to differences  between the basis of assets and liabilities for financial and income tax reporting.  The deferred tax assets and liabilities,  if any,  represent  the future tax  return  consequences  of those differences,  which will  either be taxable  or  deductible  when the assets and liabilities  are recovered or settled. At December 31, 2005,  the Company has net operating  loss carry  forwards for income tax purposes of $2,077,388.  These carry  forward  losses are  available to offset future taxable income, if any, and expire in the year 2018.   F-17       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE C - INCOME TAXES (continued)  The components of the net deferred tax assets are as follows:2005
        2004Deferred tax assets:Net operating loss carry forward
        $   706,312
        $   604,816Current year (income) loss
        139,766
        101,055Deferred revenue
        306
        367Deferred stock compensation
        10,131
        18,819Total deferred tax assets
        856,515
        725,057Deferred tax liabilities:Difference between book and taxdepreciation and amortization
        76,377
        94,403Capital loss
        0
        10,747Total deferred tax liabilities
        76,377
        105,150Net deferred tax asset beforevaluation allowance
        $     780,138
        $    619,907Valuation allowance
        0
        (619,907)Net deferred tax asset
        $     780,138
        (619,907)   SFAS No. 109,Accounting for Income Taxes,requires  that a valuation  allowance  be provided if it is more likely than not that some  portion or all of a  deferred  tax asset  will not be  realized.  The Company's  ability to realize  benefit of its  deferred tax asset will depend on the  generation  of  future  taxable  income. Management believes that the Company will utilize the loss carryforwards in the future because the acquired new businesses and merchant portfolios will be profitable and will generate taxable income in the near term. However, there can be no assurance that the Company  will generate taxable income or that all of its loss carryforwards will be utilized.  F-18       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE D - COMMITMENTS AND CONTINGENCIES  Lease agreements  The offices of the Company's  subsidiary,  SecurePay,  Inc. are located at 1515 Hancock Street,  Quincy,  Massachusetts  at a monthly rental of $6,644. The term of this lease shall be for five years with self-renewing unless terminated in writing no later than one hundred and eighty (180) days before each expiration. Each lease year shall be subject to a rent increase not to exceed the most current consumer price index increase from the prior year. Each extension shall be for the same terms as the original lease.  The operations center for  SecurePay was located at 13339 North  Central  Expressway  Suite 103, Dallas,  Texas. The facility lease was a four year lease that commenced on June 2002. An initial deposit of $850 and monthly rental of $768 is required on the leased square foot area of 865 square feet. This lease was terminated during August 2005 and a one time payment of $6,500 was made to satisfy any
outstanding obligations under the lease.  As of September 22, 2004, the Company expanded its operations center to One Point Royal, 4400 Northpoint Parkway, Alpharetta, Georgia and signed a lease with Highwoods DLF 98/29,LP. This is a sixty-two month lease with annual rent from $38,070 to $64,273. Total base rent for the sixty-two months is $304,699.04. On November 23, 2005, the first amendment to the Alpharetta lease was entered into for the expansion of an additional 1,290 square feet of office space with the following lease term: December 1, 2005 through July 31, 2006 ($775.07 monthly), August 1, 2006 through September 30, 2006 ($1,550.15 monthly) October 1, 2006 through September 30, 2007 ($1,596.38 monthly) October 1, 2007 through September 30, 2008 ($1,644.75 monthly) October 1, 2008 through September 30, 2009 ($1,694.20 monthly) October 1, 2009 through November 30, 2009 ($1,744.73 monthly). As of October 1, 2005 the offices of the Companys subsidiary, Aircharge, Inc., will pay the sum of $1,950 per month on a one year lease, renewable for three additional years, located in Hawkston Hall Office Centre I, 1800 Nations Drive, Gurnee, Illinois. The monthly rent installments will increase to $2,313 the second year, $2,393 the third year, and to $2,478 the fourth year. On December 19, 2005, the Companys subsidiary, Charge.com, Inc.s original lease was assumed, located at 3201 W. Commercial Blvd., Suite 206, Fort Lauderdale, Fl.. The lease was entered into as of September 11, 2003 with an annual basic rent of $19,980 plus applicable sales tax. Upon every anniversary date of the lease term the rent shall be adjusted to reflect a four percent increase in the basic rent. The lease expires November 30, 2006.   F-19       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE D - COMMITMENTS AND CONTINGENCIES (continued)  Lease agreements-continued  Our future minimum lease commitments under noncancelable leases are as follows at December 31, 2005.  Year Ending
        
        Amount2006
        
        $   172,4212007
        
        137,6202008
        
        140,6832009
        
        144,0582010
        
        125,735Total
        $   720,517    Total rent expense for the years ended 2005 and 2004 was $ 193,248 and $ 74,901, respectively.  Leases-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. The lease commenced on September 2002, with monthly rental of $1,000. The Company moved in January 2006 to a new location in Brasher Falls and a new lease is being created by the Wellers and the Company. Estimated monthly rental expense will be $3,000. Capital Equipment Leases: On January 28, 2003, the Company entered into a capital equipment lease with Hewlett Packard Financial Services Company, Murray Hill, New Jersey.  The initial term of the lease is for a period of 48 months with a base lease amount of $661.77 per month and an advance lease payment of $1,412.87. The lease has an equipment purchase option on all or none and as-is, where-is basis, without any representations or warranties, including no warranties of merchantability or fitness for a particular purpose. The equipment consist of five servers ($17,025), ten network products ($1,986.60), and four units of software ($3,559.50). The Company has an option to renew the Lease at the then Fair Market Rental Value and also has an option to return the equipment on or before the last day of the Lease term or purchase the equipment for $1.00. On July 1, 2004, the Company entered into two capital leases
with American Express Business Finance for software installation services and equipment and MAS200 software. Both leases are for a term of sixty months with a buyout option of $1.00. Monthly payments on the equipment and software are $908.03 and $256.60 for the software installation services. On September 16, 2004, the Company entered into a capital lease with Ikon Financial Services for fax, copier and printer equipment. This lease is for a term of sixty months with a buyout option of $1.00 and monthly payments of $520.16. On March 1, 2005, the Company entered into a capital equipment lease with VAResources, Inc. for computer related  F-20       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE D - COMMITMENTS AND CONTINGENCIES (continued)  Lease agreements-continued equipment in the amount of $47,199.32. The initial term of the lease is for a period of 36 months with monthly payments of $1,611.05 and an advance lease payment of $3,222.10. On March 30, 2005, the Company entered into two leases with VAResources, Inc. Both leases are for a term of 36 months with advance lease payments. The office furniture lease totals $20,830.00 with monthly payments of $722.36 and the advance two months payment of $1,444.72. The computer equipment lease totals $14,016.00 with monthly payments of $487.35 and the advance two months payment of $974.70. On November 30, 2005, the Company entered into a capital equipment lease with Key Equipment Finance, Inc., Houston, Texas. The initial term of the lease is for a period of 60 months with a base lease amount of $474.63 per month and an advance lease payment of $1,024.26. The equipment consists of MAS 200 software, installation, setup, training and consulting services, aggregating a total of $20,255. On December 1, 2005, the Company entered into a capital  lease with Highline Capital Corp, Boulder Colorado. The initial term of the lease is for a period of 36 months with a base lease amount of $871.89 per month and an advance lease payment of $1,743.78. The equipment consists of panels, shelves, and other office partitions aggregating a total of $23,497.10.  NOTE E - STOCK OPTIONS AND WARRANTS  In February  2001, the company  instituted the 2001-02 Non Statutory  Stock Incentive  Plan in order to award  stock  options,  restricted  stock  and stock bonuses to selected  individuals  who make  contributions  to the success of our company. This plan was extended to the year 2004. In September  2005, the Companys Board of Directors approved the adoption of the 2005 Pipeline Data Inc Stock Incentive Plan in order to award restricted stock, nonqualified stock options and incentive stock options.  This plan was approved by the Companys stockholders in January 2006. During the year ended December 31, 2005, the Companys Board of Directors approved the grant of 5,859,464 stock options to  employees and independent consultants with a weighted average exercise price of $1.60.  Of the options awarded to employees during the year, 1,084,322 vested during the year and 579,006 vested as of January 1,  2006. The options awarded to the Directors at December 31, 2005, 75,000, vest on January 1, 2006.   F-21       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE E - STOCK OPTIONS AND WARRANTS (continued)  As of December 31, 2005,  430,000 have been  exercised  and the Company has reserved an aggregate of 9,387,829 shares of common stock pending the exercise of the options. As of December 31, 2005,  3,885,178 were exercisable at a weighted average price of $1.04 per share.  We measure compensation expense for our stock option awards under the intrinsic value method in accordance with the provisions of Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to Employees, ( APB25) and related interpretations.  APB 25  requires compensation expense to be recognized based on the excess, if any, of the quoted market price of the stock at the date of the grant over the amount an employee must pay to acquire the stock.  Stock option activity is summarized as follows:  OptionsOptions outstanding, December 31, 2003
        2,547,637Forfeited
        -0-Exercised
        (10,000)Issued
        430,478Options outstanding, December 31, 2004
        2,968,115Forfeited
        (130,250)Exercised
        (430,000)Issued
        5,859,464Options outstanding, December 31, 2005
        9,387,829   F-22       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE E - STOCK OPTIONS AND WARRANTS (continued)  In December 2004, the FASB issued SFAS No. 123 (Revised 2004),Share-Based Payment(SFAS No. 123R). This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123, which had allowed companies to choose between expensing stock options or showing 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 shall use the modified prospective method. The
Company  applies APB No. 25 in accounting for its employee stock option plans  and,  accordingly,  recognizes  employee  compensation  expense  for  the difference  between  the fair  value of the  underlying  common  shares  and the exercise  price of the option at the date of grant.  The effect of applying SFAS No. 123 on pro forma net loss as stated above is not necessarily  representative of the effects on reported  net loss for future years due to, among other things (1) the vesting period of the stock options and (2) the fair value of additional stock options in future years (3) the exercise price was equal to or higher than the market price as of the date of the grant. Our accounting policy for the issuance of equity instruments in exchange for goods or services received from other than employees are accounted for based on the fair value of the consideration received or the equity instrument issued, whichever is more reliably measurable. We have outstanding warrants as follows:  Description
        Quantity
        Exercise Price
        Expiration DateClass A redeemable Warrants
        785,210
        $1.50
        4/26/2006Class B redeemable Warrants
        971,233
        $2.50
        12/31/2007Warrants issued 2/27/04
        166,667
        $1.25
        2/27/2011Warrants issued 2/27/04
        166,667
        $1.50
        2/27/2011Warrants issued 2/27/04
        166,666
        $1.75
        2/27/2011Warrants issued 6/16/04
        83,334
        $1.50
        6/16/2011Warrants issued 6/16/04
        83,333
        $1.80
        6/16/2011Warrants issued 6/16/04
        83,333
        $2.10
        6/16/2011Warrants issued 3/11/05
        600,000
        $1.40
        8/31/2011Warrants issued 3/11/05
        100,000
        $1.25
        3/11/2012Warrants issued 9/30/05
        700,000
        $1.10
        9/30/2010Warrants  with 8% convertible notes issued in 2002
        100,000
        $0.35
        3/8/2008Warrants issued in 2004 with various 8% convertible notes
        153,718
        $0.65
        2006Warrants issued in 2004 with various 8% convertible notes
        24,334
        $1.00
        2006   F-23       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005    NOTE F  RELATED PARTY TRANSACTIONS  The Companys subsidiary, Northern Merchant Services, Inc., leases office space from Kevin and Nancy Weller. (see Note D) When the acquisitions of SecurePay and Northern Merchant Services, Inc. were purchased, certain earn-in capabilities based upon revenue milestones achieved were recorded as a contingency based on SFAS No.141-Business Combinations. When Northern Merchant Services, Inc. was acquired from Kevin and Nancy Weller, two million (2,000,000) shares were issued in 2004 to the Wellers pursuant to these milestones. Our board of directors determined that it is in the best interest of the Company to change the nature of the earn-in requirement and requested that a new milestone be created. Thus, the final one million shares earn-in is available if Kevin and Nancy Weller successfully (i) oversee and open a new facility in Brasher Falls and (ii) develop and launch a government payment processing solution. The board is currently reviewing completion of this milestone. The Northern Merchant Services, Inc. acquisition amounted
to an additional 2,000,000 shares of common stock at a price of $.22 per share. In March 2002, we acquired all of the stock of SecurePay in exchange for seven million six hundred thousand (7,600,000) shares of our common stock at closing and up to an additional seven million six hundred thousand (7,600,000) shares of our common stock based upon revenue milestones achieved within a specified period of time. The SecurePay acquisition amounted to an additional 3,800,000 shares of common stock at a price of $.46 per share. The remaining target was not met and the earn-in expired in March 2005. Chasm Holding, Inc., a related party, was paid $265,333 during the year 2005 for management services.     F-24        PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE G  SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS  Details of Short-Term Debt
        December 31,2005Sheridan Asset Management, LLC
        $  15,000,000Camofi Master LDC
        $       600,000Details of Long-Term Debt:8% Convertible notes
        $      322,734Camofi Master LDC
        $  1,400,000World Products Shareholders
        $     525,000  See Note-H for details.  Conversion of Convertible Notes: The Holders shall have the right, at its option, at any time during the term of the Convertible Note, to convert the principal amount of the Convertible Note, or any portion of such principal amount, into that number of fully paid and nonassessible shares of Common Stock (as such shares shall be constituted) determined pursuant to the terms of the agreement. The term Conversion Amount means, with respect to any conversion on of the Convertible Note, the sum of (1) the principal amount of the Convertible Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the determined interest rate. Capital Lease Obligations: See Note D-Lease Agreements for lease obligation. As of December 31, 2005, the current portion amounted to $35,376, and the long-term portion amounted to $134,330.   F-25       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE H  DEBT/FINANCING Debt/Financing: On September 30, 2005, we entered into a financing arrangement with CAMOFI Master LDC, an affiliate of Centrecourt Asset Management LLC. Under the arrangement, we issued CAMOFI Master LDC a $2,000,000 convertible note that will mature on September 30, 2008. The convertible note bears interest at an adjustable rate of Wall Street Journal Prime Rate plus two and one-half percent (2.5%). The note is convertible into registered shares of our common stock at a fixed conversion price of $1.10 per share. To secure the obligations under our CAMOFI Master LDC note, we entered into a security agreement, dated September 30, 2005, under which we granted to CAMOFI Master LDC a second priority security interest in our assets. Pursuant to the financing arrangement, we issued CAMOFI Master LDC warrants to purchase 700,000 shares of our common stock. The warrants have a five year term and have an exercise price of $1.10 per share. Upon the terms of the Merger agreement with World Products, Inc., the Company issued convertible promissory notes payable to the shareholders in proportion to their respective share holdings in the Company, in the aggregate principal amount of $525,000, which shall be convertible at maturity, at the shareholders option, to shares of the Company at $1.50 per share. On December 20, 2005, the Company and its wholly owned subsidiaries entered into a loan agreement with Sheridan Asset Management, LLC in the original aggregate principal amount of $15,000,000. The twelve month term loan is secured by collateral consisting of all assets of the Company and its wholly owned subsidiaries. Terms of the note consist of a 17% rate of interest with monthly interest only payments required with a balloon payment of principal at maturity at month twelve. A $300,000 (2%) origination fee was paid to the lender at closing. A portion of the Sheridan note proceeds were used to fully pay the balance of the Laurus Master Fund debt.   F-26      PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005  NOTE I  MERCHANT PORTFOLIO, RESIDUAL RIGHTS AND OTHER INTANGIBLES Intangible assets primarily include merchant accounts from portfolio acquisitions (i.e. the right to receive future cash flows related to transactions of these applicable merchants). We periodically evaluate the carrying value of long-lived assets, in relation to the respective projected future undiscounted cash flows, to assess recoverability. Merchant portfolio, residual rights and other intangibles are amortized over seven years for financial statement reporting purposes and fifteen years for income tax purposes. Change in Accounting estimate: It is the Companys policy to periodically review the estimated useful lives of its intangible assets. This review during 2005 indicated that actual lives for certain asset categories generally were shorter than the useful lives originally estimated. As a result, the Company revised the estimated useful lives of certain categories of the intangible assets, retroactive to January 1, 2005. The effect of this change in estimate was to increase amortization expense by $718,415 for the year 2005 and reduce net income by $344,628. During the year ended December 31, 2005,  the following merchant portfolios were acquired : On February 21, 2005, our subsidiary Pipeline Data Portfolio Acquisitions, Inc. purchased the Residual Rights from an aggregate 830 merchant accounts from CPS of New York, Inc. for the purchase price of $1,090,011 and on March 1, 2005, purchased 775 merchant accounts from Advanced Internet Services, LLC. for an aggregate purchase price of $589,589 plus 64,010 shares of our restricted common stock. See Note-K for business acquisitions during the year 2005.  NOTE J- ACCOUNTING FOR GOODWILL  Cost in excess of net assets of businesses acquired (goodwill) represents the unamortized excess of the cost of acquiring a business over the fair values of the net assets received at the date of acquisition. Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets,addresses financial accounting and reporting for acquired goodwill and other intangible assets, and requires that goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment. If facts and circumstances indicate goodwill may be impaired, we perform a recoverability evaluation by comparing carrying value to estimated fair value. The calculation of fair value includes a number of estimates and assumptions, including projections of future income and cash flows,
the identification of appropriate market multiples and the choice of an appropriate discount rate. The aggregate amount of goodwill acquired during the year 2005 was $22,231,876. Since goodwill recognized from acquisitions initiated after June 30, 2001 is assigned to the individual business acquired and is not amortized, our annual goodwill impairment review as of December 31, 2005 determined that no impairment charge for goodwill was required at that time.  F-27       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE K  ACQUISITIONS On October 7, 2005, and effective September 30, 2005, our wholly-owned subsidiary, Aircharge, Inc., acquired and merged with World Products, Inc. d.b.a. AIRCHARGE. The Company paid $200,000 in cash, $525,000 in convertible notes and 900,000 shares of common stock in exchange for all of the outstanding stock of World Products, Inc. The acquisition of World Products, Inc. was recorded under the purchase method with the purchase price primarily allocated to goodwill. Pursuant to the merger agreement with Aircharge, Pipeline Data Inc. acquired all the stock of Aircharge in exchange for:  
        Two Hundred Thousand ($200,000) Dollars in immediately negotiable funds. 
        A promissory note in the principal amount of Five Hundred Twenty-Five Thousand ($525,000) Dollars bearing interest at LIBOR, convertible into shares of our common stock at $1.50 per share. 
        Nine Hundred Thousand Shares (900,000) of our restricted common stock. The former Aircharge stockholders will be subject to a twelve month lock-up period commencing from the closing. 
        An additional Five Hundred Thousand Shares (500,000) of our restricted common stock may be issued subject to performance incentives. Effective December 19, 2005, per the Agreement and Plan of Merger dated as of July 15, 2005,  entered into by and among Pipeline Data Inc. and Charge.com Acquisition, Inc. (wholly owned subsidiary) and Charge.Com, Inc., a Florida corporation, Pipeline Data Inc. acquired all the stock of Charge.com in exchange for:  
        Seven Million Five Hundred Thousand ($7,500,000) Dollars in immediately negotiable funds; and 
        The number of shares of our restricted common stock that have an aggregate market value of Nine Million Five Hundred Thousand ($9,500,000) Dollars, which shares are subject to twelve month lock up provisions and of which shares valued at Five Million Five Hundred Thousand ($5,500,000) Dollars shall be afforded certain price protection provisions. This resulted in Nine Million Three Hundred Ninety Eight Thousand Fifty-Eight (9,398,058) shares of restricted stock by using the value of $1.03 per share.  F-28       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE K  ACQUISITIONS (continued)  Pro Forma Disclosure for the Above Business Acquisitions:  World Products, Inc. D/B/A Aircharge  On October 7, 2005, the Company completed the purchase of  World Products, Inc. d.b.a. AIRCHARGE by acquiring all of the outstanding capital stock of Aircharge for a total purchase price of $1.6 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, Aircharge, Inc.s results of operations have been included in the consolidated financial statements since the date of acquisition. The source of funds for the acquisition was a combination of the Companys available cash, loan funds from Camofi Master, LDC and common stock. The following table presents the allocation of the acquisition cost, including professional fees and other related acquisition costs, to the assets acquired and liabilities assumed:  Cash and cash equivalents
        $       1,914Accounts receivable
        885Accrued revenue receivable
        6,769Equipment
        3,487Deposits receivable
        1,950Goodwill
        1,754,461Total Assets
        $ 1,769,466Accounts payable
        $     144,286Accrued expenses
        955Total liabilities
        $    145,241Total acquisition cost
        $  1,624,225   The $1,754,461 assigned to goodwill is subject to impairment testing annually.   F-29      PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE K  ACQUISITIONS (continued) Pro Forma Disclosure for the Above Business Acquisitions:  World Products, Inc. D/B/A Aircharge The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Aircharge, Inc. had occurred at January 1, 2004.  December 31, 2005
        December 31, 2004Sales
        $   24,381,151
        $  15,931,310Net income (loss)
        67,808
        (294,492)Net income per share-basic
        0.01
        ( 0.01)Net income per share-diluted
        0.01
        N/A   The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results.  Charge.com, Inc.  On December 19, 2005, the Company completed the purchase of Charge.com, Inc., by acquiring all of the outstanding capital stock of Charge.com, Inc. for a total purchase price of $24.7 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, Charge.com, Inc.s results of operations have been included in the consolidated financial statements since the date of acquisition. The source of funds for the acquisition was a combination of the Companys available cash, loan funds from Sheridan Asset Management, LLC and common stock.   F-30       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE K  ACQUISITIONS (continued) Pro Forma Disclosure for the Above Business Acquisitions: Charge.com, Inc. The following table presents the allocation of the acquisition cost, including professional fees and other related acquisition costs, to the assets acquired and liabilities assumed:  Cash and cash equivalents
        $    878,626Accounts receivable
        473,332Furniture and fixtures
        1,000Computer software
        12,000Merchant portfolio
        4,144,251Deposits receivable
        2,800Organization cost
        528Goodwill
        20,444,531Total Assets
        $ 25,957,068Accounts payable
        $   1,251,012Other current liabilities
        4,070Total liabilities
        $   1,255,082Total acquisition cost
        $  24,701,986  Of the $24,588,782 of acquired intangible assets, $4,144,251 was assigned to merchant portfolio and will be amortized over seven years for financial purposes and fifteen years for tax purposes. The $20,444,531 assigned to goodwill is subject to impairment testing annually.   F-31      PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE K  ACQUISITIONS (continued) Pro Forma Disclosure for the Above Business Acquisitions: Charge.com, Inc. The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Charge.com, Inc. had occurred at January 1, 2004.  December 31, 2005
        December 31, 2004Sales
        $  28,189,139
        $  19,098,377Net income
        2,237,781
        1,958,367Net income per share-basic
        0.07
        0.05Net income per share-diluted
        0.06
        0.04  The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results.  NOTE L- SEGMENT INFORMATION AND GEOGRAPHICAL INFORMATION We consider our business activities to be in a single reporting segment as we derive greater than 90% of our revenue and results of operations from processing revenues and other fees from card-based payments. During 2005 and 2004, we had no single customer that represented 3% or more of revenues. All revenues are generated in the United States.     F-32       PIPELINE DATA INC.  NOTES TO FINANCIAL STATEMENTS (continued)  December 31, 2005   NOTE M- SUBSEQUENT EVENTS  On February 1, 2006, Pipeline Data Inc. entered into an asset purchase agreement with Millennium Merchant Services, Inc. and Kent Stiritz. Pursuant to the agreement, Millennium Merchant Services, Inc. and Kent Stiritz agreed to sell residual rights to certain agreements with IPayment, Inc. Cornstone, Concord EFS and Authorizenet to Pipeline Data Inc. in exchange for up to 4.2 million shares of Pipeline Data Inc. (the Agreement Shares) and certain other consideration. 2,246,764 of the Agreement Shares have been issued to the sellers and 1,953,236 shares of Pipeline Data Inc, remain available to be issued to the seller upon the transfer of additional residual rights under Future Agreements pursuant to the terms of the Agreement.    F-33       Item 13. Exhibits.  (a) The following exhibits are included as part of this report:   Exhibit No
        Description23.2
        Consent of Drakeford & Drakeford, Certified Public Accountant 31.1
        Rule 13 (a)-14(a)/15(d)-14(a) Certifications 31.2
        Rule 13 (a)-14(a)/15(d)-14(a) Certifications 32
        Section 1350 Certifications       SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIPELINE DATA INC. (Registrant)  By:
        /s/ MacAllister Smith
        
        By:
        /s/ Donald GruneisenName:
        MacAllister Smith
        
        Name:
        Donald GruneisenTitle:
        Chief Executive Officer and President
        
        Title:
        Chief Financial Officer(Principal Financial and Accounting Officer)  Date: August 15, 2006  In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement was signed by the following persons in the capacities and on the dates stated.  /s/ Jack Rubinstein
        Chairman of the Board,Jack Rubinstein
        August 15, 2006/s/ MacAllister Smith
        Chief Executive Officer,MacAllister Smith
        President, DirectorAugust 15, 2006/s/ Kevin Weller
        DirectorKevin Weller
        August 15, 2006       Exhibit 31.1 CERTIFICATIONS I, MacAllister Smith, certify that: 1.
        I have reviewed this annual report on Form 10-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  quarterly report is being prepared; b)
        Evaluated the  effectiveness of the registrants  disclosure  controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation  (the Evaluation Date); and c)
        Disclosed in this  report  any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the registrants internal control over financial reporting; and 5.
        The registrants other certifying  officers and I have disclosed,  based on our most recent evaluation of internal control over financial reporting,  to the  registrants  auditors  and the audit committee of  registrants  board of directors (or persons  performing  the equivalent functions): a)
        All  significant  deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to adversely  affect the  registrants  ability to record,  process, summarize  and  report  financial  information; and b)
        Any fraud, whether or not material, that involves management or other employees who have a  significant  role in the  registrants  internal control over financial reporting. August 15, 2006  By:
        /s/ MacAllister SmithName:
        MacAllister SmithTitle:
        Chief Executive Officer, President         Exhibit 31.2 I, Donald Grunseisen, certify that: 1.
        I have reviewed this annual report on Form 10-KSB of Pipeline Data, Inc; 2.
        Based on my knowledge,  this  annual  report does not contain any untrue  statement of a material fact or omit to state a material fact  necessary to make the statements  made, in light of the  circumstances  under which such statements  were made, not misleading with respect to the period covered by this annual report; 3.
        Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this annual  report,  fairly  present  in all material respects the financial  condition,  results of operations and cash flows of the  registrant  as of, and for,  the  periods  presented  in this annual report; 4.
        The  registrants  other  certifying  officers  and I are  responsible  for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have: a)
        Designed  such  disclosure  controls  and  procedures, or caused such disclosure controls and procedures to be designed under our supervision,  to ensure  that material  information  relating  to  the  registrant, including  its consolidated subsidiaries,  is made known to us by others within those entities,  particularly  during  the  period in which  this  annual report is being prepared; b)
        Evaluated the  effectiveness of the registrants  disclosure  controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation  (the Evaluation Date); and c)
        Disclosed in this  report  any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the registrants internal control over financial reporting; and 5.
        The registrants other certifying  officers and I have disclosed,  based on our most recent evaluation of internal control over financial reporting,  to the  registrants  auditors  and the audit committee of  registrants  board of directors (or persons  performing  the equivalent functions): a)
        All  significant  deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to adversely  affect the  registrants  ability to record,  process, summarize  and  report  financial  information; and b)
        Any fraud, whether or not material, that involves management or other employees who have a  significant  role in the  registrants  internal control over financial reporting. August 15, 2006  By:
        /s/ Donald GruneisenName:
        Donald GruneisenTitle:
        Chief Financial Officer          Exhibit 32  CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Annual Report of Pipeline Data Inc., a Delaware corporation (the Company), on Form 10-KSBA for the quarter ended December 31, 2005, as filed with the Securities and Exchange Commission (the Report), MacAllister Smith, Chief Executive Officer of the Company and , Donald Grunseisen Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.  By:
        /s/ MacAllister Smith
        
        By:
        /s/ Donald GruneisenName:
        MacAllister Smith
        
        Name:
        Donald GruneisenTitle:
        Chief Executive Officer and President
        
        Title:
        Chief Financial Officer(Principal Financial and Accounting Officer)  Date: August 15, 2006 [A signed original of this written statement required by Section 906 has been provided to Pipeline Data Inc. and will be retained by Pipeline Data Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]