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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=4>UNITED STATES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=4>SECURITIES AND EXCHANGE COMMISSION</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2>Washington, D.C. 20549</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:center;'><B><font SIZE=5>PIPELINE DATA INC</font></B></p>


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<p style=' margin-bottom:0pt; margin-top:12pt;text-align:center;'><b><font size=4>Form 10-Q</font></b></p>


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<p style=' margin-bottom:0pt; margin-top:8pt; margin-left:0.5in; text-indent:-0.5in;text-align:left;'><font face=Wingdings>x</font><font size=2>  QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 for the quarter ended March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt; margin-left:0.5in; text-indent:-0.5in;text-align:left;'><font face=Wingdings><font size=2>o</font></font><font size=2>  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF 1934 for the transition period from ____________ to ________________</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt; margin-left:0.5in; text-indent:-0.5in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin-left:9.0pt;text-indent:-9.0pt;text-align:center;margin-top:0in;margin-bottom:0in'><font size=2>Delaware</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:2pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><font size=2>13-3953764</font></p> </td> </tr>
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            <p style='margin-left:9.0pt;text-indent:-9.0pt;text-align:center;margin-top:0in;margin-bottom:0in'><font size=2>(State or jurisdiction of </font><br> <font size=2>incorporation or organization)</font></p> </td>
        <td width="14" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:2pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="215" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><font size=2>(I.R.S. Employer</font><br> <font size=2>Identification Number)</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:12pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:center;'><font size=2>1515 Hancock Street, Suite 301, Hancock Plaza</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>Quincy, Massachusetts 02169</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>(617) 405-2600</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>(Address and telephone number of principal executive offices)</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the past 90&nbsp;days. YES </font><font face=Wingdings>x</font><font size=2> NO </font><font face=Wingdings>o</font><font size=2> </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of &#147;large accelerated filer&#148;, &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the Exchange Act. </font></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Large accelerated filer&nbsp;</font><font face=Wingdings>o</font>&nbsp;&nbsp;</p> </td>
        <td width="108" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Accelerated filer</font></p> </td> </tr></table>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Non-accelerated filer&nbsp;&nbsp; </font><font face=Wingdings>o</font></p> </td>
        <td width="288" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(Do not check if smaller reporting company)</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Smaller reporting company&nbsp;&nbsp;</font><font face=Wingdings>x</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the Exchange Act).&nbsp;Yes&nbsp;</font><font face=Wingdings>o</font><font size=2>&nbsp;No&nbsp;</font><font face=Wingdings>x</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>&nbsp;</p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="3" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="138" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="148" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
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        <td width="323" nowrap valign=top style='border-bottom: solid black 1.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><b><font size=2>Class</font></b></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td nowrap colspan="3" valign=top style=' border-bottom:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><b><font size=2>Outstanding at May 13, 2008</font></b></p> </td> </tr>
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        <td width="323" valign=top style='border-top:solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><font size=2>Common Stock, $0.001 par value </font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="138" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="60" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>49,773,603</font></p> </td>
        <td width="148" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>&nbsp;</p>

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<p>&nbsp;</p> </div> </div> <BR>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>1</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>PIPELINE DATA INC.</font></B></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>March 31, 2008 QUARTERLY REPORT ON FORM 10-Q</font></b></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>TABLE OF CONTENTS</font></B><font size=2> </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>PART I</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>FINANCIAL INFORMATION</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 1</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>FINANCIAL STATEMENTS</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 2</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 3</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 4T</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>CONTROLS AND PROCEDURES  </font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>PART II</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>OTHER INFORMATION</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 1</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>LEGAL PROCEEDINGS</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 2</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 3</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>DEFAULTS UPON SENIOR SECURITIES</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 4</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=bottom >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=bottom >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 5</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>OTHER INFORMATION</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>ITEM 6</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>EXHIBITS </font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="98" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font SIZE=2>SIGNATURES</font></p> </td>
        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.05in'>
        <td width="98" valign=top style=' height:.05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=top style='height: .05in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top style=' height:.05in'>
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom style=' height:.05in'>
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        <td width="6" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td valign=top >
            <p style='margin-left:8.65pt;text-indent:-8.65pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>2</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PART I</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font SIZE=2>ITEM 1. FINANCIAL STATEMENTS</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-1</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="660" style='border-collapse:collapse'>
    <tr style='height:31.3pt'>
        <td  colspan="2" valign=bottom style=' height:31.3pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:31.3pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><u><font size=2>Page</font></u><u></u></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td  colspan="2" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Item 1 - Financial Statements</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:22.95pt'>
        <td width="60" valign=top style=' height:22.95pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:22.95pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007 </font></p> </td>
        <td width="144" valign=bottom style=' height:22.95pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>F-3 &#150; F-4</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:23.05pt'>
        <td width="60" valign=top style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)</font></p> </td>
        <td width="144" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>F-5</font></p> </td> </tr>
    <tr style='height:21.15pt'>
        <td width="60" valign=top style=' height:21.15pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:21.15pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:21.15pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:23.05pt'>
        <td width="60" valign=top style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)</font></p> </td>
        <td width="144" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>F-6 &#150; F-7</font></p> </td> </tr>
    <tr style='height:23.05pt'>
        <td width="60" valign=top style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:23.05pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Notes to Condensed Consolidated Financial Statements (Unaudited)</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>F-8 - F-24</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr>
    <tr style='height:.25in'>
        <td width="60" valign=top style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="456" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="144" valign=bottom style=' height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-2</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:2in; text-indent:0.5in;text-align:left;'><font size=2>  PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2> CONDENSED CONSOLIDATED BALANCE SHEETS</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2> </font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="672" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr style='height:12.6pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:8.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>March 31, 2008</font></b></p> </td>
        <td width="120" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:1.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>December 31, 2007</font></b></p> </td> </tr>
    <tr style='height:12.6pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:12.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>(unaudited)</font></b></p> </td>
        <td width="120" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:12.6pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><B><font SIZE=2>ASSETS</font></B></p> </td>
        <td width="108" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:12.6pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>CURRENT ASSETS</font></p> </td>
        <td width="108" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:12.6pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Cash and cash equivalents </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$  242,450</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$  995,238</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.95pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Accounts receivable, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>2,324,454</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>2,645,825</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Interest receivable</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>16,280</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>-</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Inventory</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>112,319</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>91,697</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Prepaid expenses and other current assets</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>132,976</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>96,032</font></p> </td> </tr>
    <tr style='height:.1in'>
        <td width="444" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:.1in'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Note receivable</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:.1in'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>1,009,781</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:.1in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>145,408</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.3in;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total current assets</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>3,838,260</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>3,974,200</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.95pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>PROPERTY AND EQUIPMENT, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>1,488,291</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>1,395,226</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>OTHER ASSETS</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Restricted cash</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>664,375</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>976,228</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Merchant portfolios, residual rights and other intangibles, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>12,877,001</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>13,569,381</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Debt issuance costs</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>831,956</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>924,396</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Deferred  customer acquisition costs, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>541,683</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>482,856</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Notes receivable, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>750,000</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>746,454</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Deferred acquisition costs and other assets</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>1,502,132</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>714,382</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Goodwill and other intangibles with indefinite lives</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>43,458,990</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>43,458,990</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total other assets</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>60,626,137</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>60,872,687</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:57.0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>TOTAL ASSETS</font></p> </td>
        <td width="108" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$  65,952,688</font></p> </td>
        <td width="120" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$  66,242,113  </font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</font></b></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:4.0pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:4.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:4.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:4.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>CURRENT LIABILITIES</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Accounts payable   </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$ 1,341,908</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$ 754,843</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Accrued expenses</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>1,462,422</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>1,539,670</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Notes payable</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>179,313</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>192,070</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Capital lease obligations</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>78,435</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>84,173</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Accrued acquisition costs</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>579,911</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>579,911</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Merchant deposits and loss reserve</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>816,906</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>751,833</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:29.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total current liabilities</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>4,458,895</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>3,902,500</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>LONG-TERM LIABILITIES</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Notes payable-senior secured convertible</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>31,023,792</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>30,358,148</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Capital lease obligations</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>60,751</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>79,892</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Deferred rent on operating lease</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>39,872</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>41,259</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Deferred tax liabilities, net</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>968,314</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>1,361,700</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:29.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total long-term liabilities</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>32,092,729</font></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:19.5pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>31,840,999</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:29.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total liabilities</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>36,551,624</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>35,743,499</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>COMMITMENTS AND CONTINGENCIES</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font SIZE=2>TEMPORARY EQUITY</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:14.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Common stock subject to put obligations, 9,398,058 shares</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>14,085,527</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>13,485,527</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:29.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total temporary equity</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>14,085,527</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>13,485,527</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>STOCKHOLDERS&#146; EQUITY  </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Preferred stock, $.001 par value: 5,000,000 shares authorized,</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:19.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>no shares issued or outstanding at March 31, 2008 and December 31, 2007 </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>-</font></b></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><b><font size=2>-</font></b></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Common stock,  $.001 par value: 150,000,000 shares authorized,</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:19.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>40,465,545 shares issued at March 31, 2008 and December 31, 2007</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>40,466</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>40,471</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Additional paid-in capital</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>22,935,889</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>23,471,652</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Accumulated deficit</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>(7,587,558)</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>(6,425,776)</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:12.6pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Less: 90,000 shares of treasury stock, at cost, at March 31, 2008  and </font></p>
<p style='margin-left:12.6pt;text-indent:6.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>December 31, 2007   </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>(73,260)</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>(73,260)</font></u><u></u></p> </td> </tr>
    <tr style='height:6.75pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:6.75pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:6.75pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:6.75pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:35.1pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>Total stockholders&#146; equity </font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>15,315,537</font></u><u></u></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><u><font size=2>17,013,087</font></u><u></u></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-3</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="672" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr style='height:9.9pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:9.9pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="108" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:9.9pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td>
        <td width="120" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:9.9pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='height:9.9pt'>
        <td width="444" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:9.9pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt;line-height:108%'><font size=2>TOTAL LIABILITIES, TEMPORARY EQUITY  AND STOCKHOLDERS&#146; EQUITY</font></p> </td>
        <td width="108" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:9.9pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$  65,952,688</font></p> </td>
        <td width="120" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:9.9pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt;line-height:108%'><font size=2>$   66,242,113</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><font size=2>The accompanying notes are an integral part of these financial statements</font></i><font size=2>. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-4</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>Unaudited</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="723" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="443" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="140" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Three months ended </font></b></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>March 31, 2008</font></b></p> </td>
        <td width="140" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Three months ended</font></b></p>
<p style='margin-left:0pt;text-indent:2.25pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>March 31, 2007</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="443" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="140" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="140" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="652" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Revenue</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:14.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>$ 11,410,417</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:11.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>$  11,855,891</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Interchange</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>5,286,664</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>5,510,835</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Cost of services sold</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1,739,378</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>2,352,909</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Cost of goods sold</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>78,398</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>83,123</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Total cost of services and goods sold</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>7,104,440</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>7,946,867</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Gross profit</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>4,305,977</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>3,909,024</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Operating expenses</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:9.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Salaries and payroll cost</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1,849,555</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1,627,614</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:9.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Selling, general and administrative</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1,592,402</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1,190,726</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:9.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Customer acquisition cost amortization</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>158,117</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>100,177</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:9.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Depreciation </font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>73,266</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>57,572</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:9.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Amortization</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>728,182</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>697,277</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Total operating expenses</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>4,401,522</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>3,673,366</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Income (loss) from operations</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(95,545)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>235,658</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Other income and expenses</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Interest and other income</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>24,778</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>56,763</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Interest expense</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(1,535,975)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(1,637,769)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:27.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Total other expenses</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(1,511,197)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(1,581,006)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:21.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(Loss) before income taxes </font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(1,606,742)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(1,345,348)</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:24.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Income tax benefit</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(444,960)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(246,939)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:-24.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Net loss attributable to common equity holders prior to deemed dividend</font></p> </td>
        <td width="126" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(1,161,782)</font></p> </td>
        <td width="126" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(1,098,409)</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Deemed dividend on common stock subject to put obligation</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(600,000</font></u><font size=2>)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:27.0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Net (loss) after deemed dividend</font></p> </td>
        <td width="126" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:8.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$    (1,761,782)</font></p> </td>
        <td width="126" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:11.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$   (1,098,409)</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Basic and diluted (loss) per share attributable to common equity</font></p>
<p style='margin-left:0pt;text-indent:19.5pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>holders:</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$       (0.02)</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$        (0.02)</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Basic and diluted (loss) per share after deemed dividend:</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$       (0.04)</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>$        (0.02)</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Weighted average number of common shares outstanding-basic </font></p>
<p style='margin-left:0pt;text-indent:21.75pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>and diluted:</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>49,773,603</font></p> </td>
        <td width="126" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>48,083,757</font></p> </td> </tr>
    <tr style='height:4.25pt'>
        <td width="400" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:4.25pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt;height:4.25pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt;height:4.25pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><font size=2>The accompanying notes are an integral part of these financial statements.</font></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-5</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style='page-break-before:always'></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><b><font size=2> CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</font></b><font size=2> </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>Unaudited</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="666" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="129" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>For the three months ended March 31, 2008</font></b></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><b><font size=2>For the three months ended March 31, 2007 </font></b></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font SIZE=2>OPERATING ACTIVITIES: </font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Net (loss)</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:11.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$   (1,161,782)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:11.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$   (1,098,409)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Adjustments to reconcile net loss to net cash provided by (used in) operating activities:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:22.5pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Depreciation and amortization</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>801,448</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>754,849</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Amortization of deferred account acquisition costs</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>158,117</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>100,177</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Stock based compensation</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>64,766</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>108,492</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Amortization of debt issuance cost </font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>92,440</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>92,440</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Amortization of discount on  long-term debt</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>665,644</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>665,644</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Deferred taxes, net</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(444,960)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(246,939)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Imputed interest income</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:39.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(3,547)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(10,640)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Allowance for chargebacks and losses</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:39.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(5,300)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(29,707)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Gain on disposal of asset</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:39.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(1,996)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Changes in operating assets and liabilities:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Accounts receivable</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>326,671</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>762,871</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Interest receivable</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(16,280)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:42.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>7,778</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Inventory</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(20,622)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:42.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>7,548</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Prepaid expenses and other assets</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(36,313)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(67,205)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Deferred account acquisition costs</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(216,944)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(166,399)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Deposits and restricted cash</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>312,087</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(64,056)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Accounts payable and accrued expenses</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>561,390</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>144,796</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:.5in;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Merchant deposits </font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>65,073</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>81,726</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Accrued rent</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:39.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(1,388)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:37.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>19,187</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:49.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:12.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Net cash  provided by operating activities</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>1,138,504</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>1,062,153</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font SIZE=2>INVESTING ACTIVITIES:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Capital expenditures</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(190,136)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(156,265)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Merchant portfolio, residual rights and other intangibles purchase</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(10,000)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(150,000)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Notes receivable</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(864,373)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt '>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>300,000</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Deferred acquisition costs</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(788,615)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(30,000)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Change in restricted cash</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>-</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(137,202)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Net cash used in investing activities</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(1,853,124)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(173,467)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font SIZE=2>FINANCING  ACTIVITIES:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Debt service payments</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(12,757)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>-</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Warrants and stock option exercise</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>-</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:42.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>2,763</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Retirement of restricted stock units</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:45.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(533)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>-</font><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Lease obligation payments </font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(24,878)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(26,750)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Net cash used in financing activities</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(38,168)</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:34.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>(23,987)</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Net  increase (decrease) in cash and cash equivalents </font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:30.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>(752,788)</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>864,699</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Cash and cash equivalents, beginning of period</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:33.0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>995,238</font></u><u></u></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><u><font size=2>2,770,494</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom: 0in;line-height:118.8%'><font size=2>Cash and cash equivalents, end of period</font></p> </td>
        <td  colspan="2" valign=top style=' border-bottom:double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:23.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$  242,450</font></p> </td>
        <td width="126" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:16.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$  3,635,193</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style=' padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Supplemental disclosures:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Cash paid during the period for:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:19.5pt;text-align:left;margin-top:1.5pt;margin-bottom: 0in;line-height:118.8%'><font size=2>Interest</font></p> </td>
        <td  colspan="2" valign=top style=' border-bottom:double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$ 767,794</font></p> </td>
        <td width="126" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:.25in;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$    763,869</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=top style=' padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Non cash investing and financing activities:</font></p> </td>
        <td  colspan="2" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr>
        <td width="408" ></td>

        <td width="129" ></td>

        <td width="3" ></td>

        <td width="126" ></td> </tr> </table>
            </div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-6</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="666" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:4.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Capital expenditures from lease prepayments and proceeds from lease </font></p>
<p style='margin-left:13.5pt;text-indent:21.75pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>financing</font></p> </td>
        <td width="132" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>-</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:25.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$ 126,232</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:13.5pt;text-indent:4.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>Deemed dividend on common stock subject to put obligation</font></p> </td>
        <td width="132" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:28.5pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>$600,000</font></p> </td>
        <td width="126" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:59.25pt;text-align:left;margin-top:0pt;margin-bottom:0pt;line-height:118.8%'><font size=2>-</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><font size=2>The accompanying notes are an integral part of these financial statements</font></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-7</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><b><font size=2>NOTE A &#150; ORGANIZATION AND OPERATIONS</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Nature of Operations </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Pipeline Data Inc. (the &#147;Company&#148;) 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. </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Basis of Financial Statement Presentation</font></b></i><font size=2> </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission  (the &#147;SEC&#148;) for interim financial statements and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of March 31, 2008, and the consolidated results of operations for the three months ended March 31, 2008 and 2007, and cash flows for the three months ended March 31, 2008 and 2007. These results have been determined on the basis of accounting principles generally accepted in the United States and applied consistently as those used in the preparation of the Company's 2007 Annual Report on Form 10-KSB.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Certain information and footnote disclosures normally included in the financial statements presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that the accompanying financial statements be read in conjunction with the financial statements and notes thereto incorporated by reference in the Company's 2007 Annual Report on Form 10-KSB. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>At March 31, 2008, the Company had a cash balance of $0.2 million compared to $1 million at December 31, 2007. 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, the former Charge.com shareholders (the "Charge Shareholders") have the right to sell up to 9,398,058 shares of Pipeline common stock back to Pipeline at a price of $1.5206 per share.  The former shareholders must notify the Company of their decision between May 1, 2008 and 5:00 p.m. (Eastern Daylight Time) on June 30, 2008 (the "Put Right"). The Company has an equal call right on these shares.  If a Charge Shareholder exercises his Put Right, the Company must purchase the shares by no later than July 1, 2008 at the purchase price,
plus interest at an annual rate of 18% accruing from May 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 cannot assure that acquiring such financing is achievable.  If 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.  </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>Certain prior year amounts have been reclassified to conform to the current year presentation.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>All intercompany balances and transactions with the Company&#146;s subsidiaries have been eliminated upon consolidation. </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Use of Estimates </font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-8</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'>
<b><font size=2>NOTE A &#150; ORGANIZATION AND OPERATIONS (CONTINUED)</font></b></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Use of Estimates  (continued)</font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Concentrations</font></b></i><font size=2> </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>The majority of the Company&#146;s merchant processing activity has been 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.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>Substantially all of the Company&#146;s revenue is derived from processing Visa and MasterCard bank card transactions. Because the Company is not a &#145;&#145;member bank&#146;&#146; 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 &#147;member banks&#148; 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</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Reclassifications</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The prior period presentation of certain accounts has been changed to conform to the current year presentation.</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><i><b><font size=2>Cash and Cash Equivalents </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Accounts Receivable, net</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 $7,500 as of March 31, 2008 and $12,800 as of December 31, 2007.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Inventories</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-9</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'>
<B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Property and Equipment, net </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 three months ended March 31, 2008 and March 31, 2007 was $73,266 and $ 57,572, respectively. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Computer Software </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 three to five 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.</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><i><b><font size=2>Restricted Cash</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Deferred Customer Acquisition Costs</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Accounting for Goodwill and Intangible Assets</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-10</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'><B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Accounting for Goodwill and Intangible Assets (continued)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We estimate for accounting purposes the useful life of our merchant portfolios and residual rights purchases 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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Merchant Deposits and Loss Reserves</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company follows the Financial Accounting Standards Board Interpretation No.&nbsp;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 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.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Derivative Financial Instruments </font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-11</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'><B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></B></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Derivative Financial Instruments (continued)</font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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 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. </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><i><b><font size=2>Revenue and Cost Recognition</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-12</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'><B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Share-Based Payments</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Income Taxes </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Advertising</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>The Company expenses advertising costs as they are incurred.&nbsp; </font></p>

<p style=' margin-bottom:0pt; margin-top:13.5pt;text-align:left;'><i><b><font size=2>New accounting pronouncements</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes&#151;an Interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company&#146;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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (&#147;FAS 157&#148;). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of FAS 157 did not have a material effect on the Company&#146;s Consolidated Financial Statements. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-13</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.06in;text-align:left;'><B><font SIZE=2>NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:13.5pt;text-align:left;'><i><b><font size=2>New accounting pronouncements (continued)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In February&nbsp;2007, the Financial Accounting Standards Board issued SFAS 159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities&#148;. SFAS No.&nbsp;159 amends SFAS No.&nbsp;115, &#147;Accounting for Certain Investments in Debt and Equity Securities&#148;. SFAS No.&nbsp;159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No.&nbsp;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.&nbsp;159 is expected to expand the use of fair value measurement, which is consistent with the Board&#146;s long-term measurement objectives for accounting for financial instruments. SFAS No.&nbsp;159 applies to all entities,
including not-for-profit organizations. Most of the provisions of SFAS No.&nbsp;159 apply only to entities that elect the fair value option. However, the amendment to SFAS No.&nbsp;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&#146;s first fiscal year that begins after November&nbsp;15, 2007. The adoption of FAS 159 did not have a material effect on the Company&#146;s Consolidated Financial Statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In December 2007, the FASB issued SFAS No.&nbsp;160, &#147;Non-controlling Interests in Consolidated Financial Statements.&#148; 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.&nbsp;160 will require that changes in a parent&#146;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.&nbsp;160 is effective for fiscal years beginning on or after December&nbsp;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.&nbsp;160 to its financial position and results of operations.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In March 2008, the FASB issued Statement of Financial Accounting Standards No.&nbsp;161, &#147;Disclosures about Derivative Instruments and Hedging Activities&#148; (&#147;SFAS No.&nbsp;161&#148;). SFAS No.&nbsp;161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity&#146;s financial position, financial performance, and cash flows.&nbsp;The provisions of SFAS No.&nbsp;161 are effective for financial statements issued for fiscal years and interim periods beginning after November&nbsp;15, 2008, with early application encouraged.&nbsp;The Company does not expect the provisions of SFAS No.&nbsp;161 to have a material impact on our consolidated financial statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>On December 21, 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain circumstances to continue to use the "simplified" method, in developing estimates of expected term of "plain-vanilla" share options in accordance with Statement of Financial Accounting Standards No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the use of the "simplified" method beyond December 31, 2007.&nbsp; The Company believes that the adoption of&nbsp;&nbsp;SAB 110 will not have a material impact&nbsp;&nbsp;on its consolidated&nbsp;financial statements. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>NOTE C&#150; NOTE RECEIVABLE </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>As of March 31, 2008 notes receivable consisted primarily of unsecured demand notes issued to Innovative Resource Alliance in the amount of $982,000.  The notes accrue interest at the rate of 10% per year.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-14</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><b><font size=2>NOTE D&#150; DEFERRED CUSTOMER ACQUISITION COSTS, NET</font></b></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>A summary of the activity in deferred customer acquisition costs, net for the three months ended March 31, 2008 is a follows: </font></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'>&nbsp;</p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="615" style='margin-left:.2in;border-collapse:collapse'>
    <tr >
        <td width="468" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Deferred customer acquisition costs, net balance as of December 31, 2007</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>$482,856</font></p> </td> </tr>
    <tr >
        <td width="468" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Deferred customer acquisition costs capitalized</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>216,944</font></p> </td> </tr>
    <tr >
        <td width="468" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Deferred customer acquisition costs amortized</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><u><font size=2>(158,117)</font></u></p> </td> </tr>
    <tr >
        <td width="468" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>Deferred customer acquisition costs, net balance as of March 31, 2008</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>$541,683</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE E- MERCHANT PORTFOLIOS, RESIDUAL RIGHTS AND OTHER INTANGIBLES, NET</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:3.6pt;text-align:left;'><font size=2>The changes to the merchant portfolio, residual rights and other intangibles balance during the three months ended March 31, 2008 are as follows: </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="615" style='margin-left:.2in;border-collapse:collapse'>
    <tr >
        <td width="511" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Merchant portfolios, residual rights and other intangibles balance as of  December 31, 2007</font></p> </td>
        <td width="23" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$13,569,381</font></p> </td> </tr>
    <tr >
        <td width="511" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Merchant portfolios, residual rights and other intangibles acquired</font></p> </td>
        <td width="23" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>10,000</font></p> </td> </tr>
    <tr >
        <td width="511" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Merchant portfolios, residual rights and other intangibles amortized</font></p> </td>
        <td width="23" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(702,380) </font></u><u></u></p> </td> </tr>
    <tr >
        <td width="511" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Merchant portfolios, residual rights and other intangibles balance as of March 31, 2008</font></p> </td>
        <td width="23" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$12,877,001</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><b><font size=2>NOTE F &#150; GOODWILL AND OTHER INTANGIBLES WITH INDEFINITE LIVES</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:3.6pt;text-align:left;'><font size=2>There were no changes to the goodwill and other intangibles with indefinite lives balance during the three months ended March 31, 2008: </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="615" style='margin-left:.2in;border-collapse:collapse'>
    <tr >
        <td width="515" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Goodwill and other intangibles with indefinite lives balance as of December 31, 2007</font></p> </td>
        <td width="20" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>$43,458,990</font></p> </td> </tr>
    <tr >
        <td width="515" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Goodwill and other intangibles with indefinite lives acquired</font></p> </td>
        <td width="20" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font><u></u></p> </td> </tr>
    <tr >
        <td width="515" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Goodwill and other intangibles with indefinite lives amortized or impaired</font></p> </td>
        <td width="20" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>-</font></u><u></u></p> </td> </tr>
    <tr >
        <td width="515" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Goodwill and other intangibles with indefinite lives balance as of March 31, 2008</font></p> </td>
        <td width="20" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="80" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$43,458,990</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>NOTE G &#150; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Debt/Financing:</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>(a) Senior Secured Convertible Notes</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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&#146;s common stock at $1.40    The noteholders have a first priority security interest in all of our assets.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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.  Noteholders 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 noteholder to holding a maximum of 4.9% of the Company&#146;s common stock currently outstanding immediately after giving effect to the conversion.  The notes also contain standard anti-dilution provisions.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-15</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'>
<b><font size=2>NOTE G &#150; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED) </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Debt/Financing: (continued)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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. The Company may then 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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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&#146;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&#146;s demand a cash settlement of warrants.  Cashless exercises are permissible. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company has entered into a Registration Rights Agreement with each of the Holders of our convertible notes and warrants issued in connection with Centrecourt Financing to register the underlying common stock thereunder. The Registration Rights Agreement provides that we would 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.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font color="#444444"><font size=2>&nbsp;</font></font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font color="#444444"><font size=2>Pursuant to a Registration Rights Agreement, the Company agreed to &#147;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]&#148;  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.  </font></font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font color="#444444"><font size=2>&nbsp;</font></font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font color="#444444"><font size=2>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 convertible promissory note at $1.30 per share was deemed effective December 6, 2006.&nbsp;  Pursuant to the Securities and Exchange Commission&#146;s industry-wide interpretation of Rule 415, affecting all registrants, the Company registered all shares that were 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.&nbsp; Management believes that it has complied with the registration agreement and it was impossible to register more shares due to the interpretation of Rule 415.  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 $346,000, related to the initial late filing of the registration statement pending any settlement.  </font></font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-16</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>NOTE G &#150; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED) </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Debt/Financing: (continued)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Long-term debt as of March 31, 2008 and December 31, 2007 consists of the following: </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="552" style='margin-left:.2in;border-collapse:collapse'>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>March 31,</font></b></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>December 31,</font></b></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>2008</font></b></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><b><font size=2>2007</font></b></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Deferred rent on operating leases</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$39,872</font></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$41,259</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Other promissory notes and capital leases</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>139,186</font></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>164,065</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Senior secured, interest payable at 8.00% due June 29, 2010, convertible at $1.30 per share</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>37,000,000</font></u><u></u></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>37,000,000</font></u><u></u></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>37,179,058</font></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>37,205,324</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Less current portion</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(78,435)</font></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(84,173)</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Unamortized discount on long-term debt of beneficial conversion feature and warrants</font></p> </td>
        <td width="118" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(5,976,208)</font></u><u></u></p> </td>
        <td width="101" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>(6,641,852)</font></u><u></u></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="334" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:.2in;text-indent:-.2in;text-align:left;margin-top:1.5pt;margin-bottom: 0in'><font size=2>Long-term debt, excluding current portion</font></p> </td>
        <td width="118" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$31,124,415</font></p> </td>
        <td width="101" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt;height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$30,479,299</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Notice of Default on Senior Securities</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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&#146;s position is that there was miscommunication of payment details and a good faith attempt on the Company&#146;s part to communicate this to Iroquois Master Fund. The Company&#146;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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-17</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>PIPELINE DATA INC.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE H- COMMITMENTS AND CONTINGENCIES </font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Valadata, Inc contingent payment</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 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)&nbsp;filed suit against Pipeline
Data, Inc. in Maricopa County Superior Court. In its complaint, L60 alleges that Pipeline and Valadata breached&nbsp;certain agreements made in connection with Pipeline&#146;s acquisition of Valadata, and seeks around $1.5M, plus attorneys&#146; fees and costs. Pipeline vigorously disputes the claims, has filed&nbsp;an answer denying any liability and has countersued plaintiff and various related parties&nbsp;for, among other&nbsp;things, breach of contract and tortious interference with contractual relationships. Pipeline&#146;s counterclaims seek compensatory and punitive damages, as well as attorneys&#146; fees. In February of 2008, the Court dismissed Pipeline&#146;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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Iroquois Master Fund, Ltd Suit</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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&#146;s position is that there was miscommunication of payment details and a good faith attempt on the Company&#146;s part to communicate this to Iroquois Master Fund. The Company&#146;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&#146; 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&#146;s claim is without merit.&nbsp;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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Garner Gifts contingent payment</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 believed 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 disagreed. 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&nbsp;approximately $100,000 to our account.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-18</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="175" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>PIPELINE DATA INC.</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE H- COMMITMENTS AND CONTINGENCIES  (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Merchant portfolio residual rights acquisition</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 the quoted market price of $1.20 per agreement.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Under the terms of certain processing services agreements, we could be required to purchase merchant account residual payments at a value of approximately $3.2 million if the sales agent exercises that right.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Our Subsidiary SecurePay.com, Inc</font></b></i><font size=2>:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=1>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>NOTE I &#150; TEMPORARY EQUITY</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Common shares subject to put obligation</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Between March 4, 2008 and April 30, 2008, 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 $1.4763 per share or $13,874,353 plus interest at the annual rate of 18% accruing from March 4, 2008 until paid.&nbsp; 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.&nbsp; On April 30, 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 May 1, 2008 and 5:00 PM (Eastern Daylight Savings Time) June 30, 2008, to require the Company to repurchase up to 9,398,058 shares of Company common stock at a price of $1.5206 per share. If a former shareholder exercises its Put Right, the Company
must purchase the shares by no later than July 1, 2008 at the purchase price, plus interest at an annual rate of 18% from May 1, 2008. &nbsp;&nbsp;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.&nbsp; The provisions of this agreement will be assessed at each balance sheet date to determine if the agreement is no longer conditional.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company has a Call Right until no later than June 30, 2008 to purchase some or all of the former shareholders' stock at $1.5206 per share, plus interest at an annual rate of 18% from May 1, 2008.  Management believes it has a number of solutions to address this upcoming deadline. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The increase in temporary equity during the three months ended March 31, 2008 is attributable to the January 3, 2008 and March 4, 2008 amendments which increase the redemption value of the stock.&nbsp; This deemed dividend is offset by a charge to additional paid in capital.</font></p>

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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-19</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="175" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>PIPELINE DATA INC.</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>NOTE J &#150; EARNINGS PER COMMON SHARE</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Basic earnings per common share is computed by dividing reported earnings available to common shareholders by the weighted average shares outstanding during the period. Earnings available to common shareholders are the same as reported net income(loss) for all periods presented. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 the</font><i><font size=2> </font></i><font size=2>average market share</font><i><font size=2> </font></i><font size=2>price for the period generally are assumed to have a dilutive effect on earnings per common share. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="647" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="347" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="127" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=2>Three months ended March 31, 2008</font></p> </td>
        <td width="7" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="113" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=2>Three months ended March 31, 2007</font></p> </td>
        <td width="13" valign=top >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="347" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="127" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:42.75pt;text-align:right;text-indent:-42.75pt'><font size=2>(1,161,782)</font></p> </td>
        <td width="7" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="113" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:42.75pt;text-align:right;text-indent:-42.75pt'><font size=2>(1,098,409)</font></p> </td>
        <td width="13" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="347" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Less: Deemed dividend on common stock subject to put obligation</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="127" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(600,000)</font></u></p> </td>
        <td width="7" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="113" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:.5in;text-align:right;text-indent:6.0pt'><font size=2>-  </font></p> </td>
        <td width="13" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="347" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Net loss for purposes of computing basic and diluted earnings per share</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;&nbsp;&nbsp; </font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="127" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(1,761,782)</font></u></p> </td>
        <td width="7" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="113" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(1,098,409)</font></u></p> </td>
        <td width="13" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="347" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Weighted average shares outstanding &#150; basic and diluted</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="127" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>49,773,603</font></p> </td>
        <td width="7" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="113" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>48,083,757</font></p> </td>
        <td width="13" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:12.15pt'>
        <td width="347" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Basic and diluted&nbsp; (loss) per common share attributable to common equity holders:</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="127" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td>
        <td width="7" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="113" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td>
        <td width="13" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid; height:12.15pt'>
        <td width="347" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Basic and diluted&nbsp; (loss) per common share after deemed dividend:</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="127" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.04)</font></p> </td>
        <td width="7" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="113" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td>
        <td width="13" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>Each of (i) stock options to purchase 10,836,554 shares of common stock, (ii) warrants to purchase 15,285,714 shares of common stock and (iii) senior secured debt convertible into 28,461,538 shares of common stock, all outstanding as of March 31, 2008 were potentially dilutive and were not included within earnings per share. To do so would have been anti-dilutive for the three months ended March 31, 2008.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>NOTE K-ADVERTISING</font></B></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>The Company expenses advertising costs as they are incurred.  Advertising expenses for the three months ended March 31, 2008 and 2007 were $271,686 and $219,154 respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>NOTE L - PENSION PLAN-DEFINED CONTRIBUTION</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>During the third quarter of 2006, the Company adopted a Simple IRA Plan. Under this plan the Company matched employee contributions up to one percent of eligible compensation. The Company matched contribution was increased to three percent as of January 1, 2008.  The amount recognized as an expense during the three months ended March 31, 2008 and 2007 was $25,325 and $9,118, respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-20</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="385" style='border-collapse:collapse'>
    <tr >
        <td width="211" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="175" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>PIPELINE DATA INC.</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE M- STOCK OPTIONS AND WARRANTS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Stock-Based Compensation</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company has adopted the provisions of SFAS No 123 (Revised 2004) &#147;Share Based Payments&#148; (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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The total share based payments included in wages and selling, general and administrative expenses was $64,766 and $108,492 for the three months ended March 31, 2008 and 2007, respectively. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 &#147;plain-vanilla&#148; stock options as provided by the Staff of the SEC in Staff Accounting Bulletin 107 as amended by Staff Accounting Bulletin 110. 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&#146;s dividend yield assumption is based on actual dividends
expected to be paid over the expected life&nbsp;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 three months ended March 31, 2008 was $0.12 </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>Assumptions utilized are shown as follow:</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="590" style='margin-left:.2in;border-collapse:collapse'>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>Three months ended</font></p> </td> </tr>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>March 31, 2008</font></p> </td> </tr>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>Expected volatility</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>38.4%</font></p> </td> </tr>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>Expected life</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>2.5 yrs</font></p> </td> </tr>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>Expected dividends</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>0</font></p> </td> </tr>
    <tr >
        <td width="339" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>Risk-free interest rate</font></p> </td>
        <td width="251" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:justify;margin-top:0pt;margin-bottom:0pt'><font size=2>3.8%</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>As of March 31, 2008, the Company has reserved an aggregate of&nbsp;10,836,554 shares of common stock pending the exercise of the options.&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="572" style='margin-left:10.4pt;border-collapse:collapse'>
    <tr style='height:.25in'>
        <td  colspan="5" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:.25in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Stock option activity is summarized as follows:&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>Options</font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Weighted &#150;Average Exercise Price</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Weighted-Average Remaining Contractual Term</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Aggregate</font></p>
<p style='margin-left:0pt;text-indent:2.25pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Intrinsic Value</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Options outstanding, December 31, 2007</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>10,716,554</font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$    1.42</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>3.8</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$    664,322</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Forfeited</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Exercised</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-  </font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Issued</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>120,000</font></u></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>1.00</font></u><u></u></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>-</font></u><u></u></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="155" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Options outstanding, </font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>March 31, 2008</font></p> </td>
        <td width="74" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>10,836,554</font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>$    1.42</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>3.6</font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>$      38,150</font></p> </td> </tr>
    <tr >
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Options exercisable,</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>March 31, 2008</font></p> </td>
        <td width="74" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>8,483,301 </font></p> </td>
        <td width="99" valign=bottom >
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>$    1.36 </font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>2.9 </font></p> </td>
        <td width="122" valign=bottom >
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>$     38,150 </font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-21</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<table border="0" cellspacing=0 cellpadding=0 width="385" style='border-collapse:collapse'>
    <tr >
        <td width="211" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="175" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>PIPELINE DATA INC.</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'>
<B><font SIZE=2>NOTE M- STOCK OPTIONS AND WARRANTS (CONTINUED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Stock-Based Compensation (continued)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>There were no options exercised during the three months ended March 31, 2008.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>A summary of the non-vested restricted stock unit activity for the three months ended March 31, 2008 is presented below. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="590" style='margin-left:.95in;border-collapse:collapse'>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:2.25pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Restricted Stock Units</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><b><font size=2>Three months ended</font></b><font size=2>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><b><font size=2>March 31, 2008</font></b></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0in;margin-bottom:0pt'><b><font size=2>Weighted-Average Grant-Date Fair Value</font></b></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><b><font size=2>Number of Units</font></b></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>&nbsp;&nbsp;</font></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Non-vested at December 31. 2007</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>46,667</font></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>$0.96</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Granted</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>-</font></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Vested</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>(25,000)</font></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=2>$0.95</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Forfeited</font></p> </td>
        <td width="155" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:27.0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><u><font size=2>-</font></u><u></u></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="250" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Non-vested at March 31, 2008</font></p> </td>
        <td width="155" valign=bottom style='border-bottom: double black 2.25pt;padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:4.5pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>21,667</font></p> </td>
        <td width="186" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:1.5pt;margin-bottom:0pt'><font size=2>$0.97</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE N- INCOME TAXES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 March 31, 2008, the Company had deferred tax assets of $1,781,446, deferred tax liabilities of $2,749,760, and no material current tax liability.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>At December 31, 2007, the Company has net operating loss carryforwards for income tax purposes of approximately $5,100,000. These carryforward losses are available to offset future taxable income, if any, and expire in the year 2027.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font color="#FF0000"><font size=2>&nbsp;</font></font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The tax benefit as a result of changes in deferred tax assets and liabilities was $444,960 and $246,939 for the three months ended March 31, 2008 and 2007, respectively. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Interest and penalties related to income taxes are classified as interest expense.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-22</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<table border="0" cellspacing=0 cellpadding=0 width="385" style='border-collapse:collapse'>
    <tr >
        <td width="211" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="175" nowrap valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>PIPELINE DATA INC.</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><B><font SIZE=2>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>March 31, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>


<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>NOTE O &#150; RELATED PARTY TRANSACTIONS</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 three months ended March 31, 2008 and 2007 was $40,000 and $20,000, respectively.   $40,000 was payable to Capital Advisory Services at March 31, 2008 and $10,000 payable at December 31, 2007.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><B><font SIZE=2>NOTE P - SUBSEQUENT EVENTS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.55in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>COCARD&reg;</font></b></i><font size=1> </font><i><b><font size=2>Acquisition</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>On April 23, 2008,  the Company entered into a non-binding term sheet to purchase COCARD&reg; Marketing Group LLC, ("COCARD"), formerly to be acquired as part of the Innovative Resource Alliance acquisition.    COCARD, a Nashville, Tennessee-based merchant services provider, caters primarily to small and medium-sized retail accounts. COCARD currently services over 25,000 merchants.  Pipeline would purchase COCARD for approximately $70 million in cash plus notes estimated to be in the amount of $10 million.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company is currently working with COCARD on a merger agreement between the parties. While the Company anticipates soon executing a merger agreement, it can provide no assurances that this will be accomplished.   Originally, the COCARD acquisition was to be accomplished together with the acquisition of Innovative Resource Alliance ("IRA").  The parties have decided that COCARD and the Company will transact  directly and that IRA will not be part of this transaction.  A transaction with IRA will be considered at a later date.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font SIZE=2>F-23</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Item 2. Management's Discussion and Analysis or Plan of Operation.</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>Overview</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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, or "swipe" transactions, as well as card-not-present transactions. Significant market research supports the following on the company's industry:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'>&nbsp;</p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>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. </font></p> </td> </tr>
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            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>The Nilson Report 2007, ranked Pipeline Data as the fifth fastest growing merchant acquirer during the year ended December 31, 2007. </font></p> </td> </tr>
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            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>&#149;</font></b></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>In a 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. </font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>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.</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.25in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>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. </font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.25in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>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.</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.25in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>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 ISOs/VARs and a national cell phone carrier.</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.25in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>27</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Pipeline is one of a limited number of companies to be deemed by Visa as both Cardholder Information Security Program (CISP) compliant and an authorized merchant payment processor. </font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.25in; text-indent:-0.25in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Pipeline distinguishes itself from competitors by its VISA certification, its technology, its operating efficiencies and its marketing ability.</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Pipeline's technology includes:</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:0pt; margin-left:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Online proprietary digital applications,</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></td> </tr>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Proprietary shopping cart and gateway services,</font></p> </td>
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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></td> </tr>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Wireless cellular phone software to enable mobile card payment acceptance.</font></p> </td> </tr>
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        <td width="50" ></td>

        <td width="73" ></td>

        <td width="1" ></td>

        <td width="230" ></td>

        <td width="47" ></td>

        <td width="152" ></td> </tr> </table>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><b><font size=2>Overview &#150; Financial and Operational Highlights &#150; Three months ended March 31, 2008</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Following are some financial and operational highlights that are further explained in the paragraphs that follow.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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        <td width="639" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Gross Profit, which is defined as total revenue less interchange fees, cost of services sold and cost of goods sold, increased 10.2% to $ 4.3 million for the three months ended March 31, 2008 from $3.9 million during the three months ended March 31, 2007.</font></p>
<p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td width="639" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Cash flow from operations increased to $1,138,504 for the three months ended March 31, 2008 compared to $1,062,153 for the three months ended March 31, 2007.</font></p>
<p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
        <td width="639" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Our processing volume for the three months ended March 31, 2008 was $334 million, an 11% decrease from the $376 million processed during the same period in 2007. This decrease is attributable to the termination of unprofitable accounts, evidenced by the disclosed increase in gross profit.</font></p>
<p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td> </tr>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td>
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            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Net loss increased from $1.1 million to $1.2 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><b><font size=2>Critical Accounting Policies and Estimates</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Revenue and Cost Recognition</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>28</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We follow the requirements of EITF 99-19, &#147;Reporting Revenue Gross as a Principal Versus Net as an Agent&#148;, 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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Merchant Deposits and Loss Reserves</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>We follow the Financial Accounting Standards Board Interpretation No.&nbsp;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 March 31, 2008 and December 31, 2007, we held merchant deposits totaling $597,000 and $538,000, 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 March 31, 2008 and December 31, 2007, our loss reserve totaled $220,000 and $214,000 respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Deferred Customer Acquisition Costs</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>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 three months
ended March 31, 2008, we incurred $0.9 million of customer acquisition related expenses, of which, $217,000 was capitalized.  During the three months ended March 31, 2007, we incurred $.8 million of customer acquisition related expenses of which, $166,000 was capitalized.  We amortized $158,000 and $100,000 of previously capitalized customer acquisition costs for the three months ended March 31, 2008 and 2007, respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>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. Our deferred customer acquisition cost was approximately $542,000 and $483,000 as of March 31, 2008 and December 31, 2007, respectively.</font></p>

<p style=' margin-bottom:0pt; margin-top:9pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>29</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<i><b><font size=2>Accounting for Goodwill and Intangible Assets</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Share-Based Payments</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Income Taxes </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Earnings per common share</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Basic earnings per common share is computed by dividing reported earnings available to common shareholders by the weighted average shares outstanding during the period. Earnings available to common shareholders are the same as reported net income(loss) for all periods presented. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>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 the</font><i><font size=2> </font></i><font size=2>average market share</font><i><font size=2> </font></i><font size=2>price for the period generally are assumed to have a dilutive effect on earnings per common share. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>30</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="675" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="384" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="111" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=2>Three months ended March 31, 2008</font></p> </td>
        <td width="10" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="135" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=2>Three months ended March 31, 2007</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="384" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="111" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:42.75pt;text-align:right;text-indent:-42.75pt'><font size=2>(1,161,782)</font></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="135" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:42.75pt;text-align:right;text-indent:-42.75pt'><font size=2>(1,098,409)</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="384" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Less: Deemed dividend on common stock subject to put obligation</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="111" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(600,000)</font></u></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="135" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:.5in;text-align:right;text-indent:6.0pt'><font size=2>-  </font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="384" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Net loss for purposes of computing basic and diluted earnings per share</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;&nbsp;&nbsp; </font></p> </td>
        <td width="12" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="111" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(1,761,782)</font></u></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="135" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><u><font size=2>(1,098,409)</font></u></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="384" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Weighted average shares outstanding &#150; basic and diluted</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="111" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>49,773,603</font></p> </td>
        <td width="10" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>&nbsp;</font></p> </td>
        <td width="135" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>48,083,757</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:12.15pt'>
        <td width="384" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Basic and diluted&nbsp; (loss) per common share attributable to common equity holders:</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="111" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td>
        <td width="10" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="135" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td> </tr>
    <tr style='page-break-inside:avoid; height:12.15pt'>
        <td width="384" valign=top style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Basic and diluted&nbsp; (loss) per common share after deemed dividend:</font></p> </td>
        <td width="13" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="12" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="111" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.04)</font></p> </td>
        <td width="10" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="10" valign=bottom style=' height:12.15pt'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>$</font></p> </td>
        <td width="135" valign=bottom style=' height:12.15pt'>
            <p align=right style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right;text-indent:2.25pt'><font size=2>(0.02)</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font><b><font size=2>Results of Operations</font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><i><b><font size=2>Three months ended March 31, 2008 Compared to Three months ended March 31, 2007 </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font size=2>The following table shows certain income statement data as a percentage of revenue for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 (in thousands of dollars): </font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="576" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="224" >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td width="5" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><u><b><font size=1>Three months ended March 31, 2008</font></b></u></p> </td>
        <td width="6" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td width="42" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><b><font size=1>% of</font></b><u><b><font size=1> Revenue</font></b></u></p> </td>
        <td width="18" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p> </td>
        <td width="37" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><u><b><font size=1>Three months ended March 31, 2007</font></b></u></p> </td>
        <td width="8" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td width="42" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><b><font size=1>% of</font></b><u><b><font size=1> Revenue</font></b></u></p> </td>
        <td width="18" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td width="33" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><u><b><font size=1>Change</font></b></u></p> </td>
        <td width="6" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td width="54" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><u><b><font size=1>% Change</font></b></u></p> </td>
        <td width="48" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Revenue</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>11,410</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>100</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>11,858</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>100</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(448)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-3.8</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Interchange</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>5,287</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>46.3</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>5,511</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>46.5</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(224)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-4.1</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Other cost of services/goods sold</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1,817</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>15.9</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>2,439</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>20.6</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(622)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-25.5</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 38.3pt;text-indent:-.25in'><font size=2>Total costs of services and goods sold</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>7,104</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>62.3</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>7,950</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>67.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(846)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" valign=bottom style=' height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-10.6</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Gross profit</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>4,306</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>37.7</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=2>3,908</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>33.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>398</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>10.2</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Salaries and payroll costs</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1,850</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>16.2</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1,628</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>13.7</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>222</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>13.6</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Other selling, general and administrative</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1,592</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>14.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1,191</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>10.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>401</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>33.7</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Customer acquisition cost amortization</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>158</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>1.4</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>100</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>0.8</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>58</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>58.0</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Depreciation and amortization</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>801</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>7.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>755</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>6.4</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>46</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>6.1</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total operating expenses</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>4,401</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>38.6</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>3,674</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>31.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>727</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>19.8</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Income (loss) from operations</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(95)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-0.8</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>234</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>2.0</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(329)</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-140.6</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=1>&nbsp;</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Other income (expenses)</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,511</font></p> </td>
        <td width="6" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-13.2</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,581</font></p> </td>
        <td width="8" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-13.3</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>70</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-4.4</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Income (loss) before income taxes</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,606</font></p> </td>
        <td width="6" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-14.1</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,347</font></p> </td>
        <td width="8" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-11.4</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(259)</font></p> </td>
        <td width="6" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>19.2</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Income tax benefit</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(445</font></p> </td>
        <td width="6" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-3.9</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(247</font></p> </td>
        <td width="8" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-2.1</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(198)</font></p> </td>
        <td width="6" style='height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>80.2</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid;height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Net income (loss) </font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,161</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>)</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-10.2</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="37" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(1,100</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>)</font><font size=1>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>-9.3</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td>
        <td width="33" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>(61</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>)</font></p> </td>
        <td width="54" style='height:.2in'>
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=2>5.5</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>%</font></p> </td> </tr>
    <tr style='page-break-inside:avoid; height:.2in'>
        <td width="224" valign=top style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="5" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="37" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="8" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="42" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="18" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="33" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="6" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="54" style='height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td>
        <td width="48" valign=bottom style=' height:.2in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>31</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'>
<b><font size=2>Comparisons of three months ended March 31, 2008 and March 31, 2007</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Revenues</font></b><font size=2> </font></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Revenues decreased $0.4 million or 3.8% to $11.4 million for the three months ended March 31, 2008 from $11.8 million for the three months ended March 31, 2007. The decrease was primarily attributable to a reduction in overall transaction volume resulting in large measure from the removal of unprofitable accounts.  </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Interchange expenses</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Interchange expenses decreased $0.2 million or 4.1% to $5.3 million for the three months ended March 31, 2008 from $5.5 million for the three months ended March 31, 2007. The decrease was primarily attributable to a decrease in processing volume to $ 334.5 million for the three months ended March 31, 2008 from $375.6 million for the three months ended March 31, 2007.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Other costs of goods and services sold</font></b><font size=2> </font></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Other costs of goods and services sold decreased $0.6 million or 25.5% to $1.8 million for the three months ended March 31, 2008 as compared to $2.4 million for the three months ended March 31, 2007</font><i><font size=2>. </font></i><font size=2>This resulted from decrease in overall external processing costs which effectively increased our gross profit.  </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Gross Profit</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Gross profit</font><i><font size=2> </font></i><font size=2>increased $0.4 million or 10.2% to $4.3 million for the three months ended March 31, 2008 from $3.9 million for the three months ended March 31, 2007. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Operating Expenses</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Total operating expenses increased $0.7 million or 19.8% to $4.4 million for the three months ended March 31, 2008 from $3.7 million for the three months ended March 31, 2007. 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; </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'>&nbsp;</p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="672" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>&#149;</font></b></p> </td>
        <td width="600" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Salaries and payroll related costs increased $222,000 or 13.6% to $1.8 million for the three months ended March 31, 2008 as compared to $1.6 million for the three months ended March 31, 2007. The increase was due primarily to preparation for our anticipated mergers which included commitments of additional personnel to manage higher levels of customer service as well as risk and underwriting associated with the pending acquisition transactions.  2008 salaries and payroll cost include share-based payments of $33,000 for the three months ended March 31, 2008.</font></p> </td> </tr>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>&#149;</font></b></p> </td>
        <td width="600" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Selling, general and administrative expenses increased $401,000 or 33.7% to $1.6 million for the three months ended March 31, 2008 as compared to $1.2 million for the three months ended March 31, 2007. A $28,000 increase was due primarily to a planned increase in our advertising and marketing efforts.  We anticipate seeing the results of these expenditures to be represented in subsequent quarters. Additionally, we experienced an increased expense of $139,000, primarily attributable to merchant related collection expenses and an increase of $147,000 in one-time costs related to legal, auditing and other professional services.  Selling, general and administrative expense for the three months ended March 31, 2008 includes $32,000 of share based payments.</font></p> </td> </tr>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>&#149;</font></b></p> </td>
        <td width="600" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Deferred customer acquisition cost amortization increased $58,000 or 58% to $158,000 for the three months ended March 31, 2008 as compared to $100,000 for the three months ended March 31, 2007.</font></p> </td> </tr>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-top:8.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>&#149;</font></b></p> </td>
        <td width="600" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Depreciation and amortization increased $46,000 or 6.1% to $801,000 for the three months ended March 31, 2008 as compared to $755,000 for the three months ended March 31, 2007. </font></p>
<p style='margin:0in;margin-bottom:.0001pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>32</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Operating Income(loss)</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Operating income decreased $329,000 to a loss of ($95,000) for the three months ended March 31, 2008 from $234,000 for the three months ended March 31, 2007. The decrease in operating income was primarily attributable to increased selling, general and administrative expenses related to initiatives in preparation for anticipated acquisitions. .  Operating income as a percentage of gross revenue was -0.8% for the three months ended March 31, 2008 as compared to 2.0% for the three months ended March 31, 2007. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Other Expenses</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Other expenses decreased $0.1 million to $1.5 million for the three months ended March 31, 2008 from $1.6 million for the three months ended March 31, 2007. Other expenses primarily consisted of $1.5 million related to interest expense for the three months ended March 31, 2008, which included cash interest and fees of  $0.8 million and $0.8 million of non-cash interest related to the amortization of debt issuance costs and discount on long-term debt. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Income Tax</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Income tax benefit increased to $ 445,000 for the three months ended March 31, 2008 from a tax benefit of $247,000 for the three months ended March 31, 2007. The increase was primarily due to changes in net deferred tax assets and deferred tax liability balances as of the end of the three months. The decrease in income before income taxes is due in part to the increase in other expenses as outlined above. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Net loss</font></b><font size=2> </font></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>As a result of the above factors, net loss increased from $(1.1) million for the three months ended March 31, 2007 to $(1.2) million for the three months ended March 31, 2008.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><b><font size=2>Balance Sheet Information </font></b></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="672" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><b><font size=2>March 31, 2008</font></b></p> </td>
        <td width="19" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="2" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><b><font size=2>December 31, 2007 </font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><b><font size=2>Selected Balance Sheet Data</font></b></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td  colspan="5" valign=bottom >
            <p align=center style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:center'><b><font size=2>(in thousands)</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Cash and cash equivalents</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>242</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>995</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Other current assets </font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>3,596</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>2,981</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Property and equipment, net</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>1,488</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>1,395</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Goodwill</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>43,459</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>43,459</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Merchant portfolios, residual rights and other intangibles, net</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>12,877</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>13,569</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Other assets</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>4,290</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>3,843</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total assets</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>65,952</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>66,242</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Accounts payable and other current liabilities </font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>4,458</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>3,902</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Long-term debt and notes payable</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>32,093</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>31,841</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total liabilities</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>36,551</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>35,743</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total temporary equity</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>14,086</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>13,486</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total stockholders' equity</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>15,315</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>17,013</font></b></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="466" valign=top >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:0in;margin-left: .25in;text-indent:-.25in'><font size=2>Total liabilities, temporary equity and stockholders' equity</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="14" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><b><font size=2>$</font></b></p> </td>
        <td width="157" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>65,952</font></b></p> </td>
        <td width="19" valign=bottom >
            <p style='margin-top:1.5pt;margin-right:0in;margin-bottom:.5pt;margin-left: 0in'><font size=1>&nbsp;</font></p> </td>
        <td width="1" valign=bottom >
            <p style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in;margin-left: .75pt;text-indent:-.75pt'><b><font size=2>$</font></b></p> </td>
        <td width="1" valign=bottom >
            <p align=right style='margin-top:2.0pt;margin-right:0in;margin-bottom:0in; margin-left:0in;text-align:right'><b><font size=2>66,242</font></b></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>March 31, 2008 Compared to December 31, 2007 </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>27</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
<!-- EEDocs PBStart-->
<HR noshade align="center" width="100%" size="2">
<p style='page-break-before:always'></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Total assets decreased $290,000 or 0.4% to $65.9 million at March 31, 2008 from $66.2 million at December 31, 2007. The decrease was primarily attributable to amortization of intangible assets. Additionally, receivables, deferred acquisition and financing costs, restricted cash, and property and equipment expanded commensurate with business growth and acquisition plans. Cash and cash equivalents decreased by $0.8 million or 75.7%, as the result of cash flow from operations being less than cash flow used in financing and investing activities.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Receivables, which primarily result from merchant processing fees from our merchants during the processing month and the collections 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 periods, decreased $0.3 million, or 12.2%, to $2.3 million at March 31, 2008 from $2.6 million at December 31, 2007. The decrease in receivables from merchants was primarily due to decreased processing volume.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Notes receivable included in other current assets increased $864,000 to $1.0 million as of March 31, 2008 compared to $145,000 as of December 31, 2007 primarily due to loans to Innovative Resource Alliance, Inc.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Property and equipment, net increased $93,000 to $1.5 million, or 6.7% as of March 31, 2008 from $1.4 million as of December 31, 2007, 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. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Deferred acquisition costs and other assets increased $788,000 to $1.5 million as of March 31, 2008 compared to $714,000 as of December 31, 2007 as a result of costs associated with obtaining financing related to the acquisition of Innovative Resource Alliance and COCARD&reg;.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:justify;'><font size=2>Goodwill was unchanged and merchant portfolio, residual rights and other intangibles decreased a net amount of $692,000   or 5.1%,  primarily from the  amortization of those intangibles.</font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font size=2>Total liabilities increased $0.8 million or 2.3% to $36.5 million at March 31, 2008 from $35.7 million at December 31, 2007. </font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Temporary equity of $14.1 million at March 31, 2008 increased $0.6 million from $13.5 million at December 31, 2007.  The increase in temporary equity during the three months ended March 31, 2008 is attributable to the January 3, 2008 and March 4, 2008 amendments to the repurchase obligation or &#147;Put Right&#148; related to the Charge.com acquisition, which increased the redemption value of the stock by $600,000.&nbsp; This deemed dividend is offset by a charge to additional paid in capital.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Total stockholders' equity decreased $1.7 million from December 31, 2007, primarily due net losses of $1.2 million and the increase in the value of the repurchase obligation of $600,000 related to the temporary equity which was charged to additional paid in capital during the three months ended March 31, 2008.  </font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font color="#FF6600"><font size=2>&nbsp;</font></font></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><b><font size=2>Effects of Inflation</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><b><font size=2>Liquidity and Capital Resources</font></b></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'>&nbsp;</p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="525" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin-top:1.0pt;margin-right:0in;margin-bottom:0in;margin-left: 0in'><font size=2>&nbsp;</font></p> </td>
        <td  colspan="2" style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center; text-indent:2.25pt'><b><font size=2>Three months ended March 31,</font></b></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>&nbsp;</font></p> </td>
        <td width="62" style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font size=2>2008</font></b></p> </td>
        <td width="54" style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font size=2>2007</font></b></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><b><font size=2>Selected Statement of Cash Flows Data</font></b></p> </td>
        <td  colspan="2" style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center'><b><font size=2>(in thousands)</font></b></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Cash flow from operations </font></p> </td>
        <td width="62" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>$1,139&nbsp;</font></p> </td>
        <td width="54" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>$1,062&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Cash flow from investing activities </font></p> </td>
        <td width="62" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>(1,853)</font></p> </td>
        <td width="54" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>(173)</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Cash flow from financing activities </font></p> </td>
        <td width="62" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>(38)&nbsp;</font></p> </td>
        <td width="54" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; text-indent:9.75pt'><font size=2>(24)&nbsp;</font></p> </td> </tr>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Total change in cash </font></p> </td>
        <td width="62" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>(752)&nbsp;</font></p> </td>
        <td width="54" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=center style='margin:0in;margin-bottom:.0001pt;text-align:center; text-indent:12.0pt'><font size=2>865</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>28</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="525" style='margin-left:5.4pt;border-collapse:collapse'>
    <tr >
        <td width="408" valign=top style='padding:0in 5.4pt 0in 5.4pt'>
            <p style='margin:0in;margin-bottom:.0001pt'><font size=2>Cash balance, period end</font></p> </td>
        <td width="62" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right'><font size=2>$242&nbsp;</font></p> </td>
        <td width="54" valign=bottom style='padding:0in 5.4pt 0in 5.4pt'>
            <p align=right style='margin:0in;margin-bottom:.0001pt;text-align:right; text-indent:2.25pt'><font size=2>$3,635</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>At March 31, 2008, we had a cash balance of $0.2 million compared to $1.0 million at December 31, 2007. Cash flow from operations may not be sufficient over the next twelve months to fund operating and debt 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.  If such financing could not be raised, we would attempt to reduce our operating expenses and capital expenditures or liquidate certain assets to pay this obligation.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Contingent cash payments over the next 12 months are as follows. Pursuant to the Charge.com acquisition, the former Charge.com shareholders (the "Charge Shareholders") have the right to sell up to 9,398,058 shares of Pipeline common stock back to Pipeline at a price of $1.5206 per share.  The former shareholders must notify Pipeline of their decision between May 1, 2008 and 5:00 p.m. (Eastern Daylight Time) on June 30, 2008 (the "Put Right"). If a Charge Shareholder exercise their Put Right, the Company must purchase the shares by no later than July 1, 2008 at the purchase price, plus interest at the annual rate of 18% from May 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.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Under the terms of certain processing services agreements, we could be required to purchase merchant account residual payments at a value of approximately $3.2 million if the sales agent exercises that right.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Pursuant to the Valadata acquisition, in the event certain milestones were reached by July 2007, we could have been required to pay the former Valadata shareholders up to an additional $782,631 and a subsequent installment of $782,631 in July 2008.  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 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. L60, the former stockholder of Valadata, alleges that Pipeline and Valadata breached&nbsp;certain agreements made in connection with Pipeline&#146;s acquisition of Valadata, and seeks around $1.5M, plus attorneys&#146; fees and costs. Pipeline vigorously
disputes the claims, have filed&nbsp;an answer denying any liability and have countersued plaintiff and various related parties&nbsp;for, among other&nbsp;things, breach of contract. The case is now proceeding to discovery. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Our cash requirements include cost of revenues, selling, general and administrative expenses, income taxes, debt service payments, financing commitment costs, capital expenditures, systems development and contingent payment on 2005 and 2006 business and portfolio acquisitions, including, Paynet Systems, World Products, and Charge.com.  Our principal sources of funds are cash generated by operations and borrowings. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>Cash Flow Provided by (Used by) Operating Activities</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Net cash provided by operating activities was $1.1 million for the three months ended March 31, 2008, an increase of $76,000 from $1.0 million for the three months ended March 31, 2007. Cash interest expense consumed $768,000 for the three months ended March 31, 2008, an increase of $4,000 from $764,000 for the three months ended March 31, 2007. Additionally, sources of cash of $974,000 resulted from changes in net operating assets and liabilities. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Cash Flow Provided by (Used by) Investing Activities</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Net cash used by investing activities was $1.9 million for the three months ended March 31, 2008 as compared to a use of $173,000 for the three months ended March 31, 2007. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>$864,000 of funds were invested in notes receivable during the three months ended March 31, 2008 compared to $300,000 of funds provided from the repayment to us of outstanding notes receivable during the three months ended March 31, 2007.  The increase in notes receivable was related to the pending acquisition of Innovative Resource Alliance.  Deferred acquisition cost increased $789,000 during the three months ended March 31, 2008 compared to $30,000 for the three months ended March 31, 2007.  These expenditures were composed of investment banking, commitment fees and due diligence costs related to the pending acquisition of Innovative Resource Alliance and COCARD&reg;.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>29</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Total capital expenditures for the three months ended March 31, 2008 were $190,000 compared to $156,000 invested in the three months ended March 31, 2007. 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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><i><b><font size=2>Cash Flow Provided by (Used by)</font></b></i><b><font size=2> </font></b><i><b><font size=2>Financing Activities</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Net cash used in financing activities was $38,000 for the three months ended March 31, 2008 as compared to $24,000 for the three months ended March 31, 2007. </font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Non-GAAP Measures</font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>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 its operations, Pipeline Data is providing non-GAAP measures, including earnings before interest, taxes, depreciation and amortization (&#147;EBITDA&#148;). 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.</font></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><i><b><font size=2>Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures</font></b></i></p>

<p style=' margin-bottom:5pt; margin-top:5pt;text-align:left;'><font size=2>The following table reconciles the differences between Pipeline Data&#146;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.</font></p>

<p style=' margin-bottom:0pt; margin-top:5pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="415" style='margin-left:.2in;background:white;border-collapse:collapse; '>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>(Amounts in thousands)</font></p> </td>
        <td  colspan="2" valign=top style=' border-bottom:solid black 1.0pt;padding:0in 5.4pt 0in 5.4pt;height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>Three month period ended March 31</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt;height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>2008</font></p> </td>
        <td width="60" valign=top style='border-top:solid black 1.0pt; padding:0in 5.4pt 0in 5.4pt;height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:center;margin-top:0pt;margin-bottom:0pt'><font size=2>2007</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Net (loss)</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$(1,162)</font></p> </td>
        <td width="60" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$(1,098)</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Interest expense</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>1,536</font></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>1,638</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Income tax benefit</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(445)</font></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>(247)</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Depreciation and amortization</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>801</font></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>755</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Amortization of customer acquisition costs</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>158</font></u><u></u></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>100</font></u><u></u></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>EBITDA</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>888</font></p> </td>
        <td width="60" valign=bottom style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>1,148</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Stock-based compensation classified as salaries</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>33</font></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>57</font></p> </td> </tr>
    <tr style='height:11.0pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Stock-based payments for services</font></p> </td>
        <td width="67" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>32</font></u><u></u></p> </td>
        <td width="60" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:11.0pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><u><font size=2>51</font></u><u></u></p> </td> </tr>
    <tr style='height:17.55pt'>
        <td width="288" valign=top style='padding:0in 5.4pt 0in 5.4pt; height:17.55pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.5pt;margin-bottom:0pt'><font size=2>Adjusted EBITDA</font></p> </td>
        <td width="67" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt;height:17.55pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$953</font></p> </td>
        <td width="60" valign=top style='border-bottom:double black 2.25pt; padding:0in 5.4pt 0in 5.4pt;height:17.55pt'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:right;margin-top:0pt;margin-bottom:0pt'><font size=2>$1,256</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:13.5pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:13.5pt;text-align:left;'><i><b><font size=2>Off-Balance Sheet Arrangements </font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:4.5pt;text-align:left;'><font size=2>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. </font></p>

<p style=' margin-bottom:0pt; margin-top:13.5pt;text-align:left;'><i><b><font size=2>New accounting pronouncements</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In February&nbsp;2007, the Financial Accounting Standards Board issued SFAS 159, &#147;The Fair Value Option for Financial Assets and Financial Liabilities&#148;. SFAS No.&nbsp;159 amends SFAS No.&nbsp;115, &#147;Accounting for Certain Investments in Debt and Equity Securities&#148;. SFAS No.&nbsp;159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No.&nbsp;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 </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>30</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>provisions. SFAS No.&nbsp;159 is expected to expand the use of fair value measurement, which is consistent with the Board&#146;s long-term measurement objectives for accounting for financial instruments. SFAS No.&nbsp;159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No.&nbsp;159 apply only to entities that elect the fair value option. However, the amendment to SFAS No.&nbsp;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&#146;s first fiscal year that begins after November&nbsp;15, 2007. The adoption of FAS 159 did not have a material effect on the Company&#146;s Consolidated Financial Statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In December 2007, the FASB issued SFAS No.&nbsp;160, &#147;Non-controlling Interests in Consolidated Financial Statements.&#148; 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.&nbsp;160 will require that changes in a parent&#146;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.&nbsp;160 is effective for fiscal years beginning on or after December&nbsp;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.&nbsp;160 to its financial position and results of operations.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>In March 2008, the FASB issued Statement of Financial Accounting Standards No.&nbsp;161, &#147;Disclosures about Derivative Instruments and Hedging Activities&#148; (&#147;SFAS No.&nbsp;161&#148;). SFAS No.&nbsp;161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity&#146;s financial position, financial performance, and cash flows.&nbsp;The provisions of SFAS No.&nbsp;161 are effective for financial statements issued for fiscal years and interim periods beginning after November&nbsp;15, 2008, with early application encouraged.&nbsp;The Company does not expect the provisions of SFAS No.&nbsp;161 to have a material impact on our consolidated financial statements.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>On December 21, 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain circumstances to continue to use the "simplified" method, in developing estimates of expected term of "plain-vanilla" share options in accordance with Statement of Financial Accounting Standards No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the use of the "simplified" method beyond December 31, 2007.&nbsp; The Company believes that the adoption of&nbsp;SAB 110 will not have a material impact&nbsp;on its consolidated&nbsp;financial statements. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><i><b><font size=2>COCARD&reg;</font></b></i><font size=1> </font><i><b><font size=2>Acquisition</font></b></i></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>On April 23, 2008,  the Company entered into a non-binding term sheet to purchase COCARD&reg; Marketing Group LLC, ("COCARD"), formerly to be acquired as part of the Innovative Resource Alliance acquisition.    COCARD, a Nashville, Tennessee-based merchant services provider, caters primarily to small and medium-sized retail accounts. COCARD currently services over 25,000 merchants.  Pipeline would purchase COCARD for approximately $70 million in cash plus notes estimated to be in the amount of $10 million.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>The Company is currently working with COCARD on a merger agreement between the parties. While the Company anticipates soon executing a merger agreement, it can provide no assurances that this will be accomplished.   Originally, the COCARD acquisition was to be accomplished together with the acquisition of Innovative Resource Alliance ("IRA").  The parties have decided that COCARD and the Company will transact directly and that IRA will not be part of this transaction.  A transaction with IRA will be considered at a later date.  </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 3.</font></B><font size=2>&nbsp;</font><b><font size=2> QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK </font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We transact business with merchants exclusively in the United States and receive payment for our services exclusively in United States dollars. As a result, our financial results are unlikely to be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>31</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Our revenues and profits are marginally dependant on overall credit card transactions. Fluctuations in consumer spending within the United States will have a correlation on our revenues and profits.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Our interest expense is sensitive to changes in the general level of interest rates.&nbsp; At March 31, 2008, $175,000 of our outstanding indebtedness was at variable interest rates based on LIBOR. A rise in LIBOR rates of one percentage point would result in additional annual interest expense of $1,750.&nbsp; </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>We do not hold derivative financial or commodity instruments, nor do we engage in any foreign currency denominated transactions, and all of our cash and cash equivalents are held in money market and checking funds. </font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><B><font SIZE=2>ITEM</font></B><font size=2>&nbsp;</font><b><font size=2>4T. </font></b></p> </td>
        <td width="612" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><b><font size=2>Controls and Procedures </font></b></p>
<p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr></table>
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<p style=' margin-bottom:0pt; margin-top:3.75pt; text-indent:0.34in;text-align:left;'>&nbsp;</p>

<p style=' margin-bottom:0pt; margin-top:3.75pt; text-indent:0.34in;text-align:left;'><font size=2>The Company&#146;s management, with the participation of the Company&#146;s chief executive officer and chief financial officer, evaluated the effectiveness of the Company&#146;s disclosure controls and procedures as of March&nbsp;31, 2008. The term &#147;disclosure controls and procedures,&#148; as defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC&#146;s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company&#146;s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company&#146;s disclosure controls and procedures as of March&nbsp;31, 2008 the Company&#146;s chief executive officer and chief financial officer concluded that, as of such date, the Company&#146;s disclosure controls and procedures were effective at the reasonable assurance level. </font></p>

<p style=' margin-bottom:0pt; margin-top:7.5pt; text-indent:0.34in;text-align:left;'><font size=2>There was no change in the internal control over financial reporting that occurred during the period ended March&nbsp;31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. </font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>  PART II.  OTHER INFORMATION</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 1. LEGAL PROCEEDINGS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Pipeline:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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&#146;s position is that there was miscommunication of payment details and a good faith attempt on the Company&#146;s part to communicate this to Iroquois Master Fund. The Company&#146;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&#146; 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&#146;s claim is without merit.&nbsp;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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Valadata:</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>32</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 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)&nbsp;filed suit against Pipeline
Data, Inc. in Maricopa County Superior Court. In its complaint, L60 alleges that Pipeline and Valadata breached&nbsp;certain agreements made in connection with Pipeline&#146;s acquisition of Valadata, and seeks around $1.5M, plus attorneys&#146; fees and costs. Pipeline vigorously disputes the claims, has filed&nbsp;an answer denying any liability and has countersued plaintiff and various related parties&nbsp;for, among other&nbsp;things, breach of contract and tortious interference with contractual relationships. Pipeline&#146;s counterclaims seek compensatory and punitive damages, as well as attorneys&#146; fees. In February of 2008, the Court dismissed Pipeline&#146;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. </font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Garner Gifts contingent payment</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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 believed 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 disagreed. 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&nbsp;approximately $100,000 to our account.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Our Subsidiary SecurePay:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</font></B></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="49" nowrap valign=top style='padding:8.0pt 0in 0in 0in; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>None</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 3. DEFAULTS UPON SENIOR SECURITIES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>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&#146;s position is that there was miscommunication of payment details and a good faith attempt on the Company&#146;s part to communicate this to Iroquois Master Fund. The Company&#146;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.</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>33</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><B><font SIZE=2>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>None</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 5. OTHER INFORMATION</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt; text-indent:0.5in;text-align:left;'><font size=2>None</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K</font></B></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="24" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>(A)</font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font SIZE=2>EXHIBITS</font></p> </td> </tr></table>
</div>


<p style=' margin-bottom:0pt; margin-top:8pt; text-indent:0.5in;text-align:left;'><font size=2>&nbsp;</font></p>


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    <tr >
        <td width="27" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="645" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
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        <td width="27" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>31.1</font></p> </td>
        <td width="645" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 </font></p> </td> </tr>
    <tr >
        <td width="27" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>31.2</font></p> </td>
        <td width="645" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 </font></p> </td> </tr>
    <tr >
        <td width="27" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>32</font></p> </td>
        <td width="645" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Certifications of Chief Executive Officer and Chief Financial Officer </font><br> <font size=2>Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 </font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>34</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'>
<B><font SIZE=2>SIGNATURES</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt; text-indent:0.5in;text-align:left;'><font size=2>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.</font></p>

<p style=' margin-bottom:0pt; margin-top:12pt;text-align:left;'><B><font SIZE=2>PIPELINE DATA INC.</font></B></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>(Registrant)</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="282" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="47" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="282" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="47" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="282" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><br> <font size=2>/s/ MacAllister Smith</font></p> </td>
        <td width="13" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="47" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="282" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="47" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="282" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>MacAllister Smith</font></p> </td>
        <td width="13" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="47" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="282" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="47" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="282" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Executive Officer and President</font></p> </td>
        <td width="13" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="47" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="282" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Financial Officer</font><br> <font size=2>(Principal Financial and Accounting Officer)</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>Date: May 15, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>35</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:16pt;text-align:right;'><b><font size=2>Exhibit 31.1</font></b></p>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><B><font SIZE=2>CERTIFICATIONS</font></B></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>I, MacAllister Smith, certify that:</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>I have reviewed this quarterly report on Form 10-Q of Pipeline Data, Inc;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>2. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Based on my knowledge,  this  quarterly  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 quarterly report;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>3. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this  quarterly  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 quarterly report;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>4. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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:</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>a) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>b) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>c) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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 </font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>5. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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):</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>a) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="45" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>b) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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.</font></p> </td> </tr></table>
</div>


<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>May 15, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=center>

<table border="0" cellspacing=0 cellpadding=0 width="282" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="213" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><br> <font size=2>/s/ MacAllister Smith</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="213" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>MacAllister Smith</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="213" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Executive Officer, President</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>36</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:8pt;text-align:right;'>
<b><font size=2>Exhibit 31.2</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2>I, Donald Gruneisen, certify that:</font></p>


<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>1. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>I have reviewed this quarterly report on Form 10-Q of Pipeline Data, Inc;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>2. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Based on my knowledge,  this  quarterly  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 quarterly report;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>3. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this  quarterly  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 quarterly report;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>4. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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:</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>a) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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;</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>b) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>c) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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 </font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>5. </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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):</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>a) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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</font></p> </td> </tr></table>
</div>



<div align=left>

<table border="0" cellspacing=0 cellpadding=0 width="100%" style='border-collapse:collapse'>
    <tr >
        <td width="48" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:8pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="45" valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>b) </font></p> </td>
        <td  valign=top style='padding:8.0pt 0in 0in 0in'>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0pt;margin-bottom:0pt'><font size=2>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.</font></p> </td> </tr></table>
</div>


<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>May 15, 2008&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=center>

<table border="0" cellspacing=0 cellpadding=0 width="282" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td colspan="2" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="213" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><br> <font size=2>/s/ Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="213" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="29" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="213" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Financial Officer</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>37</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
<!-- EEDocs PBStart-->
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<p style='page-break-before:always'></p>
<!-- EEDocs PBEnd-->

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:right;'>
<b><font size=2>Exhibit 32</font></b></p>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><B><font SIZE=2>CERTIFICATIONS PURSUANT TO</font></B></p>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><B><font SIZE=2>SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</font></B></p>

<p style=' margin-bottom:0pt; margin-top:16pt;text-align:center;'><b><font size=2>(18 U.S.C. SECTION 1350)</font></b></p>

<p style=' margin-bottom:0pt; margin-top:8pt; text-indent:0.5in;text-align:left;'><font size=2>In connection with the Quarterly Report of Pipeline Data Inc., a Delaware corporation (the "Company"), on Form 10-Q for the quarter ended March 31, 2008, 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 &sect; 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. &sect; 1350), that to his knowledge:</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt; margin-left:1in; text-indent:-0.5in;text-align:left;'><font size=2>(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt; margin-left:1in; text-indent:-0.5in;text-align:left;'><font size=2>(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. </font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


<div align=center>

<table border="0" cellspacing=0 cellpadding=0 width="576" style='border-collapse:collapse'>
    <tr style='page-break-inside:avoid'>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="242" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="12" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="242" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="242" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><br> <font size=2>/s/ MacAllister Smith</font></p> </td>
        <td width="12" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=bottom >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:1.0pt;margin-bottom:0pt'><font size=2>By:&nbsp;</font></p> </td>
        <td width="242" valign=bottom style='border-bottom: solid black 1.0pt; '>
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><br> <font size=2>/s/ Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="242" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>MacAllister Smith</font></p> </td>
        <td width="12" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Name:&nbsp;</font></p> </td>
        <td width="242" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Donald Gruneisen</font></p> </td> </tr>
    <tr style='page-break-inside:avoid'>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="242" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Executive Officer and President</font></p> </td>
        <td width="12" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=1>&nbsp;</font></p> </td>
        <td width="40" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Title:&nbsp;</font></p> </td>
        <td width="242" valign=top >
            <p style='margin-left:0pt;text-indent:0pt;text-align:left;margin-top:0in;margin-bottom:0pt'><font size=2>Chief Financial Officer</font><br> <font size=2>(Principal Financial and Accounting Officer)</font></p> </td> </tr></table>
</div>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>Date: May 15, 2008</font></p>

<p style=' margin-bottom:0pt; margin-top:8pt;text-align:left;'><font size=2> [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.]</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:center;'><font size=2>38</font></p>

<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>
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<p style=' margin-bottom:0pt; margin-top:0pt;text-align:left;'><font size=2>&nbsp;</font></p>


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PIPELINE DATA INC
Form 10-Q
x
QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 for the quarter ended March 31, 2008
o
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 jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1515 Hancock Street, Suite 301, Hancock Plaza
Quincy, Massachusetts 02169
(617) 405-2600
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. YES
x
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
Non-accelerated filer
o
(Do not check if smaller reporting company)
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.
Class
Outstanding at May 13, 2008
Common Stock, $0.001 par value
49,773,603
1
PIPELINE DATA INC.
March 31, 2008 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 4T
CONTROLS AND PROCEDURES
PART II
OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
ITEM 4
SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5
OTHER INFORMATION
ITEM 6
EXHIBITS
SIGNATURES
2
PART I
ITEM 1. FINANCIAL STATEMENTS
F-1
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007
F-3 – F-4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)
F-5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)
F-6 – F-7
Notes to Condensed Consolidated Financial Statements (Unaudited)
F-8 - F-24
F-2
PIPELINE DATA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2008
December 31, 2007
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$  242,450
$  995,238
Accounts receivable, net
2,324,454
2,645,825
Interest receivable
16,280
-
Inventory
112,319
91,697
Prepaid expenses and other current assets
132,976
96,032
Note receivable
1,009,781
145,408
Total current assets
3,838,260
3,974,200
PROPERTY AND EQUIPMENT, net
1,488,291
1,395,226
OTHER ASSETS
Restricted cash
664,375
976,228
Merchant portfolios, residual rights and other intangibles, net
12,877,001
13,569,381
Debt issuance costs
831,956
924,396
Deferred  customer acquisition costs, net
541,683
482,856
Notes receivable, net
750,000
746,454
Deferred acquisition costs and other assets
1,502,132
714,382
Goodwill and other intangibles with indefinite lives
43,458,990
43,458,990
Total other assets
60,626,137
60,872,687
TOTAL ASSETS
$  65,952,688
$  66,242,113
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
$ 1,341,908
$ 754,843
Accrued expenses
1,462,422
1,539,670
Notes payable
179,313
192,070
Capital lease obligations
78,435
84,173
Accrued acquisition costs
579,911
579,911
Merchant deposits and loss reserve
816,906
751,833
Total current liabilities
4,458,895
3,902,500
LONG-TERM LIABILITIES
Notes payable-senior secured convertible
31,023,792
30,358,148
Capital lease obligations
60,751
79,892
Deferred rent on operating lease
39,872
41,259
Deferred tax liabilities, net
968,314
1,361,700
Total long-term liabilities
32,092,729
31,840,999
Total liabilities
36,551,624
35,743,499
COMMITMENTS AND CONTINGENCIES
TEMPORARY EQUITY
Common stock subject to put obligations, 9,398,058 shares
14,085,527
13,485,527
Total temporary equity
14,085,527
13,485,527
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value: 5,000,000 shares authorized,
no shares issued or outstanding at March 31, 2008 and December 31, 2007
-
-
Common stock,  $.001 par value: 150,000,000 shares authorized,
40,465,545 shares issued at March 31, 2008 and December 31, 2007
40,466
40,471
Additional paid-in capital
22,935,889
23,471,652
Accumulated deficit
(7,587,558)
(6,425,776)
Less: 90,000 shares of treasury stock, at cost, at March 31, 2008  and
December 31, 2007
(73,260)
(73,260)
Total stockholders' equity
15,315,537
17,013,087
F-3
TOTAL LIABILITIES, TEMPORARY EQUITY  AND STOCKHOLDERS' EQUITY
$  65,952,688
$   66,242,113
The accompanying notes are an integral part of these financial statements
.
F-4
PIPELINE DATA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three months ended
March 31, 2008
Three months ended
March 31, 2007
Revenue
$ 11,410,417
$  11,855,891
Interchange
5,286,664
5,510,835
Cost of services sold
1,739,378
2,352,909
Cost of goods sold
78,398
83,123
Total cost of services and goods sold
7,104,440
7,946,867
Gross profit
4,305,977
3,909,024
Operating expenses
Salaries and payroll cost
1,849,555
1,627,614
Selling, general and administrative
1,592,402
1,190,726
Customer acquisition cost amortization
158,117
100,177
Depreciation
73,266
57,572
Amortization
728,182
697,277
Total operating expenses
4,401,522
3,673,366
Income (loss) from operations
(95,545)
235,658
Other income and expenses
Interest and other income
24,778
56,763
Interest expense
(1,535,975)
(1,637,769)
Total other expenses
(1,511,197)
(1,581,006)
(Loss) before income taxes
(1,606,742)
(1,345,348)
Income tax benefit
(444,960)
(246,939)
Net loss attributable to common equity holders prior to deemed dividend
(1,161,782)
(1,098,409)
Deemed dividend on common stock subject to put obligation
(600,000
)
-
Net (loss) after deemed dividend
$    (1,761,782)
$   (1,098,409)
Basic and diluted (loss) per share attributable to common equity
holders:
$       (0.02)
$        (0.02)
Basic and diluted (loss) per share after deemed dividend:
$       (0.04)
$        (0.02)
Weighted average number of common shares outstanding-basic
and diluted:
49,773,603
48,083,757
The accompanying notes are an integral part of these financial statements.
F-5
PIPELINE DATA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
For the three months ended March 31, 2008
For the three months ended March 31, 2007
OPERATING ACTIVITIES:
Net (loss)
$   (1,161,782)
$   (1,098,409)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
801,448
754,849
Amortization of deferred account acquisition costs
158,117
100,177
Stock based compensation
64,766
108,492
Amortization of debt issuance cost
92,440
92,440
Amortization of discount on  long-term debt
665,644
665,644
Deferred taxes, net
(444,960)
(246,939)
Imputed interest income
(3,547)
(10,640)
Allowance for chargebacks and losses
(5,300)
(29,707)
Gain on disposal of asset
(1,996)
Changes in operating assets and liabilities:
Accounts receivable
326,671
762,871
Interest receivable
(16,280)
7,778
Inventory
(20,622)
7,548
Prepaid expenses and other assets
(36,313)
(67,205)
Deferred account acquisition costs
(216,944)
(166,399)
Deposits and restricted cash
312,087
(64,056)
Accounts payable and accrued expenses
561,390
144,796
Merchant deposits
65,073
81,726
Accrued rent
(1,388)
19,187
Net cash  provided by operating activities
1,138,504
1,062,153
INVESTING ACTIVITIES:
Capital expenditures
(190,136)
(156,265)
Merchant portfolio, residual rights and other intangibles purchase
(10,000)
(150,000)
Notes receivable
(864,373)
300,000
Deferred acquisition costs
(788,615)
(30,000)
Change in restricted cash
-
(137,202)
Net cash used in investing activities
(1,853,124)
(173,467)
FINANCING  ACTIVITIES:
Debt service payments
(12,757)
-
Warrants and stock option exercise
-
2,763
Retirement of restricted stock units
(533)
-
Lease obligation payments
(24,878)
(26,750)
Net cash used in financing activities
(38,168)
(23,987)
Net  increase (decrease) in cash and cash equivalents
(752,788)
864,699
Cash and cash equivalents, beginning of period
995,238
2,770,494
Cash and cash equivalents, end of period
$  242,450
$  3,635,193
Supplemental disclosures:
Cash paid during the period for:
Interest
$ 767,794
$    763,869
Non cash investing and financing activities:
F-6
Capital expenditures from lease prepayments and proceeds from lease
financing
-
$ 126,232
Deemed dividend on common stock subject to put obligation
$600,000
-
The accompanying notes are an integral part of these financial statements
F-7
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
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 interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission  (the "SEC") for interim financial statements and in the opinion of management contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of March 31, 2008, and the consolidated results of operations for the three months ended March 31, 2008 and 2007, and cash flows for the three months ended March 31, 2008 and 2007. These results have been determined on the basis of accounting principles generally accepted in the United States and applied consistently as those used in the preparation of the Company's 2007 Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in the financial statements presented in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that the accompanying financial statements be read in conjunction with the financial statements and notes thereto incorporated by reference in the Company's 2007 Annual Report on Form 10-KSB.
At March 31, 2008, the Company had a cash balance of $0.2 million compared to $1 million at December 31, 2007. 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, the former Charge.com shareholders (the "Charge Shareholders") have the right to sell up to 9,398,058 shares of Pipeline common stock back to Pipeline at a price of $1.5206 per share.  The former shareholders must notify the Company of their decision between May 1, 2008 and 5:00 p.m. (Eastern Daylight Time) on June 30, 2008 (the "Put Right"). The Company has an equal call right on these shares.  If a Charge Shareholder exercises his Put Right, the Company must purchase the shares by no later than July 1, 2008 at the purchase price,
plus interest at an annual rate of 18% accruing from May 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 cannot assure that acquiring such financing is achievable.  If 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.
Certain prior year amounts have been reclassified to conform to the current year presentation.
All intercompany balances and transactions with the Company's subsidiaries have been eliminated upon consolidation.
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.
F-8
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE A – ORGANIZATION AND OPERATIONS (CONTINUED)
Use of Estimates  (continued)
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.
Concentrations
The majority of the Company's merchant processing activity has been 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.
Reclassifications
The prior period presentation of certain accounts has been changed to conform to the current year presentation.
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.
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 $7,500 as of March 31, 2008 and $12,800 as of December 31, 2007.
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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 three months ended March 31, 2008 and March 31, 2007 was $73,266 and $ 57,572, respectively.
Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.
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 three to five 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.
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.
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.
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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting for Goodwill and Intangible Assets (continued)
We estimate for accounting purposes the useful life of our merchant portfolios and residual rights purchases 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.
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 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.
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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Financial Instruments (continued)
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 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.
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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Advertising
The Company expenses advertising costs as they are incurred.
New accounting pronouncements
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 ("FAS 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. The adoption of FAS 157 did not have a material effect on the Company's Consolidated Financial Statements.
F-13
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements (continued)
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 adoption of FAS 159 did not have a material effect on the Company's Consolidated Financial Statements.
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.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the provisions of SFAS No. 161 to have a material impact on our consolidated financial statements.
On December 21, 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain circumstances to continue to use the "simplified" method, in developing estimates of expected term of "plain-vanilla" share options in accordance with Statement of Financial Accounting Standards No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the use of the "simplified" method beyond December 31, 2007.  The Company believes that the adoption of  SAB 110 will not have a material impact  on its consolidated financial statements.
NOTE C– NOTE RECEIVABLE
As of March 31, 2008 notes receivable consisted primarily of unsecured demand notes issued to Innovative Resource Alliance in the amount of $982,000.  The notes accrue interest at the rate of 10% per year.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE D– DEFERRED CUSTOMER ACQUISITION COSTS, NET
A summary of the activity in deferred customer acquisition costs, net for the three months ended March 31, 2008 is a follows:
Deferred customer acquisition costs, net balance as of December 31, 2007
$482,856
Deferred customer acquisition costs capitalized
216,944
Deferred customer acquisition costs amortized
(158,117)
Deferred customer acquisition costs, net balance as of March 31, 2008
$541,683
NOTE E- MERCHANT PORTFOLIOS, RESIDUAL RIGHTS AND OTHER INTANGIBLES, NET
The changes to the merchant portfolio, residual rights and other intangibles balance during the three months ended March 31, 2008 are as follows:
Merchant portfolios, residual rights and other intangibles balance as of  December 31, 2007
$13,569,381
Merchant portfolios, residual rights and other intangibles acquired
10,000
Merchant portfolios, residual rights and other intangibles amortized
(702,380)
Merchant portfolios, residual rights and other intangibles balance as of March 31, 2008
$12,877,001
NOTE F – GOODWILL AND OTHER INTANGIBLES WITH INDEFINITE LIVES
There were no changes to the goodwill and other intangibles with indefinite lives balance during the three months ended March 31, 2008:
Goodwill and other intangibles with indefinite lives balance as of December 31, 2007
$43,458,990
Goodwill and other intangibles with indefinite lives acquired
-
Goodwill and other intangibles with indefinite lives amortized or impaired
-
Goodwill and other intangibles with indefinite lives balance as of March 31, 2008
$43,458,990
NOTE G – 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 noteholders 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.  Noteholders 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 noteholder 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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE G – SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)
Debt/Financing: (continued)
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. The Company may then 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 Centrecourt Financing to register the underlying common stock thereunder. The Registration Rights Agreement provides that we would 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.
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 convertible promissory note at $1.30 per share was deemed effective December 6, 2006.   Pursuant to the Securities and Exchange Commission's industry-wide interpretation of Rule 415, affecting all registrants, the Company registered all shares that were 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 and it was impossible to register more shares due to the interpretation of Rule 415.  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 $346,000, related to the initial late filing of the registration statement pending any settlement.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE G – SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)
Debt/Financing: (continued)
Long-term debt as of March 31, 2008 and December 31, 2007 consists of the following:
March 31,
December 31,
2008
2007
Deferred rent on operating leases
$39,872
$41,259
Other promissory notes and capital leases
139,186
164,065
Senior secured, interest payable at 8.00% due June 29, 2010, convertible at $1.30 per share
37,000,000
37,000,000
37,179,058
37,205,324
Less current portion
(78,435)
(84,173)
Unamortized discount on long-term debt of beneficial conversion feature and warrants
(5,976,208)
(6,641,852)
Long-term debt, excluding current portion
$31,124,415
$30,479,299
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 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.
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PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE H- COMMITMENTS AND CONTINGENCIES
Valadata, Inc contingent payment
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 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 disputes the claims, has filed an answer denying any liability and has 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.
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.
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 believed 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 disagreed. 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.
F-18
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE H- COMMITMENTS AND CONTINGENCIES  (CONTINUED)
Merchant portfolio residual rights acquisition
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 the quoted market price of $1.20 per agreement.
Under the terms of certain processing services agreements, we could be required to purchase merchant account residual payments at a value of approximately $3.2 million if the sales agent exercises that right.
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.
NOTE I – TEMPORARY EQUITY
Common shares subject to put obligation
Between March 4, 2008 and April 30, 2008, 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 $1.4763 per share or $13,874,353 plus interest at the annual rate of 18% accruing from March 4, 2008 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 April 30, 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 May 1, 2008 and 5:00 PM (Eastern Daylight Savings Time) June 30, 2008, to require the Company to repurchase up to 9,398,058 shares of Company common stock at a price of $1.5206 per share. If a former shareholder exercises its Put Right, the Company
must purchase the shares by no later than July 1, 2008 at the purchase price, plus interest at an annual rate of 18% from May 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 June 30, 2008 to purchase some or all of the former shareholders' stock at $1.5206 per share, plus interest at an annual rate of 18% from May 1, 2008.  Management believes it has a number of solutions to address this upcoming deadline.
The increase in temporary equity during the three months ended March 31, 2008 is attributable to the January 3, 2008 and March 4, 2008 amendments which increase the redemption value of the stock.  This deemed dividend is offset by a charge to additional paid in capital.
[remainder of page intentionally left blank]
F-19
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE J – EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing reported earnings available to common shareholders by the weighted average shares outstanding during the period. Earnings available to common shareholders are the same as reported net income(loss) 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 the
average market share
price for the period generally are assumed to have a dilutive effect on earnings per common share.
Three months ended March 31, 2008
Three months ended March 31, 2007
Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share
$
(1,161,782)
$
(1,098,409)
Less: Deemed dividend on common stock subject to put obligation
(600,000)
-
Net loss for purposes of computing basic and diluted earnings per share
$
(1,761,782)
$
(1,098,409)
Weighted average shares outstanding – basic and diluted
49,773,603
48,083,757
Basic and diluted  (loss) per common share attributable to common equity holders:
$
(0.02)
$
(0.02)
Basic and diluted  (loss) per common share after deemed dividend:
$
(0.04)
$
(0.02)
Each of (i) stock options to purchase 10,836,554 shares of common stock, (ii) warrants to purchase 15,285,714 shares of common stock and (iii) senior secured debt convertible into 28,461,538 shares of common stock, all outstanding as of March 31, 2008 were potentially dilutive and were not included within earnings per share. To do so would have been anti-dilutive for the three months ended March 31, 2008.
NOTE K-ADVERTISING
The Company expenses advertising costs as they are incurred.  Advertising expenses for the three months ended March 31, 2008 and 2007 were $271,686 and $219,154 respectively.
NOTE L - PENSION PLAN-DEFINED CONTRIBUTION
During the third quarter of 2006, the Company adopted a Simple IRA Plan. Under this plan the Company matched employee contributions up to one percent of eligible compensation. The Company matched contribution was increased to three percent as of January 1, 2008.  The amount recognized as an expense during the three months ended March 31, 2008 and 2007 was $25,325 and $9,118, respectively.
F-20
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE M- STOCK OPTIONS AND WARRANTS
Stock-Based Compensation
The Company has adopted the provisions of SFAS 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 $64,766 and $108,492 for the three months ended March 31, 2008 and 2007, 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 as amended by Staff Accounting Bulletin 110. 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 three months ended March 31, 2008 was $0.12
Assumptions utilized are shown as follow:
Three months ended
March 31, 2008
Expected volatility
38.4%
Expected life
2.5 yrs
Expected dividends
0
Risk-free interest rate
3.8%
As of March 31, 2008, the Company has reserved an aggregate of 10,836,554 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 Value
Options outstanding, December 31, 2007
10,716,554
$    1.42
3.8
$    664,322
Forfeited
-
-
-
Exercised
-
-
-
Issued
120,000
1.00
-
-
Options outstanding,
March 31, 2008
10,836,554
$    1.42
3.6
$      38,150
Options exercisable,
March 31, 2008
8,483,301
$    1.36
2.9
$     38,150
F-21
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE M- STOCK OPTIONS AND WARRANTS (CONTINUED)
Stock-Based Compensation (continued)
There were no options exercised during the three months ended March 31, 2008.
A summary of the non-vested restricted stock unit activity for the three months ended March 31, 2008 is presented below.
Restricted Stock Units
Three months ended
March 31, 2008
Weighted-Average Grant-Date Fair Value
Number of Units
Non-vested at December 31. 2007
46,667
$0.96
Granted
-
Vested
(25,000)
$0.95
Forfeited
-
Non-vested at March 31, 2008
21,667
$0.97
NOTE N- 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 March 31, 2008, the Company had deferred tax assets of $1,781,446, deferred tax liabilities of $2,749,760, and no material current tax liability.
At December 31, 2007, the Company has net operating loss carryforwards for income tax purposes of approximately $5,100,000. These carryforward losses are available to offset future taxable income, if any, and expire in the year 2027.
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 tax benefit as a result of changes in deferred tax assets and liabilities was $444,960 and $246,939 for the three months ended March 31, 2008 and 2007, respectively.
Interest and penalties related to income taxes are classified as interest expense.
F-22
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2008
NOTE O – 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 three months ended March 31, 2008 and 2007 was $40,000 and $20,000, respectively.   $40,000 was payable to Capital Advisory Services at March 31, 2008 and $10,000 payable at December 31, 2007.
NOTE P - SUBSEQUENT EVENTS
COCARD®
Acquisition
On April 23, 2008,  the Company entered into a non-binding term sheet to purchase COCARD® Marketing Group LLC, ("COCARD"), formerly to be acquired as part of the Innovative Resource Alliance acquisition.    COCARD, a Nashville, Tennessee-based merchant services provider, caters primarily to small and medium-sized retail accounts. COCARD currently services over 25,000 merchants.  Pipeline would purchase COCARD for approximately $70 million in cash plus notes estimated to be in the amount of $10 million.
The Company is currently working with COCARD on a merger agreement between the parties. While the Company anticipates soon executing a merger agreement, it can provide no assurances that this will be accomplished.   Originally, the COCARD acquisition was to be accomplished together with the acquisition of Innovative Resource Alliance ("IRA").  The parties have decided that COCARD and the Company will transact  directly and that IRA will not be part of this transaction.  A transaction with IRA will be considered at a later date.
F-23
Item 2. Management's Discussion and Analysis or Plan of Operation.
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, or "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.
•
The Nilson Report 2007, ranked Pipeline Data as the fifth fastest growing merchant acquirer during the year ended December 31, 2007.
•
In a 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 ISOs/VARs and a national cell phone carrier.
27
•
Pipeline is one of a limited number of companies to be deemed by Visa as both 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 – Three months ended March 31, 2008
Following are some financial and operational highlights that are further explained in the paragraphs that follow.
Gross Profit, which is defined as total revenue less interchange fees, cost of services sold and cost of goods sold, increased 10.2% to $ 4.3 million for the three months ended March 31, 2008 from $3.9 million during the three months ended March 31, 2007.
Cash flow from operations increased to $1,138,504 for the three months ended March 31, 2008 compared to $1,062,153 for the three months ended March 31, 2007.
Our processing volume for the three months ended March 31, 2008 was $334 million, an 11% decrease from the $376 million processed during the same period in 2007. This decrease is attributable to the termination of unprofitable accounts, evidenced by the disclosed increase in gross profit.
Net loss increased from $1.1 million to $1.2 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.
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
28
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 March 31, 2008 and December 31, 2007, we held merchant deposits totaling $597,000 and $538,000, 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 March 31, 2008 and December 31, 2007, our loss reserve totaled $220,000 and $214,000 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 three months
ended March 31, 2008, we incurred $0.9 million of customer acquisition related expenses, of which, $217,000 was capitalized.  During the three months ended March 31, 2007, we incurred $.8 million of customer acquisition related expenses of which, $166,000 was capitalized.  We amortized $158,000 and $100,000 of previously capitalized customer acquisition costs for the three months ended March 31, 2008 and 2007, 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 boarded accounts in relationship to the carrying amount of the deferred customer acquisition costs. Our deferred customer acquisition cost was approximately $542,000 and $483,000 as of March 31, 2008 and December 31, 2007, respectively.
29
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.
Earnings per common share
Basic earnings per common share is computed by dividing reported earnings available to common shareholders by the weighted average shares outstanding during the period. Earnings available to common shareholders are the same as reported net income(loss) 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 the
average market share
price for the period generally are assumed to have a dilutive effect on earnings per common share.
30
Three months ended March 31, 2008
Three months ended March 31, 2007
Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share
$
(1,161,782)
$
(1,098,409)
Less: Deemed dividend on common stock subject to put obligation
(600,000)
-
Net loss for purposes of computing basic and diluted earnings per share
$
(1,761,782)
$
(1,098,409)
Weighted average shares outstanding – basic and diluted
49,773,603
48,083,757
Basic and diluted  (loss) per common share attributable to common equity holders:
$
(0.02)
$
(0.02)
Basic and diluted  (loss) per common share after deemed dividend:
$
(0.04)
$
(0.02)
Results of Operations
Three months ended March 31, 2008 Compared to Three months ended March 31, 2007
The following table shows certain income statement data as a percentage of revenue for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 (in thousands of dollars):
Three months ended March 31, 2008
% of
Revenue
Three months ended March 31, 2007
% of
Revenue
Change
% Change
Revenue
11,410
100
%
11,858
100
%
(448)
-3.8
%
Interchange
5,287
46.3
%
5,511
46.5
%
(224)
-4.1
%
Other cost of services/goods sold
1,817
15.9
%
2,439
20.6
%
(622)
-25.5
%
Total costs of services and goods sold
7,104
62.3
%
7,950
67.0
%
(846)
-10.6
%
Gross profit
4,306
37.7
%
3,908
33.0
%
398
10.2
%
Salaries and payroll costs
1,850
16.2
%
1,628
13.7
%
222
13.6
%
Other selling, general and administrative
1,592
14.0
%
1,191
10.0
%
401
33.7
%
Customer acquisition cost amortization
158
1.4
%
100
0.8
%
58
58.0
%
Depreciation and amortization
801
7.0
%
755
6.4
%
46
6.1
%
Total operating expenses
4,401
38.6
%
3,674
31.0
%
727
19.8
%
Income (loss) from operations
(95)
-0.8
%
234
2.0
%
(329)
-140.6
%
Other income (expenses)
(1,511
)
-13.2
%
(1,581
)
-13.3
%
70
-4.4
%
Income (loss) before income taxes
(1,606
)
-14.1
%
(1,347
)
-11.4
%
(259)
19.2
%
Income tax benefit
(445
)
-3.9
%
(247
)
-2.1
%
(198)
80.2
%
Net income (loss)
(1,161
)
-10.2
%
(1,100
)
-9.3
%
(61
)
5.5
%
31
Comparisons of three months ended March 31, 2008 and March 31, 2007
Revenues
Revenues decreased $0.4 million or 3.8% to $11.4 million for the three months ended March 31, 2008 from $11.8 million for the three months ended March 31, 2007. The decrease was primarily attributable to a reduction in overall transaction volume resulting in large measure from the removal of unprofitable accounts.
Interchange expenses
Interchange expenses decreased $0.2 million or 4.1% to $5.3 million for the three months ended March 31, 2008 from $5.5 million for the three months ended March 31, 2007. The decrease was primarily attributable to a decrease in processing volume to $ 334.5 million for the three months ended March 31, 2008 from $375.6 million for the three months ended March 31, 2007.
Other costs of goods and services sold
Other costs of goods and services sold decreased $0.6 million or 25.5% to $1.8 million for the three months ended March 31, 2008 as compared to $2.4 million for the three months ended March 31, 2007
.
This resulted from decrease in overall external processing costs which effectively increased our gross profit.
Gross Profit
Gross profit
increased $0.4 million or 10.2% to $4.3 million for the three months ended March 31, 2008 from $3.9 million for the three months ended March 31, 2007.
Operating Expenses
Total operating expenses increased $0.7 million or 19.8% to $4.4 million for the three months ended March 31, 2008 from $3.7 million for the three months ended March 31, 2007. 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 $222,000 or 13.6% to $1.8 million for the three months ended March 31, 2008 as compared to $1.6 million for the three months ended March 31, 2007. The increase was due primarily to preparation for our anticipated mergers which included commitments of additional personnel to manage higher levels of customer service as well as risk and underwriting associated with the pending acquisition transactions.  2008 salaries and payroll cost include share-based payments of $33,000 for the three months ended March 31, 2008.
•
Selling, general and administrative expenses increased $401,000 or 33.7% to $1.6 million for the three months ended March 31, 2008 as compared to $1.2 million for the three months ended March 31, 2007. A $28,000 increase was due primarily to a planned increase in our advertising and marketing efforts.  We anticipate seeing the results of these expenditures to be represented in subsequent quarters. Additionally, we experienced an increased expense of $139,000, primarily attributable to merchant related collection expenses and an increase of $147,000 in one-time costs related to legal, auditing and other professional services.  Selling, general and administrative expense for the three months ended March 31, 2008 includes $32,000 of share based payments.
•
Deferred customer acquisition cost amortization increased $58,000 or 58% to $158,000 for the three months ended March 31, 2008 as compared to $100,000 for the three months ended March 31, 2007.
•
Depreciation and amortization increased $46,000 or 6.1% to $801,000 for the three months ended March 31, 2008 as compared to $755,000 for the three months ended March 31, 2007.
32
Operating Income(loss)
Operating income decreased $329,000 to a loss of ($95,000) for the three months ended March 31, 2008 from $234,000 for the three months ended March 31, 2007. The decrease in operating income was primarily attributable to increased selling, general and administrative expenses related to initiatives in preparation for anticipated acquisitions. .  Operating income as a percentage of gross revenue was -0.8% for the three months ended March 31, 2008 as compared to 2.0% for the three months ended March 31, 2007.
Other Expenses
Other expenses decreased $0.1 million to $1.5 million for the three months ended March 31, 2008 from $1.6 million for the three months ended March 31, 2007. Other expenses primarily consisted of $1.5 million related to interest expense for the three months ended March 31, 2008, which included cash interest and fees of  $0.8 million and $0.8 million of non-cash interest related to the amortization of debt issuance costs and discount on long-term debt.
Income Tax
Income tax benefit increased to $ 445,000 for the three months ended March 31, 2008 from a tax benefit of $247,000 for the three months ended March 31, 2007. The increase was primarily due to changes in net deferred tax assets and deferred tax liability balances as of the end of the three months. The decrease in income before income taxes is due in part to the increase in other expenses as outlined above.
Net loss
As a result of the above factors, net loss increased from $(1.1) million for the three months ended March 31, 2007 to $(1.2) million for the three months ended March 31, 2008.
Balance Sheet Information
March 31, 2008
December 31, 2007
Selected Balance Sheet Data
(in thousands)
Cash and cash equivalents
$
242
$
995
Other current assets
3,596
2,981
Property and equipment, net
1,488
1,395
Goodwill
43,459
43,459
Merchant portfolios, residual rights and other intangibles, net
12,877
13,569
Other assets
4,290
3,843
Total assets
$
65,952
$
66,242
Accounts payable and other current liabilities
$
4,458
$
3,902
Long-term debt and notes payable
32,093
31,841
Total liabilities
36,551
35,743
Total temporary equity
14,086
13,486
Total stockholders' equity
15,315
17,013
Total liabilities, temporary equity and stockholders' equity
$
65,952
$
66,242
March 31, 2008 Compared to December 31, 2007
27
Total assets decreased $290,000 or 0.4% to $65.9 million at March 31, 2008 from $66.2 million at December 31, 2007. The decrease was primarily attributable to amortization of intangible assets. Additionally, receivables, deferred acquisition and financing costs, restricted cash, and property and equipment expanded commensurate with business growth and acquisition plans. Cash and cash equivalents decreased by $0.8 million or 75.7%, as the result of cash flow from operations being less than cash flow used in financing and investing activities.
Receivables, which primarily result from merchant processing fees from our merchants during the processing month and the collections 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 periods, decreased $0.3 million, or 12.2%, to $2.3 million at March 31, 2008 from $2.6 million at December 31, 2007. The decrease in receivables from merchants was primarily due to decreased processing volume.
Notes receivable included in other current assets increased $864,000 to $1.0 million as of March 31, 2008 compared to $145,000 as of December 31, 2007 primarily due to loans to Innovative Resource Alliance, Inc.
Property and equipment, net increased $93,000 to $1.5 million, or 6.7% as of March 31, 2008 from $1.4 million as of December 31, 2007, 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.
Deferred acquisition costs and other assets increased $788,000 to $1.5 million as of March 31, 2008 compared to $714,000 as of December 31, 2007 as a result of costs associated with obtaining financing related to the acquisition of Innovative Resource Alliance and COCARD®.
Goodwill was unchanged and merchant portfolio, residual rights and other intangibles decreased a net amount of $692,000   or 5.1%,  primarily from the  amortization of those intangibles.
Total liabilities increased $0.8 million or 2.3% to $36.5 million at March 31, 2008 from $35.7 million at December 31, 2007.
Temporary equity of $14.1 million at March 31, 2008 increased $0.6 million from $13.5 million at December 31, 2007.  The increase in temporary equity during the three months ended March 31, 2008 is attributable to the January 3, 2008 and March 4, 2008 amendments to the repurchase obligation or "Put Right" related to the Charge.com acquisition, which increased the redemption value of the stock by $600,000.  This deemed dividend is offset by a charge to additional paid in capital.
Total stockholders' equity decreased $1.7 million from December 31, 2007, primarily due net losses of $1.2 million and the increase in the value of the repurchase obligation of $600,000 related to the temporary equity which was charged to additional paid in capital during the three months ended March 31, 2008.
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
Three months ended March 31,
2008
2007
Selected Statement of Cash Flows Data
(in thousands)
Cash flow from operations
$1,139
$1,062
Cash flow from investing activities
(1,853)
(173)
Cash flow from financing activities
(38)
(24)
Total change in cash
(752)
865
28
Cash balance, period end
$242
$3,635
At March 31, 2008, we had a cash balance of $0.2 million compared to $1.0 million at December 31, 2007. Cash flow from operations may not be sufficient over the next twelve months to fund operating and debt 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.  If such financing could not be raised, we would attempt to reduce our operating expenses and capital expenditures or liquidate certain assets to pay this obligation.
Contingent cash payments over the next 12 months are as follows. Pursuant to the Charge.com acquisition, the former Charge.com shareholders (the "Charge Shareholders") have the right to sell up to 9,398,058 shares of Pipeline common stock back to Pipeline at a price of $1.5206 per share.  The former shareholders must notify Pipeline of their decision between May 1, 2008 and 5:00 p.m. (Eastern Daylight Time) on June 30, 2008 (the "Put Right"). If a Charge Shareholder exercise their Put Right, the Company must purchase the shares by no later than July 1, 2008 at the purchase price, plus interest at the annual rate of 18% from May 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.
Under the terms of certain processing services agreements, we could be required to purchase merchant account residual payments at a value of approximately $3.2 million if the sales agent exercises that right.
Pursuant to the Valadata acquisition, in the event certain milestones were reached by July 2007, we could have been required to pay the former Valadata shareholders up to an additional $782,631 and a subsequent installment of $782,631 in July 2008.  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 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. L60, the former stockholder of Valadata, 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
disputes the claims, have filed an answer denying any liability and have countersued plaintiff and various related parties for, among other things, breach of contract. The case is now proceeding to discovery.
.
Our cash requirements include cost of revenues, selling, general and administrative expenses, income taxes, debt service payments, financing commitment costs, capital expenditures, systems development and contingent payment on 2005 and 2006 business and portfolio acquisitions, including, Paynet Systems, World Products, and Charge.com.  Our principal sources of funds are cash generated by operations and borrowings.
Cash Flow Provided by (Used by) Operating Activities
Net cash provided by operating activities was $1.1 million for the three months ended March 31, 2008, an increase of $76,000 from $1.0 million for the three months ended March 31, 2007. Cash interest expense consumed $768,000 for the three months ended March 31, 2008, an increase of $4,000 from $764,000 for the three months ended March 31, 2007. Additionally, sources of cash of $974,000 resulted from changes in net operating assets and liabilities.
Cash Flow Provided by (Used by) Investing Activities
Net cash used by investing activities was $1.9 million for the three months ended March 31, 2008 as compared to a use of $173,000 for the three months ended March 31, 2007.
$864,000 of funds were invested in notes receivable during the three months ended March 31, 2008 compared to $300,000 of funds provided from the repayment to us of outstanding notes receivable during the three months ended March 31, 2007.  The increase in notes receivable was related to the pending acquisition of Innovative Resource Alliance.  Deferred acquisition cost increased $789,000 during the three months ended March 31, 2008 compared to $30,000 for the three months ended March 31, 2007.  These expenditures were composed of investment banking, commitment fees and due diligence costs related to the pending acquisition of Innovative Resource Alliance and COCARD®.
29
Total capital expenditures for the three months ended March 31, 2008 were $190,000 compared to $156,000 invested in the three months ended March 31, 2007. 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 by)
Financing Activities
Net cash used in financing activities was $38,000 for the three months ended March 31, 2008 as compared to $24,000 for the three months ended March 31, 2007.
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 its operations, 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 Non-GAAP Financial Measures to 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)
Three month period ended March 31
2008
2007
Net (loss)
$(1,162)
$(1,098)
Interest expense
1,536
1,638
Income tax benefit
(445)
(247)
Depreciation and amortization
801
755
Amortization of customer acquisition costs
158
100
EBITDA
888
1,148
Stock-based compensation classified as salaries
33
57
Stock-based payments for services
32
51
Adjusted EBITDA
$953
$1,256
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.
New accounting pronouncements
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
30
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 adoption of FAS 159 did not have a material effect on the Company's Consolidated Financial Statements.
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.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the provisions of SFAS No. 161 to have a material impact on our consolidated financial statements.
On December 21, 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 ("SAB 110") to permit entities, under certain circumstances to continue to use the "simplified" method, in developing estimates of expected term of "plain-vanilla" share options in accordance with Statement of Financial Accounting Standards No. 123R Share-Based Payment. SAB 110 amended SAB 107 to permit the use of the "simplified" method beyond December 31, 2007.  The Company believes that the adoption of SAB 110 will not have a material impact on its consolidated financial statements.
COCARD®
Acquisition
On April 23, 2008,  the Company entered into a non-binding term sheet to purchase COCARD® Marketing Group LLC, ("COCARD"), formerly to be acquired as part of the Innovative Resource Alliance acquisition.    COCARD, a Nashville, Tennessee-based merchant services provider, caters primarily to small and medium-sized retail accounts. COCARD currently services over 25,000 merchants.  Pipeline would purchase COCARD for approximately $70 million in cash plus notes estimated to be in the amount of $10 million.
The Company is currently working with COCARD on a merger agreement between the parties. While the Company anticipates soon executing a merger agreement, it can provide no assurances that this will be accomplished.   Originally, the COCARD acquisition was to be accomplished together with the acquisition of Innovative Resource Alliance ("IRA").  The parties have decided that COCARD and the Company will transact directly and that IRA will not be part of this transaction.  A transaction with IRA will be considered at a later date.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We transact business with merchants exclusively in the United States and receive payment for our services exclusively in United States dollars. As a result, our financial results are unlikely to be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.
31
Our revenues and profits are marginally dependant on overall credit card transactions. Fluctuations in consumer spending within the United States will have a correlation on our revenues and profits.
Our interest expense is sensitive to changes in the general level of interest rates.  At March 31, 2008, $175,000 of our outstanding indebtedness was at variable interest rates based on LIBOR. A rise in LIBOR rates of one percentage point would result in additional annual interest expense of $1,750.
We do not hold derivative financial or commodity instruments, nor do we engage in any foreign currency denominated transactions, and all of our cash and cash equivalents are held in money market and checking funds.
ITEM
4T.
Controls and Procedures
The Company's management, with the participation of the Company's chief executive officer and chief financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2008. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company's disclosure controls and procedures as of March 31, 2008 the Company's chief executive officer and chief financial officer concluded that, as of such date, the Company's disclosure controls and procedures were effective at the reasonable assurance level.
There was no change in the internal control over financial reporting that occurred during the period ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II.  OTHER INFORMATION
ITEM 1. 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.
Valadata:
32
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 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 disputes the claims, has filed an answer denying any liability and has 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.
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 believed 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 disagreed. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON 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 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.
33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)
EXHIBITS
31.1
Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
34
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:
Donald Gruneisen
Name:
MacAllister Smith
Name:
Donald Gruneisen
Title:
Chief Executive Officer and President
Title:
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 2008
35
Exhibit 31.1
CERTIFICATIONS
I, MacAllister Smith, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Pipeline Data, Inc;
2.
Based on my knowledge,  this  quarterly  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 quarterly report;
3.
Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this  quarterly  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 quarterly 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.
May 15, 2008
By:
/s/ MacAllister Smith
Name:
MacAllister Smith
Title:
Chief Executive Officer, President
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Exhibit 31.2
I, Donald Gruneisen, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Pipeline Data, Inc;
2.
Based on my knowledge,  this  quarterly  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 quarterly report;
3.
Based on my  knowledge,  the  financial  statements,  and  other  financial information  included  in this  quarterly  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 quarterly 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.
May 15, 2008
By:
/s/ Donald Gruneisen
Name:
Donald Gruneisen
Title:
Chief Financial Officer
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Exhibit 32
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Pipeline Data Inc., a Delaware corporation (the "Company"), on Form 10-Q for the quarter ended March 31, 2008, 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 § 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 Gruneisen
Name:
MacAllister Smith
Name:
Donald Gruneisen
Title:
Chief Executive Officer and President
Title:
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 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.]
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