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        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><a name="_Toc119817790"></a></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 16pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>UNITED STATES<br>
        SECURITIES AND EXCHANGE COMMISSION</b></p>

        <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>Washington, D.C. 20549</b></p>

        <p style="MARGIN-TOP: 8pt; FONT-WEIGHT: bold; FONT-SIZE: 18pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px; FONT-FAMILY: 'TIMES NEW ROMAN BOLD'" align="center"><b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PIPELINE DATA INC.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</b></p>

        <p style="MARGIN-TOP: 3pt; FONT-WEIGHT: bold; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 3pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><sup>______________</sup></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 16pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>Form 10-Q</b></p>

        <p style="MARGIN-TOP: 3pt; FONT-WEIGHT: bold; FONT-SIZE: 10.5pt; MARGIN-BOTTOM: 3pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><sup>______________</sup></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: -36px" align="left"><font style="FONT-FAMILY: 'WINGDINGS'">x</font> QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarter ended September 30, 2008</p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: -36px" align="left">[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________ to ________________</p>

        <p></p>

        <table cellspacing="0" cellpadding="0" width="65%" align="center" border="0">
            <tr>
                <td valign="bottom" width="48%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: -9px" align="center">Delaware</p>
                </td>

                <td valign="bottom" width="3%">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="48%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">13-3953764</p>
                </td>
            </tr>

            <tr>
                <td valign="bottom" width="48%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: -9px" align="center">(State or jurisdiction of<br>
                    incorporation or organization)</p>
                </td>

                <td valign="bottom" width="3%">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="48%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">(I.R.S. Employer<br>
                    Identification Number)</p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<font style="FONT-SIZE: 10pt">1515 Hancock Street, Suite 301, Hancock Plaza</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt">(617) 405-2600</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt">(Address and telephone number of principal executive offices)</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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 style="FONT-FAMILY: 'WINGDINGS'">x</font> <font style="FONT-SIZE: 10pt">NO &bull;<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">&ldquo;large accelerated filer&rdquo;,</font> <font style="FONT-SIZE: 10pt">&ldquo;accelerated filer&rdquo;</font>
        <font style="FONT-SIZE: 10pt">and</font> <font style="FONT-SIZE: 10pt">&ldquo;smaller reporting company&rdquo;</font> <font style="FONT-SIZE: 10pt">in Rule 12b-2 of the Exchange Act.</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Large accelerated filer&nbsp;&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt">Accelerated filer&nbsp;&bull;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Non-accelerated filer&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt">&bull;</font> <font style="FONT-SIZE: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Do not check if smaller reporting company)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt">Smaller reporting company&nbsp;</font><font style="FONT-FAMILY: 'WINGDINGS'">x</font><br>
        &nbsp;<br>
        <font style="FONT-SIZE: 10pt">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;&bull;&nbsp;No&nbsp;</font><font style="FONT-FAMILY: 'WINGDINGS'">x</font><br>
        &nbsp;<br>
        <font style="FONT-SIZE: 10pt">Indicate the number of shares outstanding of each of the registrant&rsquo;s classes of common stock as of the latest practicable date.</font></p>

        <table cellspacing="0" cellpadding="0" width="100%" align="center" border="0">
            <tr>
                <td valign="bottom" width="48%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="0%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="20%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="8%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="22%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td style="BORDER-BOTTOM: #000000 0.5pt solid" valign="bottom">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>Class</b></p>
                </td>

                <td valign="bottom">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td style="BORDER-BOTTOM: #000000 0.5pt solid" valign="bottom" colspan="3">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>Outstanding at</b> <b>November</b> <b>1</b><b>0</b><b>, 2008</b></p>
                </td>
            </tr>

            <tr>
                <td style="BORDER-TOP: medium none" valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">Common Stock, $0.001 par value</p>
                </td>

                <td valign="bottom">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="top" width="8%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">49,820,269</p>
                </td>

                <td valign="top" width="22%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt"><br>
        &nbsp;</font></p>

        <p></p>
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        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>PIPELINE DATA INC.</b></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">September 30, 2008 QUARTERLY REPORT ON FORM 10-Q<br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt">TABLE OF CONTENTS</font></b><br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="98%" border="0">
            <tr>
                <td valign="bottom" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="bottom" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="bottom" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="bottom" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">PART I</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">FINANCIAL INFORMATION</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 1</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">FINANCIAL STATEMENTS</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 2</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 3</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 4T</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">CONTROLS AND PROCEDURES</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">PART II</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">OTHER INFORMATION</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 1</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">LEGAL PROCEEDINGS</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 2</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 3</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">DEFAULTS UPON SENIOR SECURITIES</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="bottom" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 4</p>
                </td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="bottom" width="508">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</p>
                </td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="bottom" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="bottom" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 3.6pt">
                <td valign="top" width="98">&nbsp;</td>

                <td valign="top" width="6">&nbsp;</td>

                <td valign="top" width="508">&nbsp;</td>

                <td valign="bottom" width="49">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="98">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 5</p>
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                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">OTHER INFORMATION</p>
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                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">ITEM 6</p>
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                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: 0px" align="left">EXHIBITS</p>
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                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">SIGNATURES</p>
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        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000"><a name="_Toc119822024"></a><a name="_Toc119818453"></a><a name="_Toc119817788"></a><a name="id_0_15"></a></font>&nbsp;</p>

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        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000">PART I</font></p>

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        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="COLOR: #000000">ITEM 1. FINANCIAL STATEMENTS</font></p>

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        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><i><font style="FONT-SIZE: 8pt">T he accompanying notes are an integral part of these financial statements</font></i><i><font style="FONT-SIZE: 8pt">.</font></i></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">1</a></p>
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        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</font></b></p>

        <p></p>

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                <td valign="bottom" width="516" colspan="2">&nbsp;</td>

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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Page</font></u></p>
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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
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                <td valign="bottom" width="144">
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                <td valign="bottom" width="516" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Item 1 - Financial Statements</font></p>
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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
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                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
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                <td valign="top" width="60">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Condensed Consolidated Balance Sheets as of</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">(unaudited) and</font>
                    <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">December 31, 2007</font></p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">F-3 &ndash; F-4</font></p>
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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
                </td>
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                <td valign="top" width="60">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Condensed Consolidated Statements of Operations for the</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">ended</font>
                    <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">2007</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">(unaudited)</font></p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">F-5</font></p>
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                <td valign="top" width="60">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
                </td>
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            <tr style="HEIGHT: 23.1pt">
                <td valign="top" width="60">&nbsp;</td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Condensed Consolidated Statements of Operations for the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2007</font>
                    <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(unaudited) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">F-6</font></p>
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                <td valign="top" width="60">&nbsp;</td>

                <td valign="bottom" width="455">&nbsp;</td>

                <td valign="bottom" width="144">&nbsp;</td>
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            <tr style="HEIGHT: 23.1pt">
                <td valign="top" width="60">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Condensed Consolidated Statements of Cash Flows for the</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">ended</font>
                    <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">2007</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">(unaudited)</font></p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">F-7 - F-8</font></p>
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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
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                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
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                <td valign="top" width="60">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Notes to Condensed Consolidated Financial Statements (Unaudited)</font></p>
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                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">F-9</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">- F-27</font></p>
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                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="455">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>
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        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><i><font style="FONT-SIZE: 8pt">T he accompanying notes are an integral part of these financial statements</font></i><i><font style="FONT-SIZE: 8pt">.</font></i></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">2</a></p>
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        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 2in; TEXT-INDENT: 36px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp; PIPELINE DATA INC.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;CONDENSED CONSOLIDATED BALANCE SHEETS</font></b></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><a name="OLE_LINK1"></a></p>

        <table cellspacing="0" cellpadding="0" width="600" border="0">
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                <td valign="top" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></b></p>
                </td>

                <td valign="top" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31, 2007</font></b></p>
                </td>
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            <tr style="HEIGHT: 12.6pt">
                <td valign="top" width="399">&nbsp;</td>

                <td valign="top" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(unaudited)</font></b></p>
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                <td valign="top" width="113">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 12.6pt">
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ASSETS</font></b></p>
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                <td valign="top" width="117">&nbsp;</td>

                <td valign="top" width="113">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 12.6pt">
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">CURRENT ASSETS</font></p>
                </td>

                <td valign="top" width="117">&nbsp;</td>

                <td valign="top" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cash and cash equivalents</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">80,597</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;995,238</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts receivable, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,133,964</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,645,825</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Inventory</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">107,192</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">91,697</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Prepaid expenses and other current assets</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">183,414</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">96,032</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Notes</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">receivable</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">145</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">408</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Total current assets</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">505</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">167</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">974</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">00</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">PROPERTY AND EQUIPMENT, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">63</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">215</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">395</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">226</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">OTHER ASSETS</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Restricted cash</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">926,768</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">976,228</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Merchant portfolios, residual rights and other intangibles, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">10,877,160</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">13,569,381</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Debt issuance costs</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">647,077</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">924,396</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Deferred&nbsp; customer acquisition costs, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">621,295</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">482,856</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Notes receivable, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">750,000</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">746,454</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">offering and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">acquisition costs and other assets</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,510,236</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">714,382</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Goodwill and other intangibles with indefinite lives</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">43,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">465</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">656</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">43</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">458</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">990</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other assets</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">58</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">798</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">192</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">60</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">872</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,6</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">8</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; TOTAL ASSETS</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp; 6</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">2,866</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,574</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">$&nbsp; 66,242</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,113&nbsp;</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="bottom" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&rsquo;</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">EQUITY</font></b></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 4pt">
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">CURRENT LIABILITIES</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts payable&nbsp;&nbsp;</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,238,234</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">754,843</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accrued expenses</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,522,188</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,539,670</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Notes payable</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">204,535</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">192,070</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Capital lease obligations</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">86,750</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">84,173</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accrued acquisition costs</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">579,911</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">579,911</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant deposits and loss reserve</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,255</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">121</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">751,833</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total current liabilities</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">886,739</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">902</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">500</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">LONG-TERM LIABILITIES</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Notes payable-senior secured convertible</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">32,355,080</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30,358,148</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Capital lease obligations</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">59,448</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">79,892</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Deferred rent on operating lease</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">36,387</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">41,259</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Deferred tax liabilities, net</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">14</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">967</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">361</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">700</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total long-term liabilities</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">32,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">465</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">882</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">31,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">840</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">999</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total liabilities</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">352</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">62</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">743</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,49</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">9</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">COMMITMENTS AND CONTINGENCIES</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">TEMPORARY EQUITY</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: -36px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Common stock subject to put obligations, 9,398,058 shares, issued and outstanding</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">15</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">377</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">985</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">485</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">527</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total temporary equity</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">377</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">985</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">485</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">527</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">STOCKHOLDERS&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">EQUITY&nbsp;</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Preferred stock, $.001 par value: 5,000,000 shares authorized,</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: -36px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;no shares issued or outstanding at</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31, 2007</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></b></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></b></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Common stock,&nbsp; $.001 par value: 150,000,000 shares</font><br>
                    <br>
                    <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">authorized,</font></p>
                </td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: -36px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 40,512,211</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">40,465,545</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shares issued and outstanding at</font>
                    <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31, 2007, respectively</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">40,512</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">40,471</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Additional paid-in capital</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">21,783,729</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">23,471,652</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accumulated deficit</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(11,615,013</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(6,425,776</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Less: 90,000 shares of treasury stock, at cost, at</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30,</font><br>
                    <br>
                    <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008&nbsp;&nbsp;and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31, 2007</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(73,260)</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">73</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,260)</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 6.8pt">
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Total stockholders&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">equity</font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">0</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">135</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">968</font></u></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,01</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">087</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 9.9pt">
                <td valign="top" width="399">&nbsp;</td>

                <td valign="bottom" width="117">&nbsp;</td>

                <td valign="bottom" width="113">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 9.9pt">
                <td valign="top" width="399">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;TOTAL LIABILITIES, TEMPORARY EQUITY&nbsp; AND STOCKHOLDERS&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">EQUITY<br>
                    <br>
                    </font></p>
                </td>

                <td valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp; 6</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">2,866</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,574</font></p>
                </td>

                <td valign="bottom" width="113">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">$66,242</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,113</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">.<br>
        <br>
        &nbsp;</font></p>

        <p></p>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><i><font style="FONT-SIZE: 8pt">T he accompanying notes are an integral part of these financial statements</font></i><i><font style="FONT-SIZE: 8pt">.</font></i></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">3</a></p>
        </div>
        <!-- PAGE BREAK  -->

        <div title="EE+ Page Break" style="FONT-SIZE: 1pt; PAGE-BREAK-AFTER: always; WIDTH: 100%; HEIGHT: 1px">
            <hr>
        </div>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font></b></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt">Unaudited</font></b></p>

        <p></p>

        <table cellspacing="0" cellpadding="0" width="600" border="0">
            <tr>
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></b></p>
                </td>

                <td valign="top" width="120" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007</font></b></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120" colspan="2">&nbsp;</td>

                <td valign="top" width="120" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Revenue</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">34</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">9</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">9</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">284</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">37</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">691</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">849</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Interchange</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">16,618,819</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">17,479,837</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cost of services sold</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5,398,717</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">6,893,794</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cost of goods sold</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">212</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">865</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">288</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">323</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total cost of services and goods sold</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">22</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">230</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">401</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">24</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">661</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">954</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross profit</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">12</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">763</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">883</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">13</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">029</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">895</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Operating expenses</font></p>
                </td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Salaries and payroll cost</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5,754,176</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,930,805</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Selling, general and administrative</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,202,070</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,011,024</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Notes</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">receivable</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">write down</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,009,781</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Failed acquisition and offering costs</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">361,661</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Impairment loss</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">588,044</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp; &nbsp;Customer acquisition cost amortization</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">487,561</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">461,388</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Depreciation</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">228,393</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">181,893</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Amortization</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">182</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">765</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">132</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">220</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total operating expenses</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">14</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">814</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">451</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">11</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">717</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">330</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income from operations</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">050</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">568</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,312</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">565</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Other income and expenses</font></p>
                </td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Interest and other income</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">73,530</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">136,515</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Interest expense</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">610</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">506</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">680</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">536</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other expenses</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">536</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">976</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">544</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">021</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (Loss) before income taxes</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(6,587,544</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,231,456</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income tax benefit</font></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,398</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">307</font></u></p>
                </td>

                <td valign="top" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,198</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">281</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net loss attributable to common equity holders prior to deemed dividend</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(5,189,237</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,033,175</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deemed dividend on common stock subject to put obligation</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">892</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">458</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(372,163)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net (loss) after deemed dividend</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;$&nbsp;&nbsp;&nbsp; (</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">7,081</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,695)</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in" align="right"><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">&nbsp;$&nbsp;&nbsp;&nbsp; (2,405</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,338)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted net (loss) &nbsp;per share attributable to common equity holders prior to deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">0.10)</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">(0.04)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted (loss) per share after deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">0.14)</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">(0.05</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="345">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>

                <td valign="bottom" width="118" colspan="2">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="345">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted average number of common shares outstanding-basic and diluted</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,805,598</font></p>
                </td>

                <td valign="bottom" width="118" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">8,434</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,072</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 4.3pt">
                <td valign="top" width="345">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>

                <td valign="top" width="118" colspan="2">&nbsp;</td>
            </tr>
        </table>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><i><font style="FONT-SIZE: 8pt">T he accompanying notes are an integral part of these financial statements</font></i><i><font style="FONT-SIZE: 8pt">.</font></i></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">4</a></p>
        </div>
        <!-- PAGE BREAK  -->

        <div title="EE+ Page Break" style="FONT-SIZE: 1pt; PAGE-BREAK-AFTER: always; WIDTH: 100%; HEIGHT: 1px">
            <hr>
        </div>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</font></b></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt">Unaudited</font></b></p>

        <p></p>

        <table cellspacing="0" cellpadding="0" width="589" border="0">
            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="135" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">For the t</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">hree</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">months ended</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">0,</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;200</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">8</font></b></p>
                </td>

                <td valign="top" width="108">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">For the t</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">hree months ended</font></b></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30,</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2007</font></b></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="135" colspan="3">&nbsp;</td>

                <td valign="top" width="108">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Revenue</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$
                    1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">462</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">606</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$
                    1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">754</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">369</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Interchange</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5,635,350</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5,943,613</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cost of services sold</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,794,639</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,998,966</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cost of goods sold</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">59</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">089</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">90</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">130</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total cost of services and goods sold</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">489</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">078</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">8,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">032</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">709</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross profit</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">973</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">528</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">721</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">660</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Operating expenses</font></p>
                </td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Salaries and payroll cost</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,948,401</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,590,922</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; Selling, general and administrative</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,210,142</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,487,912</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Notes</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">receivable</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">write down</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,009,781</font></p>
                </td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Failed acquisition and offering costs</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">361,661</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Impairment loss</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">588,044</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp; Customer acquisition cost amortization</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">169,733</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">172,613</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp; Depreciation</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">78,956</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">64,069</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp; Amortization</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">72</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">8</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">263</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">28</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">683</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total operating expenses</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">6</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">094</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">981</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">044</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">199</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income from operations</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">121</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">453</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">677</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">461</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Other income and expenses</font></p>
                </td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Interest and other income</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">21,609</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">26,079</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Interest expense</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,5</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">47</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">736</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,5</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">29</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">448</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Total other expenses</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">526</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">12</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">503</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">369</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;(Loss) before income taxes</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,647,580</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(825,908)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income tax benefit&nbsp;</font></p>
                </td>

                <td valign="top" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">538</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">506</font></u></p>
                </td>

                <td valign="top" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">718</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">741</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 20.3pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(loss)</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">attributable to common equity</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">holders</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">prior to deemed dividend</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,109,074</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(107,167)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 30.5pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Deemed dividend on common stock subject to put<br>
                    Obligation</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">6</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">58</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">577</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(372,163)</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="bottom" width="120">&nbsp;</td>

                <td valign="bottom" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net (loss) after deemed dividend</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp; (</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">3,767</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,651)</font></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;$&nbsp; (</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">479,330</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 20.3pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted net (loss) &nbsp;per share attributable to common equity holders prior to deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; (0.</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">06)</font></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">(0.00</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted net (loss) per share after deemed dividend</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;&nbsp;</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp; (0.08</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (0.0</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">1)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 10.2pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>

            <tr style="HEIGHT: 20.3pt">
                <td valign="top" width="348" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in; TEXT-INDENT: -3px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted average number of common shares outstanding-basic and diluted</font></p>
                </td>

                <td valign="bottom" width="120">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,820,269</font></p>
                </td>

                <td valign="bottom" width="120" colspan="3">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">9,124</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,777</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 3.8pt">
                <td valign="top" width="348" colspan="2">&nbsp;</td>

                <td valign="top" width="120">&nbsp;</td>

                <td valign="top" width="120" colspan="3">&nbsp;</td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;CONDENSED CONSOLIDATED STATEMENTS OF CASH F</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">L</font></b><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">OWS</font></b></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt">Unaudited</font></b><font style="FONT-SIZE: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;</font></p>

        <p></p>

        <table cellspacing="0" cellpadding="0" width="600" border="0">
            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">For the</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">months ended</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></b></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">For the</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007</font></b></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">OPERATING ACTIVITIES:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net (loss)</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp; (5,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">189,237)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp; (2,033,175</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Adjustments to reconcile net loss to net cash provided by (used in) operating activities:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Depreciation and amortization</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,411,158</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,314,113</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Impairment loss</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">588,044</font></p>
                </td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Amortization of deferred</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">account</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">acquisition costs</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">487,561</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">461,388</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Stock based compensation</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">207,075</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">213,707</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of debt issuance cost</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">277,319</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">277,319</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Amortization of discount on &nbsp;long-term debt</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,996,933</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,996,932</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Deferred taxes, net</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,398,307)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,198,281)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Imputed interest income</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,547)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(31,921)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Allowance for chargebacks and losses</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">309,951</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">130,167</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Notes receivable writedown</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,009,781</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Failed</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">financing &amp;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">acquisition</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">c</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">osts</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">361,661</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Gain on disposal of asset</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,463</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Changes in operating assets and liabilities:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts receivable</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(70,998)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(203,008)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Interest receivable</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7,778</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Inventory</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(15,495)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(15,893)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Prepaid expenses and other assets</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(47,749)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(12,465)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred account acquisition costs</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(625,999)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(494,364)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deposits and restricted cash</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,370</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(194,239)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts payable and accrued expenses</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">517,482</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">45,103</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant deposits</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">503,289</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">320,009</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Accrued rent</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">873</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">9</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">816</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp; Net cash&nbsp; provided by operating activities</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,364</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">882</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,622,986</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">INVESTING ACTIVITIES:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Capital expenditures</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(422,199)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(339,761)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.6in; TEXT-INDENT: -26px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolio,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">residual rights</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and other intangibles</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">purchase</font></p>
                </td>

                <td valign="bottom" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(10,000)</font></p>
                </td>

                <td valign="bottom" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(168,628)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Notes receivable</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(739,700)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">300,000</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Acquisitions of businesses</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,000,000)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Change in restricted cash</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">355,795</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net cash</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(used in)</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">investing activities</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">71</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">899</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">8</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">52</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">594</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">FINANCING&nbsp; ACTIVITIES:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Debt service payments</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(25,274)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Warrant and stock option exercise</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,763</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Lease obligation payments</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(68,768)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(74,633)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Purchase of treasury stock</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(36,000)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred offering costs</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,011,082)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(75,000)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Retirement of restricted stock units</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,500)</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net cash (used in) financing activities</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,107,624</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">82</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">870</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net&nbsp; increase (decrease) in cash and cash equivalents</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(914,641)</font></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,412,478)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cash and cash equivalents, beginning of period</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">995</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">238</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">770</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">494</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cash and cash equivalents, end of period</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">80</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">597</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">358</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">016</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Supplemental disclosures:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cash paid during the year for:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest</font></p>
                </td>

                <td valign="top" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">274,888</font></u></p>
                </td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;&nbsp;</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">347</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">332</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">&nbsp;</td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Non cash investing and financing activities:</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Common stock issued as contingent acquisition cost</font></p>
                </td>

                <td valign="top" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">637</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u>
                    <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">097</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 15.8pt">
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accrued merchant portfolio acquisitions</font></p>
                </td>

                <td valign="bottom" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 579,911</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.7in; TEXT-INDENT: -35px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Capital expenditures from lease prepayments and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">proceeds from lease financing</font></p>
                </td>

                <td valign="bottom" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 50,901</font></u></p>
                </td>

                <td valign="bottom" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">194,734</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.2in" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts receivable converted to notes receivable</font></p>
                </td>

                <td valign="bottom" width="123" colspan="2">&nbsp;</td>

                <td valign="top" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u> <u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">18,938</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="bottom" width="344">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.7in; TEXT-INDENT: -35px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deemed dividend on common stock subject to put</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">obligation</font></p>
                </td>

                <td valign="bottom" width="123" colspan="2">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$&nbsp;&nbsp;</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,892,458</font></u></p>
                </td>

                <td valign="bottom" width="115">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 372,163</font></u></p>
                </td>
            </tr>

            <tr>
                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="middle" width="344">&nbsp;</td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="middle" width="115">&nbsp;</td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="middle" width="8">&nbsp;</td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="middle" width="115">&nbsp;</td>
            </tr>
        </table>

        <p></p>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><i><font style="FONT-SIZE: 8pt">T he accompanying notes are an integral part of these financial statements</font></i><i><font style="FONT-SIZE: 8pt">.</font></i></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">5</a></p>
        </div>
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        <p></p>

        <div title="EE+ Page Header" style="MARGIN-BOTTOM: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="justify"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE A &ndash; ORGANIZATION AND OPERATIONS</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nature of Operations</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pipeline Data Inc. (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Company&rdquo;) 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-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basis of Financial Statement Presentation</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">&ldquo;SEC&rdquo;) 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</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008, and the consolidated results of operations for the</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">three and</font>
        <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">and 2007, and cash flows for the</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">nine months</font>
        <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">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&rsquo;s 2007 Annual Report on Form
        10-KSB.<br>
        &nbsp;<br>
        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&rsquo;s 2007 Annual Report on Form 10-KSB.<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">At</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008, the Company had a cash balance of $81,000</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pursuant to the Charge.com acquisition, the former Charge.com shareholders (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Charge Shareholders&rdquo;) have the right to sell</font>
        <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">up to 9,398,058 shares</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">of Pipeline common stock back to Pipeline at a price of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$1.5662 per share, as of July 1, 2008, plus interest at an annual rate of 18% (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Put Right&rdquo;).</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 15, 2008, the Charge Shareholders entered into an Amended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Put Modification Agreement (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Amended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Modification Agreement&rdquo;) with the Company and Charge.com, Inc.,
        a wholly-owned subsidiary of the Company.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Amended Put Modification Agreement has expired.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On November 7, 2008 the Board of Directors approved an agreement with the former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the former shareholders to extinguish the put right agreement.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Then neither the former Charge.com shareholders or the Company will have any further rights or obligations under the Charge.com acquisition agreement. The</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Charge Shareholders and the Company are currently documenting a settlement of the Put Right, which is subject to final agreement by the parties.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">No assurance
        can be provided that settlement will be reached.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">settlement is not reached and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Charge Shareholders exercise their Put Right we would need debt and/or equity financing to meet this obligation.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Management believes, but cannot assure that
        acquiring such financing is achievable.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">6</a></p>
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        <div title="EE+ Page Header" style="MARGIN-BOTTOM: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="justify"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE A &ndash; ORGANIZATION AND OPERATIONS</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basis of Financial Statement Presentation</font></i></b> <b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(continued)</font></i></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Certain prior year amounts have been reclassified to conform to the current year presentation.<br>
        All intercompany balances and transactions with the Company&rsquo;s subsidiaries have been eliminated upon consolidation.</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">G</font></i></b><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">oing</font></i></b> <b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">C</font></i></b><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">oncern</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company&rsquo;s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred significant losses and has an accumulated
        deficit of $11.6</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">million</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">at</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30, 2008, with a history of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">quarter losses</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">since</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 2005.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has a net loss of $3.1million</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for the three month period ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30, 2008, partially as a result of a major creditor filing bankruptcy causing a write
        down of over $1.0</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">million in notes receivable.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">These losses have reduced working capital and retained earnings to the extent that the company may not be able to continue as a going concern.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If the Charge.com Shareholders exercised their Put Right, as described previously, the Company would need debt and/or equity financing to meet this obligation.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Further,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">long term note interest payments have not been
        paid on time but paid subsequently within a few days.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In light of this the Company may not have sufficient cash to pay bills as the become due.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance
        stockholders&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">investment.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In addition,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">management has implemented and will continue to implement reduction measures</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">in operational costs.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Company</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">has an active plan to reduce</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">its</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">operating</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">costs by</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">over</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$1 million annually.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has further established a cost savings committee with 2 members of the Board of Directors and the Chief Operating Officer.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">It is also anticipated that additional revenue from annual fees and PCI compliance fees</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">should</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">enhance revenue in the fourth quarter and contribute to improved liquidity.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company&rsquo;s ability to raise additional capital, obtain financing and to succeed in its future
        operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.</font></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Use of Estimates</font></i></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Actual results could differ from those estimates.</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="justify"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE A &ndash; ORGANIZATION AND OPERATIONS (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basis of Financial Statement Presentation (continued)</font></i></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Concentrations</font></i></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The majority of the Company&rsquo;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-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Substantially all of the Company&rsquo;s revenue is derived from processing Visa and MasterCard bank card transactions. Because the Company is not a</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&lsquo;&lsquo;member bank&rsquo;&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;member banks&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Corporate Ini</font></i></b><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ti</font></i></b><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">atives</font></i></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">had</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">anticipated</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">acquiring</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Innovative Resource Alliance and
        securing financing for the transaction, but did not reach an acceptable agreement.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In the third quarter</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">of 2008,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Innovative Resource Alliance</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(IRA)</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">initiated a bankruptcy case in
        the US Bankruptcy</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Court.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">As a result, we recognized a failed acquisition and offering cost of $362,000 and a loss on</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">notes receivable of $1.0 million</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">loaned to IRA, plus legal, due diligence</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and failed financing costs related to the transaction.</font></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Reclassifications</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The prior period presentation of certain accounts has been changed to conform to the current year presentation.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cash and Cash Equivalents</font></i></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounts Receivable, net</font></i></b><br>
        <font style="FONT-FAMILY: 'GARAMOND'">&nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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 $92,925</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and
        $12,800 as of December 31, 2007.</font></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">7</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></b><font style="FONT-FAMILY: 'GARAMOND'">&nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Inventories</font></i></b><br>
        <font style="FONT-FAMILY: 'GARAMOND'">&nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="justify"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Property and Equipment, net</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">was $228,393</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $181,893, respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Depreciation expenses for property and equipment for the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">was $78,956</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $64,069, respectively.</font><br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.</font></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Computer Software</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Restricted Cash</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred Customer Acquisition Costs</font></i></b></p>

        <p style="MARGIN-TOP: 9pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred customer acquisition costs consist of up-front signing bonus payments made to sales personnel (the Company&rsquo;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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">cost is off-set by a termination fee the company charges the customer for opting out of their contractual</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font></p>

        <p></p>
        <br>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">8</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Accounting for Goodwill and Intangible Assets</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In July 2001, the FASB issued Statement No. 142,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Goodwill and Other Intangible Assets&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;SFAS 142&rdquo;), 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.<br>
        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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant Deposits and Loss Reserves</font></i></b><br>
        <font style="FONT-FAMILY: 'GARAMOND'">&nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company follows the Financial Accounting Standards Board Interpretation No.&nbsp;45: Guarantor&rsquo;s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (&ldquo;FIN 45&rdquo;) 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&rsquo;s dissatisfaction
        with merchandise quality or the merchant&rsquo;s service, and the disputes may not always be resolved in the merchant&rsquo;s favor. In some of these cases, the transaction is</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&lsquo;&lsquo;charged back&rsquo;&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;charge backs&rdquo;. 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>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Derivative Financial Instruments</font></i></b><br>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.<br>
        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.<br>
        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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred Offering Costs</font></i></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Costs attributable to proposed or actual offering of securities are deferred and will be</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">charged</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">against the proceeds of the offering.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">an</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">offering is aborted, the costs are charged against operations.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Revenue and Cost Recognition</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">10</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Revenue and Cost Recognition (Continued)</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">merchants.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">I</font></i></b><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ncome Taxes</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company recognizes deferred income tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company&rsquo;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-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Advertising</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company expenses advertising costs as they are incurred.</font></p>

        <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">New accounting pronouncements</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-FAMILY: 'GARAMOND'">In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes&mdash;an Interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company&rsquo;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.</font> <font style="FONT-FAMILY: 'GARAMOND'">The Company has not made any adjustments as a result of the adoption of this interpretation.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 7.2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In December 2007, the FASB issued SFAS No.&nbsp;141(R), Business Combinations (&ldquo;SFAS No.&nbsp;141(R)&rdquo;), which replaces SFAS No.&nbsp;141. SFAS No.&nbsp;141(R) applies the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses and
        establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired and liabilities assumed, including assets and liabilities arising from contingencies, any noncontrolling interest in the acquiree and goodwill acquired or gain realized from a bargain purchase. SFAS No.&nbsp;141(R) is effective prospectively for business combinations for which the acquisition date is on or after the first annual reporting period beginning after
        December&nbsp;15, 2008. The adoption of SFAS No.&nbsp;141 (R)&nbsp;will impact the Company&rsquo;s Consolidated Financial Statements prospectively in the event of any business combinations entered into after the effective date in which the Company is the acquirer.</font></p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">New accounting pronouncements (continued)</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (&ldquo;SFAS</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">157&rdquo;). This Statement defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles, and expands disclosures about fair value measurements.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">SFAS No. 157 is effective as of the beginning of an entity&rsquo;s first fiscal year that begins after November 15, 2007.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The adoption of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">SFAS</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">157
        did not have a material effect on the Company&rsquo;s Consolidated Financial Statements.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px; FONT-FAMILY: 'COURIER NEW'" align="left"><font style="FONT-FAMILY: 'GARAMOND'">In February&nbsp;2007, the Financial Accounting Standards Board issued SFAS 159,</font> <font style="FONT-FAMILY: 'GARAMOND'">&ldquo;The Fair Value Option for Financial Assets and Financial Liabilities&rdquo;. SFAS No.&nbsp;159 amends SFAS No.&nbsp;115,</font>
        <font style="FONT-FAMILY: 'GARAMOND'">&ldquo;Accounting for Certain Investments in Debt and Equity Securities&rdquo;. 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&rsquo;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&rsquo;s first fiscal year that begins after November&nbsp;15, 2007. The adoption of</font> <font style="FONT-FAMILY: 'GARAMOND'">SFAS</font> <font style="FONT-FAMILY: 'GARAMOND'">159 did not have a material effect on the Company&rsquo;s Consolidated Financial Statements.<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In December 2007, the FASB issued SFAS No.&nbsp;160,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Non-controlling Interests in Consolidated Financial Statements.&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px; FONT-FAMILY: 'COURIER NEW'" align="left"><font style="FONT-FAMILY: 'GARAMOND'">In March 2008, the FASB issued Statement of Financial Accounting Standards No.&nbsp;161,</font> <font style="FONT-FAMILY: 'GARAMOND'">&ldquo;Disclosures about Derivative Instruments and Hedging Activities&rdquo;</font> <font style="FONT-FAMILY: 'GARAMOND'">(&ldquo;SFAS No.&nbsp;161&rdquo;). 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&rsquo;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.<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On December 21, 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110 (&ldquo;SAB 110&rdquo;) to permit entities, under certain circumstances to continue to use the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;simplified&rdquo;</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">method, in developing estimates of expected term of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;plain-vanilla&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;simplified&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">method beyond December 31, 2007.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company believes that the adoption of&nbsp;SAB 110 will not have a material impact&nbsp;&nbsp;on its consolidated&nbsp;financial statements.</font></p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">12</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">New accounting pronouncements (continued)</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 9pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">In April 2008, the FASB issued FSP FAS 142-3,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Determination of the Useful Life of Intangible Assets&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;FSP FAS 142-3&rdquo;). FSP FAS 142-3 amends the factors that should be
        considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No.&nbsp;142,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Goodwill and Other Intangible Assets&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;SFAS No.&nbsp;142&rdquo;) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No.&nbsp;142 and the period
        of expected cash flows used to measure the fair value of the asset under SFAS No.&nbsp;141(R) and other GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December&nbsp;15, 2008 and is to be applied prospectively to intangible assets acquired after the effective date. Disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is
        not permitted. The Company is currently evaluating the impact of adopting FSP FAS 142-3 on its Consolidated Financial Statements.<br>
        In May 2008, the FASB issued SFAS No.&nbsp;162,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;The Hierarchy of Generally Accepted Accounting Principles&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;SFAS No.&nbsp;162&rdquo;). SFAS No.&nbsp;162 identifies the sources of accounting principles and the framework for selecting the accounting principles used in preparing financial statements of nongovernmental entities that are presented in
        conformity with GAAP. Currently, GAAP hierarchy is provided in the American Institute of Certified Public Accountants U.S. Auditing Standards (&ldquo;AU&rdquo;) Section&nbsp;411,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;AU Section&nbsp;411&rdquo;). SFAS No.&nbsp;162 is effective 60 days
        following the SEC&rsquo;s approval of the Public Company Accounting Oversight Board&rsquo;s amendments to AU Section&nbsp;411. The Company does not expect the adoption of SFAS No.&nbsp;162 to have an impact on its Consolidated Financial Statements.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE C&ndash; NOTE RECEIVABLE</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company had demand notes aggregating $145,408 as of December 31, 2007 at the simple rate of 10% and a long term secured promissory note, due</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31, 2008, with a balance, net of discount, of $746,454 as of December 31, 2007.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The face amount of the note is $750,000 as of September 30, 2008 and December 31, 2007.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Interest is imputed at the rate of 6%.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The note is secured by 1,000,000 shares of the Company&rsquo;s common stock.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE D&ndash; DEFERRED CUSTOMER ACQUISITION COSTS, NET</font></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">A summary of the activity in deferred customer acquisition costs, net for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">is a follows:<br>
        &nbsp;</font></p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="614" border="0">
            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred customer acquisition costs, net balance as of December 31, 2007</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$482,856</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred customer acquisition costs capitalized</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">625,999</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred customer acquisition costs amortized</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">487,560</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred customer acquisition costs, net balance as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none" valign="top" width="66">&nbsp;</td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">621,295</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE E- MERCHANT PORTFOLIOS, RESIDUAL RIGHTS AND OTHER INTANGIBLES, NET</font></b></p>

        <p style="MARGIN-TOP: 3.6pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The changes to the merchant portfolio, residual rights and other intangibles balance during the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30,
        2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">are as follows:</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="614" border="0">
            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="511">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolios, residual rights and other intangibles balance as of December 31, 2007</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="23">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$13,569,381</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="511">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolios, residual rights and other intangibles acquired</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="23">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3,333</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="511">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolios, residual rights and other intangibles amortized</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="23">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,107,510)</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="511">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolios, residual rights and other intangibles impaired</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="23">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(588,044)</font></u></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="511">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Merchant portfolios, residual rights and other intangibles balance as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="23">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">10,877,160</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 13.9pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Impairments</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">During the third quarter</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008, the Company recorded a charge of $588,044 related to the impairment of intangible assets associated with an acquired merchant portfolio.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The fair value was estimated based on the present value of expected future cash flows from the merchant portfolio.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE F &ndash; GOODWILL AND OTHER INTANGIBLES WITH INDEFINITE LIVES</font></b></p>

        <p style="MARGIN-TOP: 3.6pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">changes to the goodwill and other intangibles with indefinite lives balance during the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">are as follows:</font></p>

        <p></p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="614" border="0">
            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Goodwill and other intangibles with indefinite lives balance as of December 31, 2007</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$43,458,990</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Goodwill and other intangibles with indefinite lives acquired</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">6,666</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Goodwill and other intangibles with indefinite lives amortized or impaired</font></p>
                </td>

                <td valign="top" width="66">&nbsp;</td>

                <td valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="468">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Goodwill and other intangibles with indefinite lives balance as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none" valign="top" width="66">&nbsp;</td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none" valign="bottom" width="80">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$43,465,656</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.1in" align="left"><b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE G &ndash; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Debt/Financing:</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'"><br>
        (a) Senior Secured Convertible Notes<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s common stock at $1.40 The noteholders have a first priority security
        interest in all of our assets.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Noteholders may convert their notes into common stock of the Company at a fixed conversion rate of $1.30 per
        share.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Conversions are subject to a restriction limiting the noteholder to holding a maximum of 4.9% of the Company&rsquo;s common stock currently outstanding immediately after giving effect to the conversion.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The notes also contain standard anti-dilution provisions.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Any converted shares are not puttable back to the Company by the Holder.<br>
        &nbsp;<br>
        <a name="OLE_LINK13"></a><a name="OLE_LINK14">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</a>&rsquo;s common stock at an exercise price of $1.40 per share. The warrants are exercisable on the sole discretion of the Holders.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If the Company offers, sells, grants</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">any option to purchase or offer, sells</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">or grants</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">any right to re-price its securities,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">then the exercise price of the warrants</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and the conversion price of the notes</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shall be reduced to equal that price and the number of warrants shall be increased such that the aggregate exercise price</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">payable after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Any warrants converted to shares are not
        puttable back to the Company, nor can Holder&rsquo;s demand a cash settlement of warrants.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Cashless exercises are permissible.</font><br>
        <br>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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><br>
        </p>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">13</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
        </div>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE G &ndash; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Debt/Financing: (continued)</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pursuant to a Registration Rights Agreement, the Company agreed to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;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]&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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><br>
        &nbsp;<br>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pursuant to the Securities and Exchange Commission&rsquo;s industry-wide interpretation of Rule 415, affecting all registrants, the Company
        registered all shares that were possible to be registered under Rule 415.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">However, if the Company was deemed responsible for penalties, the maximum penalty
        assessable could be $6.5 million.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On a separate matter, the Company has accrued an interest expense, estimated at $372,000, related to the initial late filing of the registration statement pending any settlement.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Long-term debt as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and December 31, 2007 consists of the following:<br>
        &nbsp;</font></p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="552" border="0">
            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><br>
                    <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30,</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">December 31,</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2007</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Deferred rent on operating leases</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$36,387</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$41,259</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Other promissory notes and capital leases</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">140,662</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">164,065</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Senior secured, interest payable at 8.00% due June 29, 2010,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">convertible at $1.30 per share</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">37,000,000</font></u></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">37,000,000</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">37,177,049</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">37,205,324</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Less current portion</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(81,214)</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(84,173)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Unamortized discount on long-term debt of beneficial conversion feature and warrants</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4,644,920</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(6,641,852)</font></u></p>
                </td>
            </tr>

            <tr style="HEIGHT: 11pt">
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="333">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Long-term debt, excluding current portion</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="117">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">32,450,915</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="100">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$30,479,299</font></p>
                </td>
            </tr>
        </table>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">14</a></p>
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        <p></p>

        <div title="EE+ Page Header" style="MARGIN-BOTTOM: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30,</font> <font style="FONT-FAMILY: 'GARAMOND'">2008</font></p>
        </div>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE G &ndash; SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Debt/Financing: (continued)</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-FAMILY: 'GARAMOND'">Notice of Default on Senior Securities</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On April 10, 2007, Iroquois Master Fund provided</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s position is that there was miscommunication of payment details and a good faith attempt on the Company&rsquo;s part to communicate this to Iroquois Master Fund. The Company&rsquo;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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The lenders&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company firmly believes that it has acted in good faith and plaintiff&rsquo;s claim is without merit.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Another member of the lending group which loaned</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Company $8,250,000 is Midsummer Investment, Ltd.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;Midsummer&rdquo;).</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The
        Company</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">made a late interest payment to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Midsummer.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Payment should have been made on July 30, 2008.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">We made our full interest payment on August 15, 2008 to cure this default in accordance with the governing documents. Payment was required
        within 3 trading days from notice of default. A notice of default was issued to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Company</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">on August 13, 2008.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Within the default notice, Midsummer Investment, Inc. demanded payment of 125% of the principal amount of its note, outstanding interest and penalties and penalties associated with registration
        of stock underlying their notes and warrants.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company maintains that it</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">properly cured the late interest payment.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Further,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">it maintains that it has complied with its</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">registration obligations as the interpretation of Rule 415 governing registration was restricted by the Securities and Exchange Commission rendering it impossible to complete registration within the time allotted.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Midsummer has taken no further action against the Company relative to the default notice.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE H- COMMITMENTS AND CONTINGENCIES</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-FAMILY: 'GARAMOND'">Valadata, Inc contingent payment</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s acquisition of Valadata, and seeks around $1.5M, plus attorneys&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s counterclaims seek compensatory and punitive damages, as well as attorneys&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">fees. In February of 2008, the Court dismissed Pipeline&rsquo;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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">has proceeded to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">discovery</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and deposition.</font></p>

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        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE H- COMMITMENTS AND CONTINGENCIES</font> <font style="FONT-FAMILY: 'GARAMOND'">(CONTINUED)</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-FAMILY: 'GARAMOND'">Iroquois Master Fund, Ltd Suit</font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="COLOR: #000000; FONT-FAMILY: 'GARAMOND'">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&rsquo;s position is that there was miscommunication of payment details and a good faith attempt on the Company&rsquo;s part
        to communicate this to Iroquois Master Fund. The Company&rsquo;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&rsquo;</font> <font style="COLOR: #000000; FONT-FAMILY: 'GARAMOND'">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&rsquo;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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-FAMILY: 'GARAMOND'">Garner Gifts contingent payment</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><a name="OLE_LINK7"><font style="FONT-FAMILY: 'GARAMOND'">Merchant portfolio residual rights acquisition</font></a></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-FAMILY: 'GARAMOND'">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-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-FAMILY: 'GARAMOND'">Under the terms of certain processing services agreements, we could be required to purchase merchant account residual payments at a value of approximately $3.7</font> <font style="FONT-FAMILY: 'GARAMOND'">million if the sales agent exercises that right.</font></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-FAMILY: 'GARAMOND'">Our Subsidiary SecurePay.com, Inc</font></i></b><font style="FONT-FAMILY: 'GARAMOND'">:</font></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-FAMILY: 'GARAMOND'">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>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30,</font> <font style="FONT-FAMILY: 'GARAMOND'">2008</font></p>
        </div>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE H- COMMITMENTS AND CONTINGENCIES (CONTINUED)</font></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><i><font style="FONT-FAMILY: 'GARAMOND'"><a name="OLE_LINK11"></a><a name="OLE_LINK12">COCARD&reg; Acquisition</a></font></i></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On Friday, May</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">16, 2008,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Company</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and COCARD(R) Marketing Group, LLC (&ldquo;COCARD&rdquo;) signed a Definitive Merger</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Agreement</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Agreement&rdquo;)</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for Pipeline to acquire COCARD for approximately $79.5 million in cash and notes plus future considerations based on performance. COCARD is a Nashville, Tennessee-based merchant services provider comprised of
        73 independent sales offices catering primarily to small and medium-sized retail accounts. COCARD processes over $3 billion of credit card transactions annually from its base of over 26,000 merchants.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 7.1 of the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Agreement</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">provided</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the conditions to the parties&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">obligations to
        close.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 7.1 (r) provides that a condition precedent to Pipeline&rsquo;s obligation to close is to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;have consummated transactions with Comvest Investment Partners or one of its Affiliates pursuant to which [Pipeline] receives an investment of at least $50,000,000.&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">This investment was
        not consummated and, thus,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Company maintains the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">obligation to close has not been triggered.</font><br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has notified CoCard that pursuant to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 9.1(b) of the Agreement</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pipeline has terminated the Agreement.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 9.1(b)</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">provides that</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;[Pipeline] may terminate this Agreement by giving written notice to the Company at any time prior to the Closing &hellip; (ii) if the Closing shall not have occurred on or before the twentieth (20</font><sup><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">th</font></sup><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">) business day
        following August 31, 2008, by reason of the failure of any condition precedent under Section 7.1 hereof; provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to [Pipeline] if [Pipeline]&rsquo;s action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement (provided, that each of the Parties
        acknowledges and agrees that the failure to satisfy the condition set forth in Section 7.1(r) shall not be deemed to be an action or failure to act by [Pipeline] hereunder, and [Pipeline] shall be entitled to terminate this Agreement in the event of a failure to satisfy the condition set forth in Section 7.1(r)).&rdquo;</font></p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">17</a></p>
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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">PIPELINE DATA INC.<br>
            &nbsp;</font></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)<br>
            &nbsp;</font></b></p>

            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30,</font> <font style="FONT-FAMILY: 'GARAMOND'">2008</font></p>
        </div>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE I &ndash; TEMPORARY EQUITY</font></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><i><font style="FONT-FAMILY: 'GARAMOND'">Common shares subject to put obligation</font></i></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pursuant to the Charge.com acquisition, the former Charge.com shareholders (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Charge Shareholders&rdquo;) have the right to sell</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">up to 9,398,058 shares</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">of Pipeline common stock back to Pipeline at a price of $1.5662 per share, as of July 1, 2008, plus interest at an annual rate of 18% (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Put Right&rdquo;).</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has reviewed this arrangement under the terms of Topic No. D-98:</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Classification and Measurement of Redeemable Securities&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and consider this application to require that the shares be considered temporary equity and classified as common shares subject to put obligations.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The provisions of this agreement will be assessed at each balance sheet date to determine if
        the agreement is no longer conditional.On September 15, 2008, the Charge Shareholders entered into an Amended Put Modification Agreement (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Amended Modification Agreement&rdquo;) with the Company and Charge.com, Inc., a wholly-owned subsidiary of the Company.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Amended Put Modification Agreement has expired.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On November 7, 2008 the Board of Directors approved an agreement with the former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the former shareholders to extinguish the put right agreement.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Then neither the former Charge.com shareholders or the Company will have any further rights or obligations under the
        Charge.com acquisition agreement. The Charge Shareholders and the Company are currently documenting a settlement of the Put Right, which is subject to final agreement by the parties.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">No assurance can be provided that settlement will be reached. .</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If the Charge Shareholders exercised their Put Right we would need debt and/or equity financing to meet this
        obligation.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Management believes, but cannot assure that acquiring such financing is achievable.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'"><br>
        The increase in temporary equity during the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008 is attributable to the January 3, 2008,</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">March 4, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">June 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">amendments which increase the redemption value of the stock.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">This deemed dividend is offset by a charge to additional paid in capital.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">[remainder of page intentionally left blank]</font></p>

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        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE J &ndash; EARNINGS PER COMMON SHARE</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(loss) for all
        periods presented.<br>
        &nbsp;<br>
        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> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">average market share</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">price for the period
        generally are assumed to have a dilutive effect on earnings per common share.<br>
        &nbsp;</font></p>

        <p></p>

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            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="32%" colspan="6">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30 ,</font></p>
                </td>

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            </tr>

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                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="bottom" width="11%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008</font></p>
                </td>

                <td valign="bottom" width="5%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2007</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Net</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">(loss)</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">attributable to common equity holders for purposes of computing</font>
                    <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">basic and diluted earnings per share</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="11%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.6in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(5,189,237)</font></p>
                </td>

                <td valign="bottom" width="5%" colspan="2">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,033,175)</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Less: Deemed dividend on common stock subject to put obligation</font></p>
                </td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="1%">&nbsp;</td>

                <td valign="top" width="11%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1,892,458</font></u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="top" width="5%" colspan="2">&nbsp;</td>

                <td valign="top" width="1%">&nbsp;</td>

                <td valign="top" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(372,163)</font></u></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Net</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">(loss)</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">for purposes of computing basic and diluted earnings per share</font></p>
                </td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 1pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="top" width="11%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">7,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">081,695</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="5%" colspan="2">&nbsp;</td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u></p>
                </td>

                <td valign="top" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2,405,338</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted average shares outstanding &ndash; basic and diluted</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="11%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,805,598</font></p>
                </td>

                <td valign="bottom" width="5%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">48,434,072</font></p>
                </td>

                <td valign="bottom" width="0%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp;(loss) per common share</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">attributable to common equity holders:</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="11%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.10)</font></p>
                </td>

                <td valign="bottom" width="5%" colspan="2">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.04)</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp;(loss) per common share after deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="11%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.14)</font></p>
                </td>

                <td valign="bottom" width="5%" colspan="2">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.05)</font></p>
                </td>

                <td valign="middle" width="0%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="65%">&nbsp;</td>

                <td valign="bottom" width="1%">&nbsp;</td>

                <td valign="bottom" width="32%" colspan="6">&nbsp;</td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="32%" colspan="6">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">30 ,</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2008</font></p>
                </td>

                <td valign="bottom" width="4%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">2007</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Net (loss) attributable to common equity holders for purposes of computing</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">basic and diluted earnings per share</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.6in" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(3,109,074)</font></p>
                </td>

                <td valign="bottom" width="4%">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(107,167)</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Less: Deemed dividend on common stock subject to put obligation</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">&nbsp;</td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">658,577</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="bottom" width="4%">&nbsp;</td>

                <td valign="bottom" width="1%">&nbsp;</td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(372,163</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">Net (loss) for purposes of computing basic and diluted earnings per</font> <font style="FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: 'GARAMOND'">share</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="top" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp; (</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">767,651</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="4%">&nbsp;</td>

                <td valign="top" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u></p>
                </td>

                <td valign="top" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">479,330</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted average shares outstanding &ndash; basic and diluted</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,820,269</font></p>
                </td>

                <td valign="bottom" width="4%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,124,777</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp;(loss) per common share attributable to common equity holders:</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.06)</font></p>
                </td>

                <td valign="bottom" width="4%">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.00)</font></p>
                </td>

                <td valign="middle" width="0%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="65%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp;(loss) per common share after deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 2pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%" colspan="2">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.08)</font></p>
                </td>

                <td valign="bottom" width="4%">&nbsp;</td>

                <td valign="bottom" width="1%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="12%">
                    <p style="MARGIN-TOP: 1.5pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.01)</font></p>
                </td>

                <td valign="middle" width="0%">&nbsp;</td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Each of (i) stock options to purchase 12,207,426</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shares of common stock, (ii) warrants to purchase 15,463,453</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shares of common stock and (iii) senior secured debt convertible into 28,461,538 shares
        of common stock, all outstanding as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">were potentially dilutive and were not included within earnings per share. To do so would have been anti-dilutive for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE K-</font> <font style="FONT-FAMILY: 'GARAMOND'">ADVERTISING</font></b></p>

        <p style="MARGIN-TOP: 5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company expenses advertising costs as they are incurred.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Advertising expenses for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007 were $714,989</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $818,013</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Advertising expenses for the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September
        30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007 were $221,546</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $271,288</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">respectively.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE L - PENSION PLAN-DEFINED CONTRIBUTION</font></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The amount recognized as an expense during the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007 was $76,788</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $17,260,
        respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The amount recognized as an expense during the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007 was $23,328</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $6,516, respectively.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE M- STOCK OPTIONS AND WARRANTS</font></b></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><i><font style="FONT-FAMILY: 'GARAMOND'">Stock-Based Compensation</font></i></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has adopted the provisions of SFAS No 123 (Revised 2004)</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Share Based Payments&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(FAS 123R), as of January 1, 2006. The provisions of</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">SFAS</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The total share based payments included in wages and selling, general and administrative expenses was $207,075</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $213,707</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007, respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The total share based payments included in wages and selling, general and administrative expenses was $42,565</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">107,789</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007, respectively.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;plain-vanilla&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">was $0.05.</font><br>
        &nbsp;<br>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Assumptions utilized are shown as follow:</font></p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="447" border="0">
            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Three months ended</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">&nbsp;</td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Expected volatility</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">38.4%</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">N/A</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Expected life</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3.1</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">yrs</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">N/A</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Expected dividends</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">0</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">N/A</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="179">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Risk-free interest rate</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3.9%</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="134">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">N/A</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">As of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008, the Company has reserved an aggregate of&nbsp;12,207,426</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shares of common stock pending the exercise of the options.&nbsp;</font></p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">19</a></p>
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        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE M- STOCK OPTIONS AND</font> <font style="FONT-FAMILY: 'GARAMOND'">WARRANTS (CONTINUED)<br>
        &nbsp;</font></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Stock option activity is summarized as follows:&nbsp;</font></p>

        <table style="MARGIN-LEFT: 0.1in" cellspacing="0" cellpadding="0" width="94%" border="0">
            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Options</font></p>
                </td>

                <td valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted &ndash;Average Exercise Price</font></p>
                </td>

                <td valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted-Average Remaining Contractual Term</font></p>
                </td>

                <td valign="bottom" width="19%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Aggregate<br>
                    Intrinsic Value</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Options outstanding, December 31, 2007</font></p>
                </td>

                <td valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">10,716,554</font></p>
                </td>

                <td valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 1.42</font></p>
                </td>

                <td valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3.8</font></p>
                </td>

                <td valign="bottom" width="19%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">664,322</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Forfeited</font></p>
                </td>

                <td valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(15,805)</font></p>
                </td>

                <td valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 1.31</font></p>
                </td>

                <td valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="bottom" width="19%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Exercised</font></p>
                </td>

                <td valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></p>
                </td>

                <td valign="bottom" width="19%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Issued</font></p>
                </td>

                <td valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">506</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">677</font></u></p>
                </td>

                <td valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">0</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">.8</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">9</font></u></p>
                </td>

                <td valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>

                <td valign="bottom" width="19%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Options outstanding,</font></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">1</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">2,207</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,426</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ 1.</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">5</font></u></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">3.</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">4</font></u></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="19%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$ -</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="bottom" width="27%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Options exercisable,</font></p>

                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="13%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">10</font><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">,010,</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">711</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="17%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font> <font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">1.33</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="21%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">2.8</font></p>
                </td>

                <td style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; BORDER-BOTTOM: medium none" valign="bottom" width="19%">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">-</font></u></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">There were no options exercised during the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Options
        issued include</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">371,667 options issued in 2007.</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'"><a name="OLE_LINK3"></a><a name="OLE_LINK4"></a></font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">A summary of the non-vested restricted stock unit activity for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">is presented below.<br>
        &nbsp;</font></p>

        <table style="MARGIN-LEFT: 0.9in" cellspacing="0" cellpadding="0" width="600" border="0">
            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;Restricted Stock Units</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">Nine months</font> <font style="FONT-FAMILY: 'GARAMOND'">ended</font></b></p>

                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-FAMILY: 'GARAMOND'">Weighted-Average Grant-Date Fair Value</font></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b><font style="FONT-FAMILY: 'GARAMOND'">Number of Units</font></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">&nbsp;</td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;</font></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">&nbsp;</td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Non-vested at December 31. 2007</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">46,667</font></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">$0.96</font></b></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Granted</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-SIZE: 12pt; FONT-FAMILY: 'GARAMOND'">-</font></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">&nbsp;</td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Vested</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">(30,000)</font></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">$0.94</font></b></p>
                </td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Forfeited</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><b><u><font style="FONT-WEIGHT: normal; FONT-FAMILY: 'GARAMOND'">-</font></u></b></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">&nbsp;</td>
            </tr>

            <tr>
                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="238">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Non-vested at</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="bottom" width="144">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; BORDER-BOTTOM: 2.25pt double; FONT-FAMILY: 'GARAMOND'">16,667</font></p>
                </td>

                <td style="PADDING-RIGHT: 0.07in; PADDING-LEFT: 0.07in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" valign="top" width="173">
                    <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$0.99</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE N- INCOME TAXES</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008, the Company had deferred tax assets of $2,248,243,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">deferred tax liabilities of $2,263,210, and no material current tax liability.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.<br>
        &nbsp;</font></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On January 1, 2007, the Company adopted FASB Interpretation No. 48,</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(&ldquo;FIN 48&rdquo;). This Interpretation
        clarifies accounting for uncertainty in income taxes recognized in an enterprise&rsquo;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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has not made any adjustments, and there is no impact, as a result of the adoption of this interpretation.</font><br>
        &nbsp;<br>
        <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">NOTE N- INCOME TAXES</font></b> <b><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(CONTINUED)</font></b></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">20</a></p>
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        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The tax benefit as a result of changes in deferred tax assets and liabilities was $1,398,307</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $1,198,281</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007, respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The tax benefit as a result of changes in deferred tax assets and liabilities was $538,506</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $718,741</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for the three months ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007, respectively.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Interest and penalties related to income taxes are classified as interest expense.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE O &ndash; RELATED PARTY TRANSACTIONS</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The total charged to operating expenses for the</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007 was $130,000 and $60,000, respectively.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The total charged to operating expense for the three months ended</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and 2007</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">was $60,000</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">for each.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">There were no charges to operating expense for the three months ended</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$130,000 was payable to Capital Advisory Services at</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and $10,000 payable at December 31, 2007.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-FAMILY: 'GARAMOND'">NOTE P - SUBSEQUENT EVENTS</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On Friday, May 16, 2008, the Company and COCARD(R) Marketing Group, LLC (&ldquo;COCARD&rdquo;) signed a Definitive Merger Agreement (the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;Agreement&rdquo;) for Pipeline to acquire COCARD for approximately $79.5 million in cash and notes plus future considerations based on
        performance. COCARD is a Nashville, Tennessee-based merchant services provider comprised of 73 independent sales offices catering primarily to small and medium-sized retail accounts. COCARD processes over $3 billion of credit card transactions annually from its base of over 26,000 merchants.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 7.1 of the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Agreement provided the conditions to the parties&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">obligations to close.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 7.1 (r) provides that a condition precedent to
        Pipeline&rsquo;s obligation to close is to</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;have consummated transactions with Comvest Investment Partners or one of its Affiliates pursuant to which [Pipeline] receives an investment of at least $50,000,000.&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">This investment was not consummated and, thus, the Company maintains the obligation to close has not been triggered.</font><br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company has notified CoCard that pursuant to Section 9.1(b) of the Agreement Pipeline has terminated the Agreement.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Section 9.1(b) provides that</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;[Pipeline] may terminate this Agreement by giving written
        notice to the Company at any time prior to the Closing &hellip; (ii) if the Closing shall not have occurred on or before the twentieth (20</font><sup><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">th</font></sup><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">) business day following August 31, 2008, by reason of the failure of any condition precedent under Section 7.1 hereof; provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall
        not be available to [Pipeline] if [Pipeline]&rsquo;s action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement (provided, that each of the Parties acknowledges and agrees that the failure to satisfy the condition set forth in Section 7.1(r) shall not be deemed to be an action or failure to act by [Pipeline] hereunder, and [Pipeline] shall be
        entitled to terminate this Agreement in the event of a failure to satisfy the condition set forth in Section 7.1(r)).&rdquo;</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'"><a name="OLE_LINK6"></a><a name="OLE_LINK10">Put Right Modification</a></font></i></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">On November 7, 2008 the Board of Directors approved an agreement with the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">former</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">shareholders to extinguish the put right agreement.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Then neither the former Charge.com shareholders or the Company will have any further rights</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">or obligations</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">under the Charge.com acquisition agreement.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company is currently documenting the settlement of the Put Right, which is subject to final agreement by the parties.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">No assurance can be provided that settlement will be reached.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">If settlement is not reached and the Charge Shareholders exercise their Put Right we would need debt and/or equity financing to
        meet this obligation.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Management believes, but cannot assure that acquiring such financing is achievable.</font></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">F-<a name="PAGENUM">28</a></p>
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        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">Item 2. Management</font></b><b><font style="FONT-SIZE: 10pt">&rsquo;</font></b><b><font style="FONT-SIZE: 10pt">s Discussion and Analysis or Plan of Operation.</font></b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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</font>
        <font style="FONT-SIZE: 10pt">&ldquo;expects, intends, believes, anticipates, may, could, should, would&rdquo;</font> <font style="FONT-SIZE: 10pt">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-TOP: 12pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">Overview</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">&ldquo;brick and mortar&rdquo;</font>
        <font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">&ldquo;swipe&rdquo;</font> <font style="FONT-SIZE: 10pt">transactions, as well as card-not-present transactions. Significant market research supports the following on the company&rsquo;s industry:</font></p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

            <tr>
                <td valign="top" width="24">&nbsp;</td>

                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>
        </table>

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                    <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

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                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

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            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Pipeline distinguishes itself from competitors by its VISA certification, its technology, its operating efficiencies and its marketing ability.</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="212" border="0">
            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top" width="188">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Pipeline&rsquo;s technology includes:</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="348" border="0">
            <tr>
                <td valign="top" width="48">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="72">&nbsp;</td>

                <td valign="top" width="228">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Online proprietary digital applications,</font></p>
                </td>
            </tr>
        </table>

        <table cellspacing="0" cellpadding="0" width="396" border="0">
            <tr>
                <td valign="top" width="48">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="72">&nbsp;</td>

                <td valign="top" width="276">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Proprietary shopping cart and gateway services,</font></p>
                </td>
            </tr>
        </table>

        <table cellspacing="0" cellpadding="0" width="549" border="0">
            <tr>
                <td valign="top" width="48">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="72">&nbsp;</td>

                <td valign="top" width="429">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Wireless cellular phone software to enable mobile card payment acceptance.</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">Overview &ndash; Financial and Operational Highlights &ndash;</font></b> <b><font style="FONT-SIZE: 10pt">Nine months</font></b> <b><font style="FONT-SIZE: 10pt">ended</font></b> <b><font style="FONT-SIZE: 10pt">September 30, 2008</font></b><br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Following are some financial and operational highlights that are further explained in the paragraphs that follow.</font></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="100%" border="0">
            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Gross Profit, which is defined as total revenue less interchange fees, cost of services sold and cost of goods sold,</font> <font style="FONT-SIZE: 10pt">decreased</font> <font style="FONT-SIZE: 10pt">2.0% to $</font> <font style="FONT-SIZE: 10pt">12.8</font> <font style="FONT-SIZE: 10pt">million for the</font>
                    <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">from $13.0</font> <font style="FONT-SIZE: 10pt">million during the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2007.</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="100%" border="0">
            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Our processing volume for the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">was $1.0</font> <font style="FONT-SIZE: 10pt">billion, an 11% decrease from the $1.2</font>
                    <font style="FONT-SIZE: 10pt">billion processed during the same period in 2007. This decrease is attributable to the termination of unprofitable accounts.</font></p>
                </td>
            </tr>
        </table>

        <table cellspacing="0" cellpadding="0" width="100%" border="0">
            <tr>
                <td valign="top" width="24">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">&bull;</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">Net loss increased from $2.0</font> <font style="FONT-SIZE: 10pt">million to $5.2</font> <font style="FONT-SIZE: 10pt">million for the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">compared to
                    the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2007.</font></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">Critical Accounting Policies and Estimates</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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.</font> <font style="FONT-SIZE: 10pt">Actual results could
        differ from those estimates</font><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">.</font></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Revenue and Cost Recognition</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">We follow the requirements of EITF 99-19,</font> <font style="FONT-SIZE: 10pt">&ldquo;Reporting Revenue Gross as a Principal Versus Net as an Agent&rdquo;, 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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Merchant Deposits and Loss Reserves</font></i></b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 24px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">We follow the Financial Accounting Standards Board Interpretation No.&nbsp;45: Guarantor&rsquo;s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (&ldquo;FIN 45&rdquo;), 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&rsquo;s dissatisfaction with
        merchandise quality or the merchant&rsquo;s service, and the disputes may not always be resolved in the merchant&rsquo;s favor. In some of these cases, the transaction is</font> <font style="FONT-SIZE: 10pt">&lsquo;&lsquo;charged back&rsquo;&rsquo;</font> <font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">and December 31, 2007, we held merchant deposits totaling $1,017,000</font> <font style="FONT-SIZE: 10pt">and $538,000, respectively. Additionally, we have a recovery team that is responsible for collecting</font>
        <font style="FONT-SIZE: 10pt">&ldquo;charge backs&rdquo;. 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</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">and December 31, 2007, our loss reserve totaled $238,000 and $214,000 respectively.</font></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Deferred Customer Acquisition Costs</font></i></b></p>

        <p style="MARGIN-TOP: 9pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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.</font> <font style="FONT-SIZE: 10pt">During the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008, we incurred $2.6</font> <font style="FONT-SIZE: 10pt">million of customer acquisition related expenses, of which, $626,000 was capitalized.</font> <font style="FONT-SIZE: 10pt">During the</font> <font style="FONT-SIZE: 10pt">nine
        months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2007, we incurred $2.5</font> <font style="FONT-SIZE: 10pt">million of customer acquisition related expenses of which, $489,000 was capitalized.</font> <font style="FONT-SIZE: 10pt">We amortized $488,000 and $461,000 of previously capitalized customer acquisition costs for the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font>
        <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">and 2007, respectively.</font> <font style="FONT-SIZE: 10pt">During the three months ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008, we incurred $.8</font> <font style="FONT-SIZE: 10pt">million of customer acquisition related expenses, of which, $175,000 was capitalized.</font> <font style="FONT-SIZE: 10pt">During the three months ended</font> <font style="FONT-SIZE: 10pt">September 30,
        2007, we incurred $.8</font> <font style="FONT-SIZE: 10pt">million of customer acquisition related expenses of which, $149,000 was capitalized.</font> <font style="FONT-SIZE: 10pt">We amortized $160,000 and $189,000 of previously capitalized customer acquisition costs for the</font> <font style="FONT-SIZE: 10pt">nine months</font> <font style="FONT-SIZE: 10pt">ended</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">and 2007,
        respectively.</font> <font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">balance</font> <font style="FONT-SIZE: 10pt">was
        approximately $621,000 and $483,000 as of</font> <font style="FONT-SIZE: 10pt">September 30, 2008</font> <font style="FONT-SIZE: 10pt">and December 31, 2007, respectively.&nbsp;</font></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><a name="PAGENUM">28</a></p>
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        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Accounting for Goodwill and Intangible Assets</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">In July 2001, the FASB issued Statement No. 142,</font> <font style="FONT-SIZE: 10pt">&ldquo;Goodwill and Other Intangible Assets&rdquo;</font> <font style="FONT-SIZE: 10pt">(&ldquo;SFAS 142&rdquo;), 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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Share-Based Payments</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (&ldquo;SFAS No. 123R&rdquo;). 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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Income Taxes</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><i><font style="FONT-SIZE: 10pt">Earnings per common share</font></i></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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</font> <font style="FONT-SIZE: 10pt">(loss) for all periods presented.</font></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt">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>
        <font style="FONT-SIZE: 10pt">average market share</font> <font style="FONT-SIZE: 10pt">price for the period generally are assumed to have a dilutive effect on earnings per common share.<br>
        <br>
        &nbsp;</font></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><a name="PAGENUM">29</a></p>
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            <tr>
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">&nbsp;</td>

                <td valign="bottom" width="111">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font></p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="bottom" width="10">&nbsp;</td>

                <td valign="bottom" width="134">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Nine months</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2007</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="111">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.6in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(5,189,237)</font></p>
                </td>

                <td valign="bottom" width="10">&nbsp;</td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="134">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.6in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,033,175)</font></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Less: Deemed dividend on common stock subject to put obligation</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="top" width="12">&nbsp;</td>

                <td valign="top" width="111">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(1,892,458</font></u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></p>
                </td>

                <td valign="top" width="10">&nbsp;</td>

                <td valign="top" width="10">&nbsp;</td>

                <td valign="top" width="134">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.5in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(372,163)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Net loss for purposes of computing basic and diluted earnings per share</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 1pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;</font></p>
                </td>

                <td valign="top" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="top" width="111">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;(7,</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">081,695</font></u><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">)</font></u></p>
                </td>

                <td valign="top" width="10">&nbsp;</td>

                <td valign="top" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></u></p>
                </td>

                <td valign="top" width="134">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><u><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(2,405,338)</font></u></p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Weighted average shares outstanding &ndash; basic and diluted</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="bottom" width="111">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">49,805,598</font></p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right">&nbsp;</p>
                </td>

                <td valign="bottom" width="134">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">48,434,072</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 12.2pt">
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp; (loss) per common share attributable to common equity holders:</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="111">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.10)</font></p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="134">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.04)</font></p>
                </td>
            </tr>

            <tr style="HEIGHT: 12.2pt">
                <td valign="top" width="383">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.3in; TEXT-INDENT: -18px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Basic and diluted&nbsp; (loss) per common share after deemed dividend:</font></p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="12">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="111">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.14)</font></p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0.5pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>
                </td>

                <td valign="bottom" width="10">
                    <p style="MARGIN-TOP: 2pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">$</font></p>
                </td>

                <td valign="bottom" width="134">
                    <p style="MARGIN-TOP: 1.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 2px" align="right"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">(0.05)</font></p>
                </td>
            </tr>
        </table>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center">&nbsp;</p>

        <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">ITEM 3</font></b><b><font style="FONT-SIZE: 10pt">.</font></b> <b><font style="FONT-SIZE: 10pt">QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.<br>
        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-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">None of our interest expense is sensitive to changes in the general level of interest rates.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <table cellspacing="0" cellpadding="0" width="100%" border="0">
            <tr>
                <td valign="top" width="9%">
                    <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">ITEM&nbsp;<a name="keyword"></a><a name="lastkeyword"></a>4T.</font></b></p>
                </td>

                <td valign="top">
                    <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">Controls and Procedures</font></b></p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 8pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company&rsquo;s management, with the participation of the Company&rsquo;s chief executive officer and chief financial officer, evaluated the effectiveness of the Company&rsquo;s disclosure controls and procedures as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008. The term</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">&ldquo;disclosure controls and procedures,&rdquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;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&rsquo;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&rsquo;s disclosure controls and procedures as of</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">the Company&rsquo;s chief executive officer and chief financial officer concluded that, as of such date, the Company&rsquo;s disclosure controls and procedures were effective at the reasonable assurance level.<br>
        There was no change in the internal control over financial reporting that occurred during the period ended</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">September 30, 2008</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.</font></p>

        <p></p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><a name="PAGENUM">30</a></p>
        </div>
        <!-- PAGE BREAK  -->

        <div title="EE+ Page Break" style="FONT-SIZE: 1pt; PAGE-BREAK-AFTER: always; WIDTH: 100%; HEIGHT: 1px">
            <hr>
        </div>

        <p style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">PART II. OTHER INFORMATION<br>
        &nbsp;</p>

        <p style="MARGIN-TOP: 13.5pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b><font style="FONT-SIZE: 10pt">ITEM 1. LEGAL PROCEEDINGS</font></b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Pipeline:<br>
        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&rsquo;s position is that there was miscommunication of payment details and a good faith attempt on the Company&rsquo;s part to communicate this to Iroquois Master Fund. The Company&rsquo;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&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;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.<br>
        Valadata:<br>
        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&rsquo;s acquisition of Valadata, and seeks around $1.5M, plus attorneys&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s counterclaims seek compensatory and punitive damages, as well as attorneys&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">fees. In February of 2008, the Court dismissed Pipeline&rsquo;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</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">has</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">now proceeded</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">to discovery</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">and deposition.<br>
        Garner Gifts contingent payment:</font><br>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.<br>
        Our Subsidiary SecurePay:<br>
        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></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-FAMILY: 'GARAMOND'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>ITEM 3. DEFAULTS UPON SENIOR SECURITIES</b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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&rsquo;s position is that there was miscommunication of
        payment details and a good faith attempt on the Company&rsquo;s part to communicate this to Iroquois Master Fund. The Company&rsquo;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.</font>
        <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The lenders&rsquo;</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company firmly believes
        that it has acted in good faith and plaintiff&rsquo;s claim is without merit.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">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></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Another member of the lending group which loaned the Company $8,250,000 is Midsummer Investment, Ltd. (&ldquo;Midsummer&rdquo;).</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company made a late interest payment to Midsummer.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Payment should
        have been made on July 30, 2008.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">We made our full interest payment on August 15, 2008 to cure this default in accordance with the governing documents. Payment was required within 3 trading days from notice of default. A notice of default was issued to the Company on August 13, 2008.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Within the default notice, Midsummer Investment, Inc. demanded payment of 125% of
        the principal amount of its note, outstanding interest and penalties and penalties associated with registration of stock underlying their notes and warrants.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">The Company maintains that it properly cured the late interest payment.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Further, it maintains that it has complied with its registration obligations as the interpretation of Rule 415 governing registration was
        restricted by the Securities and Exchange Commission rendering it impossible to complete registration within the time allotted.</font> <font style="FONT-SIZE: 10pt; FONT-FAMILY: 'GARAMOND'">Midsummer has taken no further action against the Company relative to the default notice.</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS</b></p>

        <p></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><font style="FONT-SIZE: 11pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>ITEM 5. OTHER INFORMATION</b></p>

        <p></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 36px" align="left"><font style="FONT-SIZE: 11pt">None</font></p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K</b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">(A) EXHIBITS</p>

        <table cellspacing="0" cellpadding="0" width="100%" border="0">
            <tr>
                <td valign="top" width="4%">&nbsp;</td>

                <td valign="top" width="645">&nbsp;</td>
            </tr>

            <tr>
                <td valign="top" width="4%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">31.1</p>
                </td>

                <td valign="top" width="645">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="4%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">31.2</p>
                </td>

                <td valign="top" width="645">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="4%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">32</p>
                </td>

                <td valign="top" width="645">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Certifications of Chief Executive Officer and Chief Financial Officer<br>
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</p>
                </td>
            </tr>
        </table>

        <p></p>

        <div title="EE+ Page Footer" style="MARGIN-TOP: 12pt">
            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><a name="PAGENUM">31</a></p>
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        <p style="MARGIN-TOP: 16pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><b>SIGNATURES</b></p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">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.</p>

        <p style="MARGIN-TOP: 12pt; FONT-WEIGHT: bold; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left"><b>PIPELINE DATA INC.</b></p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">(Registrant)</p>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <table cellspacing="0" cellpadding="0" width="100%" align="center" border="0">
            <tr>
                <td valign="bottom" width="7%">&nbsp;</td>

                <td valign="bottom" width="42%">&nbsp;</td>

                <td valign="bottom" width="2%">&nbsp;</td>

                <td valign="bottom" width="7%">&nbsp;</td>

                <td valign="bottom" width="42%">&nbsp;</td>
            </tr>

            <tr>
                <td valign="bottom" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">By:&nbsp;</p>
                </td>

                <td style="BORDER-BOTTOM: black 0.5pt solid" valign="bottom" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">/s/ MacAllister Smith</p>
                </td>

                <td valign="bottom" width="2%">&nbsp;</td>

                <td valign="bottom" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">By:&nbsp;</p>
                </td>

                <td style="BORDER-BOTTOM: black 0.5pt solid" valign="bottom" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Donald Gruneisen</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Name:&nbsp;</p>
                </td>

                <td style="BORDER-TOP: medium none" valign="top" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">MacAllister Smith</p>
                </td>

                <td valign="top" width="2%">&nbsp;</td>

                <td valign="top" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Name:&nbsp;</p>
                </td>

                <td style="BORDER-TOP: medium none" valign="top" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Donald Gruneisen</p>
                </td>
            </tr>

            <tr>
                <td valign="top" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Title:&nbsp;</p>
                </td>

                <td valign="top" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Chief Executive Officer and President</p>
                </td>

                <td valign="top" width="2%">&nbsp;</td>

                <td valign="top" width="7%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Title:&nbsp;</p>
                </td>

                <td valign="top" width="42%">
                    <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Chief Financial Officer<br>
                    (Principal Financial and Accounting Officer)</p>
                </td>
            </tr>
        </table>

        <p style="MARGIN-TOP: 0pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">&nbsp;</p>

        <p style="MARGIN-TOP: 8pt; FONT-SIZE: 10pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="left">Date: November 14, 2008</p>

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            <p style="MARGIN-TOP: 0pt; FONT-SIZE: 12pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0in; TEXT-INDENT: 0px" align="center"><a name="PAGENUM">32</a></p>
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</html>
[{"type": "10-Q", "sequence": "1", "filename": "ppda10q93008.htm", "secsgml_size_bytes": 526968}]
{"company-data": {"conformed-name": "PIPELINE DATA INC", "cik": "0001086533", "assigned-sic": "7389", "irs-number": "133953764", "fiscal-year-end": "1205"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-50611", "film-number": "081192399"}, "business-address": {"street1": "1599 WASHINGTON STREET", "street2": "SUITE 1D", "city": "BRAINTREE", "state": "MA", "zip": "02184", "phone": "781 843 3812"}, "mail-address": {"street1": "1599 WASHINGTON STREET", "street2": "SUITE 1D", "city": "BRAINTREE", "state": "MA", "zip": "02184"}}
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 September 30, 2008
[ ] 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
(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 •
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 •
Accelerated filer •
Non-accelerated filer
•
(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 • 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
November
1
0
, 2008
Common Stock, $0.001 par value
49,820,269
PIPELINE DATA INC.
September 30, 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
PART I
ITEM 1. FINANCIAL STATEMENTS
T he accompanying notes are an integral part of these financial statements
.
F-
1
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2008
(unaudited) and
December 31, 2007
F-3 – F-4
Condensed Consolidated Statements of Operations for the
nine months
ended
September 30, 2008
and
2007
(unaudited)
F-5
Condensed Consolidated Statements of Operations for the three months ended
September 30, 2008
and
2007
(unaudited)
F-6
Condensed Consolidated Statements of Cash Flows for the
nine months
ended
September 30, 2008
and
2007
(unaudited)
F-7 - F-8
Notes to Condensed Consolidated Financial Statements (Unaudited)
F-9
- F-27
T he accompanying notes are an integral part of these financial statements
.
F-
2
PIPELINE DATA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2008
December 31, 2007
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
80,597
$ 995,238
Accounts receivable, net
2,133,964
2,645,825
Inventory
107,192
91,697
Prepaid expenses and other current assets
183,414
96,032
Notes
receivable
-
145
,
408
Total current assets
2
,
505
,
167
3
,
974
,
2
00
PROPERTY AND EQUIPMENT, net
1,
5
63
,
215
1,
395
,
226
OTHER ASSETS
Restricted cash
926,768
976,228
Merchant portfolios, residual rights and other intangibles, net
10,877,160
13,569,381
Debt issuance costs
647,077
924,396
Deferred  customer acquisition costs, net
621,295
482,856
Notes receivable, net
750,000
746,454
Deferred
offering and
acquisition costs and other assets
1,510,236
714,382
Goodwill and other intangibles with indefinite lives
43,
465
,
656
43
,
458
,
990
Total other assets
58
,
798
,
192
60
,
872
,6
8
7
TOTAL ASSETS
$  6
2,866
,574
$  66,242
,113
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS
'
EQUITY
CURRENT LIABILITIES
Accounts payable
$
1,238,234
$
754,843
Accrued expenses
1,522,188
1,539,670
Notes payable
204,535
192,070
Capital lease obligations
86,750
84,173
Accrued acquisition costs
579,911
579,911
Merchant deposits and loss reserve
1,255
,
121
751,833
Total current liabilities
4,
886,739
3
,
902
,
500
LONG-TERM LIABILITIES
Notes payable-senior secured convertible
32,355,080
30,358,148
Capital lease obligations
59,448
79,892
Deferred rent on operating lease
36,387
41,259
Deferred tax liabilities, net
14
,
967
1
,
361
,
700
Total long-term liabilities
32,
465
,
882
31,
840
,
999
Total liabilities
3
7
,
352
,
62
1
3
5
,
743
,49
9
COMMITMENTS AND CONTINGENCIES
TEMPORARY EQUITY
Common stock subject to put obligations, 9,398,058 shares, issued and outstanding
15
,
377
,
985
1
3
,
485
,
527
Total temporary equity
1
5
,
377
,
985
1
3
,
485
,
527
STOCKHOLDERS'
EQUITY
Preferred stock, $.001 par value: 5,000,000 shares authorized,
no shares issued or outstanding at
September 30, 2008
and
December 31, 2007
-
-
Common stock,  $.001 par value: 150,000,000 shares
authorized,
40,512,211
and
40,465,545
shares issued and outstanding at
September 30, 2008
and
December 31, 2007, respectively
40,512
40,471
Additional paid-in capital
21,783,729
23,471,652
Accumulated deficit
(11,615,013
)
(6,425,776
)
Less: 90,000 shares of treasury stock, at cost, at
September 30,
2008  and
December 31, 2007
(73,260)
(
73
,260)
Total stockholders'
equity
1
0
,
135
,
968
1
7
,01
3
,
087
TOTAL LIABILITIES, TEMPORARY EQUITY  AND STOCKHOLDERS'
EQUITY
$  6
2,866
,574
$66,242
,113
.
T he accompanying notes are an integral part of these financial statements
.
F-
3
PIPELINE DATA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Nine months
ended
September 30, 2008
Nine months
ended
September 30, 2007
Revenue
$
34
,
9
9
4
,
284
$
37
,
691
,
849
Interchange
16,618,819
17,479,837
Cost of services sold
5,398,717
6,893,794
Cost of goods sold
212
,
865
288
,
323
Total cost of services and goods sold
22
,
230
,
401
24
,
661
,
954
Gross profit
12
,
763
,
883
13
,
029
,
895
Operating expenses
Salaries and payroll cost
5,754,176
4,930,805
Selling, general and administrative
4,202,070
4,011,024
Notes
receivable
write down
1,009,781
-
Failed acquisition and offering costs
361,661
-
Impairment loss
588,044
-
Customer acquisition cost amortization
487,561
461,388
Depreciation
228,393
181,893
Amortization
2
,
182
,
765
2
,
132
,
220
Total operating expenses
14
,
814
,
451
11
,
717
,
330
Income from operations
(2,
050
,
568
)
1,312
,
565
Other income and expenses
Interest and other income
73,530
136,515
Interest expense
(
4
,
610
,
506
)
(
4
,
680
,
536
)
Total other expenses
(
4
,
536
,
976
)
(
4
,
544
,
021
)
(Loss) before income taxes
(6,587,544
)
(3,231,456
)
Income tax benefit
1,398
,
307
1,198
,
281
Net loss attributable to common equity holders prior to deemed dividend
(5,189,237
)
(2,033,175
)
Deemed dividend on common stock subject to put obligation
(
1,
892
,
458
)
(372,163)
Net (loss) after deemed dividend
$    (
7,081
,695)
$    (2,405
,338)
Basic and diluted net (loss)  per share attributable to common equity holders prior to deemed dividend:
$             (
0.10)
$
(0.04)
Basic and diluted (loss) per share after deemed dividend:
$             (
0.14)
$
(0.05
)
Weighted average number of common shares outstanding-basic and diluted
49,805,598
4
8,434
,072
T he accompanying notes are an integral part of these financial statements
.
F-
4
PIPELINE DATA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
For the t
hree
months ended
September
3
0,
200
8
For the t
hree months ended
September
30,
2007
Revenue
$
                    1
1
,
462
,
606
$
                    1
2
,
754
,
369
Interchange
5,635,350
5,943,613
Cost of services sold
1,794,639
1,998,966
Cost of goods sold
59
,
089
90
,
130
Total cost of services and goods sold
7
,
489
,
078
8,
032
,
709
Gross profit
3
,
973
,
528
4,
721
,
660
Operating expenses
Salaries and payroll cost
1,948,401
1,590,922
Selling, general and administrative
1,210,142
1,487,912
Notes
receivable
write down
1,009,781
Failed acquisition and offering costs
361,661
-
Impairment loss
588,044
-
Customer acquisition cost amortization
169,733
172,613
Depreciation
78,956
64,069
Amortization
72
8
,
263
7
28
,
683
Total operating expenses
6
,
094
,
981
4
,
044
,
199
Income from operations
(2,
121
,
453
)
677
,
461
Other income and expenses
Interest and other income
21,609
26,079
Interest expense
(1,5
47
,
736
)
(1,5
29
,
448
)
Total other expenses
(1,
526
,
12
7
)
(1,
503
,
369
)
(Loss) before income taxes
(3,647,580
)
(825,908)
Income tax benefit
538
,
506
718
,
741
Net
(loss)
attributable to common equity
holders
prior to deemed dividend
(3,109,074
)
(107,167)
Deemed dividend on common stock subject to put
Obligation
(
6
58
,
577
)
(372,163)
Net (loss) after deemed dividend
$   (
3,767
,651)
$  (
479,330
)
Basic and diluted net (loss)  per share attributable to common equity holders prior to deemed dividend:
$
(0.
06)
$
(0.00
)
Basic and diluted net (loss) per share after deemed dividend
$
(0.08
)
$        (0.0
1)
Weighted average number of common shares outstanding-basic and diluted
49,820,269
4
9,124
,777
PIPELINE DATA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH F
L
OWS
Unaudited
For the
nine
months ended
September 30, 2008
For the
nine months
ended
September 30, 2007
OPERATING ACTIVITIES:
Net (loss)
$  (5,
189,237)
$   (2,033,175
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
2,411,158
2,314,113
Impairment loss
588,044
Amortization of deferred
account
acquisition costs
487,561
461,388
Stock based compensation
207,075
213,707
Amortization of debt issuance cost
277,319
277,319
Amortization of discount on  long-term debt
1,996,933
1,996,932
Deferred taxes, net
(1,398,307)
(1,198,281)
Imputed interest income
(3,547)
(31,921)
Allowance for chargebacks and losses
309,951
130,167
Notes receivable writedown
1,009,781
-
Failed
financing &
acquisition
c
osts
361,661
-
Gain on disposal of asset
1,463
-
Changes in operating assets and liabilities:
Accounts receivable
(70,998)
(203,008)
Interest receivable
-
7,778
Inventory
(15,495)
(15,893)
Prepaid expenses and other assets
(47,749)
(12,465)
Deferred account acquisition costs
(625,999)
(494,364)
Deposits and restricted cash
49,370
(194,239)
Accounts payable and accrued expenses
517,482
45,103
Merchant deposits
503,289
320,009
Accrued rent
(
4
,
873
)
3
9
,
816
Net cash  provided by operating activities
1,364
,
882
1,622,986
INVESTING ACTIVITIES:
Capital expenditures
(422,199)
(339,761)
Merchant portfolio,
residual rights
and other intangibles
purchase
(10,000)
(168,628)
Notes receivable
(739,700)
300,000
Acquisitions of businesses
-
(3,000,000)
Change in restricted cash
-
355,795
Net cash
(used in)
investing activities
(
1
,1
71
,
899
)
(
2,
8
52
,
594
)
FINANCING  ACTIVITIES:
Debt service payments
(25,274)
-
Warrant and stock option exercise
-
2,763
Lease obligation payments
(68,768)
(74,633)
Purchase of treasury stock
-
(36,000)
Deferred offering costs
(1,011,082)
(75,000)
Retirement of restricted stock units
(2,500)
-
Net cash (used in) financing activities
(
1,107,624
)
(
1
82
,
870
)
Net  increase (decrease) in cash and cash equivalents
(914,641)
(1,412,478)
Cash and cash equivalents, beginning of period
995
,
238
2,
770
,
494
Cash and cash equivalents, end of period
$
80
,
597
$
1
,
358
,
016
Supplemental disclosures:
Cash paid during the year for:
Interest
$
2,
274,888
$
2
,
347
,
332
Non cash investing and financing activities:
Common stock issued as contingent acquisition cost
$
1
,
637
,
097
Accrued merchant portfolio acquisitions
$ 579,911
Capital expenditures from lease prepayments and
proceeds from lease financing
$ 50,901
$
194,734
Accounts receivable converted to notes receivable
$
18,938
Deemed dividend on common stock subject to put
obligation
$
1,892,458
$ 372,163
T he accompanying notes are an integral part of these financial statements
.
F-
5
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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
September 30, 2008, and the consolidated results of operations for the
three and
nine months
ended
September 30, 2008
and 2007, and cash flows for the
nine months
ended
September 30, 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
September 30, 2008, the Company had a cash balance of $81,000
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
$1.5662 per share, as of July 1, 2008, plus interest at an annual rate of 18% (the
"Put Right").
On
September 15, 2008, the Charge Shareholders entered into an Amended
Put Modification Agreement (the
"Amended
Modification Agreement") with the Company and Charge.com, Inc.,
        a wholly-owned subsidiary of the Company.
The Amended Put Modification Agreement has expired.
On November 7, 2008 the Board of Directors approved an agreement with the former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the former shareholders to extinguish the put right agreement.
Then neither the former Charge.com shareholders or the Company will have any further rights or obligations under the Charge.com acquisition agreement. The
Charge Shareholders and the Company are currently documenting a settlement of the Put Right, which is subject to final agreement by the parties.
No assurance
        can be provided that settlement will be reached.
If
settlement is not reached and
the Charge Shareholders exercise 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.
F-
6
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE A – ORGANIZATION AND OPERATIONS
(CONTINUED)
Basis of Financial Statement Presentation
(continued)
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.
G
oing
C
oncern
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred significant losses and has an accumulated
        deficit of $11.6
million
at
September
30, 2008, with a history of
quarter losses
since
December 2005.
The Company has a net loss of $3.1million
for the three month period ended
September
30, 2008, partially as a result of a major creditor filing bankruptcy causing a write
        down of over $1.0
million in notes receivable.
These losses have reduced working capital and retained earnings to the extent that the company may not be able to continue as a going concern.
If the Charge.com Shareholders exercised their Put Right, as described previously, the Company would need debt and/or equity financing to meet this obligation.
Further,
long term note interest payments have not been
        paid on time but paid subsequently within a few days.
In light of this the Company may not have sufficient cash to pay bills as the become due.
Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and potential merger or acquisition candidates and strategic partners, which would enhance
        stockholders'
investment.
In addition,
management has implemented and will continue to implement reduction measures
in operational costs.
The
Company
has an active plan to reduce
its
operating
costs by
over
$1 million annually.
The Company has further established a cost savings committee with 2 members of the Board of Directors and the Chief Operating Officer.
It is also anticipated that additional revenue from annual fees and PCI compliance fees
should
enhance revenue in the fourth quarter and contribute to improved liquidity.
In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future
        operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the
        consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.
Estimates include, among other things, capitalized customer acquisition costs, loss reserves, certain accounts payable and accrued expenses, certain tax assets and liabilities, convertible debt, amortization, valuation of intangibles, merchant portfolios, potential liabilities under registration rights agreement and
        equity instruments. On an ongoing basis, the Company evaluates their estimates.
Actual results could differ from those estimates.
NOTE A – ORGANIZATION AND OPERATIONS (CONTINUED)
Basis of Financial Statement Presentation (continued)
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.
Corporate Ini
ti
atives
The Company
had
anticipated
acquiring
Innovative Resource Alliance and
        securing financing for the transaction, but did not reach an acceptable agreement.
In the third quarter
of 2008,
Innovative Resource Alliance
(IRA)
initiated a bankruptcy case in
        the US Bankruptcy
Court.
As a result, we recognized a failed acquisition and offering cost of $362,000 and a loss on
notes receivable of $1.0 million
loaned to IRA, plus legal, due diligence
and failed financing costs related to the transaction.
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 $92,925
as of
September 30, 2008
and
        $12,800 as of December 31, 2007.
F-
7
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
nine months
ended
September 30, 2008
and
September 30, 2007
was $228,393
and $181,893, respectively.
Depreciation expenses for property and equipment for the three months ended
September 30, 2008
and
September 30, 2007
was $78,956
and $64,069, 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.
F-
8
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-
9
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as
        derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services they provide.
Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments. To the
        extent that the initial fair values 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.
Deferred Offering Costs
Costs attributable to proposed or actual offering of securities are deferred and will be
charged
against the proceeds of the offering.
If
an
offering is aborted, the costs are charged against operations.
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.
F-
10
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (Continued)
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.
I
ncome 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 December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS No. 141(R)"), which replaces SFAS No. 141. SFAS No. 141(R) applies the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses and
        establishes principles and requirements for how the acquirer recognizes and measures identifiable assets acquired and liabilities assumed, including assets and liabilities arising from contingencies, any noncontrolling interest in the acquiree and goodwill acquired or gain realized from a bargain purchase. SFAS No. 141(R) is effective prospectively for business combinations for which the acquisition date is on or after the first annual reporting period beginning after
        December 15, 2008. The adoption of SFAS No. 141 (R) will impact the Company's Consolidated Financial Statements prospectively in the event of any business combinations entered into after the effective date in which the Company is the acquirer.
F-
11
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements (continued)
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS
157"). This Statement defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007.
The adoption of
SFAS
157
        did not have a material effect on the Company's Consolidated Financial Statements.
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
SFAS
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.
F-
12
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements (continued)
In April 2008, the FASB issued FSP FAS 142-3,
"Determination of the Useful Life of Intangible Assets"
("FSP FAS 142-3"). FSP FAS 142-3 amends the factors that should be
        considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
"Goodwill and Other Intangible Assets"
("SFAS No. 142") in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period
        of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and is to be applied prospectively to intangible assets acquired after the effective date. Disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Early adoption is
        not permitted. The Company is currently evaluating the impact of adopting FSP FAS 142-3 on its Consolidated Financial Statements.
In May 2008, the FASB issued SFAS No. 162,
"The Hierarchy of Generally Accepted Accounting Principles"
("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the accounting principles used in preparing financial statements of nongovernmental entities that are presented in
        conformity with GAAP. Currently, GAAP hierarchy is provided in the American Institute of Certified Public Accountants U.S. Auditing Standards ("AU") Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles"
("AU Section 411"). SFAS No. 162 is effective 60 days
        following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411. The Company does not expect the adoption of SFAS No. 162 to have an impact on its Consolidated Financial Statements.
NOTE C– NOTE RECEIVABLE
The Company had demand notes aggregating $145,408 as of December 31, 2007 at the simple rate of 10% and a long term secured promissory note, due
December 31, 2008, with a balance, net of discount, of $746,454 as of December 31, 2007.
The face amount of the note is $750,000 as of September 30, 2008 and December 31, 2007.
Interest is imputed at the rate of 6%.
The note is secured by 1,000,000 shares of the Company's common stock.
NOTE D– DEFERRED CUSTOMER ACQUISITION COSTS, NET
A summary of the activity in deferred customer acquisition costs, net for the
nine months
ended
September 30, 2008
is a follows:
Deferred customer acquisition costs, net balance as of December 31, 2007
$482,856
Deferred customer acquisition costs capitalized
625,999
Deferred customer acquisition costs amortized
(
487,560
)
Deferred customer acquisition costs, net balance as of
September 30, 2008
$
621,295
NOTE E- MERCHANT PORTFOLIOS, RESIDUAL RIGHTS AND OTHER INTANGIBLES, NET
The changes to the merchant portfolio, residual rights and other intangibles balance during the
nine months
ended
September 30,
        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
3,333
Merchant portfolios, residual rights and other intangibles amortized
(2,107,510)
Merchant portfolios, residual rights and other intangibles impaired
(588,044)
Merchant portfolios, residual rights and other intangibles balance as of
September
30,
2008
$
10,877,160
Impairments
During the third quarter
of
2008, the Company recorded a charge of $588,044 related to the impairment of intangible assets associated with an acquired merchant portfolio.
The fair value was estimated based on the present value of expected future cash flows from the merchant portfolio.
NOTE F – GOODWILL AND OTHER INTANGIBLES WITH INDEFINITE LIVES
The
changes to the goodwill and other intangibles with indefinite lives balance during the
nine months
ended
September 30, 2008
are as follows:
Goodwill and other intangibles with indefinite lives balance as of December 31, 2007
$43,458,990
Goodwill and other intangibles with indefinite lives acquired
6,666
Goodwill and other intangibles with indefinite lives amortized or impaired
-
Goodwill and other intangibles with indefinite lives balance as of
September 30, 2008
$43,465,656
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.
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.
If the Company offers, sells, grants
any option to purchase or offer, sells
or grants
any right to re-price its securities,
then the exercise price of the warrants
and the conversion price of the notes
shall be reduced to equal that price and the number of warrants shall be increased such that the aggregate exercise price
payable after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment.
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.
F-
13
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2008
NOTE G – SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)
Debt/Financing: (continued)
Pursuant to a Registration Rights Agreement, the Company agreed to
"prepare and file with the [Securities and Exchange] Commission a Registration Statement covering the resale of 125% of [the shares into which the convertible notes and warrants were
        convertible] for an offering to be made on a continuous basis pursuant to Rule 415 [as promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933]"
or pay each holder monthly in cash as partial liquidated damages 1.25% of the aggregate purchase price paid by such holder for the convertible notes and warrants for the first six months, which shall increase to 1.5% thereafter.
A Registration Statement for 11,100,000 shares of common stock underlying warrants at $1.40 and 10,000,000 shares of common stock underlying 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 $372,000, related to the initial late filing of the registration statement pending any settlement.
Long-term debt as of
September 30, 2008
and December 31, 2007 consists of the following:
September
30,
December 31,
2008
2007
Deferred rent on operating leases
$36,387
$41,259
Other promissory notes and capital leases
140,662
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
37,177,049
37,205,324
Less current portion
(81,214)
(84,173)
Unamortized discount on long-term debt of beneficial conversion feature and warrants
(
4,644,920
)
(6,641,852)
Long-term debt, excluding current portion
$
32,450,915
$30,479,299
F-
14
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30,
2008
NOTE G – SHORT-TERM AND LONG-TERM DEBT OBLIGATIONS (CONTINUED)
Debt/Financing: (continued)
Notice of Default on Senior Securities
On June 29, 2006, the Company entered into a $37 million convertible debt financing with a group of institutional investors. Under the terms of agreement, the Company issued convertible notes that accrue interest at a rate of 8% per annum, payable quarterly in arrears beginning on October 2, 2006. A member of the lending group which
        loaned our Company $1,000,000 is Iroquois Master Fund Ltd.
On April 10, 2007, Iroquois Master Fund provided
the
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.
Another member of the lending group which loaned
the Company $8,250,000 is Midsummer Investment, Ltd.
("Midsummer").
The
        Company
made a late interest payment to
Midsummer.
Payment should have been made on July 30, 2008.
We made our full interest payment on August 15, 2008 to cure this default in accordance with the governing documents. Payment was required
        within 3 trading days from notice of default. A notice of default was issued to
the Company
on August 13, 2008.
Within the default notice, Midsummer Investment, Inc. demanded payment of 125% of the principal amount of its note, outstanding interest and penalties and penalties associated with registration
        of stock underlying their notes and warrants.
The Company maintains that it
properly cured the late interest payment.
Further,
it maintains that it has complied with its
registration obligations as the interpretation of Rule 415 governing registration was restricted by the Securities and Exchange Commission rendering it impossible to complete registration within the time allotted.
Midsummer has taken no further action against the Company relative to the default notice.
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
has proceeded to
discovery
and deposition.
F-
15
NOTE H- COMMITMENTS AND CONTINGENCIES
(CONTINUED)
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.
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 $3.7
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.
F-
16
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30,
2008
NOTE H- COMMITMENTS AND CONTINGENCIES (CONTINUED)
COCARD® Acquisition
On Friday, May
16, 2008,
the Company
and COCARD(R) Marketing Group, LLC ("COCARD") signed a Definitive Merger
Agreement
(the
"Agreement")
for Pipeline to acquire COCARD for approximately $79.5 million in cash and notes plus future considerations based on performance. COCARD is a Nashville, Tennessee-based merchant services provider comprised of
        73 independent sales offices catering primarily to small and medium-sized retail accounts. COCARD processes over $3 billion of credit card transactions annually from its base of over 26,000 merchants.
Section 7.1 of the
Agreement
provided
the conditions to the parties'
obligations to
        close.
Section 7.1 (r) provides that a condition precedent to Pipeline's obligation to close is to
"have consummated transactions with Comvest Investment Partners or one of its Affiliates pursuant to which [Pipeline] receives an investment of at least $50,000,000."
This investment was
        not consummated and, thus,
the Company maintains the
obligation to close has not been triggered.
The Company has notified CoCard that pursuant to
Section 9.1(b) of the Agreement
Pipeline has terminated the Agreement.
Section 9.1(b)
provides that
"[Pipeline] may terminate this Agreement by giving written notice to the Company at any time prior to the Closing … (ii) if the Closing shall not have occurred on or before the twentieth (20
th
) business day
        following August 31, 2008, by reason of the failure of any condition precedent under Section 7.1 hereof; provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to [Pipeline] if [Pipeline]'s action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement (provided, that each of the Parties
        acknowledges and agrees that the failure to satisfy the condition set forth in Section 7.1(r) shall not be deemed to be an action or failure to act by [Pipeline] hereunder, and [Pipeline] shall be entitled to terminate this Agreement in the event of a failure to satisfy the condition set forth in Section 7.1(r))."
F-
17
PIPELINE DATA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30,
2008
NOTE I – TEMPORARY EQUITY
Common shares subject to put obligation
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 $1.5662 per share, as of July 1, 2008, plus interest at an annual rate of 18% (the
"Put Right").
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.On September 15, 2008, the Charge Shareholders entered into an Amended Put Modification Agreement (the
"Amended Modification Agreement") with the Company and Charge.com, Inc., a wholly-owned subsidiary of the Company.
The Amended Put Modification Agreement has expired.
On November 7, 2008 the Board of Directors approved an agreement with the former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the former shareholders to extinguish the put right agreement.
Then neither the former Charge.com shareholders or the Company will have any further rights or obligations under the
        Charge.com acquisition agreement. The Charge Shareholders and the Company are currently documenting a settlement of the Put Right, which is subject to final agreement by the parties.
No assurance can be provided that settlement will be reached. .
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.
The increase in temporary equity during the
nine months
ended
September
30,
2008 is attributable to the January 3, 2008,
March 4, 2008
and
June 30, 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-
18
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.
Nine months
ended
September
30 ,
2008
2007
Net
(loss)
attributable to common equity holders for purposes of computing
basic and diluted earnings per share
$
(5,189,237)
$
(2,033,175)
Less: Deemed dividend on common stock subject to put obligation
(
1,892,458
)
(372,163)
Net
(loss)
for purposes of computing basic and diluted earnings per share
$
(
7,
081,695
)
$
(
2,405,338
)
Weighted average shares outstanding – basic and diluted
49,805,598
48,434,072
Basic and diluted (loss) per common share
attributable to common equity holders:
$
(0.10)
$
(0.04)
Basic and diluted (loss) per common share after deemed dividend:
$
(0.14)
$
(0.05)
Three months ended
September
30 ,
2008
2007
Net (loss) attributable to common equity holders for purposes of computing
basic and diluted earnings per share
$
(3,109,074)
$
(107,167)
Less: Deemed dividend on common stock subject to put obligation
(
658,577
)
(372,163
)
Net (loss) for purposes of computing basic and diluted earnings per
share
$
(
3,
767,651
)
$
(
479,330
)
Weighted average shares outstanding – basic and diluted
49,820,269
49,124,777
Basic and diluted (loss) per common share attributable to common equity holders:
$
(0.06)
$
(0.00)
Basic and diluted (loss) per common share after deemed dividend:
$
(0.08)
$
(0.01)
Each of (i) stock options to purchase 12,207,426
shares of common stock, (ii) warrants to purchase 15,463,453
shares of common stock and (iii) senior secured debt convertible into 28,461,538 shares
        of common stock, all outstanding as of
September 30, 2008
were potentially dilutive and were not included within earnings per share. To do so would have been anti-dilutive for the
nine months
ended
September 30, 2008.
NOTE K-
ADVERTISING
The Company expenses advertising costs as they are incurred.
Advertising expenses for the
nine months
ended
September 30, 2008
and 2007 were $714,989
and $818,013
respectively.
Advertising expenses for the three months ended
September
        30, 2008
and 2007 were $221,546
and $271,288
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
nine months
ended
September 30, 2008
and 2007 was $76,788
and $17,260,
        respectively.
The amount recognized as an expense during the three months ended
September 30, 2008
and 2007 was $23,328
and $6,516, respectively.
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
SFAS
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 $207,075
and $213,707
for the
nine months
ended
September 30, 2008
and 2007, respectively.
The total share based payments included in wages and selling, general and administrative expenses was $42,565
and $
107,789
for the three months ended
September 30, 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
nine months
ended
September 30, 2008
was $0.05.
Assumptions utilized are shown as follow:
Nine months
ended
Three months ended
September 30, 2008
September 30, 2008
Expected volatility
38.4%
N/A
Expected life
3.1
yrs
N/A
Expected dividends
0
N/A
Risk-free interest rate
3.9%
N/A
As of
September 30, 2008, the Company has reserved an aggregate of 12,207,426
shares of common stock pending the exercise of the options.
F-
19
NOTE M- STOCK OPTIONS AND
WARRANTS (CONTINUED)
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
(15,805)
$ 1.31
-
Exercised
-
-
-
Issued
1
,
506
,
677
$
0
.8
9
-
Options outstanding,
September 30, 2008
1
2,207
,426
$ 1.
3
5
3.
4
$ -
Options exercisable,
September 30, 2008
10
,010,
711
$
1.33
2.8
$
-
There were no options exercised during the
nine months
ended
September 30, 2008.
Options
        issued include
371,667 options issued in 2007.
A summary of the non-vested restricted stock unit activity for the
nine months
ended
September 30, 2008
is presented below.
Restricted Stock Units
Nine months
ended
September 30, 2008
Weighted-Average Grant-Date Fair Value
Number of Units
Non-vested at December 31. 2007
46,667
$0.96
Granted
-
Vested
(30,000)
$0.94
Forfeited
-
Non-vested at
September 30, 2008
16,667
$0.99
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
September 30, 2008, the Company had deferred tax assets of $2,248,243,
deferred tax liabilities of $2,263,210, 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.
NOTE N- INCOME TAXES
(CONTINUED)
F-
20
The tax benefit as a result of changes in deferred tax assets and liabilities was $1,398,307
and $1,198,281
for the
nine months
ended
September 30, 2008
and 2007, respectively.
The tax benefit as a result of changes in deferred tax assets and liabilities was $538,506
and $718,741
for the three months ended
September 30, 2008
and 2007, respectively.
Interest and penalties related to income taxes are classified as interest expense.
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
nine months
ended
September 30, 2008
and 2007 was $130,000 and $60,000, respectively.
The total charged to operating expense for the three months ended
September 30, 2008
and 2007
was $60,000
for each.
There were no charges to operating expense for the three months ended
September 30, 2007.
$130,000 was payable to Capital Advisory Services at
September 30, 2008
and $10,000 payable at December 31, 2007.
NOTE P - SUBSEQUENT EVENTS
On Friday, May 16, 2008, the Company and COCARD(R) Marketing Group, LLC ("COCARD") signed a Definitive Merger Agreement (the
"Agreement") for Pipeline to acquire COCARD for approximately $79.5 million in cash and notes plus future considerations based on
        performance. COCARD is a Nashville, Tennessee-based merchant services provider comprised of 73 independent sales offices catering primarily to small and medium-sized retail accounts. COCARD processes over $3 billion of credit card transactions annually from its base of over 26,000 merchants.
Section 7.1 of the
Agreement provided the conditions to the parties'
obligations to close.
Section 7.1 (r) provides that a condition precedent to
        Pipeline's obligation to close is to
"have consummated transactions with Comvest Investment Partners or one of its Affiliates pursuant to which [Pipeline] receives an investment of at least $50,000,000."
This investment was not consummated and, thus, the Company maintains the obligation to close has not been triggered.
The Company has notified CoCard that pursuant to Section 9.1(b) of the Agreement Pipeline has terminated the Agreement.
Section 9.1(b) provides that
"[Pipeline] may terminate this Agreement by giving written
        notice to the Company at any time prior to the Closing … (ii) if the Closing shall not have occurred on or before the twentieth (20
th
) business day following August 31, 2008, by reason of the failure of any condition precedent under Section 7.1 hereof; provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall
        not be available to [Pipeline] if [Pipeline]'s action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement (provided, that each of the Parties acknowledges and agrees that the failure to satisfy the condition set forth in Section 7.1(r) shall not be deemed to be an action or failure to act by [Pipeline] hereunder, and [Pipeline] shall be
        entitled to terminate this Agreement in the event of a failure to satisfy the condition set forth in Section 7.1(r))."
Put Right Modification
On November 7, 2008 the Board of Directors approved an agreement with the
former Charge.com shareholders agreeing to pay them $2 million in cash and return the Charge.com domain name to the
former
shareholders to extinguish the put right agreement.
Then neither the former Charge.com shareholders or the Company will have any further rights
or obligations
under the Charge.com acquisition agreement.
The Company is currently documenting the settlement of the Put Right, which is subject to final agreement by the parties.
No assurance can be provided that settlement will be reached.
If settlement is not reached and the Charge Shareholders exercise 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.
F-
28
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.
•
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 –
Nine months
ended
September 30, 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,
decreased
2.0% to $
12.8
million for the
nine months
ended
September 30, 2008
from $13.0
million during the
nine months
ended
September 30, 2007.
•
Our processing volume for the
nine months
ended
September 30, 2008
was $1.0
billion, an 11% decrease from the $1.2
billion processed during the same period in 2007. This decrease is attributable to the termination of unprofitable accounts.
•
Net loss increased from $2.0
million to $5.2
million for the
nine months
ended
September 30, 2008
compared to
                    the
nine months
ended
September 30, 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 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
September 30, 2008
and December 31, 2007, we held merchant deposits totaling $1,017,000
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
September 30, 2008
and December 31, 2007, our loss reserve totaled $238,000 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
nine months
ended
September 30, 2008, we incurred $2.6
million of customer acquisition related expenses, of which, $626,000 was capitalized.
During the
nine
        months
ended
September 30, 2007, we incurred $2.5
million of customer acquisition related expenses of which, $489,000 was capitalized.
We amortized $488,000 and $461,000 of previously capitalized customer acquisition costs for the
nine months
ended
September 30, 2008
and 2007, respectively.
During the three months ended
September 30, 2008, we incurred $.8
million of customer acquisition related expenses, of which, $175,000 was capitalized.
During the three months ended
September 30,
        2007, we incurred $.8
million of customer acquisition related expenses of which, $149,000 was capitalized.
We amortized $160,000 and $189,000 of previously capitalized customer acquisition costs for the
nine months
ended
September 30, 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
balance
was
        approximately $621,000 and $483,000 as of
September 30, 2008
and December 31, 2007, respectively.
28
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.
29
Nine months
ended
September 30, 2008
Nine months
ended
September 30, 2007
Net loss attributable to common equity holders for purposes of computing basic and diluted earnings per share
$
(5,189,237)
$
(2,033,175)
Less: Deemed dividend on common stock subject to put obligation
(1,892,458
)
(372,163)
Net loss for purposes of computing basic and diluted earnings per share
$
(7,
081,695
)
$
(2,405,338)
Weighted average shares outstanding – basic and diluted
49,805,598
48,434,072
Basic and diluted  (loss) per common share attributable to common equity holders:
$
(0.10)
$
(0.04)
Basic and diluted  (loss) per common share after deemed dividend:
$
(0.14)
$
(0.05)
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.
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.
None of our interest expense is sensitive to changes in the general level of interest rates.
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
September 30, 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
September 30, 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
September 30, 2008
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
30
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:
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
has
now proceeded
to discovery
and deposition.
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.
Another member of the lending group which loaned the Company $8,250,000 is Midsummer Investment, Ltd. ("Midsummer").
The Company made a late interest payment to Midsummer.
Payment should
        have been made on July 30, 2008.
We made our full interest payment on August 15, 2008 to cure this default in accordance with the governing documents. Payment was required within 3 trading days from notice of default. A notice of default was issued to the Company on August 13, 2008.
Within the default notice, Midsummer Investment, Inc. demanded payment of 125% of
        the principal amount of its note, outstanding interest and penalties and penalties associated with registration of stock underlying their notes and warrants.
The Company maintains that it properly cured the late interest payment.
Further, it maintains that it has complied with its registration obligations as the interpretation of Rule 415 governing registration was
        restricted by the Securities and Exchange Commission rendering it impossible to complete registration within the time allotted.
Midsummer has taken no further action against the Company relative to the default notice.
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
31
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: November 14, 2008
32