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 ________________

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.

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.

T he accompanying notes are an integral part of these financial statements.

F-1

T he accompanying notes are an integral part of these financial statements.

F-2

T he accompanying notes are an integral part of these financial statements.

F-3

T he accompanying notes are an integral part of these financial statements.

F-4

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

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.

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

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.

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.

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.

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.

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.

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

The prior period presentation of certain accounts has been changed to conform to the current year presentation.

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.

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

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 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 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.

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 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

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.

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

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.

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.

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.

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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.

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.

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.

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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.

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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.

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.

A summary of the activity in deferred customer acquisition costs, net for the nine months ended September 30, 2008 is a follows:

The changes to the merchant portfolio, residual rights and other intangibles balance during the nine months ended September 30, 2008 are as follows:

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.

The changes to the goodwill and other intangibles with indefinite lives balance during the nine months ended September 30, 2008 are as follows:

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.

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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:

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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.

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.

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.

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.

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.

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.

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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)).”

PIPELINE DATA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2008

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.

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.

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.

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.

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.

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:

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.

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.

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)

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.

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.

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.

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.

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:

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:

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.

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.

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.

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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Delaware		13-3953764
(State or jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


Class	Outstanding at November 10, 2008
Common Stock, $0.001 par value		49,820,269



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


		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

	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	3,974,200

PROPERTY AND EQUIPMENT, net	1,563,215	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	60,872,687

TOTAL ASSETS	$ 62,866 ,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	37,352,62 1	35,743,499



COMMITMENTS AND CONTINGENCIES

TEMPORARY EQUITY
Common stock subject to put obligations, 9,398,058 shares, issued and outstanding	15,377,985	13,485,527
Total temporary equity	15,377,985	13,485,527

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	10,135,968	17,013,087

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY	$ 62,866 ,574	$66,242 ,113

		Nine months ended September 30, 2008		Nine months ended September 30, 2007

Revenue	$ 34,994 ,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		48,434 ,072

	For the three months ended September 30, 200 8			For the three months ended September 30, 2007

Revenue		$ 11,462,606	$ 12,754,369

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		728,263	728,683

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		(1,547,736)	(1,529,448)

Total other expenses		(1,526,127)	(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		(658,577)	(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 )	$ (0.01)

Weighted average number of common shares outstanding-basic and diluted		49,820,269	49,124 ,777

	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)	39,816

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	(1,171,899 )	(2,852,594 )

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)	(182,870)

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

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

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

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

	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

	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)

	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

	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	$0.89	-
Options outstanding, September 30, 2008	12,207 ,426	$ 1.35	3.4	$ -
Options exercisable, September 30, 2008	10,010, 711	$ 1.33	2.8	$-


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


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)

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

	•	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.

		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)