About Pipeline Data, Inc.

Business Summary

Pipeline Data, Inc. provides the general merchant community an integrated suite of merchant payment processing services and related software enabling products. The Company delivers credit and debit card-based payments processing solutions to small and mid-sized merchants that operate in physical “brick and mortar” business environments or over the internet, and in settings that require wired as well as wireless mobile payment solutions.

The Company’s payments processing services enable merchants to process both traditional card-present or “swiped” transactions as well as card-not-present transactions. 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, which includes transactions over the Internet or by mail, fax or telephone.

The corporate strategy is to continue to build the business through growth and efficiency. The company aggressively grows the number of merchant accounts serviced through the solicitation of new merchant accounts (organic growth) and through the acquisition of merchant portfolios and compatible businesses. The company achieves greater business efficiencies by creating, operating and continually enhancing our processing and servicing operations in an efficient and scalable manner. The company’s management team has extensive experience in the payments processing business and a history of providing reliable, customer-focused services to merchants over many years. The company’s service and support platforms are completely flexible, enabling merchant customization and scalability to meet the requirements of high transaction volumes.

As of July, 2006, Pipeline Data Inc provided services to approximately 40,000 active merchants located throughout the United States.

History of Development

The company operates through several wholly owned subsidiaries: SecurePay.com, Inc. (or SecurePay), which was acquired in March of 2002, Northern Merchant Services, Inc. (or NMSI), acquired in August 2002, Pipeline Data Processing, Inc. (or Processing), and Pipeline Data Portfolio Acquisitions, Inc. (or Acquisitions) both of which were internally-created operating divisions.

SecurePay, a wholly owned subsidiary, is a custom credit card transaction processor serving as a gateway intermediary between the merchant, consumer customer, and the financial networks for the acceptance of card payments by merchants. Most card transactions worldwide are processed by third-parties working in conjunction with these financial networks. SecurePay processes all major card types including Visa, MasterCard, American Express, Discover and JCB. Presently, SecurePay’s products include payment gateway solutions, virtual credit card terminals, proprietary shopping carts and wireless payment applications operating over common cell phone networks supporting mobile merchant card acceptance services. In late 2003, SecurePay completed the development of its enhanced suite of card acceptance tools, including e-commerce and wireless payment processing solutions. SecurePay’s president, MacAllister Smith, serves as the company president, chief executive officer and director.

Northern Merchant Services Inc (NMSI), another wholly-owned subsidiary, is an Independent Sales Organization engaged in marketing and servicing electronic credit card authorization and payment systems to small and medium-sized merchants located throughout the United States. An independent sales organization, or ISO, is a non-bank entity that markets card-based payment processing services to merchants. In accordance with the company’s overall operating and growth strategies, our NMSI subsidiary seeks to enlarge its customer base through merchant portfolio acquisitions as well as through bank referrals, direct sales, independent sales agents, trade and other association affiliations, merchant portfolio purchases and superior customer service. As well, NMSI recently launched a government payment processing solution. NMSI’s president, Kevin Weller, serves the company’s board of directors.

Pipeline Data Processing, Inc is the company’s wholesale merchant application processing division. This wholly owned subsidiary was formed in July 2004 and became fully operational in September 2004. Kevin Smith, former Concord EFS (NYSE:FDC) senior vice president was appointed as president of this processing division and also as the company’s chief operating officer. Mr. Smith’s ongoing objective with the processing division is to continually increase the number of merchant accounts serviced by targeting the wholesale merchant applications processing market segment. The formation of this division dramatically increased the company’s functionality by enabling the company to provide complete ‘resale’ ISO support. This wholesale channel functions as a non-employee external sales force, fielding a complete suite of payment tools including application processing and risk management. Other offerings include customized interfaces and reporting, gift and loyalty products, gateway products, wireless tools and tailored retail solutions.

In November 2004, Pipeline Data formed Pipeline Data Portfolio Acquisitions, Inc. This division focuses on locating and evaluating merchant portfolios that complement Pipeline Data’s existing customer base.

To take advantage of acquisition opportunities in the small to medium-sized merchant segment of the payment processing market, the company entered into a series of financing arrangements with Laurus Master Fund, Ltd., a financial / funding institution specializing in funding small and micro-capitalization companies. Laurus provided the company its first installment of convertible debt financing on February 27, 2004.

Between March 2004 and March 2005, the company employed the proceeds of the Laurus financing arrangement to embark upon a campaign of quality merchant portfolio acquisitions to expand our merchant account base. The company acquired a total of 4,850 merchant accounts from four independent service organizations. These 4,850 accounts have represented approximately $119 million in annual consumer charge volume on a historical basis.

On May 18, 2004, the company entered into an asset purchase agreement to purchase the residual rights to 1801 merchant accounts representing $68.9 million in annual consumer charge volume on a historical basis from Millennium Merchant Services, Inc. and Kent Stiritz (its owner) in a series of transactions.

On July 19, 2005, the company entered into a merger agreement to acquire Charge.com, Inc., an industry leader in on-line merchant account processing.

On August 15, 2005, the company entered into a merger agreement to acquire World Products Inc., d.b.a. AIRCHARGE, the first company in the nation to deploy a cellular phone-based credit card acceptance solution for mobile business merchants.

Clients and Partners

As of July 2006, the company delivered credit and debit card-based payment processing and related services to over 40,000 small to medium-sized merchants throughout the United States. The company markets and sells its products and services through three lines of distribution: banks, Independent Sales Organizations and the Internet. The company has contractual relationships with 57 commercial banks and financial institutions comprising over 460 bank branch locations. Under these arrangements, Pipeline Data enjoys the endorsement of these banks and receives both initial and ongoing marketing assistance by the bank in provisioning the company’s payments processing services to bank commercial customers. In addition, the company has similar contractual relationships with 48 credit unions that serve as referral sources for the company’s products and services. The company also has relationships with 30+ Independent Sales Organizations that act as a non-employee, external sales force in communities throughout the United States. And finally, the company successfully markets over the Internet, targeting small to medium -sized e-commerce businesses.

The Markets we Serve

Company and industry estimates of market statistics identify approximately 5.7 million merchant locations in the United States currently accepting Visa and MasterCard credit cards.

According to the December 2004 Nilson Report (an industry publication), total expenditures by U.S. consumers for transactions employing card-based payment systems grew from $1.8 trillion in 2001 or 32 percent of total consumer payments, to $2.09 trillion in 2003 or 35 percent of total consumer payments. By 2008, Nilson projects that credit and debit card consumer spending at merchant locations is expected to grow to $2.28 trillion, including spending on commercial cards. In addition, card-based payment transactions where cards are not present at the time of transaction (i.e. internet or other on-line sales) totaled $40.67 billion in 2003, up 11 percent from 2002 (Nilson Report, December 2004). According to Cardweb.com’s February 10, 2005 Emerging Market report, Visa alone totaled $26.4 billion in government payments, a 15.6 percent increase over 2003 totals (http://www.cardweb.com/cardtrak/news/2005/february/10a.html ). These are the markets we serve.

Sources for our data include: Consumer Payment Systems (December 2004), The Nilson Report, 823, page. 6-8.; MasterCard and Visa (February 2005), The Nilson Report, 828, pgs. 6-8; and www.cardweb.com . 

Business Model

The company earns income from every transaction performed by each of the company’s more than 40,000 merchant locations. Revenue sources include transaction fees assessed via traditional credit card discount rates, and periodic fees for providing various merchant services.

Primary costs incurred in delivering services to merchants are interchange fees paid to the card-issuing bank(s) and various per-transaction fees paid to network service providers and processing banks.