**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
  **FORM
        10-QSB**
  
 (MARK
                  ONE)**x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the quarterly period ended December 31, 2006****OR****o**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  the transition period from  ______________ to
                  ______________**
 
 **COMMISSION
        FILE NUMBER: 0-28749**
  **FREESTAR
        TECHNOLOGY CORPORATION**
 (Exact
        Name of Company as Specified in Its Charter)


**Nevada**
            
            **88-0446457**(State
                or Other Jurisdiction of Incorporation
                or Organization)
            
            (I.R.S.
                Employer Identification
                No.)






**31
      Mespil Road, Ballsbridge, Dublin 4, Ireland**


(Address
      of Principal Executive Offices)





**353
      16185060**


(Company's
      Telephone Number)


______________________________________________________________________


(Former
      Name, Former Address, and Former Fiscal Year, if Changed Since Last
      Report)







Indicate
      by check mark whether the Company (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 Company was required
      to
      file such reports), and (2) been subject to such filing requirements for the
      past 90 days:  Yes  x No o




Indicate
      by check mark whether the Company is a shell company (as defined in Rule 12b-2
      of the Exchange Act):  Yes o No x




As
      of
      February 14, 2007, the Company had 241,276,789 shares of common stock issued
      and
      193,126,789 shares of common stock outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No  x








**Table
            of Contents**








TABLE
                OF CONTENTSPAGEPART
                I
            FINANCIAL
                INFORMATIONITEM
                1.
            FINANCIAL
                STATEMENTS (UNAUDITED)
            3CONDENSED
                CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,
                2006
            3CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
                AND SIX MONTHS ENDED DECEMBER 31, 2006 AND 2005
            4CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
                THREE AND SIX MONTHS ENDED DECEMBER 31, 2006 AND 2005
            5NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL
                STATEMENTS
            6ITEM
                2.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS
            19ITEM
                3.
            CONTROLS
                AND PROCEDURES
            31PART
                II
            OTHER
                INFORMATION32ITEM
                1.
            LEGAL
                PROCEEDINGS
            32ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            32ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            32ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            32ITEM
                5.
            OTHER
                INFORMATION
            32ITEM
                6.
            EXHIBITS
            32SIGNATURES
            33










2
 **Table
            of Contents**





PART
      I -
      FINANCIAL INFORMATION




**FREESTAR
        TECHNOLOGY CORPORATION**
 CONDENSED
        CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2006
  **ASSETS**
  **2006**Current
                  assets:Cash
                  and cash equivalents
              $
              1,325,370Accounts
                  receivable, net of allowance for
                  doubtful accounts
                  of $21,200 (note 3)
              
              468,526Other
                  current assets (note 5)
              
              190,408Inventory
                  (note 4)
              
              655,976Total
                  current assets
              
              2,640,280Property,
                  plant and equipment, net of accumulated depreciation andamortization
                  of $105,192 (note 6)
              
              175,604Software
                  license, net of accumulated amortization of $916,147 (note
                  7)
              
              1,345,009Customer
                  relationships and contracts, net of accumulated amortization of
                  $693,533
                  (note 7)
              
              2,255,716Software,
                  net of accumulated amortization of $877,845 (note 7)
              
              2,073,868Other
                  long-term assets (note 5)
              
              29,416Total
                  assets
              $
              8,519,893**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses (note 8)
              
              1,391,680Loan
                  payable to employee
              
              109,862Accrued
                  officer salaries
              
              61,423Total
                  current liabilities
              
              1,562,965Commitments
                  and contingenciesMinority
                  interest in accumulated earnings of subsidiaries
              
              4,244Stockholders'
                  Equity:Convertible
                  preferred stock, series A, $0.001 par value,1,000,000
                  shares authorized; 1,000,000 shares issued and outstanding
              
              1,000Convertible
                  preferred stock, series B, $0.001 par value,4,000,000
                  shares authorized, issued and outstanding
              
              4,000Additional
                  paid-in capital - preferred stock
              
              6,368,058Common
                  stock, $0.001 par value, 500,000,000 shares
                  authorized;237,276,789
                  shares issued and 189,126,789 outstanding (note 9)
              
              189,127Additional
                  paid-in capital - common stock
              
              63,571,173Common
                  stock subscrptions receivable
              
              (183,292
              )Common
                  stock subscribed
              
              2,500,000Deferred
                  compensation
              
              (1,705,653Accumulated
                  deficit
              
              (63,708,394
              )Accumulated
                  other comprehensive gain (loss)
              
              (83,335
              )Total
                  stockholders' equity
              
              6,952,684Total
                  liabilities and stockholders' equity
              $
              8,519,893The
                  accompanying notes form an integral part of these consolidated
                  condensed
                  financial
                  statements.






3
 **Table
          of Contents**




**FREESTAR
        TECHNOLOGY CORPORATION**
 CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS
  **Three
                    Months Ended December 31,****2006**
              ****
              **Three
                    Months Ended December 31,****2005**
              ****
              **Six
                    Months Ended December 31,****2006**
              ****
              **Six
                    Months Ended December 31,****2005**(restated)
              
              
              
              (restated)Revenue
              
              $
              811,902
              
              $
              577,946
              
              $
              1,273,762
              
              $
              1,180,694Cost
                  of revenue
              
              
              887,309
              
              
              444,816
              
              
              1,421,287
              
              
              943,372Gross
                  profit
              
              
              (75,407
              )
              
              133,130
              
              
              (147,525
              )
              
              237,322Selling,
                  general and administrative expenses
              
              
              3,054,011
              
              
              1,884,052
              
              
              5,452,127
              
              
              2,908,506Loss
                  from operations
              
              
              (3,129,418
              )
              
              (1,750,922
              )
              
              (5,599,652
              )
              
              (2,671,184
              )Other
                  income (expenses):Gain
                  on disposal of assets
              
              
              -
              
              
              219
              
              
              -
              
              
              2,223Interest
                  income/(expense)
              
              
              (791
              )
              
              (18,475
              )
              
              (779
              )
              
              (37,246
              )Loss
                  before income taxes and minotiry interest in subsidiaries
              
              
              (3,130,209
              )
              
              (1,769,178
              )
              
              (5,600,431
              )
              
              (2,706,207
              )Income
                  taxes
              
              
              7,960
              
              
              -
              
              
              7,960
              
              
              -Minority
                  interest in net loss of subsidiaries
              
              
              (13,712
              )
              
              -
              
              
              (13,712
              )
              
              -Net
                  Loss
              
              
              (3,124,457
              )
              
              (1,769,178
              )
              
              (5,594,679
              )
              
              (2,706,207
              )Other
                  - Comprehensive income (loss): Gain (Loss) on foreign
                  exchange
              
              
              14,548
              
              
              (40,580
              )
              
              26,028
              
              
              (7,518
              )Comprehensive
                  loss
              
              $
              (3,109,909
              )
              $
              (1,809,758
              )
              $
              (5,568,651
              )
              $
              (2,713,725
              )Loss
                  per share - basic and diluted
              
              $
              (0.02
              )
              $
              (0.01
              )
              $
              (0.03
              )
              $
              (0.02
              )Weighted
                  average shares outstanding - basic
              
              
              186,510,046
              
              
              133,018,400
              
              
              184,722,154
              
              
              126,741,569Weighted
                  average shares outstanding - diluted
              
              
              212,623,091
              
              
              158,650,032
              
              
              211,456,726
              
              
              152,460,939




The
      accompanying notes form an integral part of these
      consolidated condensed financial statements.


4
 **Table
          of Contents**


**FREESTAR
        TECHNOLOGY CORPORATION**


CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
   **Six
                  Months EndedDecember 31, 2006**
              
              
              **Six
                  Months EndedDecember 31,
                  2005**Cash
                  flows used for operating activities:Net
                  loss
              
              $
              (5,594,679
              )
              $
              (2,706,207
              )Minority
                  interest in net loss of subsidiary
              
              
              (13,712
              )Adjustments
                  to reconcile net loss to net cashprovided
                  by (used for) operating activities:Amortization
                  of discount on note
              
              
              -
              
              
              24,727Gain
                  on disposal of fixed assets
              
              
              -
              
              
              (2,223
              )Depreciation
                  and amortization
              
              
              394,168
              
              
              305,153Warrants
                  issued pursant to jointventure agreement
              
              
              
              
              
              259,311Non-cash
                  compensation
              
              
              2,566,590
              
              
              1,012,068Changes
                  in assets and liabilities:(Increase)
                  decrease in assetsAccounts
                  receivable
              
              
              134,236
              
              
              (190,664
              )Inventory
              
              
              (550,196
              )
              
              (119,387
              )Employee
                  loan
              
              
              -
              
              
              (35,000
              )Long
                  term deposits and prepaid rent
              
              
              (29,416
              )Other
                  current assets
              
              
              20,137
              
              
              (44,970
              )Increase
                  (decrease) in liabilitiesAccounts
                  payable and accrued expenses
              
              
              20,843
              
              
              (46,680
              )Cash advance
                  to company by employee
              
              
              109,861
              
              
              -Payment
                  of accrued salary to officers
              
              
              61,423
              
              
              (230,000
              )Total
                  adjustments
              
              
              2,713,934
              
              
              932,335Net
                  cash used by operating activities
              
              
              (2,880,745
              )
              
              (1,773,872
              )Cash
                  flows provided by (used for) investing activities:Purchase
                  of fixed assets
              
              
              (80,440
              )
              
              (34,671
              )Cash
                  from sale of fixed assets
              
              
              -
              
              
              2,223Purchase
                  of software and capitalized software cost
              
              
              (300,306
              )
              
              (318,410
              )Investment
                  in PLC, net of cash acquired
              
              
              (177,787
              )
              
              -Net
                  cash used by investing activities
              
              
              (558,533
              )
              
              (350,858
              )Cash
                  flows provided by (used for) financing activities:Proceeds
                  from sale of common stock
              
              
              1,900,000
              
              
              1,000,000Commissions
                  for sale of common stock
              
              
              (190,000
              )Proceeds
                  from exercise of stock options/warrants
              
              
              52,500
              
              
              57,178Proceeds
                  from (repayments to) related parties
              
              
              -
              
              
              (144,394
              )Payments
                  to related parties for advances
              
              
              -
              
              
              1,212,493Net
                  cash provided by financing activities
              
              
              1,762,500
              
              
              2,125,277Net
                  increase (decrease) in cash and cash equivalents
              
              
              (1,676,778
              )
              
              547Foreign
                  currency translation adjustments
              
              
              30,014
              
              
              (5,831
              )Cash
                  and cash equivalents, beginning of period
              
              
              2,972,135
              
              
              632,678Cash
                  and cash equivalents, end of period
              
              $
              1,325,370
              
              $
              627,394Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              -
              
              $
              -Income
                  tax paid
              
              $
              7,961
              
              $
              -Shares
                  of common stock issued for services
              
              $
              876,500
              
              $
              996,800Adjustment
                  of deferred compensation for the period
              
              $
              1,086,673
              
              $
              551,635Shares
                  of common stock issued for subscriptions receivable
              
              $
              -
              
              $
              400,000Cancellation
                  of shares of common stock
              
              $
              (158,000
              )
              $
              263,349Non-cash
                  compensation for exercise price of stock options
              
              $
              -
              
              $
              1,500Fair
                  value of options issued to consultants and employees
              
              $
              761,417
              
              $
              828,758Imputed
                  interest on note issued for legal settlement
              
              $
              -
              
              $
              24,727Value
                  of term extension of warrants and options to consultants
              
              $
              -
              
              $
              259,035Shares
                  of common stock issued for prepaid rent
              
              $
              75,600
              
              $
              -Stock
                  options exercised, cash not received
              
              $
              75,000
              
              $
              -Shares
                  of common stock issued for subscriptions payable
              
              $
              352,500
              
              $
              -Shares
                  of common stock issued to acquire interest in subsidiary
              
              $
              800,000
              
              $
              -Acquisition
                       of PLC Partners, LTD:Accounts
                  receivable
              
              $
              273,740
              
              $
              -Property
                  and equipment
              
              
              2,381
              
              
              -Customer
                  relationships and contracts
              
              
              982,045
              
              
              -Current
                  liabilities
              
              
              (262,423
              )
              
              -Minority
                  interest
              
              
              (17,956
              )
              
              -Net
                  assets
              
              $
              977,787
              
              $
              -Common
                  stock issued
              
              $
              800,000
              
              $
              -Cash
                  paid
              
              
              200,000
              
              
              -Cash
                  balances upon acquisition
              
              
              (22,213
              )
              
              -Net
                  assets
              
              $
              977,787
              
              $
              -


The
      accompanying notes form an integral part of
      these consolidated condensed financial statements.


5
 **Table
            of Contents**




**FREESTAR
        TECHNOLOGY CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
        BASIS
        OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
 
 Basis
        Of Presentation
 
 The
        accompanying unaudited condensed consolidated financial statements of FreeStar
        Technology Corporation, a Nevada corporation ("Company"), have been prepared
        in
        accordance with the instructions to Form 10-QSB and do not include all of
        the
        information and footnotes required by accounting principles generally accepted
        in the United States of America for complete consolidated financial statements.
        These condensed consolidated financial statements and related notes should
        be
        read in conjunction with the Company's Form 10-KSB for the fiscal year ended
        June 30, 2006. In the opinion of management, these condensed consolidated
        financial statements reflect all adjustments that are of a normal recurring
        nature and which are necessary to present fairly the financial position of
        the
        Company as of December 31, 2006, and the results of operations and cash flows
        for the six months ended December 31, 2006 and 2005. The results of operations
        for the three and six months ended December 31, 2006 are not necessarily
        indicative of the results that may be expected for the entire fiscal year.
        Certain amounts in the prior period on the Statements of Cash Flows have
        been
        changed to conform to the current period presentation.
 
 Nature
        Of Business Operations
 
 The
        Company (formerly Freestar Technologies) was formed on November 17, 1999 as a
        Nevada corporation. The Company is a provider of payment services and
        processing. Its principal offices are in Dublin, Ireland; the Company also
        has
        offices in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and
        Santo
        Domingo, the Dominican Republic.
 
 The
        Company intends to derive revenues from its core payment processing products,
        which include: (1) Authorization: transaction fees derived from processing
        point
        of sale terminal transactions; (2) Dynamic Currency Conversion support services:
        fees for facilitating real-time currency conversion and transaction
        authorization and settlement services for merchants and acquiring banks;
        (3)
        Consulting and Software Development Fees: consulting services and customized
        software development provided to financial institutions and merchants; (4)
        Sale
        of Point of Sale solutions: sales of point of sale terminals; (5) Internet
        Payment Gateway: transaction fees from processing internet transactions through
        its Internet Payment Gateway; and (6) Private Label Cards: transaction
        management services provided for a private label card issuer. Our revenue
        for
        the three months ended December 31, 2006 was primarily generated from
        transaction fees and consulting fees through our Finland operations, though
        the
        began shipping point of sales terminals during the three months ended December
        31, 2006.
 
 Going
        Concern
 
 The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America,
        which contemplate continuation of the Company as a going concern. However,
        the
        Company has reported a net loss of $3,124,457 for the three months ended
        December 31, 2006 and $13,999,773 for the year ended June 30, 2006, and had
        an
        accumulated deficit of $63,708,394 as of December 31, 2006.
 
 Historically,
        the Company’s revenues from operations have been inadequate to satisfy its
        ongoing capital requirements. Management believes that revenues from operations
        will continue to be inadequate to satisfy its ongoing capital requirements
        for
        at least the next 12 months. Management's belief is based on the Company's
        operating plan, which in turn is based on assumptions that may prove to be
        incorrect. The Company anticipates that it will require additional financing
        in
        order to execute its operating plan and continue as a going concern. The
        Company
        cannot predict whether this additional financing will be in the form of equity
        or debt, or be in another form. The Company may not be able to obtain the
        necessary additional capital on a timely basis, on acceptable terms, or at
        all.
        In any of these events, the Company may be unable to implement its current
        plans
        for growth, repay its debt obligations as they become due or respond to
        competitive pressures, any of which circumstances would have a material adverse
        effect on its business, prospects, financial condition and results of
        operations.
 
  6
 **Table
            of Contents**
 Management
        plans to take the following steps that it believes will be sufficient to
        provide
        the Company with the ability to continue as a going concern. Management intends
        to raise financing through the sale of its stock in private placements to
        individual investors. Management may raise funds in the public markets, though
        there currently are no plans to do so. Management believes that with this
        financing, the Company will be able to generate additional revenues that
        will
        allow the Company to continue as a going concern. This will be accomplished
        by
        hiring additional personnel and focusing sales and marketing efforts on the
        distribution of product through key marketing channels currently being developed
        by the Company. The Company also intends to pursue the acquisition of certain
        strategic industry partners where appropriate.
 
 Revenue
        Recognition
 
 The
        Company recognizes revenues from contracts in which the Company provides
        only
        consulting services as the services are performed. The contractual terms
        of the
        agreements dictate the recognition of revenue by the Company. Payments received
        in advance are deferred until the service is provided.
 
 Contract
        costs include all direct equipment, material, and labor costs and those indirect
        costs related to contract performance, such as indirect labor. Selling, general
        and administrative costs are charged to expense as incurred. Provisions for
        estimated losses on uncompleted contracts are made in the period in which
        such
        losses are determined. Changes in contract performance, contract conditions,
        and
        estimated profitability that may result in revisions to costs and income
        are
        recognized in the period in which the revisions are determined.
 
 For
        revenue from product sales, the Company recognizes revenue in accordance
        with
        Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
        superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB
        No.101 requires that four basic criteria must be met before revenue can be
        recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
        has
        occurred; (3) the selling price is fixed and determinable; and (4)
        collectibility is reasonably assured. Determination of criteria (3) and (4)
        are
        based on management's judgments regarding the fixed nature of the selling
        prices
        of the products delivered and the collectibility of those amounts. Provisions
        for discounts and rebates to customers, estimated returns and allowances,
        and
        other adjustments are provided for in the same period the related sales are
        recorded. The Company defers any revenue for which the product has not been
        delivered or is subject to refund until such time that the Company and the
        customer jointly determine that the product has been delivered or no refund
        will
        be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF")
        No.
        00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
        accounting for arrangements that may involve the delivery or performance
        of
        multiple products, services and/or rights to use assets. The effect of
        implementing EITF No. 00-21 on the Company's consolidated financial position
        and
        results of operations was not significant. This issue addresses determination
        of
        whether an arrangement involving more than one deliverable contains more
        than
        one unit of accounting and how the arrangement consideration should be measured
        and allocated to the separate units of accounting. EITF No. 00-21 became
        effective for revenue arrangements entered into in periods beginning after
        June
        15, 2003. For revenue arrangements occurring on or after August 1, 2003,
        the
        Company revised its revenue recognition policy to comply with the provisions
        of
        EITF No. 00-21.
 
 For
        those
        contracts which contain multiple deliverables, management must first determine
        whether each service, or deliverable, meets the separation criteria of EITF
        No.
        00-21. In general, a deliverable (or a group of deliverables) meets the
        separation criteria if the deliverable has standalone value to the customer
        and
        if there is objective and reliable evidence of the fair value of the remaining
        deliverables in the arrangement. Each deliverable that meets the separation
        criteria is considered a "separate unit of accounting." Management allocates
        the
        total arrangement consideration to each separate unit of accounting based
        on the
        relative fair value of each separate unit of accounting. The amount of
        arrangement consideration that is allocated to a unit of accounting that
        has
        already been delivered is limited to the amount that is not contingent upon
        the
        delivery of another separate unit of accounting. After the arrangement
        consideration has been allocated to each separate unit of accounting, management
        applies the appropriate revenue recognition method for each separate unit
        of
        accounting as described previously based on the nature of the arrangement.
        All
        deliverables that do not meet the separation criteria of EITF No. 00-21 are
        combined into one unit of accounting, and the appropriate revenue recognition
        method is applied under SAB No. 101. Processing fee revenue is earned based
        upon
        the actual number of transactions processed through the Company's processing
        system. Transaction processing fees are recognized in the period that the
        service is performed. These fees are typically charged on a per transaction
        basis, depending on the arrangement with the customer.
   7
 **Table
            of Contents**
  Stock
        Based Compensation
 
 Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based
        Payment” (SFAS 123R) utilizing the modified prospective approach. Prior to the
        adoption of SFAS 123R we accounted for stock option grants in accordance
        with
        APB Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic
        value method), and accordingly, recognized compensation expense for stock
        option
        grants.
 
 Under
        the
        modified prospective approach, SFAS 123R applies to new awards and to awards
        that were outstanding on January 1, 2006 that are subsequently modified,
        repurchased or cancelled. Under the modified prospective approach, compensation
        cost recognized in the first quarter of fiscal 2006 includes compensation
        cost
        for all share-based payments granted prior to, but not yet vested as of January
        1, 2006, based on the grant-date fair value estimated in accordance with
        the
        original provisions of SFAS 123, and compensation cost for all share-based
        payments granted subsequent to January 1, 2006 based on the grant-date fair
        value estimated in accordance with the provisions of SFAS 123R. Prior periods
        were not restated to reflect the impact of adopting the new
        standard.
 
 A
        summary
        of option activity under the 2002 Stock Incentive Plan as of December 31,
        2006,
        and changes during the period then ended are presented below:
  **Number
                  of
                  Shares**
              
              
              **Weighted
                  Average Exercise
                  Price**Outstanding
                  at June 30, 2006
              625,000
              
              $
              0.34Granted
              500,000
              
              $
              0.14Unvested
              (479,167
              )
              $
              0.14Exercised
              (50,000
              )
              $
              0.15Cancelled
                  / Expired
              -
              
              
              -Options
                  exercisable at December 31, 2006
              595,833
              
              $
              0.35
 
 
 Aggregate
        intrinsic value of options outstanding and options exercisable at December
        31,
        2006 was $118,250. Aggregate intrinsic value represents the difference between
        the company's closing stock price on the last trading day of the fiscal period,
        which was $0.37 as of December 31, 2006, and the exercise price multiplied
        by
        the number of options outstanding. As of December 31, 2006, total unrecognized
        stock-based compensation expense related to non-vested stock options was
        $135,568. The total fair value of options vested was $5,679 and $0 for the
        three-month periods ended December 31, 2006 and 2005, respectively. The total
        fair value of options vested was $5,679 and $0 for the six-month periods
        ended
        December 31, 2006 and 2005, respectively.
  The
        modified transition method of SFAS 123R requires the presentation of pro forma
        information for periods presented prior to the adoption of SFAS 123R regarding
        net loss an net loss per share as if we had accounted for our stock plans
        under
        the fair value method of SFAS 123R. For pro forma purposes, the fair value
        of
        stock options was estimated using the Black-Scholes option valuation model
        and
        amortizing on a straight-line basis. The pro forma amounts for the three
        and six
        months ended December 31, 2005 are as follows:
  **Three
                  months
                  ended
                  December
                  31, 2005**
              ****
              ****
                **Six
                  months ended
                  December
                  31, 2005**Net
                  loss, as reported
              
              $
              (1,769,178
              )
              $
              (2,706,207
              )Compensation
                  recognized under APB No. 25
              
              
              34,500
              
              
              34,500Compensation
                  recognized under SFAS No. 123
              
              
              (34,500
              )
              
              (34,500
              )(Pro
                  forma net loss)
              
              $
              (1,769,178
              )
              $
              (2,706,207
              )Pro
                  forma loss per share
              
              $
              $
(0.01
              )
              $
              (0.02
              )
 Disclosure
          for the period ended December 31, 2006 was not presented because the amounts
          are
          recognized in the consolidated financial statements.
  8
 **Table
            of Contents**
  Capitalized
        Software Development Costs
 
 In
        accordance with Statement of Financial Accounting Standards ("SFAS") No.
        86,
        "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
        Marketed," the Company capitalizes certain costs related to the development
        of
        new software products or the enhancement of existing software products for
        use
        in our transaction processing software. These costs are capitalized from
        the
        point in time that technological feasibility has been established, as evidenced
        by a working model or detailed working program design to the point in time
        that
        the product is available for general release to customers. Capitalized
        development costs are amortized on a straight-line basis over the estimated
        economic lives of the products, beginning when the product is placed into
        service. Research and development costs incurred prior to establishing
        technological feasibility and costs incurred subsequent to general product
        release to customers are charged to expense as incurred. The Company
        periodically evaluates whether events or circumstances have occurred that
        indicate that the remaining useful lives of the capitalized software development
        costs should be revised or that the remaining balance of such assets may
        not be
        recoverable.
 
 The
        Company often has under development several discreet design features or
        enhancements, each of which may be completed and released to customers at
        different times. During the three and six months ended December 31, 2006,
        the
        Company placed into service and began $0 of software. The total net book
        value
        of software in service at December 31, 2006 is approximately $881,289. The
        total
        net book value of software under development at December 31, 2006 is
        approximately $ 1,192,579. During the six months ended December 31, 2006,
        the
        Company has capitalized software totaling $300,306. At December 31, 2006,
        total
        software capitalized at under SFAS No. 86 is $2,951,712 net of accumulated
        amortization of $877,845.


Software
        costs also include the Enhanced Transactions Secured Software ("ETSS"), which
        was originally contributed by the founder and president of ePayLatina, S.A.,
        Paul Egan, who is also president of the Company. This software is essential
        for
        the use of the Company's ePayPad. Software costs also include the development
        costs related to adding enhancements to this software consisting primarily
        of
        labor cost. Software costs are amortized on a straight-line basis over a
        period
        of three to six years. These costs have been substantially amortized as of
        December 31, 2006.
 
 Inventories
 
 Inventory
        is stated at the lower of cost or market determined by the first-in, first-out
        method. Inventories consist primarily of equipment held for resale (see Note
        4).
  New
        Accounting Pronouncements Not Yet Adopted
 
 *Certain
        Hybrid Instruments,* On
        February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
        Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
        Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
        instruments that have embedded derivatives to be accounted for as a whole
        (eliminating the need to bifurcate the derivative from its host) if the holder
        elects to account for the whole instrument on a fair value basis. SFAS 155
        also
        clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
        statement is effective for all financial instruments acquired or issued in
        fiscal years beginning after September 15, 2006. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows as it currently does
        not
        have any hybrid instruments outstanding at September 30, 2006.
 
 *Accounting
        for Servicing of Financial Assets* ,
        In
        March 2006, the FASB issued SFAS No. 156, “Accounting *for
        Servicing of Financial Assets--an amendment of FASB Statement No. 140”
(“* SFAS No.
        156”), which amends FASB Statement No. 140, *Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities,* with
        respect to the accounting for separately recognized servicing assets and
        servicing liabilities. This Statement requires that all separately recognized
        servicing assets and servicing liabilities be initially measured at fair
        value,
        if practicable. The Board concluded that fair value is the most relevant
        measurement attribute for the initial recognition of all servicing assets
        and
        servicing liabilities, because it represents the best measure of future cash
        flows. This Statement permits, but does not require, the subsequent measurement
        of servicing assets and servicing liabilities at fair value. An entity that
        uses
        derivative instruments to mitigate the risks inherent in servicing assets
        and
        servicing liabilities is required to account for those derivative instruments
        at
        fair value. Under this Statement, an entity can elect subsequent fair value
        measurement of its servicing assets and servicing liabilities by class, thus
        simplifying its accounting and providing for income statement recognition
        of the
        potential offsetting changes in fair value of the servicing assets, servicing
        liabilities, and related derivative instruments. An entity that elects to
        subsequently measure servicing assets and servicing liabilities at fair value
        is
        expected to recognize declines in fair value of the servicing assets and
        servicing liabilities more consistently than by reporting other-than-temporary
        impairments. An entity should adopt this Statement as of the beginning of
        its
        first fiscal year that begins after September 15, 2006. Earlier adoption
        is
        permitted as of the beginning of an entity's fiscal year, provided the entity
        has not yet issued financial statements, including interim financial statements,
        for any period of that fiscal year. The effective date of this Statement
        is the
        date an entity adopts the requirements of this Statement. The Company has
        not
        yet determined the impact the Company's condensed consolidated financial
        position or results of operations.
  *Accounting
        for Fair Value Measurements,* In
        September 2006, the FASB issued SFAS No. 157, *“Fair
        Value Measurements”* (“SFAS
        No. 157”), to define fair value and establish a framework for measuring fair
        value in generally accepted accounting principles (“GAAP”) and to expand
        disclosures about fair value measurements. This Statement applies under other
        accounting pronouncements that require or permit fair value measurements.
        Prior
        to this Statement, there were different definitions of fair value and limited
        guidance for applying those definitions in GAAP. A single definition of fair
        value, together with a framework for measuring fair value, should result
        in
        increased consistency and comparability in fair value measurements. The expanded
        disclosures about the use of fair value to measure assets and liabilities
        should
        provide users of financial statements with better information about the extent
        to which fair value is used to measure recognized assets and liabilities,
        the
        inputs used to develop the measurements and the effect of certain of the
        measurements on earnings (or changes in net assets) for the period. SFAS
        No. 157
        is effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods with those fiscal years. Early adoption
        is permitted. ** The
        Company has not yet determined the impact the Company's condensed consolidated
        financial position or results of operations.
 
 SFAS
        158.
        In September 2006 the FASB issued its Statement of Financial Accounting
        Standards 158 “Employers' Accounting for Defined Benefit Pension and Other
        Postretirement Plans”. This Statement improves financial reporting by requiring
        an employer to recognize the overfunded or underfunded status of a defined
        benefit postretirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position and to recognize changes
        in
        that funded status in the year in which the changes occur through comprehensive
        income of a business entity or changes in unrestricted net assets of a
        not-for-profit organization. This Statement also improves financial reporting
        by
        requiring an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. The
        effective date for an employer with publicly traded equity securities is
        as of
        the end of the fiscal year ending after December 15, 2006. The Company does
        not
        expect adoption of this standard will have a material impact on its financial
        position, operations or cash flows
 
 9
 **Table
            of Contents**
 
 
 2.
        ACQUISITION OF PROJECT LIFE CYCLE PARTNERS, LTD.
 
 Effective
        November 21, 2006, the Company has acquired 50% of the outstanding capital
        stock
        of Project Life Cycle Partners, Ltd. (“PLC Partners”), a technology consulting
        firm located in Dublin, Ireland.  PLC Partners is a niche project
        consulting firm specializing in the management and implementation of information
        systems projects.  PLC Partners has international experience within the
        financial services sector.
 
 The
        acquisition of PLC Partners was accounting for using the purchase method
        in
        accordance with SFAS 141, “business Combinations”. Total consideration for the
        transaction was $1,000,000, consisting of $200,000 cash and 2,222,222 shares
        of
        the Company’s common stock, valued at $0.36 per share based upon a 30-day
        average closing price per share. The Company also assumed 50%, or approximately
        $132,000, of PLC’s liabilities at the date of acquisition. The Company may be
        required to issue additional shares, capped at a maximum of an additional
        50%,
        if, on the one-year anniversary of the acquisition, the 30-day average closing
        price per share of the Company’s stock is less than $0.36.
  The
        PLC
        Partners acquisition is not a significant acquisition pursuant to Rule 3-01
        of
        regulation S-X of the Securities and Exchange Commission, and the Company
        is not
        required to submit pro forma financial statements under Item
        9.01(b).
 
 The
        results of operations for PLC Partners have been included in the Consolidated
        Statements of Operations since the date of acquisition. The components of
        the purchase price were as follows:
  Common
                  stock
              $
              800,000Cash
              
              200,000Total
              $
              1,000,000
 
 In
        accordance with Financial Accounting Standard (SFAS) No. 141, Business
        Combinations, the total purchase price was allocated to the estimated fair
        value
        of assets acquired and liabilities assumed. The fair value of the assets
        acquired was based on management's best estimates. The purchase price was
        allocated to the fair value of assets acquired and liabilities assumed as
        follows:
  Cash
                  and cash equivalents
              $
              22,213Accounts
                  receivable
              
              273,740Equipment
                  and other assets
              
              2,381Customer
                  relationships and contracts
              
              982,045Subtotal
              
              1,280,379Current
                  liabilities
              
              (262,423
              )Minority
                  interest
              
              (17,956
              )Total
              $
              1,000,000
 
 The
        following unaudited condensed combined pro forma results of operations reflect
        the pro forma combination of the Company and PLC Partners businesses as if
        the
        combination had occurred at the beginning of the periods presented compared
        with
        the actual results of operations of the Company for the same period. The
        unaudited pro forma condensed combined results of operations do not purport
        to
        represent what the companies' combined results of operations would have been
        if
        such transaction had occurred at the beginning of the periods presented,
        and are
        not necessarily indicative of the Company's future results.
  **Three
                    months Ended**
                  **December
                    31,****Proforma**
                    **2006**
                
                **Proforma**
                    **2005**RevenueFreestar
                
                $
                598,457
                
                $
                577,946PLC
                
                
                239,009
                
                
                115,313Combined
                
                
                837,466
                
                
                693,259Net
                    (loss)
                
                $
                (3,140,801
                )
                $
                (1,730,669
                )Basic
                    and diluted (loss) per share
                
                $
                (0.02
                )
                $
                (0.01
                )
  **Six
                    months Ended**
                  **December
                    31,****Proforma**
                      **2006**
                
                
                **Proforma**
                      **2005**RevenueFreestar
                
                $
                1,060,317
                
                $
                1,180,694PLC
                
                
                348,065
                
                
                216,677Combined
                
                
                1,408,382
                
                
                1,397,371Net
                    (loss)
                
                $
                (5,635,975
                )
                $
                (2,695,673
                )Basic
                    and diluted (loss) per share
                
                $
                (0.03
                )
                $
                (0.02
                )
 10
 **Table
            of Contents**
  3.
        ACCOUNTS RECEIVABLE
 
 At
        December 31, 2006, accounts receivable consists of:
 
 Amounts
                  receivable from customers
              $
              489,726Less:
                  Reserve for doubtful accounts
              
              (21,200
              )Accounts
                  receivable, net
              $
              468,526
 
 
 4.
        INVENTORY
 
 Inventory
        at December 31, 2006 consists of the Company's Point of Sale Terminals which
        have been purchased from third party manufacturers. Components of inventories
        as
        of December 31, 2006 are as follows:
 
 
 Finished
                  goods
              $
              655,976Total
              $
              655,976
 
 
 5.
        OTHER
        ASSETS
 
 Other
        current assets at December 31, 2006 consist of the following:
 
 Prepayments
                  to vendors
              $
              151,806Receivables
                  from employees
              
              37,366Other
                  receivables
              
              1,236$
              190,408
 
 Other
        long-term assets at December 31, 2006 consist of the following:
 
 Prepaid
                  rent
              $
              25,200Deposits
              
              4,216Total
              $
              29,416
 
  11
 **Table
            of Contents**
  6.
        PROPERTY AND EQUIPMENT
 
 A
        summary
        of property and equipment at December 31, 2006 is as follows:
  Computer
                  equipment
              $
              147,601Furniture
                  and office equipment
              
              133,195280,796Less
                  accumulated depreciation and amortization
              
              (105,192
              )Property
                  and equipment, net
              $
              175,604
 
 Total
        depreciation and amortization expense for property and equipment amounted
        to
        $26,004 and $18,675 for the six months ended December 31, 2006 and 2005,
        respectively.
 
 7.
        ACQUISITION OF INTANGIBLE ASSETS
 
 The
        costs
        to acquire intangible assets have been allocated to the assets acquired
        according to the estimated fair values. The Company has adopted SFAS No.
        142,
        Goodwill and Other Intangible Assets, whereby the Company periodically tests
        its
        intangible assets for impairment. On an annual basis, and when there is reason
        to suspect that their values have been diminished or impaired, these assets
        are
        tested for impairment, and write-downs will be included in results from
        operations.
 
 The
        identifiable intangible assets acquired and their carrying values at December
        31, 2006 are:
 
  **Gross
                  Carrying
                  Amount**
              
              
              **Accumulated
                  Amortization**
              
              
              **Net**
              
              
              **Residul
                  Value**
              
              
              **Average
                  Amortization
                  Years**Amortizable
                  Intangible Assets:Software
                  and relateddevelopment
                  costs
              
              $
              2,951,712
              
              $
              877,844
              
              $
              2,073,868
              
              $
              0
              
              
              4.6Customer
                  Relationships andContracts
              
              $
              2,949,249
              
              $
              693,533
              
              $
              2,255,716
              
              $
              0
              
              
              10.0Software
                  Licenses
              
              $
              2,261,156
              
              $
              916,147
              
              $
              1,345,009
              
              $
              0
              
              
              10.0
 
 Total
        amortization expense charged to operations for the six months ended December
        31,
        2006 and 2005 was $368,164 and $217,178 respectively.
 
 As
        a
        result of the PLC acquisition, the Company had allocated a the fair value
        to the
        customer relationships and contracts of $982,045 at November 21, 2006 (note
        2).
 
 Considerable
        management judgment is necessary to estimate the fair value of intangible
        assets. The Company will engage the assistance of an independent valuation
        consultant to determine the values of our intangible assets and goodwill
        as of
        the date of acquisition. Based on various market factors and projections
        used by
        management, actual results could vary significantly from managements' estimates.
 
 In
        accordance with SFAS 142, *Goodwill and Other Intangible Assets* (SFAF
        No. 142), an impairment test will be performed on June 30, 2007.
  8.
        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 Accounts
        payable and accrued liabilities at December 31, 2006 are as
        follows:
 
 Accounts
                  payable
              $
              1,381,188Accrued
                  payroll
              
              10,492Total
              $
              1,391,680
    12
 **Table
            of Contents**
  
 9.
        EQUITY
 
 Private
        Placement of Common Stock
 
 On
        January 27, 2006, the Company signed subscription agreements with a group
        of
        offshore investors for the sale of an aggregate of $9.2 million in Company
        common stock, plus warrants (the "January Financing"). Due to the failure
        of the
        investment group to timely fund in full the first payment required for the
        purchase of shares and warrants, the Company terminated the January Financing;
        all shares and warrants issued thereunder were returned by the escrow holder
        to
        the Company for cancellation, and any funds received pursuant to the January
        Financing were returned by the escrow holder to the investors.
 
 In
        March
        2006, a group of European investors , lead by Olympia Holding AS, informed
        the
        Company that they were willing to invest on the same terms and conditions
        that
        were negotiated for the now-terminated January Financing, and the Company
        agreed
        to this financing transaction with these investors (the "March
        Financing").
 
 Pursuant
        to the March Financing, the Company agreed to issue 46 million shares of
        restricted common stock under Regulation S at $0.20 per share, plus warrants
        to
        purchase 50 million shares of common stock with two-year exercise periods
        and
        strike prices ranging from $1.50 to $8.50, as set forth below. The shares
        which
        will be held in escrow by Carl Hessel, a director and major stockholder of
        the
        Company based in Geneva, Switzerland, along with the warrants. Pursuant to
        the
        terms of the March Financing, the first payment of $4.6 million was due
        immediately, with a second payment of $4.6 million due within three months
        thereafter. As of December 31, 2006, the Company had received cash in the
        net
        amount $6,469,924 pursuant to the March Financing, and had issued 22,850,000
        shares of common stock and warrants to purchase an additional 24,836,957
        shares.
        The Company has not yet issued the shares or warrants related to $1,900,000,
        and
        this amount is carried as common stock subscribed on the Company's balance
        sheet
        at December 31, 2006.
 
 The
        Company also issued to consultants 7,600,000 shares of unregistered common
        stock
        with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
        common stock at a price of $1.00 per share with a fair value of $2,212,684;
        and
        warrants to purchase an additional 1,000,000 shares of common stock at a
        price
        of $1.50 with a fair value of $148,086 as commission to consultants related
        to
        the March Financing. The Company charged the aggregate amount of $5,272,770
        to
        operations during the twelve months ended June 30, 2006 with regard to the
        issuance of these shares and warrants.
  The
        warrants to be issued pursuant to the investors in the March Financing are
        as
        follows:
 
 
 **Number
                    of shares of Company Common Stock underlying
                    Warrants****Exercise
                    PricePer
                    Share**
              
              **When
                  fully subscribed**
              
              **At
                  December 31, 2006**$1.50
              
              14,000,000
              
              6,954,348$2.50
              
              11,000,000
              
              5,464,130$4.50
              
              7,000,000
              
              3,447,174$5.50
              
              7,000,000
              
              3,447,174$6.50
              
              7,000,000
              
              3,447,174$8.50
              
              4,000,000
              
              1,986,95750,000,000
              
              24,836,957
 
  All
        warrants have a two-year exercise period from the date of issuance of the
        warrants. No registration rights were granted to the Investors in connection
        with the March Financing and the shares and warrants issued in the March
        Financing will be restricted securities, subject to the applicable restrictions
        set forth in Regulation S promulgated under the Securities Act of 1933, as
        amended.
 
  13
 **Table
            of Contents**
  
 April
        2006 Financing
  In
        April
        2006, the Company signed subscriptions agreements with a group of offshore
        investors led by Swedish Credit and Finance.AB for the sale of an aggregate
        of
        25,000,000 shares of the Company's common stock plus warrants to purchase
        an
        additional 25,000,000 shares of common stock for the aggregate price of
        $10,000,000 (the “April Financing”). Subject to the receipt of funds by the
        Company under the April Financing, shares of common stock will be issued
        as
        follows:
  **Number
                    ofShares**
              
              **Price
                    perShare**
              
              **Total
                  Price**
              
              **Terms**5,000,000
              
              $
              0.30
              
              $
              1,500,000
              
              90
                  day note at 12% due August 9, 200610,000,000
              
              $
              0.55
              
              $
              5,500,000
              
              One
                  year note at 12% due May 11, 200710,000,000
              
              $
              0.30
              
              $
              3,000,000
              
              Cash
                  due 30 days, or June 10, 200625,000,000
              
              
              
              
              $
              10,000,000
 
 These
        shares and warrants are being held in escrow by Margaux Investment Management
        Group, S.A., a Company controlled by a board member, Carl Hessel, and are
        not
        deemed to be issued and outstanding as of the date of the financial statements
        .
  At
        December 31, 2006, the Company has not recognized interest income on these
        notes
        as the transactions are not yet deemed consummated as the Company has not
        received any of the proceeds of the April Financing.
 
 Upon
        receipt of the funds from the April Financing, warrants will be issued as
        follows:
   **Exercise
                      Price Per Share**
              
              **Number
                      of shares of Company Common Stock underlying
                      Warrants**$
                  1.50
              
              10,000,000$
                  2.00
              
              7,500,000$
                  2.50
              
              5,000,000$
                  3.00
              
              2,500,000
 
 
 All
        warrants will have a two-year exercise period from the date of issuance of
        the warrants. No registration rights were granted to the investors in connection
        with the April Financing and the shares and warrants issued in the April
        Financing will be restricted securities, subject to the applicable restrictions
        set forth in Regulation S promulgated under the Securities Act of 1933, as
        amended.
 
   14
 **Table
            of Contents**
  Sales
        Of Securities
  During
        the six months ended December 31, 2006, the Company issued the following
        shares
        of common stock:
 
 The
        Company issued 750,000 shares of common stock with a fair value of $352,500
        previously subscribed to an employee for services to be performed through
        July
        2007, during the three months ended September 30, 2006.
 
 The
        Company issued 450,000 shares of common stock with a fair value of $209,000
        to a
        consultant for services to be performed through July 2007, during the three
        months ended September 30, 2006.
 
 The
        Company issued 180,000 shares of common stock with a fair value of $75,600
        as
        prepaid rent through August, 2008, during the three months ended September
        30,
        2006.
 
 The
        Company issued 350,000 shares of common stock to a consultant pursuant to
        the
        exercise of options for $52,500 cash, during the three months ended September
        30, 2006.
 
 The
        Company issued 50,000 shares of common stock to an employee for the exercise
        of
        options; the exercise price of $7,500 has not yet been received, and this
        amount
        is carried as subscription receivable on the Company's balance sheet at December
        31, 2006.
  The
        Company issued 650,000 shares of common stock with a fair value of $240,000
        to a
        consultant for services to be performed by the consultant through December
        31,
        2006. The consultant is a director of PLC Partners, Ltd., a subsidiary of
        the
        Company.The
        Company charged the fair value of $240,000 to operationsduring
        the threemonths
        ended December 31, 2006.
  The
        Company issued 1,000,000 shares of common stock with a fair value of $330,000
        to
        a consultant for services through November 2007. The Company charged the
        amount
        of $63,311 to operations and $176,689 to deferred compensation during the
        three
        months ended December 31, 2006.
 
 The
        Company cancelled 142,858 shares of common stock originally issued to a
        consultant in a prior period. These shares had a fair market value of $158,000
        which was charged to operations at the time of issuance. During the three
        months
        ended December 31, 2006, the Company credited to operations the amount of
        $158,000.
 
 The
        Company issued an aggregate 2,222,220 shares of common stock with a fair
        value
        of $800,000 pursuant to the acquisition of PLC Partners.
 
 Non-Employee
        Stock Options
 
 The
        following table summarizes the changes in options outstanding and the related
        prices for the shares of the Company's common stock issued to the Company
        consultants. These options were granted in lieu of cash compensation for
        services performed (amounts have been adjusted to reflect the reverse stock
        split and other adjustments):
 
 **Range
                    of exercise
                    prices**
                
                **Number
                    of shares outstanding**
                
                **Weighted
                    average remaining
                    contractual life (years)**
                
                **Weighted
                    average exercise price of
                    outstanding options**
                
                **Number
                    of shares
                    exercisable**
                
                **Weighted
                    average exercise price of
                    options**$
                0.15
                
                
                166,666
                
                
                8.7
                
                $
                0.15
                
                
                166,666
                
                $
                0.15$
                0.20
                
                
                1,500,000
                
                
                9.8
                
                $
                0.20
                
                
                1,500,000
                
                $
                0.20$
                0.49
                
                
                756,303
                
                
                6.2
                
                $
                0.49
                
                
                756,303
                
                $
                0.49$
                0.70
                
                
                756,303
                
                
                6.2
                
                $
                0.70
                
                
                756,303
                
                $
                0.703,179,272
                
                
                8.0
                
                $
                0.54
                
                
                3,179,272
                
                $
                0.39
 
 Transactions
        involving stock options issued to non-employees are summarized as
        follows:
 
 **Number
                  of Shares**
              
              **Weighted
                  Average Exercise Price**Options
                  exercisable at June 30, 2006
              
              1,679,272
              
              $
              0.54Granted
              
              350,000
              
              
              0.150Exercised
              
              (350,000
              )
              
              (0.150
              )Cancelled
                  / Expired
              
              -
              
              
              -Options
                  exercisable atSeptember
                  30, 2006
              
              1,697,272
              
              $
              0.54Granted
              
              1,500,000
              
              
              0.20Exercised
              
              -
              
              
              -Cancelled
                  / Expired
              
              -
              
              
              -Options
                  exercisable at December 31, 2006
              
              3,179,272
              
              $
              0.39
 
  During
        the six months ended December 31, 2006, the Company issued options to purchase
        350,000 shares of the Company's common stock at $0.15 per share to a consultant.
        The Company valued these options using the Black-Scholes valuation model,
        and
        charged the fair value of $127,689 to operations during the three months
        ended
        September 30, 2006.
 
 Also
        during the six months ended December 31, 2006, the Company issued options
        to
        purchase 1,500,000 shares of the Company’s common stock at $0.20 per share to
        three consultants. The Company valued these options using the Black-Scholes
        valuation model, and charged the fair value of $498,171 to operations during
        the
        three months ended December 31, 2006.
 
 The
        estimated value of non-employee stock options vested during the six months
        ended
        December 31, 2006 were determined using the Black-Scholes options pricing
        model
        and the following assumptions: expected option life of to 120 months, a risk
        free interest rate of 4.75%, a dividend yield of 0%, and expected volatility
        of
        108% to 111%.
   15
 **Table
            of Contents**
  Employee
        Stock Options
 
 
 The
        following table summarizes the changes to employee stock options outstanding
        and
        the related prices of the Company's common stock options issued to employees
        under a non-qualified stock option plan (amounts have been adjusted to reflect
        the reverse stock split and other adjustments):
 
 **Range
                      of****exercise****prices**
              
              **Number
                    of****shares outstanding**
              
              **Weighted
                        average remaining contractual
                        life (years)**
              
              **Weighted
                  average exercise price of outstanding options**
              
              **Number
                  of shares exercisable**
              
              **Weighted
                  average exercise price of exercisable options**$
              0.14
              
              500,000
              
              10.7
              
              $
              0.14
              
              500,000
              
              $
              0.140.15
              
              200,000
              
              9.4
              
              
              0.15
              
              200,000
              
              
              0.150.47
              
              375,000
              
              9.3
              
              $
              0.47
              
              375,000
              
              
              0.471,075,000
              
              10.0
              
              $
              0.26
              
              1,075,000
              
              $
              0.26
 
 Transactions
        involving stock options issued to employees are summarized as
        follows:
  **Number
                  of Shares**
              ****
              ****
              **Weighted
                  Average Exercise Price**Options
                  exercisable at June 30, 2006
              625,000
              
              $
              0.34Granted
              -
              
              
              -Exercised
              (50,000
              )
              
              0.150Cancelled
                  / Expired
              -
              
              
              -Options
                  exercisable at September 30, 2006
              575,000
              
              
              0.36Granted
              500,000
              
              
              0.14Exercised
              -
              
              
              -Cancelled
                  / Expired
              -
              
              
              -Options
                  exercisable at December 31, 2006
              1,075,000
              
              $
              0.26
 
 The
        weighted-average fair value of stock options granted to employees during
        the
        three months ended December 31, 2006 and the weighted average significant
        assumptions used to determine those fair values, using a Black-Scholes option
        pricing model are as follows:
 
 Significant
                  assumptions (weighted-average):
              **2006**Risk-free
                  interest rate at grant date
              4.5
              %Expected
                  stock price volatility
              105-115
              %Expected
                  dividend payout
              0Expected
                  option life (in years)
              10.0
 
 Warrants
 
 The
        following table summarizes the changes in warrants outstanding and the related
        prices of the Company's common stock issued to non-employees of the Company.
        These warrants were granted instead of cash compensation for services performed
        and settlement of legal dispute (amounts have been adjusted to reflect the
        reverse stock split and other adjustments):
 
 16
 **Table
            of Contents**
   **Range
                  of exercise
                  prices**
              ****
              **Number
                  of shares
                  outstanding**
              ****
              **Weighted
                  average remaining contractual
                  life (years)**
              ****
              ****
              **Weighted
                  average exercise price of outstanding
                  warrants**
              ****
              **Number
                  of shares
                  exercisable**
              ****
              **Weighted
                  average exercise
                  price of  exercisable options**$
              0.20
                  - 0.2143
              
              1,204,786
              
              0.9
              
              $
              0.2143
              
              1,204,786
              
              $
              0.20-.2143$
              0.75
              
              750,000
              
              1.4
              
              $
              0.75
              
              750,000
              
              $
              0.75$
              0.98-1.00
              
              13,392,857
              
              2.8
              
              $
              0.98-1.00
              
              13,392,857
              
              $
              0.98-1.00$
              1.50
              
              7,954,348
              
              0.8
              
              $
              1.50
              
              7,954,348
              
              $
              1.50$
              2.50
              
              5,464,130
              
              1.3
              
              $
              2.50
              
              5,464,130
              
              $
              2.50$
              4.50
              
              3,477,174
              
              1.4
              
              $
              4.50
              
              3,477,174
              
              $
              4.50$
              5.50
              
              3,477,174
              
              1.2
              
              $
              5.50
              
              3,477,174
              
              $
              5.50$
              6.50
              
              3,477,174
              
              1.2
              
              $
              6.50
              
              3,477,174
              
              $
              6.50$
              8.50
              
              1,986,957
              
              1.2
              
              $
              8.50
              
              1,986,957
              
              $
              8.50$
              2.77
              
              41,184,600
              
              1.75
              
              $
              2.77
              
              41,184,600
              
              $
              2.77
  Transactions
        involving warrants are summarized as follows:
  ****
              **Number
                  of
                  Shares**
              ****
              **Weighted
                  Average Exercise
                  Price**Warrants
                  exercisable at June 30, 2006
              41,184,600
              
              $
              2.77Granted
              -
              
              
              -Exercised
              -
              
              
              -Cancelled
                  / Expired
              -
              
              
              -Warrants
                  exercisable at September 30, 2006
              41,184,600
              
              
              2.77Granted
              -
              
              
              -Exercised
              -
              
              
              -Cancelled
                  / Expired
              -
              
              
              -Warrants
                  exercisable at December 31, 2006
              41,184,600
              
              $
              2.77
 
 10.
        SEGMENT INFORMATION
 
 The
        Company currently operates three business segments: (1) the sale of its secure
        transaction processing system ePayPad and related service (Paysafe), and
        (2)
        transaction processing fees generated through its wholly owned subsidiary,
        Rahaxi Processing Oy; and (3) consulting services offered through its 50%
        owned
        subsidiary PLC Partners, LTD Intercompany receivable and payable are subtracted
        from the total assets and liabilities for the segments, that are eliminated
        in
        consolidation and therefore, do not themselves impact consolidated
        results.
   17
 **Table
            of Contents**
   The
        following table summarizes segment asset and operating balances by reportable
        segment:
  ****
              ****
              **Three
                    months ended December 31**
              ****
              **Six
                    months ended December 31**
              ********
              ****
              **2006**
              ****
              **2005**
              ****
              **2006**
              ****
              **2005**Sales
                  to external customers:Corporate
              
              
              **-**
              
              
              **-**
              
              
              
              
              
              **-**PaySafe
              
              
              **-**
              
              
              **-**
              
              
              
              
              
              **-**Rahaxi
              
              
              598,457
              
              
              577,946
              
              
              1,060,317
              
              
              1,180,694PLC
              
              
              213,445
              
              
              -
              
              
              213,445
              
              
              -Total
                  sales to external customers:
              
              
              811,902
              
              
              577,946
              
              
              1,273,762
              
              
              1,180,694Depreciation
                  and amortization:Corporate
              
              
              1,230
              
              
              -
              
              
              2,460
              
              
              -PaySafe
              
              
              
              
              
              6,405
              
              
              4,605
              
              
              19,555Rahaxi
              
              
              194,513
              
              
              152,222
              
              
              381,488
              
              
              285,598PLC
              
              
              5,615
              
              
              -
              
              
              -
              
              
              -Total
                  depreciation and amortization:
              
              
              201,358
              
              
              158,627
              
              
              394,168
              
              
              305,153General
                  and administrative expense:(not
                  including depreciation and amortization)Corporate
              
              
              2,017,989
              
              
              1,365,587
              
              
              3,925,434
              
              
              2,122,149PaySafe
              
              
              192,463
              
              
              63,174
              
              
              274,388
              
              
              115,939Rahaxi
              
              
              673,392
              
              
              392,537
              
              
              971,293
              
              
              545,885PLC
              
              
              58,769
              
              
              -
              
              
              58,769
              
              
              -Total
                  general and administrative expense
              
              
              2,942,613
              
              
              1,821,298
              
              
              5,229,884
              
              
              2,783,973Capital
                  expenditures:Corporate
              
              
              -
              
              
              -
              
              
              -
              
              
              -Paysafe
              
              
              24,317
              
              
              -
              
              
              24,317
              
              
              -Rahaxi
              
              
              176,237
              
              
              322,301
              
              
              356,429
              
              
              353,081PLC
              
              
              177,787
              
              
              -
              
              
              177,787
              
              
              -Total
                  capital expenditures
              
              
              378,341
              
              
              322,301
              
              
              558,533
              
              
              353,081Operating
                  income (loss):Corporate
              
              
              (2,017,989
              )
              
              (1,607,575
              )
              
              (3,925,434
              )
              
              (2,359,797
              )Paysafe
              
              
              (187,856
              )
              
              (49,533
              )
              
              (274,388
              )
              
              (115,939
              )Rahaxi
              
              
              (904.110
              )
              
              (93,814
              )
              
              (1,380,367
              )
              
              (195,448
              )PLC
              
              
              (19,463
              )
              
              -
              
              
              (19,463
              )
              
              -Total
                  operating income (loss)
              
              
              (3,129,418
              )
              
              (1,750,922
              )
              
              (5,599,652
              )
              
              (2,671,184
              )Segment
                  assets:Corporate
              
              
              1,048,140
              
              
              537,979
              
              
              1,048,140
              
              
              537,979Paysafe
              
              
              159,031
              
              
              44,774
              
              
              159,031
              
              
              44,774Rahaxi
              
              
              5,860,783
              
              
              5,181,940
              
              
              5,860,782
              
              
              5,181,940PLC
              
              
              1,451,940
              
              
              -
              
              
              1,451,940
              
              
              -Total
                  segment assets
              
              
              8,519,893
              
              
              5,764,693
              
              
              8,519,893
              
              
              5,764,693
   18
 **Table
            of Contents**
   11.
        RELATED PARTY TRANSACTIONS
 
 Amounts
        due to related parties at December 31, 2006 consist of the
        following:
 
 Accrued
        Salaries - Officers
 
 The
        Company's president, Paul Egan, who is also a shareholder, had delayed payment
        of a portion of his salary in order to conserve the Company's cash. At December
        31, 2006, the amount of $21,403 in accrued salary is due to Paul
        Egan.
 
 The
        Company's chief financial officer, Ciaran Egan, who is also a shareholder,
        had
        delayed payment of a portion of his salary in order to conserve the Company's
        cash. At December 31, 2006, the amount of $40,020 in accrued salary is due
        to
        Ciaran Egan.
 The
          Company’s 50% owned subsidiary PLC Partners, Ltd. was advanced the amount of
          109,861 by one of principal employees.
  12.
        SUBSEQUENT EVENTS
 
 Subsequent
        to December 31, 2006, the Company sold 4,000,000 shares its common stock
        for
        $600,000 cash.
 ITEM
        2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF
        OPERATIONS.





The
      following discussion and analysis of the Company's financial condition and
      results of operations is based upon, and should be read in conjunction with,
      its
      condensed consolidated financial statements and related notes included elsewhere
      in this Form 10-QSB.





Overview





The
      electronic payment transaction industry is composed of debit and credit card
      issuers, switch interchanges, transaction acquirers and transaction generators,
      including Automated Teller Machine networks, retail merchant locations and
      the
      Internet. The routing, control and settlement of electronic payments is a
      complex activity due to the large number of locations and variety of sources
      from which transactions can be generated, the large number of issuers in the
      market, high transaction volumes, geographically dispersed networks, differing
      types of authorization and varied reporting requirements. These activities
      must
      be conducted 24 hours a day, seven days a week.





Our
      products and services are primarily focused on facilitating electronic card
      payment transactions. These products and services are used principally by
      financial institutions, retailers, and payment processors, in international
      markets.




We
      intend
      to increase revenue from our core payment processing products, which include:
      (1) Authorization: transaction fees derived from processing point of sale
      terminal transactions, including EMV-compliant transactions; (2) Dynamic
      Currency Conversion support services: fees for facilitating real-time currency
      conversion and transaction authorization and settlement services for merchants
      and acquiring banks; (3) Consulting and Software Development Fees: consulting
      services and customized software development provided to financial institutions
      and merchants; (4) Sale of Point of Sale solutions: sales of point of sale
      terminals; (5) Internet Payment Gateway: transaction fees from processing
      internet transactions through our Internet Payment Gateway; and (6) Private
      Label Cards: transaction management services provided for a private label card
      issuer. Our revenue for the quarter ended December 31, 2006 was primarily
      generated from transaction fees through our Finland operations.





We
      are
      continuously reviewing our product and service offerings to ensure that we
      maintain our competitive position in our target markets. Subsequent to our
      systems upgrade in December 2003 to the latest Hewlett-Packard NonStop servers
      and BASE24 e-payment processing software, the company has continued to invest
      heavily in its technical infrastructure in order to meet the highest industry
      standards. The company believes that this continued investment in our technical
      infrastructure would enhance our position in the market place ensuring that
      our
      product offerings are attractive to both our existing and potentially new
      clients alike.





Our
      business is continually evolving. Market conditions may require us to react
      quickly to problems and opportunities as they arise, and we may incur costs
      that
      we do not currently anticipate. Our business strategy to maximize growth and
      shareholder value may include future strategic acquisitions where we believe
      such acquisitions will help us quickly move forward in achieving our
      goals.





Management
      believes that our primary short-term growth opportunities will be derived from
      the European marketplace and a significant portion of our resources, both
      financial and personnel, will be directed towards developing those
      opportunities. We believe that our anticipated growth and ultimate profitability
      will depend in large part on the ability to promote our services, gain clients
      and expand our relationship with current clients. Accordingly, we intend to
      invest in marketing, strategic relationships, and development of our client
      base.





The
      Company's revenue for the three months ended December 31, 2006 was primarily
      generated from the transaction processing fees through our Finland operations.
      During the three months ended December 31, 2006, the Company also began
      recognizing consulting revenue from its interest in Project Life Cycle Partners,
      Ltd. (“PLC Partners”). The Company acquired a 50% interest in PLC Partners
      during the three months ended December 31, 2006. PLC Partners is a
      technology consulting firm located in Dublin, Ireland, and provides niche
      project consulting services in the management and implementation of information
      systems projects.  PLC Partners has international experience within the
      financial services sector. Also during the three months ended December 31,
      2006,
      the Company began generating revenue from the sale of Point of Sale transaction
      processing terminals shipped from our warehouse in Finland.







19
 **Table
            of Contents**







The
      Company's principal offices are in Dublin, Ireland. The Company also has offices
      in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and Santo Domingo,
      the Dominican Republic. While the Company's offices in Finland, Sweden, and
      Switzerland will primarily focus on the European market, the Company's office
      in
      the Dominican Republic will continue to pursue opportunities in the Caribbean
      and Latin America. Management believes that these emerging markets could offer
      favorable opportunities in the longer term. The Company has achieved
      certification to become a third party services provider for China Union
      Pay.


Results
      Of Operations





THREE
      MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
      2005





(a)
      REVENUE





The
        Company had revenue of $811,902 for the three months ended December 31, 2006
        compared to $577,946 for the three months ended December 31, 2005, an increase
        of $233,956 or approximately 40%. The increase was due primarily to revenue
        derived from the Company’s acquisition of a 50% interest in PLC Partners. The
        Company also began selling its transaction processing terminals during the
        three
        months ended December 31, 2006. The Company's anticipates increased shipments
        of
        its terminals throughout the remainder of fiscal 2007.




For
      the
      three months ended December 31, 2006, the Company processed 4,827,103
      transactions, an increase of 529,415 or approximately 9.6%, over the 4,827,103
      transactions that were processed in the corresponding period ended December
      31,
      2005.





The
      Company expects the trend of increased processing fees to continue throughout
      the remainder of fiscal 2007 with the addition of new clients and a continued
      increase in consumers' preference to use credit and debit cards as against
      cash,
      will result in increased transactional volume. The Company expects revenue
      levels to increase throughout the next twelve months as it continues to
      introduce its service offerings, such as EMV compliant transaction processing.
      In addition, the Company believes that it will derive further revenue from
      the
      sale of Point Of Sale terminals through its relationships with Hypercom, Global
      Refunds and Thyron. The Company has placed orders for in excess of 1,500 point
      of sale terminals from vendors such as Hypercom and Thyron, and the Company
      expects to sell these terminals to its clients and resellers during the
      remainder of fiscal 2007. There can be no guarantee that the Company's products
      will be accepted in the marketplace or that its sales efforts will be
      successful. Please see "Factors That May Affect Operating Results."





A
      significant percentage of the Company's revenue for the three months ended
      December 31, 2006 has been derived from a limited number of its customers,
      primarily Finnish customers for its transaction processing products.
      Approximately 55% of the Company's total revenues were attributable to its
      ten
      largest customers. The future loss of any major customer could have a material
      adverse effect on the Company's business, financial condition and results of
      operations. The Company believes that this customer concentration will continue
      for the remainder of fiscal 2007, but will gradually start to be diluted
      beginning at the end of the second half of fiscal 2007 and into fiscal 2008
      as
      it continues to pursue operations outside of Finland. The Company is currently
      pursuing opportunities in several European countries through our relationship
      with Global Refunds. Initial pilot terminals have been deployed in Spain. The
      pilot program has been successful and the Company expects to deploy additional
      terminals in Spain and other countries through the remainder of fiscal 2007.
      Through our relationship with Hypercom, we have also identified opportunities
      for terminal deployment in the Dominican Republic and Sweden. The Company is
      also vigorously active in establishing relationships
      with acquiring banks in Europe after achieving certification of its payment
      gateway from China Union Pay.The
      certification means European bank acquirers will be able to process CUP
      transactions at their merchant terminals and at their ATMs.This
      allows Chinese visitors to use their CUP credit and debit cards during their
      visits to Europe.





All
      of
      Company's revenues for the three months ended December 31, 2006 have been
      generated by our operations outside of the United States, and our future growth
      rate is dependent on continued growth in international markets. The Company
      expects all of our revenue to continue to be generated outside of the U.S.
      through the remainder of fiscal year 2007.





20
 **Table
            of Contents**


(b)
      COST
      OF REVENUE





Cost
      of
      revenue was $887,309 for the three months ended December 31, 2006, compared to
      $444,816 for the three months ended December 31, 2005, an increase of $442,493
      or approximately 99%. The increase in cost of revenue is due primarily to
      increased sales, as well as continued investment in the Company's technical
      infrastructure and hiring of additional staff.





Cost
      of
      revenue can be expected to increase in the coming twelve months if the Company
      continues our current trend of increasing the number of transactions processed.
      The Company also intends to expand our service offering and its business mix
      will necessarily change, so that gross margin as a percent of sales may not
      remain constant.




(c)
      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES




Selling,
        general and administrative expenses were $ 3,054,011 for the three months
        ended
        December 31, 2006 compared to $1,884,052 for the three months ended December
        31,
        2005, an increase of $1,169,959 or approximately 62%. During the three months
        ended December 31, 2006, the primary components of selling, general, and
        administrative expenses were: consulting fees of $1,552,352 of which $1,
        218,794
        were non-cash costs; payroll and related costs of $819,113; facility costs,
        such
        as rent, telephone, and utilities, of $214,345; travel and entertainment
        costs
        of $128,580; legal and accounting fees of $106,466; depreciation and
        amortization of $86,331; and professional services of $49,271. The components
        of
        selling, general and administrative costs that increased most significantly
        during the quarter ended December 31, 2006, compared to the quarter ended
        December, 31, 2005 were consulting fees, which increased by $638,180 or 70%
        and
        payroll and related costs, which increased by $452,939 or 124%.




The
      level
      of future selling, general and administrative expenses will largely depend
      on
      the pace of the Company's growth in the market for payment processing products
      and upon the cost of outside services and professional fees, including legal
      fees relating to litigation. The Company fully expects these costs to increase
      as it continues its expected rollout of product offerings. In addition, selling
      expenses will continue to increase due to increased focus on obtaining new
      customers. The Company intends to focus additional resources in the areas of
      sales personnel salaries, trade show participation, and other promotional
      expenses. In addition, the Company may pursue further acquisitions in order
      to
      facilitate its growth and exploit market opportunities, which would further
      drive up legal and accounting fees, payroll, and travel costs.





(d)
      INTEREST EXPENSE





The
      Company had net interest income of $791 during the three months ended December
      31, 2006 compared to net interest expense of $18,475 for the three months ended
      December 31, 2005, a decrease of $17,684. Lower interest expense was due to
      a
      decrease in the company's debt.





Currently,
      the Company is utilizing equity financing partly in order to avoid the interest
      charges associated with debt financing. Accordingly, the Company does not expect
      interest expense to materially increase in the coming twelve months. There
      can
      be no guarantee that this will be the case, however, as the market price for
      the
      Company's common stock could change, forcing it to pursue alternative methods
      of
      financing the Company's cash needs. In addition, the Company could receive
      an
      offer of attractive debt financing or could undertake additional financing
      with
      regard to an acquisition, in which cases interest expense would significantly
      increase.





(e)
      INCOME TAXES





The
      Company recognized income taxes expense of $7,961during the three months ended
      December 31, 2006, compared to income tax expense of $0 during the prior year.
      The increase was due to income taxes paid in Ireland by the Company’s new
      subsidiary, PLC Partners.





(f)
      MINORITY INTEREST IN NET LOSS OF SUBSIDIARY





The
      Company recorded the minority interest in the net loss of its subsidiary PLC
      Partners, Ltd. of $13,712 during the three months ended December 31, 2006.
      There
      was no such comparable minority interest during the prior year
      period.





(g)
      NET
      LOSS




For
          the
          reasons stated above, the Company recorded a net loss of $3,124,457 for
          the
          three months ended December 31, 2006 compared to $1,769,178 for the three
          months
          ended December 31, 2005, an increase of $1,355,279 or approximately 77%.
          The
          increased loss is primarily due to the increase in sales, general, and
          administrative expenses for the period, as well as the decreased margins
          on
          sales. The Company may continue to incur losses on both a quarterly and
          annual
          basis, and anticipates continued losses for at least the next 12 months.
          In
          addition, the Company expects to continue to incur significant costs of
          services
          and substantial operating expenses. Therefore, the Company will need to
          significantly increase revenues to achieve profitability and a positive
          cash
          flow. The Company may not be able to generate sufficient revenues to achieve
          profitability. The Company expects losses to continue for at least the
          next
          twelve months.


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The
      Company will attempt to continue to fund its operations primarily through equity
      financing, and possibly debt financing, until it achieves profitability, of
      which there is no guarantee. The Company expects these concerns regarding its
      perceived viability to continue throughout fiscal year 2007.





SIX
      MONTHS ENDED DECEMBER 31, 2006 COMPARED SIX MONTHS ENDED DECEMBER 31,
      2005





(a)
      REVENUE




The
        Company had revenue of $1,273,762 for the six months ended December 31, 2006
        compared to $1,180,694 for the six months ended December 31, 2005, an increase
        of $93,068 or approximately 7%. The increase was due primarily to sales derived
        from the Company’s acquisition of a 50% interest in PLC Partners. The Company
        also began selling its transaction processing terminals during the three
        months
        ended December 31, 2006. The Company's anticipates increased shipments of
        its
        terminals throughout the remainder of fiscal 2007.


For
      the
      six months ended December 31, 2006, the Company processed 10,210,002
      transactions, an increase of 994,361 or approximately 10.8%, over the 9,215,641
      transactions that were processed in the corresponding period ended December
      31,
      2005.





The
      Company expects the trend of increased processing fees to continue throughout
      the remainder of fiscal 2007 with the addition of new clients and a continued
      increase in consumers' preference to use credit and debit cards as against
      cash,
      will result in increased transactional volume. The Company expects revenue
      levels to increase throughout the next twelve months as it continues to
      introduce its service offerings, such as EMV transaction processing and its
      Internet Payment Gateway. In addition, the Company believes that it will derive
      further revenue from the sale of Point Of Sale terminals through its
      relationships with Hypercom , Global Refunds and Thyron. The Company has placed
      orders for in excess of 2000 point of sale terminals from vendors such as
      Hypercom and Thyron, and the Company expects to sell these terminals to its
      clients during the remainder of fiscal 2007.There can be no guarantee that
      the
      Company's products will be accepted in the marketplace or that its sales efforts
      will be successful. Please see "Factors That May Affect Operating
      Results."





A
      significant percentage of the Company's revenue for the six months ended
      December 31, 2006 has been derived from a limited number of its customers,
      primarily Finnish customers for its transaction processing products.
      Approximately 55% of the Company's total revenues were attributable to its
      ten
      largest customers. The future loss of any major customer could have a material
      adverse effect on the Company's business, financial condition and results of
      operations. The Company believes that this customer concentration will continue
      for the remainder of fiscal 2007, but will gradually start to be diluted
      beginning at the end of the second half of fiscal 2007 and into fiscal 2008
      as
      it continues to pursue operations outside of Finland. The Company is currently
      pursuing opportunities in several European countries through our relationship
      with Global Refunds. Initial pilot terminals have been deployed in Spain. The
      pilot program has been successful and the Company expects to deploy additional
      terminals in Spain and other countries through the remainder of fiscal 2007.
      Through our relationship with Hypercom, we have also identified opportunities
      for terminal deployment in the Dominican Republic and Sweden. The Company
      is also vigorously active in establishing relationships with acquiring banks
      in
      Europe after achieving certification of its payment gateway from China Union
      Pay.


All
      of
      the Company's revenues for the six months ended December 31, 2006 have been
      generated by our operations outside of the United States, and our future growth
      rate is dependent on continued growth in international markets. The Company
      expects all of our revenue to continue to be generated outside of the U.S.
      through the remainder of fiscal year 2007.







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(b)
      COST
      OF REVENUE





Cost
      of
      revenue was $1,421,287 for the six months ended December 31, 2006, compared
      to
      $943,372 for the six months ended December 31, 2005, an increase of $477,915
      or
      approximately 51%. The increase in cost of revenue is due in primarily to
      increased sales, as well as continued investment in the Company's technical
      infrastructure and hiring of additional staff.





Cost
      of
      revenue can be expected to increase in the coming twelve months if the Company
      continues our current trend of increasing the number of transactions processed.
      The Company also intends to expand our service offering and its business mix
      will necessarily change, so that gross margin as a percent of sales may not
      remain constant.




(c)
      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES




Selling,
        general and administrative expenses were $5,452,127 for the six months ended
        December 31, 2006 compared to $2,908,506 for the six months ended December
        31,
        2005, an increase of $2,543,621 or approximately 88%. During the six months
        ended December 31, 2006, the primary components of selling, general, and
        administrative expenses were: consulting fees of $2,753,844, of which $2,553,693
        were non-cash costs; payroll and related costs of $1,316,606; facility costs,
        such as rent, telephone, and utilities, of $356,781; legal and accounting
        fees
        of $286,060; travel and entertainment costs of $282,194; professional services
        of $128,049; and depreciation and amortization of $167,744; marketing costs
        of
        $63,505; investor relations costs of $39,000; and recruiting costs of $36,284.
        The components of selling, general and administrative costs that increased
        most
        significantly during the six months ended December 31, 2006, compared to
        the six
        months ended December, 31, 2005 were consulting fees, which increased by
        $1,190,797 or 76% and payroll and related costs, which increased by $692,122
        or
        111%,.


The
      level
      of future selling, general and administrative expenses will largely depend
      on
      the pace of the Company's growth in the market for payment processing products
      and upon the cost of outside services and professional fees, including legal
      fees relating to litigation. The Company fully expects these costs to increase
      as it continues its expected rollout of product offerings. In addition, selling
      expenses will continue to increase due to increased focus on obtaining new
      customers. The Company intends to focus additional resources in the areas of
      sales personnel salaries, trade show participation, and other promotional
      expenses. In addition, the Company may pursue further acquisitions in order
      to
      facilitate its growth and exploit market opportunities, which would further
      drive up legal and accounting fees, payroll, and travel costs.





(d)
      INTEREST EXPENSE





The
      Company had net interest income of $779 during the six months ended December
      31,
      2006 compared to net interest expense of $37,246 for the six months ended
      December 31, 2005, a decrease of $36,467. Lower interest expense was due to
      a
      decrease in the company's debt.





Currently,
      the Company is utilizing equity financing partly in order to avoid the interest
      charges associated with debt financing. Accordingly, the Company does not expect
      interest expense to materially increase in the coming twelve months. There
      can
      be no guarantee that this will be the case, however, as the market price for
      the
      Company's common stock could change, forcing it to pursue alternative methods
      of
      financing the Company's cash needs. In addition, the Company could receive
      an
      offer of attractive debt financing or could undertake additional financing
      with
      regard to an acquisition, in which cases interest expense would significantly
      increase.





(e)
      INCOME TAXES





The
      Company recognized income taxes expense of $7,961 during the six months ended
      December 31, 2006, compared to income tax expense of $0 during the prior year.
      The increase was due to income taxes paid in Ireland by the Company’s new
      subsidiary, PLC Partners.





(f)
      MINORITY INTEREST IN NET LOSS OF SUBSIDIARY





The
      Company recorded the minority interest in the net loss of its subsidiary PLC
      Partners, Ltd. of $13,712 during the three months ended December 31, 2006.
      There
      was no such comparable minority interest during the prior year
      period.





(g)
      NET
      LOSS





For
        the
        reasons stated above, the Company recorded a net loss of $5,594,679 for the
        six
        months ended December 31, 2006 compared to $2,706,207 for the six months
        ended
        December 31, 2005, an increase of $2,888,472 or approximately 107%. The
        increased loss is primarily due to the decrease in sales, general, and
        administrative expenses for the period. The Company may continue to incur
        losses
        on both a quarterly and annual basis, and anticipates continued losses for
        at
        least the next 12 months. In addition, the Company expects to continue to
        incur
        significant costs of services and substantial operating expenses. Therefore,
        the
        Company will need to significantly increase revenues to achieve profitability
        and a positive cash flow. The Company may not be able to generate sufficient
        revenues to achieve profitability. The Company expects losses to continue
        for at
        least the next twelve months.


The
      Company will attempt to continue to fund its operations primarily through equity
      financing, and possibly debt financing, until it achieves profitability, of
      which there is no guarantee. The Company expects these concerns regarding its
      perceived viability to continue throughout the fiscal year 2007.








23
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            of Contents**





OPERATING
      ACTIVITIES





The
        net
        cash used in operating activities was $2,880,745 for the six months ended
        December31, 2006 compared to $1,773,872 for the six months ended December
        31,
        2005, an increase of $1,106,873 or approximately 62%. Cash used in operating
        activities during the six months ended December 31, 2006 is attributable
        primarily to the net loss of $5,594,679 partially offset by non-cash charges
        of
        $2,566,590 and $394,168 of depreciation and amortization. During the six
        months
        ended December 31, 2006, cash used in operating activities of $233,112 was
        due
        to changes in the components of working capital. During the six months ended
        December 31, 2005, cash used in operating activities of $666,701 was due
        to
        changes in the components of working capital


INVESTING
      ACTIVITIES





Net
      cash
      used in investing activities was $558,533 for the six months ended December
      31,
      2006, compared to cash used in investing activities of $350,858 during the
      six
      months ended December 31, 2005. This increase was primarily due to increased
      investing by the Company in software and capitalized software costs, and the
      cash component of the PLC Partners acquisition.





LIQUIDITY
      AND CAPITAL RESOURCES




As
        of
        December 31, 2006, the Company had total current assets of $ 2,640,280 and
        total
        current liabilities of $1,562,965 resulting in working capital of $1,077,315.
        The Company had cash and cash equivalents of $1,323,370 at December 31, 2006.
        As
        of December 31, 2006, the Company had an accumulated deficit of $63,708,394.
        These factors raise substantial doubt as to the Company's ability to continue
        as
        a going concern. The independent auditors report on our June 30, 2006 financial
        statements included in the Form 10-KSB states that our difficulty in generating
        sufficient cash flow to meet our obligations and sustain operations raise
        substantial doubts about the our ability to continue as a going
        concern.




On
      January 27, 2006, the Company signed subscription agreements with a group of
      offshore investors for the sale of an aggregate of $9.2 million in Company
      common stock, plus warrants (the "January Financing"). Due to the failure of
      the
      investment group to timely fund in full the first payment required for the
      purchase of shares and warrants, the Company terminated the January Financing;
      all shares and warrants issued thereunder were returned by the escrow holder
      to
      the Company for cancellation, and any funds received pursuant to the January
      Financing were returned by the escrow holder to the investors.





In
      March
      2006, a group of European investors, lead by Olympia Holding AS, informed the
      Company that they were willing to invest on the same terms and conditions that
      were negotiated for the now-terminated January Financing, and the Company agreed
      to this financing transaction with these investors (the "March
      Financing").





Pursuant
      to the March Financing, the Company agreed to issue 46 million shares of
      restricted common stock under Regulation S at $0.20 per share, plus warrants
      to
      purchase 50 million shares of common stock with two-year exercise periods and
      strike prices ranging from $1.50 to $8.50, as set forth below. The Company
      intends to issue these shares in two tranches of 23,000,000 shares each. The
      shares which will be held in escrow by Carl Hessel, a director and major
      stockholder of the Company based in Geneva, Switzerland, along with the
      warrants. Pursuant to the terms of the March Financing, the first payment of
      $4.6 million was due immediately, with a second payment of $4.6 million due
      within three months thereafter. As of December 31, 2006, the Company had
      received cash in the net amount $6,469,924 pursuant to the March Financing,
      and
      had issued 22,850,000 shares of common stock and warrants to purchase an
      additional 24,836,957 shares.





Of
      the
      $6,469,924 collected as of December 31, 2006, the Company received $1,600,000
      under the March Financing during the three months ended September 30, 2006,
      and
      $300,000 and during the three months ended December 31, 2006. The Company has
      not yet issued the shares or warrants related to this $1,900,000. The 23,000,000
      shares of common stock issuable under the second tranche of the March Financing
      have been issued by the Company's transfer agent, and are being held in escrow
      pending receipt of the proceeds of the March Financing by the Company. The
      amount of $1,900,000 is shown as common stock subscribed on the Company's
      balance sheet at December 31, 2006.





The
      Company also issued to consultants 7,600,000 shares of unregistered common
      stock
      with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
      common stock at a price of $1.00 per share with a fair value of $2,212,684;
      and
      warrants to purchase an additional 1,000,000 shares of common stock at a price
      of $1.50 with a fair value of $148,086 as commission to consultants related
      to
      the March Financing. The Company charged the aggregate amount of $5,272,770
      to
      operations during the twelve months ended June 30, 2006 with regard to the
      issuance of these shares and warrants.







24
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In
      April
      2006, the Company signed subscriptions agreements with a group of offshore
      investors led by Swedish Credit and Finance .AB for the sale of an aggregate
      of
      25,000,000 shares of the Company's common stock plus warrants to purchase an
      additional 25,000,000 shares of common stock for the aggregate price of
      $10,000,000 (the “April Financing”). Subject to the receipt of funds by the
      Company under the April Financing, shares of common stock will be issued as
      follows:




**Number
                  of Shares**
            ****
            **Price
                  per Share**
            ****
            **Total
                  Price**
            ****
            **Terms**5,000,000
            
            $
            0.30
            
            $
            1,500,000
            
            
            90
                day note at 12% due August 9, 200610,000,000
            
            $
            0.55
            
            $
            5,500,000
            
            
            One
                year note at 12% due May 11, 200710,000,000
            
            $
            0.30
            
            $
            3,000,000
            
            
            Cash
                due 30 days, or June 10, 200625,000,000
            
            
            
            
            $
            10,000,000




These
      shares and warrants are being held in escrow by Margaux Investment Management
      Group, S.A., a Company controlled by a board member, Carl Hessel and are not
      deemed to be issued and outstanding as of the date of the financial statements
      .




At
      December 31, 2006, the Company has not recognized interest income on these
      notes
      as the transactions are not yet deemed consummated as the Company has not
      received any of the proceeds of the April Financing.




The
      accompanying financial statements have been prepared assuming that the Company
      continues as a going concern that contemplates the realization of assets and
      the
      satisfaction of liabilities in the normal course of business. However, the
      ability of the Company to continue as a going concern on a longer-term basis
      will be dependent upon its ability to generate sufficient cash flow from
      operations to meet its obligations on a timely basis, to obtain additional
      financing, and ultimately, attain profitability.





Management
      plans to continue raising additional capital through a variety of fund raising
      methods during fiscal 2007 and to pursue all available financing alternatives
      in
      this regard. Management may also consider a variety of potential partnership
      or
      strategic alliances to strengthen its financial position. Although the Company
      has been successful in the past in raising capital, no assurance can be given
      that these sources of financing will continue to be available to us and/or
      that
      demand for our equity/debt instruments will be sufficient to meet our capital
      needs, or that financing will be available on terms favorable to the Company.
      The financial statements do not include any adjustments relating to the
      recoverability and classification of liabilities that might be necessary should
      the Company be unable to continue as a going concern. If funding is insufficient
      at any time in the future, the Company may not be able to take advantage of
      business opportunities or respond to competitive pressures, or may be required
      to reduce the scope of its planned product development and marketing efforts,
      any of which could have a negative impact on its business and operating results.
      In addition, insufficient funding may have a material adverse effect on the
      Company's financial condition, which could require the Company to:




- curtail
          operations significantly;
- sell
          significant assets;
- seek
          arrangements with strategic partners or other
          parties that may require the Company to relinquish significant rights to
          products, technologies or markets; or
- explore
          other strategic alternatives including a
          merger or sale of the Company.



To
      the
      extent that the Company raises additional capital through the sale of equity
      or
      convertible debt securities, the issuance of such securities may result in
      significant dilution to existing stockholders. If additional funds are raised
      through the issuance of debt securities, these securities may have rights,
      preferences and privileges senior to holders of common stock and the terms
      of
      such debt could impose restrictions on the Company's operations. Regardless
      of
      whether the Company's cash assets prove to be inadequate to meet the Company's
      operational needs, the Company may seek to compensate providers of services
      by
      issuance of stock in lieu of cash, which may also result in dilution to existing
      shareholders.





The
      Company has been successful in obtaining cash resources through private
      placements and the exercise of options. Financing activities provided cash
      of
      $1,762,500 during the six months ended December 31, 2006 compared to $2,125,277
      for the six months ended December 31, 2005, a decrease of $362,777 or
      approximately 17%. During the six months ended December 31, 2006, the Company
      received $1,710,000 in cash from the sale of common stock, net of commissions
      of
      $190,000; and $52,500 from the exercise of stock options.






25
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ACCRUED
      SALARIES





The
      Company's president, Paul Egan, who is also a shareholder, had delayed payment
      of a portion of his salary in order to conserve the Company's cash. December
      31,
      2006, the amount of $21,403 in accrued salary is due to Paul Egan.





The
      Company's chief financial officer, Ciaran Egan, who is also a shareholder,
      had
      delayed payment of a portion of his salary in order to conserve the Company's
      cash. At December 31, 2006, the amount of $40,020 in accrued salary is due
      to
      Ciaran Egan.





EXCHANGE
      RATES





The
      Company's operations are principally in Helsinki, Finland under the name of
      Rahaxi Processing Oy., operated in its local currency, the Euro, and in
      Dominican Republic under the name ePayLatina S.A., operated in its local
      currency, the Dominican Republic Peso. All assets and liabilities are translated
      at exchange rates in effect at the end of the year. Accounts for consolidated
      statements of operations are translated at weighted average rates for the year.
      Gains and losses from translation of foreign currency financial statements
      into
      U.S. dollars are included in Other - comprehensive income (loss). The
      accumulated foreign currency translation adjustment was $(83,335) at December
      31, 2006.





Any
      significant change in exchange rates may have a favorable or negative effect
      on
      both the revenues and operational costs of the Company. In particular, the
      value
      of the U.S. dollar to the Euro impacts the Company's operating results. The
      Company's expenses are not necessarily incurred in the currency in which revenue
      is generated, and, as a result, it is required from time to time to convert
      currencies to meet the Company's obligations. In addition, a significant portion
      of the Company's financial statements are prepared in Euro and translated to
      U.S. dollars for consolidation.





INFLATION





The
      impact of inflation on the costs of the Company, and the ability to pass on
      cost
      increases to its customers over time is dependent upon market conditions. The
      Company is not aware of any inflationary pressures that have had any significant
      impact on the Company's operations over the past quarter, and the Company does
      not anticipate that inflationary factors will have a significant impact on
      future operations.








OFF-BALANCE
      SHEET ARRANGEMENTS





The
      Company does not maintain off-balance sheet arrangements nor does it participate
      in non-exchange traded contracts requiring fair value accounting
      treatment.





OTHER





The
      Company does not provide post-retirement or post-employment benefits requiring
      charges under Statements of Financial Accounting Standards No. 106 and No.
      112.





CRITICAL
      ACCOUNTING POLICIES





The
      SEC
      has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
      Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies
      provide additional disclosure and commentary on their most critical accounting
      policies. In FRR 60, the Commission has defined the most critical accounting
      policies as the ones that are most important to the portrayal of a Company's
      financial condition and operating results, and require management to make its
      most difficult and subjective judgments, often as a result of the need to make
      estimates of matters that are inherently uncertain. Based on this definition,
      the Company's most critical accounting policies include: (a) use of estimates
      in
      the preparation of financial statements; (b) stock-based compensation
      arrangements; (c) revenue recognition; and (d) long-lived assets. The methods,
      estimates and judgments the Company uses in applying these most critical
      accounting policies have a significant impact on the results the Company reports
      in its financial statements.










26
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            of Contents**





(a)
      USE
      OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS





The
      preparation of these financial statements requires the Company to make estimates
      and judgments that affect the reported amounts of assets, liabilities, revenues
      and expenses, and related disclosure of contingent assets and liabilities.
      On an
      on-going basis, the Company evaluates these estimates, including those related
      to revenue recognition and concentration of credit risk. The Company bases
      its
      estimates on historical experience and on various other assumptions that is
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.




(b)
      STOCK-BASED COMPENSATION ARRANGEMENTS





The
      Company intends to issue shares of common stock to various individuals and
      entities for management, legal, consulting and marketing services. These
      issuances will be valued at the fair market value of the service provided and
      the number of shares issued is determined, based upon the open market closing
      price of common stock as of the date of each respective transaction. These
      transactions will be reflected as a component of selling, general and
      administrative expenses in the accompanying statement of
      operations.





(c)
      REVENUE RECOGNITION





The
      Company recognizes revenues from contracts in which the Company provides only
      consulting services as the services are performed. The contractual terms of
      the
      agreements dictate the recognition of revenue by the Company. 
 Payments received in advance are deferred until the service is
      provided.





Contract
      costs include all direct equipment, material, and labor costs and those indirect
      costs related to contract performance, such as indirect labor. Selling, general
      and administrative costs are charged to expense as incurred. Provisions for
      estimated losses on uncompleted contracts are made in the period in which such
      losses are determined. Changes in contract performance, contract conditions,
      and
      estimated profitability that may result in revisions to costs and income are
      recognized in the period in which the revisions are determined.




For
      revenue from product sales, the Company recognizes revenue in accordance with
      Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
      superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB
      No.
      101 requires that four basic criteria must be met before revenue can be
      recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
      has
      occurred; (3) the selling price is fixed and determinable; and (4)
      collectibility is reasonably assured. Determination of criteria (3) and (4)
      are
      based on management's judgments regarding the fixed nature of the selling prices
      of the products delivered and the collectibility of those amounts. Provisions
      for discounts and rebates to customers, estimated returns and allowances, and
      other adjustments are provided for in the same period the related sales are
      recorded. The Company defers any revenue for which the product has not been
      delivered or is subject to refund until such time that the Company and the
      customer jointly determine that the product has been delivered or no refund
      will
      be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No.
      00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
      accounting for arrangements that may involve the delivery or performance of
      multiple products, services and/or rights to use assets. The effect of
      implementing EITF No. 00-21 on the Company's consolidated financial position
      and
      results of operations was not significant. This issue addresses determination
      of
      whether an arrangement involving more than one deliverable contains more than
      one unit of accounting and how the arrangement consideration should be measured
      and allocated to the separate units of accounting. EITF No. 00-21 became
      effective for revenue arrangements entered into in periods beginning after
      June
      15, 2003. For revenue arrangements occurring on or after August 1, 2003, the
      Company revised its revenue recognition policy to comply with the provisions
      of
      EITF No. 00-21.





For
      those
      contracts which contain multiple deliverables, management must first determine
      whether each service, or deliverable, meets the separation criteria of EITF
      No.
      00-21. In general, a deliverable (or a group of deliverables) meets the
      separation criteria if the deliverable has standalone value to the customer
      and
      if there is objective and reliable evidence of the fair value of the remaining
      deliverables in the arrangement. Each deliverable that meets the separation
      criteria is considered a "separate unit of accounting." Management allocates
      the
      total arrangement consideration to each separate unit of accounting based on
      the
      relative fair value of each separate unit of accounting. The amount of
      arrangement consideration that is allocated to a unit of accounting that has
      already been delivered is limited to the amount that is not contingent upon
      the
      delivery of another separate unit of accounting. After the arrangement
      consideration has been allocated to each separate unit of accounting, management
      applies the appropriate revenue recognition method for each separate unit of
      accounting as described previously based on the nature of the arrangement.
      All
      deliverables that do not meet the separation criteria of EITF No. 00-21 are
      combined into one unit of accounting, and the appropriate revenue recognition
      method is applied.







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Processing
      fee revenue is earned based upon the actual number of transactions processed
      through the Company's processing system. Transaction processing fees are
      recognized in the period that the service is performed. These fees are typically
      charged on a per transaction basis, depending on the arrangement with the
      customer.




(d)
      LONG-LIVED ASSETS





Long-lived
      assets to be held and used are analyzed for impairment whenever events or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable. The Company evaluates at each balance sheet date whether events
      and circumstances have occurred that indicate possible impairment. If there
      are
      indications of impairment, the Company uses future undiscounted cash flows
      of
      the related asset or asset grouping over the remaining life in measuring whether
      the assets are recoverable. In the event such cash flows are not expected to
      be
      sufficient to recover the recorded asset values, the assets are written down
      to
      their estimated fair value. Long-lived assets to be disposed of are reported
      at
      the lower of carrying amount or fair value of asset less the cost to
      sell.





FORWARD
      LOOKING STATEMENTS





This
      Form
      10-QSB contains "forward looking statements" within the meaning of Rule 175
      of
      the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Exchange
      Act of 1934, as amended. When used in this Form 10-QSB, the words "expects,"
      "anticipates," "believes," "plans," "will" and similar expressions are intended
      to identify forward-looking statements. These are statements that relate to
      future periods and include, but are not limited to, statements regarding our
      adequacy of capital resources, need and ability to obtain additional financing,
      the features and benefits of our services, our operating losses and negative
      cash flow, and our critical accounting policies.





Forward-looking
      statements are subject to certain risks and uncertainties that could cause
      actual results to differ materially from those projected. These risks and
      uncertainties include, but are not limited to, those discussed above, as well
      as
      the risks set forth under "Factors That May Affect Operating Results." These
      forward-looking statements speak only as of the date hereof. The Company
      expressly disclaims any obligation or undertaking to release publicly any
      updates or revisions to any forward-looking statements contained herein to
      reflect any change in its expectations with regard thereto or any change in
      events, conditions or circumstances on which any such statement is
      based.





FACTORS
      THAT MAY AFFECT OPERATING RESULTS





The
      operating results of the Company can vary significantly depending upon a number
      of factors, many of which are outside the Company's control. General factors
      that may affect the Company's operating results include:




- market
          acceptance of and changes in demand for
          products and services;
- a
          small
          number of customers account for, and may in future periods account for,
          substantial portions of the Company's revenue, and revenue could decline
          because of delays of customer orders or the failure to retain
          customers;
- gain
          or
          loss of clients or strategic relationships;
- announcement
          or introduction of new services and products by the Company or by its
          competitors;
- price
          competition;
- the
          ability to upgrade and develop systems and infrastructure to accommodate
          growth;
- the
          ability to introduce and market products and services in accordance with
          market demand;
- changes
          in governmental regulation; and
- reduction
          in or delay of capital spending by clients due to the effects of terrorism,
          war and political instability.



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The
      Company believes that any future growth and profitability will depend in large
      part on the ability to promote its services, gain clients and expand its
      relationship with current clients. Accordingly, the Company intends to invest in
      marketing, strategic partnerships, and development of its client base. If the
      Company is not successful in promoting its services and expanding its client
      base, this may have a material adverse effect on its financial condition and
      the
      ability to continue to operate the business.





The
      Company is also subject to the following specific factors that may affect the
      Company's operating results:





(a)
      COMPETITION





The
      market for electronic payment systems and electronic POS systems is intensely
      competitive and we expect competition to continue to increase. The Company's
      competitors for POS systems include VeriFone and Ingenico, amongst others,
      and
      companies such as Global Payments, First Data and Euroconnex for the Company's
      electronic payment software. In Finland the company faces competition from
      companies such as Point, which is the largest terminal vendor in the Finnish
      market, as well as companies such as Screenway and Altdata, which are Point
      of
      Sale software vendors. In addition, the companies with whom we have strategic
      relationships could develop products or services that compete with the Company's
      products or services. In addition, some competitors in the Company's market
      have
      longer operating histories, significantly greater financial, technical,
      marketing and other resources, and greater brand recognition than the Company
      does. The Company also expects to face additional competition as other
      established and emerging companies enter the market for electronic payment
      solutions. To be competitive, the Company believes that it must, among other
      things, invest significant resources in developing new products, improve its
      current products and maintain customer satisfaction. Such investment will
      increase the Company's expenses and affect its profitability. In addition,
      if it
      fails to make this investment, the Company may not be able to compete
      successfully with its competitors, which could have a material adverse effect
      on
      its revenue and future profitability.





(b)
      TECHNOLOGICAL AND MARKET CHANGES





The
      markets in which the Company competes are characterized by rapid technological
      change, frequent new product introductions, evolving industry standards and
      changing needs of customers. There can be no assurance that the Company's
      existing products will continue to be properly positioned in the market or
      that
      the Company will be able to introduce new or enhanced products into the market
      on a timely basis, or at all. Currently, the Company is focusing on upgrading
      and introducing new products. There can be no assurance that enhancements to
      existing products or new products will receive customer acceptance. As
      competition in the electronic payments industry increases, it may become
      increasingly difficult for the Company to be competitive.





Risks
      associated with the development and introduction of new products include delays
      in development and changes in payment processing, and operating system
      technologies that could require the Company to modify existing products. There
      is also the risk to the Company that there may be delays in initial shipments
      of
      new products. Further risks inherent in new product introductions include the
      uncertainty of price-performance relative to products of competitors,
      competitors' responses to the introductions and the desire by customers to
      evaluate new products for longer periods of time. Further, the Company expects
      that its revenue during fiscal 2007 will be significantly affected by the timing
      and success of the introduction of new products and services during the fiscal
      year.





(c)
      NEW
      VERSIONS OF COMPANY'S PRODUCTS MAY CONTAIN ERRORS OR DEFECTS





The
      Company's electronic payment software products and point of sale devices are
      complex and, accordingly, may contain undetected errors or failures when first
      introduced or as new versions are released. This may result in the loss of,
      or
      delay in, market acceptance of the Company's products. The Company has in the
      past discovered software errors in its new releases and new products after
      their
      introduction. The Company has experienced delays in release, lost revenues
      and
      customer frustration during the period required to correct these errors. The
      Company may in the future discover errors and additional scalability limitations
      in new releases or new products after the commencement of commercial shipments
      or be required to compensate customers for such limitations or errors, as a
      result of which the Company's business, cash flow, financial condition and
      results of operations could be materially adversely affected.







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(d)
      NO
      ASSURANCE OF SUCCESSFUL AND TIMELY PRODUCT DEVELOPMENT





The
      Company's products and proposed enhancements are at various stages of
      development and additional development and testing will be required in order
      to
      determine the technical feasibility and commercial viability of the products.
      There can be no assurance that the Company's product development efforts will
      be
      successfully completed. The Company's proposed development schedule may be
      affected by a variety of factors, many of which will not be within the control
      of the Company, including technological difficulties, access to proprietary
      technology of others, delays in regulatory approvals, international operating
      licenses, and the availability of necessary funding. In light of the foregoing
      factors, there can be no assurance that the Company will be able to complete
      or
      successfully commercialize new products. The inability of the Company to
      successfully complete the development of new products or to do so in a timely
      manner, could force the Company to scale back operations, or cease operations
      entirely.





(e)
      MARKET ACCEPTANCE





The
      Company's success is dependent on the market acceptance of its products. Market
      acceptance of the Company's products will be dependent, among other things,
      upon
      quality, ease of use, speed, reliability, and cost effectiveness. Even if the
      advantages of the Company's products are established, the Company is unable
      to
      predict how quickly, if at all, the products will be accepted by the
      marketplace.





(f)
      PROTECTION OF PROPRIETARY RIGHTS





The
      Company's success and ability to compete will be dependent in part on the
      protection of its potential patents, trademarks, trade names, service marks
      and
      other proprietary rights. The Company intends to rely on trade secret and
      copyright laws to protect the intellectual property that it plans to develop,
      but there can be no assurance that such laws will provide sufficient protection
      to the Company, that others will not develop services that are similar or
      superior to the Company's, or that third parties will not copy or otherwise
      obtain and use the Company's proprietary information without authorization.
      In
      addition, certain of the Company's know-how and proprietary technology may
      not
      be patentable.





The
      Company may rely on certain intellectual property licensed from third parties,
      and may be required to license additional products or services in the future.
      There can be no assurance that these third party licenses will be available
      or
      will continue to be available to the Companion acceptable terms or at all.
      The
      inability to enter into and maintain any of these licenses could have a material
      adverse effect on the Company's business, financial condition or operating
      results.




There
      is
      a risk that some of the Company's products may infringe the proprietary rights
      of third parties. In addition, whether or not the Company's products infringe
      on
      proprietary rights of third parties, infringement or invalidity claims may
      be
      asserted or prosecuted against it and it could incur significant expense in
      defending them. If any claims or actions are asserted against the Company,
      it
      may be required to modify its products or seek licenses for these intellectual
      property rights. The Company may not be able to modify its products or obtain
      licenses on commercially reasonable terms, in a timely manner or at all. The
      Company's failure to do so could have a negative affect on its business and
      revenues.





(g)
      DEPENDENCE ON SUPPLIERS





The
      Company depends upon a number of suppliers for components of its products.
      There
      is an inherent risk that certain components of the Company's products will
      be
      unavailable for prompt delivery or, in some cases, discontinued. The Company
      only has limited control over any third-party manufacturer as to quality
      controls, timeliness of production, deliveries and various other factors. Should
      the availability of certain components be compromised, it could force the
      Company to develop alternative designs using other components, which could
      add
      to the cost of goods sold and compromise delivery commitments. If the Company
      is
      unable to obtain components in a timely manner, at an acceptable cost, or at
      all, the Company may need to select new suppliers or redesign or reconstruct
      processes used to build its products. In such an instance, the Company would
      not
      be able to manufacture any security devices for a period of time, which could
      materially adversely affect its business, results from operations, and financial
      condition.







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(i)
      KEY
      PERSONNEL





The
      Company's success is largely dependent on the personal efforts and abilities
      of
      its senior management. The loss of certain members of the Company's senior
      management, including the Company's chief executive officer, chief financial
      officer and chief technical officer, could have a material adverse effect on
      the
      Company's business and prospects.





The
      Company intends to recruit in fiscal year 2007 employees who are skilled in
      e-commerce, payment, funds management, payment reconciliation, Internet and
      other technologies. The failure to recruit these key personnel could have a
      material adverse effect on the Company's business. As a result, the Company
      may
      experience increased compensation costs that may not be offset through either
      improved productivity or higher revenue. There can be no assurances that we
      will
      be successful in retaining existing personnel or in attracting and recruiting
      experienced qualified personnel.





(j)
      LIMITATIONS ON LIABILITY AND INDEMNIFICATION





The
      Company's articles of incorporation and bylaws include provisions to the effect
      that we may indemnify any director, officer, or employee, as well as limit
      the
      liability of such persons. In addition, provisions of Nevada law provide for
      such indemnification, as well as for a limitation of liability of our directors
      and officers for monetary damages arising from a breach of their fiduciary
      duties. Any limitation on the liability of any director or officer, or
      indemnification of any director, officer, or employee, could result in
      substantial expenditures being made by the Company in covering any liability
      of
      such persons or in indemnifying them.





(k)
      LITIGATION





As
      described under Legal Proceedings in our Form 10K-SB for the fiscal year ended
      June 30, 2006, and updated under Legal Proceeding in this Quarterly Report,
      the
      Company is subject to one lawsuit. From
      time
      to time, the Company is involved in a variety of claims, suits, investigations
      and proceedings arising from the operation of the Company’s
      business. It is
      possible that such a matter could arise in the future and be resolved in a
      manner that ultimately would have a material adverse impact on the Company's
      business, and could negatively impact its revenues, operating margins, and
      net
      income.





ITEM
      3.
      CONTROLS AND PROCEDURES




EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES





The
      Company maintains disclosure controls and procedures (as defined in Rule
      13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
      amended) that are designed to ensure that information required to be disclosed
      in our periodic reports filed under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC's rules
      and
      forms, and that such information is accumulated and communicated to our
      management, including our principal executive officer and principal financial
      officer, to allow timely decisions regarding required disclosure.





As
      of the
      end of the period covered by this report, our management carried out an
      evaluation, under the supervision and with the participation of our principal
      executive officer and principal financial officer, of our disclosure controls
      and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
      Act). Based upon the evaluation, our principal executive officer and principal
      financial officer concluded that our disclosure controls and procedures were
      effective to ensure that information required to be disclosed by us in the
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the SEC's rules
      and forms. In addition, our principal executive officer and principal financial
      officer concluded that the Company's disclosure controls and procedures were
      effective to ensure that information required to be disclosed in the reports
      that the Company files or submits under the Exchange Act is accumulated and
      communicated to the Company's management, including our principal executive
      officer and principal financial officer, to allow timely decisions regarding
      required disclosure.







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CHANGES
      IN DISCLOSURE CONTROLS AND PROCEDURES




There
      were no changes in our internal controls over financial reporting that occurred
      during the quarter ended December 31, 2006 that have materially affected, or
      are
      reasonably likely to materially affect, our internal control over financial
      reporting.




PART
      II -
      OTHER INFORMATION




ITEM
      1.
      LEGAL PROCEEDINGS





Except
      as
      set forth below, there have been no material changes to the legal proceeding
      or
      investigations reported in Part II, Item 1 - "Legal Proceedings" in the
      Company's Form 10-KSB filed with the SEC on September 29, 2006 (the "Prior
      10-K"). Other than as set forth in the Prior 10-K, the Company is not a party
      to
      any material pending legal proceeding.





Securities
      and Exchange Commission Investigation




In
      January 2003, we were advised by the Staff of the Denver office of the SEC
      that
      it had initiated an informal, non-public inquiry. In January 2007, we were
      informed by the Staff that the investigation has been terminated and that no
      enforcement action was recommended by the Staff to the SEC.





ITEM
      2.
      UNREGISTERED SALES OF EQUITY SECURITIES.





The
      Company made the following sales of unregistered (restricted) securities during
      the quarter ended on September 30, 2006 (not previously reported in a Form
      8-K):





On
      December 14, 2006, the Company issued 250,000 shares of common stock with a
      fair
      value of $97,500 to an employee for services through September 2007.





On
      December 1, 2006, the Company issued 1,000,000 shares of common stock with
      a
      fair value of $330,000 to a consultant for services through November
      2007.





No
      commissions were paid in connection with any of these sales. We did not employ
      any form of general solicitation or advertising in connection with the offer
      and
      sale of the securities described below. Except as otherwise noted above, the
      offer and sale of the securities listed below were made in reliance on the
      exemption from registration provided by Section 4(2) of the Securities Act
      or
      Regulation D or Regulation S promulgated by the Securities and Exchange
      Commission as transactions by an issuer not involving any public
      offering.


ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES.





Not
      applicable.





ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None.





ITEM
      5.
      OTHER INFORMATION.





SUBSEQUENT
      EVENTS




ITEM
      6.
      EXHIBITS.







Number
            
            Description31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Paul Egan (filed
                herewith).31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Ciaran Egan (filed
                herewith).32
            
            Section
                1350 Certification of Paul Egan and Ciaran Egan (furnished
                herewith).







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SIGNATURES


Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Company has duly caused this report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized.




********************************************************************
            
            **FREESTAR
                TECHNOLOGY CORPORATION**Date: February
                20, 2007
            By:
            /s/ Paul
                EganChief
                Executive Officer






Date: February
                20, 2007
            By:
            /s/ Ciaran
                EganSecretary/Treasurer/
              Chief
                Financial Officer




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EXHIBIT
      INDEX


Number
            
            Description31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Paul Egan (filed
                herewith).31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Ciaran Egan (filed
                herewith).32
            
            Section
                1350 Certification of Paul Egan and Ciaran Egan (furnished
                herewith).





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