U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2004

                                       OR

[ ] 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 Registrant as Specified in Its Charter)

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

               Calle Fantino Falco, J.A. Baez Building, 2nd Floor,
                       Santo Domingo, Dominican Republic
               --------------------------------------------------
                    (Address of Principal Executive Offices)

                 Registrant's telephone number: (809) 503-5911

        Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
Par Value

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant  was  required to file such  reports),  and (2) been  subject to such
filing requirements for the past 90 days. Yes X   No   .
                                             ---    ---

          Indicate by check mark if disclosure of delinquent  filers pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ ].

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant as of October 4, 2004: $20,713,455. As of October 4, 2004, the
Registrant had 479,224,252 shares of common stock issued and outstanding.

         Transitional Small Business Disclosure Format (check one): Yes   No  X.
                                                                       ---   ---

                                       1

<PAGE>

                                TABLE OF CONTENTS

PART I.                                                                     PAGE

ITEM 1.   DESCRIPTION OF BUSINESS.............................................3

ITEM 2.   DESCRIPTION OF PROPERTY............................................21

ITEM 3.   LEGAL PROCEEDINGS..................................................21

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................24

PART II.

ITEM 5.   MARKET FOR COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS....................................24

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................26

ITEM 7.   CONSOLIDATED FINANCIAL STATEMENTS..................................43

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................43

ITEM 8A. CONTROLS AND PROCEDURES.............................................43

ITEM 8B  OTHER INFORMATION...................................................44

PART III.

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
          AND CONTROL PERSONS; COMPLIANCE WITH
          SECTION 16(A) OF THE EXCHANGE ACT..................................44

ITEM 10. EXECUTIVE COMPENSATION..............................................47

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
         OWNERS AND MANAGEMENT, AND
         RELATED STOCKHOLDER MATTERS.........................................49

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................53

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................54

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................55

SIGNATURES...................................................................57

                                       2

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PART I.

ITEM 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT.

         The  Registrant  was  originally  organized on August 2, 1997 under the
laws of the State of Delaware as Interstate Capital Corporation.  The Registrant
at that time had no operations and was  considered a development  stage company.
On November 17, 1999,  the Registrant  caused a Nevada  corporation to be formed
under the name of Freedom Surf, Inc., which then merged, with Interstate Capital
Corporation for the purpose of changing the corporate domicile to Nevada.

(a)      FREEDOM SURF TRANSACTIONS.

         On December 10, 1999, the Registrant, then known as Freedom Surf, Inc.,
reported that it had purchased equipment to manufacture  neoprene wet suits that
was stored in Costa Rica. The Registrant valued the equipment at $5,180,000. The
Registrant  did not  obtain  a report  from a  licensed  independent  appraiser.
However,  Raece  Richardson,  then president of the Registrant,  arranged for an
appraisal  of this  equipment  by a local  appraiser  of boats  who  valued  the
equipment at $5,180,000. The Registrant then issued 969,000 shares of its common
stock to the seller of the equipment, STS de Costa Rica, S.A., and also issued a
promissory note in the amount of $335,000 to the same company.

         On October 19,  2000,  the  Registrant  reported  that it had sold this
equipment  to  Ronbridge   Investments  Limited,  a  Hong  Kong  Registrant  for
$4,750,000,  accepting a down  payment of $750,000 in cash that was  received on
August 31, 2000 and a promissory note for the balance of $4,000,000. At the time
of the  sale,  the  only  shareholder  and  president  of  Ronbridge  was  Raece
Richardson's  father. At the time, Raece Richardson was a principal  shareholder
of the Registrant.  At the time the transaction was completed on the sale of the
equipment,  Ronbridge did not have sufficient resources to pay the amount due on
the balance of  $4,750,000.  Also,  neither the Registrant nor Ronbridge had the
capacity to pay the  promissory  note to the original owner of the equipment who
was still owed $335,000.

         Based on advice from outside consultants, the equipment transaction was
structured so that Pacific Standard Financial Group, Inc. acquired the equipment
from STS and resold it to the Registrant.  Pacific is believed to have purchased
the equipment from STS for the same  consideration that the Registrant agreed to
pay Pacific except that the promissory  note issued by Pacific to STS was in the
original principal amount of $300,000. Pacific transferred the 969,000 shares to
STS and also executed a promissory note to STS for $300,000, as noted.

         After this  transaction,  the Registrant  never took  possession of the
equipment  and it remained in storage under the control of STS. As a part of the
agreement,  the Registrant was required to pay storage fees but never paid them.
Also, the Registrant never paid Pacific the $335,000 which was owed and Pacific,
in turn,  never paid STS the  $300,000  which was owed to them.  On November 16,
2000, the Registrant received a notice from STS declaring a default.  The notice
stated that STS was terminating  the agreement.  STS returned the 969,000 shares
of

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<PAGE>

common stock and has not given any  indication  that it would bring suit for the
monies owed to it. They have accepted the equipment in lieu of payment.

         Finally,  the  Registrant  informed  Ronbridge  that  it  was  not in a
position to refund  Ronbridge the $750,000 that it received as a down payment on
the sale of the equipment.  On December 8, 2000, the Registrant reported on Form
8-K to the Securities and Exchange Commission that the above-described situation
had  occurred.  On January 23,  2001, a group of  shareholders  who had formed a
committee  known as the  Committee  for Corporate  Governance,  Larinda  Nilsen,
chairman,  filed a Preliminary  Proxy Statement with the Securities and Exchange
Commission  stating  that  they  intended  to  call  a  special  meeting  of the
shareholders for the purpose of removing the remaining  members of the board and
electing new board members.

         Prior to the filing of a  Preliminary  Proxy  Statement  on January 23,
2001,  certain  members  of the board of  directors  had  already  resigned.  On
December  1,  2000,  John W.  Cruickshank  resigned  as a member of the board of
directors of The  Registrant.  Shortly  thereafter,  Holly  Richardson,  another
member of the board resigned  leaving two members of the board,  Rick Songer and
David McKenzie.

         The  remaining  board  members,  Rick Songer & David  McKenzie met in a
special  meeting of the board of  directors  on February 2, 2001 to consider the
matters  raised by the  Preliminary  Proxy  Statement  which  had been  filed by
Larinda Nilsen.  Both Rick Songer and David McKenzie  tendered their resignation
as members of the board of directors,  those resignations to become effective on
February  5,  2001  at  12:00  P.M.   Pacific  Standard  Time.  Prior  to  their
resignations becoming effective, pursuant to Article II, Section 2 of the Bylaws
of the  corporation,  the  resigning  Board  elected  new members to replace the
present board until the next annual meeting of the  shareholders,  those persons
to become  board  members  effective  on February 5, 2001 at 12:00 P.M.  Pacific
Standard Time.

         C. Cortland Hooper, former president of the Registrant, entered into an
agreement  with Southern  California  Logo,  Inc. to return all assets which had
formerly belonged to that Registrant to its former owners, Rick and Judy Songer.
This action was  ratified by the former  board of  directors  on June 28,  2001.
Under the terms of this agreement,  the Registrant  acknowledged  that it was in
default on the payment to Rick & Judy Songer on a promissory  note dated May 12,
2000.  The company  agreed to allow Rick Songer to retain the 650,000  shares of
common  stock  that he had  received  as  consideration  for his  work  with the
Registrant and the board of directors and his former agreement to extend payment
on the original  terms of the promissory  note.  The  Registrant  also agreed to
allow Judy  Songer to retain  250,000  shares of stock in  consideration  of the
extension of payments  under the terms of the  promissory  note.  The  agreement
further  states  that the common  stock thus  issued may not be  reversed  for a
period of at least three years.  Finally, the agreement states that the Songer's
shall retain the $500,000 paid to Southern California Logo on August 22, 2000 as
liquidated damages for the failure to pay the promissory note on a timely basis.

                                       4

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(b)      FREESTAR TRANSACTIONS.

(1)      General.
         --------

         On February  14,  2001,  the  Secretary of State of the State of Nevada
accepted  an  Amendment  to the  Articles  of  Incorporation  of the  Registrant
changing its name from "Freedom Surf, Inc." to "Freestar Technologies."

         On August  10,  2001,  the  Registrant  purchased  all of the assets of
ePayLatina,  S. A. in exchange for 1,000,000  shares of Series A preferred stock
in the Registrant. The Series A shares are convertible into 12,000,000 shares of
common  stock in the  Registrant.  Conversion  can occur upon the  certification
after  12  months  that  the  Registrant  has a before  tax  profit  of at least
$1,000,000 at which time, 1/3rd of the preferred shares become  convertible into
common.  Then, on each 12-month  anniversary  date,  again on  certification  of
before tax profits of at least $1,000,000, another 1/3rd of the preferred shares
will convert to common until all of the preferred stock has been converted.  The
preferred  stock was disbursed to Paul Egan, the owner of ePayLatina,  S. A. The
preferred  stock is voting and each share receives 12 votes on any issue brought
before the  shareholders.  Total assets  transferred  to the  Registrant by this
transaction  totaled  $696,285 less  liabilities of  ePayLatina,  S. A. that the
Registrant assumed totaling $316,788.

         With  the  filing  of  a  Certificate   of  Amendment  to  Articles  of
Incorporation,  dated December 15, 2002, with the Nevada Secretary of State, the
number of authorized common shares was increased from 80,000,000 to 500,000,000.
With the filing of a  Certificate  of  Amendment  to Articles of  Incorporation,
dated  February 24, 2003,  with the Nevada  Secretary of State,  the name of the
Registrant  was changed from  "Freestar  Technologies"  to "FreeStar  Technology
Corporation".

(2)      Rahaxi Acquisition.
         -------------------

         On September 10, 2002,  the  Registrant  entered into an agreement with
Heroya Investments Limited ("Heroya",  the "Rahaxi  Acquisition  Agreement") for
the  acquisition  of Rahaxi  Processing  Oy.  The  original  terms of the Rahaxi
Acquisition  provided for the  Registrant to make  incremental  cash payments to
Heroya over the course of 13 months,  and to collateralize the full value of the
acquisition  in  the  form  of an  equivalent  amount  of  common  stock  of the
Registrant.  In  addition,  Heroya is entitled to receive 10% of the net profits
generated  by Rahaxi  for the first  four  quarters  immediately  following  the
closing date.

         On  December  16,  2002,  the  Registrant  and Heroya  executed a first
amendment ("Amendment I") to the Rahaxi Acquisition  Agreement.  Under Amendment
I, the purchase price of $4,300,000 is to be paid in restricted  common stock of
the Registrant, and cash, as follows:

         (a) The  Registrant is to issue to Heroya  22,000,000  shares of common
         stock in consideration  for 53.3% of Rahaxi's common stock  outstanding
         (16 of 30 shares) no later than January 1, 2003.

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<PAGE>

         (b) The  remainder  of the purchase  price is to be paid in cash,  with
         payments  due  from  February  16,  2003  to  December  16,  2003.  The
         Registrant  may pay the entire balance of the purchase price in full at
         any time.

On January 16, 2003, the Registrant  issued 22,000,000 shares of common stock in
order to obtain a  majority  interest  of  Rahaxi.  Since the  remainder  of the
purchase price was to be made in  installments,  the  Registrant  considered the
transaction to be completed as of that date.

         On February  25,  2003,  the  Registrant  and Heroya  executed a second
amendment ("Amendment II") to the Rahaxi Acquisition Agreement.  Under Amendment
II,  the  cash  purchase  price  is to be  reduced  from  approximately  47%  to
approximately  13%. Thus, the  Registrant's  holding of Rahaxi shares  increased
from  16 to 26  (representing  approximately  87% of the 30  shares  issued  and
outstanding). Payment was to be made as follows:

         (a) The  Registrant is to issue to Heroya  23,200,000  shares of common
         stock in consideration for an additional 33.3% of Rahaxi's common stock
         outstanding (additional 10 of 30 shares) no later than March 10, 2003.

         (b) The remainder of the cash purchase price totaling $552,100 is to be
         paid in cash,  with  payments  due from March 10, 2003 to December  16,
         2003.  The  Registrant may pay the entire balance of the purchase price
         in full at any time.

On April 27, 2003, the Registrant issued 23,200,000  restricted shares of common
stock to Heroya under the terms of the second amendment.

         On June 27, 2003, the Registrant and Heroya  executed a third amendment
("Amendment III") to the Rahaxi Acquisition Agreement.  Under Amendment III, the
Registrant is to issue an additional 8,100,000 shares of common stock in lieu of
the  remaining  cash  consideration  due Heroya under  Amendment II, or $502,100
($552,100  less  $50,000 cash paid).  The total  purchase  price was  53,300,000
shares of the Registrant's common stock and cash of $100,000.

         Pursuant to the terms of the Agreement,  the actual  purchase price was
based on the fair value of the Registrant's stock on the dates of the grant plus
cash to be paid in the future periods. The operating results of Rahaxi beginning
January 16, 2003 are included in the  accompanying  consolidated  statements  of
operations

         The total purchase price was valued at $4,010,000.

BUSINESS OF THE REGISTRANT.

         The e-payments  and e-commerce  market is comprised of debit and credit
card  issuers,  switch  interchanges,   transaction  acquirers  and  transaction
generators, including Automated Teller Machine ("ATM") networks, retail merchant
locations and the Internet. The routing, control and settlement of e-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

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market, high transaction volumes,  geographically dispersed networks,  differing
types of authorization and varied reporting  requirements.  These activities are
typically  performed  online and must be conducted 24 hours a day,  seven days a
week.

         The  Registrant's  products  and  services  are  primarily  focused  on
facilitating   electronic   payments   ("e-payments")  and  electronic  commerce
("e-commerce").  These  products and services are used  principally by financial
institutions,   retailers,  and  e-payment  processors,  both  in  domestic  and
international markets.

         The payments industry is rapidly  transforming.  The Registrant,  after
its  acquisition  of Rahaxi  Processing  Oy. and the assets of ePayLatina  S.A.,
believes it is a part of this transformation. While payment media such as credit
cards have  reached  maturity,  it is still the most  frequently  used method of
online  payment.   The  growth  in  electronic  commerce  is  forcing  financial
institutions and merchants to offer new secure payment forms to their customers.
Internet  payment  gateways and the increased  prospect of fraud from electronic
payments  are some of the issues  that are  creating  challenges  for  financial
institutions around the world.

         The  Registrant's  solution  and  services  focuses on these  areas and
enables financial  institutions and merchants to formulate  coherent  strategies
based on knowledge,  insight and  understanding  of the  transformations  taking
place in the industry. The Registrant's  acquisition of the assets of ePayLatina
S.A.,  and the  formation of its  strategic  alliances  were  instigated to help
institutions and merchants  position  themselves to provide superior value added
services, and differentiate  themselves from competitors in a way that preserves
the business line's profitability.

(a)      RAHAXI PROCESSING OY.

         During the fiscal year ended June 30,  2003,  the  Registrant  acquired
privately held Rahaxi  Processing  Oy., a Northern  European  online credit card
processing enterprise  headquartered in Helsinki,  Finland. Rahaxi Processing Oy
operates  full,  online  connectivity  to all Finnish banks,  including  Nordea,
Sampo,  and Oko, and the domestic  bank credit card  company,  Luottokunta,  and
provides  processing  services  for  approximately  1000,  merchants.  A similar
connection  has  been  established  with  Luottokunta's   Estonian  counterpart,
Cardikesku, to facilitate the needs of international clients such as Stockmann's
department stores..

         Rahaxi  Processing  Oy. is currently one of the leading  players in the
Finnish payment market for online card present transactions.  Currently,  Rahaxi
Processing Oy supports a network serving point-of-sale devices that generate, on
average,  over one  million  transactions  each month (the  system is capable of
handling  an  additional  7 million  transactions  per month  under its  current
software   licenses).Management   expects  to  make  significant   increases  to
transaction  capacity to facilitate expected new business in the next two fiscal
years .

         Rahaxi   Processing   Oy.   provides  full  card  payment   processing,
transaction  authorization,  data capture and  settlement  facilities  for Visa,
MasterCard,  American  Express,  Diners Club, JCB and all  bank-issued  domestic
(Finnish) debit cards.  Rahaxi also provides specialist  value-added  processing
applications for fleet, fuel and loyalty card schemes.  The company is currently
capable to offer a multi-currency facility to merchants.

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         Terminals  are  connected on a 24/7 basis to Rahaxi  Processing Oy both
via the fixed line telephone  network and GSM data channel.  The  communications
costs in  Finland,  which  are  borneby  Rahaxi  Processing  Oy  merchants,  are
competitively  priced.  Software  upgrades need only be performed at the central
level, thus ensuring a highly "future-proof" environment.

         Keeping ahead of new payment  mandates and  technologies is a challenge
for all  participants in the payments  industry.  Rahaxi  Processing Oy is fully
committed to staying ahead of the curve and providing  advanced delivery systems
for real-time, online transaction handling and a suite of complementary payments
solutions.  Whether customers want traditional or emerging payments  processing,
Rahaxi  Processing  Oy delivers  solutions  to support  credit,  charge,  debit,
e-commerce,  private label, smart card, stored value, multiple application,  and
wireless  transaction  capture and routing.  Rahaxi  Processing  Oy.'s wealth of
knowledge in merchant  transaction  services is a cornerstone to over a thousand
customers.  This company's team of payments  professionals  ensure fast, secure,
low-risk,  and powerful payment  processing so merchants can focus on: marketing
and promotional campaigns,  customer  satisfaction,  sales growth, and financial
management.  This company enables  business  customers to  consistently  achieve
retail success by making the most of card acceptance benefits.

         Rahaxi  Processing Oy. has  demonstrable  commitment to its home market
and Nordic  region.  In addition to expansion to new markets,  we have continued
our  investment  in  intellectual  capital  and other  resources  in Finland and
Sweden.  Strategic relationships with Finnish banks, CEK ab (Sweden),  EMV/Smart
Card payments support and certification,  multi-currency processing,  end-to-end
solutions,  terminal  management  services,  and enhancement of customer service
operations, are all important initiatives for this company.

(b)      PRODUCTS AND SERVICES.

(1)      POS Transaction Processing
         ---------------------------

         Payment card operations is an ever-changing industry. New, emerging and
converging  technologies  as  well  as  marketplace  demands  are  changing  the
landscape of this global industry.  As a result,  every participant in the chain
of payments  processing is adjusting to both opportunities and challenges.  Some
factors impacting the industry include:  evolving  standards (like the migration
from  magnetic  stripe cards to EMV  chip/smart  cards),  new card  features and
functionality,  regulatory  changes  (like the Single  European  Payment  Area),
consolidation,  risk  management  controls,  and innovative  electronic  payment
applications.  All these  factors  are  drivers  for change  industry-wide.  The
Registrant  recognizes that ongoing enterprise  performance  improvements,  will
position the company  extraordinarily  well for the necessary agility to achieve
compliance  with  regulatory,   global  interchange  and  high   customer/market
expectations.

         This  means  that the  Registrant's  customers  and  partners  can look
forward to easy adoption and  deployment of products and services in the dynamic
payments environment.  Much of these payment developments will be transparent to
our  customers.  Of  course,  establishments  of all types will be  required  to
upgrade or replace their POS/POI devices.  In keeping with the Registrant's goal
to make new mandates easy to adopt and deploy for customers,  the company offers
end-to-end (or "plug and play") merchant processing solutions.

                                       8

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         Through the company's strategic  partnerships or distributorships,  the
Registrant offers high performance, integrated/hybrid terminals that are able to
process  both  magnetic  stripe  cards and chip  cards  operating  under the EMV
standard.  These terminals are ideal for retailers that desire speed,  security,
compliance  with the most recent  specifications,  and acceptance of all leading
payment cards in one easy to use device.  The company's  strategic  partnerships
allow it to assist  merchants in various  categories and sizes with advanced and
proven terminals from globally recognized electronic payment appliance companies
plus robust transaction  switching.  The Registrant is not a "one-size-fits-all"
organization,  but it aims to  provide  suitable  solutions  for  establishments
across verticals.

         Today, the Registrant supports merchant categories such as:

         Catalog
         Department Stores
         E-commerce
         Government (e.g., municipalities)
         Lodging, Travel, Sports, & Entertainment (e.g., Theatres, Stadium &
         Hotels)
         Office Products
         Quick Service Restaurants/Fast Food
         Medical/Dentistry
         Multi-national establishments
         Remote (e.g., Mobile, Outdoor, Temporary, Transport, & Seasonal)
         Small Multi-Lane
         Specialty Hard Goods (DIY, Electronics, Carpet/Tile, Furniture, etc.)
         Specialty Retail/ Soft Goods (Apparel, Shoes, Consignment, etc.)
         Supermarket/Grocery (Supermarkets, Delis, Butcher Shops)
         Table Service Restaurants (Chains and Local Restaurants)

         The Registrant  has developed  high-performance  and turnkey  solutions
that enable merchants to maximize sales for greater profitability. As a payments
solution  company,  the Registrant is continuously  seeking payments products or
services that will benefit  customers and grow their  business.  This is part of
the  company's  our  "Partners  in  Business"  philosophy  to  create  long-term
solutions for lifetime  customers.  Up to 1000 customers in Northern Europe have
chosen the Registrant's  proven payment engine and processing  solutions for the
highest security, scalability, reliability, and low investment.

(2)      Integrated ECR Processing
         -------------------------

         In the  retail  ecosystem,  the  Registrant  knows  EPoS,  back  office
applications, next-generation technologies, and flexible enterprise architecture
are crucial for  efficiency.  Merchants  must focus on retail  strategy,  outlet

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differentiation,  consistently  delighting  customers for loyalty rather than on
technology.  Medium and large merchants simply want their  integrated  retailing
technology  to work with speed,  flexibility  and ease plus maintain a low total
cost of ownership.  By working closely with top-notch integrated electronic cash
register ("ECR")  organisations,  the Registrant  enables the retail  enterprise
with:  (i) EPoS  systems from leading  vendors  that easily  integrate  with our
platform,  (ii)  reliable and  continuous  system  availability,  (ii)  scalable
performance,  (iii) flexible configuration and expansion,  and (iv) a wide range
of networking and connectivity options that can cope with rapid or unpredictable
growth.

         Integrated  retailers can be confident that the  Registrant's  platform
complements the integrated enterprise.  The company incorporates full redundancy
to  guarantee  data  integrity at all times.  So,  whether a firm is a single or
multiple site/country enterprise, fast paced health/beauty retailer,  department
store, or even a franchise operation,  it requires an advanced POS solution that
interfaces  across its business.  The  Registrant  and its ECR partners  provide
complete and superior  retail  payments  management  solutions  that will better
enable merchants to manage and grow their business.

         The Registrant has established relationships with the main suppliers of
cash registers,  such as Edacom,  Siemens-Nixdorf  and NCR, comprising a captive
service  market as the product  lines of these  suppliers  contain the necessary
software to connect directly to the Rahaxi. For those companies that build their
own POS systems,  a software  module is available  which  enables  connection to
Rahaxi Processing Oy via server or PC.

(3)      EMV Processing
         --------------

         EMV is the de facto standard in the area of  credit/debit  card systems
managed by EMVCo. EMVCo is a body formed by the international  payment networks.
EMVCo's charge is to manage,  enhance and maintain  EMV(TM)  integrated  circuit
card  specifications.  The body also coordinates Level 1 and Level 2 device type
approval activities through certification laboratories.

         Level 1: type approval  refers to terminals  communication  mechanisms,
         including hardware for electrical signals.

         Level 2: type  approval  refers to software at  application  level that
         supports EMV selection mechanisms, security and transaction flow.

         EMV was conceived by Europay,  MasterCard  and Visa - hence the acronym
EMV - to introduce  integrated circuit card technology (also called chip card or
smart card  technology) for all credit and debit products.  The adoption of this
new technology is the first major change and challenge in payment card operating
structure  since the  magnetic  stripe  came to market  over 30 years  ago.  The
international  card  companies  have  promoted  and  encouraged  the  industry -
member's banks, retailers,  EFTPoS suppliers, and processors - to convert to the
integrated chip-based technology.

                                       10

<PAGE>

         The key driver behind the conversion to integrated  circuit cards (also
called chip cards or smart cards) is the significant  reduction of fraud.  Since
magnetic  stripe cards are  relatively  easy to replicate,  migrating to complex
smart cards will make  counterfeiting  much harder.  In addition,  card issuers,
retailers  and  merchant   acquirers  are  expected  to  benefit  from  improved
card/cardholder  authentication and validation at the point of sale, better data
storage and opportunities for multiple applications on one card.

         In the Nordic region and other  European  countries,  from on and after
January 1, 2005,  liability  rules are  changing to provide  greater  protection
against fraud to merchants who have  deployed EMV card  acceptance  devices that
meet the global EMV standard.

         In practical terms,  liability shift refers to a transaction authorized
at the point of sale by a merchant  fulfilling his/her obligations by honoring a
smart payment card with an  EMV-enabled  and certified  device.  If the merchant
uses an EMV  compatible,  the  transaction  cannot be  charged-back.  If the EMV
transaction  authorized  is later  determined  to be  fraudulent or the card was
lost/stolen  at the time of  transaction  authorization,  the merchant  faces no
liability for the loss and keeps the funds for the  transaction.  However,  if a
merchant's  payment  processing device is not EMV compatible on or after January
1, 2005, then the merchant must absorb the  transaction  loss plus any ancillary
charges,  such as charge back penalty  fees  assessed by its  acquiring  bank or
processor.

         The  ability  to  accept  smart  cards is  increasingly  important  for
merchants regardless of type of establishment.  EMV is something every merchants
and  acquirers  need  to  prepare  for as  the  liability  shift  date  is  fast
approaching. The liability and payment management matters will have business and
financial  implications to every European  merchant in 2005 and beyond.  The EMV
standard also satisfies card issuer's  business  requirements for  accommodating
single  to  multiple  applications  on one  payment  card  regardless  of system
operator.  The  EMV  standard  ensures  global  interoperability  across  cards,
platforms and devices,  establishes  the magnetic  stripe to chip migration path
and an open platform for payment cards.

         Chip cards will eventually replace magnetic stripe cards;  however,  in
many  instances,  bank-issued  magnetic  stripe  and smart  payment  cards  will
co-exist on the same card.  Under the EMV  regulatory  guidelines,  issuers must
still  comply  with  magnetic  strip  requirements  for  contingency   purposes.
Therefore,  EFTPoS  terminals  in the field must have dual card type  acceptance
capability. This is why the Registrant offers compact and cost effective devices
designed  to  support  magnetic  stripe  and  EMV  smart  cards  (i.e.,   hybrid
terminals).

         The  Registrant  has  made  significant  investments  to make  sure its
authorization,  data  capture  and  routing  processes  can  manage  the new and
additional  messages and security parameters from the smart card to the terminal
to the appropriate  financial  endpoint.  End-to-end EMV compliance is a subject
merchants needs not grapple with. Partnering with the Registrant for transaction
processing means time, cost and management  resources savings.  Establishments -
including  multi-lane  or  multi-chain  - route  their  payment  messages to the
Registrant's fully EMV-compliant system for integrated circuit card processing.

                                       11
<PAGE>

(4)      Internet Payment Gateway
         -------------------------

         The Internet is transforming the way merchants conduct business. Today,
businesses use the Internet to streamline order processing,  facilitate customer
support,  and accept  payment  for goods and  services.  The  Registrant  offers
centralized  payment processing  services for financial  institutions to support
e-commerce.  Large and small  institutions can use the Registrant's  services to
bring  merchant  accounts  online and manage a  merchant  portfolio,  easily and
effectively.  All e-commerce  businesses  require secure and reliable  financial
services designed to support rapid development and high volume.

         The Registrant's payment services were developed  specifically with the
e-commerce merchant in mind to support dramatic growth. The Registrant's payment
processing  services are  facilitated  by its  Internet  payment  gateway.  This
gateway  provides  a  live  link  to  the  credit  card  networks,  a  real-time
transaction  database  for  dynamic  reporting,  and a risk  management  system.
Depending upon specific  business goals and  requirements,  the Internet payment
gateway  may be  hosted  by the  Registrant  or  installed  in a data  center or
processing  facility.  In either case,  the  processing,  risk  management,  and
reporting   tools   are   available   24   hours  a  day   through   a   secure,
password-protected  Web  site.  All that is  required  to  access  and  manage a
merchant portfolio from the site is a desktop computer and Microsoft's  Internet
Explorer browser software. This Web-based design facilitates dynamic interaction
with all  transaction  data for  effective  and  customized  merchant  portfolio
management.  Both  merchants  and  financial  institutions  are  protected by an
extensive  matrix  of  fraud  detection  analysis  and  software,   the  Payment
Protection  System.  Through the  system,  an  individual  merchant or an entire
merchant portfolio can be monitored for potentially fraudulent card activity and
data entry errors.

         The  Internet  Payment  Gateway is  exceptionally  fault  tolerant  and
capable of similar  throughput  as the Base24  system  currently  used by Rahaxi
Processing Oy. It is easily interfaced to merchants' websites, and the Reporting
and  Fraud  Control  Suite  is  fully  configurable  to  reflect  the  operating
institution. The Virtual ATM provides a variety of functionality that can easily
allow  participant  banks to launch an "Internet  Banking  Service",  as well as
provide a wide  variety of  functionality  to users to allow them to control and
manage  their  Credit and Debit  Cards,  along with  various  bank and  "wallet"
accounts

         In addition to providing  card  processing  and payment  solutions  for
physical/retail  storefronts  and wireless POS  terminals,  RAHAXI also offers a
"state-of-the  art"  Internet  Payment  Gateway  ("IPG").  The  IPG  provides  a
mechanism  for  both   Internet  and  Mail  Order  &  Telephone   Order  (MO/TO)
transactions.  This advanced e-payment service includes real-time  reporting and
fraud management.  The IPG delivers a global solution for online merchants.  Key
Features Include:

         128-Bit SSL for consumer sessions
         Flexible fee options for acquiring organization
         Integrated back-office interface
         Integrated merchant management
         Multi-language support
         Payment gateway integration
         Proprietary front-end gateways
         VPN and PKI systems integration

                                       12

<PAGE>


(5)      Cross Border Acquiring
         -----------------------

         The Registrant's  processing system is designed to acquire transactions
from merchants and route to cross border  financial  institutions.  For example,
the Registrant's system is directly linked to a financial institution in Estonia
and acquires  transactions from Estonian-based  terminals.  Has also established
relationships  with  financial  institutions  and  multi-national  merchants  in
Finland,  Sweden and the Russian Federation to expand on its proven cross-border
capabilities.

         The Registrant through its wholly owned subsidiary Rahaxi Processing Oy
has entered into an agreement  with Nordea  Bank, a leading  financial  services
group in the Nordic and Baltic Sea region.  Headquartered in Stockholm,  Sweden,
Nordea  operates  through three business areas:  retail  banking,  corporate and
institutional banking, and asset management and life insurance. The terms of the
agreement  provide  for  Rahaxi  Processing  Oy  and  Nordea  to  enter  into  a
cooperative  agreement,   whereby  Rahaxi  Processing  Oy  will  provide  Nordea
transaction-processing  services  for  mutually  selected  local,  Scandinavian,
pan-European and international merchants.

         This  agreement  is in line with  several  key  strategies  designed to
maintain the  Registrant's  attractiveness  in global markets.  By collaborating
with Nordea, one of Europe's leading financial institutions, management believes
that is strengthening its position in the European market place, which is one of
its target regions.  Management also believes the industry of merchant acquiring
is becoming a global affair.  Given the massive  explosion of e-commerce  within
the relatively short time frame involved,  any merchant acquirer that intends to
become  seriously  involved  in the  global  economy  must act to develop a true
international strategy, which includes working in conjunction with partners.

(6)      Payment Terminals
         ------------------

         The  Registrant's  complementary  family of products and services  help
merchants  upgrade or replace  their  equipment  and receive  complete  payments
processing.  Whether  you are a small or medium size  retailer,  wireless/remote
business or operate in an integrated environment, the Registrant can recommend a
solution  that fits a merchant's  needs for secure,  fast and reliable  merchant
processing services.  When merchants partner with the Registrant,  deployment of
complete  EMV-ready and certified  EFTPoS  solutions is easy - right "out of the
box". The Registrant believes it has effectively removed the complexities of EMV
adoption at the store-level. The Registrant's end-to-end solutions deliver:

         Feature-rich, secure and intelligent processing devices;

         Low cost EFTPoS appliances plus transaction processing to keep merchant
         capital and operational investments under control; Quick implementation
         since  no  additional   compatibility   or   connectivity   testing  is
         requirement. True "plug and play"; and

                                       13
<PAGE>

         EMV-certified  EFTPoS or PINPad device  manufacturer  independence,  so
         merchants  are not  tied to one  vendor.  Merchants  can  choose  which
         leading  retail  appliance  operates  best  for  their  business.   The
         Registrant's  terminal management system and payment engine can connect
         and route transactions from any leading PoS provider.

         Rahaxi Processing Oy, a wholly owned subsidiary of the Registrant has a
licensing and  distribution  agreement with Hypercom  Corporation  (NYSE:HYC) to
deploy the ICE(TM) family of terminals,  bringing fully EMV compliant  terminals
to the Finnish market. Europay, MasterCard and Visa (EMV) have jointly developed
a set of global  specifications  that define and certify  vendors'  software and
hardware to ensure  compatibility  of chip cards and  terminals  throughout  the
world.

         The major card  programs  are  committed  to the rollout of  chip-based
payment cards. In Finland and many countries, from January 2005, liability rules
are changing to provide greater  protection  against fraud to merchants who have
deployed EMV card  acceptance  technology  meeting the global EMV standard.  The
Registrant will deploy the ICE Family of POS Terminals through Rahaxi Processing
Oy. The Registrant believes that Rahaxi Processing Oy and Hypercom's  collective
product  offering,  core  competencies  and payments  expertise will support all
major  credit-,  charge- and debit cards as well as private label cards.  Small,
medium, and large retailers across retailing segments will be accommodated by an
array of Hypercom's  revenue-generating  terminals,  Hypercom device  management
solutions and Rahaxi's powerful payment engine.

         The Registrant's  and Hypercom's  current and future customers have the
opportunity  to  obtain  added  value at the  'point-of-payment  interaction'  -
anytime,   anyplace,   anyhow  -which  in  turn  could  yield  enhanced  revenue
generation.  This relationship with Hypercom exemplifies the Registrant's intent
to deliver solutions with a "Partners in Business" philosophy.

         The Registrant  believes that this agreement will enable it to bring an
advanced  device with level 1 EMV  capabilities  into the Finnish  marketplace -
which will not only provide the latest security and fraud  applications into the
merchant  community - but also speed and convenience.  Level 1 EMV refers to the
EMV standards defining  electrical,  and mechanical  interfaces between the card
and  payment  device.  This may include  business  logic of a card and even card
dimensions.  The Registrant  expects to derive revenue from the sale of Hypercom
Terminals.

         The  ePayPad,  which  was  developed  by  the  Registrant,  will  allow
transactions to be completed in a "card present"  environment.  This will enable
small merchants to obtain a credit card facility with a minimal investment using
an existing PC and Internet  connection.  It will also allow  transactions to be
made securely  over the Internet by  cardholders  themselves  and offers a "cash
advance"  functionality for loading  accounts,  debit cards, etc. The latter can
also be extended to offer a money transfer facility using the existing worldwide
ATM networks.

                                       14
<PAGE>

         The  Systek  610  terminal   developed  in  co-operation   with  Rahaxi
Processing  Oy is ideal for the  target  markets as it can  communicate  along a
variety of channels (Analogue, digital and GSM-wireless),  as well as conversion
into a  stand-alone  EPOS  system  for  small to  medium  sized  retailers.  The
extensive  flexibility  offered by the system  allows  Rahaxi  Processing  Oy to
support  single  terminal,  multi-terminal,   multi-location  and  multi-country
outlets.

(7)      Private Label Processing
         -------------------------

         It is  assumed  that  private  label  programs  as just  like  bankcard
programs and have the same  requirements for marketing,  services and processing
requirements.  This is not the case.  Private  label  ("closed  loop")  programs
require flexibility and unique processing capabilities.

         The  Registrant is capable of supporting  the  requirements  of private
label programs with several  authorisation  and verification  methods,  flexible
parameterisation,   real-time  processing,  transaction  logging,  and  database
updates. The Registrant's  processing engine easily handles advanced remote data
collection,   data  dissemination  on  demand,   data  scheduling,   transaction
monitoring, and new interface formats.

         With the  Registrant's,  private label issuers and merchants  receive a
long-term solution that maximises return on investment because we employ modern,
modularised   technology.   The   Registrant   will  ensure  quick   enhancement
capabilities  and  economical  adaptation  to market  requirements  for business
productivity and competitive advantage.

         In August 04 - Rahaxi Processing Oy was chosen by IKANO Rahoitus Oy., a
member of The IKANO Group, as the transaction  management  provider for the IKEA
Hei  Card.  After  a  rigorous  proposal  process  and  consideration  of  other
electronic  payments  providers,  Rahaxi  Processing Oy was the clear leader for
fast time to  market,  highly  configurable  processing  logic,  low  risk,  and
competitive  pricing. By leveraging the existing  relationship  between IKEA and
Rahaxi for acquisition and routing, Rahaxi Processing Oy met or exceeded IKANO's
requirements for the processing of the IKEA private label Hei Card.

         With over a decade of quality merchant services operations, integration
and implementation experience, Rahaxi Processing Oy had the edge in facilitating
retailer's  efforts  to  improve  their  bottom  line.  The  IKANO  Group  is  a
diversified  Scandinavian financial services  organization.  IKANO Rahoitus is a
strategic  business unit of the Finance  Division  focusing on processing  large
volumes of financial and associated products.  The Finance Division is currently
represented in six countries.  Based on a close relationship with retailers. The
companies of this division provide added value through  financial and associated
products or  services.  The Finance  Division  operates a Swedish  bank and also
offers small-ticket leasing services in Sweden, Denmark and Norway. www.ikano.fi

(8)      Dynamic Currency Conversion
         ----------------------------

         The Registrant has recently entered into a contract with First Currency
Choice ("FCC") that has a client base of over 200,000 merchants. In an effort to

                                       15
<PAGE>

enhance  their  offering  to the  existing  merchant  base and to their  partner
acquiring  banks,  FCC is bringing a new product to market.  This product allows
the cardholder to conduct the transaction in the currency of origin. In order to
provide real time  currency  conversion  quotes,  the point of sale (POS) device
must send a currency transaction request to the client's host.

         FCC has engaged  Rahaxi  Processing Oy (the  Registrant's  wholly owned
subsidiary)  to be the processor for all  transactions  conducted in currency of
origin.  When  a POS  device  sitting  at a  merchant  location  in  France,  is
conducting a  transaction  for a  cardholder  with a card issued in the US, that
cardholder may request the  transaction to be conducted in US currency.  At that
time the terminal will switch to Rahaxi  Processing Oy, and Rahaxi Processing Oy
will provide the currency  conversion  data, which in turn is retrieved from the
clients host,  once the rates are  presented to the POS and  accepted,  then the
authorization  request is the routed to Rahaxi  Processing  Oy to be switched to
the card schemes.

         Rahaxi  Processing  Oy will provide  transaction  gateway  services and
settlement with the participating  banking  institutions.  The described process
brings an excellent  terminal base to Rahaxi  Processing  Oy and the  consequent
transaction volumes.

         The project is to be ready and in  production  by early  2005,  and the
first countries are France, Germany and the Netherlands. Future rollouts include
Italy, The UK, and Switzerland

(9)      Enhanced Transactional Secure Server
         ------------------------------------

         The Enhanced  Transactional Secure Server ("ETSS") is a secure Internet
transaction server. The ETSS system, marketed globally as PaySafeNow, integrates
a   consumer-side   card-swipe   terminal   (the   ePayPad)   with  a   back-end
host-processing  center. Thus, it facilitates encrypted transactions between the
consumer,  PaySafeNow,  the merchant  storefront and the financial  institutions
payment gateway.

         ETSS  was   developed   to  collect   and  process   secure   financial
transactions,  that have been generated by pocket  financial card  processors or
personal  devices placed in a store or customer's  home.  ETSS is the processing
center  that  communicates  with  financial  institutions  to  process  customer
requests.

         This solution  brings  multiple  advantages to the  processing  credit,
debit, ATM and other PIN-required cards.  Requiring card presence,  and entering
PIN,  which is  encrypted,  it gives added  security to the  transactions  being
placed.

         ETSS has been built on module-based  cross-platform  technology and can
be used with a wide range of different hardware and software  platforms.  It has
an on-line  administration  module,  which enables control,  reconfiguration and
even rebuilding of different  modules on fly,  without server restart.  It gives
flexibility; it is upgraded easily and has 24/7 available service. A multi-level
security  model  restricts  access to sensitive  information.  The use of strong
encryption  algorithms and protocols makes communications safe, brings trust for
clients and non-repudiation for merchants.

                                       16
<PAGE>


(c)      TECHNICAL INFRASTRUCTURE.

         For the Registrant to derive revenue outside of its Finnish operations,
the  Registrant  first had to perform a major  hardware and software  upgrade at
Rahaxi  Processing Oy, as Rahaxi  Processing Oy is the core operating  system of
the  Registrant's  products.  This upgrade was completed in December  2003,  and
evolved the Registrant's business critical systems to the latest Hewlett-Packard
("HP") NonStop  servers and BASE24  e-payment  processing  software.  HP NonStop
servers  are  estimated  to  run   approximately   95%  of  the  world's  secure
transactions,  making the NonStop  platform  the  backbone  for the world's most
demanding  and  critical  environments  and  offering  the  Registrant a secure,
continuously  available  processing  platform.  A vastly scalable  platform,  HP
NonStop  provides  the  Registrant  with the  ability  to  achieve  an  adaptive
enterprise  by  enabling it to respond  quickly and easily to changing  business
needs, such as managing the expected growing number of transactions and the need
for increased capacity.

         BASE24 software from ACI Worldwide provides the Registrant with a fast,
powerful  authorization  system.  BASE24 software offers high data integrity for
mission-critical  environments.  ACI  and HP  have a  strong  and  long-standing
relationship in e-payment implementations worldwide.

         The new system will enable the  Registrant  to meet the latest Visa and
MasterCard standards and to pave the way for EMV Europay/MasterCard/Visa ("EMV")
compliance. The Registrant will also be capable of supporting the latest Visa 3D
secure payment technology.  EMV is an agreed-upon  protocol for the introduction
of smart cards. Chip-based bank and payment cards provide a substantial increase
in the security of consumer payment transactions,  and the Registrant expects it
will be the standard  throughout Europe by 2005. EMV is also gaining momentum in
Asia and America, and promises complete global interoperability of bankcards for
consumers.  All  payment  processors  will  have to be able to  accept  payments
mediated  by smart  cards  in  order to  remain  competitive,  and  meeting  EMV
compliance  has major  implications  for all  aspects  of the  payment  handling
processes.  Management  believes  that  with  the  company's  investment  in the
upgraded  NonStop  systems  running  the  newest ACI  software,  it can meet its
projected increasing capacity needs and ensure future volume growth.

(d)      THE FINNISH MARKET.

         Long  known  as one of  the  key  protagonists  in the  development  of
electronic banking, Finland has a population 5 million and a total of 35,000 POS
terminals.  Approximately  35% of all  payments  are  made by  card.  Of  these,
approximately  70% are executed  with debit cards and the remaining 30% are made
by credit card. Visa is the predominant card brand in Finland.

         Rahaxi  Processing Oy is the only independent  payment service provider
in the country and the only provider of an online service. Terminals operated by
the Finnish banks, however, are operated in an offline mode.

                                       17
<PAGE>

         Finland boasts a plethora of advanced Internet payment  solutions,  yet
customers  must  complete  transactions  away from  retailers'  sites.  Existing
methods  are,  in  other  words,  relatively  cumbersome  and  give  Rahaxi  the
opportunity to launch more user-friendly products.

         Finland's  clearing  rules differ  favorably in comparison to the rules
applied by the banks and card organizations in most other jurisdictions. Finland
does not,  for  example,  differentiate  between  "card  present"  and "card not
present" transactions.  This means that the approximately 0.5% premium for "card
not present" transactions is not applicable in Finland.

(e)      THE INTERNATIONAL MARKET.

         Rahaxi is targeting the surrounding Baltic countries (Estonia,  Latvia,
and Lithuania) and other Central/Eastern  European markets to broaden its client
base. Through the expansion of its acquiring bank relationships,  Rahaxi intends
to market a variety of services, including a third party processing facility, in
these local markets and to international cross-border merchants.

(f)      STRATEGIC ADVANTAGES.

         Rahaxi is currently underutilized and has strong growth potential.  The
Registrant's  focus can  readily  be  redirected  from "card  present"  domestic
processing to Pan-European  eCommerce merchant  processing.  The following facts
attest to Rahaxi's tremendous future growth potential:

         (1)  Finland  has one of the  lowest  Visa/MasterCard  interchange  fee
         structures in Europe.  In the case of "card not present"  transactions,
         Finnish  interchange  is typically  0.5% less than many other  European
         countries.

         (2) Rahaxi has just started processing "card not present"  transactions
         associated with eCommerce, which is one of the fastest growing segments
         of the processing market.

         (3) Rahaxi's  customer base includes  established,  blue chip customers
         with low charge  back/retrieval rates. This opens up the opportunity of
         accepting a percentage of high margin  business,  which generally incur
         higher charge back rates.

         (4) The  introduction of the Euro has made it easier to transact across
         Europe and allows  companies  located  in other  member  states to base
         their eCommerce businesses in Finland.

         (5) Rahaxi can offer  additional  services to clients that increase the
         margin  per  customer  such  as  multi-currency  accounts  and  Dynamic
         Currency Conversion.  The Systek terminals used by Rahaxi are available
         in a GSM  version  using  the GSM  data  channel.  Deployment  in other
         markets is  technically  simple as this channel  works in all countries
         possessing GSM networks.

         (6) Being unwilling to update their systems to accommodate technologies
         such as the Internet,  chip cards, 3Dsecure and interactive television,
         etc., banks are increasingly outsourcing their payment processing.

                                       18
<PAGE>

         (7) Finland has one of the most developed mobile networks in the world,
         and is  therefore  expected  to be the first  market  to emerge  with a
         viable mobile payments environment.

(g)      OPPORTUNITY.

         In order  for  Rahaxi  to  process  increasing  volumes  of  e-commerce
traffic,  the  Registrant  intends  to  seek  to  secure  relationships  with an
additional two to three European "acquiring banks." The opportunity to acquiring
banks,  meaning banks certified to accept credit card  transactions on behalf of
merchants,  is principally the very substantial  volume of traffic  available in
the market.  The key to a sustainable  business  model in a perceived  high-risk
environment is grounded in risk management and control. It is the early stage of
a co-operation  between Rahaxi and new acquiring banks that represent the period
of highest  risk as the  merchant is still  unknown to the bank and reserves are
still in the process of being built up.

(h)      RIGHTS AND LICENSES.

        The  Registrant  processing  system relies on a  combination  of license
agreements, contractual provisions and confidentiality agreements purchased from
third party software  vendors,  such as licenses from ACI Worldwide,  HP Invent,
Fujitsu and Hypercom.  The Registrant distributes its processing system products
under those  software and  hardware  license  agreements  that  typically  grant
customers  nonexclusive  licenses  to use  the  products.  Use  of the  software
products  is usually  restricted  to  designated  computers  and POS  devices at
specified  locations  and  is  subject  to  terms  and  conditions   prohibiting
unauthorized reproduction or transfer.  Despite these precautions,  there can be
no assurance that  misappropriation  of the  Registrant's  software and hardware
products will not occur.

(i)      RESEARCH AND DEVELOPMENT.

         The   Registrant's   long-term  growth  strategy   requires   continued
development of new processing products.  The Registrant believes that the timely
development of new  applications  and  enhancements is essential to maintain its
competitive  position in the  market.  The  Registrant  works  closely  with its
customers to design systems and processes that meet their planned  technical and
production  requirements.  The Registrant's product development efforts focus on
new products and improved  versions of existing  products.  The Registrant works
closely with its customers and vendors to develop new products.

         The  Registrant  invested  in excess of $1  million  for  fiscal  2004,
against $44,000 for fiscal 2003. Key activities  during fiscal 2004 included the
upgrade of its BASE24 system form version 5.3 to version 6, the  development  of
its EMV application, and the installation of the latest HP Non Stop Server.

(j)      CUSTOMERS.

         The  Registrant  has  approximately  1,000  customers.   A  significant
percentage of the Registrant's revenue for the third quarter of fiscal 2004, and

                                       19
<PAGE>

for the first nine months of fiscal 2004, has been derived from a limited number
of the Registrant's customers,  primarily Finnish customers for the Registrant's
transaction  processing  products.  Approximately 55% of the Registrant's  total
revenue for the year ended June 30, 2004 was  attributable  to the  Registrant's
ten largest  customers,  with the company's two largest customers  accounted for
approximately 13% and 11% of its sales for the year ended June 30, 2004.

(k)      SOURCE AND SUPPLIERS.

         The Registrant's  processing  system  activities  consist  primarily of
assembling   various   commercial  and  proprietary   components  into  finished
processing systems in Helsinki, Finland. The Registrant uses numerous vendors to
supply  hardware  and software  components  and modules for the  production  and
support of its  payment  processing  products.  Although  the  Registrant  makes
reasonable  efforts to assure that  components  and modules are  available  from
multiple qualified suppliers, this is not always possible; accordingly, some key
modules and components may be obtained only from a single  supplier or a limited
group of suppliers.  The  Registrant  has sought,  and will continue to seek, to
minimize  the  risk  of  production  and  service  interruptions  by  constantly
improving  its  relationship  with key suppliers  and  monitoring  the financial
stability of those key suppliers. The Registrant's key suppliers include:

         ACI Worldwide - BASE24 Software License
         Altamedius - GSM and eWallet Enhancements
         Bitwise - XML Conversion
         DioneSystek - Terminal Manufacturer
         Fujitsu - Multi-Banking Link Software
         HP Invent - Hardware Systems
         Hypercom - POS Manufacturer  InterMart  Corporation - Hybrid Card Based
         Solutions
         Sonera - X.25 and Telecom Lines
         TietoEnator - Hardware Housing

(l)      EMPLOYEES.

         As of June 30, 2004,  the Registrant had in its employment 16 people on
a full-time basis, as well as several consultants in various specialties. Of the
total,  3 are senior  management,  3 in finance  and  accounting,  4 in software
development, 1 in project management, 2 in office administration, and 3 in sales
and marketing.

(m)      MISCELLANEOUS.

     There is no need for any government  approval of principal  products of the
Registrant.  There are no existing or probable  governmental  regulations on the
business  of  the   Registrant.   There  are  no  compliance   issues  with  any
environmental laws in connection with the Registrant's business.

                                       20

<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

OFFICES.

         The Registrant leases a 2,700 square foot office at Calle Fantino Falco
#24 Edificio J. Baez,  Ensanche Naco, Santo Domingo,  Dominican  Republic.  This
lease expired in June 2004, and this property is now leased on a  month-to-month
basis for $1,175 per month. The Registrant also leases on a month-to-month basis
office space in Helsinki,  Finland  ($1,700 per month),  and in Dublin,  Ireland
($1,500 per  month).  The  Registrant  plans to enter into  long-term  leases as
appropriate as its business plan is implemented.  The Registrant also has office
space in Geneva, Switzerland that is being provided at no cost to the company by
Carl Hessel, one of the directors.  All these offices are currently adequate for
the needs of the Registrant.

FURNITURE AND EQUIPMENT, LEASEHOLD IMPROVEMENTS, AND COMPUTERS.

         The furniture and equipment, leasehold improvements and computers owned
by the Registrant  are recorded at their  acquisition  cost and are  depreciated
using the straight-line  and declining  method.  These equipment is required for
the  day-to-day  running of the business in its  Dominican  Republic and Finland
offices, which is currently valued at $44,110 and $50,187,  respectively,  as of
June 30, 2004 and 2003.

ITEM 3.  LEGAL PROCEEDINGS.

         Other than as set forth  below,  the  Registrant  is not a party to any
material pending legal  proceedings  and, to the best of its knowledge,  no such
action by or against the Registrant has been threatened.

FREESTAR ET AL. V. DENNIS H. JOHNSTON ET AL.

         On or about  September 13, 2002, the Registrant  and  ePayLatina,  S.A.
brought  an action in the  Superior  Court for the State of  California  against
Dennis  Johnston  for  malpractice,   breach  of  fiduciary  duty;   deceit  and
declaratory relief.

         On or about  February 19,  2003,  Mr.  Johnston  filed an answer to the
complaint and an unverified  cross-complaint  alleging breach of contract, fraud
among other causes of action.

         In  May  2003,  Mr.   Johnston   filed  an  unverified   first  amended
cross-complaint  alleging  breach of contract and fraud in connection with legal
fees allegedly owed to Mr. Johnston.  The Registrant has filed an answer to that
cross-complaint.

         In August 2004,  Mr.  Johnston and his then  attorney  were  sanctioned
$5,000 for abuses of the discovery process.

         The Registrant  filed a motion for  terminating  sanctions  against Mr.
Johnston, based on his alleged abuse of the discovery process. A hearing on this
motion was held on October 26, 2004. At that hearing,  Judge Chirlin granted the
Registrant's motion for terminating  sanctions,  which

                                       21

<PAGE>

resulted in the dismissal of Mr. Johnston's  cross-complaint  with prejudice and
granting the  Registrant's  motion for a $100,000  judgment against Mr. Johnson.
This  ruling  could  still be  appealed,  but the  Registrant  is unaware of any
appeal.

VFINANCE ET AL. V. FREESTAR ET AL. (BANKRUPTCY ACTION).

         On January 9, 2003,  vFinance  Investments,  Richard  Rosenblum,  David
Stefansky,  Marc Siegel,  Boat Basin  Investors  LLC and Papell  Holdings,  Ltd.
("Petitioners") filed an involuntary  bankruptcy petition against the Registrant
alleging that the Petitioners had debts that were not the subject of a bona fide
dispute. The Petitioners sought liquidation and the appointment of a receiver.

         On March 4, 2003,  United States Bankruptcy Judge Gropper dismissed the
Petitioners' bankruptcy petition against the Registrant.  On March 21, 2003, the
Registrant  filed  its  motion  for an order  and  judgment  awarding  costs and
attorneys' fees in favor of the Registrant  against the Petitioners  pursuant to
11  U.S.C.  ss.  303(i).  On or about  April 21,  2003,  the  parties  reached a
settlement  to resolve the 11 U.S.C.  ss.303(i)  (1) issues in that motion.  The
Petitioners  owed  and  paid  the  Registrant  $40,000  in  satisfaction  of the
settlement.

VFINANCE ET AL. V. FREESTAR ET AL. (CIVIL ACTION).

         On or about January 22, 2003, vFinance Investments,  Richard Rosenblum,
David  Stefansky,  Marc Siegel,  Boat Basin Investors LLC, and Papell  Holdings,
Ltd.  (collectively,  "Plaintiffs")  filed a complaint  against Paul Egan, First
American  Stock  Transfer  and Phil Young,  president  of First  American  Stock
Transfer,  in the United States District Court for the Southern  District of New
York  alleging,  among other claims,  fraud,  conversion  and  violations of the
Securities  Exchange Act of 1934. In addition to unspecified money damages,  the
Plaintiffs  sought an affirmative  preliminary  injunction  against Mr. Egan and
First American Stock Transfer seeking the removal of restrictive  legends placed
on 14,400,000  unregistered  shares of Registrant stock purportedly owned by the
Plaintiffs. The Registrant was not named in the suit. The Registrant opposed the
affirmative  injunctive  action on the grounds that removal of the legends would
constitute a violation of the registration  provisions of the federal securities
laws and that the Registrant was an indispensable party.

         On or about March 19,2004, the parties filed a stipulation of dismissal
of the  case  with  prejudice.  Under  the  terms of the  settlement  agreement,
Plaintiffs  returned  15,400,000  Registrant  shares  previously  issued to them
(14,400,000  by Paul  Egan and  1,000,000  by the  Registrant)  and all  parties
exchanged full mutual  releases of all claims,  cross-claims  and  counterclaims
with prejudice.  There are no remaining  contingent  liabilities related to that
lawsuit.

SPORTINGHET PLC V. FREESTAR TECHNOLOGY CORPORATION.

         On  May 7,  2004,  Sportingbet,  PLC  filed  a  complaint  against  the
Registrant in the Clark County Nevada  Superior  Court.  The complaint  alleges,
among other things, that the Registrant breached a settlement agreement and debt
guarantee. Sportingbet has alleged damages in excess

                                       22

<PAGE>

of $10,000, to be proven at trial.  Sportingbet also sought immediate possession
of  7,100,592  Registrant  shares  under a payment  guarantee  and stock  pledge
agreement.

         On June  14,2004,  the  Registrant  filed an  answer  and  counterclaim
seeking damages in excess of $1,400,000.

         Management  believes the Registrant has meritorious claims and defenses
to Sportingbet's claims and ultimately will prevail on the merits. However, this
matter  remains in the early stages of litigation  and there can be no assurance
as  to  the  outcome  of  the  lawsuit.   Litigation   is  subject  to  inherent
uncertainties,  and unfavorable rulings could occur. Were unfavorable rulings to
occur,  there  exists  the  possibility  of a material  adverse  impact of money
damages on the  Registrant's  financial  condition,  results of  operations,  or
liquidity of the period in which the ruling occurs, or future periods.

DIAMOND CLUB OF AMERICA, INC. V. FREESTAR TECHNOLOGY CORPORATION.

         On April 6, 2004,  Diamond  Club of  America,  Inc.  filed a  complaint
against  the  Registrant  in the  Suffolk  County New York  Supreme  Court.  The
complaint  alleges,  among other things,  that the Registrant  owes Diamond Club
$35,410.45 pursuant to an agreement between Diamond Club and TransAxis,  Inc. or
a predecessor company of TransAxis,  Inc. The Registrant,  in turn, asserts that
as a minority  stockholder in TransAxis it is not  responsible  for the debts of
that company.

         Management  believes the Registrant has meritorious claims and defenses
to Diamond  Club's claims and  ultimately  will prevail on the merits.  However,
this  matter  remains  in the  early  stages of  litigation  and there can be no
assurance  as to the outcome of the lawsuit.  Litigation  is subject to inherent
uncertainties,  and unfavorable rulings could occur. Were unfavorable rulings to
occur,  there  exists  the  possibility  of a material  adverse  impact of money
damages on the  Registrant's  financial  condition,  results of  operations,  or
liquidity of the period in which the ruling occurs, or future periods.

SHELLY SINGHAL V. FREESTAR TECHNOLOGY CORPORATION.

         On August 24, 2004, Shelly Singhal,  a former investment banker for the
Registrant, filed a lawsuit in the Clark County Nevada Superior Court for breach
of contract,  breach of covenant of fair dealing,  civil conspiracy and specific
performance.  The banker  claims that he is  entitled  to a fee for  services of
10,000,000  unrestricted shares of the Registrant's common stock. On October 20,
2004,  Mr. Singhal  sought  summary  judgment on his complaint.  That motion was
denied in its entirety.

         Management  believes  the Company  has meritorious claims  and defenses
to Mr. Singhal's claims and ultimately will prevail on the merits. However, this
matter  remains in the early stages of litigation  and there can be no assurance
as  to  the  outcome  of  the  lawsuit.   Litigation   is  subject  to  inherent
uncertainties,  and unfavorable rulings could occur. Were unfavorable rulings to
occur,  there  exists  the  possibility  of a material  adverse  impact of money
damages on the  Registrant's  financial  condition,  results of  operations,  or
liquidity of the period in which the ruling occurs, or future periods.

                                       23

<PAGE>

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION.

         In January 2003,  the Registrant was advised by the staff of the Denver
office of the Securities and Exchange  Commission  ("SEC") that it had initiated
an  informal,  non-public  inquiry.  Since that  time,  the staff has sought and
received  production of documents and  testimony  relating to certain  financing
transactions entered into by the Registrant, issuance of its stock in compliance
with the  registration  provisions,  facts stated in press  releases and reports
filed with the  Commission  concerning,  among other  things,  the  Registrant's
assets,  operations,  financial  condition,  anticipated  revenue and  strategic
initiatives.

         In July 2003, the  Registrant  learned that the SEC had issued a formal
order of investigation.  There is a risk that an enforcement  proceeding will be
recommended  by  the  staff  of  the  Commission  as a  result  of  this  formal
investigation. Enforcement proceedings could include allegations by the SEC that
the  Registrant  violated  the  anti-fraud,  registration  and books and records
provisions of federal  securities laws, and the rules  thereunder.  However,  it
cannot  be  predicted  with  certainty  what  the  nature  of  such  enforcement
proceeding  would be, the type of  sanctions  that might be sought,  or what the
likelihood  would be of  reaching  a  settlement.  The  Registrant  has been and
expects to continue to cooperate with the ongoing SEC investigation.

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

         None.

PART II.

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION.

         From August 4, 2000  through  March 2, 2001,  the  Registrant's  common
stock was traded on the Over the Counter Bulletin Board under the symbol "FRSH".
From March 5, 2001  through  February  26, 2003 the  Registrant's  common  stock
traded under the symbol "FSTI"  (reflecting  the name change from "Freedom Surf,
Inc."  to  "Freestar  Technologies").  After  that  date  to  the  present,  the
Registrant's  common stock has traded under the symbol  "FSRC"  (reflecting  the
name change from "Freestar Technologies" to "FreeStar Technology  Corporation").
The range of  closing  prices  shown  below is  reported  while  trading  on the
Bulletin Board. The quotations shown reflect inter-dealer prices, without retail
mark-up,  markdown  or  commission  and may  not  necessarily  represent  actual
transactions.

                                       24

<PAGE>

Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended June 30, 2004

                                                             High        Low
                                                             -----       ----
Quarter Ended June 30, 2004                                  0.19        0.067
Quarter Ended March 31, 2004                                 0.285       0.14
Quarter Ended December 31, 2003                              0.236       0.04
Quarter Ended September 30, 2003                             0.085       0.03

Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended June 30, 2003

                                                             High        Low
                                                             -----       ----
Quarter Ended June 30, 2003                                  0.23        0.08
Quarter Ended March 31, 2003                                 0.20        0.10
Quarter Ended December 31, 2002                              0.11        0.04
Quarter Ended September 30, 2002                             0.12        0.05

HOLDERS OF COMMON EQUITY.

         As  of  October  4,  2004,  the  Registrant   had   approximately   247
shareholders of record of its common stock.

DIVIDEND INFORMATION.

         The Registrant has not declared or paid a cash dividend to stockholders
since it was  incorporated.  The board of directors  presently intends to retain
any earnings to finance  Registrant  operations and does not expect to authorize
cash dividends in the foreseeable  future.  Any payment of cash dividends in the
future will depend upon the  Registrant's  earnings,  capital  requirements  and
other factors.

SALES OF UNREGISTERED SECURITIES.

         The Registrant made the following  sales of  unregistered  (restricted)
securities during the fourth quarter of the fiscal year ended on June 30, 2004:

            (a) In April 2004, the Registrant issued 1,000,000 restricted shares
of common  stock with a fair value of $190,000  ($0.19 per share) to an employee
for services to be performed  through April 2005.  The  Registrant  recorded the
amount of $45,288 as non-cash  compensation and increased deferred  compensation
by the amount of $144,712.

         (a) On April 29, 2004, the  Registrant  issued 300,000 shares of common
stock to a law firm for  legal  services  rendered  to the  company,  valued  at
$30,000 ($0.10 per share).

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<PAGE>

         (b) On May 4, 2004, the Registrant  issued  10,000,000 shares of common
stock in connection with an Asset Purchase  Agreement  entered into with Unipay,
Inc.  and Unicomp,  Inc.,  sole  shareholder  of Unipay.  On June 14, 2004,  the
Registrant  informed  the seller that due to the  failures  of these  parties to
perform as required under the Agreement,  including blocking access to the North
Carolina  premises,  preventing  transfer  of  assets,  and  failing  to deliver
business  and other  documents,  the purchase  transaction  is  terminated.  The
Registrant  paid  $25,000  in  connection  with the  Agreement  and  issued  the
10,000,000  restricted  shares;  the company  expects to recover the  10,000,000
shares and will cancel them upon receipt.

         (c) On June 11, 2004, the Registrant issued 10,000,000 shares of common
stock to Margaux Investment  Management Group S.A. in connection with consulting
services rendered to the company, valued at $500,000 ($0.05 per share).

         (d) On June 29, 2004, the Registrant  issued 5,000,000 shares of common
stock to one individual for consulting services to be performed for the company,
valued at $350,000 ($0.07 per share).

         No commissions  were paid in connection with any of these sales.  These
sales were undertaken under Rule 506 of Regulation D under the Securities Act of
1933. Each of the transactions did not involve a public offering and each of the
investors represented that he/she was a "sophisticated" or "accredited" investor
as defined in Rule 502 of Regulation D.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         The  following  discussion  and  analysis of  financial  condition  and
results of  operations of the  Registrant  is based upon,  and should be read in
conjunction  with,  its audited  consolidated  financial  statements and related
notes  included  elsewhere  in this Form  10-KSB,  which have been  prepared  in
accordance with accounting principles generally accepted in the United States

OVERVIEW.

         The e-payments  and  e-commerce  market is composed of debit and credit
card  issuers,  switch  interchanges,   transaction  acquirers  and  transaction
generators, including Automated Teller Machine ("ATM") networks, retail merchant
locations and the Internet. The routing, control and settlement of e-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 are
typically  performed  online and must be conducted 24 hours a day,  seven days a
week.

         The  Registrant's  products  and  services  are  primarily  focused  on
facilitating   electronic   payments   ("e-payments")  and  electronic  commerce
("e-commerce").  These  products and services are used  principally by financial
institutions,   retailers,  and  e-payment  processors,  both  in  domestic  and
international markets.

                                       26

<PAGE>

         The Registrant intends to increase its operations from its core payment
processing  products,  which  include:  (1)Authorization:  transaction  fees  it
receives from processing online point of sale terminal transactions; (2) Sale of
Point of Sale Solutions:  sales of Point of Sale terminals as well as integrated
cash register  systems;  (3) transaction fees stemming from its Internet Payment
Gateway;  (4) Dynamic Currency  Conversion credit card services to merchants and
acquiring  banks (the  company  will provide  transaction  gateway  services and
settlement with participating  banking  institutions);  (5) Private Label Cards:
transaction  management  services provided for a private label card issuer;  and
(6) Consulting Fees: consulting services provided to financial  institutions and
merchants.  The  Registrant's  revenue for the 12 months ended June 30, 2004 was
primarily generated from the transaction fees through its Finland operations.

         For the Registrant to derive revenue outside of its Finnish operations,
the  Registrant  first had to perform a major  hardware and software  upgrade at
Rahaxi,  as Rahaxi is the core operating  system of the  Registrant's  products.
This  upgrade was  completed  in  December  2003,  and evolved the  Registrant's
business critical systems to the latest  Hewlett-Packard  ("HP") NonStop servers
and BASE24 e-payment  processing  software.  HP NonStop servers are estimated to
run  approximately  95% of the world's secure  transactions,  making the NonStop
platform the backbone for the world's most  demanding and critical  environments
and  offering  the  Registrant  a  secure,   continuously  available  processing
platform.  A vastly scalable  platform,  HP NonStop provides the Registrant with
the ability to achieve an adaptive  enterprise by enabling it to respond quickly
and easily to changing  business  needs,  such as managing the expected  growing
number of transactions and the need for increased capacity.

         BASE24 software from ACI Worldwide provides the Registrant with a fast,
powerful  authorization  system.  BASE24 software offers high data integrity for
mission-critical  environments.  ACI  and HP  have a  strong  and  long-standing
relationship in e-payment implementations worldwide.

         The new system will enable the  Registrant  to meet the latest Visa and
MasterCard standards and to pave the way for EMV Europay/MasterCard/Visa ("EMV")
compliance. The Registrant will also be capable of supporting the latest Visa 3D
secure payment technology.  EMV is an agreed-upon  protocol for the introduction
of smart cards. Chip-based bank and payment cards provide a substantial increase
in the security of consumer payment transactions,  and the Registrant expects it
will be the standard  throughout Europe by 2005. EMV is also gaining momentum in
Asia and America, and promises complete global interoperability of bankcards for
consumers.  All  payment  processors  will  have to be able to  accept  payments
mediated  by smart  cards  in  order to  remain  competitive,  and  meeting  EMV
compliance  has major  implications  for all  aspects  of the  payment  handling
processes.  Management  believes  that  with  the  company's  investment  in the
upgraded  NonStop  systems  running  the  newest ACI  software,  it can meet its
projected increasing capacity needs and ensure future volume growth.

         The Registrant,  under the current  management,  began  generating more
revenue since its  acquisition  of Rahaxi  Processing  Oy. in January 2003.  Its
business  is rapidly  changing,  and it expects the coming  twelve  months to be
quite  different from the previous  twelve months as the company makes ready and
further  rolls-out  its  products  and  services.  This process will require the
Registrant to react quickly to problems and opportunities as they arise, and may
involve costs that

                                       27

<PAGE>

it does not  currently  anticipate.  The  Registrant  also  expects that further
acquisitions may help it to quickly move forward in achieving its goals.

RESULTS OF OPERATIONS  FOR THE TWELVE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE
TWELVE MONTHS ENDED JUNE 30, 2003.

(a)      REVENUE.

         The  Registrant  had revenue of $1,333,826  for the twelve months ended
June 30, 2004  compared to revenue of $563,832  during the twelve  months  ended
June 30, 2003, an increase of $769,994,  or  approximately  136%.  The increased
revenue is mainly due to the revenue  derived as a result of the  acquisition of
Rahaxi  Processing Oy. The  Registrant did not own Rahaxi  Processing Oy. during
the entire comparable period in the prior year.

         The  majority of the  Registrants  revenue for the twelve  months ended
June 30, 2004 was from indirect merchant services, where revenue is generated on
services primarily priced on a specified amount per transaction.  The Registrant
believes that for fiscal 2005 it will also derive  revenue from direct  merchant
services which revenue is generated on services primarily priced as a percentage
of the transaction value.

         During the twelve  months  ended June 30, 2004,  revenue was  primarily
generated  from its  customers in Finland.  The  Registrant  expects to derive a
significant  portion of its  expected  revenue  for fiscal  2005 from  customers
outside of Finland with the introduction of its new Dynamic Currency  Conversion
services and its cross border acquiring activities

         The Registrant believes that the concentration on revenue from indirect
merchant  services will be diluted in fiscal 2005 as the company  introduces new
products  and  services,  such  as the  sale of  Point  of  Sale  terminals  and
transaction management services it provides for a private label card issuers,

         The Registrant  expects revenue levels to increase  throughout the next
twelve  months  as the  company  continues  to roll out its  service  offerings;
however,  there can be no  guarantee  that our  product  will be accepted in the
marketplace  or that our sales  effort will be  successful.  Please see "Factors
That May Affect Operating Results."

(b)      COST OF REVENUE.

         Cost of revenue was  $1,227,915  for the twelve  months  ended June 30,
2004 compared to $490,387 for the twelve months ended June 30, 2003, an increase
of $737,528 or approximately 150%. Cost of revenue increased in the current year
compared to the prior year because the Registrant generated revenue and incurred
the costs of revenue  during only six of the twelve  months  ended June 30, 2003
compared to the entire twelve month period ended June 30, 2004. The Registrant's
Rahaxi subsidiary also upgraded its processing platform during the twelve months
ended June 30, 2004, and this resulted in increased costs.

                                       28
<PAGE>


         Cost of revenue can be expected to increase in the coming twelve months
if the company  continues its current trend of increasing  sales. The Registrant
also  intends  to  expand  its  service  offering,  and its  business  mix  will
necessarily change; for this reason,  gross margin as a percent of sales may not
remain constant.

(c)      NON-CASH COMPENSATION.

         During the year ended June 30, 2004, the Registrant recorded $4,765,365
in non-cash compensation,  which was a decrease of $3,839,703,  or approximately
45%,  compared to $8,605,068 in non-cash  compensation  recorded during the year
ended June 30, 2003.  The primary  components  of the decrease were fewer shares
and options issued as compensation to consultants,  as well as a decrease in the
number of shares issued as compensation to officers and directors.

         The Registrant  expects  non-cash  compensation  to increase during the
coming twelve  months.  The  Registrant's  expected  continued  expansion in its
various  geographic markets will create a growing need for local consultants and
advisors  that  will be  satisfied  in  large  part via  non-cash  compensation.
Management  intends to continue  to utilize  non-cash  compensation  in order to
conserve cash.

(d)      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.

         Selling,  general and administrative  expenses ("SG&A") were $2,366,195
for the year ended June 30, 2004, an increase of $685,526, or approximately 41%,
compared  to  $1,680,669  for the year  ended June 30,  2003.  During the twelve
months ended June 30, 2004,  the primary  components of SG&A were:  depreciation
and  amortization  of  approximately  $530,000 as the  Registrant  upgraded  its
processing platform and continued to add to its infrastructure; payroll expenses
of approximately $417,000;  legal and accounting fees of approximately $330,000,
primarily due to ongoing  litigation,  as well as the Rahaxi  acquisition and as
other  potential  acquisition  due diligence;  cash paid for consulting  fees of
approximately $349,000; travel and entertainment costs of approximately $222,000
due to the focus on its Finland  subsidiary and the Finnish  market;  facilities
expense (rent, telephone,  utilities, and building maintenance) of approximately
$142,000; merchant services of approximately $63,000 as the Registrant continued
to roll out its services in the European market; and investor relations expenses
of approximately $46,000.

         The  rate  of  future  SG&A  will  largely  depend  on the  pace of the
Registrant'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 and  acquisitions.  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 Registrant intends to focus additional resources in the areas of
sales  personnel  salaries,  trade  show  participation,  and other  promotional
expenses.  In addition,  the Registrant 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.

                                       29

<PAGE>


(e)      LOSS ON INVESTMENT

         Loss on  investment  was  $100,000  for the year ended  June 30,  2004,
compared to $0 for the year ended June 30, 2003.

         During the twelve months ended June 30, 2004, the  Registrant  advanced
cash in the amount of $25,000 to Unipay,  Inc., a potential  acquisition target.
In June 2004, the Registrant made the decision not to pursue Unipay,  Inc. as an
acquisition candidate and wrote-off the $25,000 advance to loss on investment in
the consolidated statement of operations for the twelve months ended June, 2004.

         On June 17, 2004, the Registrant  terminated the TransAxis  acquisition
agreement and wrote-off a Note Receivable from TransAxis,  Inc. in the amount of
$75,000 as loss on investment in the  consolidated  statement of operations  for
the twelve months ended June 30, 2004.

(f)      GAIN ON SETTLEMENT

         Gain on  settlement  was  $825,459  for the year ended  June 30,  2004,
compared to $0 for the year ended June 30, 2003.

         In  December  2002,  a lender  group  exercised  their  rights  against
14,400,000   shares   pledged  by  the  president  of  the  Registrant  in  full
satisfaction  of  outstanding  notes  payable to this lender  group of $637,000,
interest payable of $18,569, and accrued penalties of $24,300 totaling $679,869.

         In March 2004,  this lender group  entered into a settlement  agreement
with the Registrant (see "Legal Proceedings").  As part of the settlement,  this
lender group  returned the  14,400,000  pledged  shares to the  president of the
company and the company is relieved from any other  indebtedness  to this lender
group. Prior to this settlement,  the Registrant considered the notes payable of
$679,869  and  related  interest  of $47,590  totaling  $727,459  payable to the
president related to the his 14,400,000 shares given to this lender group.

         In  addition,  this  lender  group  returned  1,000,000  shares  to the
Registrant  that was issued to this lender group as collateral for borrowings in
June 2002. The  Registrant  recorded an additional  gain on legal  settlement at
cost based on the date of the issuance, or $98,000.

         Thus,  the  Registrant  recognized  a  gain  on the  settlement  of the
vFinance  lawsuit of $825,459  during the twelve months ended June 30, 2004, and
had no such gain during the comparable periods of the prior year.

(g)      INTEREST EXPENSE.

         The Registrant  recognized  net interest  expense of $35,083 during the
twelve months ended June 30, 2004, a decrease of $363,808 or approximately  91%,

                                       30
<PAGE>

compared to interest  expense of $398,891  for the twelve  months ended June 30,
2003.  The reason for this  decrease is lower  borrowings  during the year ended
June  30,  2004.  The  Registrant  had  outstanding  convertible  debentures  of
approximately  $600,000  during the year ended June 30,  2003 that were  settled
with  common  stock  personally  owned  by the  president  of the  company.  The
Registrant  recorded a liability to its  president in the amount of $679,869 and
accrued  interest  on this  amount  at the rate of 7% per  annum  in 2003.  This
liability was eliminated during the twelve months ended June 30, 2004,  pursuant
to the vFinance settlement agreement.  Also, during the twelve months ended June
30, 2004,  the company had reduced  balances due to related  parties for amounts
advanced to the Registrant. In addition, during the twelve months ended June 30,
2003,  interest expense included  substantially  higher interest charges for the
convertible debentures,  including amortization of an amount attributable to the
beneficial conversion feature of those instruments.

         Currently, the Registrant is utilizing equity financing partly in order
to avoid the interest charges associated with debt financing.  Accordingly,  the
Registrant 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 for the  Registrant's  stock  could  change,  forcing  the company to
pursue  alternative  methods of financing the company's cash needs; in addition,
the  Registrant  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.

(h)      MISCELLANEOUS.

         The Registrant recorded no miscellaneous  income and expense during the
twelve  months ended June 30, 2004 compared to  miscellaneous  income of $68,404
during the comparable  period of 2003. The Registrant  received a non-refundable
deposit of $50,000  during the twelve months ended June 30, 2003 (in  connection
with an informal agreement to enter into an alliance agreement,  which was never
finalized), and had no such transaction during the comparable period of 2004.

         The Registrant does not anticipate  material increases in miscellaneous
income or expense in the coming twelve months.

(i)      NET LOSS.

         For the reasons  stated above,  the  Registrant  recorded a net loss of
$6,335,273  for the  twelve  months  ended  June 30,  2004,  an  improvement  of
$5,107,106 or approximately 45% compared to the net loss of $11,442,379 realized
during the twelve months ended June 30, 2003.

         A significant percentage of the Registrant's revenue for the year ended
June  30,  2004 has been  derived  from a  limited  number  of the  Registrant's
customers,   primarily  Finnish  customers  for  the  Registrant's   transaction
processing products. Approximately 55% of the Registrant's total revenue for the

                                       31
<PAGE>

year  ended June 30,  2004 was  attributable  to the  Registrant's  ten  largest
customers,  with the company's two largest customers accounted for approximately
13% and 11% of its sales for the year ended June 30,  2004.  The future  loss of
any major  customer  could have a material  adverse  effect on the  Registrant's
business, financial condition and results of operations. The Registrant believes
that this  customer  concentration  may be diluted in fiscal  2005 as it pursues
operations outside of Finland.

         The majority of Registrant's  revenues for the year ended June 30, 2004
has been  generated  by its  operations  outside of the United  States,  and the
Registrant's  future growth rates and success are in part dependent on continued
growth and success in international  markets.  The Registrant expects this trend
to continue through the fiscal year 2005.

         The  Registrant  may continue to incur  losses on both a quarterly  and
annual  basis.  In  addition,  the  Registrant  expects  to  continue  to  incur
significant costs of services and substantial operating expenses. Therefore, the
Registrant will need to significantly increase revenues to achieve profitability
and a positive cash flow. The Registrant may not be able to generate  sufficient
revenues to achieve profitability. The Registrant expects losses to continue for
at least the next twelve months.

         The Registrant will attempt to continue to fund its operations  through
debt and equity financing until it achieves profitability,  of which there is no
guarantee.  The  Registrant  expects  these  concerns  regarding  its  perceived
viability to continue throughout the fiscal year 2004.

COMMITMENTS.

<TABLE>
<CAPTION>
                                  Less Than       One to      Three to       After Five
                      Total        One Year     Three Years   Four Years       Years
                    ----------    ----------    ----------    -----------   -----------
<S>                 <C>          <C>           <C>            <C>           <C>
Employment
Agreements          $  810,000    $  270,000    $  540,000      $ --         $ --
Operating Leases       620,862       206,954       413,908        --           --
                    ----------    ----------    ----------      ------        ------
   Total            $1,430,862    $  476,954    $  953,908      $ --         $ --
                    ==========    ==========    ==========      ======        ======
</TABLE>

FACTORS THAT MAY AFFECT OPERATING RESULTS.

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

o        market acceptance of and changes in demand for products and services;

o        a small  number of customers  account  for,  and may in future  periods
         account for,  substantial  portions of the  Registrant's  revenue,  and
         revenue  could  decline  because  of delays of  customer  orders or the
         failure to retain customers;

                                       32
<PAGE>

o        gain or loss of clients or strategic relationships;

o        announcement  or  introduction  of new  services  and  products  by the
         Registrant or by its competitors;

o        price competition;

o        the  ability to upgrade  and  develop  systems  and  infrastructure  to
         accommodate growth;

o        the ability to introduce and market products and services in accordance
         with market demand;

o        changes in governmental regulation; and

o        reduction in or delay of capital spending by clients due to the effects
         of terrorism, war and political instability.

         The Registrant  believes that its planned 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  Registrant
intends to invest in marketing,  strategic partnerships,  and development of its
client base. If the  Registrant 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 Registrant 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
Registrant's  competitors for POS systems include  VeriFone and Ingenico amongst
others, and companies such as Global Payments, First Data and Euroconnex for the
Registrant's  electronic payment software. In addition,  the companies with whom
we have  strategic  relationships  could  develop  products or  services,  which
compete with the Registrant's products or services. In addition some competitors
in the  Registrant's  market  have  longer  operating  histories,  significantly
greater financial,  technical,  marketing and other resources, and greater brand
recognition  than  the  company  does.  The  Registrant  also  expects  to  face
additional  competition as other  established  and emerging  companies enter the
market for  electronic  payment  solutions.  To be  competitive,  the Registrant
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 Registrant's expenses and affect
its  profitability.  In  addition,  if it fails  to make  this  investment,  the
Registrant may not be able to compete  successfully with its competitors,  which
could have a material adverse effect on its revenue and future profitability.

                                       33
<PAGE>


(b)      TECHNOLOGICAL AND MARKET CHANGES.

         The markets in which the Registrant 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
Registrant'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  Registrant  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  Registrant  to modify  existing
products.  There is also the risk to the Registrant  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.

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

         The Registrant'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  Registrant's  products.  The
Registrant has in the past  discovered  software  errors in its new releases and
new products after their introduction.  The Registrant has experienced delays in
release,  lost revenues and customer  frustration  during the period required to
correct these  errors.  The  Registrant  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 Registrant's business, cash
flow,  financial  condition  and  results  of  operations  could  be  materially
adversely affected.

(d)      NO ASSURANCE OF SUCCESSFUL AND TIMELY PRODUCT DEVELOPMENT.

         The  Registrant'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  Registrant's  product  development
efforts will be successfully  completed.  The Registrant's  proposed development
schedule  may be  affected  by a variety of  factors,  many of which will not be
within the  control of the  Registrant,  including  technological  difficulties,
access to  proprietary  technology of others,  delays in  regulatory  approvals,

                                       34
<PAGE>

international  operating licenses, and the availability of necessary funding. In
light of the foregoing  factors,  there can be no assurance  that the Registrant
will be  able to  complete  or  successfully  commercialize  its  products.  The
inability of the  Registrant to  successfully  complete the  development  of new
products or to do so in a timely  manner,  could force the  Registrant  to scale
back operations, or cease operations entirely.

(e)      MARKET ACCEPTANCE.

         The Registrant's  success is dependent on the market  acceptance of its
products.  Despite the increasing demand for security devices,  the Registrant's
products represents an advanced approach to the industry,  and market acceptance
of the  company's  products  will be  dependent,  among other  things,  upon its
quality, ease of use, speed,  reliability,  and cost effectiveness.  Even if the
advantages of the Registrant'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  Registrant'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 Registrant  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 Registrant,  that others will not develop a service
that are similar or superior to the Registrant's, or that third parties will not
copy  or  otherwise  obtain  and use the  Registrant's  proprietary  information
without  authorization.  In addition,  certain of the Registrant's  know-how and
proprietary technology may not be patentable.

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

         There is a risk that some of the Registrant's products may infringe the
proprietary  rights  of  third  parties.   In  addition,   whether  or  not  the
Registrant'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 Registrant,  it may be required to modify its products
or seek licenses for these intellectual  property rights. The Registrant may not
be able to modify its  products or obtain  licenses on  commercially  reasonable
terms,  in a timely  manner or at all. The  Registrant's  failure to do so could
have a negative affect on its business and revenues.

(g)      DEPENDENCE ON SUPPLIERS.

         The Registrant depends upon a number of suppliers for components of its
products.  There is an inherent  risk that certain  components  of the company's

                                       35
<PAGE>

products  will  be   unavailable   for  prompt   delivery  or,  in  some  cases,
discontinued.  The  Registrant  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  Registrant  is unable to obtain  components in a
timely manner,  at an acceptable cost, or at all, the company may need to select
new  suppliers,  redesign or  reconstruct  processes  used to build its security
devices.  In such an instance,  the Registrant  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.

(h)      ECONOMIC SLOWDOWN.

         The  world  economy  in  general,  and the  United  States  economy  in
particular have experienced a prolonged downturn for electronic payment products
which the Registrant believes has adversely affected demand for its products and
has made it increasingly difficult to accurately forecast future revenues. While
it is seeing  indications that the economic outlook is no longer  deteriorating,
the Registrant cannot predict the extent,  timing or duration of any improvement
in the economies where it sells its products.  Further,  the Registrant  expects
that its revenue during fiscal 2005 will be significantly affected by the timing
and success of the  introduction  of new products and services during the fiscal
year.

(i)      KEY PERSONNEL.

         The Registrant's  success is largely  dependent on the personal efforts
and  abilities  of its senior  management.  The loss of  certain  members of the
Registrant'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 Registrant intends to recruit in fiscal year 2005 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 Registrant's  business. As a result,
the  Registrant  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.

(g)      LITIGATION.

         As stated  under  Legal  Proceedings,  the  Registrant  is subject to a
lawsuit and a regulatory investigation. It is possible that one or more of these
matters  could be  resolved in a manner  that  ultimately  would have a material
adverse impact on the Registrant's  business,  and could  negatively  impact its
revenues, operating margins, and net income.

                                     36

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES.

         The Registrant had a working capital deficit of $972,619 as of June 30,
2004, which is an improvement of $267,773,  or approximately  22%, compared to a
working  capital  deficit of $1,240,392 as of June 30, 2003.  The Registrant has
needed to  continually  raise  capital  through  private  offerings  to fund its
operations.

         During the twelve months ended June 30, 2004, the Registrant sold a net
of  189,400,000  shares of common  stock for  consideration  of  $2,077,300,  an
average price of approximately  $0.012 per share.  The Registrant  received cash
proceeds of $1,576,548 (net of direct  financing  costs and  commissions).  The
unpaid  portion  ($500,753)  is  included  in  subscription  receivable  in  the
accompanying consolidated balance sheet as of June 30, 2004. The Registrant also
sold 19,000,000  shares of common stock pursuant to the exercise of warrants and
options for net  proceeds of  $842,000,  or an average cost per share of $0.044.
The Registrant received cash proceeds of $387,500 during the year ended June 30,
2004; the balance is included in  subscriptions  receivable in the  accompanying
consolidated balance sheet as of June 30, 2004.

         The Registrant  recognizes the need for the infusion of cash during the
next twelve months.  The Registrant is pursuing various financing  options.  The
company relies  heavily upon the market  liquidity of its stock as traded on the
Over the Counter  Bulletin Board for its ability to raise funds, for its ability
to consummate acquisitions, and for the use of non-cash compensation for many of
the company's  consultants.  Should the Registrant experience a weakening in the
market for its common stock,  both its  short-term  liquidity and its ability to
achieve its long-term strategy could be adversely affected.

         Thus,  the   Registrant's   continued   operations,   as  well  as  the
implementation  of its  business  plan,  will  depend  upon its ability to raise
additional  funds  through  bank  borrowings,  equity  or  debt  financing.  The
Registrant  estimates that it will need to raise  approximately  $5,000,000 over
the next twelve months for such  purposes.  However,  adequate  funds may not be
available  when  needed  or may  not be  available  on  favorable  terms  to the
Registrant.  The ability of the  Registrant  to  continue as a going  concern is
dependent  on  additional  sources of capital and the  success of the  company's
business  plan.  The  notes to the  audited  consolidated  financial  statements
contained  in this  Form  10-KSB  for the  year  ended  June 30,  2004,  include
substantial  doubt paragraphs  regarding the company's  ability to continue as a
going concern.

         If funding is  insufficient  at any time in the future,  the Registrant
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:

o        curtail operations significantly;

o        sell significant assets;

                                       37

<PAGE>

o        seek  arrangements  with  strategic  partners or other parties that may
         require  the  company to  relinquish  significant  rights to  products,
         technologies or markets; or

o        explore other strategic  alternatives including a merger or sale of the
         company.

         To the extent that the Registrant raises additional capital through the
sale of equity or convertible debt  securities,  the issuance of such securities
will result in 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 Registrant's  operations.  Regardless
of whether the  Registrant's  cash  assets  prove to be  inadequate  to meet the
company's  operational needs, the Registrant may seek to compensate providers of
services  by  issuance  of stock in lieu of cash,  which  will  also  result  in
dilution to existing shareholders.

CERTAIN INDEBTEDNESS.

         (a) The  Registrant's  president  and a  shareholder,  Paul  Egan,  has
advanced funds to the company for its operations. These amounts include advances
of $0 and accrued interest of $22,658 at June 30, 2004, and advances of $240,389
and accrued interest of $50,853 at June 30, 2003.

         The  Registrant's  chief  financial  officer and a shareholder,  Ciaran
Egan,  has  advanced  funds to the company  for its  operations.  These  amounts
include advances of $30,000 and accrued interest of $178 at June 30, 2004. There
were no such advances or accrued interest by Ciaran Egan at June 30, 2003.

         The  Registrant  expects to repay these  amounts as soon as  sufficient
cash flow from  operations  is  generated.  Interest  on the unpaid  balances is
accrued at the rate of 7% per annum.

         (b) The  Registrant had an unsecured note payable with Banc Nacional de
Credito,  a Dominican Republic bank, of $0 and $5,091 at June 30, 2004 and 2003,
respectively.  The note  carried  an  interest  rate of 48% and was paid in full
during the twelve months ended June 30, 2004.

         (c) On March 25, 2002, the Registrant entered into financing agreements
with Boat Basin Investors LLC and Papell  Holdings,  Ltd. Under the terms of the
agreements,  the  Registrant  issued 8%  convertible  notes payable to these two
parties, in the amounts of $70,000 and $200,000. These convertible notes matured
on March 1,  2003 and were  collateralized  by  4,000,000  restricted  shares of
common stock  pledged by the majority  stockholder.  The notes were  convertible
after 61 days into common  stock at the lower of 80% of the average  closing bid
price at the conversion  date. If the Registrant,  at any time while these notes
are outstanding,  does any of the following,  (a) pay stock dividend or any form
of  distributions  on common  shares,  (b) subdivide  outstanding  shares of the
common stock into a larger number of shares,  (c) combine  outstanding shares of
the common stock into smaller number of shares, or (d) issue by reclassification
of shares of common  stock any shares of capital  stock of the  Registrant,  the
conversion price shall be revised per a pre- defined formula.  During the period
ended June 30, 2002, none of the principal amount was converted to common stock.
The  interest is payable on the earlier of the  conversion  date of the notes or

                                       38

<PAGE>

the  maturity  date with any  unpaid  interest  at an  accelerated  rate of 18%.
Furthermore, the Registrant was required to file a registration statement by May
25, 2002 for 200% of the number of shares the notes plus accrued interest can be
converted into.

         In addition,  since this debt is convertible  into equity at the option
of the note  holder at  beneficial  conversion  rates,  an  embedded  beneficial
conversion  feature will be recorded as a debt discount and amortized  using the
effective rate over the life of the debt in accordance with Emerging Issues Task
Force  ("EITF") No.  00-27.  The  Registrant  recorded a discount of $83,077 and
amortized  $20,769 as interest  expense for the period ended June 30, 2002.  Any
unamortized debt discount related to the beneficial  conversion  feature will be
charged to interest expense upon conversion.

         The  Registrant   defaulted  on  the   registration   requirement   and
consequently  was  required  to pay the  investors  a 9%  penalty  on the amount
borrowed.  As of June 30, 2002, the Registrant  recorded  $24,300 related to the
penalties.  In June 2002,  this lender group  exercised their rights against the
4,000,000 shares pledged by the president of the Registrant in full satisfaction
of the $270,000  note  payable.  The note  originally  was set to mature in June
2003.

         (d) On June 27, 2002, the Registrant entered into a financing agreement
with Papell  Holdings,  Ltd., Boat Basin Investors LLC,  vFinance,  Inc.,  David
Stefansky,  Marc  Siegal  and  Richard  Rosenblum  for a total  of  $400,000  in
convertible notes. These notes were secured by 14,400,000 shares of common stock
pledged by the Registrant's  president.  The Registrant  received $60,000 of the
proceeds in June 2002 and $150,000 in the quarter ended  September 30, 2002. The
Registrant  expensed  $2,262 during the year ended June 30, 2002.  The remaining
$190,000  represents  financing cost. The Registrant prorated the financing cost
of $54,280  as of June 30,  2002 based on the cash  receipts  in June 2002.  The
remaining  $135,720 was recorded as prepaid  financing cost in the quarter ended
September 30, 2002. The prepaid financing cost is amortized over the term of the
loan   (approximately  one  year).  The  Registrant  recorded  $47,500  for  the
amortization  of such cost for the quarter ended  September 30, 2002,  and fully
amortized the remaining  prepaid  financing cost of $140,238  during the quarter
ended December 31, 2002.

         These notes payable were  convertible  into equity at the option of the
note holders at beneficial  conversion rates, an embedded beneficial  conversion
feature will be recorded as a debt  discount and  amortized  using the effective
rate over the life of the debt in accordance with EITF No. 00-27. The Registrant
has an unamortized  discount of $62,308 related to convertible  notes payable of
$270,000 as of June 30, 2002 and  recorded a discount of $44,444  related to the
$400,000 convertible debts. The Registrant recorded amortization of discounts of
$31,880 on these  convertible notes during the quarter ended September 30, 2002,
and fully  amortized the remaining  discount of $74,872 during the quarter ended
December 31, 2002.

         In December 2002, the Registrant  received an additional  $237,000 less
$37,000 financing fees from these same lenders.

                                       39
<PAGE>

         In December 2002,  this lender group exercised their rights against the
14,400,000   shares   pledged  by  the  president  of  the  Registrant  in  full
satisfaction of the outstanding  notes payable of $637,000,  interest payable of
$18,569,  and  accrued  penalties  of  $24,300.  As of December  31,  2002,  the
Registrant  considered the notes payable and related expenses  totaling $679,869
with  this  lender  group  being  paid off and has  recorded  a  payable  to the
president for this amount plus accrued interest of $23,795 at June 30, 2003. The
Registrant  intends to issue new stock to replace such pledged  shares.  Prepaid
financing cost and debt discounts related to this convertible debt were expensed
during the quarter ended December 31, 2002.

         (e) In  March  2004,  this  lender  group  entered  into  a  settlement
agreement with the Registrant regarding the debt described in (c) and (d) above.
As part  of the  settlement,  this  lender  group  is  required  to  return  the
14,400,000  pledged shares to the president of the Registrant and the company is
relieved  from  any  other  indebtedness  to this  lender  group.  Prior to this
settlement,  the Registrant considered the notes payable of $679,869 and related
interest of $47,590 totaling  $727,459  payable to the president  related to the
his  14,400,000  shares  given  to  this  lender  group.  The  president  of the
Registrant  agreed to relieve the  liabilities  of the company to repay $727,459
upon the execution of this settlement agreement.  The Registrant recorded a gain
on legal settlement of $727,459 during the year ended June 30, 2004.

         In April  2004,  this lender  group  returned  1,000,000  shares to the
Company that were issued to this lender group as  collateral  for  borrowings in
June 2002.  The  Company  recorded an  additional  gain on legal  settlement  of
$98,000 upon return of these shares.

EXCHANGE RATES

         The Registrant's operations are principally in Dominican Republic under
the name  ePayLatina  S.A.,  which  are  operated  in its  local  currency,  the
Dominican  Republic Peso; and in Helsinki  Finland under the Rahaxi  subsidiary,
operated  in its local  currency,  the Euro.  All  assets  and  liabilities  are
translated at exchange rates in effect at the end of the year.  Income statement
accounts are  translated  at average  rates for the year.  Gains and losses from
translation  of foreign  currency  financial  statements  into U.S.  dollars are
included in  comprehensive  income  (loss).  The  accumulated  foreign  currency
translation  adjustment  was $(9,415) at June 30, 2004 and $(18,652) at June 30,
2003.

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

                                       40

<PAGE>

INFLATION.

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

OTHER.

         The  Registrant  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 Securities  and Exchange  Commission  ("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 Registrant'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
Registrant  uses in applying  these most  critical  accounting  policies  have a
significant  impact  on  the  results  the  company  reports  in  its  financial
statements.

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

         The preparation of these financial  statements  requires the Registrant
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 Registrant evaluates these estimates,
including those related to revenue recognition and concentration of credit risk.
The Registrant 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  Registrant  intends  to issue  shares of common  stock to  various
individuals  and  entities  for  management,  legal,  consulting  and  marketing

                                       41
<PAGE>

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 Registrant recognizes revenue when products are shipped or services
provided to its customers.  Provisions for discounts and other  adjustments  are
provided for in the same period the related sales are recorded.

         Processing  fee  revenue  is earned  based  upon the  actual  number of
transactions  processed through its processing  system.  Transaction  processing
fees are recognized in the period that the service is performed.  These fees are
charged  on a per  transaction  basis,  depending  on the  arrangement  with the
customer.  Prebilling  for  estimated  number of  transactions  processed in the
future periods was classified as deferred revenue.

(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 Registrant evaluates at each balance sheet
date whether  events and  circumstances  have occurred  that  indicate  possible
impairment.  If there are indications of impairment,  the Registrant 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.

         The  foregoing  management's   discussion  and  analysis  of  financial
condition and results of operations 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  Act of 1934,  as  amended.  The words  "believe,"  "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking  statements.  These are statements that relate to future periods
and include, but are not limited to, statements as to the Registrant's estimates
as to the  adequacy  of its  capital  resources,  its need and ability to obtain
additional  financing,  the features and  benefits of its  products,  its growth
strategy,  the need for additional sales and support staff, its operating losses
and negative cash flow, and its 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
risks  related  to the  Registrant's  ability  to  develop  new  technology  and
introduce  new  products and its ability to protect its  intellectual  property.
These  forward-looking  statements  speak  only  as  of  the  date  hereof.  The
Registrant 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.

                                       42

<PAGE>

ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS.

         Consolidated  financial  statements as of and for the fiscal year ended
June 30,  2004 and for the fiscal year ended June 30,  2003 are  presented  in a
separate section of this report following Item 14.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

         (a)  Effective on June 23, 2004,  the  independent  accountant  who was
previously  engaged  as the  principal  accountant  to  audit  the  Registrant's
financial statements, Stonefield Josephson, Inc., was dismissed. The decision to
dismiss this  accountant  was approved by the  Registrant's  board of directors.
This accountant audited the Registrant's  financial statements for the period of
May 25, 2001 (date of  inception)  through June 30, 2002 and for the fiscal year
ended June 30,  2003.  This  firm's  report on these  financial  statements  was
modified as to uncertainty that the Registrant will continue as a going concern;
other than this, the accountant's  report on the financial  statements for those
periods neither contained an adverse opinion or a disclaimer of opinion, nor was
qualified or modified as to uncertainty, audit scope, or accounting principles.

         During the period of May 25, 2001 (date of inception)  through June 30,
2002 and for the fiscal year ended June 30,  2003,  and the  subsequent  interim
period  preceding such dismissal,  there were no  disagreements  with the former
accountant  on any  matter of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure. In addition, there were no
"reportable  events"  as  described  in  Item  304(a)(1)(iv)(B)1  through  3  of
Regulation  S-B  that  occurred  within  the  period  of May 25,  2001  (date of
inception)  through  June 30, 2002 and for the fiscal year ended June 30,  2003,
and the subsequent interim period preceding the former accountant's dismissal.

         (b) Effective on June 23, 2004,  the firm of Russell  Bedford  Stefanou
Mirchandani  LLP has been engaged to serve as the new  principal  accountant  to
audit the  Registrant's  financial  statements.  The  decision  to  retain  this
accountant  was  approved by the  Registrant's  board of  directors.  During the
period of May 25,  2001 (date of  inception)  through  June 30, 2002 and for the
fiscal year ended June 30,  2003,  and the  subsequent  interim  period prior to
engaging this  accountant,  neither the  Registrant  (nor someone on its behalf)
consulted the newly engaged accountant regarding any matter.

ITEM 8A.  CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

         Within  the 90 days  prior  to the end of the  period  covered  by this
report,  the Registrant  carried out an evaluation of the  effectiveness  of the

                                       43
<PAGE>

design and operation of its disclosure  controls and procedures pursuant to Rule
13a-15 under the Securities  Exchange Act of 1934, as amended  ("Exchange Act").
This evaluation was done under the supervision and with the participation of the
Registrant's  president and chief financial officer. Based upon that evaluation,
they  concluded  that the  Registrant's  disclosure  controls and procedures are
effective in gathering,  analyzing and disclosing  information needed to satisfy
the Registrant's disclosure obligations under the Exchange Act.

CHANGES IN DISCLOSURE CONTROLS AND PROCEDURES.

         There  were  no  significant  changes  in the  Registrant's  disclosure
controls and  procedures,  or in factors that could  significantly  affect those
controls and procedures since their most recent evaluation.

ITEM 8B.  OTHER INFORMATION.

         None.

PART III.

ITEM  9.  DIRECTORS,   EXECUTIVE  OFFICERS,   PROMOTERS,  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS.

         The names, ages, and respective  positions of the directors,  executive
officers,  and key employee of the Registrant are set forth below. The directors
named  below  will  serve  until the next  annual  meeting  of the  Registrant's
stockholders  or until their  successors  are duly  elected and have  qualified.
Officers will hold their positions at the will of the board of directors, absent
any employment  agreement,  of which none currently  exist or are  contemplated.
There are no arrangements,  agreements or understandings  between non-management
shareholders and management under which non-management shareholders may directly
or indirectly  participate  in or influence the  management of the  Registrant's
affairs.  There are no other  promoters  or control  persons of the  Registrant.
There  are legal  proceedings  involving  two of the  current  directors  of the
Registrant (see Item 3, Legal Proceedings).

(a)      PAUL EGAN, PRESIDENT/CHIEF EXECUTIVE OFFICER/DIRECTOR.

         Mr.  Egan,  age  41,  founded  ePayLatina  S.A.,  which  developed  the
PaySafeNow  system and was acquired by the  Registrant  in August  2001.  Before
founding ePayLatina, Mr. Egan was the vice-president of Inter-Leisure, S. A. Mr.
Egan also  worked with the South  African  firm ENGEN to oversee the new project
division after their  acquisition of Mobil Oil South Africa and to implement the
new  Registrant's  construction  projects  and  corporate  identity.  He studied
construction  management in Birmingham,  England and worked for Trafalger  House
Construction  Division on major projects in London Banking  Districts.  Mr. Egan
attended  Terenure  College Dublin.

                                       44
<PAGE>

(b)      CIARAN EGAN, SECRETARY/TREASURER/CHIEF FINANCIAL OFFICER/DIRECTOR.

         Mr. Egan, age 40, joined  ePayLatina S.A. in May 2001 where he took the
position  of  vice  president.   Prior  to  that  he  was  employed  by  Medipro
International  Recruitment based in Johannesburg,  South Africa, which he joined
in 1994 as managing director, with the central focus on establishing new markets
in the Middle East,  United Kingdom and Ireland.  He was successful in obtaining
and  completing  contracts  with the  Ministry of Defense and  Aviation in Saudi
Arabia and the United Arab  Emirates.  He also  implemented  contracts  with the
National  Health  Services  in the United  Kingdom  as well as  several  private
institutions in Ireland.  He left that firm in 2001. Prior to that, Mr. Egan was
the National Sales Director for Sellrange Ltd (Ireland). Mr. Egan graduated from
Terenure College Dublin in 1982.

(c)      FIONN STAKELUM, DIRECTOR.

         Mr.  Stakelum,  age 34, was  appointed to the board of directors of the
Registrant on October 16, 2002.  Mr.  Stakelum is an Irish  national who holds a
Bachelor of Commerce  Degree  (Hons) with a major in Systems  Analysis  obtained
from University College Galway in 1990. His experience  includes a position as a
technical support engineer for the Corel Corporation, which he held from 1994 to
1996.  Mr.  Stakelum's  experience  also  includes the position of  localization
software engineer, also for the Corel Corporation,  for the period 1996 to 1997.
He moved to Lotus Inc. in 1997 and  remained  there  until 1999,  when he joined
Microsoft Inc. as a lead software development engineer (a position he held until
the  latter  part of 2001).  From that time to the  present,  Mr.  Stakelum  has
functioned  as an  independent  consultant.  He was  previously  involved in the
localization of MSOffice 2000 and XP in over 20 languages.

(d)      CARL M. HESSEL, CEO, EUROPEAN OPERATIONS/DIRECTOR.

         Mr.  Hessel,  age  41,  was  appointed  to the  Registrant's  board  of
directors on April 5, 2004, and currently  serves as chief executive  officer of
European operations for the Registrant. He founded Margaux Investment Management
Group in 2001,  which focuses on brokerage  advisory and proprietary  management
services to  international  high-net-worth  investors and their  intermediaries.
Prior to that,  Bear  Stearns  employed  Mr.  Hessel  from 1997 to 2001.  He was
employed as a vice  president at Merrill  Lynch from 1996 to 1997,  where he was
responsible for creating a global high-net-worth wealth management platform. Mr.
Hessel began his career at Goldman Sachs  International in 1993 and was employed
there until 1996, where he was responsible for expanding its Scandinavian  ultra
high-net-worth market. Mr. Hessel received his MBA from Wharton Business School,
University of Pennsylvania, with a degree in Finance and Management. He has also
been awarded the Marcus Wallenberg Foundation Scholarship.

                                       45

<PAGE>

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

         Section  16(a) of the  Exchange  Act  requires  executive  officers and
directors,  and persons who  beneficially  own more than 10% of any class of the
Registrant's  equity securities to file initial reports of ownership and reports
of  changes  in  ownership  with  the SEC.  Executive  officers,  directors  and
beneficial  owners  of more  than 10% of any  class of the  Registrant's  equity
securities are required by SEC regulations to furnish the Registrant with copies
of all Section 16(a) forms they file.

         Based  solely on a review of the with  respect to the fiscal year ended
June 30,  2004 and  subsequently,  the  Registrant  is aware that the  following
reports were not timely filed: (a) a Form 3 for Carl Hessel upon his appointment
to the board of directors  on April 5, 2004;  Form 4's to report the granting of
an option covering 10,000,000 shares to Mr. Hessel and the subsequent exercising
of this  option;  and (c) Form 4's for  Heroya  Investments  Limited  to  report
certain sales of common stock. All these documents have either been prepared and
filed with the SEC or will be shortly.  Other than these,  the Registrant is not
aware of any other  required  reports  that were not timely filed with regard to
the fiscal year ended June 30, 2004.

CODE OF ETHICS.

         The  Registrant  has not adopted a code of ethics  that  applies to the
company's  principal executive officer,  principal financial officer,  principal
accounting officer or controller,  or persons performing similar functions.  The
Registrant  has not adopted  such a code of ethics  because all of  management's
efforts have been  directed to building the business of the company;  at a later
time, a code of ethics may be adopted by the board of directors.

                                       46

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE.

<TABLE>
<CAPTION>

                                        ANNUAL COMPENSATION                     LONG-TERM COMPENSATION
                                 ---------------------------------    ---------------------------------------------------
                                                                               AWARDS                   PAYOUTS
                                                                      -------------------------   -----------------------
                                                                                    SECURITIES                  ALL
                                                         OTHER        RESTRICTED    UNDERLYING                 OTHER
Name and                                                 ANNUAL       STOCK          OPTIONS/       LTIP       COMPEN-
Principal              FISCAL     SALARY      BONUS      COMPEN-      AWARD(S)        SARS         PAYOUTS     SATION
Position (1)            YEAR       ($)         ($)       SATION($)       ($)           (#)           ($)         ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>            <C>    <C>            <C>               <C>          <C>         <C>
Carl M. Hessel          2004           --        --             --    $  500,000         --           --          --
Director (2)
-------------------------------------------------------------------------------------------------------------------------
Fionn Stakelum          2004     $ 39,000        --             --            --         --           --          --
Director (3)            2003     $ 36,500        --    $   385,805    $   49,000         --           --          --
-------------------------------------------------------------------------------------------------------------------------
Paul Egan               2004     $150,000        --    $   100,000            --         --           --          --
CEO/Presid./            2003     $150,000        --    $ 1,250,680    $  490,000         --           --          --
Director (4)            2002     $137,500        --    $    53,965    $1,104,800         --           --          --
-------------------------------------------------------------------------------------------------------------------------
Ciaran Egan             2004     $120,000        --    $    60,500            --         --           --          --
Sec/Treas/CFO           2003     $120,000        --    $   978,065    $  245,000         --           --          --
Director (5)            2002     $110,000        --             --    $  294,000         --           --          --
-------------------------------------------------------------------------------------------------------------------------
Dennis H. Johnston
interim CEO (6)         2002           --        --    $    60,000            --         --           --          --
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) None of the other  officers or  directors  of the  Registrant  over the last
three years have received compensation in excess of $100,000.

(2) Carl M. Hessel was  appointed to the board of directors on April 5, 2004. On
June 6, 2004, Mr. Hessel was granted an option to purchase  10,000,000 shares of
the  Registrant's  restricted stock at an exercise price of $0.05 per share. The
fair value of this award was $557,696.  In June 2004, Mr. Hessel  exercised this
option.

(3) Fionn Stakelum was appointed to the board of directors  effective on October
16, 2002. Other Annual  Compensation  consists of 500,000 preferred stock issued
as director fees with a fair value of $360,000,  and the fair value of an option
covering 500,000 shares of common stock totalling $25,805.  The Restricted Stock
Award for 2003  consists of 1,000,000  restricted  shares of common stock with a
fair value of $49,000 as additional director fees.

(4) Paul Egan assumed the position of  president on September  15, 2001.  He was
issued 4,000,000  restricted  shares of common stock of the Registrant on August
10,  2001 in lieu of  compensation  to be paid  under  an  employment  agreement
between himself and the Registrant (the closing price of the Registrant's common
stock on that date was

                                       47

<PAGE>

$0.049).  The stock was issued to settle unpaid salaries and was not included as
part of  compensation.  The amount for salary  includes  $12,500  monthly salary
pursuant to  employment  agreement  entered  dated August 9, 2001.  Other Annual
Compensation  consists of the following:  (a) 2003:  1,000,000  preferred  stock
issued as  director  fees with a fair  value of  $720,000,  the fair value of an
option  covering  10,000,000  shares of common  stock  totalling  $516,130,  and
$14,550 in fringe  benefits;  (b) 2004:  foregiveness  of the exercise  price of
$100,000 for an option  exercised.  The Restricted Stock Award for 2003 consists
of 10,000,000 restricted shares of common stock with a fair value of $490,000 as
additional director fees.

(5) Ciaran Egan assumed the position of chief financial office on June 28, 2001;
he later took on the additional position of secretary/treasurer on September 15,
2001.  He  was  issued  3,000,000  restricted  shares  of  common  stock  of the
Registrant  on  August  10,  2001 in lieu of  compensation  to be paid  under an
employment  agreement  between  himself and the Registrant (the closing price of
the Registrant's common stock on that date was $0.049).  The stock was issued to
settle unpaid salaries and was not included as part of compensation.  The amount
for salary  includes  $10,000  monthly salary  pursuant to employment  agreement
dated August 9, 2001. Other Annual Compensation  consists of the following:  (a)
2003:  1,000,000  preferred  stock issued as director  fees with a fair value of
$720,000,  and the fair value of an option covering  5,000,000  shares of common
stock totalling  $258,065;  and (b) 2004:  foregiveness of the exercise price of
$50,000 for an option exercised,  and $10,500 in fringe benefits. The Restricted
Stock Award for 2003  consists of  5,000,000  restricted  shares of common stock
with a fair value of $245,000 as additional director fees.

(6) Mr.  Johnston  was  appointed  interim CEO on June 28, 2001 and  resigned on
September  15, 2001.  On August 21,  2001,  he was issued  1,000,000  restricted
shares of common stock;  these shares were cancelled in July 2002. On August 22,
2001,  Mr.  Johnston was issued  1,900,000  shares of free trading  common stock
under a Form S-8 (the  closing  price of the  Registrant's  common stock on that
date was $0.12).  In about February 2002, the certificate  for 1,900,000  shares
was returned to the  Registrant and  cancelled;  at that time, Mr.  Johnston was
reissued certificates totaling 500,000 shares, which he later sold.

INDIVIDUAL OPTION/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 2004.

<TABLE>
<CAPTION>


                   NUMBER OF          PERCENT OF TOTAL
                   SECURITIES         OPTIONS/SARS
                   UNDERLYING         GRANTED TO
                   OPTIONS/SARS       EMPLOYEES IN         EXERCISE OR BASE
     NAME          GRANTED (#)        FISCAL YEAR          PRICE ($/SH)          EXPIRATION DATE
     (a)               (b)                 (c)                  (d)                     (e)
-----------------------------------------------------------------------------------------------------
<S>                    <C>                     <C>          <C>                   <C>
Carl M. Hessel
Director               10,000,000               100%        $0.05 per share          June 2014
-----------------------------------------------------------------------------------------------------
</TABLE>

                                       48

<PAGE>

AGGREGATED  OPTION/SAR  EXERCISES  IN FISCAL YEAR ENDED JUNE 30, 2004 AND FISCAL
YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                                              VALUE OF
                                                                                            UNEXERCISED
                                                                 NUMBER OF SECURITIES       IN-THE-MONEY
                                                                UNDERLYING UNEXERCISED     OPTIONS/SARS AT
                                                               OPTIONS/SARS AT FY-END (#)    FY-END ($)
                    SHARES ACQUIRED ON          VALUE                EXERCISABLE/          EXERCISABLE/
NAME                   EXERCISE (#)          REALIZED($)(1)         UNEXERCISABLE          UNEXERCISABLE
       (A)                  (B)                   (C)                    (D)                    (E)
----------------------------------------------------------------------------------------------------------
<S>                     <C>                    <C>                       <C>                     <C>
Carl M. Hessel,         10,000,000             $400,000                   0                       --
Director
----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Under Item  402(d)(2)  of  Regulation  S-B,  this  figure is  calculated  by
determining  the  difference  between  the fair market  value of the  securities
underlying  the options ($0.09 per share) on the date of exercise (June 6, 2004)
and the exercise price of the options on the date of exercise ($0.05).

EMPLOYMENT AGREEMENTS.

         The Registrant has entered into  employment  agreements  with Paul Egan
and Ciaran Egan. These agreements are described under "Certain Relationships and
Related Transactions."

OTHER COMPENSATION.

         All directors may be reimbursed for their reasonable  expenses incurred
in connection  with  attending  meetings of the board of directors or management
committees.  There are no annuity, pension or retirement benefits proposed to be
paid to officers,  directors,  or employees  of the  Registrant  in the event of
retirement at normal  retirement date, as there is no existing plan provided for
or contributed to by the Registrant. In addition, no remuneration is proposed to
be paid in the future directly or indirectly by the Registrant to any officer or
director since there is no existing plan which provides for such payment, except
that the Registrant has a stock  incentive plan that includes  employees,  and a
total of options covering a total of 43,500,000 shares of common stock have been
granted under this plan to date.

ITEM 11. SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND MANAGEMENT,  AND
RELATED STOCKHOLDER MATTERS.

         The following  table sets forth  information  regarding the  beneficial
ownership  of shares of the  Common  Stock as of  October  4, 2004  (479,224,252
issued and outstanding;  also, there is outstanding 1,000,000 shares of Series A
preferred  stock,  each share of which is  convertible  into

                                       49

<PAGE>

12 shares of common stock upon the attainment of certain  financial goals by the
Registrant (which have not occurred), and 2,500,000 shares of Series B preferred
stock,  each share of which is  currently  convertible  into 12 shares of common
stock) by (i) all stockholders  known to the Registrant to be beneficial  owners
of more than 5% of the  outstanding  stock;  and (ii) all  directors,  executive
officers, and key employees of the Registrant, individually and as a group:

<TABLE>
<CAPTION>
----------------------  -----------------------------  ---------------------------------  ------------------------
<S>                     <C>                            <C>                                <C>
    Common Stock        Carl M. Hessel, 9 Rue de
                           Commerce, P.O. Box                 85,000,000 (3)                   15.65%
                         5837CH-1211 Geneva 11
                            Switzerland 1211
----------------------  -----------------------------  ---------------------------------  ------------------------
    Common Stock           Heroya Investments
                         Limited, Suite 52 & 53               46,750,960 (4)                    9.75%
                        Victoria House, 26 Main
                       Street, POB 399, Gibraltar
----------------------  -----------------------------  ---------------------------------  ------------------------
                        Paul Egan, Calle Fantino
    Common Stock               Falco, J.A. Baez               46,000,000 (5)                    9.36%
                           Building, 2nd Floor,
                        Santo Domingo, Dominican
                                Republic
----------------------  -----------------------------  ---------------------------------  ------------------------
                           Ciaran Egan, Calle
                        Fantino Falco, J.A. Baez
    Common Stock          Building, 2nd Floor,                26,000,000 (6)                    5.29%
                        Santo Domingo, Dominican
                                Republic
----------------------  -----------------------------  ---------------------------------  ------------------------
                         Fionn Stakelum, Calle
                        Fantino Falco, J.A. Baez               7,000,000 (7)                    1.44%
    Common Stock          Building, 2nd Floor,
                        Santo Domingo, Dominican
                                Republic
----------------------  -----------------------------  ---------------------------------  ------------------------
                        Shares of all directors,
                        executive officers, and
    Common Stock        key employees as a group             164,000,000                       34.22%
                              (4 persons)
----------------------  -----------------------------  ---------------------------------  ------------------------
</TABLE>

                                       50
<PAGE>

<TABLE>
<CAPTION>
----------------------  -----------------------------  ---------------------------------  ------------------------
<S>                     <C>                            <C>                                <C>
 Series A Preferred     Paul Egan, Calle Fantino
        Stock               Falco, J.A. Baez                   1,000,000                      100.00%
                          Building, 2nd Floor,
                        Santo Domingo, Dominican
                                Republic
----------------------  -----------------------------  ---------------------------------  ------------------------
</TABLE>

(1) Other than as set forth below,  none of these security holders has the right
to acquire any amount of common stock within sixty days from options,  warrants,
rights, conversion privilege, or similar obligations.

(2) The  percentage  amount  for  all  these  shareholders,  except  for  Heroya
Investments  Limited and Carl Hessel,  is  calculated  by adding the  conversion
amount  of the  Series  B  preferred  shares  owned  by them to the  issued  and
outstanding shares as of August 15, 2004.

(3)  75,000,000  of the  shares  are  held  in the  name of  Margaux  Investment
Management Group, S.A., which is controlled by Mr. Hessel, its president.

(4) Heroya Investments Limited is controlled by Canis Nominees Limited, which is
controlled by Hans Turitz, Tony Harrell and Lars Erik Benson.

(5) Out of the total  shares  owned,  12,000,000  consist of shares  which would
result from the  conversion  of  1,000,000  shares of Series B preferred  stock,
which Mr.  Egan has the right to  acquire  within  60 days.  1,000,000  Series A
preferred  stock  are not  included  since  they are not  convertible  until the
Registrant attains certain financial goals, which have not been achieved.

(6) Out of the total  shares  owned,  12,000,000  consist of shares  which would
result from the  conversion  of  1,000,000  shares of Series B preferred  stock,
which Mr. Egan has the right to acquire within 60 days.

(7) Out of the total  shares  owned,  6,000,000  consist of shares  which  would
result from the conversion of 500,000 shares of Series B preferred stock,  which
Mr. Stakelum has the right to acquire within 60 days.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

         The  Registrant has adopted two equity  compensation  plans (neither of
which have been approved by the company's shareholders):

(a)      NON-EMPLOYEE DIRECTORS AND CONSULTANTS RETAINER STOCK PLAN.

         On October 25, 2001,  the Registrant  adopted a Non-Employee  Directors
and Consultants Retainer Stock Plan (the company adopted Amendment No. 3 to this
plan on April 7, 2004). The purposes of the plan are to enable the Registrant to
promote the  interests of the company by attracting  and retaining  non-employee
directors and consultants  capable of furthering the business of the company and
by aligning  their  economic  interests more closely with those of the company's
shareholders,  by paying their  retainer or fees in the form of shares of common
stock. A total of 60,000,000  shares of common stock have been registered  under
this plan as a result of Form S-8's filed with the SEC.  Through  June 30, 2004,
the  Registrant  had issued  58,050,000  shares of common stock under this plan;
therefore,  1,950,000 shares of common stock remain to be issued under this plan
as of June 30, 2004.

                                       51

<PAGE>

(b)      STOCK INCENTIVE PLAN.

         On October 25, 2001, the Registrant adopted a Stock Incentive Plan (the
company  adopted  Amendment  No. 2 to this plan on May 25,  2003).  This plan is
intended to allow directors,  officers,  employees, and certain non-employees of
the Registrant to receive options to purchase  company common stock. The purpose
of  this  plan  is to  provide  these  persons  with  equity-based  compensation
incentives to make significant and extraordinary  contributions to the long-term
performance and growth of the company,  and to attract and retain  employees.  A
total of 50,000,000  shares of common stock have been registered under this plan
under Form S-8's filed with the SEC.  Options  granted under this plan are to be
exercisable  for a period of ten years from the grant date at whatever  price is
established by the board of directors,  in its sole  discretion,  on the date of
the grant.  Through June 30, 2004, the Registrant had granted  options  covering
43,500,000 shares of common stock under this plan;  therefore,  6,500,000 shares
of common stock remain to be issued under this plan as of June 30, 2004.

<TABLE>
<CAPTION>
                                 EQUITY COMPENSATION PLAN INFORMATION
-----------------------------------------------------------------------------------------------------
                                                                               NUMBER OF SECURITIES
                                                                              REMAINING AVAILABLE FOR
                                                                               FUTURE ISSUANCE UNDER
                           NUMBER OF SECURITIES TO      WEIGHTED-AVERAGE      EQUITY COMPENSATION
                           BE ISSUED UPON EXERCISE     EXERCISE PRICE OF         PLANS (EXCLUDING
                           OF OUTSTANDING OPTIONS,     OUTSTANDING OPTIONS,   SECURITIES REFLECTED IN
PLAN CATEGORY              WARRANTS AND RIGHTS         WARRANTS AND RIGHTS           COLUMN (a))
                                     (a)                      (b)                       (c)
-----------------------------------------------------------------------------------------------------
<S>                                   <C>                     <C>             <C>
Equity compensation                   0                        0                         0
plans approved by
security holders
-----------------------------------------------------------------------------------------------------
                                      0                        0                  Director's and
Equity compensation                                                             Consultant's Plan:
plans not approved by                                                          1,950,000; Incentive
security holders                                                                 Plan: 6,500,000
-----------------------------------------------------------------------------------------------------
Total                                 0                        0                  Director's and
                                                                                Consultant's Plan:
                                                                               1,950,000; Incentive
                                                                                 Plan: 6,500,000
-----------------------------------------------------------------------------------------------------
</TABLE>

                                       52

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Other than as set forth  below,  during  the past two years  there have
been no  relationships,  transactions,  or  proposed  transactions  to which the
Registrant was or is to be a party, in which any of the directors,  officers, or
5% or greater shareholders (or any immediate family thereof) had or is to have a
direct or indirect material interest.

         (a) On  August 9,  2001,  the  Registrant  entered  into an  employment
agreement  with Paul Egan for the  positions  of chief  executive  officer and a
director  (see Exhibit 10.1 to this Form 10-KSB).  This  agreement has a term of
three years with a salary of $150,000 per year. This salary is to be reviewed by
the board of directors not less frequently than annually, and may be adjusted in
the sole  discretion of the board of directors,  but in no event will the salary
be less than $12,500 per month.  Under this agreement,  Mr. Egan is permitted to
participate  in  such  pension,   profit   sharing,   bonus,   life   insurance,
hospitalization,  major  medical,  and  other  employee  benefit  plans  of  the
Registrant  that may be in effect  from time to time,  to the extent  that he is
eligible under the terms of those plans.

         On August 9, 2004,  the  Registrant  entered  into an  addendum to this
employment  agreement  such that the  agreement  was extended for three years to
August 9, 2007 (see Exhibit 10.4 to this Form 10-KSB).  The  Registrant and Paul
Egan agreed that a  remuneration  review would take place on or before  December
31, 2004.

         (b) On  August 9,  2001,  the  Registrant  entered  into an  employment
agreement  with Ciaran Egan for the positions of chief  financial  officer and a
director  (see Exhibit 10.2 to this Form 10-KSB).  This  agreement has a term of
three years with a salary of $120,000 per year. This salary is to be reviewed by
the board of directors not less frequently than annually, and may be adjusted in
the sole  discretion of the board of directors,  but in no event will the salary
be less than $10,000 per month.  Under this agreement,  Mr. Egan is permitted to
participate  in  such  pension,   profit   sharing,   bonus,   life   insurance,
hospitalization,  major  medical,  and  other  employee  benefit  plans  of  the
Registrant  that may be in effect  from time to time,  to the extent  that he is
eligible under the terms of those plans.

         On August 9, 2004,  the  Registrant  entered  into an  addendum to this
employment  agreement  such that the  agreement  was extended for three years to
August 9, 2007 (see Exhibit 10.5 to this Form 10-KSB). The Registrant and Ciaran
Egan agreed that a  remuneration  review would take place on or before  December
31, 2004.

         (c) On November 22, 2002 and November 25, 2002, the  Registrant  issued
restricted  shares of common stock for directors fees, as a guarantee of accrued
salaries, and (in the case of Paul Egan) to replace shares pledged as collateral
as follows:  (a) Paul Egan:  18,000,000;  (b) Ciaran Egan: 8,000,000 shares; and
(c) Fionn Stakelum:  1,000,000  shares. On this date, the Registrant also issued
restricted  shares of  Series B  preferred  stock  (currently  convertible  into
restricted shares of common stock in the Registrant at the ratio of 12 to 1 with
no restrictions) as follows:  (a) Paul Egan:  1,000,000 shares; (b) Ciaran Egan:
1,000,000 shares; and (c) Fionn Stakelum:  500,000 shares. Finally, on this date
the Registrant  granted options under its Stock  Incentive Plan as follows:  (a)
Paul Egan:  an option for  10,000,000  shares;  (b) Ciaran  Egan:  an

                                       53

<PAGE>

option for  5,000,000  shares;  and (c) Fionn  Stakelum:  an option for  500,000
shares.  These options were  immediately  exercised at $0.01 per share into free
trading shares of common stock.

         (d) The  Registrant's  president  and a  shareholder,  Paul  Egan,  has
advanced funds to the company for its operations. These amounts include advances
of $0 and accrued interest of $22,658 at June 30, 2004, and advances of $240,389
and accrued interest of $50,853 at June 30, 2003.

         The  Registrant's  chief  financial  officer and a shareholder,  Ciaran
Egan,  has  advanced  funds to the company  for its  operations.  These  amounts
include advances of $30,000 and accrued interest of $178 at June 30, 2004. There
were no such advances or accrued interest by Ciaran Egan at June 30, 2003.

         The  Registrant  expects to repay these  amounts as soon as  sufficient
cash flow from  operations  is  generated.  Interest  on the unpaid  balances is
accrued at the rate of 7% per annum.

         (e) On August  23,  2003,  the  Registrant  entered  into a  consulting
agreement with Margaux Investment  Management Group S.A., which is controlled by
Carl Hessel its  president  (see Exhibit 10.3 to this Form  10-KSB).  Under this
consulting agreement,  Margaux agreed to, among other things,  _________ provide
advice and counsel  regarding  Contractor's  strategic  business  and  marketing
plans,   strategy  and   negotiations   with  potential,   clients/distributors,
users\endusers,  candidates,  joint ventures,  corporate partners, investors and
capitalists.  Under this agreement,  the Registrant agreed to compensate Margaux
the sum of 5,000,000 restricted shares of common stock per year for the two-year
term of this agreement.

         (f) On June 6,  2004,  Carl  Hessel was  granted an option to  purchase
10,000,000  shares of the Registrant's  restricted stock at an exercise price of
$0.05 per share.  The fair value of this award was $557,696.  In June 2004,  Mr.
Hessel exercised this option.

         (g) The Registrant is provided  office space in Geneva,  Switzerland at
no cost to the company by Carl Hessel, one of the directors.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS.

         Exhibits  included or  incorporated  by reference  herein are set forth
under the Exhibit Index, which follows the consolidated financial statements.

REPORTS ON FORM 8-K.

         The following  reports on Form 8-K was filed during the last quarter of
the fiscal year covered by this Form 10-KSB:

                                       54
<PAGE>


         (a) A Form 8-K was  filed on May 20,  2004 to  disclose  that on May 4,
         2004 the  Registrant  entered  into an Asset  Purchase  Agreement  with
         Unipay,  Inc.,  a North  Carolina  corporation,  and  Unicomp,  Inc., a
         Colorado corporation and sole shareholder of Unipay, whereby Registrant
         was to purchase all of the assets of Unipay.

         (b) A Form 8-K was filed on June 24,  2004 to  disclose a change in the
         Registrant's certifying account, effective as of June 23, 2004.

         (c) A Form  8-K/A was filed on June 25,  2004 to  disclose  that  after
         extensive discussions and following the unanimous  determination of the
         Registrant's  board of directors,  the  Registrant  had  terminated the
         agreement to acquire a majority of the common stock of TransAxis,  Inc.
         effective as of June 17, 2004.

         (d) A Form 8-K/A was filed on June 25,  2004 to  disclose  that on June
         14, 2004, the Registrant  informed Unipay as its stockholder,  Unicomp,
         due to the failures of these  parties to perform as required  under the
         Asset  Purchase  Agreement,  including  blocking  access  to the  North
         Carolina  premises,  preventing  transfer  of  assets,  and  failing to
         deliver  business  and other  documents,  the purchase  transaction  is
         terminated.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES.

         The  aggregate  fees  billed for each of the last two fiscal  years for
professional  services rendered by Russell Bedford Stefanou  Mirchandani LLP and
Stonefield Josephson,  Inc.  (collectively,  "Accountants") for the audit of the
Registrant's  annual financial  statements,  and review of financial  statements
included in the company's Form 10-QSB's: 2004: $140,685; and 2003: $106,440.

AUDIT-RELATED FEES.

         The  aggregate  fees  billed in each of the last two  fiscal  years for
assurance and related services by the Accountants that are reasonably related to
the performance of the audit or review of the Registrant's  financial statements
and are not reported under Audit Fees above: $0.

TAX FEES.

         The  aggregate  fees  billed in each of the last two  fiscal  years for
professional  services  rendered  by the  Accountants  for tax  compliance,  tax
advice, and tax planning: $0.

ALL OTHER FEES.

         The  aggregate  fees  billed in each of the last two  fiscal  years for
products  and  services  provided by the  Accountants,  other than the  services
reported above: $0.

                                       55

<PAGE>

AUDIT COMMITTEE.

         The Registrant's  audit committee  consists of Paul Egan,  Ciaran Egan,
and Carl Hessel.  The audit  committee  has not adopted a written  charter.  The
Registrant's board of directors has determined that the company does not have an
audit committee financial expert serving on its audit committee; the company has
been unable to secure the services of such a person but is actively seeking such
a person.

         The  Registrant's  policy is to pre-approve  all audit and  permissible
non-audit  services  provided by the  independent  auditors.  These services may
include audit services, audit-related services, tax services and other services.
Pre-approval  is generally  provided for up to one year and any  pre-approval is
detailed as to the  particular  service or category of services and is generally
subject to a specific  budget.  The  independent  auditors  and  management  are
required to periodically  report to the audit committee  regarding the extent of
services   provided  by  the  independent   auditors  in  accordance  with  this
pre-approval,  and the fees  for the  services  performed  to  date.  The  audit
committee may also pre-approve particular services on a case-by-case BASIS

                                       56

<PAGE>

                                   SIGNATURES

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

                                               FREESTAR TECHNOLOGY CORPORATION

Dated: October 26, 2004                        By: /s/ Paul Egan
                                                   --------------------
                                                   Paul Egan, President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
         Signature                           Title                               Date
----------------------   ------------------------------------------       ----------------
<S>                      <C>                                              <C>
/s/  Paul Egan           President/Chief Executive Officer/Director       October 26, 2004
-------------------
Paul Egan

/s/  Ciaran Egan         Secretary/Treasurer/Chief Financial Officer      October 26, 2004
-------------------      (principal financial and accounting
Ciaran Egan              officer)/Director

/s/  Fionn Stakelum      Director                                         October 26, 2004
-------------------
Fionn Stakelum

/s/  Carl M. Hessel      Director                                         October 26, 2004
-------------------
Carl M. Hessel
</TABLE>

                                       57

<PAGE>

                    RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
                          Certified Public Accountants

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            -------------------------------------------------------

FreeStar Technology Corporation
Santo Domingo,
Dominican Republic

We  have  audited  the  accompanying  consolidated  balance  sheet  of  FreeStar
Technology  Corporation  (the  "Company")  as of June 30,  2004 and the  related
consolidated  statements  of  losses  and  comprehensive  income,  stockholders'
equity,  and cash  flows  for the year  ended  June 30,  2004.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We  conducted  our audit in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of the Company at
June 30, 2004 and the consolidated  results of its operations and its cash flows
for the year then  ended in  conformity  with  accounting  principles  generally
accepted in the United States of America.

The accompanying  consolidated  financial statements as discussed in Note 1 have
been prepared  assuming that the Company will  continue as a going  concern.  As
discussed  in Note 1, the  Company has  incurred  substantial  losses  since its
inception and experiencing difficulty in generating sufficient cash flow to meet
its obligations,  which raises  substantial doubt about the Company's ability to
continue  as a going  concern.  Management's  plans in regard to this matter are
described in Note 1. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.

/s/  Russell Bedford Stefanou Mirchandani LLP
---------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
October 13, 2004

                                       58

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

Board of Directors
FreeStar Technology Corporation
(formerly Freestar Technologies)
Santo Domingo,
Dominican Republic

We have  audited  the  accompanying  consolidated  balance  sheets  of  FreeStar
Technology  Corporation (formerly Freestar Technologies) as of June 30, 2003 and
2002, and the related  consolidated  statements of operations and  comprehensive
loss,  stockholders' equity, and cash flows for the year ended June 30, 2003 and
for  the  period  from  May  25,  2001  (inception)  to  June  30,  2002.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an opinion on the  consolidated
financial statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of FreeStar Technology
Corporation  (formerly Freestar  Technologies) as of June 30, 2003 and 2002, and
the  results  of its  operations  and its cash flows for the year ended June 30,
2003 and for the period  from May 25,  2001  (inception)  to June 30,  2002,  in
conformity with United States generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
accompanying  consolidated  financial  statements,   the  Company's  significant
operating  losses  raise  substantial  doubt  about its ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The consolidated  financial statements do not include any adjustments
to asset carrying amounts or the amount and  classification  of liabilities that
might result from the outcome of this uncertainty.

/s/ Stonefield Josephson, Inc.
------------------------------
Certified Public Accountants
Irvine, California
October 16, 2003

                                       59

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                 JUNE 30, 2004   JUNE 30, 2003
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
Current assets:
      Cash and cash equivalents                                                   $    206,205    $    264,423
      Accounts receivable, net of allowance for doubtful
          accounts of $33,124 and $37,854, respectively                                150,980         136,762
      Prepaid salaries to officers                                                          --         130,500
      Other current assets                                                               5,014          22,334
                                                                                  ------------    ------------

              Total current assets                                                     362,199         554,019
                                                                                  ------------    ------------
Property, plant and equipment, net of accumulated
  depreciation and amortization of $22,406 and $21,700 at
  June 30, 2004 and 2003, respectively                                                  44,110          50,187
Software, net of accumulated amortization of $298,975 and
   $231,290 at June 30, 2004 and 2003, respectively                                    802,263         358,350
Customer relationships and contracts, net of accumulated amortization
   of $158,787 and  $-0- at June 30, 2004 and 2003, respectively                     1,808,417              --
Software license, net of accumulated amortization of $166,965 and
   $124,644 at June 30, 2004 and 2003, respectively                                  1,901,558       2,594,856
Goodwill                                                                                    --       1,508,859
Other assets                                                                                --           3,162
                                                                                  ------------    ------------

                                                                                  $  4,918,547    $  5,069,433
                                                                                  ============    ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable and accrued expenses                                          1,281,983         760,113
      Line of Credit                                                                        --           5,091
      Deferred revenue                                                                      --          34,301
      Due to related party for converted pledged collateral                                 --         703,664
      Due to related party for advances                                                 52,836         291,242
                                                                                  ------------    ------------

              Total current liabilities                                              1,334,819       1,794,411
                                                                                  ------------    ------------

Commitments and contingencies                                                               --              --

Stockholders' equity:
      Convertible preferred stock, series A, $0.001 par value,
          1,000,000 shares authorized; 1,000,000 shares issued
          and outstanding at June 30, 2004 and 2003, respectively                        1,000           1,000
      Convertible preferred stock, series B, $0.001 par value,
          4,000,000 shares  authorized; 2,500,000 shares issued
          and outstanding at June 30, 2004 and 2003, respectively                        2,500           2,500
      Additional paid-in capital - preferred stock                                   2,229,558       2,229,558
      Common stock, $0.001 par value, 500,000,000 shares authorized;
          475,524,252 and 183,373,834 shares issued and outstanding
          at June 30, 2004 and 2003, respectively                                      475,524         182,384
</TABLE>

                                       60
<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                 JUNE 30, 2004   JUNE 30, 2003
                                                                                 -------------   -------------
<S>                                                                              <C>             <C>
      Additional paid-in capital - common stock                                     27,954,646      17,525,126
      Share cancellation receivable                                                 (2,584,628)             --
      Subscription receivable                                                       (1,077,693)       (270,000)
      Deferred compensation                                                         (1,396,290)       (700,693)
      Accumulated deficit                                                          (22,011,474)    (15,676,201)
      Accumulated other comprehensive gain (loss)                                       (9,415)        (18,652)
                                                                                  ------------    ------------

              Total stockholders' equity                                             3,583,728       3,275,022
                                                                                  ------------    ------------
                                                                                  $  4,918,547       5,069,433
                                                                                  ============    ============
</TABLE>

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

                                       61

<PAGE>


                         FREESTAR TECHNOLOGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               TWELVE MONTHS    TWELVE MONTHS
                                                   ENDED            ENDED
                                               JUNE 30, 2004    JUNE 30, 2003
                                               -------------    -------------
<S>                                            <C>              <C>
Revenue                                        $   1,333,826    $     563,832

Cost of revenue                                    1,227,915          490,387
                                               -------------    -------------

Gross profit                                         105,911           73,445

Non-cash compensation                              4,765,365        8,605,068
Selling, general and administrative expenses       2,366,195        1,680,669
Write-offs of credits for future
  purchases of inventory                                  --          900,000
                                               -------------    -------------

Loss from operations                              (7,025,649)     (11,112,292)

Other income (expenses):
Loss on investment                                  (100,000)              --
Gain on legal settlement                             825,459               --
Miscellaneous                                             --           68,804
Interest income (expense)                            (35,083)        (398,891)
                                               -------------    -------------

Loss before income taxes                          (6,335,273)     (11,442,379)

Income taxes                                              --               --
                                               -------------    -------------

Net Loss                                          (6,335,273)     (11,442,379)

Other comprehensive income (loss)                      9,237           33,924

                                               -------------    -------------
Comprehensive loss                             $  (6,326,036)   $ (11,408,455)
                                               =============    =============

Loss per share - basic and diluted             $       (0.02)   $       (0.10)
                                               =============    =============
Weighted average shares outstanding -
    basic and diluted                            365,773,405      109,095,770
                                               =============    =============
</TABLE>

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

                                       62

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE TWO YEARS ENDED JUNE 30, 2004

<TABLE>
<CAPTION>

                                                                     Preferred Stock     Additional
                                                 Series A                Series B         Paid in          Common Stock
                                           Shares       Amount      Shares     Amount     Capital       Shares        Amount
                                          ---------  ----------   ---------  ----------  ----------   ----------  -------------
<S>                                       <C>        <C>          <C>        <C>         <C>          <C>         <C>
Balance at June 30, 2002                  1,000,000  $    1,000                          $  432,058   43,816,557  $     42,827
Issuance of preferred stock to
   executives as director fees                                    2,500,000  $    2,500   1,797,500

Intrinsic value for beneficial
   conversion features
   of convertible notes payable

Issuance of common stock to various
   consultants and legal advisors for
   professional fees                                                                                  35,195,514        35,196

Issuance of common stock as
   directors fees                                                                                     16,000,000        16,000

Issuance of common stock to purchase
   Rahaxi Processing Oy                                                                               45,200,000        45,200

Issuance of common stock to for debt                                                                   4,000,000         4,000

Issuance of common stock for unpaid
   salaries of executives                                                                              7,000,000         7,000

Issuance of common stock for exercise
   of stock options by executives                                                                     15,500,000        15,500

Issuance of common stock for exercise
   of stock options by consultants                                                                     9,911,763         9,911

Sales of common stock to investors                                                                     5,750,000         5,750
</TABLE>

<TABLE>
<CAPTION>
                                         Additional     Share                                              Accumulated     Total
                                          Paid in      Cancell.      Deferred     Subscrip.   Accumulated  Other Comp. Stockholders'
                                          Capital     Receivable       Comp.     Receivable    Deficit      Inc.(Loss)     Equity
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------
<S>                                    <C>           <C>          <C>          <C>        <C>            <C>        <C>
Balance at June 30, 2002               $  4,904,984                  ($818,166)               ($4,233,822)   ($52,576)  $   276,305
Issuance of preferred stock to
   executives as director fees                                                                                            1,800,000

Intrinsic value for beneficial
   conversion features
   of convertible notes payable              45,005                                                                          45,005

Issuance of common stock to various
   consultants and legal advisors for
   professional fees                      2,983,548                    117,473                                            3,136,217

Issuance of common stock as
   directors fees                           768,000                                                                         784,000

Issuance of common stock to purchase
   Rahaxi Processing Oy                   3,953,900                                                                       3,999,100

Issuance of common stock to for debt        266,000                                                                         270,000

Issuance of common stock for unpaid
   salaries of executives                   336,000                                                                         343,000

Issuance of common stock for exercise
   of stock options by executives           139,500                              ($155,000)                                      --

Issuance of common stock for exercise
   of stock options by consultants          782,088                                 (5,000)                                 786,999

Sales of common stock to investors          362,250                               (100,000)                                 268,000
</TABLE>

                                       63

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE TWO YEARS ENDED JUNE 30, 2004
                                  (continued)

<TABLE>
<CAPTION>

                                                                      Preferred Stock    Additional
                                                 Series A                 Series B        Paid in            Common Stock
                                           Shares       Amount       Shares     Amount    Capital       Shares        Amount
                                          ---------  ----------   ---------  ----------  ----------   ----------  -------------
<S>                                       <C>        <C>          <C>        <C>         <C>          <C>         <C>
Issuance of common stock for exercise
   of stock options by employees                                                                       1,000,000         1,000

Fair value of warrants issued to a
   consultant

Intrinsic value of stock options issued
   to employees

Fair value of stock options issued to
   consultants

Net Loss
                                          ---------  ----------   ---------  ----------  ----------   ----------  -------------

Balance at June 30, 2003                  1,000,000       1,000   2,500,000       2,500   2,229,558  183,373,834       182,384

Sale of common stock for cash, net
   of commissions of $163,700                                                                        189,400,000       189,400

Issuance of common stock to purchase
   Rahaxi Processing Oy                                                                                8,137,000         8,137

Issuance of common stock to
   consultants and legal advisors
   for professional fees                                                                              51,630,000        51,630

Issuance of common stock for exercise
   of warrants by consultants                                                                          9,000,000         9,000
</TABLE>

<TABLE>
<CAPTION>
                                        Additional      Share                                              Accumulated     Total
                                         Paid in       Cancell.      Deferred     Subscrip.   Accumulated  Other Comp. Stockholders'
                                         Capital      Receivable       Comp.     Receivable    Deficit      Inc.(Loss)     Equity
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------
<S>                                    <C>           <C>          <C>          <C>        <C>            <C>        <C>
Issuance of common stock for exercise
   of stock options by employees              9,000                                (10,000)                                      --

Fair value of warrants issued to a
   consultant                               267,796                                                                         267,796

Intrinsic value of stock options issued
   to employees                             900,000                                                                         900,000

Fair value of stock options issued to
   consultants                            1,807,055                                                                       1,807,055

Net Loss                                                                                      (11,442,379)     33,924   (11,408,455)
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------

Balance at June 30, 2003                 17,525,126         --         700,693    (270,000)   (15,676,201)    (18,652)    3,275,022

Sale of common stock for cash, net
   of commissions of $163,700             1,887,900                               (500,753)                               1,576,548

Issuance of common stock to purchase
   Rahaxi Processing Oy                      (4,807)                                                                          3,330

Issuance of common stock to
   consultants and legal advisors
   for professional fees                  4,201,585                                                                       4,253,215

Issuance of common stock for exercise
   of warrants by consultants               333,000                                 (4,500)                                 337,500
</TABLE>

                                       64

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE TWO YEARS ENDED JUNE 30, 2004
                                  (continued)

<TABLE>
<CAPTION>

                                                                      Preferred Stock    Additional
                                                Series A                 Series B         Paid in            Common Stock
                                           Shares       Amount      Shares     Amount     Capital       Shares        Amount
                                          ---------  ----------   ---------  ----------  ----------   ----------  -------------
<S>                                       <C>        <C>          <C>        <C>         <C>          <C>         <C>
Issuance of common stock for exercise
   of options by board member                                                                         10,000,000        10,000

Fair value of warrants issued to
   consultants

Issuance of common stock to
   employees for services                                                                              2,000,000         2,000

Issuance of common stock for
   investment in TransAxis, Inc.
   (to be cancelled)                                                                                   3,200,000         3,200

Issuance of common stock for
   settlement of debt associated with
   TransAxis, Inc. (to be cancelled)                                                                   5,183,418         5,183

Issuance of common stock in error
   (to be cancelled)                                                                                   4,600,000         4,600

Issuance of common stock  for
   Unipay, Inc. acquisition
   (to be cancelled)                                                                                  10,000,000        10,000

Cancellation of shares issued as
   collateral for loan                                                                                (1,000,000)       (1,000)

Charge subscriptions receivable from
   officers and employees to compensation
</TABLE>

<TABLE>
<CAPTION>
                                        Additional      Share                                              Accumulated    Total
                                         Paid in       Cancell.      Deferred    Subscrip.    Accumulated  Other Comp. Stockholders'
                                         Capital      Receivable       Comp.     Receivable     Deficit     Inc.(Loss)    Equity
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------
<S>                                    <C>           <C>          <C>          <C>        <C>            <C>        <C>

Issuance of common stock for exercise
   of options by board member               490,000                               (450,000)                                  50,000

Fair value of warrants issued to
   consultants                              798,187                                                                         798,187

Issuance of common stock to
   employees for services                   260,000                  (190,000)                                               72,000

Issuance of common stock for
   investment in TransAxis, Inc.
   (to be cancelled)                        748,800    ($752,000)                                                               --

Issuance of common stock for
   settlement of debt associated with
   TransAxis, Inc. (to be cancelled)        673,845     (679,028)                                                               --

Issuance of common stock in error
   (to be cancelled)                        149,000     (153,600)                                                               --

Issuance of common stock  for
   Unipay, Inc. acquisition
   (to be cancelled)                        990,000    1,000,000                                                                --

Cancellation of shares issued as
   collateral for loan                     (97,000)                                                                         (98,000)

Charge subscriptions receivable from
   officers and employees to
   compensation                                                                    147,560                                  147,560
</TABLE>

                                       65

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      FOR THE TWO YEARS ENDED JUNE 30, 2004
                                  (continued)

<TABLE>
<CAPTION>

                                                                        Preferred Stock       Additional
                                               Series A                      Series B           Paid in          Common Stock
                                           Shares       Amount        Shares       Amount       Capital       Shares        Amount
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------
<S>                                       <C>        <C>          <C>        <C>         <C>          <C>         <C>
Adjustment  of deferred compensation

Reclassification of par value                                                                                                   990

Loss
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------

Balance at June 30, 2004                  1,000,000  $     1,000     2,500,000   $   2,500   $  2,229,558  475,524,252  $   475,524
                                       ============  ============  ============  ==========  =============  ==========  ============
</TABLE>

<TABLE>
<CAPTION>
                                        Additional      Share                                              Accumulated     Total
                                         Paid in       Cancell.      Deferred     Subscrip.   Accumulated  Other Comp. Stockholders'
                                         Capital      Receivable       Comp.     Receivable     Deficit     Inc.(Loss)    Equity
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------
<S>                                    <C>           <C>          <C>          <C>        <C>            <C>        <C>
Adjustment  of deferred compensation                                  (505,597)                                            (505,597)

Reclassification of par value                 (990)

Loss                                                                                           (6,387,985)      9,237    (6,378,748)
                                       ------------  ------------  ------------  ----------  -------------  ----------  ------------

Balance at June 30, 2004               $ 27,954,646  ($2,584,628)  ($1,396,290) (1,077,693)  ($22,011,474)    ($9,415)  $ 3,583,728
                                       ============  ============  ============  ==========  =============  ==========  ============
</TABLE>

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

                                       66

<PAGE>

                        FREESTAR TECHNOLOGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             TWELVE MONTHS   TWELVE MONTHS
                                                                 ENDED           ENDED
                                                                JUNE 30,        JUNE 30,
                                                                 2004            2003
                                                             -------------   ------------
<S>                                                          <C>             <C>
Cash flows from operating activities:
Net loss                                                     $ (6,335,273)   $(11,442,379)
Adjustments  to  reconcile  net loss to net
  cash provided by (used  for) operating activities:
        Gain on legal settlement                                 (825,459)             --
        Depreciation and amortization                             529,897         311,556
        Bad debt                                                       --           3,149
        Non-cash compensation                                   4,765,365       8,605,068
        Amortization of financing cost on convertible
           notes payable                                               --         234,918
        Amortization of discount for beneficial conversion
           features on convertible notes payable                       --         106,752
        Impairment of credit purchase                                  --         900,000
Changes in assets and liabilities:
    (Increase) decrease in assets
        Accounts receivable                                        (6,496)         32,617
        Inventories                                                    --          64,000
        Prepaid salaries - officers                               130,500          15,000
        Prepaid expense                                                --          52,018
        Deferred revenue                                          (31,761)             --
        Other current assets                                           --         (11,933)
        Other assets                                               18,966              --
    Increase (decrease) in liabilities
        Accounts payable and accrued expenses
                                                                  576,896          63,726
        Due to shareholders
                                                                 (251,875)             --
        Payment on line of credit
                                                                   (5,091)             --
        Accrued interest - advance from related parties            18,611          50,853
                                                             ------------    ------------
           Total adjustments                                    4,919,553      10,427,724
                                                             ------------    ------------

                Net cash used in operating activities          (1,415,720)     (1,014,655)
                                                             ------------    ------------
Cash flows from investing activities:
     Purchase of fixed assets                                      (9,473)         (3,360)
     Investment in Rahaxi                                              --         (11,113)
     Purchase of software and capitalized software cost          (598,856)       (159,658)
                                                             ------------    ------------

                Net cash used in investing activities            (608,329)       (174,131)
                                                             ------------    ------------
Cash flows from financing activities:
     Principal proceeds from line of credit agreement                  --          (6,063)
     Repayment on overdraft                                            --          (9,578)
     Proceeds from issuance of notes payable                           --         350,000
     Proceeds from sale of common stock                         1,576,547         730,000
     Proceeds from exercise of stock options/warrants             387,500         415,000
     Advances (repayments) from related party, net                     --          54,531
                                                             -------------   ------------

                Net cash provided by financing activities       1,964,047       1,533,890
                                                             -------------   ------------

Net increase (decrease) in cash and cash equivalents              (60,002)        345,104

Foreign currently translation adjustments                           1,784         (83,122)

Cash and cash equivalents, beginning of period                    264,423           2,441
                                                             -------------   ------------

Cash and cash equivalents, end of period                     $    206,205    $    264,423
                                                             =============   ============
                                       67

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

                                                                         TWELVE MONTHS   TWELVE MONTHS
                                                                             ENDED           ENDED
                                                                            JUNE 30,        JUNE 30,
                                                                              2004           2003
                                                                         -------------   -------------

Supplemental disclosure of cash flow information:

       Interest paid                                                     $      23,795   $     30,685
                                                                         =============   =============

       Income tax paid                                                   $         --    $         --
                                                                         =============   =============

    Shares, options, and warrants issued for services                    $ 5,095,775     $  5,221,068
                                                                         =============   =============

    Shares issued as employee compensation                               $   262,000     $         --
                                                                         =============   =============

    Shares issued to acquire TransAxis, Inc. (to be cancelled)           $   752,000     $         --
                                                                         =============   =============

    Shares issued to satisfy debt of TransAxis, Inc. (to be cancelled)   $   679,028     $         --
                                                                         =============   =============

    Shares issued in connection with Unipay, Inc. acquisition            $ 1,000,000     $         --
                                                                         =============   =============

    Shares issued in error (to be cancelled)                             $   153,600     $         --
                                                                         =============   =============
    Cancellation of note payable to related party and cancellation
      of 1,000,000 shares to third party in relation to legal settlement $   825,459     $         --
                                                                         =============   =============

    Issuance of shares of preferred stock as executive compensation      $        --     $  1,800,000
                                                                         =============   =============

    Intrinsic value of options issued to executive compensation          $        --     $    800,000
                                                                         =============   =============

    Shares of common stock issued as director's fees                     $        --     $    784,000
                                                                         =============   =============

</TABLE>

                                       68

<PAGE>

                         FREESTAR TECHNOLOGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

<TABLE>
<CAPTION>
                                                                         TWELVE MONTHS   TWELVE MONTHS
                                                                             ENDED           ENDED
                                                                            JUNE 30,        JUNE 30,
                                                                              2004            2003
                                                                         -------------   -------------
<S>                                                                      <C>          <C>
Assets acquired - adjusted                                               $         --    $   4,742,464
                                                                         =============   =============

Liabilities assumed                                                      $         --    $    (735,260)
                                                                         =============   =============

Foreign current translation adjustment                                   $         --    $      (8,204)
                                                                         =============   =============

Issuance of shares to acquire Rahaxi Procession Oy                       $         --    $   3,999,000
                                                                         =============   =============

Discount for beneficial conversion features on convertible notes payable $         --    $     106,752
                                                                         =============   =============

Issuance of 4,000,000 shares of common stock to replace shares
  a shareholder contributed for a debt conversion                        $         --    $     270,000
                                                                         =============   =============

Issuance of 7,000,000 shares of common stock for unpaid accrued
  salaries to officers and salaries for future period                    $         --    $     343,000
                                                                         =============   =============

Debt to related party incurred in relation to convertible
  notes payable and related accrued expenses paid off
  by shares owned by president of the company                            $         --    $     679,869
                                                                         =============   =============

</TABLE>

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

                                       69

<PAGE>

                        FREESTAR TECHNOLOGY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2004 AND 2003

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS ACTIVITY:

The   FreeStar   Technology   Corporation   (formerly   Freestar   Technologies)
("Company"),  was  formed on  November  17,  1999 as a Nevada  corporation.  Its
principal  offices are in Santo Domingo,  Dominican  Republic.  The Company is a
provider of payment  services and  processing.  The Company has offices in Santo
Domingo,  Dominican Republic;  Helsinki,  Finland;  Dublin, Ireland; and Geneva,
Switzerland.

The  Registrant  intends to increase  revenue from its core  payment  processing
products,  which include:  (1)Authorization:  transaction  fees it receives from
processing online point of sale terminal transactions; (2) Sale of Point of Sale
Solutions:  sales  of  "Point  of Sale"  terminals  as well as  integrated  cash
register  systems;  (3)  transaction  fees  stemming  from its Internet  Payment
Gateway;  (4) Dynamic Currency  Conversion credit card services to merchants and
acquiring  banks (the  company  will provide  transaction  gateway  services and
settlement with participating  banking  institutions);  (5) Private Label Cards:
transaction  management  services provided for a private label card issuer;  and
(6) Consulting Fees: consulting services provided to financial  institutions and
merchants.

ACQUISITION AND CORPORATE RESTRUCTURE:

On August 10, 2001, the Company purchased all of the assets of ePayLatina, S.A.,
a privately held company formed in May 2001, in exchange of 1,000,000  shares of
Series A convertible preferred stock in The Company. These preferred shares will
convert  to  12,000,000  shares of  common  stock  over a period of three  years
commencing  twelve months after the consummation of this transaction  subject to
minimum earnings criteria. As of June 30, 2004 and 2003, the Company has not met
the minimum  requirements  of converting  these  shares.  This  acquisition  was
approved by the both companies' shareholders.

For accounting  purposes,  the  acquisition was accounted for using the purchase
method,  with  ePayLatina,   S.A.  as  the  accounting  acquirer  in  a  reverse
acquisition.  Therefore,  the historical equity of the Company has been adjusted
to reflect  the  conversion  of  ePayLatina,  S.A.  common  stock to that of the
Company.  Additionally,  as a  reverse  acquisition,  the  historical  operating
results prior to the acquisition are those of ePayLatina,  S.A. and include only
the transactions of the Company after the acquisition.  Pursuant to the terms of
the Asset Purchase Agreement,  by and between the Company and ePayLatina,  S.A.,
certain Company  shareholders were to receive 6,667,000 shares of FreeStar stock
after the  acquisition.  These  issued  shares  were later in  dispute  and were
cancelled  on April 23,  2002.  The  Company did not  recognize  goodwill or any
intangible  assets in connection with the transaction.  While the transaction is
accounted  for using  the  purchase  method  of  accounting,  in  substance  the
agreement is a recapitalization of the Company's capital structure.

                                       70

<PAGE>

Following the acquisition,  the Company adopted  ePayLatina,  S.A.'s fiscal year
end, June 30.

On  September  24,  2002,  the Company  entered  into an  agreement  to purchase
privately held Rahaxi Processing Oy.  ("Rahaxi",  the "Rahaxi  Acquisition"),  a
Northern  European online credit card  processing  enterprise  headquartered  in
Helsinki,  Finland, from Heroya Investments Limited ("Heroya").  Rahaxi provides
full card  payment  processing,  transaction  authorization,  data  capture  and
settlement facilities for Visa, MasterCard,  American Express,  Diners Club, JCB
and all  bank-issued  domestic  debit  cards.  Rahaxi also  provides  specialist
value-added  processing  applications for fleet,  fuel and loyalty card schemes.
The Company  currently offers a multi-currency  facility to merchants in Finnish
Marks,  Euros and  Estonian  Crowns.  However the systems are fully  prepared to
handle a variety  of  currencies,  subject  to the  sponsoring  bank  having the
required currency facilities via Visa and/or MasterCard.

The terms of the Rahaxi  Acquisition  were amended in December 2002, in February
2003,  and a third time in June 2003.  The final  terms call for the  Company to
issue an aggregate of 53,300,000 shares of its common stock in exchange for 100%
of the stock of Rahaxi.

Subsequent to its  acquisition  of Rahaxi,  the Company has shifted its business
focus on payment  processing in the European market. The majority of its revenue
for the years ended June 30, 2004 and 2003 was generated  from  processing  fees
through  Rahaxi.  The  Company  will  continue  to expand its  business to other
European markets outside Finland.

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  $6,335,273  for the year ended
June 30, 2004,  and has an  accumulated  deficit of  $22,011,474  as of June 30,
2004.

The Company cannot be certain that anticipated  revenues from operations will be
sufficient to satisfy its ongoing capital  requirements.  Management's belief is
based on the Company's  operating  plan,  which in turn is based on  assumptions
that  may  prove to be  incorrect.  If the  Company's  financial  resources  are
insufficient  the Company may 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 expansion,
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.

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 both on the
public  market and in private  placements to  individual

                                       71

<PAGE>

investors.  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.

PRINCIPLES OF CONSOLIDATION:

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly owned subsidiaries ePayLatina, S.A. and Rahaxi Processing
Oy. The consolidation of Rahaxi Processing Oy is effective January 16, 2003. All
material intercompany transactions have been eliminated upon consolidation.

REPORTING PERIOD:

The consolidated  financial  statements have been prepared and presented for the
years  ended  June 30,  2004 and  2003.  The  Company's  consolidated  financial
statements  for the year ended June 30, 2003 includes the  operations for Rahaxi
Processing  Oy.  from  January  16,  2003,  the  effective  date  of the  Rahaxi
acquisition.

USE OF ESTIMATES:

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

REVENUE RECOGNITION:

The Company recognizes revenue when products are shipped or services provided to
its customers.  Provisions for discounts and other  adjustments are provided for
in the same period the related sales are recorded.

Processing  fee revenue is earned based upon the actual  number of  transactions
processed  through  its  processing  system.  Transaction  processing  fees  are
recognized in the period that the service is  performed.  These fees are charged
on a per  transaction  basis,  depending on the  arrangement  with the customer.
Prebilling for estimated number of transactions  processed in the future periods
was classified as deferred revenue.

                                       72

<PAGE>

CASH AND CASH EQUIVALENTS:

Cash  equivalents  include all highly  liquid  debt  instruments  with  original
maturities  of  three  months  or less  which  are not  securing  any  corporate
obligations. The Company had no cash equivalents at June 30, 2004 and 2003.

ACCOUNTS RECEIVABLE:

The Company  provides an allowance for doubtful  accounts equal to the estimated
uncollectible  amounts. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts  receivable.  It
is reasonably possible that the Company's estimate of the allowance for doubtful
accounts will change.  Accounts receivable are presented net of an allowance for
doubtful   accounts   of  $33,124  and  $37,854  at  June  30,  2004  and  2003,
respectively.

PROPERTY AND EQUIPMENT:

Property and equipment are valued at cost.  Depreciation  and  amortization  are
provided  over the  estimated  useful lives up to four years using the declining
method.  Leasehold  improvements are amortized on a straight-line basis over the
term of the lease.

The estimated service lives of property and equipment are as follows:

Computer equipment         3 - 4 years
Leasehold improvements     3 years

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.

At June 30,  2004,  the  Company  has  capitalized  $504,887  of  costs  for the
development of software that has not yet been placed into service and upon which
amortization has not yet begun.

Software costs also include the Enhanced Transactions Secured Software ("ETSS"),
which was  originally  contributed  by the founder and president of  ePayLatina,
S.A. This software is essential

                                       73

<PAGE>

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 years.

SOFTWARE LICENSE - CUSTOMER RELATIONSHIPS AND CONTRACTS:

In  September  2002,  the  Company  engaged  an  independent  party to perform a
valuation  analysis in compliance  with SFAS No. 141,  "Accounting  for Business
Combinations." The Company initially allocated  $2,719,500 to the BAS24 software
license,  which represents the fair value of purchasing the license. On March 4,
2004, the Company received the analysis of the value of the Rahaxi acquisition.

In accordance with SFAS No. 141, the Company recognized  intangible assets other
than goodwill in the form of customer  relationships and contracts.  On March 4,
2004, the Company  revalued the intangible  asset at $1,967,204 and the software
license at $2,068,524.  With the existing  Rahaxi  goodwill of  $1,508,859,  the
Company re-allocated $458,345 of the costs from the software license to customer
relationships and contracts.

The software  license does not have an expiration  date.  Based on the Company's
assessment,  the estimated life of the software without any upgrade approximates
ten year. The software license cost is amortized on a straight-line basis over a
period of ten years.

The customer  relationships and contracts will continue to be amortized over the
same ten-year period as the license.

DEFERRED REVENUE:

Deferred revenue is recorded when estimated  future  processing fees were billed
in advance.  Deferred  revenue is recognized  when  payment-processing  fees are
earned.

RESEARCH AND DEVELOPMENT:

Research,  development, and engineering costs are expensed in the year incurred.
These  costs were  $15,400  for the year ended June 30, 2004 and $44,000 for the
year ended June 30, 2003.

LONG-LIVED ASSETS:

In  accordance  with  SFAS No.  144,  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.  SFAS No.  144
relates to assets that can be amortized and the life  determinable.  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

                                       74

<PAGE>

lower of  carrying  amount or fair value of asset less the cost to sell.  During
the year ended June 30,  2004,  there were no such  write-offs.  During the year
ended June 30, 2003, the Company wrote off a credit for the future  purchases of
inventories in the amount of $900,000.

GOODWILL:

Beginning in fiscal year ended June 30, 2003, with the adoption of SFAS No. 142,
"Goodwill and Other Intangible  Assets,"  goodwill is no longer  amortized,  but
instead  tested for  impairment  at least  annually.  As of June 30,  2003,  the
Company  performed  an  initial  goodwill  impairment  review  using the  market
capitalization  approach and determined goodwill was not impaired related to the
acquisition  of  Rahaxi.  During  the year  ended  June 30,  2004,  the  Company
performed  an  analysis  of the value  received  in the Rahaxi  acquisition  and
re-allocated  $1,967,204  of the costs from the  software  license  to  customer
relationships  and  contracts,  which  included the entire amount of goodwill of
$1,508,859. The Company has no goodwill on its balance sheet at June 30, 2004.

ADVERTISING:

The Company expenses  advertising costs when incurred.  There was no advertising
expense for the years ended June 30, 2004 or June 30, 2003.

INCOME TAXES:

Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets,  including tax loss and credit  carryforwards,  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Deferred  income tax  expense  represents  the  change  during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax  assets  and  liabilities  are   individually   classified  as  current  and
non-current  based on their  characteristics.  Realization  of the  deferred tax
asset is dependent on  generating  sufficient  taxable  income in future  years.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

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<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The  carrying  amount  of the  Company's  cash  and cash  equivalents,  accounts
receivable,  notes payable, bank overdraft, line of credit, accounts payable and
accrued  expenses,  none  of  which  is held  for  trading,  approximates  their
estimated  fair  values  due to the  short-term  maturities  of those  financial
instruments.

COMPREHENSIVE INCOME:

SFAS No. 130, "Reporting  Comprehensive  Income," establishes  standards for the
reporting  and  display  of  comprehensive  income  and  its  components  in the
financial  statements.  As of June 30,  2004 and 2003,  and for the  years  then
ended, the Company reported the foreign currency translation adjustment as other
comprehensive income (loss) in the consolidated financial statements.

BASIC AND DILUTED LOSS PER SHARE:

In accordance with SFAS No. 128, "Earnings Per Share," the basic loss per common
share is computed by dividing  net loss  available to common  stockholders  less
preferred dividends by the weighted average number of common shares outstanding.
Diluted  loss per common  share is computed  similarly  to basic loss per common
share,  except  that the  denominator  is  increased  to  include  the number of
additional  common  shares  that would have been  outstanding  if the  potential
common  shares had been  issued and if the  additional  common  shares  were not
anti-dilutive.  The Company  has  excluded  all  outstanding  warrants  from the
calculation  of  diluted  net  loss  per  share  because  these  securities  are
anti-dilutive.

CONCENTRATIONS OF CREDIT RISK:

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist primarily of sales with customers.  Credit risk is generally
relatively  high as a result  of the  limited  numbers  of its  customers  since
inception,  which are located primarily in Dominican  Republic and Finland.  The
Company extends credit to its customers as determined on an individual basis and
has  included an allowance  for doubtful  accounts of $33,126 and $37,854 in the
June 30, 2004 and 2003 balance sheets,  respectively.  The Company's two largest
customers accounted for approximately 13% and 7% of its sales for the year ended
June 30, 2004, and 14% and 11% of its sales for the year ended June 30, 2003.

Additionally,  the Company places its cash and temporary cash  investments  with
credit quality institutions.  At times, such investments may be in excess of the
FDIC insurance limit. The Company  periodically reviews its trade receivables in
determining its allowance for doubtful accounts.


                                       76
<PAGE>

SEGMENT REPORTING:

Based on  management's  representation,  the Company  operates  in two  business
segments:  the sale of its  secure  transaction  processing  PaySafe  System and
transaction processing fees generated by Rahaxi, its wholly-owned subsidiary.

FOREIGN CURRENCY TRANSLATION ADJUSTMENT:

The Company's  operations are  principally in Dominican  Republic under the name
ePayLatina  S.A.,  which are  operated  in its  local  currency,  the  Dominican
Republic Peso and in Helsinki Finland under the Rahaxi  Processing Oy., operated
in its local  currency,  the Euro. 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 $(9,415) and $(18,652) for the years
ended June 30, 2004 and 2003, respectively.

STOCK-BASED COMPENSATION:

The Company accounts for stock-based  compensation in accordance with Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees,"  and  complies  with the  disclosure  provisions  of SFAS  No.  123,
"Accounting for Stock-Based  Compensation."  Under APB No. 25, compensation cost
is recognized  over the vesting period based on the excess,  if any, on the date
of grant of the fair value of the Company's shares over the employee's  exercise
price.  When the exercise  price of the option is less than the fair value price
of the  underlying  shares on the grant date,  deferred  stock  compensation  is
recognized  and amortized to expense in  accordance  with  Financial  Accounting
Standards  Board ("FASB")  Interpretation  No. 44 over the vesting period of the
individual options. Accordingly, if the exercise price of the Company's employee
options equals or exceeds the market price of the underlying  shares on the date
of grant, no compensation expense is recognized. Options or shares awards issued
to non-employees are valued using the  Black-Scholes  pricing model and expensed
over the period services are provided.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  -  Transition  and   Disclosure,"   which  amends  SFAS  No.  123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based  employee  compensation.  In addition,  SFAS No. 148 expands the
disclosure requirements of SFAS No. 123 to require more prominent disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results.  The  transition  provisions  of SFAS No. 148 are  effective for fiscal
years ended after December 15, 2002. The transition  provisions do not currently
have an impact on the Company's  consolidated  financial position and results of
operations as the Company has not elected to adopt the fair  value-based  method
of accounting  for  stock-based  employee  compensation  under SFAS No. 123. The
disclosure provisions of SFAS No. 148 are effective for financial statements for
interim  periods  beginning  after  December 15, 2002.  The Company  adopted the
disclosure requirements in the third quarter of fiscal 2003.

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<PAGE>

For purposes of pro forma  disclosures,  the estimated fair value of the options
is  amortized  over  the  options'  vesting  period.  The  Company's  pro  forma
information was as follows:

                                2004            2003
                           ------------    ------------
Net loss, as reported      $ (6,335,273)   $(11,442,379)
Compensation  recognized
under APB No. 25                500,000         900,000
Compensation recognized
Under SFAS 123                 (557,696)       (900,569)
                           ------------    ------------
Pro forma net loss         $ (6,392,969)   $(11,442,948)
                           ============    ============

Pro forma loss per share   $      (0.02)   $      (0.10)
                           ============    ============

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS:

In April 2003,  the FASB issued SFAS No. 149,  "Amendments  of Statement  133 on
Derivative  Instruments  and Hedging  Activities,"  which  amends and  clarifies
financial accounting and reporting for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging  activities
under SFAS No. 133. This  pronouncement is effective for contracts  entered into
or  modified  after June 30,  2003 (with  certain  exceptions),  and for hedging
relationships  designated  after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's consolidated financial statements.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  a  company  classifies  and  measures  certain
financial  instruments with  characteristics of both liabilities and equity, and
is effective for public  companies as follows:  (i) in November  2003,  the FASB
issued FASB Staff Position ("FSP") No. 150-03, which defers indefinitely (a) the
measurement  and  classification  guidance  of SFAS No. 150 for all  mandatorily
redeemable   non-controlling   interests   in  (and   issued  by)   limited-life
consolidated subsidiaries, and (b) SFAS No. 150's measurement guidance for other
types of mandatorily redeemable  non-controlling  interests,  provided they were
created before November 5, 2003; (ii) for financial  instruments entered into or
modified  after May 31, 2003 that are outside  the scope of FSP No.  150-3;  and
(iii)  otherwise,  at the beginning of the first interim period  beginning after
June 15, 2003. The Company adopted SFAS No. 150 on the aforementioned  effective
dates. The adoption of this  pronouncement did not have a material impact on the
Company's results of operations or financial condition.

In  December  2003,  the FASB  issued a revision  of SFAS No.  132,  "Employers'
Disclosures   About   Pensions   And  Other   Postretirement   Benefits."   This
pronouncement,  SFAS No. 132-R,  expands  employers'  disclosures  about pension
plans and other post-retirement benefits, but does not change the measurement or
recognition of such plans required by SFAS No. 87, No. 88, and No. 106. SFAS No.
132-R retains the existing disclosure requirements of SFAS No. 132, and requires
certain  additional  disclosures  about defined benefit  post-retirement  plans.
Except as described in the following  sentence,  SFAS No. 132-R is effective for
foreign  plans for fiscal years ending after June 15, 2004;  after the effective
date, restatement for some of the new disclosures

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<PAGE>

is required for earlier annual periods.  Some of the interim-period  disclosures
mandated by SFAS No. 132-R (such as the components of net periodic benefit cost,
and certain key  assumptions)  are  effective  for  foreign  plans for  quarters
beginning after December 15, 2003; other interim-period  disclosures will not be
required for the Company until the first quarter of 2005. Since the Company does
not have  any  defined  benefit  post-retirement  plans,  the  adoption  of this
pronouncement  did not have any impact on the Company's results of operations or
financial condition.

Other significant recent accounting pronouncements issued by the FASB (including
its Emerging Issues Task Force  ("EITF")),  the American  Institute of Certified
Public  Accountants,  and the SEC are discussed  elsewhere in these notes to the
consolidated  financial  statements.  In the opinion of management,  significant
recent accounting  pronouncements  did not or will not have a material effect on
the consolidated financial statements.

(2)      BUSINESS ACQUISITIONS:

EPAYLATINA, S.A.:

On August 10, 2001, the Company purchased all of the assets of ePayLatina, S.A.,
a privately held company,  formed in May 2001, in exchange for 1,000,000  shares
of Series A convertible  preferred stock in the Company.  These preferred shares
shall convert to 12,000,000  shares of common stock over a period of three years
commencing  twelve months after the consummation of this transaction  subject to
minimum earnings criteria.  The holders of Series A convertible  preferred stock
are entitled to twelve votes for each share held.  As of June 30, 2004 and 2003,
the Company has not met the minimum  requirements  of  converting  these shares.
This acquisition was approved by the both companies' shareholders.

Pursuant  to the terms of the  Asset  Purchase  Agreement,  by and  between  the
Company and  ePayLatina,  S.A.,  certain  Company  shareholders  were to receive
6,667,000 shares of the Company stock after the acquisition. These issued shares
were later in dispute and were  cancelled  on April 23,  2002.  Since the former
owners of ePayLatina took effective control after the exchange,  he exchange was
accounted for using the purchase method with ePayLatina,  S.A. as the accounting
acquirer  in a reverse  acquisition.  Therefore,  the  historical  equity of the
Company has been adjusted to reflect the conversion of ePayLatina,  S.A.  common
stock  to that of the  Company.  Additionally,  as a  reverse  acquisition,  the
historical  operating  results prior to the acquisition are those of ePayLatina,
S.A. and include only the  transactions  of the Company  after the  acquisition.
Following the acquisition,  the Company adopted  ePayLatina,  S.A.'s fiscal year
end, June 30.

Assets and liabilities of ePayLatina S.A. are summarized as follows  immediately
prior to the acquisition:

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<PAGE>

Cash and cash equivalents               $ 227,731
Accounts receivable                        10,267
Other current assets                        4,704
Software cost                             448,583
Accounts payable and accrued expenses     (23,231)
Due to shareholder                       (293,557)
                                        ---------
                                        $ 374,497

RAHAXI PROCESSING OY.:

In September 2002, the Company entered into an acquisition agreement with Heroya
Investments  Limited  ("Heroya") for the purpose of acquiring 100% of the common
stock  of  Rahaxi  Processing  Oy.  The  original   acquisition   agreement  was
subsequently amended in December 2002, in February 2003, and again in June 2003.

During  the three  months  ended  December  31,  2003,  the  Company  engaged an
independent  firm to perform a valuation of Rahaxi.  Based on the results of the
valuation,  the Company  adjusted the allocation of the purchase price primarily
pertaining to the values assigned to intangible assets and goodwill.

The final  purchase  price and  allocation  of the purchase  price to the assets
acquired have been adjusted as follows:

<TABLE>
<CAPTION>
                                                                       Allocated as of
                                          June 30, 2003   Adjustments    As Adjusted
----------------------------------------  -------------   -----------    -----------
<S>                                        <C>            <C>            <C>
Fair market value of  FreeStar stock       $ 3,999,100                   $ 3,999,100
Cash paid to Heroya,  less cash
    received from acquisition                   10,913                        10,913
                                           -----------                   -----------
       Purchase price                      $ 4,010,013                   $ 4,010,013
Allocation of purchase price:
Accounts receivable                        $   160,208                   $   160,208
Other current assets                            10,973                        10,973
Property and equipment                          46,154                        46,154
Software                                       114,540                       114,540
Software license                             2,719,500    $  (458,345)     2,261,155
Customer relationships and contracts       $ 1,967,204      1,967,204
Accounts payable and accrued liabilities      (518,572)                     (518,572)
Deferred revenue                               (31,649)                      (31,649)
                                           -----------                   -----------
Goodwill                                     1,508,859    $(1,508,859)             0
                                           -----------                   -----------
Purchase price, net of  cash received      $ 4,010,013                   $ 4,010,013
                                           ===========                   ===========
</TABLE>

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<PAGE>

Pro forma  results  of  operations  as if the  Rahaxi  Processing  Oy.  had been
acquired at the beginning of the fiscal year are as follows:

                                         2003
                                    ------------
Revenue:
  As reported                       $    563,832
                                    ============

  Pro forma                         $  1,111,302
                                    ============

Net loss:
  As reported                       $(11,442,379)
                                    ============

  Pro forma                         $(11,590,585)
                                    ============

Basic and diluted loss per share:

  As reported                       $      (0.10)
                                    ============

  Pro forma                         $      (0.08)
                                    ============

TRANSAXIS, INC.:

On September 24, 2003, the Company entered into a stock purchase  agreement with
certain shareholders of TransAxis,  Inc. ("TransAxis") (formerly Digital Courier
Technologies,  Inc.) for the  acquisition  of a majority of the common  stock of
this  publicly  held  company  ("TA  Acquisition  Agreement").  The terms of the
acquisition  provide for the Company to purchase a majority of the common  stock
of  TransAxis,  that  consist of the  following:  (b) 373,382  shares of Company
common stock issued and  outstanding;  and (b) the 2,916,533 shares that will be
outstanding  upon the  conversion of $349,984 in debt of TransAxis  ("Conversion
Right").  The Conversion Right, which was part of a settlement agreement between
Don Marshall,  the former CEO of TransAxis,  and TransAxis,  was assigned by Mr.
Marshall to the Company. In exchange the Company is to issue on a pro rata basis
based on the  sellers'  current  percentage  beneficial  ownership  of TransAxis
common stock  (including the beneficial  ownership of the TransAxis common stock
represented by the Conversion  Right) the aggregate  number of shares of Company
common stock which is the greater of (i) 7,000,000  shares of common  stock,  or
(ii) that number of shares of common  stock equal to  $1,260,000  divided by the
average  closing bid price per share of the common  stock on the five days prior
to the closing date.

On October 8, 2003,  the  parties  amended  the TA  Acquisition  Agreement.  The
following was amended under this document:

          (a)  The  Registration  Rights  Agreement  was  amended  so  that  the
          Registrant is to use commercially  reasonable  efforts to cause a Form
          SB-2 registration  statement covering re-sales of all of the shares of
          Registrant common stock to be issued to or on behalf of the Sellers at
          the  closing  to be filed  with the SEC  within  180  days  after  the
          closing.  Thereafter, the Registrant is to use commercially reasonable
          efforts to have this  registration  statement  declared  effective  as
          promptly  as  possible,   and  to  keep  this  registration  statement
          effective   until  the   earlier  of  (i)  one  year   following   the
          effectiveness  date or (ii) that date on which all of the common stock
          covered by the  registration  statement may be resold without  further
          restriction pursuant to Rule 144 under the Securities Act of 1933.

                                       81

<PAGE>

          (b) The parties to the  agreement  concur that the original  amount of
          Registrant  common  stock  to be  issued  in  connection  with  the TA
          Acquisition  Agreement is 31,500,000 shares, but that due to a certain
          liability of TransAxis,  the total amount of common stock to be issued
          by the  Registrant  is reduced to  25,312,053.  In addition,  due to a
          missing stock  certificate of that Registrant,  the Registrant will be
          required to deliver a further  reduced total of  25,183,418  shares of
          common stock at the closing,  with the remaining  128,585  shares only
          upon delivery to the Registrant the missing stock certificate.

On February 20, 2004, the parties further  amended the TA Acquisition  Agreement
("Amendment  No. 2").  The  Registrant  claimed that it had  identified  certain
accounting-related  deficiencies  in the books of  TransAxis  which  predate the
closing  date,  and that such  deficiencies  have and will  continue to preclude
TransAxis from being able to obtain audited financial  statements  without undue
effort  and  expense.  In order to avoid  the  cost of  litigation  and  further
disputes and  negotiation,  The  Registrant  and TransAxis  agreed to reduce the
number of shares issuable under the TA Acquisition  Agreement from 25,183,418 to
3,200,000,  which were actually  issued.  In exchange,  the Registrant  actually
received  350,900  shares of TransAxis  stock,  or 43.5% of the total issued and
outstanding shares of 805,000, with a right to receive an additional 22,482 lost
shares of common stock and 2,916,533 shares of common stock upon the exercise of
the Conversion  Right. The Registrant never exercised the Conversion  Right, and
never  controlled a majority of the common stock of  TransAxis.  The Company and
TransAxis have rescinded the Conversion  Right,  effective on June 17, 2004, but
the Company retains its claim for $349,984.

After  extensive  discussions and following the unanimous  determination  of The
Registrant's Board of Directors,  the Registrant has terminated the TA Agreement
as of June 17, 2004. This decision was based on both TransAxis' and the sellers'
failure to disclose  material  liabilities and  contingencies in connection with
that company,  as well as their failure to comply with their  obligations  under
the agreement. The Registrant believes that it will recover the 3,200,000 shares
issued under the TA Acquisition Agreement.

On October 14, 2003, Don Marshall,  the former director of TransAxis,  appointed
Paul Egan and Ciaran  Egan,  as directors of  TransAxis;  he then  resigned as a
director.  On December 8, 2003,  Fionn  Stakelum was  appointed as a director of
TransAxis.  As of August 24, 2004,  Paul Egan,  Ciaran Egan,  and Fionn Stakelum
resigned as directors of TransAxis.

BROWN SIMPSON SETTLEMENT:

Prior to the execution of the TA Acquisition Agreement, TransAxis had incurred a
liability to Brown Simpson Partners I, Ltd.  ("Brown  Simpson") in the amount of
approximately  $1,400,000.  During the three months ended December 31, 2003, the
Company  entered  into a  settlement  agreement  with Brown  Simpson (the "Brown
Simpson Settlement  Agreement") whereby the Company would issue to Brown Simpson
5,183,418  shares of Company  common stock and pay the amount of $10,000 in cash
in return for Brown  Simpson's  dismissal of all its claims against the Company.
These shares were issued on December 30, 2003.

                                       82

<PAGE>

In June 2004, the Company cancelled the Brown Simpson Settlement Agreement.  The
Company  believes it will receive the 5,183,418 shares that were issued to Brown
Simpson.  These shares are shown as  outstanding  on the Company's  consolidated
balance sheet at June 30, 2004,  and the amount of $679,028  pertaining to these
shares is shown as share cancellation receivable.

UNIPAY, INC.:

On May 17, 2004, the Company announced the acquisition of Unipay,  Inc.'s Smokey
Mountain payment processing  division in Murphy,  North Carolina on May 4, 2004.
This division  currently  processes  payment  transactions (via credit cards and
debit cards) through many of the largest processors, and has the ability to be a
direct  processor with full settlement  capabilities.  Unipay  processes  client
transactions  using its  proprietary  technology,  Cyber-Terminal  and Universal
Payment  software.  The  Company  agreed  to pay  $150,000  in  cash  and  issue
10,000,000  restricted shares of common stock (valued at $1,000,000) in exchange
for the assets of the division.

On June 14, 2004, the Company informed Unipay and its sole shareholder, Unicomp,
Inc.  that due to the  failures of these  parties to the  purchase  agreement to
perform as required under this agreement, including blocking access to the North
Carolina  premises,  preventing  transfer  of  assets,  and  failing  to deliver
business  and other  documents,  the purchase  transaction  is  terminated.  The
Company  actually paid $25,000 in connection  with this agreement and issued the
10,000,000  restricted  shares;  the Company  expects to recover the  10,000,000
shares and will cancel them upon receipt.

(3)      ACCOUNTS RECEIVABLE:

A summary is as follows:

                                        June 30,
                                    2004        2003
                                  --------   --------
Trade                             $184,104   $174,346
Allowance for doubtful accounts     33,124     37,584
                                  --------   --------
                                  $150,980   $136,762
                                  ========   ========

(4)      CREDITS AND DEPOSITS FOR FUTURE PURCHASE OF INVENTORIES:

At June 30,  2002,  the  Company had a credit to  purchase  its PaySafe  devices
"ePayPad." This credit was contributed by the Company's major shareholder. Under
the agreement with Connex Technologies,  Inc. ("Connex"),  formerly Asia Pacific
Micro,  S.A., the Company has available  $900,000 credit against the purchase of
ePayPad based on applying a $15 credit per unit for 60,000 units.

At June 30,  2003,  management  was  doubtful  that the Company will realize the
credit  and was  unable  to  access  the  credit's  future  benefit;  management
conservatively  reserved  the  balance as the future  benefit is  impaired.  The
eventual  utilization of this credit, if any, will be applied against any future
inventory purchases as such purchases are made.

                                       83

<PAGE>

(5)      GOODWILL:

During the year ended June 30, 2003,  the Company  adopted  SFAS No. 142,  which
requires the Company to stop amortizing  goodwill and certain  intangible assets
with an indefinite useful life. Instead, SFAS No. 142 requires that goodwill and
intangible  assets  deemed to have an  indefinite  useful life be  reviewed  for
impairment upon adoption of SFAS No. 142 and annually thereafter. Under SFAS No.
142, goodwill impairment is deemed to exist if the net book value of a reporting
unit  exceeds  its  estimated  fair  value.  As of June 30,  2003,  the  Company
performed an initial goodwill impairment review using the market  capitalization
approach  and  determined  that no goodwill  impairment  existed  related to the
acquisition of Rahaxi.

During  the three  months  ended  December  31,  2003,  the  Company  engaged an
independent  firm to perform a valuation of Rahaxi.  Based on the results of the
valuation,  the Company  adjusted the allocation of the purchase price primarily
pertaining to the values assigned to intangible assets and goodwill.

See Note 2 regarding further  discussions  pertaining to the "allocation period"
for purchase price adjustments.

The change of carrying  value of the goodwill is  summarized  as follows at June
30:

                                                        2004            2003
                                                     -----------    -----------
Balance at the beginning of the year:                $ 1,508,859    $        --
  Goodwill reclassified to other intangible assets    (1,508,859)            --
  Goodwill acquired during the year                           --      1,508,859

  Impairment loss during the year                             --            --
                                                     -----------    -----------
Balance at the end of the year                       $        --    $ 1,508,859
                                                     ===========    ===========

(6)      PROPERTY AND EQUIPMENT:

A summary is as follows:
                                                      June 30,
                                                    2004      2003
                                                 -------   -------
               Computer Equipment                $55,769   $68,045
               Leasehold Improvements              7,308     3,842
                                                 -------   -------
                                                  63,077    71,887
               Less accumulated depreciation
                  and amortization                18,967    21,700
                                                 -------   -------
                                                 $44,110   $50,187
                                                 =======   =======

Depreciation  and  amortization  expense for property and equipment  amounted to
$23,994  and $12,779  respectively,  for the years ended June 30, 2004 and 2003,
respectively.

During the year ended June 30, 2004, the Company upgraded its computer  hardware
by entering into a lease in conjunction with the new software  acquisition.  The
Company  received a trade-in

                                       84

<PAGE>

value of $26,427 for the equipment that had a net value of $23,479. The trade-in
resulted into a gain of $2,480.

During 2004, accumulated  depreciation decreased  approximately $31,000. The new
equipment  was  acquired  under  an  operating  lease  and was not  capitalized.
Depreciation expense is reduced by approximately $5,500 for the year ending June
30, 2005.

(7)      SOFTWARE AND SOFTWARE LICENSE:

A summary is as follows:

                                       June 30,
                                   2004         2003
                                ----------   ----------
"ETSS" Software                 $  231,237   $  231,237
Rahaxi System Software             345,776      154,447
Software development costs         599,645      203,956
                                ----------   ----------
                                 1,176,658      589,640
Less accumulated amortization      374,395      231,290
                                ----------   ----------
                                $  802,263   $  358,350
                                ==========   ==========

SOFTWARE LICENSE:

In relation  with the purchase of Rahaxi in January 2003,  $2,136,500,  the fair
value of the BAS24 Release 6, was allocated to the software license cost.

Amortization  expense for software  cost and software  license cost  amounted to
$378,058 and $298,777 for the years ended June 30, 2004 and 2003, respectively.

A summary is as follows:

                                       June 30,
                                   2004         2003
                                ----------   ----------
Software license                $2,261,155   $2,719,500
Less accumulated amortization      359,597      124,644
                                ----------   ----------
                                $1,901,558   $2,594,856
                                ==========   ==========

                                       85

<PAGE>

(8)      CUSTOMER RELATIONSHIPS AND CONTRACTS:

During the three months ended December 31, 2003,  based on a valuation report of
Rahaxi performed by an independent  firm,  $1,967,204 was allocated to the value
of  customer   relationships   and  contracts.   Accumulated   amortization  and
amortization expense amounted to $158,787 as of June 30, 2004.

(9)      LINE OF CREDIT AND NOTES PAYABLE:

BANK CREDIT LINE:

The Company had an  unsecured  note  payable  with Banc  Nacional de Credito,  a
Dominican  Republic  bank,  of  $5,091 at June 30,  2003.  The note  carries  an
interest  rate of 48% per annum and is payable on demand.  The Company paid this
note during the twelve months ended June 30, 2004.

NOTE PAYABLE:

On March 25, 2002, the Company entered into financing agreements with Boat Basin
Investors LLC and Papell Holdings,  Ltd. Under the terms of the agreements,  the
Company issued 8% convertible notes payable to these two parties, in the amounts
of $70,000 and $200,000.  These  convertible  notes matured on March 1, 2003 and
were  collateralized  by 4,000,000  restricted shares of common stock pledged by
the majority  stockholder.  The notes were convertible after 61 days into common
stock at the lower of 80% of the  average  closing  bid price at the  conversion
date. If the Company, at any time while these notes are outstanding, does any of
the  following,  (a) pay stock dividend or any form of  distributions  on common
shares,  (b)  subdivide  outstanding  shares of the  common  stock into a larger
number of  shares,  (c)  combine  outstanding  shares of the  common  stock into
smaller number of shares, or (d) issue by  reclassification  of shares of common
stock any shares of capital stock of the Company,  the conversion price shall be
revised per a pre- defined formula.  During the period ended June 30, 2002, none
of the principal  amount was converted to common stock.  The interest is payable
on the earlier of the conversion date of the notes or the maturity date with any
unpaid  interest at an  accelerated  rate of 18%.  Furthermore,  the Company was
required to file a registration statement by May 25, 2002 for 200% of the number
of shares the notes plus accrued interest can be converted into.

In  addition,  since this debt is  convertible  into equity at the option of the
note holder at beneficial  conversion rates, an embedded  beneficial  conversion
feature will be recorded as a debt  discount and  amortized  using the effective
rate over the life of the debt in accordance  with EITF No.  00-27.  The Company
recorded a discount of $83,077 and amortized $20,769 as interest expense for the
period  ended  June 30,  2002.  Any  unamortized  debt  discount  related to the
beneficial   conversion  feature  will  be  charged  to  interest  expense  upon
conversion.

The Company  defaulted on the  registration  requirement  and  consequently  was
required to pay the  investors a 9% penalty on the amount  borrowed.  As of June
30, 2002, the Company recorded $24,300 related to the penalties. During the year
ended June 30,  2003,  this lender  group  exercised  their  rights  against the
4,000,000 shares pledged by the president of the Company in full

                                       86

<PAGE>

satisfaction of the $270,000 note payable. The note originally was set to mature
in June 2003.

On June 27, 2002,  the Company  entered into a financing  agreement  with Papell
Holdings, Ltd., Boat Basin Investors LLC, vFinance, Inc., David Stefansky,  Marc
Siegal and Richard Rosenblum for a total of $400,000 in convertible notes. These
notes were secured by 14,400,000 shares of common stock pledged by the Company's
president.  The  Company  received  $60,000  of the  proceeds  in June  2002 and
$150,000 in the quarter ended  September 30, 2002. The Company  expensed  $2,262
during the year ended June 30, 2002. The remaining $190,000 represents financing
cost.  The Company  prorated the  financing  cost of $54,280 as of June 30, 2002
based on the cash receipts in June 2002. The remaining  $135,720 was recorded as
prepaid  financing  cost in the quarter ended  September  30, 2002.  The prepaid
financing cost is amortized over the term of the loan  (approximately one year).
The Company  recorded  $47,500 for the amortization of such cost for the quarter
ended  September 30, 2002, and fully amortized the remaining  prepaid  financing
cost of $140,238 during the quarter ended December 31, 2002.

These  notes  payable  were  convertible  into  equity at the option of the note
holders at  beneficial  conversion  rates,  an  embedded  beneficial  conversion
feature will be recorded as a debt  discount and  amortized  using the effective
rate over the life of the debt in accordance  with EITF No.  00-27.  The Company
has an unamortized  discount of $62,308 related to convertible  notes payable of
$270,000 as of June 30, 2002 and  recorded a discount of $44,444  related to the
$400,000  convertible  debts. The Company recorded  amortization of discounts of
$31,880 on these  convertible notes during the quarter ended September 30, 2002,
and fully  amortized the remaining  discount of $74,872 during the quarter ended
December 31, 2002.

In December  2002,  the Company  received an  additional  $237,000  less $37,000
financing fees from these same lenders.

In  December  2002,  this  lender  group  exercised  their  rights  against  the
14,400,000  shares pledged by the president of the Company in full  satisfaction
of the outstanding notes payable of $637,000,  interest payable of $18,569,  and
accrued  penalties of $24,300.  As of December 31, 2002, the Company  considered
the notes payable and related expenses  totaling $679,869 with this lender group
being paid off and has recorded a payable to the  president for this amount plus
accrued  interest of $23,795 at June 30, 2003. The Company  intends to issue new
stock to replace such pledged shares.  Prepaid financing cost and debt discounts
related to this convertible debt were expensed during the quarter ended December
31, 2002.

In March 2004,  this lender group entered into a settlement  agreement  with the
Company  regarding the debt described  above.  As part of the  settlement,  this
lender  group is  required  to  return  the  14,400,000  pledged  shares  to the
president of the Company and the company is relieved from any other indebtedness
to this lender group. Prior to this settlement, the Company considered the notes
payable of $679,869 and related interest of $47,590 totaling $727,459 payable to
the president  related to the his 14,400,000  shares given to this lender group.
The president of the Company agreed to relieve the liabilities of the company to
repay  $727,459 upon the  execution of this  settlement  agreement.  The Company
recorded a gain on legal  settlement of $727,459  during the year ended June 30,
2004.

                                       87

<PAGE>

In April 2004, this lender group returned  1,000,000  shares to the Company that
were issued to this lender group as collateral  for borrowings in June 2002. The
Company  recorded an additional gain on legal  settlement of $98,000 upon return
of these shares.

(10)     DUE TO RELATED PARTY:

The Company's president and a shareholder,  Paul Egan, has advanced funds to the
Company for its  operations.  These amounts  include  advances of $0 and accrued
interest  of $22,658 at June 30,  2004 and  advances  of  $240,389  and  accrued
interest of $50,853 at June 30, 2003.

The  Company's  chief  financial  officer and a  shareholder,  Ciaran Egan,  has
advanced funds to the Company for its operations. These amounts include advances
of $30,000 and accrued  interest  of $178 at June 30,  2004.  There were no such
advances or accrued interest by Mr. Ciaran Egan at June 30, 2003.

The Company  expects to repay these amounts as soon as sufficient cash flow from
operations is generated.  Interest on the unpaid balances is accrued at the rate
of 7% per annum.

(11)     INCOME TAXES:

Realization of deferred tax assets is dependent on future earnings,  if any, the
timing and amount of which is uncertain.  Accordingly a valuation allowance,  in
an  amount  equal to the net  deferred  tax  asset as of June 30,  2004 has been
established  to reflect  these  uncertainties.  As of June 30, 2004 and June 30,
2003,  the  deferred  tax asset  before  valuation  allowance  is  approximately
$7,111,000 and $4,921,000, respectively, for federal purposes.

Utilization  of  the  net  operating  loss  carryforwards  may be  subject  to a
substantial  annual limitation due to ownership change  limitations  provided by
the  Internal  Revenue  Code of 1986.  The annual  limitation  may result in the
expiration of net operating loss carryforwards before utilization.

Income tax  provision  amounted to $0 for the years ended June 30, 2004 and 2003
(an  effective  rate of 0%). A  reconciliation  of the  provision  (benefit) for
income taxes with amounts  determined  by applying the  statutory  U.S.  federal
income tax rate to income before income taxes is as follows:

<TABLE>
<CAPTION>
                                                              2004           2003
                                                          -----------    -----------
<S>                                                       <C>            <C>
Computed tax (benefit) at federal statutory rate of 34%   $(2,190,000)   $(3,887,000)
Estimated net operating loss carryforward limitation               --             --
Write-off of credit for future purchases of inventories            --        306,000
Change in valuation allowance                               2,190,000      3,581,000
                                                          -----------    -----------
                                                          $        --    $        --
                                                          ===========    ===========
</TABLE>

                                       88

<PAGE>


Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

                                                    2004           2003
                                                -----------    -----------
Deferred tax assets:
Allowance for doubtful accounts                 $     6,800    $    12,800
Impairment of credit for future purchases
   of inventories                                        --        306,000
Accrued vacation                                         --            600
Net operating losses carryforwards                7,104,200      4,601,600
                                                -----------    -----------
Net deferred assets before valuation allowance    7,111,000      4,921,000
Valuation allowance                              (7,111,000)    (4,921,000)
                                                $        --    $        --
                                                ===========    ===========

At June 30, 2004 and 2003, the Company has available unused net operating losses
carryforwards of approximately  $20,900,000 and $14,500,000,  respectively,  for
federal  purposes that may be applied against future taxable income and that, if
unused, begins to expire in 2022.

(12)     EQUITY COMPENSATION PLANS:

NON-EMPLOYEE DIRECTORS AND CONSULTANTS RETAINER STOCK PLAN:

On  October  25,  2001,  the  Company  adopted  a  Non-Employee   Directors  and
Consultants  Retainer  Stock Plan (the Company  adopted  Amendment No. 3 to this
plan on April 7,  2004).  The  purposes of the plan are to enable the Company to
promote the  interests of the Company by attracting  and retaining  non-employee
directors and consultants  capable of furthering the business of the Company and
by aligning  their  economic  interests more closely with those of the Company's
shareholders,  by paying their  retainer or fees in the form of shares of common
stock. A total of 60,000,000  shares of common stock have been registered  under
this plan as a result of Form S-8's filed with the SEC.  Through  June 30, 2004,
the  Company  had  issued  58,050,000  shares of common  stock  under this plan;
therefore,  1,950,000 shares of common stock remain to be issued under this plan
as of June 30, 2004.

STOCK INCENTIVE PLAN (STOCK OPTIONS):

On October 25, 2001,  the Company  adopted a Stock  Incentive  Plan (the Company
adopted  Amendment No. 2 to this plan on May 25, 2003). This plan is intended to
allow directors,  officers,  employees, and certain non-employees of the Company
to receive options to purchase Company common stock. The purpose of this plan is
to provide  these  persons with  equity-based  compensation  incentives  to make
significant and  extraordinary  contributions  to the long-term  performance and
growth  of the  Company,  and to  attract  and  retain  employees.  A  total  of
50,000,000  shares of common  stock have been  registered  under this plan under
Form  S-8's  filed  with the SEC.  Options  granted  under  this  plan are to be
exercisable  for a period of ten years from the grant date at whatever  price is
established by the board of directors,  in its sole  discretion,  on the date of
the grant.

For the  year  ended  June  30,  2003,  the  Company  granted  options  covering
16,500,000  shares of common  stock to its  employees  exercisable  at $0.01 per
share,  which was below the fair value on the grant date.  The Company  expensed
$900,000  related to the grant of these options.  The fair value of the warrants
was determined using the Black-Scholes option-pricing model.

                                       89

<PAGE>

On June 6,  2004,  the  Company  granted  to a board  member an option  covering
10,000,000  shares of common stock at an exercise price of $0.05 per share.  The
Company  recognized  an expense of  $500,000.  The fair value of the options was
determined using the intrinsic value method.

Through  June 30,  2004,  the Company had granted  options  covering  43,500,000
shares of common stock under this plan;  therefore,  6,500,000  shares of common
stock remain to be issued under this plan as of June 30, 2004.

The weighted  average  estimated fair value of stock options  granted during the
year ended June 30, 2004 and 2003 was $0.056 and $0.053 per share, respectively.
These amounts were  determined  using the  Black-Scholes  option-pricing  model,
which values  options  based on the stock price at the grant date,  the expected
life of the option, the estimated volatility of the stock, the expected dividend
payments,  and the risk-free interest rate over the expected life of the option.
The  assumptions  used in the  Black-Scholes  model for stock options granted in
2004 and 2003 were as follows:

                                             2004               2003
                                            -----               ----
Risk-free interest rate                     3.75%         3.27 to 4.05%
Expected volatility of common stock          108%           123 to 163%
Dividend yield                                 0%                    0%
Expected life of options                 1/2 year             1/12 year

The  Black-Scholes  option valuation model was developed for estimating the fair
value  of  traded  options  that  have no  vesting  restrictions  and are  fully
transferable.  Because  option  valuation  models  require the use of subjective
assumptions,  changes in these  assumptions can materially affect the fair value
of the options.  The Company's options do not have the characteristics of traded
options,  therefore,  the option valuation  models do not necessarily  provide a
reliable measure of the fair value of its options.

(13)     WARRANTS:

TWELVE MONTHS ENDED JUNE 30, 2003:

On December 11, 2002, the Company issued a warrant covering  4,500,000 shares of
common  stock to a  consultant  at an  exercise  price of $0.14 per  share.  The
Company  recognized  an expense of $177,796.  The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.99%,
(iii) expected volatility of 160%, and (iv) an expected life of 30 months

On February 13, 2003, the Company issued a warrant covering  3,500,000 shares of
common  stock to a  consultant  at an  exercise  price of $0.07 per  share.  The
Company  recognized  an expense of $249,638.  The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.87%,
(iii) expected volatility of 165%, and (iv) an expected life of 6 months.  These
warrants were exercised in February and March 2003.

                                       90

<PAGE>

On March 11, 2003, the Company  issued a warrant  covering  3,500,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.07 per  share.  The
Company  recognized  an expense of $274,584.  The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.59%,
(iii) expected volatility of 158%, and (iv) an expected life of 6 months.

On March 11, 2003, the Company issued an additional  warrant covering  3,500,000
shares of common stock to a consultant at an exercise  price of $0.10 per share.
The Company  recognized  an expense of $229,429.  The fair value of the warrants
was determined using the Black-Scholes  option-pricing model, with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.59%,
(iii) expected volatility of 158%, and (iv) an expected life of 6 months.

On March 13,  2003,  the Company  issued a warrant  covering  500,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.10 per  share.  The
Company  recognized  an expense of $40,880.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.73%,
(iii) expected volatility of 158%, and (iv) an expected life of 6 months.  These
warrants were exercised in March 2003.

On March 21, 2003, the Company  issued a warrant  covering  3,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.07 per  share.  The
Company  recognized  an expense of $382,209.  The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 4.09%,
(iii)  expected  volatility  of 126%,  and (iv) an  expected  life of 6  months.
794,117 of these  warrants  were  exercised in March 2003,  and 411,765 of these
warrants were exercised in April 2003.

On March 21, 2003, the Company  issued a warrant  covering  3,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.10 per  share.  The
Company  recognized  an expense of $321,777.  The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 4.09%,
(iii)  expected  volatility  of 126%,  and (iv) an  expected  life of 6  months.
794,117 of these  warrants were exercised in February 2003, and 411,764 of these
warrants were exercised in April 2003.

                                       91

<PAGE>


On April 25, 2003, the Company  issued a warrant  covering  1,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.13 per  share.  The
Company  recognized  an expense of $98,419.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.73%,
(iii) expected volatility of 124%, and (iv) an expected life of 6 months.  These
warrants were exercised in April 2003.

On April 29,  2003,  the Company  issued a warrant  covering  500,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.13 per  share.  The
Company  recognized  an expense of $41,089.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.73%,
(iii) expected volatility of 125%, and (iv) an expected life of 6 months.  These
warrants were exercised in April 2003.

On May 15, 2003, the Company issued a warrant  covering 500,000 shares of common
stock to a  consultant  at an  exercise  price of $0.08 per share.  The  Company
recognized an expense of $46,075.  The fair value of the warrants was determined
using the Black-Scholes  option-pricing  model, with the following  assumptions:
(i) no  expected  dividends,  (ii) a risk free  interest  rate of  3.73%,  (iii)
expected  volatility  of 123%,  and (iv) an  expected  life of 6  months.  These
warrants were exercised in May 2003.

On May 15, 2003,  the Company  issued an  additional  warrant  covering  500,000
shares of common stock to a consultant at an exercise  price of $0.10 per share.
The Company recognized an expense of $40,191. The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 3.73%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in May 2003.

On June 3, 2003, the Company issued a warrant  covering 500,000 shares of common
stock to a  consultant  at an  exercise  price of $0.06 per share.  The  Company
recognized an expense of $48,300.  The fair value of the warrants was determined
using the Black-Scholes  option-pricing  model, with the following  assumptions:
(i) no  expected  dividends,  (ii) a risk free  interest  rate of  3.73%,  (iii)
expected  volatility  of 123%,  and (iv) an  expected  life of 6  months.  These
warrants were exercised in June 2003.

On June 11, 2003, the Company issued a warrant covering 500,000 shares of common
stock to a  consultant  at an  exercise  price of $0.06 per share.  The  Company
recognized an expense of $34,465.  The fair value of the warrants was determined
using the Black-Scholes  option-pricing  model, with the following  assumptions:
(i) no  expected  dividends,  (ii) a risk free  interest  rate of  3.73%,  (iii)
expected  volatility  of 122%,  and (iv) an  expected  life of 6  months.  These
warrants were exercised in June 2003.

                                       92

<PAGE>

TWELVE MONTHS ENDED JUNE 30, 2004:

On July 1, 2003,  the  Company  issued a warrant  covering  1,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.05 per  share.  The
Company  recognized  an expense of $48,658.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in July 2003.

On July 1, 2003, the Company  issued an additional  warrant  covering  1,000,000
shares of common stock to a consultant at an exercise  price of $0.05 per share.
The Company recognized an expense of $48,658. The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in July 2003.

On July 14, 2003,  the Company  issued a warrant  covering  1,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.035 per share.  The
Company  recognized  an expense of $31,705.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in July 2003.

On July 28, 2003,  the Company  issued a warrant  covering  1,000,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.05 per  share.  The
Company  recognized  an expense of $24,311.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in July 2003.

On July 28, 2003, the Company issued an additional  warrant  covering  1,000,000
shares of common stock to a consultant at an exercise price of $0.035 per share.
The Company recognized an expense of $31,563. The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in July 2003.

On August 7, 2003, the Company  issued a warrant  covering  1,500,000  shares of
common  stock to a  consultant  at an  exercise  price of $0.023 per share.  The
Company  recognized  an expense of $44,661.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in August 2003.

                                       93

<PAGE>

On August 7, 2003, the Company issued a an additional warrant covering 1,500,000
shares of common stock to a consultant at an exercise price of $0.035 per share.
The Company recognized an expense of $33,996. The fair value of the warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in August 2003.

On September 25, 2003, the Company issued a warrant covering 1,000,000 shares of
common  stock to a  consultant  at an  exercise  price of $0.035 per share.  The
Company  recognized  an expense of $34,634.  The fair value of the  warrants was
determined  using the  Black-Scholes  option-pricing  model,  with the following
assumptions: (i) no expected dividends, (ii) a risk free interest rate of 2.65%,
(iii) expected volatility of 123%, and (iv) an expected life of 6 months.  These
warrants were exercised in September 2003.

                                                           Weighted
                                           Number         average of
                                          of shares     exercise price
                                         ----------     --------------
Warrants exercisable at June 30, 2002     1,350,000          $N/A
                                         ==========         =====
Granted                                  25,000,000         $0.10
Exercised                                (9,911,763)        $0.09
Cancelled/Expired                          (400,000)           --
                                         ----------         -----
Warrants exercisable at June 30, 2003    16,038,237           $NA
                                         ==========         =====
Granted                                   9,000,000         $0.04
Exercised                                (9,000,000)        $0.04
Cancelled/Expired                                --            --
                                         ----------         -----
Warrants exercisable at June 30, 2004    16,038,237            NA
                                         ==========

Certain  warrants were granted at an exercise price based on the market price at
the  exercise  day;  therefore,  weighted  average of exercise  price  cannot be
determined.

The following  table  summarizes  information  about  warrants  outstanding  and
exercisable at June 30, 2004:

                                       94

<PAGE>

<TABLE>
<CAPTION>
                                         Weighted
                                        average of
                                         remaining     Weighted average                   Weighted average
                                        contractual     exercise price      Number of      exercise price
Range of exercise   Number of shares       life         of outstanding       shares        of exercisable
      Prices          outstanding         (years)          options         exercisable        options
      ------          -----------         -------          -------         -----------        -------
<S>                   <C>                  <C>         <C>                 <C>           <C>
      $0.07            5,294,119            8.7            $ 0.07           5,294,119         $ 0.07
       0.10            5,294,118            8.7              0.10           5,294,118           0.10
       0.14            4,500,000            8.5              0.14           4,500,000           0.14
       0.18               50,000            0.1              0.18              50,000           0.18

  50% of average                                        50% of average                     50% of average
   market price                                        market price at                    market price at
   at exercise           200,000            0.1           exercise            200,000          exercise


  Average market                                        Average market                     Average market
price at exercise        350,000            0.7             price at                           price at
                                                            exercise          350,000         exercise

 125% of average                                       125% of average                    125% of average
 market price at                                       market price at                    market price at
     exercise            350,000            0.7            exercise           350,000         exercise
                       ---------            ---            --------           -------         --------

                      16,038,237            1.0              N/A           16,038,237           N/A
                      ==========            ===              ===           ==========           ===
</TABLE>

(14)     STOCKHOLDERS' EQUITY:

SERIES A PREFERRED STOCK:

On August 10, 2001, the Company  issued  1,000,000  Series A preferred  stock in
exchange of all assets of  ePayLatina  S.A. for a total amount of $432,058.  The
Series A shares are convertible  into  12,000,000  shares of common stock in the
Company.  Conversion can occur upon the  certification  after 12 months that the
Company has a before tax profit of at least $1,000,000 at which time,  one-third
of the preferred shares become  convertible into common.  Then, on each 12-month
anniversary  date,  again on  certification  of before  tax  profits of at least
$1,000,000,  another one third of the  preferred  shares will  convert to common
until all of the preferred stock has been converted.

The  preferred  stock  was  issued  and  disbursed  to Paul  Egan,  the owner of
ePayLatina, S.A. The Series A preferred stockholders are not entitled to receive
any  dividends  declared  and paid by the Company but are entitled to all of the
voting rights  including the right to vote in person or by

                                       95

<PAGE>

proxy.  Each share of Series A  preferred  stock  receives 12 votes on any issue
brought before the shareholders.

For the  years  ended  June  30,  2004 and  2003,  the  Company  has not met the
requisite  before  tax  profits  of  $1,000,000  to  automatically  convert  the
preferred  stock.  As of June 30, 2004 and 2003,  the  Company  had  authorized,
issued and outstanding balance of 1,000,000 shares or $1,000.

SERIES B PREFERRED STOCK:

In November 2002, the Company issued  2,500,000  shares of the total  authorized
4,000,000  shares of Series B preferred  stock to three  directors as directors'
fees. The Series B preferred stock is convertible into shares of common stock at
a ratio of 12 to 1, without restriction. The holders of Series B preferred stock
will be entitled to 12 votes for each  preferred  share held. The Company valued
these  issuances on the quoted  market price on the date of the issuance for its
common shares,  and recognized  $1,800,000 as expense for directors' fees during
the year ended June 30,  2003.  As of June 30,  2004 and 2003,  the  Company had
authorized, issued and outstanding balance of 2,500,000 shares or $2,500.

As of June 30,  2004 and 2003,  the  aggregate  additional  paid-in  capital for
preferred shares is $2,229,558.

COMMON STOCK:

Twelve Months Ended June 30, 2003
---------------------------------

From July to December  2002,  the Company  sold  5,750,000  shares of S-8 common
stock to investors for a total of $368,000. $268,000 was received by the Company
in cash and  $100,000 was included in  subscriptions  receivable  as of June 30,
2003.

In November  2002,  the Company  issued an  aggregate of  16,000,000  restricted
shares of common stock as  directors'  fees,  with total  compensation  costs of
$784,000.

In November 2002, the Company issued 4,000,000 restricted shares of common stock
in satisfaction of a loan in the amount of $270,000.

In November 2002, the Company issued 7,000,000 restricted shares of common stock
to executives for unpaid and future salaries in the amount of $343,000.

In November  2002,  the Company issued  15,500,000  restricted  shares of common
stock  for the  exercise  of stock  options  by the  Company's  executives.  The
exercise  price  of  $155,000  was  unpaid  and  was  included  in  subscription
receivable as of June 30, 2003.

In  January  and April  2003 the  Company  issued  an  aggregate  of  45,200,000
restricted  shares  of  common  stock  pursuant  to the  acquisition  of  Rahaxi
Processing  Oy..  Fair  value  of  these  shares  and the  additional  8,100,000
restricted shares related to the purchase totaled $3,999,100.

                                       96

<PAGE>

In June 2003, the Company issued 1,000,000  restricted shares of common stock to
an employee  as a  performance  bonus.  The fair value of $71,000 is included in
non-cash compensation as of June 30, 2004.

During the year ended June 30, 2003,  the Company  issued  35,195,514  shares of
common  stock,  both  restricted  and  registered  under  Form S-8,  to  various
consultants for professional  fees.  Compensation cost totaled  $3,018,744.  The
Company  recorded  $3,136,217  as non-cash  compensation  and  reduced  deferred
compensation by $117,473.

For the year ended June 30, 2003,  the Company  issued  9,911,763  shares of S-8
common stock to  consultants  for the exercise of stock options for an aggregate
of $791,999.  Of this amount,  $786,999 was received by the Company in cash, and
$5,000 is included in subscription receivable as of June 30, 2003.

Twelve Months Ended June 30, 2004
---------------------------------

In August 2003, the Company issued 8,137,000  restricted  shares of common stock
as an additional amount due pursuant to the Rahaxi  acquisition.  The amount due
was  previously  accrued,   and  upon  issuance  of  these  shares  the  Company
transferred  the par value of $8,137 from  additional  paid-in capital to common
stock.

In October 2003, the Company issued 1,000,000  restricted shares of common stock
to an  employee  as a bonus.  The fair  market  value of $72,000  was charged to
non-cash compensation.

In December 2003, the Company issued 5,183,418 restricted shares of common stock
pursuant to an agreement to satisfy certain debt of TransAxis. This agreement to
satisfy debt has subsequently been cancelled, and the Company expects to receive
these  shares for  cancellation.  The fair value of these  shares at the time of
issuance of $679,028 has been recorded in shares cancellation receivable.

In February 2004, the Company issued 3,200,000 restricted shares of common stock
pursuant  to  the  TransAxis  acquisition.  This  acquisition  was  subsequently
cancelled, and the Company expects to receive these shares for cancellation. The
fair value of these shares at the time of issuance of $752,000 has been recorded
in shares cancellation receivable.

In April 2004, the Company issued  1,000,000  restricted  shares of common stock
with a fair value of $190,000 to an officer for services to be performed through
April 2005. The Company recorded the amount of $45,288 as non-cash  compensation
and increased deferred compensation by the amount of $144,712.

In April 2004,  this  Company  regained  1,000,000  shares that were issued to a
lender group as collateral for borrowings in June 2002. The Company  recorded an
additional gain on legal settlement of $98,000 upon the retirement of the common
shares.

                                       97

<PAGE>

In May 2004, the Company issued 10,000,000 shares of common stock pursuant to an
agreement  to  purchase a division of Unipay,  Inc.  This  transaction  has been
cancelled,  and the fair value of these shares in the amount of  $1,000,000  has
been recorded to shares cancellation receivable.

In June 2004, the Company issued 10,000,000 restricted shares of common stock to
a board  member  upon  exercise  of stock  options  for  aggregate  proceeds  of
$500,000. Of this amount, $50,000 was received in cash and $450,000 was recorded
to  subscriptions  receivable.  The Company  recorded  the amount of $500,000 as
non-cash compensation with regard to the issuance of these options.

On June 30, 2004, the Company  reclassified $990 from additional paid in capital
into  common  stock in order to assign the par value to common  stock  initially
recorded without par value.

During the period from September 2003 to June 2004, the Company sold 189,400,000
restricted shares of common stock to investors for $2,077,300 net of commissions
of $163,700. Of this amount, $1,576,547 was received by the Company as cash, and
$500,753 is included as subscriptions receivable at June 30, 2004.

During the year ended June 30, 2004,  the Company  issued  51,630,000  shares of
common  stock,  both  restricted  and  registered  under  Form S-8,  to  various
consultants  and legal  counsel  for current  and future  services.  The Company
recorded  the  amount of  $4,253,775  as  non-cash  compensation  and  increased
deferred compensation by the amount of $550,885.

During the twelve  months  ended June 30,  2004,  the Company  issued  9,000,000
restricted  shares of common  stock to  consultants  upon the  exercise of stock
options for  aggregate  proceeds  of  $342,000.  Of this  amount,  $337,500  was
received in cash and $4,500 was recorded to subscriptions receivable.

During the twelve  months  ended June 30,  2004,  the Company  issued  4,600,000
restricted  shares of common  stock in error.  The fair value of these shares at
the time of  issuance  of  $153,600  has been  recorded  in shares  cancellation
receivable.

All  valuations of common stock issued for services were based upon the value of
the services to be rendered, which did not differ materially from the fair value
of the Company's common stock during the period the shares were issued

(15)     COMMITMENTS:

The  Company  leases  its  facility  under  an  operating  lease  that  is  on a
month-to-month  basis.  Rent  expense for the years ended June 30, 2004 and 2003
totaled $35,840 and $30,228,  respectively.  The Company leases certain computer
hardware and software under noncancellable operating leases:

                                       98

<PAGE>

              Year ending June 30,
              --------------------
              2005                           $206,954
              2006                            206,954
              2007                            206,954
              2008                                  0
                                             --------
                   Total                     $620,862
                                             ========

(16)     SEGMENT INFORMATION:

The Company currently operates two business segments: (1) the sale of its secure
transaction  processing system ePayPad and related service,  and (2) transaction
processing  fees  generated  through its wholly owned  subsidiary,  Rahaxi.  The
accounting  policies of the business segments are the same as those described in
the summary of significant  accounting policies under Note 1. While intercompany
receivable  and  payable  payables  are  subtracted  from the total  assets  and
liabilities  for  the  segments,  which  are  eliminated  in  consolidation  and
therefore, do not themselves impact consolidated results.

The  following  table  summarizes   segment  asset  and  operating  balances  by
reportable segment:

                                          June 30, 2004    June 30, 2003
                                          -------------    -------------
Net Sales to External Customers:
PaySafe                                    $      101       $   79,090
Rahaxi                                      1,333,725          484,742
                                           ----------       ----------
Total Sales to External Customers          $1,333,826       $  563,832)
                                           ==========       ==========
Depreciation and Amortization:
PaySafe                                    $  474,394       $  265,785
Rahaxi                                         55,503           45,771
                                           ----------       ----------
Total Depreciation and Amortization        $  529,897       $  311,556
                                           ==========       ==========
General and Administrative Expense:
PaySafe                                    $1,560,601       $1,260,844
Rahaxi                                        275,697          108,269
                                           ----------       ----------
Total General and Administrative Expense   $1,836,298       $1,369,113
                                           ==========       ==========
Capital Expenditures:
PaySafe                                    $       --       $       --
Rahaxi                                        608,328          608,329
                                           ----------       ----------
Total Capital Expenditures                 $  608,329       $  174,131
                                           ==========       ==========

                                       99

<PAGE>

                                         June 30, 2004    June 30, 2003
                                         -------------    -------------
Operating Income (Losses):
PaySafe                                  $ (6,158,843)    $(11,292,776)
Rahaxi                                       (229,142)        (149,603)
                                         ------------     ------------
Total Segment Operating Losses           $ (6,387,985)    $(11,442,379)
                                         ============     ============
Segment Assets:
PaySafe                                  $     97,348     $    416,961
Rahaxi                                      4,821,199        4,652,472
                                         ------------     ------------
Total Segment Operating Losses           $  4,918,547     $  5,069,433
                                         ============     ============

(17)     CONSULTING AGREEMENTS:

The Company enters into various consulting and service agreements for terms from
60 days to one year.  The  Company  pays the  combination  of cash and stock for
these consulting and professional  services upon execution of these  agreements.
Compensation for future services was classified as deferred compensation.  As of
June 30,  2004 and 2003,  deferred  compensation  related to cash paid and stock
issued for future services totaled $1,251,578 and $700,693, respectively.

The Company has entered into various sales and marketing agreements. Under these
agreements,  the Company agreed to pay these sales/marketing  partners a portion
of the revenues  brought in by these marketing  firms.  No material  revenue has
been recognized in relation to these sales agreements.

(18)     STRATEGIC ALLIANCE AGREEMENT WITH BANC NACIONAL DE CREDITO:

In October 2001, the Company  entered into a strategic  alliance  agreement with
Banc Nacional de Credito (the "Bank").  Under the  agreement,  the Company,  the
bank and an agent  entered into a strategic  alliance  whereby the Company would
provide  ePayPads,  with the client and system software.  The Bank would provide
the approval, collection and payment of electronic transactions.  The agent will
provide the advertising, promotion and identify merchants that will agree to use
the ePayPads.  The first 1,000 ePayPads will be given to the Bank and treated as
promotion expense. The Company charges a fee for these transactions ranging from
0.3% to 1.3% of the eligible purchases through the eCashpads.

During the period ended June 30, 2002,  the total  dollar  transactions  through
eCashpads totaled over $300,000 while the fees generated from these transactions
approximated $3,000.

In  November  2003,  the  Company  acquired  Rahaxi  Processing  Oy., a Northern
European online credit card  processing  enterprise  headquartered  in Helsinki,
Finland.   Rahaxi   provides   full   card   payment   processing,   transaction
authorization,  data capture and  settlement  facilities  for Visa,  MasterCard,
American Express, Diners Club, JCB and all bank-issued domestic debit cards. The
Company  intends for Rahaxi to provide  many the services  that were  previously
obtained  from

                                      100

<PAGE>

Banc  Nacional de Credito,  and  accordingly  the  Company  has  terminated  the
arrangement with Banc Nacional de Credito.

(19)     EMPLOYMENT AGREEMENTS:

In August 2001, the Company entered into an employment agreement with Paul Egan,
president and chief  executive  officer.  Under the terms of the agreement,  the
Company is liable for a minimum annual salary of $150,000 per year. In addition,
the  Company  is liable for an  automobile  allowance  not to exceed  $1,500 per
month.  This  employment  agreement  expired  in August  2004,  at which time an
addendum to this  employment  contract was executed which (i) extended all terms
and conditions of this  employment  contract to April 9, 2007, and (ii) provided
that a review of Mr. Egan's  remuneration  take place on or before  December 31,
2004.

For the year ended June 30, 2003, the Company accrued $150,000 and paid $178,500
in cash and issued 4,000,000 restricted shares of common stock with a fair value
of $196,000 as past unpaid  salaries and future  salaries.  As of June 30, 2003,
the Company recorded $112,000 as prepaid salaries to related parties. During the
year ended June 30, 2004, the Company accrued $150,000 and paid 27,247 in salary
to Mr.  Egan.  As of June 30,  2004,  the  Company  recorded  $10,753 as accrued
salary.  The Company  accrued and paid $0 and $14,550,  respectively,  of fringe
benefits to Paul Egan for the years ended June 30, 2004 and 2003, respectively.

In August 2001,  the Company  entered into an employment  agreement  with Ciaran
Egan, Chief Financial Officer. Under the terms of the agreement,  the Company is
liable for a minimum  annual  salary of  $120,000  per year.  In  addition,  the
Company is liable for an  automobile  allowance  not to exceed $1,500 per month.
This employment  agreement  expired in August 2004, at which time an addendum to
this  employment  contract  was  executed  which  (i)  extended  all  terms  and
conditions of this employment  contract to April 9, 2007, and (ii) provided that
a review of Mr. Egan's remuneration take place on or before December 31, 2004.

As of June 30,  2003,  the  Company  recorded  $112,000  as prepaid  salaries to
related  parties.  For the year ended June 30, 2003, the Company paid $76,500 in
cash and issued 3,000,000 restricted shares of common stock with a fair value of
$147,000 as past-unpaid  salaries to related  parties.  As of June 30, 2003, the
Company recorded $18,500 as prepaid salaries to related parties. During the year
ended June 30, 2004, the Company accrued  $120,000 and paid $71,200 in salary to
Mr. Egan. As of June 30, 2004, the Company  recorded  $41,053 as accrued salary.
The Company paid $10,500 and $0, respectively, of fringe benefits to Ciaran Egan
for the years ended June 30, 2004 and 2003, respectively.

On January 1, 2002,  the Company  entered into an employment  agreement with its
Chief Technical Officer. Under the terms of the agreement, the Company is liable
for an annual salary of $54,000 per year. In addition, this employee is entitled
an auto allowance and other fringe benefits.  This employment  agreement expires
January 1, 2005.

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(20)     LEGAL PROCEEDINGS:

FREESTAR ET AL. V. DENNIS H. JOHNSTON ET AL.:

On or about  September 13, 2002,  the Company and  ePayLatina,  S.A.  brought an
action in the Superior Court for the State of California against Dennis Johnston
for malpractice, breach of fiduciary duty; deceit and declaratory relief.

On or about February 19, 2003, Mr. Johnston filed an answer to the complaint and
an unverified  cross-complaint  alleging  breach of contract,  fraud among other
causes of action.

In May 2003,  Mr.  Johnston  filed an unverified  first amended  cross-complaint
alleging  breach of contract and fraud in connection  with legal fees  allegedly
owed to Mr. Johnston. The Company has filed an answer to that cross-complaint.

In August 2004, Mr.  Johnston and his then attorney were  sanctioned  $5,000 for
abuses of the discovery process.

The Registrant  filed a motion for terminating  sanctions  against Mr. Johnston,
based on his alleged  abuse of the discovery  process.  A hearing on this motion
was held on October  26,  2004.  At that  hearing,  Judge  Chirlin  granted  the
Registrant's motion for terminating  sanctions,  which resulted in the dismissal
of Mr. Johnston's  cross-complaint  with prejudice and granting the Registrant's
motion for a $100,000  judgment against Mr. Johnson.  This ruling could still be
appealed, but the Company is unaware of any appeal.

VFINANCE ET AL. V. FREESTAR ET AL. (BANKRUPTCY ACTION):

On January 9, 2003, vFinance  Investments,  Richard Rosenblum,  David Stefansky,
Marc Siegel, Boat Basin Investors LLC and Papell Holdings, Ltd.  ("Petitioners")
filed an involuntary  bankruptcy  petition against the Company alleging that the
Petitioners  had debts  that were not the  subject of a bona fide  dispute.  The
Petitioners sought liquidation and the appointment of a receiver.

On  March  4,  2003,  United  States  Bankruptcy  Judge  Gropper  dismissed  the
Petitioners'  bankruptcy  petition  against the Company.  On March 21, 2003, the
Company filed its motion for an order and judgment awarding costs and attorneys'
fees in favor of the Company against the Petitioners  pursuant to 11 U.S.C.  ss.
303(i).  On or about April 21, 2003, the parties reached a settlement to resolve
the 11 U.S.C. ss.303(i) (1) issues in that motion. The Petitioners owed and paid
the Company $40,000 in satisfaction of the settlement.

VFINANCE ET AL. V. FREESTAR ET AL. (CIVIL ACTION):

On or about January 22, 2003,  vFinance  Investments,  Richard Rosenblum,  David
Stefansky,  Marc Siegel,  Boat Basin  Investors LLC, and Papell  Holdings,  Ltd.
(collectively, "Plaintiffs") filed a complaint against Paul Egan, First American
Stock Transfer and Phil Young,  president of First American Stock  Transfer,  in
the United States District Court for the Southern District of New

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<PAGE>

York  alleging,  among other claims,  fraud,  conversion  and  violations of the
Securities  Exchange Act of 1934. In addition to unspecified money damages,  the
Plaintiffs  sought an affirmative  preliminary  injunction  against Mr. Egan and
First American Stock Transfer seeking the removal of restrictive  legends placed
on  14,400,000  unregistered  shares of Company stock  purportedly  owned by the
Plaintiffs.  The  Company  was not named in the suit.  The  Company  opposed the
affirmative  injunctive  action on the grounds that removal of the legends would
constitute a violation of the registration  provisions of the federal securities
laws and that the Company was an indispensable party.

On or about March  19,2004,  the parties filed a stipulation of dismissal of the
case with  prejudice.  Under the terms of the settlement  agreement,  Plaintiffs
returned  15,400,000  Registrant shares previously issued to them (14,400,000 by
Paul Egan and 1,000,000 by the Registrant) and all parties exchanged full mutual
releases of all claims, cross-claims and counterclaims with prejudice. There are
no remaining contingent liabilities related to that lawsuit.

SPORTINGHET PLC V. FREESTAR TECHNOLOGY CORPORATION:

On May 7, 2004,  Sportingbet,  PLC filed a complaint  against the Company in the
Clark County Nevada Superior Court. The complaint  alleges,  among other things,
that the Company breached a settlement agreement and debt guarantee. Sportingbet
has  alleged  damages in excess of $10,000,  to be proven at trial.  Sportingbet
also sought  immediate  possession of 7,100,592  Company  shares under a payment
guarantee and stock pledge agreement.

On June 14,2004, the Company filed an answer and counterclaim seeking damages in
excess of $1,400,000.

Management   believes  the  Company  has  meritorious  claims  and  defenses  to
Sportingbet's  claims and ultimately will prevail on the merits.  However,  this
matter  remains in the early stages of litigation  and there can be no assurance
as  to  the  outcome  of  the  lawsuit.   Litigation   is  subject  to  inherent
uncertainties,  and unfavorable rulings could occur. Were unfavorable rulings to
occur,  there  exists  the  possibility  of a material  adverse  impact of money
damages  on  the  Company's  financial  condition,  results  of  operations,  or
liquidity of the period in which the ruling occurs, or future periods.

DIAMOND CLUB OF AMERICA, INC. V. FREESTAR TECHNOLOGY CORPORATION:

On April 6, 2004,  Diamond Club of America,  Inc. filed a complaint  against the
Company in the Suffolk  County New York Supreme  Court.  The complaint  alleges,
among other things, that the Company owes Diamond Club $35,410.45 pursuant to an
agreement between Diamond Club and TransAxis,  Inc. or a predecessor  company of
TransAxis,  Inc. The Company, in turn, asserts that as a minority stockholder in
TransAxis it is not responsible for the debts of that company.

Management  believes the Company has meritorious  claims and defenses to Diamond
Club's claims and ultimately  will prevail on the merits.  However,  this matter
remains in the early  stages of  litigation  and there can be no assurance as to
the outcome of the lawsuit. Litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. Were unfavorable rulings to occur, there exists
the  possibility of a material  adverse impact of money damages on the Company's
financial condition,  results of operations, or liquidity of the period in which
the ruling occurs, or future periods.

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SHELLY SINGHAL V. FREESTAR TECHNOLOGY CORPORATION:

On August 24, 2004, Shelly Singhal,  a former investment banker for the Company,
filed a  lawsuit  in the  Clark  County  Nevada  Superior  Court  for  breach of
contract,  breach of covenant of fair  dealing,  civil  conspiracy  and specific
performance.  The banker  claims that he is  entitled  to a fee for  services of
10,000,000  unrestricted shares of the Registrant's common stock. On October 20,
2004,  Mr. Singhal  sought  summary  judgment on his complaint.  That motion was
denied in its entirety.

Management  believes  the Company  has  meritorious  claims and  defenses to Mr.
Singhal's claims and ultimately will prevail on the merits. However, this matter
remains in the early  stages of  litigation  and there can be no assurance as to
the outcome of the lawsuit. Litigation is subject to inherent uncertainties, and
unfavorable rulings could occur. Were unfavorable rulings to occur, there exists
the  possibility of a material  adverse impact of money damages on the Company's
financial condition,  results of operations, or liquidity of the period in which
the ruling occurs, or future periods.

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION:

In January  2003,  the Company was advised by the staff of the Denver  office of
the  Securities  and  Exchange  Commission  ("SEC")  that  it had  initiated  an
informal, non-public inquiry. Since that time, the staff has sought and received
production of documents and testimony relating to certain financing transactions
entered  into by the  Company,  issuance  of its  stock in  compliance  with the
registration  provisions,  facts stated in press releases and reports filed with
the Commission concerning, among other things, the Company's assets, operations,
financial condition, anticipated revenue and strategic initiatives.

In July 2003,  the  Company  learned  that the SEC had issued a formal  order of
investigation.   There  is  a  risk  that  an  enforcement  proceeding  will  be
recommended  by  the  staff  of  the  Commission  as a  result  of  this  formal
investigation. Enforcement proceedings could include allegations by the SEC that
the  Company  violated  the  anti-fraud,  registration  and  books  and  records
provisions of federal  securities laws, and the rules  thereunder.  However,  it
cannot  be  predicted  with  certainty  what  the  nature  of  such  enforcement
proceeding  would be, the type of  sanctions  that might be sought,  or what the
likelihood  would be of reaching a settlement.  The Company has been and expects
to continue to cooperate with the ongoing SEC investigation.

(21)     SUBSEQUENT EVENTS:

         On  August  9,  2004,  the  Company  entered  into an  addendum  to the
employment  agreement  with Paul Egan such that the  agreement  was extended for
three  years to  August  9,  2007.  The  Company  and Paul  Egan  agreed  that a
remuneration review would take place on or before December 31, 2004.

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<PAGE>

         On  August  9,  2004,  the  Company  entered  into an  addendum  to the
employment  agreement  with Ciaran Egan such that the agreement was extended for
three  years to August 9, 2007.  The  Company  and  Ciaran  Egan  agreed  that a
remuneration review would take place on or before December 31, 2004.

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<PAGE>

                                  EXHIBIT INDEX

Number                             Description
------                             -----------

1           Agency  Agreement  between the Registrant and vFinance  Investments,
            Inc.,  dated  March 24,  2002  (including  the  following  exhibits:
            Exhibit  B:  Form of  Warrant)  (the  following  exhibits  have been
            omitted:  Exhibit  A: Term  Sheet)  (incorporated  by  reference  to
            Exhibit 1 of the Form 10-KSB filed on November 13, 2002).

2.1         Asset  Purchase   Agreement  between  the  Registrant  and  Southern
            California  Logo,  Inc.,  dated  April  26,  2000  (incorporated  by
            reference to Exhibit 1 of the Form 8-K filed on May 15, 2000).

2.2         Asset  Purchase  Agreement  between  the  Registrant  and  Ronbridge
            Investments, Ltd., dated October 17, 2000 (incorporated by reference
            to Exhibit 10 of the Form 8-K filed on October 23, 2000).

2.3         Binding  Letter of Intent  between the  Registrant  and  ePayLatina,
            S.A., dated July 23, 2001 (incorporated by reference to Exhibit 10.2
            of the Form 8-K filed on July 25, 2001).

2.4         Asset Purchase  Agreement  between the  Registrant  and  ePayLatina,
            S.A.,  dated  August 9, 2001  (incorporated  by reference to Exhibit
            10.1 of the Form 8-K filed on August 14, 2001).

2.5         Acquisition  Agreement between the Registrant and Heroya Investments
            Limited, dated September 10, 2002 (the following schedules have been
            omitted:  Schedule 1, books and records of Rahaxi; Schedule 2, draft
            employment  agreements  with  Hans  Turitz  and  Tony  Horrell;  and
            Schedule  3,  list  of  clients  introduced  to  Rahaxi  by  Heroya)
            (incorporated  by  reference  to  Exhibit 2 of the Form 8-K filed on
            September 25, 2002).

2.6         Amendment 1 to  Acquisition  Agreement  between the  Registrant  and
            Heroya Investments Limited, dated December 16, 2002 (incorporated by
            reference  to Exhibit 2.2 of the Form 8-K/A  filed on  December  24,
            2002).

2.7         Amendment 2 to  Acquisition  Agreement  between the  Registrant  and
            Heroya Investments Limited, dated February 25, 2003 (incorporated by
            reference  to Exhibit 2.3 of the Form 8-K/A  filed on  February  26,
            2003).

2.8         Letter  Agreement,  dated April 24, 2003, from FreeStar  Acquisition
            Corporation to the Registrant, and consented to by Paul Egan, Ciaran
            Egan  and  Fionn  Stakelum  (including  the  Performance  Guarantee)
            (incorporated  by  reference  to  Exhibit 2 of the Form 8-K filed on
            April 24, 2003).

                                      106

<PAGE>

2.9         Letter  of  Intent  between  the  Registrant  and  Digital   Courier
            Technologies,  Inc.,  dated April 29, 2003 and accepted on April 30,
            2003  (incorporated  by reference to Exhibit 2 of the Form 8-K filed
            on May 1, 2003).

2.10        Revised Letter of Intent between the Registrant and TransAxis,  Inc.
            (formerly known as Digital Courier  Technologies,  Inc.),  dated and
            accepted on June 20, 2003 (the  following  exhibits to this document
            have been omitted:  Exhibit A: form of a Senior Secured  Convertible
            Note  ;  Exhibit  B:  Security  Agreement;  and  Exhibit  C:  Use of
            Proceeds)  (incorporated  by  reference  to Exhibit  2.2 of the Form
            8-K/A filed on June 26, 2003).

2.11        Amendment 3 to  Acquisition  Agreement  between the  Registrant  and
            Heroya  Investments  Limited,  dated June 27, 2003  (incorporated by
            reference  to  Exhibit  2.4 of the Form 8-K/A  filed on October  15,
            2003).

2.12        Stock Purchase Agreement between the Registrant and the stockholders
            of  TransAxis,  Inc.,  dated  September  24, 2003  (incorporated  by
            reference to Exhibit 2.1 of the Form 8-K filed on October 24, 2003).

2.13        Amendment to Stock Purchase Agreement between the Registrant and the
            stockholders of TransAxis, Inc., dated October 8, 2003 (incorporated
            by  reference  to Exhibit  2.2 of the Form 8-K filed on October  24,
            2003).

2.14        Amendment No. 2 to Stock Purchase  Agreement  between the Registrant
            and the  stockholders  of TransAxis,  Inc.,  dated February 20, 2004
            (incorporated by reference to Exhibit 2.3 of the Form 8-K/A filed on
            March 2, 2004).

2.15        Asset Purchase  Agreement between the Registrant,  and Unipay,  Inc.
            and its stockholder,  Unicomp, Inc., dated May 4, 2004 (incorporated
            by reference to Exhibit 2.1 of the Form 8-K filed on May 20, 2004).

2.16        Registration  Rights Agreement  between the Registrant,  and Unipay,
            Inc.  and  its  stockholder,   Unicomp,  Inc.,  dated  May  4,  2004
            (incorporated  by  reference to Exhibit 2.2 of the Form 8-K filed on
            May 20, 2004).

2.17        Non-Competition and Non-Disclosure  Agreement between the Registrant
            and Unicomp,  Inc., dated May 4, 2004  (incorporated by reference to
            Exhibit 2.3 of the Form 8-K filed on May 20, 2004).

3.1         Articles of Incorporation,  dated November 17, 1999 (incorporated by
            reference  to  Exhibit  3.3 of the Form  10-SB  filed on  January 3,
            2000).

3.2         Certificate  of  Amendment  of  Articles  of  Incorporation,   dated
            September 8, 2000  (incorporated  by reference to Exhibit 3.4 of the
            Form S-8 filed on August 17, 2001).

                                      107

<PAGE>

3.3         Certificate  of  Amendment  to  Articles  of  Incorporation,   dated
            February 15, 2001  (incorporated  by reference to Exhibit 3.1 of the
            Form 8-K filed on February 20, 2001).

3.4         Certificate  of  Amendment  to  Articles  of  Incorporation,   dated
            December 15, 2002  (incorporated  by reference to Exhibit 3.4 of the
            Form 10-QSB filed on March 12, 2003).

3.5         Certificate  of  Amendment  to  Articles  of  Incorporation,   dated
            February 24, 2003  (incorporated  by reference to Exhibit 3.5 of the
            Form 10-QSB filed on March 12, 2003).

3.6         Bylaws,  dated  November  17, 1999  (incorporated  by  reference  to
            Exhibit 3.2 of the Form 10-SB filed on January 3, 2000)

4.1         Consulting  Services  Agreement  between the  Registrant  and Public
            Securities  Service,   dated  November  30,  1999  (incorporated  by
            reference  to Exhibit  10.1 of the Form S-8 filed on  September  29,
            2000).

4.2         Consulting  Agreement between the Registrant and Dennis H. Johnston,
            dated August 1, 2001  (incorporated  by reference to Exhibit 10.1 of
            the Form S-8 filed on August 17, 2001).

4.3         Certificate  of  Powers,  Designations,  Preferences  and  Rights of
            Series A Preferred  Stock of the  Registrant,  dated August 10, 2001
            (incorporated  by  reference  to  Exhibit 4 of the Form 8-K filed on
            August 14, 2001).

4.4         Non-Employee  Directors and Consultants  Retainer Stock Plan,  dated
            October 25, 2001  (incorporated  by  reference to Exhibit 4.1 of the
            Form S-8 filed on November 9, 2001).

4.5         Employee Stock Incentive Plan, dated October 25, 2001  (incorporated
            by  reference  to Exhibit  4.2 of the Form S-8 filed on  November 9,
            2001).

4.6         Form of  Financing  Agreement  between  the  Registrant,  and Papell
            Holdings,  Ltd. and Boat Basin  Investors  LLC, dated March 25, 2002
            (including  the following  exhibits:  Exhibit A: Form of Convertible
            Note;  Exhibit B: Form of Warrant;  Exhibit C:  Registration  Rights
            Agreement;  Exhibit D: Stock  Pledge  Agreement;  Exhibit E: Form of
            Opinion of Counsel;  and  Exhibit F:  Unconditional  Guarantee  (the
            following exhibits have been omitted: Schedule 4(c): Compliance with
            Laws; Schedule 4(d): Litigation; Schedule 4(h): Capitalization;  and
            Schedule 7(j): Consolidations) (incorporated by reference to Exhibit
            4.6 of the Form 10-KSB filed on November 13, 2002).

4.7         Loan Agreement  between the Registrant,  and David  Stefansky,  Marc
            Siegal and Richard  Rosenblum,  dated June 12, 2002  (including  the
            following exhibits:  Exhibit

                                      108

<PAGE>

            A: Form of Promissory Note; and Exhibit C: Unconditional  Guarantee)
            (the  following  exhibits have been omitted:  Exhibit B: Term Sheet;
            and Exhibit D: Corporate  Resolution)  (incorporated by reference to
            Exhibit 4.7 of the Form 10-KSB filed on November 13, 2002).

4.8         Form of  Financing  Agreement  between  the  Registrant,  and Papell
            Holdings,  Ltd., Boat Basin  Investors LLC,  vFinance,  Inc.,  David
            Stefansky,  Marc  Siegal and Richard  Rosenblum  dated June 27, 2002
            (except  for  Papell  Holdings,  which is dated  September  9, 2002)
            (including  the following  exhibits:  Exhibit A: Form of Convertible
            Note;   Exhibit  B:  Registration   Rights  Agreement;   Exhibit  C:
            Unconditional Guarantee;  Exhibit D: Form of Stock Pledge Agreement;
            and Exhibit E: Form of Opinion of Counsel) (the  following  exhibits
            have been omitted:  Schedule 4(c):  Compliance  with Laws;  Schedule
            4(d): Litigation; Schedule 4(h): Capitalization;  and Schedule 7(j):
            Consolidations)  (incorporated  by  reference  to Exhibit 4.8 of the
            Form 10-KSB filed on November 13, 2002).

4.9         Supplementary   Agreement   between  the   Registrant  and  vFinance
            Investments,  Inc.,  Boat Basin  Investors  LLC. Marc Siegel,  David
            Stefansky, and Richard Rosenblum,  dated June 27, 2002 (incorporated
            by reference to Exhibit 4.9 of the Form 10-KSB filed on November 13,
            2002).

4.10        Amended and Restated Non-Employee Directors and Consultants Retainer
            Stock Plan,  dated November 15, 2002  (incorporated  by reference to
            Exhibit 4.1 of the Form S-8 POS filed on December 11, 2002).

4.11        Amended and Restated Stock Incentive  Plan,  dated November 15, 2002
            (incorporated  by reference to Exhibit 4.2 of the Form S-8 POS filed
            on December 11, 2002).

4.12        Option to Purchase  10,000,000  Shares of Common Stock,  dated April
            24, 2003,  issued by the Registrant to Phaeton  Investments  Limited
            (incorporated  by  reference  to Exhibit 10 of the Form 8-K filed on
            April 24, 2003).

4.13        Amended and Restated Non-Employee Directors and Consultants Retainer
            Stock Plan  (Amendment No, 2), dated May 25, 2003  (incorporated  by
            reference to Exhibit 4.1 of the Form S-8 POS filed on June 2, 2003).

4.14        Amended and Restated Stock  Incentive Plan  (Amendment No, 2), dated
            May 25, 2003  (incorporated  by reference to Exhibit 4.2 of the Form
            S-8 POS filed on June 2, 2003).

4.15        Senior Secured  Convertible Note issued by TransAxis,  Inc. in favor
            of the Registrant, dated July 14, 2003 (incorporated by reference to
            Exhibit 4.15 of the Form 10-QSB filed on December 1, 2003).

4.16        Senior Secured  Convertible Note issued by TransAxis,  Inc. in favor
            of the Registrant, dated July 17, 2003 (incorporated by reference to
            Exhibit 4.16 of the Form 10-QSB filed on December 1, 2003).

                                      109
<PAGE>


10.1        Employment  Agreement  between the Registrant and Ciaran Egan, dated
            August 9, 2001  (incorporated  by  reference  to Exhibit 10.2 of the
            Form 8-K filed on August 14, 2001).

10.2        Employment  Agreement  between the Registrant  and Paul Egan,  dated
            August 9, 2001  (incorporated  by  reference  to Exhibit 10.3 of the
            Form 8-K filed on August 14, 2001).

10.3        Consulting  Agreement between the Registrant and Margaux  Investment
            Management Group S.A., dated August 23, 2003 (filed herewith).

10.4        Addendum to  Employment  Contract  between the  Registrant  and Paul
            Egan, dated August 9, 2004 (filed herewith)

10.5        Addendum to Employment  Contract  between the  Registrant and Ciaran
            Egan, dated August 9, 2004 (filed herewith)

16.1        Letter on  change  in  certifying  accountant,  dated  March 9, 2001
            (incorporated  by  reference to Exhibit 16.2 of the Form 8-K/A filed
            on March 13, 2001).

16.2        Letter on change in  certifying  accountant,  dated October 17, 2002
            (incorporated  by reference to Exhibit 16 of the Form 8-K/A filed on
            October 22, 2002).

21          Subsidiaries of the Registrant (incorporated by reference to Exhibit
            21 of the Form 10-QSB filed on May 20, 2003).

23          Consent  of  Independent   Certified   Public   Accountants   (filed
            herewith).

31.1        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  (filed
            herewith).

99.1        Certificate of Register  issued to ePayLatina,  S.A.,  dated June 4,
            2001 (in Spanish  and  translated  into  English)  (incorporated  by
            reference to Exhibit 99 of the Form 8-K filed on April 9, 2003).

99.2        Press   Release   issued  by  the   Registrant  on  April  24,  2003
            (incorporated  by  reference  to  Exhibit 2 of the Form 8-K filed on
            April 24, 2003).

99.3        Press  Release  issued by the  Registrant  at 7:37 p.m. on April 24,
            2003  (incorporated  by  reference to Exhibit 99.3 of the Form 8-K/A
            filed on April 25, 2003).

                                      110

<PAGE>

99.4        Text  of  conference  call  held  on May 7,  2003  (incorporated  by
            reference to Exhibit 99 of the Form 8-K filed on May 9, 2003).

99.5        Text  of  conference  call  held on May 21,  2003  (incorporated  by
            reference to Exhibit 99.1 of the Form 8-K filed on May 30, 2003).

99.6        Text of press release, dated May 29, 2003 (incorporated by reference
            to Exhibit 99.2 of the Form 8-K filed on May 30, 2003).

99.7        Press   Release   issued  by  the   Registrant   on  July  29,  2003
            (incorporated  by  reference to Exhibit 99.3 of the Form 8-K/A filed
            on August 6, 2003).

99.8        Text of  conference  call  held on July 29,  2003  (incorporated  by
            reference  to  Exhibit  99.4 of the Form  8-K/A  filed on  August 6,
            2003).

99.9        Text of press  release,  dated  October  16, 2003  (incorporated  by
            reference to Exhibit 99 of the Form 8-K filed on October 24, 2003).

                                      111