**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, 2007****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              **FOR
                THE TRANSITION PERIOD FROM________________TO
                ____________________**




**COMMISSION
      FILE NUMBER: 0-28749**





**FREESTAR
      TECHNOLOGY CORPORATION**


(Name
      of
      small business issuer in its charter)








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








**31
      Mespil Road, Ballsbridge, Dublin 2 Ireland**


(Address
      of Principal Executive Offices)





Issuer's
      telephone number: **353 1 6185
      060**





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**





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.  Yes x No o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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. o





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





State
      issuer’s revenues for its most recent fiscal year: $3,780,335 for the fiscal
      year ended June 30, 2007.





As
      of
      September 21, 2007,  aggregate market value of the voting and
      non-voting equity held by non-affiliates of the registrant
      was  $37,020,982.





267,615,595 shares
      of our common stock were issued and outstanding as of September 21,
      2007.





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

















**TABLEOF
      CONTENTS**


**PAGE****PART
                    I.**ITEM
                    1.
              DESCRIPTION
                    OF BUSINESS
              1ITEM
                    2.
              DESCRIPTION
                    OF PROPERTY
              13ITEM
                    3.
              LEGAL
                    PROCEEDINGS
              14ITEM
                    4.
              SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY
                    HOLDERS
              14**PART
                    II.**ITEM
                    5.
              MARKET
                    FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
                    SMALL BUSINESS ISSUER PURCHASES OF EQUITY
                    SECURITIES
              15ITEM
                    6.
              MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                    RESULTS OF OPERATIONS
              16ITEM
                    7.
              CONSOLIDATED
                    FINANCIAL STATEMENTS
              25ITEM
                    8.
              CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                    FINANCIAL DISCLOSURE
              25ITEM
                    8A.
              CONTROLS
                    AND PROCEDURES
              25ITEM
                    8B
              OTHER
                    INFORMATION
              25**PART
                    III.**ITEM
                    9.
              DIRECTORS,
                    EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
                    CORPORATE GOVERNANCE;  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
                    ACT
              26ITEM
                    10.
              EXECUTIVE
                    COMPENSATION
              28ITEM
                    11.
              SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                    AND RELATED STOCKHOLDER MATTERS
              30ITEM
                    12.
              CERTAIN
                    RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
                    COMPENSATION
              33ITEM
                    13.
              EXHIBITS
              34ITEM
                    14.
              PRINCIPAL
                    ACCOUNTANT FEES AND
                    SERVICES
              34SIGNATURES
              35








Table
          of Contents




**PART
      I.**





ITEM1.
      DESCRIPTION OF BUSINESS





Overview




We
        are a
        provider of electronic payment processing services, including credit and
        debit
        card transaction processing, point-of-sale related software applications
        and
        other value-added services. We currently process on average approximately
        1,620,000 transactions per month and serve in excess of 1,100 merchant
        locations. We provide transaction processing support for all major credit
        cards,
        including Visa, MasterCard, American Express, Diners Club and JCB, and all
        bank-issued Finnish debit cards. We enable merchants and financial institutions
        to accept, and their consumers to utilize, electronic payments using credit
        and
        debit cards to purchase goods and services. Our role is to serve as an
        intermediary in the exchange of information and funds that must occur between
        parties so that a payment transaction can be completed. We provide merchants
        with various transaction processing services, including authorizing card
        transactions at the merchant’s retail location (also known as the
        point-of-sale), and capturing and transmitting transaction data. Through
        agreements with Hypercom Corporation, the world's second largest
        manufacturer of payment terminals , Spectra Technologies, a leading Chinese
        electronic payment solution provider and Thyron Systems, we also offer our
        customers point-of-sale terminals, which are integrated with our software
        products to provide merchants with a complete solution for credit and debit
        card
        transaction processing.


Our
      role
      in a transaction is to serve as a link between the merchant and the merchant's
      bank, known as the acquiring bank, and the bank that issued the consumer’s
      credit or debit card, known as the issuing bank. The electronic authorization
      process for a credit card transaction begins when the merchant "swipes" or
      inserts the card into its point-of-sale terminal and enters the amount of the
      purchase. After capturing the data, the point-of-sale terminal transmits the
      authorization request through our switching center, where the data is
      routed to the issuing bank (typically via the Interchange Network, a
      telecommunication network operated by international card corporations) for
      authorization. The issuing bank confirms that the credit card is authentic
      and
      whether a transaction will cause the cardholder to exceed defined limits. The
      approval or disapproval of the transaction is transmitted back to our switching
      center, where it is routed to the appropriate merchant’s acquiring bank. As
      described below, we also provide an Internet Payment Gateway for online or
      internet transactions in which there is no point-of-sale terminal and the card
      is not physically present at the merchant location.





We
      were
      originally organized on August 2, 1997, under the laws of the State of Delaware
      as Interstate Capital Corporation. On November 17, 1999, we merged into a newly
      formed Nevada corporation, Freedom Surf, Inc., for the purpose of changing
      the
      corporate domicile to Nevada. On February 24, 2003, we filed a Certificate
      of
      Amendment to our Articles of Incorporation with the Nevada Secretary of State
      changing our name to "FreeStar Technology Corporation". On September 10, 2002,
      we entered into an agreement with Heroya Investments Limited for the acquisition
      of Rahaxi Processing Oy through a combination of cash and stock. The agreement
      with Heroya was subsequently amended three times to increase the stock
      consideration and decrease the cash component. Rahaxi, our wholly owned
      subsidiary, is based in Helsinki, Finland.





PLC  Acquisition





Effective
        November 21, 2006, the Company has acquired 50% of the outstanding capital
        stock
        of Project Life Cycle Partners, Ltd. (“PLC”), a consulting firm located in
        Dublin, Ireland.  PLC Partners is a niche project consulting firm
        specializing in the management and implementation of information systems
        projects.  PLC Partners has international experience within the financial
        services and telecommunications sectors.


Proposed
      Name Change





On
      July
      10, 2007, we issued a press release announcing that our Board of Directors
      had
      approved a proposed amendment to the Company’s Articles of Incorporation to
      change our name to Rahaxi, Inc.  The Board of Directors has
      recommended that the name change amendment be adopted by the shareholders of
      the
      Company and directed the Company to take appropriate action to obtain
      shareholder approval of the name change amendment.  At this time,
      shareholder approval has not been obtained and we have no immediate plans to
      pursue the name change, although the Board of Directors may revisit this issue
      at a later date.





Business
      Description





Our
      switching and transaction processing platform is operated by our
      wholly-owned subsidiary, Rahaxi, which is located in Finland. We are one of
      the
      leading players in the Finnish transaction processing market,
      serving approximately 1,100 merchants each day and processing on
      average approximately 1,620,000 transactions per month.




Until
        recently, our primary source of revenue was from transaction fees we receive
        from processing credit and debit card transactions through point-of-sale
        terminals at a merchant’s retail location. In 2006, we also began generating
        revenue from sales of point-of-sale terminals as well as consulting fees,
        which
        include customization of software applications for merchants and other
        customers. Other anticipated revenue streams include additional processing
        fees
        from processing dynamic currency conversion through our agreement with Global
        Refund Group and Monex.  In fiscal year 2007, the period from July 1,
        2006 through June 30, 2007, transaction fees from point-of-sale terminal
        transactions were primarily from merchants and customers based in Finland.
        We
        also derived revenue from transaction fees from clients in Estonia, Spain
        and
        Iceland. In addition, we derived revenue from consulting and development
        fees
        from our customers in Finland, Sweden, the United Kingdom, Dominican Republic
        and in Ireland through our subsidiary, Project Life Cycle Partners
        Limited.




1
 Table
          of Contents





Products
      and Services





Our
      main
      product and service offering includes:





(1)                 Authorization.





Transaction
      fees from processing point-of-sale terminal transactions make up the bulk of
      our
      total revenues. Our card processing payment engine captures, configures and
      routes credit, debit, charge, and private label card transactions to the
      applicable banks and card issuers for authorization and settlement.





We
        provide transaction processing support for Visa, MasterCard, American Express,
        Diners Club, JCB and all bank-issued Finnish debit cards. Our network currently
        supports approximately 5,000 point-of-sale appliances, including integrated
        cash
        registers and stand-alone/desk terminals. Our authorization and transaction
        fees
        are primarily priced based on a specified amount per
        transaction.


Our
      processing payment engine is also designed to acquire transactions from
      merchants and route to cross border financial institutions. For example, our
      system is directly linked to a financial institution in Estonia and acquires
      transactions from Estonian-based terminals. We have also established
      relationships with financial institutions and multi-national merchants in Sweden
      to expand on our proven cross-border capabilities.





(2)                 EMV
      Compliant Point-of-Sale
      Solutions





EMVCo,
      LLC, a consortium formed by Europay, MasterCard and Visa, has designated new
      standards to increase transaction processing security. The EMV standard utilizes
      integrated circuit card technology, also known as chip cards or chip and PIN
      based technology, to replace the magnetic stripe on credit cards. The purpose
      and goal of the EMV standard is to allow secure interoperation between EMV
      compliant cards and EMV compliant credit card payment point-of-sale terminals.
      The major benefit to moving to EMV based credit card payment systems is improved
      security and associated fraud reduction.





EMV
      financial transactions are more secure against fraud than traditional credit
      card payments, which use the magnetic stripe data encoded on the back of a
      credit card. This is due to the use of encryption algorithms to provide
      authentication of the card, the processing terminal and the transaction
      processing center.




Although
      not the only possible method, the majority of implementations of EMV cards
      and
      terminals confirm the identity of the cardholder by requiring the entry of
      a PIN
      (Personal Identification Number) rather than signing a paper receipt. The
      increased protection from fraud has allowed banks and credit card issuers to
      push through a “liability shift” such that merchants in the Nordic region and
      other countries in Europe are now liable (as of January 2005) for any fraud
      that
      results from non-EMV transactions on their systems. In light of this incentive,
      we believe that the majority of merchants will begin to migrate their systems
      in
      Europe to EMV-compliant systems.




We
        have
        developed an EMV compliant processing platform to provide merchants with
        this
        enhanced fraud protection for European credit card transactions.  We
        are currently EMV-certified in Finland and are seeking certification in Sweden.
        We intend to offer end-to-end merchant processing solutions. Through our
        strategic relationships with Thyron and Hypercom, we offer high performance,
        integrated/hybrid point-of-sale 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.


Our
      strategic relationships allow us to assist merchants in various categories
      and
      sizes with advanced and proven point-of-sale terminals from globally recognized
      manufacturers, integrated with our robust transaction processing and switching.
      We are not a “one-size-fits-all” organization, but instead aim to provide
      suitable solutions for establishments across verticals.





(3)                 "Partners
      in Business"
      Philosophy




We
      strive
      to form relationships with important market participants with the aim of
      providing our customers with the best products and services in the market.
      This
“Partners in Business Philosophy” includes relationships with both manufacturers
      of payment devices and financial institutions, as well as our
      customers.





For
      example, we entered into an agreement with Global Refund Group pursuant to
      which
      we developed a software system that allows multiple applications at the
      point-of-sale terminal, such as Value Added Tax (VAT) refund services and
      dynamic currency conversion services, in addition to payment services. The
      software and terminal will be sold and marketed by Global Refund Group, and
      deployed and maintained by us through our payment hardware
      suppliers.





We
        have
        agreements with Hypercom , Thyron Systems and  Spectra
        Technologies to deploy fully EMV compliant terminals in the Finnish market.
        These point-of-sale terminal offerings, core competencies and transaction
        processing expertise allow us to support all major credit-charge-debit cards,
        as
        well as private label cards. We offer our solutions and services to small,
        medium, and large retailers across retailing segments. The Company began
        deriving revenue from the sale of point-of-sale terminals in fiscal 2007,
        and we
        expect an increasing percentage of our revenues to be derived from point-of-sale
        terminal sales in fiscal 2008.




(4)                 Dynamic
        Currency
        Conversion
 
 We
        entered into a contract with First Currency Choice, or FCC, and Global Refund
        Holdings, which have a client base of over 200,000 merchants. In an effort
        to
        enhance FCC’s and Global Refund’s offering to the existing merchant base and to
        their partner acquiring banks, FCC and Global Refund are bringing a product
        to
        market that allows the cardholder to conduct the transaction in the currency
        of
        origin. In order to provide real time, dynamic currency conversion quotes,
        the
        point-of-sale terminal must send a currency transaction request to the client's
        host. FCC and Global Refund have engaged us to be the processor for all
        transactions conducted in currency of origin. For example, if a point-of-sale
        device sitting at a merchant location in Spain is conducting a transaction
        for a
        cardholder with a card issued in the U.S., that cardholder may request the
        transaction to be conducted in U.S. currency. At that time the terminal will
        switch to our network and servers, and we will provide the currency conversion
        data that we retrieve from the client's host.


2
 Table
          of Contents




Once
      the
      rates are presented to the customer through the point-of-sale terminal and
      accepted, the authorization request is then routed to us to be switched to
      the
      appropriate issuing and acquiring banks. We will provide transaction gateway
      services and settlement with the participating banking institutions. This
      relationship with FCC and Global Refunds has the potential to significantly
      expand our terminal base and increase transaction volumes when fully
      implemented. FCC and Global Refund have begun the initial product roll-out
      with
      dynamic currency conversion in Spain, and has recently expanded into Iceland
      and
      Denmark, with plans to expand to France, Germany and the Netherlands
      in 2008 and then into Italy, the UK, and Switzerland. We began deriving
      limited processing revenue from our relationship with FCC and Global Refund
      in
      fiscal 2007, and expect to continue to receive revenue in fiscal 2008 from
      this
      strategic relationship.





(5)                 Software
      Development / Consulting
      Fees





We
      also
      offer consulting and development services to financial institutions and
      merchants.  The development of the software system for FCC and Global
      Refund described earlier is one example of a consulting assignment carried
      out
      by us that involved the development sophisticated, custom software
      applications.





Through
        our acquisition of fifty percent of the capital stock of Project Life Cycle
        Partners Limited (PLC) in fiscal 2007, we have increased our consulting and
        development revenues.  PLC is a project consultant firm that manages
        and implements information systems projects for banking and financial services
        institutions, with most of its revenues derived from customers in
        Ireland.
 
 PLC
        helps
        their clients to fast-track critical projects, partnering closely with them
        to
        ensure that all stakeholders share a vision for the project and are working
        towards common goals. By taking a holistic view of each project and by
        understanding the perspective of all affected by it PLC aim to maximize the
        human as well as the economic benefits for their clients. PLC consider the
        full
        life cycle of every project they manage, taking into account the impact the
        project will have on the client organization, its customers and its stakeholders
        both during the project and after it is completed.
 
 By
        creating positive benefits in terms of employee morale, customer loyalty,
        team-development and ultimately profitability, the PLC approach adds value
        to
        every project. Key to its success is the emphasis PLC place on communications,
        keeping key players informed, on track and enthused is a critical factor
        in any
        project. PLC are experienced team-builders, accomplished negotiators and
        skilled
        in coaching and mentoring.
 
 PLC
        manages projects of any size and complexity, from a single project to a
        portfolio of projects. PLC undertakes project work both in Ireland and
        internationally, and is comfortable working with organizations of all
        sizes.


(6)                 Private
      Label Cards





We
      believe that the market for private label programs has significantly different
      needs than bankcard programs in terms of marketing, services and processing
      requirements. Private label, or closed loop, programs require flexibility and
      unique processing capabilities. We are capable of supporting the requirements
      of
      private label programs with several authorization and verification methods,
      flexible parameterization, real-time processing, transaction logging, and
      database updates. Our processing engine easily handles advanced remote data
      collection, data dissemination on demand, data scheduling, transaction
      monitoring, and new interface formats.





As
      example of our success with private label programs is the IKEA Hej Card. In
      August 2004, we were chosen by IKANO Rahoitus Oy., a member of The IKANO Group,
      as the transaction management provider for the IKEA Hej Card. After a rigorous
      proposal process and consideration of other electronic payments providers,
      we
      exhibited fast time to market, highly configurable processing logic, low risk,
      and competitive pricing. By leveraging our existing relationship with IKEA
      for
      acquisition and routing, we met or exceeded IKANO's requirements for the
      processing of the IKEA private label Hej Card. 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.





Market
      Overview





**Market
      Participants**





The
      market for card payment transactions comprises several market participants.
      In a
      typical transaction, a consumer uses a card to pay for goods or services from
      a
      merchant. In order for this transaction to work, the merchant needs to be sure
      that the consumer can pay for his products or services.





Once
      the
      consumer has presented his card to the merchant at the point of sale, or
      point-of-sale, the merchant's bank, also known as the acquiring bank, must
      make contact with the consumer’s bank, also known as the issuing bank, in order
      to verify the authenticity of the card and to confirm that the consumer can
      pay for the merchant’s product or service. The contact between the acquiring
      bank and the issuing bank, which includes authorization and transaction data,
      is
      facilitated by the Interchange Network. The Interchange Network is a
      worldwide computer and telecommunication network operated by international
      card
      corporations, such as Visa, MasterCard and Amex. Once the acquiring bank has
      received authorization from the issuing bank, the merchant is authorized at
      the
      point-of-sale to proceed with the purchase.





Our
      role
      in this payment process is to serve as the link between the merchant and its
      acquiring bank and the issuing bank (typically via the Interchange Network).
      Our
      customer is usually the merchant, to whom we provide a total payment
      processing solution so that the merchant can accept credit cards as a
      method of payment. Our services include providing the merchant with necessary
      point-of-sale terminals and software and switching and processing of
      point-of-sale terminal transactions.





The
      routing, control and settlement of credit card payment transactions 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.






3
 Table
          of Contents





**Market
      Growth**





Card
      payments are expected to increase at the expense of cash payments. Major
      international card companies such as Visa, MasterCard and American Express
      have
      shown strong growth over the last years, indicating that card payments are
      winning terrain over cash payments.





For
      example, during the period of 2001-2004, the number of American Express and
      Visa
      cards in force has, on average, grown by 15% and 11% annually, respectively.
      The
      card sales volume for American Express and Visa cards has on average grown
      by 9%
      and 6% annually, respectively, during the same period.





The
      increase in card payments is due to, among other things, merchants' increasing
      focus on online retailing, a continued improved e-payment infrastructure, both
      in terms of ease of use and security, as well as the increasing Internet
      penetration. For example, online retailing generated US $90 billion in revenues
      for US retailers in 2004, compared with just US $8 billion in 1998, i.e. a
      cumulative average annual growth rate of about 50%.




1 Source: The McKinsey Quarterly,
      2005 Number 3, “Retailing: What's working online."





**Europe**





Credit card
      usage in Europe has grown significantly. For example, GDV in 2004, as reported
      by MasterCard’s customers, increased by 14.2% over 2003.  This can be
      compared to 9.3% in the USA. Due to card fraud, European nations and card
      associations have focused on developing and implementing next-generation
      security measures.





**Emerging
      Markets**





Certain
      regions, such as Eastern Europe, Latin America, and Asia, and certain countries
      in particular, including Russia, India and China, are experiencing rapid growth
      in the usage of card-based payments. In China, Visa and MasterCard purchase
      volume increased 34% from 2002 to 2003, from about $6.8 billion to about $9.1
      billion. Similarly, India -- where only 14% of citizens currently have a credit
      card, according to a MasterCard International survey -- experienced 31% growth
      in Visa and MasterCard purchase volume during the same period, from
      approximately $1.8 billion in 2002 to about $2.4 billion in 2003.





Despite
      this strong growth, the emerging markets have a long way to go until they reach
      the same level in terms of card usage as in the Western world. For example,
      cards are used in only 3 percent of all retail sales in China, compared with
      a
      global norm of about 30 percent. The increasing adoption of electronic payments
      in these regions is driven primarily by strong economic growth, improving
      infrastructure development, strong support from governments seeking to increase
      VAT and sales tax collection, and the expanding presence of wireless
      networks.





**Market
      Drivers**





Payment
      card operations are 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**





Evolving
      standards have implications to all participants in the payment industry. The
      introduction of the smart card technology for all credit and debit products
      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, through their jointly owned body EMVCo, have promoted and encouraged
      the industry, members banks, retailers and processors to convert to the
      integrated chip-based technology.





The
      key
      driver behind the conversion to chip cards is the significant reduction of
      fraud. Since magnetic stripe cards are relatively easy to replicate, migrating
      to complex chip 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.





4
 Table
          of Contents




**EMV**





EMVCo
      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. This chip card standards
      organization has prescribed specifications for certification of all new and
      existing electronic payment systems. EMV is expected to be the de facto standard
      in the area of credit/debit card systems managed by EMVCo. EMVCo's objective
      is
      to manage, enhance and maintain EMV chip card specifications. 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.





EMV
      is
      also gaining momentum in Asia and America, and promises complete global
      interoperability of bankcards for consumers. We believe that all payment
      processors will have to be able to accept payments mediated by chip cards in
      order to remain competitive, and meeting EMV compliance has major implications
      for all aspects of the payment handling process.





This
      standard is expected to drive additional growth in sales of next-generation
      electronic payment systems.





**Changed
      Liability Rules**





In
      the
      Nordic region and other European countries, from January 1, 2005, liability
      rules have changed to provide greater protection against fraud to merchants
      who
      have deployed EMV compliant point-of-sale terminals. In practical terms,
      liability shift refers to a transaction authorized at the point of sale by
      a
      merchant fulfilling its obligations by honoring a chip payment card with an
      EMV-enabled and certified device. If the merchant uses an EMV compatible and
      certified point-of-sale terminal for end-to-end processing, the transaction
      cannot be charged-back. If the EMV authorized transaction is later determined
      to
      be fraudulent or the card was lost or 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 due to fraud plus any ancillary charges, such as chargeback
      penalty fees assessed by its acquiring bank.





**PCI-DSS
      Compliance**





In
      June
      2005, American Express, Discover Financial Services, JCB, MasterCard Worldwide
      and Visa International founded the PCI Security Council. These requirements
      are
      based on an internationally recognized standard for information security
      practices.  The main tasks of the PCI council are:




·
            Creating,
                owning and managing PCI for credit card
                data




·
            Classifying
                a common audit requirement to certify
                compliance




·
            Overseeing
                a certification process for security assessors and network scanning
                vendors




·
            Instituting
                minimum qualification requirements




·
            Retaining
                and publishing a list of certified assessors and
                vendors




Under
      the
      Payment Card Industry Data Security (PCI DSS) standards, a business or
      organization should be able to assure their customers that its credit card
      data/account information and transaction information is safe from hackers or
      any
      malicious system intrusion.





Rahaxi’s
      payment card processing systems and procedures are PCI-DSS compliant, which
      we
      believe provides us with a competitive advantage over other processing companies
      that are not PCI-DSS compliant.





**New
      Card Features and Functionality**





Industry
      participants are increasingly developing value-added payment applications and
      features, i.e. pre-paid cards, gift card and loyalty card programs as well
      as
      multi-currency conversion applications such as tax free shopping applications.
      These applications and features expand the range of services and functionality
      offered by electronic payments systems. Payment processors and electronic
      payment systems require testing and recertification when new value-added payment
      applications and features are added. Staying ahead of competition requires
      close
      monitoring and swift adoption to trends and changes in the card application
      and
      features area.






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**Regulatory
      Changes**





Regulatory
      changes on national, regional and global levels affect participants in the
      payment industry. Governmental concern regarding funding of international
      terrorism, international fraud as well competition and world trade issues all
      contribute to new laws and regulations affecting the payment industry. One
      significant European level change will be the Single European Payment Area,
      or
      SEPA, which means that bank issued debit or ATM cards in the future must work
      in
      a cross-border environment the same way as credit cards do today.





2 
      Source: MasterCard Corporation’s annual report 2004. GDV represents gross usage
      (purchased and cash transactions) on MasterCard branded cards for goods and
      services, including balance transfers and convenience checks. The figures
      exclude Maestro and Cirrus transactions.





**Risk
      Management Controls**





Risk
      management controls drive many participants in the international payment
      industry. Banks and other financial institutions constantly review and implement
      changes of their systems, which affect all other participants in the payment
      chain.





**Competition**





The
      market for electronic payment systems and point-of-sale systems is intensely
      competitive and we expect competition to continue to increase. Our competitors
      for point-of-sale systems include VeriFone and Ingenico amongst others, and
      companies such as Global Payments, First Data and Euroconnex for our electronic
      payment software. In Finland, we face competition from companies such as Point,
      which is the largest terminal vendor in the Finnish market, as well as companies
      such as Screenway and Altdata, which are point-of-sale software vendors. In
      addition, the companies with whom we have strategic relationships could develop
      products or services that compete with our products or services.





In
      addition some competitors in our market have longer operating histories,
      significantly greater financial, technical, marketing and other resources,
      and
      greater brand recognition than we do. We also expect to face additional
      competition as other established and emerging companies enter the market for
      electronic payment solutions. To be competitive, we believe that we must, among
      other things, invest significant resources in developing new products, improve
      our current products and maintain customer satisfaction. Such investment will
      increase our expenses and affect our profitability. In addition, if we fail
      to
      make this investment, we may not be able to compete successfully with our
      competitors, which could have a material adverse effect on our revenue and
      future profitability.





Strategy





Payment
      card operations are 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 industry is adjusting
      to
      both opportunities and challenges. Some factors impacting the industry include
      evolving standards, such as the EMV standard; new card features and
      functionality, such as the dynamic currency conversion application; regulatory
      changes, such as SEPA; as well as consolidation and risk management controls.
      All these factors are drivers for change industry-wide.





Our
      objective is to provide solutions and services that enable secure and real-time
      movement of financial transactions incorporating hardware and software to enable
      credit, debit and ATM cards with PIN transactions. The key elements of our
      strategy are to:





(1)                 Increase
      Market Share in the Nordics, Scandinavia, Baltics, Dominican Republic and expand
      into Eastern Europe





We
        believe we are well placed to capitalize on the transformation sweeping the
        payment industry. We are targeting  countries in the Finnish region,
        other European countries and Dominican Republic markets to broaden our customer
        base.


We
      also intend to expand our operations into the rest of Europe, exploiting
      our competitive edge with EMV compatibility and cross-boarder capabilities.
      Further, in line with our "Partners in Business Philosophy", we seek to grow
      our
      merchant base through strategic partnerships with global blue chip players
      such
      as Global Refund, Spectra Technologies and Hypercom.





(2)                 Offer
      Additional Value-Added Services
      to Current Customers





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Our
      customer base includes established blue chip customers, predominantly in
      Finland. In order to maintain and increase our customer base as well as to
      increase the margin per customer, it is imperative for us to offer additional
      value-added services to our current customers. By introducing new value added
      services to merchants, their perception of the point of sale terminal as a
      cost
      center is changing to a profit center. Additional value added services include
      multi-currency accounts, dynamic currency conversion, tax-free shopping
      applications and loyalty cards.





(3)                 Capitalize
      on High Growth Opportunities
      in Emerging Markets





We
      intend
      to capitalize on high growth opportunities in emerging markets. The credit
      and
      debit card market in China, for example, has expanded dramatically in recent
      years as the country races to adopt and integrate global standards and
      technologies.





In
        August
        2006, we entered into an agreement to become a Third Party Services Provider
        for
        China Unionpay Co., LTD., Shanghai, P.C., which we refer to as China Unionpay.
        Under this agreement, we have an opportunity to provide transaction processing
        services to China Unionpay credit card holders traveling in Europe. We have
        also
        entered into memorandums of understanding  arrangements with several
        major European financial institutions in countries such as The Netherlands,
        France, Ireland, Italy and Greece in order to provide the transaction
        processing services for China Unionpay customers in Europe.




(4)                 Secure
      Relationships with Additional
      European Merchant Banks





In
      order
      for us to increase our transaction processing volume outside of Finland, we
      intend to secure relationships with an additional two to three European merchant
      banks, also known as acquiring banks. These banks, which are certified to accept
      credit card transactions on behalf of merchants, conduct a very substantial
      volume of traffic and have shown what we believe is an increasing trend to
      outsource their payment processing, creating a market opportunity for
      us.




Sales





We
      sell
      both directly to merchants as well as indirectly through resellers. Our internal
      sales force is targeting three segments:




· Large
      merchants such as retail chains




· Point-of-sale
      providers, meaning any companies providing transaction processing related
      hardware or services, but requiring switching, authorization or other processing
      services to complete their offerings.




· Payment
      terminal vendors


**Large
      Merchants**





Larger
      merchants select their switching and processing services from companies
      providing the best services. Their existing systems are either run by their
      own
      IT departments or by a strategic partner on an outsourced basis. We are
      positioned to leverage on both the outsourcing trend among large merchants
      as
      well as the need for EMV migration. In order to be successful in this segment,
      it is imperative for us to provide ours customers with a robust payment service
      and demonstrate cross-border capabilities. We are currently capable of offering
      payment services to large merchants in Finland, the Baltics, Sweden and
      Denmark, Poland and Germany.





**Point-of-Sale
      Providers**





While
      big
      merchants carefully select their providers of payment services, small merchants
      tend to choose the payment provider that is recommended by the point-of-sale
      provider(s) they use. As a consequence, we are focusing to develop business
      relations with key point-of-sale providers who have their own customer base.
      This is done through a reseller program, which offers monetary compensation
      to resellers and explores common marketing strategies. We are constantly
      marketing to this fragmented segment in order to locate cooperation
      possibilities.





**Point-of-Sale
      Terminal Vendors**





We
      are
      working with several vendors, both in marketing and technology sharing fields.
      We are aiming to take our vendor relationships to a strategic level, which
      means
      similar re-seller programs that we have in place with point-of-sale vendors,
      but
      also a deeper cooperation around terminal technical roadmaps.






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Marketing





Our
      marketing strategy has three major objectives: (1) to increase our profile
      and
      name recognition in the market; (2)to improve our position in our current
      customer field; and (3) to introduce us as a value-added partner to our
      resellers.





The
      first
      objective has been implemented by creating our overall image through basic
      one-to-one sales, new sales presentations and engaging web search companies
      to
      introduce us among the first hits when searching for payment providers. The
      work
      we are doing in this regard has resulted in new customers, who are increasingly
      contacting us without sales personnel having to contact them first. In order
      to
      meet the second objective, we are actively working on printed information
      sheets, which are sent to current and potential customers. The third objective
      is being addressed by helping our resellers in both the commercial and technical
      fields; we have introduced a reseller program and are frequently meeting
      with our resellers.





Our
      board
      of directors believes that we are well positioned to take advantage of the
      many
      opportunities for growth in the market and that we can achieve long-term
      profitability. We are active in a growth market and we enjoy certain competitive
      advantages. Even though we are still in a pre-profitable stage of our
      development, our transaction volume, as well as transaction revenues, are
      growing. During fiscal 2007, we generated on average
      approximately 1,620,000 transactions per month, a growth rate of
      approximately 8% compared to the average monthly transaction volume in fiscal
      2006.  Management estimates that, due to new business wins and new service
      offerings, the average monthly transaction volume will amount to 2 million
      transactions by the end of calendar year 2006 and as much as 5 million by the
      end of fiscal 2007.





Technical
      Infrastructure





We
      completed a major hardware and software upgrade in December 2003, and migrated
      our business critical systems to the latest Hewlett-Packard ("HP") NonStop
      servers and BASE24 electronic 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 us a secure, continuously available
      processing platform. A vastly scalable platform, HP NonStop provides us with
      the
      ability quickly respond to changing business needs, such as managing the
      expected growing number of transactions and the resulting need for increased
      capacity.





BASE24
      software from ACI Worldwide provides us 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
      electronic payment implementations worldwide.





These
      systems have enabled us to meet
      the latest Visa and MasterCard standards and have paved the way for EMV
      compliance certification.[ In April 2006 we received EMV-certification for
      Visa®, MasterCard® and all domestic Finnish cards used with its Rahaxi-OTI(TM)
      Point Of Sale (point-of-sale) middleware solution from Luottokunta in
      Finland. In addition in late June 2006 we  received the Finnish
      EMV certification required to sell Hypercom's Optimum T2100 card payment
      terminal in Finland.





We
      will
      also be capable of supporting the latest Visa 3D secure payment technology.
      Management believes that with our investment in the upgraded NonStop systems
      running the newest ACI software, we can meet our projected increasing capacity
      needs. We are currently licensed to process 8,000,000 transaction per month
      and
      can increase this capacity with the addition of further licenses.




Research
      and Development





Our
      long-term growth strategy requires continued development of new processing
      products. We believe that the timely development of new applications and
      enhancements is essential to maintain our competitive position in the market.
      We
      work closely with our customers to design systems and processes that meet their
      planned technical and production requirements. Our product development efforts
      focus on new products and improved versions of existing products. We do not
      conduct any pure research, and we purchase much of our software in off-the-shelf
      form from a third party software vendor. We invested in excess of $973,000
      for
      fiscal 2007 and approximately $1,620,000 for fiscal 2006, which includes
      software costs which were expensed as incurred and costs which have been
      capitalized. Key development activities during fiscal 2006
      included:




·    
Introduction
        of card payment technology
        that detects VAT refund eligibility and converts currency in real time in
        connection with Global Refund and Hypercom at the Cartes
        2005;
 ·    
Introduced
          OTI, Open terminal
          interface, a turnkey solution for point-of-sale
          equipment
 ·    
Introduced
            Rahaxi-oti(tm) (open
            terminal interface), an in-house developed and managed middleware solution
            for
            point of sale equipment vendors
 ·    
Finnish
              EMV certifications of its
              in-house developed point-of-sale middleware software solution Rahaxi-OTI
              and the
              Hypercom T2100 Point-of-Sale payment terminal;
 ·    
EMV
                certification with its long-term
                partner, leading Finnish Electronic Cash Register vendor CPU Oy;
                and
 ·    
EMV
                  certification from MasterCard for
                  MasterCard Securecode online payment processing.




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Customers





We
      have
      approximately 1,100 customers. Our clients  include Ikea, Global
      Refunds, Finnair and Stockman. A significant percentage of our revenue is still
      being derived from a limited number of our customers, primarily Finnish
      customers for our transaction processing products.  The Company had one
      customer that accounted for approximately 45% of sales for the year ended June
      30, 2007. The Company's two largest customers accounted for approximately 50%
      of
      its sales for the year ended June 30, 2007.





Suppliers





Our
      processing system integration activities consist primarily of assembling various
      commercial and proprietary components into finished processing systems in
      Helsinki, Finland. We use numerous vendors to supply hardware and software
      components and modules for the production and support of our payment processing
      products. Although we make 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. We have sought, and will
      continue to seek, to minimize the risk of production and service interruptions
      by constantly improving our relationships with key suppliers and monitoring
      the
      financial stability of those key suppliers. Our key suppliers
      include:





ACI
        Worldwide - BASE24 Software License
 Altamedius
        - GSM and eWallet Enhancements
 Fujitsu
        -
        Multi-Banking Link Software
 HP
        Invent
        - Hardware Systems
 Hypercom
        - point-of-sale Manufacturer
 InterMart
        Corporation - Hybrid Card Based Solutions
 Sonera
        -
        X.25 and Telecom Lines
 TietoEnator
        - Hardware Housing
 Thyron
        –point –of- sale manufacturer




Acquiring
      and Issuing Banks





We
        are
        switching and processing electronic payment transactions for all the leading
        banks in Finland and have a contract with SEB/Euroline in Sweden. We intend
        to
        link our customers to more banks in Europe during the course of fiscal 2008.
        We
        currently have links (electronic communications) in place with the following
        acquiring banks:


Luottokunta


Handelsbanken


SEB/Euroline


CEKAB


Nordea


Oko


Sampo


Alandsbanken


Samlink


PKK





Employees




As
        of
        June 30, 2007, we had 51 full-time employees, as well as several consultants
        in
        various specialties. Of the total, four are senior management, four in finance
        and accounting, 10 in software development, two in project management, eight
        in
        office administration, eleven in sales and marketing, two in legal, two in
        business development, seven in customer support and one in Investor
        relations.


Miscellaneous





There
      is
      no need for any government approval of our principal products and services
      in
      the markets we serve. There are no existing or, to our knowledge, probable
      governmental regulations on our business. We are not aware of any compliance
      issues with any environmental laws in connection with our business.






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RISK
      FACTORS





**Technological
      and Market Changes**





The
      markets in which we compete are characterized by rapid technological change,
      frequent new product introductions, evolving industry standards and changing
      needs of customers. There can be no assurance that our existing products will
      continue to be properly positioned in the market or that we will be able to
      introduce new or enhanced products into the market on a timely basis, or at
      all.
      Currently, we are focusing on upgrading and introducing new products and
      entering new geographic markets.  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 us 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 us to modify existing products. There is also
      the risk 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.




**New
      Versions of Our Products May Contain Errors or Defects**





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





**No
      Assurance of Successful and Timely Product Development**





Our
      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 our product development efforts will be successfully
      completed. Our proposed development schedule may be affected by a variety of
      factors, many of which will not be within our control, including technological
      difficulties, access to proprietary technology of others, delays in regulatory
      approvals, international operating licenses, and the availability of necessary
      funding. In light of the foregoing factors, there can be no assurance that
      we
      will be able to complete or successfully commercialize our products. Our
      inability to successfully complete the development of new products or to do
      so
      in a timely manner, could force us to scale back operations, or cease operations
      entirely.




**We
      Have Never Been Profitable and Will Need to Raise Additional Capital to Continue
      our Operations**





Since
      our
      incorporation, we have not achieved profitability. We have incurred substantial
      costs to build the foundations of our business. From our inception to the date
      of this report we have retained a deficit. We expect our operating losses and
      negative cash flows to continue into the future. Even if we do become
      profitable, we cannot assure you that we can sustain or increase profitability
      on a quarterly or annual basis in the future. If our revenues grow slower than
      we anticipate, or if our operating expenses exceed our projected levels and
      cannot be adjusted appropriately, our business will be materially and adversely
      affected.





The
      financial statements included in this report have been prepared on the basis
      that we will continue as a going concern, which assumes the realization of
      assets and the satisfaction of liabilities in the normal course of business.
      We
      have incurred accumulated losses of $74,418,911 as of June 30, 2007. We do
      not
      expect to generate sufficient revenue to meet our cash requirements for the
      next
      twelve months. We will need to raise additional capital to continue meeting
      operational expenses. Our independent auditors have added an explanatory
      paragraph to their report of our financial statements for the year ended June
      30, 2007 stating that our net losses, lack of revenues and dependence on our
      ability to raise additional capital to continue our existence, raise substantial
      doubt about our ability to continue as a going concern. If we are not successful
      in raising sufficient additional capital, we may we may not be able to continue
      as a going concern, our stockholders may lose their entire investment in
      us.







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**Protection
      of Proprietary Rights**





Our
      success and ability to compete will be dependent in part on the protection
      of our, trademarks, trade names, service marks and other proprietary
      rights. We intend to rely on trade secret and copyright laws to protect the
      intellectual property that we plan to develop, but there can be no assurance
      that such laws will provide sufficient protection, that others will not develop
      a service that are similar or superior to ours, or that third parties will
      not
      copy or otherwise obtain and use our proprietary information without
      authorization. In addition, certain of our know-how and proprietary technology
      may not be patentable.





We
      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 our business plan. In particular, our licenses
      for BASE24 software are critical to our operations. There can be no assurance
      that these third party licenses will be available or will continue to be
      available to us on acceptable terms or at all. The inability to enter into
      and
      maintain any of these licenses could have a material adverse effect on our
      business, financial condition or operating results.





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





**Dependence
      on Suppliers**





We
      depend
      upon a number of suppliers for point of sale terminals. There is an inherent
      risk that such termianls will be unavailable for prompt delivery or, in some
      cases, discontinued. We only have limited control over any third-party
      manufacturer as to quality controls, timeliness of production, deliveries and
      various other factors. Should the availability of certain terminals be
      compromised, it could materially adversely affect our business, results
      from operations, and financial condition.




**Key
      Personnel**





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





We
      will
      likely need to recruit additional employees who are skilled in payment
      processing, funds management, payment reconciliation, software programming
      and
      development of other technologies. The failure to recruit these key personnel
      could have a material adverse effect on our business. As a result, we 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.




**We
      May Experience Problems Related to Our Growth**





Our
      future growth, if any, may cause a significant strain on our management,
      operational, financial and other resources. Our ability to manage our growth
      effectively will require us to implement and improve our operational, financial,
      manufacturing and management information systems and to expand, train, manage
      and motivate our employees. These demands may require the addition of new
      management personnel and the development of additional expertise by management.
      Any increase in resources devoted to research, product development and marketing
      and sales efforts without a corresponding increase in our operational,
      financial, and management information systems could have a material adverse
      effect on our business, financial condition, and results of
      operations.





**Control
      by Our Officers and Directors May Override Wishes of Other
      Stockholders**





Our
      officers and directors currently own common stock equal to approximately 25.3%
      of the outstanding shares of our common stock. As a result, such persons, acting
      together, have the ability to exercise significant influence over all matters
      requiring stockholder approval. In addition, all decisions with respect to
      our
      management will be made exclusively by our officers and directors. Investors
      will only have rights associated with stockholders to make decisions that affect
      us. Accordingly, it could be difficult for the investors hereunder to effectuate
      control over our affairs.





Therefore,
      our success, to a large extent, will depend on the quality of our directors
      and
      officers. Accordingly, no person should invest in the Company unless he is
      willing to entrust all aspects of our management to our officers and
      directors.





**External
      Factors May Affect Our Viability**





Our
      industry in general is a speculative venture necessarily involving some
      substantial risk. There is no certainty that the expenditures to be made by
      us
      will result in commercially profitable business. The marketability of our
      services will be affected by numerous factors beyond our control. These factors
      include market fluctuations, and the general state of the economy (including
      the
      rate of inflation, and local economic conditions), which can affect companies'
      spending. Factors that leave less money in the hands of our potential customers
      will likely have an adverse effect on the Company. The exact effect of these
      factors cannot be accurately predicted, but the combination of these factors
      may
      result in the Company not receiving an adequate return on invested
      capital.






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**Potential
      Conflicts of Interest May Affect Ability of Officers and Directors to Make
      Decisions in the Best Interests of Company**





Conflicts
      of interest may arise in the area of corporate opportunities that cannot be
      resolved through arm's length negotiations. All of the potential conflicts
      of
      interest will be resolved only through exercise by the directors of such
      judgment as is consistent with their fiduciary duties.





**Limitations
      on Liability, and Indemnification, of Directors and Officers May Result in
      Expenditures by us**





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





**Absence
      of Cash Dividends May Affect Investment Value of Company's
      Stock**





The
      Board
      of Directors does not anticipate paying cash dividends on the common stock
      for
      the foreseeable future and intends to retain any future earnings to finance
      the
      growth of the Company's business. Payment of dividends, if any, will depend,
      among other factors, on earnings, capital requirements and our general operating
      and financial conditions as well as legal limitations on the payment of
      dividends out of paid-in capital.





**No
      Assurance of Public Trading Market and Risk of Low Priced Securities May Affect
      Market Value of Company's Stock**





The
      SEC
      has adopted a number of rules to regulate "penny stocks." Such rules include
      Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities Exchange Act
      of
      1934, as amended. Because our securities may constitute "penny stocks" within
      the meaning of the rules (as any equity security that has a market price of
      less
      than $5.00 per share or with an exercise price of less than $5.00 per share,
      largely traded in the Over the Counter Bulletin Board or the Pink Sheets),
      the
      rules would apply to us and to our securities.





The
      SEC
      has adopted Rule 15g-9 which established sales practice requirements for certain
      low price securities. Unless the transaction is exempt, it shall be unlawful
      for
      a broker or dealer to sell a penny stock to, or to effect the purchase of a
      penny stock by, any person unless prior to the transaction: (i) the broker
      or
      dealer has approved the person's account for transactions in penny stock
      pursuant to this rule and (ii) the broker or dealer has received from the person
      a written agreement to the transaction setting forth the identity and quantity
      of the penny stock to be purchased. In order to approve a person's account
      for
      transactions in penny stock, the broker or dealer must: (a) obtain from the
      person information concerning the person's financial situation, investment
      experience, and investment objectives; (b) reasonably determine that
      transactions in penny stock are suitable for that person, and that the person
      has sufficient knowledge and experience in financial matters that the person
      reasonably may be expected to be capable of evaluating the risks of transactions
      in penny stock; (c) deliver to the person a written statement setting forth
      the
      basis on which the broker or dealer made the determination (i) stating in a
      highlighted format that it is unlawful for the broker or dealer to affect a
      transaction in penny stock unless the broker or dealer has received, prior
      to
      the transaction, a written agreement to the transaction from the person; and
      (ii) stating in a highlighted format immediately preceding the customer
      signature line that (iii) the broker or dealer is required to provide the person
      with the written statement; and (iv) the person should not sign and return
      the
      written statement to the broker or dealer if it does not accurately reflect
      the
      person's financial situation, investment experience, and investment objectives;
      and (d) receive from the person a manually signed and dated copy of the written
      statement. It is also required that disclosure be made as to the risks of
      investing in penny stock and the commissions payable to the broker-dealer,
      as
      well as current price quotations and the remedies and rights available in cases
      of fraud in penny stock transactions. Statements, on a monthly basis, must
      be
      sent to the investor listing recent prices for the Penny Stock and information
      on the limited market.




The
      regulations governing penny stocks, as set forth above, sometimes limit the
      ability of broker-dealers to sell our common stock and thus, ultimately, the
      ability of the investors to sell their securities in the secondary
      market.





Potential
      shareholders of the Company should also be aware that, according to SEC Release
      No. 34-29093, the market for penny stocks has suffered in recent years from
      patterns of fraud and abuse. Such patterns include (i) control of the market
      for
      the security by one or a few broker-dealers that are often related to the
      promoter or issuer; (ii) manipulation of prices through prearranged matching
      of
      purchases and sales and false and misleading press releases; (iii) "boiler
      room"
      practices involving high-pressure sales tactics and unrealistic price
      projections by inexperienced sales persons; (iv) excessive and undisclosed
      bid-ask differential and markups by selling broker-dealers; and (v) the
      wholesale dumping of the same securities by promoters and broker dealers after
      prices have been manipulated to a desired level, along with the resulting
      inevitable collapse of those prices and with consequent investor
      losses.





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**Failure
      to Remain Current in Reporting Requirements Could Result in Delisting from
      the
      Over the Counter Bulletin Board**





Companies
      trading on the Over the Counter Bulletin Board ("OTCBB"), such as the Company,
      must be reporting issuers under Section 12 of the Securities Exchange Act of
      1934, as amended, and must be current in their reports under Section 13, in
      order to maintain price quotation privileges on the OTCBB. If we fail to remain
      current in our reporting requirements, we could be delisted from the Bulletin
      Board.





In
      addition, the National Association of Securities Dealers, Inc. that operates
      the
      OTCBB, recently adopted a change to its Eligibility Rule, in a filing with
      the
      SEC. The change makes those OTCBB issuers that are cited for filing delinquency
      in its Form 10-KSB's/Form 10-QSB's three times in a 24-month period and those
      OTCBB issuers removed for failure to file such reports two times in a 24-month
      period ineligible for quotation on the OTCBB for a period of one year. Under
      this rule, a company filing with the extension time set forth in a Notice of
      Late Filing (Form 12b-25) would not be considered late. This rule does not
      apply
      to a company's Current Reports on Form 8-K.





If
      we
      fail to comply with these rules, the market liquidity for our securities
      could be severely adversely affected by limiting the ability of broker-dealers
      to sell our securities and the ability of stockholders to sell their securities
      in the secondary market.




**We
        may not be able to implement Section 404 of the Sarbanes-Oxley Act on a timely
        basis.**
 
 The
        SEC,
        as directed by Section 404 of the Sarbanes-Oxley Act, adopted rules generally
        requiring each public company to include a report of management on the company’s
        internal controls over financial reporting in its annual report on Form 10-KSB
        that contains an assessment by management of the effectiveness of the company’s
        internal controls over financial reporting.  This requirement will
        first apply to our annual report on Form 10-KSB for the fiscal year ending
        June 30, 2008.  In addition, commencing with our annual report for the
        fiscal year ending June 30, 2009 our independent registered accounting firm
        must
        attest to and report on management’s assessment of the effectiveness of our
        internal controls over financial reporting.
 
 We
        have
        not yet developed a Section 404 implementation plan.  We have in the past
        discovered, and may in the future discover, areas of our internal controls
        that
        need improvement.  How companies should be implementing these new
        requirements including internal control reforms to comply with Section 404’s
        requirements and how independent auditors will apply these requirements and
        test
        companies’ internal controls, is still reasonably uncertain.
 
 We
        expect
        that we will need to hire and/or engage additional personnel and incur
        incremental costs in order to complete the work required by Section 404. 
We can not assure you that we will be able to complete a Section 404 plan
        on a
        timely basis.  Additionally, upon completion of a Section 404 plan, we may
        not be able to conclude that our internal controls are effective, or in the
        event that we conclude that our internal controls are effective, our independent
        accountants may disagree with our assessment and may issue a report that
        is
        qualified.  Any failure to implement required new or improved controls, or
        difficulties encountered in their implementation, could negatively affect
        our
        operating results or cause us to fail to meet our reporting
        obligations.


**Failure
      to Maintain Market Makers May Affect Value of Our Stock**





If
      we are
      unable to maintain one or more National Association of Securities Dealers,
      Inc. member broker/dealers as market makers, the liquidity of the common stock
      could be impaired, not only in the number of shares of common stock which could
      be bought and sold, but also through possible delays in the timing of
      transactions, and lower prices for the common stock than might otherwise
      prevail. Furthermore, the lack of market makers could result in persons being
      unable to buy or sell shares of the common stock on any secondary market. There
      can be no assurance that we will be able to maintain such market
      makers.





**Shares
      Eligible For Future Sale**





Most
      of
      the shares currently held by management have been issued in reliance on the
      private placement exemption under the Securities Act of 1933. Such shares will
      not be available for sale in the open market without separate registration
      except in reliance upon Rule 144 under the Securities Act of 1933. In general,
      under Rule 144 a person (or persons whose shares are aggregated) who has
      beneficially owned shares acquired in a non-public transaction for at least
      one
      year, including persons who may be deemed affiliates of the Company (as that
      term is defined under that rule) would be entitled to sell within any
      three-month period a number of shares that does not exceed 1% of the then
      outstanding shares of common stock, provided that certain current public
      information is then available. If a substantial number of the shares owned
      by
      these shareholders were sold pursuant to Rule 144 or a registered offering,
      the
      market price of the common stock at that time could be adversely
      affected.





ITEM2. 
DESCRIPTION
      OF PROPERTY





Offices





We
      lease
      a 1,664 square foot office for our corporate headquarters in Dublin, Ireland
      for
      $7,842 per month. The lease expires in January 2011.




We
      lease
      5,527 square feet of office space in Helsinki, Finland for $9,838 per month.
      This lease expires in February 2012. The lease contains provisions to increase
      the monthly lease amount to $11,456 effective March 1, 2009; $11,725 on March
      1,
      2010; and $11,995 on March 1, 2011.





We
      lease
      a 6,081 square foot office in Santo Domingo, Dominican Republic. This lease
      is
      for five years and expires in September 2011. The current rent is $7,000 per
      month.




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We
        have a
        three year lease, which expires on March 31, 2009, on 1,700 square feet of
        office space in Stockholm, Sweden at a rent of approximately $4,000 per
        month
 
 We
        also
        have office space in Geneva, Switzerland, which is being provided at no cost
        to
        us by Carl Hessel, one of our directors.
 
 All
        these
        offices are currently adequate for our needs.
  Furniture
        and Equipment, Leasehold Improvements, and Computers
 
 The
        furniture and equipment, leasehold improvements and computers owned by us
        are
        recorded at their acquisition cost, and are depreciated using the straight-line
        and declining methods. This equipment, which is required for the day-to-day
        operation of our business in our Finland, Dominican Republic, Ireland and
        Sweden
        offices, is currently valued at $187,323 and $122,539, respectively, as of
        June
        30, 2007 and 2006.
 
 We
        lease
        a telephone switchboard for our Helsinki offices; the cost is $3,200 per
        year,
        and can be terminated at any time.




ITEM3.
      LEGAL PROCEEDINGS





Other
      than as set forth below, we are not a party to any material pending legal
      proceedings and, to the best of our knowledge, no such action has been
      threatened against us.





FreeStar
      Technology Corporation v. K2 Svensk Credit Och Finans, AB, et
      al





In
      April
      2006, the Company signed subscriptions agreements with a group of offshore
      investors led by K2 Svensk Kredit Finans, AB, dba Svensk, Kredit and Finans
      (“K2”) for the sale of an aggregate of 25,000,000 shares of the Company's common
      stock plus warrants to purchase an additional 25,000,000 shares of common stock
      for the aggregate price of $10,000,000 (the “April Financing”).





The
      terms
      of the April Financing provided that the shares and warrants would be issued
      in
      exchange for a combination of cash payable within 30 days and promissory notes
      with terms of three months and twelve months.  Pursuant to the April
      Financing, the Company instructed its transfer agent, First American Stock
      Transfer (the “Transfer Agent”) to issue stock certificates for 25 million
      shares of FreeStar Common Stock (the “Shares”). The Shares were issued in the
      form of 50 stock certificates (the “Stock Certificates”), for 500,000 shares
      each, numbered 2840 through 2889 in the name of “Svensk Kredit & Finans AB”
and are dated May 5, 2006.





No
      funds
      were ever received by the Company under the promissory notes issued by K2 in
      connection with the April Financing. Consequently, the Company sought either
      return of the Stock Certificates or immediate payment in full of the amounts
      required pursuant to the April Financing. K2 verbally acknowledged termination
      of the April Financing and agreed in February 2007 to return the Stock
      Certificates. However, K2 later informed the Company that K2 was controlled
      by
      Soren Moberg and that Mr. Moberg personally, not K2, was now in possession
      of
      the Stock Certificates. Subsequently, the Company reported to the Securities
      Information Center that the Stock Certificates were stolen.





On
      March
      14, 2007, the Company, through its counsel Corrigan & Morris LLP, initiated
      legal action in the Federal District Court in Nevada. Named as defendants are
      K2, Soren Moberg, Moberge Group, Magnus Erneving, and the Transfer Agent. The
      Company is asserting claims against those individuals and entities, except
      the
      Transfer Agent, for fraud, conversion, unjust enrichment and negligent
      misrepresentation. It is seeking unspecified damages and $5 million in punitive
      damages.





On
      April
      12, 2007, the Court ruled that the Shares cannot be sold, assigned, transferred
      or otherwise disposed of in any way pending the outcome of the Court case
      initiated by the Company. This ruling follows a similar order brought down
      by
      the Court on March 20, 2007, also preventing the defendants from disposing
      of
      the Shares. The Court also ordered that the Shares not be counted as issued
      and
      outstanding.





On
      August
      14, 2007, the Court issued a final judgment in favor of FreeStar and against
      K2,
      ordering that the entire 25 million shares, represented by certificates numbered
      2840 through 2889, issued to K2 be cancelled.  The Court also held
      that K2 was never a shareholder of FreeStar and that the entire 25 million
      shares should not be counted as ever having been issued and
      outstanding.





FreeStar
      has remaining claims against Soren Moberg, Moberge Group and Magnus Erneving,
      asserting claims for fraud, conversion, unjust enrichment and negligent
      misrepresentation seeking unspecified damages and $5 million in punitive
      damages.





**Diamond
      Club of America, Inc. v. FreeStar Technology Corporation**





On
      April
      6, 2004, Diamond Club of America, Inc. filed a complaint against us in the
      Suffolk County New York Supreme Court. The complaint alleges, among other
      things, that we owe Diamond Club $35,410.45 pursuant to an agreement between
      Diamond Club and TransAxis, Inc. or a predecessor company of TransAxis,
      Inc.





We
      have
      filed an answer to the complaint in which we affirmatively defend this action
      on
      the grounds that as a minority stockholder in TransAxis, we are not responsible
      for the debts of TransAxis. This action is still pending, but the plaintiff
      has
      made no efforts to move this case forward, and we have had no contact with
      plaintiff during the past 36 months.





**Securities
      and Exchange Commission Investigation**





In
      January 2003, we were advised by the staff of the Denver office of the SEC
      that
      it had initiated an informal, non-public inquiry. In July 2003, we learned
      that
      the SEC had issued a formal order of investigation.





In
      January 2007, we were informed by the Staff that the investigation has been
      terminated and that no enforcement action was recommended by the Staff to the
      SEC.





ITEM4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS





None.






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**PART
      II**.




ITEM5.
      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS





Market
      Information





From
      August 4, 2000 through March 2, 2001, our common stock was traded on the OTCBB
      under the symbol "FRSH". From March 5, 2001 through February 26, 2003 our common
      stock traded under the symbol "FSTI" (reflecting the name change from "Freedom
      Surf, Inc." to "FreeStar Technologies"). From February 27, 2003, through
      November 7, 2004, our common stock traded under the symbol "FSRC" (reflecting
      the name change from "FreeStar Technologies" to "FreeStar Technology
      Corporation"). From November 8, 2004 to the present, our common stock has been
      traded under the symbol "FSRT" (reflecting the one for seven reverse split
      of
      common stock that occurred on November 8, 2004). The range of closing prices
      shown below is reported while trading on the OTC Bulletin Board. The quotations
      shown reflect inter-dealer prices, without retail mark-up, markdown or
      commission and may not necessarily represent actual transactions.




**Per
                Share Common Stock Bid Prices by Quarter****For
                the Fiscal Year Ended June 30, 2007**
            
            **High**
            
            
            **Low**Quarter
                  Ended June 30, 2007
            
            $
            0.31
            
            
            $
            0.14Quarter
                  Ended March 31, 2007
            
            $
            0.42
            
            
            $
            0.23Quarter
                  Ended December 31, 2006
            
            $
            0.44
            
            
            $
            0.27Quarter
                  Ended September 30, 2006
            
            $
            0.55
            
            
            $
            0.35**Per
                  Share Common Stock Bid Prices by Quarter****For
                  the Fiscal Year Ended June 30, 2006**
            
            **High**
            
            
            **Low**Quarter
                  Ended June 30, 2006
            
            $
            0.67
            
            
            $
            0.33Quarter
                  Ended March 31, 2006
            
            $
            1.22
            
            
            $
            0.31Quarter
                  Ended December 31, 2005
            
            $
            0.34
            
            
            $
            0.20Quarter
                  Ended September 30, 2005
            
            $
            0.32
            
            
            $
            0.20





Holders
      of Common Equity





As
      of
      September 21, 2007, we had approximately 285 shareholders of record of our
      common stock. The number of registered shareholders excludes any estimate by
      us
      of the number of beneficial owners of common shares held in street
      name.





Dividend
      Information





We
      have
      not declared or paid a cash dividend to stockholders since we were incorporated.
      The board of directors presently intends to retain any earnings to finance
      our
      operations and does not expect to authorize cash dividends in the foreseeable
      future. Any payment of cash dividends in the future will depend upon our
      earnings, capital requirements and other factors.





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 Table
          of Contents




Sales
      of Unregistered Securities





We
      made
      the following issuances of unregistered (restricted) securities during the
      fourth quarter of the fiscal year ended on June 30, 2007:





In
      April
      2007, we issued 3,000,000 shares of common stock to an offshore investor for
      cash of $600,000.  The cash was received from the investor in May
      2006, although the certificate for the shares was not issued until April 2007
      due to a failure by the investor to provide timely vesting and delivery
      instructions for the certificate to our transfer agent.  In fiscal
      2006 (the year the funds were received) we paid a fee of $60,000 to Margaux
      Investment Management Group, S.A., which is controlled by Carl Hessel, a member
      of our board as a fee for services rendered in connection with this issuance.
      See our report on Form 10-KSB for the year ended June 30, 2006 for additional
      information regarding compensation to Mr. Hessel during fiscal
      2006.





In
      April
      2007, we issued 150,000 shares of common stock with a fair value of $43,500
      to a
      consultant for services





In
      April
      2007, we issued 150,000 shares of common stock with a fair value of $40,500
      to a
      consultant for services.





In
      June
      2007, we issued 1,930,000 shares of common stock with an aggregate fair value
      of
      $347,100 to employees of our Freestar Dominicana subsidiary as
      compensation.





Except
      as
      noted above, we did not pay any cash commissions on the above listed
      issuances.  We did not employ any form of general solicitation or
      advertising in connection with the offer and sale of the securities described
      below. Except as otherwise noted above, the offer and sale of the securities
      listed below were made in reliance on the exemption from registration provided
      by Section 4(2) of the Securities Act Regulation D promulgated by the
      Securities and Exchange Commission as transactions by an issuer not involving
      any public offering or Regulation S relating to offshore offerings.





ITEM6.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS





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





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





The  Company  intends  to  derive  revenues  from  its
        core  payment  processing products,  which
        include:  (1) Authorization / Transaction Fees:  transaction
        fees it receives from processing point of sale terminal
        transactions;  (2) Hardware Sales / Point of Sale Terminals: sales of
“Point of Sale” terminals and related maintenance and service initiation fees;
        (3) Dynamic  Currency  Conversion:  in addition to
        transaction authorization, the Company offers certain clients real-time,
        dynamic
        currency conversion, allowing a customer to pay for a product or service
        with
        their credit card in their local currency;  (4) Private Label
        Cards:  transaction  management services provided for a
        private label card issuer;  and
        (5)  Consulting  Fees:  consulting  services  provided
        to financial institutions  and  merchants.  Our revenue
        for the year ended June 30, 2007 was primarily generated from transaction
        fees,
        sales of point of sale terminals through our Finland operations and consulting
        fees through PLC Irish operations.
 
 Effective
        November 21, 2006, the Company has acquired 50% of the outstanding capital
        stock
        of Project Life Cycle Partners, Ltd. (“PLC”), a technology consulting firm
        located in Dublin, Ireland.  PLC is a niche project consulting firm
        specialising in the management and implementation of information systems
        projects.  PLC has international experience within the financial services
        and telecommunication  sectors.


Due
      to
      our systems upgrade in December 2003 to the latest Hewlett-Packard NonStop
      servers and BASE24 e-payment processing software, we do not anticipate the
      need
      for any similar significant systems upgrades within the next 12 months. 
However, we are continuously reviewing our product and service offering to
      ensure we maintain our competitive position in our target markets.






16
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          of Contents





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





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





Results
      of Operations





**Revenue**





Transactionprocessing and related revenue


Transaction
      processing and related revenue was $1,945,512 for the year ended June 30, 2007,
      compared to $2,097,749 during the prior year,  a decrease of $152,237
      or approximately 7%.  During the year ended June 30, 2007, the Company
      generated transaction processing fees of $1,945,512, compared to transaction
      processing fees of $1,778,437 for the prior year, an increase of $167,075 or
      9.4%. The Company processed a total of 19,443,999 transactions during the year
      ended June 30, 2007, an increase of 1,589,839 or 8.9% compared
      to  17,854,160 transactions processed during the prior
      year.  We expect this trend to continue throughout fiscal 2008 as we
      continue to expand our customer base.





During
      the year ended June 30, 2006, the Company reported   revenue in
      the amount of $319,312 related to customization of its software for its client’s
      use; there was no such revenue during the current year.


Consulting
      servicesrevenue





Consulting
      services revenue was $1,349,963 for the year ended June 30, 2007, compared
      to $0
      during the prior year. Consulting services revenue is primarily generated by
      the  Company’s subsidiary PLC.   The Company did not
      own PLC during the prior year.  We expect to report increased revenue
      from consulting services in the fiscal year ending June 30, 2008.




Hardware
      and related  revenue





Hardware
        and related revenue was $484,860 during the year ended June 30, 2007, compared
        to $0 during the prior year. The Company began selling
        point-of-sale processing terminals and related equipment  in
        December 2006.  We expect to report increased hardware and related
        sales in the year ending June 30, 2008 as we not only increase actual hardware
        sales to our expanding customer base, but began to recognize revenue from
        annual
 maintenance fees and service initiation fees, which we have not begun to
        recognize at June 30, 2007.


For
      the
      reasons above, total revenue for the  year ended June 30, 2007 was
      $3,780,335 compared to $2,097,749 for the year ended June 30, 2006, an increase
      of $1,682,586 or approximately 80%.





We
          expect
          revenue levels to increase throughout the next twelve months as we continue
          to
          increase our client base and introduce service offerings, such as EMV
          transaction processing, dynamic currency conversion, sales of point of
          sale
          terminals and consulting fees. However, there can be no guarantee that
          our
          products will be accepted in the marketplace or that its sales efforts
          will be
          successful.
 
 All
          of
          our revenue for the year ended June 30, 2007 has been derived from a limited
          number of its customers, primarily Finnish customers for its transaction
          processing products. Approximately 67% of our total revenue was attributable
          to
          our ten largest customers. The future loss of any major customer could
          have a
          material adverse effect on our business, financial condition and results
          of
          operations. We believe that this customer concentration will continue for
          much
          of fiscal 2008. We believe that this customer concentration will be diluted
          in
          the latter half of fiscal 2008 as we pursues operations outside of Finland.
          All
          of our revenues for the twelve months ended June 30, 2007 have been generated
          by
          our operations outside of the United States, and our future growth rate
          is, in
          part, dependent on continued growth in international markets. We expect
          this
          trend to continue through fiscal year 2008.




17
 Table
          of Contents




**Cost
      of Revenue**





Cost
      of transactionprocessing and related
      revenue





Cost
      of
      transaction processing and related revenue was $2,330,561 for the year ended
      June 30, 2007, compared to $2,078,696 for the prior year ended June 30, 2006,
      an
      increase of $251,865 or 12.1%. The
      reason for the increase is our continued investment in our processing
      infrastructure, as we further build out our processing capabilities and service
      offerings. Though we capitalize the acquisition and installation costs of
      certain software components purchased from third party suppliers, we expense
      all
      costs associated with maintaining, and many of the costs of improving, our
      processing and customer support capabilities. These costs do not always change
      in direct relation to sales, and in fact often increase in advance of any
      potential increase in sales which they may support.




Cost
      of consultingservices





Cost
      of
      consulting services revenue was $816,122 for the year ended June 30, 2007,
      compared to $0 for the prior year ended June 30, 2006.  Consulting
      services revenue is primarily generated by our subsidiary company PLC Partners,
      Ltd. which we did not own during the prior year.





Cost
      of hardware and related  revenue





Cost
      of
      hardware and related revenue was $589,472 during the year ended June 30, 2007,
      compared to $0 during the prior year. The Company began selling processing
      terminals and related equipment in December 2006.  Included in cost of
      hardware revenue are terminals shipped to customers as test and demonstration
      units, as well as items replaced or returned.


For
      the
      reasons above, total cost of revenue was $3,736,155 for the year ended June
      30,
      2007, compared to $2,078,696 for the year ended June 30, 2006, an increase
      of
      $1,657,459 or approximately 80%.





We
      expect
      cost of revenue to increase in the coming year as we continue our current
      trend of increasing sales and expanding our product offering. As our service
      offerings and business mix changes, gross margin as a percent of sales may
      not
      remain constant.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses were $16,251,713 for the year ended June
      30,
      2007 compared to $13,913,969 for the year ended June 30, 2006, an increase
      of
      $2,337,744 or approximately 17%. The primary components of selling, general,
      and
      administrative expenses for the year ended June 30, 2007 were: consulting fees
      of $9,593,577 to service providers for financial consulting and other
      professional services; $8,913,918  of this amount consisted of
      non-cash compensation in the form of stock, stock options, and warrants. Other
      components of selling, general, and administrative expenses for fiscal year
      2007
      included payroll and related costs of $3,260,176;  facilities expense
      (rent, telephone, utilities, and maintenance) of $823,378; travel and
      entertainment costs of $664,012; legal and accounting fees of $517,747;
      depreciation and amortization of $347,200; other professional services of
      $262,425; $175,792 for write-off of subscriptions receivable, $156,348 for
      investor relations, $146,440 for advertising and marketing,
      and  $105,718 for employee relocation,




The
      amount of future selling, general, and administrative expenses will largely
      depend on the pace of our 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. We fully expect these costs to
      increase as we continues our expected rollout of product offerings. We also
      intend to continue to build out our infrastructure, which may include adding
      support staff and branch offices. Selling expenses may also continue to increase
      due to increased focus on obtaining new customers. We intends to focus
      additional resources in the areas of sales personnel salaries, trade show
      participation, and other promotional expenses. In addition, we may pursue
      further acquisitions in order to facilitate our growth and exploit market
      opportunities, which would further drive up legal and accounting fees, payroll,
      and travel costs.




**Cost
      of Legal Settlement**





Cost
      of
      legal settlements was $53,261 for the year ended June 30, 2006 representing
      the
      cost of settling a legal dispute; this amount consists of 108,695 shares of
      common stock. There was no such cost during the current year.






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**Interest Expense**





Interest
        income (expense) net was ($3,018) for the year ended June 30, 2007, compared
        to
        ($53,807)  for the year ended June 30, 2006, a decrease of ($50,789)
        or approximately 94.4%. The decrease is due primarily to the amortization
        of a
        discount on a note payable which was in place during the prior
        year.




Currently,
      we are utilizing equity financing partly in order to avoid the interest charges
      associated with debt financing. Accordingly, we do not expect interest expense
      to materially increase in the coming year. There can be no guarantee that this
      will be the case, however, as the market for our common stock could change,
      forcing us to pursue alternative methods of financing our cash needs. In
      addition, we 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.





Minority
      Interest in Net Income of Subsidiary





The
        Company recorded the minority interest in the net income of its subsidiary
        PLC
        of $62,991 during the year ended June 30, 2007. There was no such comparable
        minority interest during the prior year.


**Net
      Loss**





For
      the
      reasons stated above, we recorded a net loss of $16,305,197 for the year ended
      June 30, 2007 compared to $13,999,773 for the year ended June 30, 2006, an
       increase of $2,305,424 or approximately 16.5%.





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





Commitments





Our
      total
      commitments under non-cancelable operating leases at June 30, 2007 are as
      follows:





**Years
                ending June 30,**2008
            
            $
            387,3622009
            
            $
            381,8312010
            
            $
            359,8472011
            
            $
            323,8722012
            
            $
            122,457Total
            
            $
            1,575,369




Operating
      Activities





The
      net
      cash used in operating activities was $5,689,037 for the year ended June 30,
      2007 compared to $4,112,304 for the year ended June 30, 2006, an increase of
      $1,576,733 or approximately 38%. The primary reason for the increase in cash
      used in operating activities an increase in cash used for general and
      administrative expenses, primarily payroll and facilities costs.  The
      primary components of cash used in operating activities during the current
      period are the net loss of ($16,305,197), partially offset by the non-cash
      charges of non-cash compensation of $8,913,918; depreciation and amortization
      of
      $863,412; the write-off of subscriptions receivable of $175,792; and bad debt
      expense of $33,403.





Investing
      Activities





Net
      cash
      used in investing activities was $1,289,457 during the year ended June 30,
      2007
      compared to $996,511 for the year ended June 30, 2006, an increase of $292,946
      or approximately 29%. This change was primarily due to our increased investing
      in software enhancement to our transaction processing system, and the
      acquisition of PLC.





Financing
      Activities





Net
      cash
      provided by financing activities was $4,353,061 for the year ended June 30,
      2007, compared to $7,461,852 for the year ended June 30, 2006, a decrease of
      $3,108,791 or approximately 42%.  The reason for the decrease was a
      decrease in cash sales of common stock from $6,064,000 in the prior year to
      $2,600,000 (less commissions of $240,000) during the current year.




19
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Liquidity
      and Capital Resources




As
      of
      June 30, 2007, we had total current assets of $2,466,845 and total current
      liabilities of $2,765,510, resulting in a working capital deficiency of
      $(298,665). We had cash and cash equivalents of $466,408 at June 30, 2007,
      and
      an accumulated deficit of $74,418,911.





The
      independent auditors report on our June 30, 2007 financial statements included
      in this Form 10-KSB states that our difficulty in generating sufficient cash
      flow to meet our obligations and sustain operations raise substantial doubts
      about the our ability to continue as a going concern.




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





*Recent
      Financings*





We
      have
      been successful in obtaining cash resources through private placements. Equity
      issuances (including option excercises) provided cash of $4,353,061 during
      the
      year ended June 30, 2007 compared to $7,461,852 for the year ended June 30,
      2006, a decrease of $3,108,791 or approximately 42%.




January Financing


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





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





Pursuant
      to the March Financing, the Company agreed to issue 46 million  shares
      of restricted common stock under Regulation S at $0.20 per share, plus warrants
      to purchase 50 million shares of common stock with two-year exercise periods
      and
      strike prices ranging from $1.50 to $8.50, as set forth below. The shares which
      will be held in escrow by Carl Hessel ("Escrow Holder"), a director and major
      stockholder of the Company based in Geneva, Switzerland, along with the
      warrants. Pursuant to the terms of the March Financing, the first payment of
      $4.6 million is due immediately, with a second payment of $4.6 million due
      within three months thereafter.





The
      Company also issued to consultants 4,600,000 shares of unregistered common
      stock
      and warrants to purchase an additional 13,000,000 shares of common stock at
      a
      price of $0.20 per share as a commission for work performed on the March
      Financing.




The  warrants
      to be issued  pursuant to the investors in
      the  March  Financing  are as
      follows:








**Number
                of shares of Company**
              **Common
                Stock underlying Warrants****Exercise
                Price****Per
                Share**
            
            
            **When
                fully subscribed**
            
            
            **At
                June 30, 2007**$
            1.50
            
            
            
            14,000,000
            
            
            
            6,954,348$
            2.50
            
            
            
            11,000,000
            
            
            
            5,464,130$
            4.50
            
            
            
            7,000,000
            
            
            
            3,477,174$
            5.50
            
            
            
            7,000,000
            
            
            
            3,477,174$
            6.50
            
            
            
            7,000,000
            
            
            
            3,477,174$
            8.50
            
            
            
            4,000,000
            
            
            
            1,986,95750,000,000
            
            
            
            24,836,957






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All
      warrants have a two-year exercise period from the date of issuance of the
      warrants. No registration rights were granted to the March Investors in
      connection with the March Financing and the shares and warrants issued in the
      March Financing will be restricted securities, subject to the applicable
      restrictions set forth in Regulation S promulgated under the Securities Act
      of
      1933, as amended.





As
      of
      June 30, 2006, the first tranche of $4.6 million had been received and the
      Company released 22,850,000 shares and warrants to purchase an additional
      24,836,957 shares.  During the fiscal year ended June 30, 2007, $2.6
      million of the $4.6 million due in the second tranche had been received, but
      the
      Company had not released (or deemed as issued) any of the shares due in the
      second tranche pending completion of payment in full of the remainder due for
      the second tranche.  As of September 21, 2007, the Company had
      received a total of $2.8 million of the $4.6 million due in the second
      tranche.  In consideration of an oral commitment from the investors to
      complete funding of the second tranche, the Company released an additional
      14,000,000  shares and 15,217,391 warrants to the investors, which
      represents a pro rata portion of the securities that had been paid for in the
      second tranche as of such date.





Terminated
      April Financing





In
      April
      2006, the Company signed subscriptions agreements with a group of offshore
      investors led by K2 Svensk Kredit Finans, AB, dba Svensk, Kredit and Finans
      for
      the sale of an aggregate of 25,000,000 shares of the Company's common stock
      plus
      warrants to purchase an additional 25,000,000 shares of common stock for the
      aggregate price of $10,000,000 (the “April Financing”). The Company has
      terminated the April Financing due to non-payment and has initiated litigation
      against the investors, as set forth below and in Part II, Item 1, “Legal
      Proceedings”. These shares and warrants are not deemed to be issued and
      outstanding as of the date of the financial statements.





These
      25,000,000 shares have come into the possession of certain individuals outside
      the Company’s control, and on March 14, 2007, the Company, through its counsel
      Corrigan & Morris LLP, initiated legal action in the Federal District Court
      in Nevada. Named as defendants are K2 Svensk Kredit Finans, AB, dba Svensk,
      Kredit and Finans, Soren Moberg, Moberge Group, Magnus Erneving, and First
      American Stock Transfer, Inc. FreeStar is asserting claims against those
      individuals and entities, except First American Stock Transfer, for fraud,
      conversion, unjust enrichment and negligent misrepresentation. The Company
      is
      seeking unspecified damages and $5 million in punitive damages.





On
      April
      2, 2007, the Court ruled that these shares cannot be sold, assigned, transferred
      or otherwise disposed of in any way pending the outcome of the case. The shares
      are represented by 50 stock certificates for 500,000 shares each, numbered
      2840
      through 2889 in the name of Svensk Kredit & Finans AB issued on May 5, 2006.
      This ruling follows a similar order brought down by the court on March 20,
      2007
      also preventing the defendants from disposing of those same
      shares.  These shares were cancelled in September, 2007.





PLC
      Acquisition





Effective
        November 21, 2006, the Company has acquired 50% of the outstanding capital
        stock
        of Project Life Cycle Partners, Ltd. (“PLC”), a technology consulting firm
        located in Dublin, Ireland. Total consideration for the transaction was
        $1,000,000, consisting of $200,000 cash and 2,222,220 shares of the Company’s
        common stock, valued at $0.36 per share based upon a 30-day average closing
        price per share. The Company may be required to issue additional shares,
        capped
        at a maximum of an additional 50%, if, on the one-year anniversary of the
        acquisition, the 30-day average closing price per share of the Company’s stock
        is less than $0.36.


Additional
      Financing Required





Management
      plans to continue raising additional capital through a variety of fund raising
      methods during fiscal 2008 and to pursue all available financing alternatives
      in
      this regard. Management may also consider a variety of potential partnership
      or
      strategic alliances to strengthen its financial position. Although we have
      been
      successful in the past in raising capital, no assurance can be given that these
      sources of financing will continue to be available to us and/or that demand
      for
      our equity/debt instruments will be sufficient to meet our capital needs, or
      that financing will be available on terms favorable to us. The financial
      statements do not include any adjustments relating to the recoverability and
      classification of liabilities that might be necessary should we be unable
      to continue as a going concern.





If
      funding is insufficient at any time in the future, we may not be able to take
      advantage of business opportunities or respond to competitive pressures, or
      may
      be required to reduce the scope of our planned product development and
      marketing efforts, any of which could have a negative impact on our business
      and
      operating results. In addition, insufficient funding may have a material adverse
      effect on our financial condition, which could require us to:





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




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





Certain
      Indebtedness





Paul
      Egan
      and Ciaran Egan have delayed payment of a portion of their salary in order
      to
      conserve our cash. At June 30, 2007, $49,901 and $81,649 of accrued salaries
      were owed to Paul Egan and Ciaran Egan, respectively.  At June 30,
      2006, $19,730 and $20,444 of accrued salaries were owed to Paul Egan and Ciaran
      Egan, respectively.





Paul
      Egan
      has also advanced the funds to the Company. These advances accrue interest
      at
      the rate of 7% per annum.  At June 30, 2007, the Company owned the
      amount of $56,126 to Paul  Egan for advances, plus $264 of accrued
      interest.





Pursuant
      to Paul Egan’s and Ciaran Egan’s employment agreements, the Company provides the
      officers a car allowance. These allowance have not been paid during the year
      ended June 30, 2007. At June 30, 2007, the Company has accrued the amount of
      $2,022 to Paul Egan and $2,022 to Ciaran Egan for car allowances.





Exchange
      Rates





Our
      operations are principally conducted in Finland through our subsidiary Rahaxi,
      which operates in its local currency, the Euro. We also have operations in
      the
      Dominican Republic under the name ePayLatina S.A., and Freestar Dominicana,
      Inc.
      operating in its local currency, the Dominican Republic Peso. All assets and
      liabilities are translated at exchange rates in effect at the end of the year.
      Accounts for consolidated statements of operations are translated at weighted
      average rates for the year. Gains and losses from translation of foreign
      currency into U.S. dollars are included in other comprehensive income
      (loss). The accumulated foreign currency translation adjustment was $200,758
      for
      the year ended June 30, 2007.





A
      significant portion of our revenues and expenses is denominated in currencies
      other than U.S. dollars; Rahaxi generates its revenue in Euros. Any significant
      change in exchange rates may have a favorable or negative effect on both our
      revenues and operational costs. In particular, the value of the U.S. dollar
      to
      the Euro impacts our operating results. Our 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 our obligations. In
      addition, a significant portion of our financial statements are prepared in
      Euro
      and translated to U.S. dollars for consolidation.





Inflation





The
      impact of inflation on our costs, and the ability to pass on cost increases
      to
      our customers over time is dependent upon market conditions. We are not aware
      of
      any inflationary pressures that have had any significant impact on our
      operations over the past fiscal year, and we do not anticipate that inflationary
      factors will have a significant impact on future operations.





Off-Balance
      Sheet Arrangements





We
      do not
      maintain off-balance sheet arrangements nor do we participate in non-exchange
      traded contracts requiring fair value accounting treatment.





Other





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





Critical
      Accounting Policies





The
      SEC
      has issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
      Disclosure About Critical Accounting Policies" ("FRR 60"), suggesting companies
      provide additional disclosure and commentary on their most critical accounting
      policies. In FRR 60, the Commission has defined the most critical accounting
      policies as the ones that are most important to the portrayal of a company's
      financial condition and operating results, and require management to make its
      most difficult and subjective judgments, often as a result of the need to make
      estimates of matters that are inherently uncertain. Based on this definition,
      our 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 we use in applying these most critical accounting policies have a
      significant impact on the results we report in our financial
      statements.






22
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**Use
      of Estimates in the Preparation of Financial Statements**





The
      preparation of these financial statements requires us 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, we evaluate these estimates, including those related to revenue
      recognition and concentration of credit risk. We base our 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.





**Stock-Based
      Compensation Arrangements**





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





**Revenue
      Recognition**





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





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




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





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




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






23
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**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. We evaluate at each balance sheet date whether events and
      circumstances have occurred that indicate possible impairment. If there are
      indications of impairment, we use future undiscounted cash flows of the related
      asset or asset grouping over the remaining life in measuring whether the assets
      are recoverable. In the event such cash flows are not expected to be sufficient
      to recover the recorded asset values, the assets are written down to their
      estimated fair value. Long-lived assets to be disposed of are reported at the
      lower of carrying amount or fair value of asset less the cost to
      sell.





Forward
      Looking Statements





This
      Form
      10-KSB 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. When used in this Form 10-KSB, the words "expects,"
      "anticipates," "believes," "plans," "will" and similar expressions are intended
      to identify forward-looking statements. These are statements that relate to
      future periods and include, but are not limited to, statements regarding the
      adequacy of our capital resources, need and ability to obtain additional
      financing, the features and benefits of our services, our operating losses
      and
      negative cash flow, and our critical accounting policies.





Forward-looking
      statements are subject to certain risks and uncertainties that could cause
      actual results to differ materially from those projected. Factors that could
      cause or contribute to such differences include, but are not limited to, those
      discussed in this report, and in particular, the risks discussed in Item 1,
      Risk Factors.




These
      forward-looking statements speak only as of the date hereof. We expressly
      disclaim 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.





Our
      operating results can vary significantly depending upon a number of factors,
      many of which are outside our control. In addition to the Risk Factors set
      forth
      in Item 1, general factors that may affect our operating results
      include:





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


24
 Table
          of Contents





ITEM7.
      CONSOLIDATED FINANCIAL STATEMENTS





Consolidated
      financial statements as of and for the fiscal year ended June 30, 2007 and
      for
      the fiscal year ended June 30, 2006 are presented in a separate section of
      this
      report following Item 14.





ITEM8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE





Not
      applicable.





ITEM8A.
      CONTROLS AND PROCEDURES





Evaluation
      of Disclosure Controls and Procedures





As
      of
      June 30, 2007, our management carried out an evaluation, under the supervision
      of our Chief Executive Officer and Chief Financial Officer of the effectiveness
      of the design and operation of our system of disclosure controls and procedures
      pursuant to the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under
      the Exchange Act).  Based on that evaluation, our chief executive officer
      and chief financial officer concluded that our disclosure controls and
      procedures are not effective to provide reasonable assurance that information
      we
      are required to disclose in reports that we file or submit under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in SEC rules and forms, and that such information is not accumulated
      and communicated to our management, including our chief executive officer and
      chief financial officer, as appropriate, to allow timely decisions regarding
      required disclosure. Please see the subsection “Significant Deficiencies In
      Disclosure Controls And Procedures Or Internal Controls” below.





Changes
      in internal controls




Except
      as
      described below, there were no changes in internal controls over financial
      reporting that occurred during the period covered by this report that have
      materially affected, or are reasonably likely to materially effect, our internal
      control over financial reporting. As described below, as a result of our
      evaluation of our disclosure controls and procedures as of June 30, 2007, we
      determined that our controls and procedures are not effective and subsequent
      to
      the period of this report, began to implement changes to our internal
      controls.




Significant
      Deficiencies In Disclosure Controls And Procedures Or Internal
      Controls




We
      have
      determined there were errors in accounting for the status of certain shares
      of
      the Company’s common stock which had been issued pursuant to a financing
      agreement. The Company previously reported that these shares of stock had been
      held in escrow, when in fact these shares were improperly in the possession
      of
      third parties.




The
      Company is currently continuing its review in order to design enhanced controls
      and procedures to remedy this deficiency. We intend to complete our review
      and
      implement our enhanced controls and procedures during the three months ending
      December 31, 2007. The Company is not aware of any other deficiencies in its
      system of disclosure controls and procedures. The Company has initiated legal
      action regarding such shares. See Part II, Item 1, “Legal Proceedings” below for
      additional details.





ITEM8B.
        OTHER INFORMATION





None.





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**PART
      III.**





ITEM9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
      AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT





Directors
      and Executive Officers





The
      names, ages, and respective positions of our directors, executive officers,
      and
      key employees are set forth below. The directors named below will serve until
      the next annual meeting of our stockholders or until their successors are duly
      elected. Officers will hold their positions at the will of the board of
      directors, subject to any employment agreements. 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 our affairs.





Paul
      Egan, President/Chief Executive Officer/Director





Mr.
      Egan,
      age 44, has served as our Chief Executive Officer and President since August
      2001. Mr. Egan founded ePayLatina S.A., which developed the PaySafeNow system
      and was acquired by FreeStar 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 their 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 Teenier College
      Dublin.





Ciaran
      Egan, Secretary/Treasurer/Chief Financial Officer/Director





Mr.
      Egan,
      age 43, has served as our Chief Financial Officer since August 2001. Mr. Egan
      joined ePayLatina S.A. in May 2001 where he took the position of vice president.
      From 1994 to 2001, he was employed by Midiron International Recruitment based
      in
      Johannesburg, South Africa, 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. Prior to that, Mr. Egan was the
      National Sales Director for Sellrange Ltd (Ireland). Mr. Egan graduated from
      Terenure College Dublin in 1982.





Fionn
      Stakelum, Director





Mr.
      Stakelum, age 37, was appointed to our board of directors in October 2002.
      Since
      2003, he has also served as our Director of European Operations. 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.





Carl
      M.
      Hessel, Director





Mr.
      Hessel, age 44, was appointed to our board of directors in April 2004. 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.






26
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Key
      Employees





Jose
      Enrique Perez - Chief Technical Officer





Mr.
      Perez, age 47, joined FreeStar as Chief Technical Officer in September 2006.
      His
      responsibilities are as head of our technology development and deployments,
      and
      will be in charge of developing new products and services. Previously, Mr.
      Perez
      was senior vice president, chief of global offshore development, and general
      manager of SIA Hypercom Latvia. Hypercom Corp. is a global leader in electronic
      payment products and services, headquartered in Phoenix. Mr. Perez was
      responsible for driving Hypercom's global offshore software strategy, delivering
      competitive software products worldwide, managing its development centers in
      Latvia and Russia and managing the SIA Hypercom Latvia operations. Prior to
      his
      14 years in technology development and management at Hypercom, Mr. Perez was
      an
      Adjunct Professor at the Florida Computer and Business School. He is currently
      completing a Ph.D. in International Business at Kennedy-Western University,
      Agoura Hills, California. Mr. Perez is fluent in English, Russian, Spanish
      and
      Portuguese.





Family
      Relationships





Mr.
      Stakelum is the brother-in-law of Paul Egan and Ciaran Egan. Paul Egan and
      Ciaran Egan are brothers.





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 our 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 our equity securities are required by SEC regulations to furnish us
      with copies of all Section 16(a) forms they file.





To
        our
        knowledge, based solely on the review of copies of such reports furnished
        to us
        during the year ended June 30, 2007, we are not aware of any reports which
        were
        not timely filed except for a Form 5 filed late on September 27, 2007 by
        Paul
        Egan reporting the conversion of Series B Preferred Stock into shares of
        Common
        Stock.. All of these documents have been prepared and filed with the SEC.
        Other
        than these, we are not aware of any other required reports that were not
        timely
        filed with regard to the fiscal year ended June 30, 2007.




Code
      of Ethics





We
      have
      adopted a Code of Ethics that applies to our directors and senior officers,
      including our principal executive, financial and accounting officers. A copy
      of
      the Code of Ethics is available on our website at www.freestartech.com. We
      intend to disclose on our website amendments to, or waivers from, any provision
      of our Code of Ethics which applies to our Chief Executive Officer, Chief
      Financial Officer, principal accounting officer and persons performing similar
      functions and amendments to, or waivers from, any provision which relates to
      any
      element of our Code of Ethics described in Item 406(b) of Regulation
      S-B.





Committees
      of the Board Of Directors





We
      presently do not have a compensation committee, nominating committee, an
      executive committee of our board of directors, stock plan committee or any
      other
      committees, except for an audit committee.





Audit
      Committee





Our
      audit
      committee consists of Paul Egan, Ciaran Egan, and Carl Hessel. The audit
      committee has not adopted a written charter. Our board of directors has
      determined that we do not have an audit committee financial expert serving
      on
      our audit committee; we have been unable to secure the services of such a person
      but are actively seeking such a person.





The
      primary responsibility of the audit committee is to oversee our financial
      reporting process on behalf of our board of directors and report the result
      of
      their activities to the board. Such responsibilities include, are not limited
      to, the selection, and if necessary the replacement, of our independent
      auditors, review and discuss with such independent auditors (i) the overall
      scope and plans for the audit, (ii) the adequacy and effectiveness of the
      accounting and financial controls, including our system to monitor and manage
      business risks, and legal and ethical programs, and (iii) the results of the
      annual audit, including the financial statements to be included in our annual
      report on Form 10-KSB.




27
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          of Contents




ITEM10.
      EXECUTIVE COMPENSATION





Summary
      Compensation Table





The
      following table sets forth information concerning the compensation for services
      in all capacities rendered to us for the three fiscal years ended June 30,
      2007,
      of our Chief Executive Officer and our other executive officers whose annual
      compensation exceeded $100,000 in the fiscal year ended June 30, 2007, if any.
      We refer to the Chief Executive Officer and these other officers as the named
      executive officers.





**SUMMARY
      COMPENSATION TABLE**





**Name
                and**
              **Principal**
              **Position**
            **Year**
            
            **Salary**
              **($)**
            
            
            **Bonus**
              **($)**
            
            
            **Stock**
              **Awards**
              **($)**
            
            
            **Option**
              **Awards**
              **($)**
            
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **($)**
            
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            
            **All
                Other**
              **Compensation**
              **($)**
            
            
            **Total**
              **($)**Paul
                  Egan
              CEO
                  / President / Director (1)
            2007
            
            $
            276,301
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,022
            
            
            $
            278,323Ciaran
                  Egan
              Secretary
                  / Treasurer / CFO / Director (2)
            2007
            
            $
            254,405
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            254,405Fionn
                  Stakelum
              Director/Director
                  of European Operations
            2007
            
            $
            84,967
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,022
            
            
            $
            86,989


(1)
            Paul
                Egan assumed the position of President on September 15,
                2001.  2007 amounts include the following: Salary consists of
                $262,004 from Mr. Egan’s role as Chief Executive Officer of FreeStar
                Technology, and $14,297 from Mr. Egan’s position as Chief Executive
                Officer of our recently formed subsidiary FreeStar
                Dominicana.  During the year ended June 30, 2007, Paul Egan
                converted a total of 2,000,000 shares of preferred stock into a total
                of 13,700,000 shares of common stock.  There was no expense
                to the Company or income to Paul Egan as a result of these
                conversions.


(2)
            Ciaran
                Egan assumed the position of Chief Financial Officer on June 28,
                2001; he
                later took on the additional position of Secretary/Treasurer on September
                15, 2001. 2007 amounts include the following: Salary consists of
                $240,107
                salary from Mr. Egan’s role as Chief Financial Officer of FreeStar
                Technology, and $14,298 from Mr. Egan’s position as Chief Financial
                Officer of our recently formed subsidiary FreeStar
                Dominicana.





Grants
      of Plan Based Awards





During
      the fiscal year ended June 30, 2007, none of our named executive officers were
      granted any stock or other equity awards.





Outstanding
      Equity Awards at Fiscal Year End





As
      of
      June 30, 2007, none of our named executive officers had any outstanding,
      unexercised options or any unvested stock awards.




Director
      Compensation





**Name**
            
            **Fees
                Earned**
              **or
                Paid in**
              **Cash**
              **($)**
            
            
            **Stock**
              **Awards**
              **($)**
            
            
            **Option**
              **Awards**
              **($)**
            
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **($)**
            
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            
            **All
                Other**
              **Compensation**
              **($)**
            
            
            **Total**
              **($)**Paul
                Egan
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Ciaran
                  Egan
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Fionn
                  Stakelum
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Carl
                  Hessel (1)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            240,000
            
            
            $
            240,000




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 Table
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(1)
      In
      fiscal 2007, we paid the amount of $240,000 in cash to Margaux Consulting Group
      as commission for services rendered in connection with offshore fundraising
      activities.  Margaux Consulting Group is  an entity
      beneficially controlled by Mr. Hessel.





All
      directors may be reimbursed for their reasonable expenses incurred in connection
      with attending meetings of the board of directors or management committees.
      Under our Non-Employee Directors and Consultants Retainer Stock Plan, our
      directors are eligible for grants of stock of stock options for their service
      as
      directors. However, currently, we do not have set compensation package for
      directors and equity grants for service as directors are only made when and
      if
      determined by the Board of Directors. No equity or cash compensation was granted
      to any of our directors, for their service as directors, in fiscal year
      2007.





Each
      of
      our directors also provides services as an employee or consultant. See “Summary
      Compensation Table” above in this Item 10, along with “Employment Agreements”
below and Item 12 “Certain Relationships and Related Transactions” for a
      description of compensation granted to our directors in their capacities as
      employees and/or consultants.





Employment
      Agreements





On
      May
      29, 2007, we entered into new employment agreements with each of Paul Egan
      and
      Ciaran Egan, which replace their prior employment agreements with the
      Company.




Chief
      Executive Officer





In
      August
      2001, we entered into an employment agreement with Paul Egan, our President
      and
      Chief  Executive  Officer.  Under the terms of the
      agreement, Mr. Egan was entitled to a minimum annual salary of $150,000 per
      year. In addition, Mr. Egan received 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 Paul Egan’s remuneration take place on
      or before December 31, 2004.  Effective January 1, 2006, Paul Egan’s
      salary was increased to $264,000 per year.





On
      May
      29, 2007, we entered into new employment agreement with Paul Egan that replaces
      his prior employment agreement with the Company. Paul Egan’s employment
      agreement has a five year term. Under the agreement, Paul Egan will continue
      to
      serve in his current role of President and Chief Executive Officer of the
      Company, reporting to the Board of Directors.  The Company will pay
      Paul Egan €300,000 (approximately US$403,000, based on current exchange rates at
      the time the agreement was executed) per year in base salary, plus an automobile
      allowance of €1,500 (approximately US$2,000 based on current exchange rates at
      the time the agreement was executed) per month and other
      benefits.  The Board of Directors will review the annual base salary
      each year, but may not reduce it below the initial base salary
      level.  Paul Egan will be eligible for bonuses to be paid in stock or
      stock options, with such bonuses to be determined by the Board of
      Directors.  If Mr. Egan’s employment is terminated by the Company
      Without Cause (as defined in the employment agreement) or by Mr. Egan for Good
      Reason (as defined in the employment agreement), then Mr. Egan shall be entitled
      to a lump sum payment equal to one year’s annual salary, plus any applicable
      bonuses.





Effective
      March 1, 2006, Paul Egan began to draw a salary of $25,000 per year for his
      position as Chief Executive Officer of our subsidiary, Freestar
      Dominicana.





At
      June
      30, 2007, we owed Paul Egan the amount of $49,901 in accrued salary and $2,022
      in accrued automobile allowance.





Chief
      Financial Officer





In
      August
      2001, we entered into an employment agreement with Ciaran Egan, our President
      and Chief Executive Officer.  Under the terms of the agreement, we Mr.
      Egan was entitled to receive a minimum annual salary of $120,000 per year.
      In
      addition, Mr. Egan received 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 Ciaran
      Egan’s  remuneration  take place on or before December 31,
      2004.  Effective January 1, 2006, Ciaran Egan’s salary was increased
      to $240,000 per year.




29
 Table
          of Contents




On
      May
      29, 2007, we entered into new employment agreement with Ciaran Egan that
      replaces his prior employment agreement with the Company. Ciaran Egan’s
      employment agreement has a five year term. Under the agreement, Ciaran Egan
      will
      continue to serve in his current role as Chief Executive Officer of the Company,
      reporting to the President. The Company will pay Ciaran Egan €300,000
      (approximately US$403,000, based on current exchange rates at the time the
      agreement was executed) per year in base salary, plus an automobile allowance
      of
€1,500 (approximately US$2,000 based on current exchange rates at the time the
      agreement was executed) per month and other benefits.  The Board of
      Directors will review the annual base salary each year, but may not reduce
      it
      below the initial base salary level.  Ciaran Egan will be eligible for
      bonuses to be paid in stock or stock options, with such bonuses to be determined
      by the Board of Directors.  If Mr. Egan’s employment is terminated by
      the Company Without Cause (as defined in the employment agreement) or by Mr.
      Egan for Good Reason (as defined in the employment agreement), then Mr. Egan
      shall be entitled to a lump sum payment equal to one year’s annual salary, plus
      any applicable bonuses.





Effective
      March 1, 2006, Ciaran Egan began to draw a salary of $25,000 per year for his
      position as Chief Financial Officer of our subsidiary, Freestar
      Dominicana.





At
      June
      30, 2007, we owed Ciaran Egan the amount of $81,649 in accrued salary and $2,022
      in accrued automobile allowance.





ITEM11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT, AND RELATED STOCKHOLDER MATTERS.





The
      following tables set forth information regarding the beneficial ownership of
      shares of our Common Stock, Series A Preferred Stock and Series B Preferred
      Stock by (i) all stockholders known to the us to be beneficial owners of more
      than 5% of the outstanding stock; and (ii) all directors, executive officers,
      and our key employees, individually and as a group.  As of September
      21, 2007 there were 267,615,595 shares of Common Stock issued and outstanding;
      1,000,000 shares of Series A  preferred stock outstanding, each share of
      which is convertible into 1.71 shares of common stock upon the attainment of
      certain financial goals by the Company (which have not occurred); and 1,500,000
      shares of Series B preferred stock, 1,000,000 of which are currently convertible
      into 1.71 shares of common stock each,  and 500,000 of which are
      convertible into 12 shares of common stock each.





**Class
                of****Name**
            **Security**
            
            **Shares (1)**
            
            
            **% of class (2)**Paul
                Egan (3)
            Common
            
            
            29,158,093
            
            
            
            10.9
            %Ave.
                Sarasota, La JuliaSanto
                Domingo,
              Dominican
                RepublicCiaran
                Egan (4)
            Common
            
            
            20,554,080
            
            
            
            7.5
            %Ave.
                Sarasota, La JuliaSanto
                Domingo,
              Dominican
                RepublicCarl
                M. Hessel (5)
            Common
            
            
            17,588,442
            
            
            
            6.6
            %31
                Mespil Road, BallsbridgeDublin
                2 IrelandFionn
                Stakelum (6)
            Common
            
            
            2,357,143
            
            
            
            0.9
            %31
                Mespil Road, BallsbridgeDublin
                2 IrelandAll
                Directors & officers
            Common
            
            
            69,657,758
            
            
            
            25.3
            %as
                a group (4 persons)






(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 amounts for Ciaran Egan and Fionn Stakelum are calculated by adding
      the conversion amount of the Series B preferred shares owned by them to the
      issued and outstanding shares as of September 13, 2007.





(3)
      Out
      of the total shares owned, 1,000,000 Series A preferred stock are not included
      since they are not convertible until the Company attains certain financial
      goals, which have not been achieved.





(4)
      Out
      of the total shares owned, 7,714,286 consist of shares which would result from
      the conversion of 1,500,000 shares of Series B preferred stock, which Mr. Egan
      has the right to acquire within 60 days.





(5)
      3,597,544 of the shares are held in the name of Margaux Investment Management
      Group, S.A., which is controlled by Mr. Hessel, its president. 428,475 of the
      shares are held in the name of Isabella Hessel, Mr. Hessel’s daughter. 7,300,000
      of the shares are held in the name of Donna Hessel, Mr. Hessel’s
      wife.





(6)
      Out
      of the total shares owned, 857,143 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.










30
 Table
          of Contents




As of September 21, 2007, Preferred Series A shares
      outstanding were as follows:


**Class
                of****Name**
            **Security**
            
            **Shares**
            
            
            **% of class**Paul
                Egan
            Preferred
            
            
            1,000,000
            
            
            
            100.0
            %Ave.
                Sarasota, La Julie
              Santo
                Domingo,
              Dominican
                Republic
            Series
                ACiaran
                Egan
            Preferred
            
            
            -
            
            
            
            0.0
            %Ave.
                Sarasota, La Julie
              Santo
                Domingo,
              Dominican
                Republic
            Series
                AFionn
                Stakelum
            Preferred
            
            
            -
            
            
            
            0.0
            %31
                Mespil Road, Ballsbridge
            Series
                ADublin
                2 IrelandCarl
                M. Hessel
            Preferred
            
            
            -
            
            
            
            0.0
            %31
                Mespil Road, Ballsbridge
            Series
                ADublin
                2 IrelandAll
                Directors and officers
            Preferred
            
            
            1,000,000
            
            
            
            100.0
            %as
                a group (4 persons)
            Series
                A





As
      of
      September 21, 2007, Preferred Series B shares outstanding were as
      follows:








**Class
                of****Name**
            **Security**
            
            **Shares**
            
            
            **% of class**Paul
                Egan
            Preferred
            
            
            -
            
            
            
            0.0
            %Ave.
                Sarasota, La Julie
              Santo
                Domingo,
              Dominican
                Republic
            Series
                BCiaran
                Egan
            Preferred
            
            
            1,500,000
            
            
            
            75.0
            %Ave.
                Sarasota, La Julie
              Santo
                Domingo,
              Dominican
                Republic
            Series
                BFionn
                Stakelum
            Preferred
            
            
            500,000
            
            
            
            25.0
            %31
                Mespil Road, Ballsbridge
            Series
                BDublin
                2 IrelandCarl
                M. Hessel
            Preferred
            
            
            -
            
            
            
            0.0
            %31
                Mespil Road, Ballsbridge
            Series
                BDublin
                2 IrelandAll
                Directors and officers
            Preferred
            
            
            1,500,000
            
            
            
            100.0
            %as
                a group (4 persons)
            Series
                B







31
 Table
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Securities
      Authorized for Issuance under Equity Compensation Plans





We
      have
      adopted two equity compensation plans (neither of which have been approved
      by
      our shareholders):





(a)
      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. 4 to this plan on December
      20,  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 75,000,000 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,
      2007,
      the  Company  had  issued  75,000,000  shares
      of common  stock  under this plan. On February 1, 2007, the
      Company adopted the 2007 Directors and Consultants Stock Plan, authorizing
      an
      additional 35,000,000 shares of common stock for the same purposes as the
      Non-Employee Directors and Consultants Retainer Stock  Plan. At June
      30, 2007, a total of  6,252,007 shares were issued and an additional
      1,075,000 shares were reserved for the exercise of options under the 2007
      Directors and Consultants Stock Plan, leaving a total of  27,672,993
      shares available for issuance under both the Non-Employee Directors and
      Consultants Retainer Stock  Plan and the 2007 Directors and
      Consultants Stock Plan. Subsequent to June 30, 2007, the Company issued an
      additional 9,725,000 shares under the Form S-8 filed with the SEC.





(b)
      Stock
      Incentive Plan





On
      October 25, 2001,  the Company  adopted a
      Stock  Incentive  Plan (the company
      adopted  Amendment  No. 3 to this  plan
      on  December  20,  2004).  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 70,000,000  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, 2007, the Company had
      issued   70,000,000 shares of
      common  stock  under  this  plan.





On
      February 1, 2007, the Company adopted the 2007 Stock Incentive Plan, authorizing
      an additional 35,000,000 shares of common stock for the same purposes as the
      Stock Incentive Plan.  During the year ended June 30, 2007, the
      Company issued 6,760,184 shares of common stock under this plan and reserved
      an
      additional 3,029,271 shares for the exercise of options.  At June 30,
      2007, there is an aggregate of  25,210,545 shares of common stock
      available for issuance under both the Stock Incentive Plan and the 2007 Stock
      Incentive Plan.








**Equity
      Compensation Plan Information**


**as
      of June 30, 2007**








Individual
      Option/SAR Grants in Fiscal Year Ended June 30, 2007.





**Percent
                of total****Number
                of securities**
            
            **options
                / SARs granted**
            
            **Exercise****underlying**
            
            **to
                employees in**
            
            **or
                base**
            
            **Expiration****Name**
            
            **Options
                / SARs granted**
            
            **fiscal
                year**
            
            **price
                ($/sh)**
            
            **date**None
            
            -
            
            -
            
            -
            
            -







32
 Table
          of Contents




Aggregated
      Option/SAR Exercises In Fiscal Year Ended June 30, 2007 and Fiscal Year-End
      Option/SAR Values




**Number
                of****securities**
            
            **Value
                of****underlying**
            
            **unexercised****unexercised**
            
            **in-the-money****options/SARs**
            
            **options/SARs****at
                FYE (#)**
            
            **at
                FYE ($)****Shares
                acquired**
            
            
            
            **exercisable/**
            
            **exercisable/****Name**
            
            **on
                exercise (#)**
            
            **Value
                realized ($)**
            
            **unexercisable**
            
            **unexercisable**None
            
            -
            
            -
            
            -
            
            -







ITEM12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE.





Certain
      Relationships and Related Transactions





Other
      than as set forth below, during the fiscal year ended June 30, 2007 there have
      been no relationships, transactions, or proposed transactions to which we were
      or are to be a party, in which any of the directors, executive 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 23, 2003, we entered into a consulting agreement with Margaux Investment
      Management Group S.A., which is controlled by Carl Hessel, its president (see
      Exhibit 10.3). Under this consulting agreement, Margaux agreed to, among other
      things, provide advice and counsel regarding strategic business and marketing
      plans, strategy and negotiations with potential, clients/distributors,
      users/end-users, candidates, joint ventures, corporate partners, investors
      and
      capitalists. Under this agreement, we 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.  During the year ended June 30, 2007, we compensated
      Margaux the amount of $240,000 cash for offshore fundraising
      activities.




(b)
      The
      Company’s president, Paul Egan, who is also a shareholder, had delayed payment
      of a portion of his salary in order to conserve the Company’s cash. At June 30,
      2007, $49,901 of accrued salaries were owed to Paul Egan, compared to $19,730
      at
      June 30, 2006.  The Company also owed the amount of $2,022 to Paul
      Egan for accrued automobile allowance.




(c)
      The
      Company’s chief financial officer, Ciaran Egan, who is also a shareholder, had
      delayed payment of a portion of his salary in order to conserve the Company’s
      cash. At June 30, 2007, $81,649 of accrued salaries were owed to Ciaran Egan,
      compared to $20,444 at June 30, 2006.  The Company also owed the
      amount of $2,022 to Ciaran Egan for accrued automobile allowance.




(d)
      Paul
      Egan has advanced us funds for our operations. These amounts include advances
      of
      $56,126 and accrued interest of $264 at June 30, 2007 and advances of $0 and
      accrued interest of $0 at June 30, 2006.





(e)
      On
      July 10, 2007, we entered into an agreement with Donna Hessel, the spouse of
      one
      of our directors, Carl Hessel.  Mrs. Hessel has considerable
      experience in the areas of finance and operations and provides the Company
      with
      strategic and operational consulting services pursuant to the
      agreement.  In connection with this consulting agreement, we issued
      Mrs. Hessel options to purchase 7,000,000 shares of our common stock at an
      exercise price equal to the current fair market value as of the date of the
      issuance of the options.  Mrs. Hessel exercised those options in
      September, 2007.




(f)
      We
      are provided office space in Geneva, Switzerland at no cost to us by Mr.
      Hessel.





Policies
      and Procedures for Related Party Transactions




The
      Company conducts an appropriate review of all related party transactions that
      are required to be disclosed pursuant to Regulation S-K, Item 404 for potential
      conflict of interest situations on an ongoing basis and all such transactions
      must be disclosed to and approved by the entire Board of Directors of the
      Company.





Director
      Independence





Our
      Board
      of Directors is currently composed of four directors, none of whom would qualify
      as an independent director based on the definition of independent director
      set
      forth in Rule 4200(a)(15) of the Nasdaq Marketplace rules. Because our common
      stock is traded on the NASD OTC Electronic Bulletin Board, which is not a
      securities exchange, we are not subject to corporate governance rules that
      require that a board of directors be composed of a majority of independent
      directors.





33
 Table
          of Contents





ITEM13.
      EXHIBITS





Exhibits
      included or incorporated by reference in this document are set forth in the
      Exhibit Index.




ITEM14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit
      Fees




The
      aggregate fees billed for each of the last two fiscal years for professional
      services rendered by RBSM LLP (“Accountant”)  and Stonefield
      Josephson, Inc. (collectively, "Accountants") for the audit of our annual
      financial statements, and review of financial statements included in our Form
      10-QSB's: 2007: $161,262; and 2006: $210,817.





Audit-Related
      Fees





The
      aggregate fees billed in each of the last two fiscal years for assurance and
      related services by RBSM LLP that are reasonably related to the performance
      of the audit or review of our financial statements and are not reported under
      Audit Fees above:  2007: $18,560; and 2006: $25,600.





Tax
      Fees





The
      aggregate fees billed in each of the last two fiscal years for professional
      services rendered by RBSM LLP 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 RBSM LLP, other than the services reported above:
      $0.





Pre-Approval
      of Services by Audit Committee





Our
      policy is to have the audit committee 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.
      All
      services performed by our independent auditors in fiscal 2007 and fiscal 2006
      were approved in accordance with the audit committee’s pre-approval
      policies.











34
 Table
          of Contents





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**FreeStar
                  Technology Corporation**Date: September
                  28, 2007
            By:
            /s/ Paul
                  EganPresident
                  and Chief Executive Officer








KNOWN
      BY
      ALL PERSONS THESE PRESENTS, that each person whose signature appears below
      constitutes and appoints Paul Egan and Ciaran Egan, or any one of them, their
      attorneys-in-fact and agents with full power of substitution and
      re-substitution, for him and his name, place and stead, in any and all
      capacities, to sign any or all amendments to this Annual Report on Form 10-KSB
      and to file the same, with all exhibits thereto, and other documents in
      connection therewith, with the Securities and Exchange Commission, granting
      unto
      said attorneys-in-fact and agents, and each of them, full power and authority
      to
      do and perform each and every act and thing requisite and necessary to be done
      in and about the foregoing, as fully to all intents and purposes as he might
      or
      could do in person, hereby ratifying and confirming all that said
      attorneys-in-fact and agents, or either of them, or their substitutes, may
      lawfully do or cause to be done by virtue hereof.





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.








Date:
      September 28,
      2007                                   
/s/ Paul
      Egan


Paul
      Egan, President, Chief Executive
      Officer (Principal Executive


Officer),
      and Director








Date:
      September 28,
      2007                                    
/s/ Ciaran
      Egan


Chief
      Financial Officer, Secretary and Treasurer (Principal Financial


and
      Accounting Officer) and Director








Date:
      September 28,
      2007                                    /s/
      Fionn
      Stakelum


Fionn
      Stakelum, Director








Date:  September
      28,
      2007                                   /s/
      Carl
      Hessel


Carl
      Hessel, Director







35
 Table
          of Contents




**EXHIBIT
      INDEX**




**Number**
            **Description**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).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
            Certificate
                of Powers, Designations, Preferences and Rights of Series A Preferred
                Stock of the Company, dated August 10, 2001 (incorporated by reference
                to
                Exhibit 4 of the Form 8-K filed on August 14, 2001).4.2
            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).4.3
            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).4.4
            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 point-of-sale filed on December 11, 2002).4.5
            Amended
                and Restated Stock Incentive Plan, dated November 15, 2002 (incorporated
                by reference to Exhibit 4.2 of the Form S-8 point-of-sale filed on
                December 11, 2002).4.6
            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 point-of-sale filed on June 2,
                2003).4.7
            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 point-of-sale
                filed on June 2, 2003).4.8
            Amended
                and Restated Non-Employee Directors and Consultants Retainer Stock
                Plan
                (Amendment No. 3), dated April 7, 2004 (incorporated by reference
                to
                Exhibit 4 of the Form S-8 PSO filed on April 19, 2004).4.9
            Amended
                and Restated Non-Employee Directors and Consultants Retainer Stock
                Plan
                (Amendment No. 4), dated December 20, 2004 (incorporated by reference
                to
                Exhibit 4.1 of the Form S-8 point-of-sale filed on January 26,
                2005).4.10
            Amended
                and Restated Stock Incentive Plan (Amendment No. 3), dated December
                20,
                2004 (incorporated by reference to Exhibit 4.2 of the Form S-8
                point-of-sale filed on January 26,
                2005).








36
 Table
          of Contents




4.11
            Form
                of Option to Purchase Shares of Common Stock, dated February 21,
                2005
                (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on
                May 12,
                2005).4.12
            Certificate
                of Designation (Series A), dated June 9, 2005 (incorporated by reference
                to Exhibit 4.1 of the Form 8-K filed on October 20,
                2005).4.13
            Certificate
                of Designation (Series B), dated June 9, 2005 (incorporated by reference
                to Exhibit 4.2 of the Form 8-K filed on October 20,
                2005).10.1
            Employment
                Agreement between the Company 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 Company 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 Company and Margaux Investment Management Group
                S.A., dated August 23, 2003 (incorporated by reference to Exhibit
                10.3 of
                the Form 10-KSB/A filed on October 28, 2004).10.4
            Addendum
                to Employment Contract between the Company and Paul Egan, dated August
                9,
                2004 (incorporated by reference to Exhibit 10.4 of the Form 10-KSB/A
                filed
                on October 28, 2004).10.5
            Addendum
                to Employment Contract between the Company and Ciaran Egan, dated
                August
                9, 2004 (incorporated by reference to Exhibit 10.5 of the Form 10-KSB/A
                filed on October 28, 2004).10.6
            Employment
                Agreement between the Company and Angel Pacheco, dated  April 1, 2005
                (incorporated by reference to Exhibit 10 of the Form 8-K filed on May
                10, 2005)10.7
            Lease
                Agreement dated December 13, 2006 for office space in Helsinki, Finland
                (filed herewith)21
            Subsidiaries
                of the Company.23
            Consent
                of Independent Registered Public Accounting Firm (filed
                herewith).24.1
            Power
                of attorney (included in signature page).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
            Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2003 (filed
                herewith).








37
 Table
          of Contents








**WASHINGTON,
      D.C. 20549**








**FINANCIAL
      STATEMENTS**


**JUNE
      30, 2007 AND 2006**








**FORMING
      A PART OF ANNUAL REPORT**


**PURSUANT
      TO THE SECURITIES EXCHANGE ACT OF 1934**








**FREESTAR
      TECHNOLOGY CORPORATION**





Table
          of Contents





**FREESTARTECHNOLOGY
      CORPORATION**


**INDEX
      TO FINANCIAL STATEMENTS**




**Page**Report
                  of Independent Registered Public Accounting
                  Firm
              F-1Consolidated
                  Balance Sheet at June 30, 2007
              F-2Consolidated
                  Statements of Losses for The Years Ended June 30,
                  2007 and 2006
              F-3Consolidated
                  Statements of  Stockholders' Equity for The
                  Two Years Ended June 30, 2007
              F-4
                  to F-5Consolidated
                  Statements of Cash Flows for The Years
                  Ended June 30, 2007 and 2006
              F-6Notes
                  to Consolidated Financial Statements
              F-7
                  to F-28

















Table
          of Contents








**REPORTOF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**





Board
      of
      Directors


FreeStar
      Technology Corporation








We
      have
      audited the accompanying consolidated balance sheet of FreeStar Technology
      Corporation and subsidiaries (the "Company") as of June 30, 2007 and the related
      consolidated statements of losses and comprehensive
      loss,  stockholders' equity, and cash flows for each of the two
      years in the period ended June 30, 2007. These financial statements are the
      responsibility of the company's management. Our responsibility is to express
      an
      opinion on these financial statements based upon our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatements. 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 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 consolidated financial position of the Company
      and
      subsidiaries as of June 30, 2007, and the results of its operations and its
      cash
      flows for each of the two years in the period ended June 30, 2007 in conformity
      with accounting principles generally accepted in the United States of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1, the Company is
      experiencing difficulty in generating sufficient cash flow to meet it
      obligations and sustain its operations, which raises substantial doubt about
      its
      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/RBSM
      LLP


RBSM
      LLP


Certified
      Public Accountants





New
      York,
      New York


August
      30, 2007








F-1
 Table
          of Contents











**FREESTAR
                TECHNOLOGY CORPORATION****CONSOLIDATED
                BALANCE SHEET**
              **AS
                OF JUNE 30, 2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            466,408Accounts
                receivable, net of allowance for doubtfulaccounts
                of  $54,903 (note 3)
            
            
            977,502Other
                current assets (note 4)
            
            
            103,988Inventory
                (note 5)
            
            
            918,947Total
                current assets
            
            
            2,466,845Property,
                plant and equipment, net of accumulated depreciation andamortization
                of  $170,804  (note 6)
            
            
            187,323Software
                license, net of accumulated amortization of  $1,027,457 (note
                7)
            
            
            1,233,699Customer
                relationships and contracts, net of accumulated amortization of $848,493
                (note 7)
            
            
            2,100,756Software,
                net of accumulated amortization of  $1,175,908 (note
                7)
            
            
            2,608,446Other
                long-term assets (note 6)
            
            
            19,966Total
                assets
            
            $
            8,617,035**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses (note 8)
            
            $
            2,485,629Due
                to related parties (note 9)
            
            
            191,984Deferred
                revenue (note 10)
            
            
            87,897Total
                current liabilities
            
            
            2,765,510Commitments
                and contingenciesMinority
                interest
            
            
            184,008Stockholders'
                Equity: (notes 14, 15)Convertible
                preferred stock, series A, $0.001 par value,1,000,000
                shares  authorized; 1,000,000 shares issued and
                outstanding
            
            
            1,000Convertible
                preferred stock, series B, $0.001 par value,4,000,000
                shares  authorized,  2,000,000 issued and
                outstanding
            
            
            2,000Additional
                paid-in capital - preferred stock
            
            
            2,890,058Common
                stock, $0.001 par value, 500,000,000 shares authorized;233,783,452
                shares issued  outstanding (note 14)
            
            
            233,783Additional
                paid-in capital - common stock
            
            
            75,589,649Common
                stock subscriptions receivable
            
            
            (600,000
            )Common
                stock subscribed
            
            
            2,600,014Deferred
                compensation (note 16)
            
            
            (599,770
            )Unearned
                compensation on restricted stock
            
            
            (121,701
            )Accumulated
                deficit
            
            
            (74,418,911
            )Accumulated
                other comprehensive gain  (loss)
            
            
            91,395Total
                stockholders' equity
            
            
            5,667,517Total
                liabilities and stockholders' equity
            
            $
            8,617,035.





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











F-2
 Table
          of Contents











**FREESTAR
                TECHNOLOGY CORPORATION****CONSOLIDATED
                STATEMENTS OF LOSSES AND COMPREHENSIVE LOSS**
              **FOR
                THE YEARS ENDED JUNE 30,****2007**
            
            
            **2006**RevenueTransaction
                processing and related services
            
            $
            1,945,512
            
            
            $
            2,097,749Consulting
                services
            
            
            1,349,963
            
            
            
            -Hardware
                and related sales
            
            
            484,860
            
            
            
            -Total
                revenue
            
            
            3,780,335
            
            
            
            2,097,749Cost
                of revenueTransaction
                processing and related services
            
            
            2,330,561
            
            
            
            2,078,696Consulting
                services
            
            
            816,122
            
            
            
            -Hardware
                and related sales
            
            
            589,472
            
            
            
            -Total
                cost of sales
            
            
            3,736,155
            
            
            
            2,078,696Gross
                profit
            
            
            44,180
            
            
            
            19,053Selling,
                general and administrative expenses
            
            
            16,251,713
            
            
            
            13,913,969Loss
                from operations
            
            
            (16,207,533
            )
            
            
            (13,894,916
            )Other
                income (expenses):Legal
                settlement cost
            
            
            -
            
            
            
            (53,261
            )Gain
                on disposal of assets
            
            
            -
            
            
            
            2,211Interest
                income/(expense)
            
            
            (3,018
            )
            
            
            (53,807
            )Loss
                before income taxes and minority interest in subsidiaries
            
            
            (16,210,551
            )
            
            
            (13,999,773
            )Income
                taxes
            
            
            31,655
            
            
            
            -Minority
                interest in net income of subsidiaries
            
            
            62,991
            
            
            
            -Net
                Loss
            
            
            (16,305,197
            )
            
            
            (13,999,773
            )Other
                - Comprehensive income (loss):  Gain (Loss) on foreign
                exchange
            
            
            200,758
            
            
            
            (25,354
            )Comprehensive
                loss
            
            $
            (16,104,439
            )
            
            $
            (14,025,127
            )Loss
                per share - basic and diluted
            
            $
            (0.08
            )
            
            $
            (0.09
            )Weighted
                average shares outstanding - basic
            
            
            196,749,780
            
            
            
            163,229,950Weighted
                average shares outstanding - diluted
            
            
            206,241,306
            
            
            
            188,056,642





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











F-3
 Table
          of Contents







**FREESTARTECHNOLOGY
      CORPORATION**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**


**FOR
      THE TWO YEARS ENDED JUNE 30, 2007**


**Preferred
                    stock**
                
                
                **Common
                    stock****Series
                    A**
                
                
                **Series
                    B****Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Additional
                    paid-in capital**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Additional
                        paid-in capital**
                
                
                **Deferred
                      compensation**
                
                
                **Unearned
                        restricted stock**
                
                
                **CommonStockSubscribed**
                
                
                **Subscription
                      receivable**
                
                
                **Accumulated
                      deficit**
                
                
                **Accumulated
                      Other Comp Inc (Loss)**
                
                
                **Total
                    ShareholdersDeficit**Balance
                    at June 30, 2005
                
                
                1,000,000
                
                
                $
                1,000
                
                
                
                2,500,000
                
                
                $
                2,500
                
                
                $
                2,229,558
                
                
                
                118,677,012
                
                
                $
                118,677
                
                
                $
                41,906,079
                
                
                $
                (1,247,243
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (44,113,942
                )
                
                $
                (84,009
                )
                
                $
                (1,187,380
                )Preferred
                    stock issued to officers as compensation
                
                
                -
                
                
                
                -
                
                
                
                1,500,000
                
                
                
                1,500
                
                
                
                4,138,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,140,000Common
                    stock issued for options / warrants exercised
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                10,885,685
                
                
                
                10,886
                
                
                
                1,501,071
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,511,957Common
                    stock issued to consultantsand
                    employees for services
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                11,228,857
                
                
                
                11,229
                
                
                
                4,855,700
                
                
                
                -
                
                
                
                -
                
                
                
                352,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,219,429Shares
                    previously issued for services,returned
                    for cancellation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (378,574
                )
                
                
                (378
                )
                
                
                (262,972
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (263,350
                )Shares
                    issued in March 23, 2006 financing
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                22,850,000
                
                
                
                22,850
                
                
                
                4,041,150
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,064,000Shares
                    sold for cash - other financings
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                11,212,291
                
                
                
                11,212
                
                
                
                1,564,580
                
                
                
                -
                
                
                
                -
                
                
                
                600,000
                
                
                
                (175,792
                )
                
                
                -
                
                
                
                -
                
                
                
                2,000,000Options
                    and warrants issued to employees andconsultants
                    for servicex
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,166,863
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,166,863Adjust
                    deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,545,082
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,545,082
                )Extension
                    of life of options and warrantsissued
                    to consultant
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                259,305
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                259,305Common
                    stock issued as commission for equity financing
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,600,000
                
                
                
                7,600
                
                
                
                2,904,400
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,912,000Warrants
                    issued as commission for equity financing
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,360,770
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,360,770Shares
                    issued in legal settlement
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                108,695
                
                
                
                108
                
                
                
                53,152
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                53,260Shares
                    issued for conversion of note payable
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,183,461
                
                
                
                1,183
                
                
                
                648,817
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                650,000Loss
                    for the twelve months ended June 30, 2006
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (13,999,773.00
                )
                
                
                (25,354
                )
                
                
                (14,025,127
                )Balance
                    at June 30, 2006
                
                
                1,000,000
                
                
                $
                1,000
                
                
                
                4,000,000
                
                
                $
                4,000
                
                
                $
                6,368,058
                
                
                
                183,367,427
                
                
                $
                183,367
                
                
                $
                60,998,915
                
                
                $
                (2,792,326
                )
                
                $
                -
                
                
                $
                952,500
                
                
                $
                (175,792
                )
                
                $
                (58,113,714
                )
                
                $
                (109,363
                )
                
                $
                7,316,645
  
 F-4
 Table
              of Contents
  **Preferred
                      stock**
                  
                  
                  **Common
                      stock****Series
                      A**
                  
                  
                  **Series
                      B****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Additionalpaid-in
                      capital**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Additionalpaid-in
                      capital**
                  
                  
                  **Deferredcompensation**
                  
                  
                  **Unearned
                      restrictedstock**
                  
                  
                  **Common
                      StockSubscribed**
                  
                  
                  **Subscriptionreceivable**
                  
                  
                  **Accumulateddeficit**
                  
                  
                  **Accumulated
                          Other Comp Inc (Loss)**
                  
                  
                  **Total
                      ShareholdersDeficit**Shares
                      issued to employee for services,previously
                      subscribed
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  750,000
                  
                  
                  
                  750
                  
                  
                  
                  351,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (352,500
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
                      issued to consultants for services to beperformed
                      through June 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,199,997
                  
                  
                  
                  10,200
                  
                  
                  
                  2,989,699
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,999,899Shares
                      issued for prepaid rent
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  180,000
                  
                  
                  
                  180
                  
                  
                  
                  75,420
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  75,600Fair
                      value of stock options issued to consultants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,502,407
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,502,407Stock
                      options exercised by consultants and employees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  13,716,666
                  
                  
                  
                  13,717
                  
                  
                  
                  1,876,283
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,890,000Common
                      stock subscribed under financing agreement
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,600,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,600,000Fair
                      value of common stock issued to employees as bonuses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,180,000
                  
                  
                  
                  2,180
                  
                  
                  
                  442,420
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  444,600Fair
                      value of options issued to employee as compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  135,558
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  135,558Cancellation
                      of shares previously issued to consultant
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (142,858
                  )
                  
                  
                  (143
                  )
                  
                  
                  (157,857
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (158,000
                  )Shares
                      issued for PLC acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,222,220
                  
                  
                  
                  2,222
                  
                  
                  
                  797,778
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  800,000Shares
                      sold for cash, payment not yet received
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  596,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
                      issued, previously subscribed
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,000,000
                  
                  
                  
                  3,000
                  
                  
                  
                  597,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
                      of common stock issued for conversionof
                      Series B preferred stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,000,000.00
                  )
                  
                  
                  (2,000.00
                  )
                  
                  
                  (3,478,000.00
                  )
                  
                  
                  13,700,000
                  
                  
                  
                  13,700
                  
                  
                  
                  3,466,286
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cash
                      paid for commission on equity financing
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (240,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (240,000
                  )Write-off
                      subscriptions receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  175,792
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  175,792Restricted
                      common stock issued
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  610,000
                  
                  
                  
                  610
                  
                  
                  
                  157,990
                  
                  
                  
                  -
                  
                  
                  
                  (158,600
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Adjust
                      unearned and deferred compensation for the period
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,192,556
                  
                  
                  
                  36,899
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,229,455Loss
                      for the twelve months ended June 30, 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (16,305,197
                  )
                  
                  
                  200,758
                  
                  
                  
                  (16,104,439
                  )Balance
                      at June 30, 2007
                  
                  
                  1,000,000
                  
                  
                  $
                  1,000
                  
                  
                  
                  2,000,000
                  
                  
                  $
                  2,000
                  
                  
                  $
                  2,890,058
                  
                  
                  
                  233,783,452
                  
                  
                  $
                  233,783
                  
                  
                  $
                  75,589,649
                  
                  
                  $
                  (599,770
                  )
                  
                  $
                  (121,701
                  )
                  
                  $
                  2,600,014
                  
                  
                  $
                  (600,000
                  )
                  
                  $
                  (74,418,911
                  )
                  
                  $
                  91,395
                  
                  
                  $
                  5,667,517
  The
          accompany notes form an integral part of these consolidated  financial
          statements








F-5
 Table
          of Contents











**FREESTAR
                TECHNOLOGY CORPORATION****CONSOLIDATED
                STATEMENTS OF CASH FLOWS**
              **FOR
                THE YEARS ENDED JUNE 30,****2007**
            
            
            **2006**Cash
                flows used for operating activities:Net
                loss
            
            $
            (16,305,197
            )
            
            $
            (13,999,773
            )Minority
                interest in net loss of subsidiary
            
            
            62,991
            
            
            
            -Adjustments
                to reconcile net loss to net cash(used
                by) operating activities:Bad
                debt expense
            
            
            33,403
            
            
            
            20,291Amortization
                of discount on note
            
            
            -
            
            
            
            42,978Write-off
                of subscriptions receivable
            
            
            175,792
            
            
            
            -Gain
                on disposal of fixed assets
            
            
            -
            
            
            
            (2,211
            )Depreciation
                and amortization
            
            
            866,412
            
            
            
            655,000Common
                stock issued in legal settlement
            
            
            
            
            
            
            53,260Non-cash
                compensation
            
            
            8,913,918
            
            
            
            10,109,934Changes
                in assets and liabilities:(Increase)
                decrease in assetsAccounts
                receivable
            
            
            (236,586
            )
            
            
            (150,144
            )Inventory
            
            
            (813,167
            )
            
            
            (103,692
            )Long
                term deposits  and prepaid rent
            
            
            (19,966
            )
            
            
            -Other
                current assets
            
            
            100,211
            
            
            
            (95,415
            )Increase
                (decrease) in liabilitiesAccounts
                payable and accrued expenses
            
            
            1,256,271
            
            
            
            (378,975
            )Deferred
                revenue
            
            
            87,897
            
            
            
            -Advances
                by officers
            
            
            56,390
            
            
            
            -Payment
                of accrued salary to officers
            
            
            135,594
            
            
            
            (263,557
            )Total
                adjustments
            
            
            10,616,160
            
            
            
            9,887,469Net
                cash used by operating activities
            
            
            (5,686,036
            )
            
            
            (4,112,304
            )Cash
                flows provided by (used by) investing activities:Purchase
                of fixed assets
            
            
            (138,348
            )
            
            
            (71,850
            )Cash
                from sale of fixed assets
            
            
            -
            
            
            
            2,223Purchase
                of software and capitalized software cost
            
            
            (973,372
            )
            
            
            (926,884
            )Investment
                in PLC, net of cash acquired
            
            
            (177,737
            )
            
            
            -Net
                cash used by investing activities
            
            
            (1,289,457
            )
            
            
            (996,511
            )Cash
                flows provided by (used for) financing activities:Proceeds
                from sale of common stock
            
            
            2,600,000
            
            
            
            6,064,000Commissions
                for sale of common stock
            
            
            (240,000
            )
            
            
            -Proceeds
                from exercise of stock options/warrants
            
            
            1,890,000
            
            
            
            1,582,957Cash
                contributed by officer of subsidiary
            
            
            103,061
            
            
            
            -Payments
                to related parties for advances
            
            
            -
            
            
            
            (185,105
            )Net
                cash provided by financing activities
            
            
            4,353,061
            
            
            
            7,461,852Net
                increase (decrease) in cash and cash equivalents
            
            
            (2,622,432
            )
            
            
            2,353,037Foreign
                currency translation adjustments
            
            
            119,705
            
            
            
            (13,580
            )Cash
                and cash equivalents, beginning of year
            
            
            2,972,135
            
            
            
            632,678Cash
                and cash equivalents, end of year
            
            $
            466,408
            
            
            $
            2,972,135Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            -
            
            
            $
            -Income
                tax paid
            
            $
            7,961
            
            
            $
            -Shares
                of common stock issued for services
            
            $
            3,204,499
            
            
            $
            11,918,367Shares
                of restricted common stock issued as compensation
            
            $
            158,600
            
            
            $
            -Adjustment
                of unearned restricted common stock for the period
            
            $
            36,899
            
            
            $
            -Adjustment
                of deferred compensation for the period
            
            
            2,192,555
            
            
            $
            (1,545,081
            )Shares
                of common stock issued for subscriptions receivable
            
            $
            600,000
            
            
            $
            175,792Cancellation
                of shares of common stock
            
            $
            (158,000
            )
            
            $
            (263,350
            )Shares
                issuable to an employee for services
            
            $
            -
            
            
            $
            352,500Fair
                value of options issued to consultants and employees
            
            $
            3,637,966
            
            
            $
            -Imputed
                interest on note issued for legal settlement
            
            $
            -
            
            
            $
            42,978Common
                stock issued in legal settlement
            
            $
            -
            
            
            $
            53,260Shares
                issued, previously subscribed for cash
            
            $
            600,000
            
            
            $
            -Issuance
                of 48,000,000 shares of common stock in a financingtransaction,
                to be cancelled
            
            $
            -
            
            
            $
            4,140,000Cancellation
                of 25,000,000 shares of common stock issued ina
                financing transaction
            
            $
            25,000
            
            
            $
            -Shares
                of common stock issued for prepaid rent
            
            $
            75,600
            
            
            $
            -Shares
                issued, previously subscribed for services
            
            $
            352,500
            
            
            $
            -Shares
                of common stock issued to acquire interest in subsidiary
            
            $
            800,000
            
            
            $
            -Conversion
                of note payable to common stock
            
            $
            -
            
            
            $
            650,000Conversion
                of preferred stock to common stock
            
            $
            3,478,000
            
            
            $
            -Acquisition
                of PLC Partners, LTD:Accounts
                receivable
            
            $
            273,740
            
            
            $
            -Property
                and equipment
            
            
            2,381
            
            
            
            -Customer
                relationships and contracts
            
            
            982,045
            
            
            
            -Current
                liabilities
            
            
            (262,423
            )
            
            
            -Minority
                interest
            
            
            (17,956
            )
            
            
            -Net
                assets
            
            $
            977,787
            
            
            $
            -Common
                stock issued
            
            $
            800,000
            
            
            $
            -Cash
                paid
            
            
            200,000
            
            
            
            -Cash
                balances upon acquisition
            
            
            (22,213
            )
            
            
            -Net
                assets
            
            $
            977,787
            
            
            $
            -





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








F-6
 Table
          of Contents







**FREESTARTECHNOLOGY
      CORPORATION**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**June
      30, 2007 AND 2006**







1.
      NATURE
      OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Nature
      of Operations





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





On
      July
      10, 2007, FreeStar Technology Corporation (the “Company”) issued a press release
      announcing that the Company’s Board of Directors has approved a proposed
      amendment to the Company’s Articles of Incorporation to change the Company’s
      name to Rahaxi, Inc.  The Board of Directors has recommended that the
      name change amendment be adopted by the shareholders of the Company and directed
      the Company to take appropriate action to obtain shareholder approval of the
      name change amendment.





The  Company  intends  to  derive  revenues  from  its
      core  payment  processing products,  which
      include:  (1) Authorization / Transaction Fees:  transaction
      fees it receives from processing point of sale terminal
      transactions;  (2) Hardware Sales / Point of Sale Terminals: sales of
“Point of Sale” terminals and related maintenance and service initiation fees;
      (3) Dynamic  Currency  Conversion:  in addition to
      transaction authorization, the Company offers certain clients real-time, dynamic
      currency conversion, allowing a customer to pay for a product or service with
      their credit card in their local currency;  (4) Private Label
      Cards:  transaction  management services provided for a
      private label card issuer;  and
      (5)  Consulting  Fees:  consulting  services  provided
      to financial institutions  and  merchants.





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 $16,305,197 for the year ended  June 30, 2007
      and  $13,999,773  for the year ended June 30, 2006, and had
      an accumulated deficit of $  74,418,911 as of June 30,
      2007.





The
      Company believes that anticipated revenues from operations will be insufficient
      to satisfy its ongoing capital  requirements for at least the next 12
      months.  If
      the  Company’s  financial  resources  are
      insufficient, the Company will
      require  additional  financing in order to execute its
      operating plan and continue as a going  concern.  The
      Company cannot predict whether this  additional  financing
      will be in the form of equity or debt, or be in another form. The Company may
      not be able to obtain the necessary  additional capital on a
      timely  basis,  on  acceptable  terms,  or
      at all.  In any of these events,  the Company may be unable
      to implement its current plans for 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 in private placements
      to  individual  investors.  Management  may
      also raise funds in the public markets.  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  may
      also  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  Rahaxi  Processing Oy
      (“Rahaxi”);   Freestar  Technologies  Ireland,
      Ltd. (“Freestar Ireland”) (and its wholly owned subsidiary Freestar Processing
      Oy. (“Freestar  Finland”)); and Sysnet Ireland, Inc. (“Sysnet
      Ireland”) and well as it’s 50% owned subsidiary Project Life Cycle Partners,
      Ltd. (”PLC”).  The consolidation of Rahaxi was
      effective  January 16, 2003; the consolidation of Freestar Ireland was
      effective April 2002; the  consolidation  of
      Freestar  Finland was effective October 2002; and the consolidation of
      PLC was effective November 15, 2006. All
      material  intercompany  transactions have been eliminated
      upon consolidation of these entities.





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.




F-7
 Table
          of Contents




Revenue
      Recognition





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





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





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





For
      those
      contracts which contain multiple  deliverables,  management
      must first determine whether each service, or deliverable, meets the separation
      criteria of EITF No. 00-21. In general, a deliverable (or a group of
      deliverables) meets the separation  criteria if the deliverable has
      standalone value to the customer and if there is objective  and
      reliable  evidence of the fair value of the remaining
      deliverables  in
      the  arrangement.  Each  deliverable  that
      meets the separation criteria is considered a “separate unit of accounting.”
Management allocates the total arrangement consideration to each separate unit
      of accounting based on the
      relative  fair  value  of  each  separate  unit
      of  accounting.  The  amount  of
      arrangement  consideration  that is allocated to a unit
      of  accounting  that has already been delivered is limited
      to the amount that is not contingent  upon the
      delivery  of  another  separate  unit  of  accounting.   After  the  arrangement
      consideration has been allocated to each separate unit of accounting, management
      applies
      the  appropriate  revenue  recognition  method
      for each separate unit of accounting as described  previously based on
      the nature of the arrangement.  All deliverables  that do
      not meet the  separation  criteria  of EITF
      No.  00-21 are combined into one unit of accounting,  and
      the appropriate  revenue  recognition method is applied
      under SAB No. 101. Processing fee revenue is earned based   upon
      the actual  number of
      transactions  processed  through the
      Company’s  processing  system.  Transaction
      processing  fees are  recognized  in the period
      that the  service is  performed. These fees are
      typically  charged on a per
      transaction  basis,  depending on the arrangement with the
      customer.  Maintenance fees for processing terminals are recognized
      over the period for which maintenance is provided.





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 places its cash with credit quality institutions. At times, such
        cash
        concentrations may be in excess of the FDIC insurance limit.


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 $54,903 as of June 30, 2007.





Inventories





Inventory
      consists of finished goods, and is stated at the lower of cost,  using
      the average cost method, or market.





Segment
      information





The
      company adopted Statement of Financial Accounting Standards No. 131, Disclosures
      about Segments of an Enterprise and Related Information (SFAS 131) upon the
      first date of required adoption. SFAS 131 establishes standards for reporting
      information regarding operating segments in annual financial statements and
      requires selected information for those segments to be presented in interim
      financial reports issued to stockholders. SFAS 131 also establishes standards
      for related disclosures about products and services and geographic areas.
      Operating segments are identified as components of an enterprise about which
      separate discrete financial information is available for evaluation by the
      chief
      operating decision maker, or decision-making group, in making decisions
      regarding the allocation of resources and asset performance. The information
      disclosed herein materially represents all of the financial information related
      to the company’s principal operating segment.






F-8
 Table
          of Contents




Property
      and Equipment





Property
      and  equipment  are valued at
      cost.  Depreciation  is provided over the
      estimated  useful lives up to four years using the
      straight  line and  declining balance
      methods.  Leasehold improvements are depreciated 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
                to 4 yearsFurniture
                and office equipment:
            3
                to 5 yearsLeasehold
                improvements:
            3
                years





Research
      and Development





Research,  development,
      and engineering costs are expensed in the year incurred. These  costs
      were $692,888 for the year ended June 30,  2007
      and  $498,584 for the year ended June 30, 2006.





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
      lower of carrying amount or fair value of asset less the cost to sell. During
      the years ended June 30, 2007 and 2006, there were no such write-offs. Goodwill
      and Purchased Intangible Assets.





In
      July
      2001, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
Effective for fiscal years beginning after December 15, 2001, SFAS No. 142
      requires goodwill to be tested for impairment on an annual basis and between
      annual tests in certain circumstances, and written down when impaired, rather
      than being amortized as previous accounting standards required. Furthermore,
      SFAS No. 142 requires purchased intangible assets other than goodwill to be
      amortized over their useful lives unless these lives are determined to be
      indefinite. Intangible assets, consisting of software licenses and customer
      relationships and contracts, are amortized on a straight-line basis over 10
      years, representing the remaining life of the assets.





Advertising





The
      Company expenses advertising costs when incurred.  Advertising expense
      was $67,046 and $0 for the years ended June 30, 2007 and 2006,
      respectively.





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.





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.






F-9
 Table
          of Contents




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. Comprehensive income is defined to include all changes in equity
      except those resulting from investments by owners and distributions to owners.
      Among other disclosures, SFAS No. 130 requires that all items that are required
      to be recognized under current accounting standards as components of
      comprehensive income be reported in a financial statement that is displayed
      with
      the same prominence as other financial statements. As of June 30, 2007 and
      2006,
      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, options,
      and
      shares issuable upon conversion of preferred stock to common stock from the
      calculation of diluted net loss per share because these securities are
      anti-dilutive. The Company has excluded 55,574,586 and 24,826,692 of potential
      shares from the computation for the years ended June 30, 2007 and 2006,
      respectively.





Liquidity





As
      reflected in the accompanying consolidated financial statements, the Company
      incurred net losses of $16,305,197 and of $13,999,773 for the years ended June
      30, 2007 and 2006, respectively, and has an accumulated deficit of $74,418,911
      as of June 30, 2007. The Company’s current liabilities exceeded its current
      assets by $298,665 as of June 30, 2007.





Concentrations
      of Credit Risk





Financial
      instruments and related items, which potentially subject the Company to
      concentrations of credit risk, consist primarily of cash, cash equivalents
      and
      trade receivables. The Company places its cash and temporary cash in investments
      with credit quality institutions. At times, such investments may be in excess
      of
      applicable government mandated insurance limit. Concentrations of credit risk
      with respect to trade receivables are limited to the large number of customers
      comprising the Company’s customer base. The Company’s customers are concentrated
      primarily in Europe and it periodically reviews its trade receivables in
      determining its allowance for doubtful accounts. The allowance for doubtful
      accounts was $54,903 at June 30, 2007. The Company’s two largest customers
      accounted for approximately 50% of its sales for the year ended June 30, 2007,
      and 15% of its sales for the year ended June 30, 2006.





Reclassification





Certain  reclassification
      have been made in prior years’ financial statements to conform to
      classifications used in the current year.





Segment
      Information





SFAS
      No.
      131, “Disclosures about Segments of an Enterprise and Related
      Information,”  establishes  standards for
      reporting  information regarding operating segments in annual
      financial  statements and requires selected information for those
      segments to be presented in interim financial reports issued to stockholders.
      SFAS No. 131 also establishes standards for related disclosures about products
      and services and geographic areas. Operating segments are identified as
      components of an enterprise about which separate discrete financial information
      is available for evaluation by the chief operating decision maker, or
      decision-making group, in making decisions how to allocate resources and assess
      performance. The information disclosed herein materially represents all of
      the
      financial information related to the Company’s principal operating segments: the
      sale of its secure transaction processing PaySafe System, and
      transaction  processing fees and transaction processing hardware sales
      generated by Rahaxi Processing Oy,  its  wholly-owned
      subsidiary.





Foreign
      Currency Translation





The
      Company translates the foreign currency financial statements in accordance
      with
      the requirements of SFAS No. 52, “Foreign Currency Translation.” Assets and
      liabilities of non-U.S. subsidiaries whose functional currency is not the U.S.
      dollar are translated into U.S. dollars at fiscal year-end exchange rates.
      Revenue and expense items are translated at average exchange rates prevailing
      during the fiscal year. Translation adjustments are included in Accumulated
      Other Comprehensive Income (Loss). Foreign currency transaction (losses)/gains
      are included in other (expense) income and totaled $200,758  and
      $(25,354) in fiscal years 2007 and 2006, respectively.




F-10
 Table
          of Contents


Stock-based
      compensation





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based
      Payment” (SFAS 123R) utilizing the modified prospective approach. Prior to the
      adoption of SFAS 123R we accounted for stock option grant in accordance with
      APB
      Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic value
      method), and accordingly, recognized compensation expense for stock option
      grants.





Under
      the
      modified prospective approach, SFAS 123(R) applies to new awards and to awards
      that were outstanding on January 1, 2006 that are subsequently modified,
      repurchased or cancelled. Under the modified prospective approach, compensation
      cost recognized in the first quarter of fiscal 2006 includes compensation cost
      for all share-based payments granted prior to, but not yet vested as of January
      1, 2006, based on the grant-date fair value estimated in accordance with the
      original provisions of SFAS 123, and compensation cost for all share-based
      payments granted subsequent to January 1, 2006 based on the grant-date fair
      value estimated in accordance with the provisions of SFAS 123(r). Prior periods
      were not restated to reflect the impact of adopting the new
      standard.





A
      summary
      of option activity under the Company’s stock and option plans as of June 30,
      2007, and changes during the period then ended are presented below:








**Options**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding
                at June 30, 2006
            
            
            625,000
            
            
            $
            0.34Issued
            
            
            500,000
            
            
            
            0.14Exercised
            
            
            (50,000
            )
            
            
            (0.15
            )Forfeited
                or expired
            
            
            --
            
            
            
            --Outstanding
                at June 30, 2007
            
            
            1,075,000
            
            
            $
            0.26Non-vested
                at June 30, 2007
            
            
            229,167
            
            
            $
            0.14Exercisable
                at June 30, 2007
            
            
            845,833
            
            
            $
            0.29





Aggregate
      intrinsic value of options outstanding and options exercisable at June 30,
      2007
      was $2,708. Aggregate intrinsic value represents the difference between the
      company’s closing stock price on the last trading day of the fiscal period,
      which was $0.15 as of June 30, 2007, and the exercise price multiplied by the
      number of options outstanding. As of June 30, 2007, total unrecognized
      stock-based compensation expense related to non-vested stock options was
      $16,342. During the year ended June 30, 2007 the Company charged $119,226 to
      operations related to recognized stock-based compensation expense for employee
      stock options.





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:





**June
                30, 2006**Net
                loss, as reported
            
            $
            (13,999,773
            )Compensation
                recognized underunder
                APB No. 25
            
            
            34,500Compensation
                expense underSFAS
                No. 123
            
            
            (34,500
            )Pro
                forma net loss
            
            $
            (13,999,773
            )Pro
                forma loss per share
            
            $
            (0.08
            )




F-11
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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 include (I) the purchase
        of
        off-the-shelf software modules from a third party vendor to be added to the
        Company’s Base24 transaction processing software, and (ii) the customization and
        installation of these modules. 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. The following software costs are expensed as incurred: (i) Research
        and
        development  costs incurred prior to establishing technological
        feasibility; (ii) maintenance costs paid to the provider of the off-the-shelf
        modules;(iii) in-house costs of software development unrelated to the Company’s
        Base24 transaction processing software. The Company periodically evaluates
        whether events or circumstances have occurred that indicate that the remaining
        useful lives of the capitalized software development costs should be revised
        or
        that the remaining balance of such assets may not be recoverable.
 
 The
        Company often has under development several discreet design features or
        enhancements, each of which may be completed and released to customers at
        different times. During the twelve months ended June 30, 2007, the Company
        placed into service and began amortizing approximately $13,242 of software.
        The
        total net book value of software in service at June  30, 2007 is
        approximately $ 851,450. During the twelve months ended June 30, 2007, the
        Company capitalized software totaling $973,372. The total net book value
        of
        software under development at June 30, 2007 is approximately $1,756,596.
        At June
        30, 2007, total software capitalized under SFAS No. 86 is $3,784,354, net
        of
        accumulated amortization of $1,175,908.


Software
      costs also include the Enhanced Transactions Secured Software (“ETSS”), which
      was  originally  contributed  by the founder and
      president of  ePayLatina,
      S.A.,  Paul  Egan,  who is
      also  president  of
      the  Company.  This  software  is
      essential for the use of the Company’s ePayPad.  Software costs also
      include the development  costs related to
      adding  enhancements  to this software  consisting
      primarily of labor cost.  Software costs are amortized on a
      straight-line  basis over a  period  of three to
      six  years.  These  costs  have  been  substantially
      amortized as of June 30, 2007.





Significant
      recent accounting pronouncements





*Certain
      Hybrid Instruments,* On February 16, 2006 the FASB issued SFAS 155,
“Accounting for Certain Hybrid Instruments,” which amends SFAS 133, “Accounting
      for Derivative Instruments and Hedging Activities,” and SFAS 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities.” SFAS 155 allows financial instruments that have embedded
      derivatives to be accounted for as a whole (eliminating the need to bifurcate
      the derivative from its host) if the holder elects to account for the whole
      instrument on a fair value basis. SFAS 155 also clarifies and amends certain
      other provisions of SFAS 133 and SFAS 140. This statement is effective for
      all
      financial instruments acquired or issued in fiscal years beginning after
      September 15, 2006. The Company does not expect its adoption of this new
      standard to have a material impact on its financial position, results of
      operations or cash flows as it currently does not have any hybrid instruments
      outstanding at March 31, 2007.





*Accounting
      for Servicing of Financial Assets*, In March 2006, the FASB issued SFAS No.
      156, “Accounting*for Servicing of Financial Assets--an amendment of FASB
      Statement No. 140” (“* SFAS No. 156”), which amends FASB Statement No.
      140,*Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities,* with respect to the accounting for
      separately recognized servicing assets and servicing liabilities. This Statement
      requires that all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable. The Board
      concluded that fair value is the most relevant measurement attribute for the
      initial recognition of all servicing assets and servicing liabilities, because
      it represents the best measure of future cash flows. This Statement permits,
      but
      does not require, the subsequent measurement of servicing assets and servicing
      liabilities at fair value. An entity that uses derivative instruments to
      mitigate the risks inherent in servicing assets and servicing liabilities is
      required to account for those derivative instruments at fair value. Under this
      Statement, an entity can elect subsequent fair value measurement of its
      servicing assets and servicing liabilities by class, thus simplifying its
      accounting and providing for income statement recognition of the potential
      offsetting changes in fair value of the servicing assets, servicing liabilities,
      and related derivative instruments. An entity that elects to subsequently
      measure servicing assets and servicing liabilities at fair value is expected
      to
      recognize declines in fair value of the servicing assets and servicing
      liabilities more consistently than by reporting other-than-temporary
      impairments. An entity should adopt this Statement as of the beginning of its
      first fiscal year that begins after September 15, 2006. Earlier adoption is
      permitted as of the beginning of an entity's fiscal year, provided the entity
      has not yet issued financial statements, including interim financial statements,
      for any period of that fiscal year. The effective date of this Statement is
      the
      date an entity adopts the requirements of this Statement. The Company has not
      yet determined the impact the Company's condensed consolidated financial
      position or results of operations.






F-12
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In
      July 2006, the FASB issued Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
      No. 109” (“FIN 48”), which is a change in accounting for income taxes. FIN
      48 specifies how tax benefits for uncertain tax positions are to be recognized,
      measured, and derecognized in financial statements; requires certain disclosures
      of uncertain tax matters; specifies how reserves for uncertain tax positions
      should be classified on the balance sheet; and provides transition and interim
      period guidance, among other provisions. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. We do not anticipate that this FASB will
      have any material impact on our financial condition or results of
      operations.




*Accounting
      for Fair Value Measurements,* In September 2006, the FASB issued SFAS No.
      157,*“Fair Value Measurements”* (“SFAS No. 157”), to define fair value
      and establish a framework for measuring fair value in generally accepted
      accounting principles (“GAAP”) and to expand disclosures about fair value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements. Prior to this Statement, there were
      different definitions of fair value and limited guidance for applying those
      definitions in GAAP. A single definition of fair value, together with a
      framework for measuring fair value, should result in increased consistency
      and
      comparability in fair value measurements. The expanded disclosures about the
      use
      of fair value to measure assets and liabilities should provide users of
      financial statements with better information about the extent to which fair
      value is used to measure recognized assets and liabilities, the inputs used
      to
      develop the measurements and the effect of certain of the measurements on
      earnings (or changes in net assets) for the period. SFAS No. 157 is effective
      for financial statements issued for fiscal years beginning after November 15,
      2007, and interim periods with those fiscal years. Early adoption is
      permitted.** The Company has not yet determined the impact the
      Company's condensed consolidated financial position or results of
      operations.





SFAS
      158.
      In September 2006 the FASB issued its Statement of Financial Accounting
      Standards 158 “Employers' Accounting for Defined Benefit Pension and Other
      Postretirement Plans”. This Statement improves financial reporting by requiring
      an employer to recognize the overfunded or underfunded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. The
      effective date for an employer with publicly traded equity securities is as
      of
      the end of the fiscal year ending after December 15, 2006. The Company does
      not
      expect adoption of this standard will have a material impact on its financial
      position, operations or cash flows





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—Including an amendment of FASB
      Statement No. 115” (“SFAS 159”). This statement permits all entities to
      choose, at specified election dates, to measure eligible items at fair value
      (the “fair value option”). A business entity must report unrealized gains
      and losses on items for which the fair value option has been elected in earnings
      at each subsequent reporting date. Upfront costs and fees related to items
      for which the fair value option is elected must be recognized in earnings as
      incurred and not deferred. This statement is effective as of the beginning
      of an
      entity’s first fiscal year that begins after November 15, 2007. The Company
      is currently evaluating the impact, if any, of the adoption of SFAS
      159.





In
      February 2007, the FASB issued SFAS No. 159, “*The Fair Value Option for
      Financial Assets and Financial Liabilities*.” SFAS 159 permits entities to
      choose to measure many financial instruments, and certain other items, at fair
      value. SFAS 159 applies to reporting periods beginning after November 15, 2007.
      The adoption of SFAS 159 is not expected to have a material impact on the
      Company’s financial condition or results of operations.





2.  ACQUISITION
      OF PROJECT LIFE CYCLE PARTNERS, LTD.





Effective
      November 21, 2006, the Company has acquired 50% of the outstanding capital
      stock
      of Project Life Cycle Partners, Ltd. (“PLC Partners”), technology consulting
      firm located in Dublin, Ireland.  PLC Partners is a niche project
      consulting firm specializing in the management and implementation of information
      systems projects.  PLC Partners has international experience within the
      financial services sector.




The
      acquisition of PLC Partners was accounted for using the purchase method in
      accordance with SFAS 141, “Business Combinations”. Total consideration for the
      transaction was $1,000,000, consisting of $200,000 cash and 2,222,222 shares
      of
      the Company's common stock, valued at $0.36 per share based upon a 30-day
      average closing price per share. The Company also assumed 50%, or approximately
      $132,000, of PLC's liabilities at the date of acquisition. The Company may
      be
      required to issue additional shares, capped at a maximum of an additional 50%,
      if, on the one-year anniversary of the acquisition, the 30-day average closing
      price per share of the Company's stock is less than $0.36.




The
      PLC
      Partners acquisition is not a significant acquisition pursuant to Rule 3-01
      of
      regulation S-X of the Securities and Exchange Commission, and the Company is
      not
      required to submit pro forma financial statements under Item
      9.01(b).





The
      results of operations for PLC Partners have been included in the Consolidated
      Statements of Operations since the date of acquisition. The components of
      the purchase price were as follows:





Common
                Stock
            
            $
            800,000Cash
            
            
            200,000Total
            
            $
            1,000,000








F-13
 Table
          of Contents




In
      accordance with Financial Accounting Standard (SFAS) No. 141, Business
      Combinations, the total purchase price was allocated to the estimated fair
      value of assets acquired and liabilities assumed. The fair value of the
      assets acquired was based on management's best estimates. The purchase price
      was
      allocated to the fair value of assets acquired and liabilities assumed as
      follows:








Cash
                and cash equivalents
            
            $
            22,213Accounts
                receivable
            
            
            273,740Equipment
                and other assets
            
            
            2,381Customer
                relationships and contracts
            
            
            982,045Subtotal
            
            
            1,280,379Current
                liabilities
            
            
            (262,423
            )Minority
                interest
            
            
            (17,956
            )Total
            
            $
            1,000,000





The
      following unaudited condensed combined pro forma results of operations reflect
      the pro forma combination of the Company and PLC Partners businesses as if
      the
      combination had occurred at the beginning of the periods presented. The
      unaudited pro forma condensed combined results of operations do not purport
      to
      represent what the companies' combined results of operations would have been
      if
      such transaction had occurred at the beginning of the periods presented, and
      are
      not necessarily indicative of the Company's future results.





**Twelve
                months ended******
            
            **June
                30,******
            
            **2007**
            
            
            **2006**Revenue:Freestar
            
            $
            2,430,373
            
            
            $
            2,097,749PLC
            
            
            2,107,724
            
            
            
            771,221Combined
            
            $
            4,538,097
            
            
            $
            2,868,970Net
                (loss)
            
            $
            (16,293,810
            )
            
            $
            (13,797,558
            )Basic
                and diluted (loss) per share
            
            $
            (0.08
            )
            
            $
            (0.09
            )








3.  ACCOUNTS
      RECEIVABLE





Accounts
      Receivable consists of the following at June 30, 2007:





Amounts
                receivable from customers
            
            $
            1,032,405Less:
                Reserve for doubtful accounts
            
            
            (54,903
            )Accounts
                receivable, net
            
            $
            977,502





4.  OTHER
      CURRENT ASSETS





Other
      current assets consists of the following at June 30, 2007:





Prepaid
                expenses
            
            $
            79,433Employee
                salary advances
            
            
            12,830Deposits
            
            
            11,725Total
            
            $
            103,988






F-14
 Table
          of Contents





5.  INVENTORIES





Inventory
      at June 30, 2007 consists of the Company’s Point of Sale Terminals which
      have  been  purchased  from  third  party  manufacturers,
      along with related equipment such as mounting brackets and cabling. Components
      of inventories as of June 30, 2007 are as follows:





Finished
                goods
            
            $
            918,947Total
            
            $
            918,947





6.  PROPERTY
      AND EQUIPMENT





A
      summary
      of property and equipment at June 30, 2007 is as follows:





Computer
                equipment
            
            $
            171,372Furniture
                and office equipment
            
            
            186,755358,127Less
                accumulated depreciationand
                amortization
            
            
            (170,804
            )Property
                and equipment, net
            
            $
            187,323





Depreciation  and  amortization  expense
      for property and equipment  amounted to $80,926 and $41,448  for
      the years ended June 30, 2007 and 2006, respectively.





During
      the year ended June 30, 2006, the Company sold fixed assets with a net book
      value of $0 for cash proceeds of $2,211 which resulted in a gain of $2,211
      on
      the disposal of fixed assets.





Other
      Long term assets





Other
      long term assets of $19,966 at June 30, 2007 consists of prepaid
      rent.





7.  INTANGIBLE
      ASSETS





The
      costs
      to acquire intangible  assets have been  allocated to the
      assets  acquired  according to
      the  estimated  fair values.  The Company has
      adopted SFAS No. 142, Goodwill and Other Intangible Assets,  whereby
      the Company periodically tests its intangible assets for impairment. On an
      annual basis, and when  there is reason to
      suspect  that  their  values  have
      been  diminished  or
      impaired,  these  assets are  tested
      for  impairment,  and  write-downs  will
      be included in results from operations.






F-15
 Table
          of Contents




The  identifiable  intangible  assets
      acquired and their carrying values at June 30, 2007 are:




**Carrying**
              **Amount**
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**
            
            
            **Residual
                Value**
            
            
            **Weighted**
              **Average**
              **Amortization**
              **Years**AmortizableIntangible
                Assets:Software
                  and related development costs
            
            $
            3,784,354
            
            
            $
            1,175,908
            
            
            $
            2,608,446
            
            
            $
            -
            
            
            
            4.6Customer
                  Relationships and Contracts
            
            $
            2,949,249
            
            
            $
            848,493
            
            
            $
            2,100,756
            
            
            $
            -
            
            
            
            10.0Software
                Licenses
            
            $
            2,261,156
            
            
            $
            1,027,457
            
            
            $
            1,233,699
            
            
            $
            -
            
            
            
            10.0





Total  amortization  expense  charged
      to operations  for the year ended June 30, 2007 and 2006 was
      $782,486  and $613,552, respectively.





Estimated
      amortization expense as of June 30, 2007 is as follows:





2008
            
            $
            1,290,0002009
            
            
            1,290,0002010
            
            
            1,060,0002011
                and thereafter
            
            
            2,302,901Total
            
            $
            5,942,901





8.           ACCOUNTS
      PAYABLE AND ACCRUED LIABILITIES





Accounts
      payable and accrued liabilities at June 30, 2007 are as follows:





Accounts
                payable and accrued expenses
            
            $
            2,312,643Payroll
                and related expenses
            
            
            172,985$
            2,485,628





9.           RELATED
      PARTY TRANSACTIONS





The
      Company’s President and Chief Executive Officer (“CEO) and  the
      Company’s Chief Financial Officer (“CFO) occasionally forego taking their salary
      payments in order to conserve the Company’s cash. The Company’s
      CEO  has also advanced funds to the Company.





These
      advances accrue interest at the
      rate of 7% per annum. At June 30, 2007, the Company owed the following to
      these executives  for accrued salaries, advances, and accrued
      interest:





**CEO**
            
            
            **CFO**
            
            
            **Total**Accrued
                Salary
            
            $
            49,901
            
            
            $
            81,649
            
            
            $
            131,550Advances
            
            
            56,126
            
            
            
            -
            
            
            
            56,126Accrued
                Interest
            
            
            264
            
            
            
            -
            
            
            
            264Accrued
                car allowance
            
            
            2,022
            
            
            
            2,022
            
            
            
            4,044Total
            
            $
            108,313
            
            
            $
            83,671
            
            
            $
            191,984




F-16
 Table
          of Contents





PLC
      Expenses





Prior
      to
      the acquisition of PLC Partners, (note 2), the Company had utilized the services
      of PLC Partners as outside consultants to the Company.   The
      Company issued 650,000 shares of its common stock with a fair value of $240,000
      to a principal of PLC Partners in October and November, 2006 as payment for
      these services.  The Company charged $240,000 to operations for these
      services  during the twelve months ended June 30, 2007.





10.
      SEGMENT INFORMATION





The
      Company currently operates three business segments: (1) transaction processing
      fees and the sale of transaction processing hardware by its wholly owned
      subsidiary, Freestar Dominicana; (2) transaction processing fees and the sale
      of
      transaction processing hardware by its wholly owned subsidiary, Rahaxi
      Processing Oy; and (3) consulting services offered through its 50% owned
      subsidiary Project Life Cycle Partners, Limited.  Intercompany
      receivable and payable are subtracted from the total assets and liabilities
      for
      the segments, that are eliminated in consolidation and therefore, do not
      themselves impact consolidated results.





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





**Twelve
                months ended June 30,****2007**
            
            
            **2006**Sales
                to external customers:Corporate
            
            $
            33,987
            
            
            $
            -Freestar
                Dominicana
            
            ****
            **-**
            
            
            
            -Rahaxi
            
            
            2,430,373
            
            
            
            2,097,749PLC
            
            
            1,315,976
            
            
            
            -Total
                sales to external customers:
            
            $
            3,780,336
            
            
            $
            2,097,749Depreciation
                and amortization:Corporate
            
            $
            9,825
            
            
            $
            -Freestar
                Dominicana
            
            
            22,520
            
            
            
            25,461Rahaxi
            
            
            830,850
            
            
            
            629,539PLC
            
            
            217
            
            
            
            -Total
                depreciation and amortization:
            
            $
            863,412
            
            
            $
            655,000General
                and administrative expense:(not
                including depreciation and amortization)Corporate
            
            $
            8,373,966
            
            
            $
            12,106,724Freestar
                Dominicana
            
            
            656,674
            
            
            
            251,796Rahaxi
            
            
            2,125,738
            
            
            
            1,195,126PLC
            
            
            342,000
            
            
            
            -Total
                general and administrative expense
            
            $
            11,498,378
            
            
            $
            13,553,646Capital
                expenditures:Corporate
            
            $
            47,670
            
            
            $
            -Freestar
                Dominicana
            
            
            26,713
            
            
            
            -Rahaxi
            
            
            841,435
            
            
            
            998,734PLC
            
            
            373,639
            
            
            
            -Total
                capital expenditures
            
            $
            1,289,457
            
            
            $
            998,734Operating
                income (loss):Corporate
            
            $
            (8,349,804
            )
            
            $
            (12,106,724
            )Freestar
                Dominicana
            
            
            (679,194
            )
            
            
            (277,257
            )Rahaxi
            
            
            (2,930,036
            )
            
            
            (1,510,934
            )PLC
            
            
            157,637
            
            
            
            -Total
                operating income (loss)
            
            $
            (11,801,397
            )
            
            $
            (13,894,915
            )Interest
                Expense, Net:Corporate
            
            $
            730
            
            
            $
            43,400Freestar
                Dominicana
            
            
            118
            
            
            
            4,818Rahaxi
            
            
            2,170
            
            
            
            5,589PLC
            
            
            -
            
            
            
            -Total
                Interest Expense
            
            $
            3,018
            
            
            $
            53,807Segment
                assets:Corporate
            
            $
            2,644,695
            
            
            $
            3,039,276Freestar
                Dominicana
            
            
            108,454
            
            
            
            777Rahaxi
            
            
            4,226,610
            
            
            
            5,347,838PLC
            
            
            1,637,276
            
            
            
            -Total
                segment assets
            
            $
            8,617,035
            
            
            $
            8,387,891





F-17
 Table
          of Contents




11.
      INCOME TAXES





Financial
      Accounting Standard No. 109 requires the recognition of deferred tax liabilities
      and assets for the expected future tax consequences of events that have been
      included in the financial statement or tax returns. Under this method, deferred
      tax liabilities and assets are determined based on the difference between
      financial statements and tax bases of assets and liabilities using enacted
      tax
      rates in effect for the year in which the differences are expected to reverse.
      Temporary differences between taxable income reported for financial reporting
      purposes and income tax purposes are insignificant.





The
      Company operates in several countries. As a result, we are subject to numerous
      domestic and foreign tax jurisdictions and tax agreements and treaties among
      the
      various taxing authorities. Our operations in these jurisdictions are taxed
      on
      various bases: income before taxes, deemed profits and withholding taxes based
      on revenue. The calculation of our tax liabilities involves consideration of
      uncertainties in the application and interpretation of complex tax regulations
      in a multitude of jurisdictions across our global operations.





Changes
      in tax laws, regulations, agreements and treaties, foreign currency exchange
      restrictions or our level of operations or profitability in each taxing
      jurisdiction could have an impact upon the amount of income taxes that we
      provide during any given year.





At
      June
      30, 2007, the Company has available for income tax reporting purposes a net
      operating loss carryforwards of approximately $25,500,000, which may be used
      to
      offset future taxable income and the majority expire in 2027, though the
      Ireland portion, of approximately $670,000, has no expiration period. The
      deferred tax asset related to the carryforward is approximately $6,600,000.
      The
      Company has provided a valuation reserve against the full amount of the net
      operating loss benefit because, in the opinion of management based upon the
      earning history of the Company, it is more likely than not that the benefits
      will not be realized. Due to significant changes in the Company’s ownership, the
      Company’s future use of its existing net operating losses may be limited in
      accordance with Section 382 of the Internal Revenue Code, as
      amended..





Income
      tax expense for 2007 represents income taxes on our  Irish
      subsidiary.





Components
      of deferred tax assets as of June 30, 2007 are as follows:





Non
                Current:Net
                operating loss carryforward
            $
            6,600,000Valuation
                allowance
            
            (6,600,000
            )Net
                deferred tax asset
            $
            
            -




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. 4 to this plan on
      December 20, 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 75,000,000 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, 2007,
      the Company had issued 75,000,000 shares of common stock under this plan. On
      February 1, 2007, the Company adopted the 2007 Directors and Consultants Stock
      Plan, authorizing an additional 35,000,000 shares of common stock for the same
      purposes as the Non-Employee Directors and Consultants Retainer Stock Plan.
      At
      June 30, 2007, a total of 6,252,007 shares were issued and an additional
      1,075,000 shares were reserved for the exercise of options under the 2007
      Directors and Consultants Stock Plan, leaving a total of 27,672,993 shares
      available for issuance under both the Non-Employee Directors and Consultants
      Retainer Stock Plan and the 2007 Directors and Consultants Stock
      Plan





Stock
      Incentive Plan





On
      October 25, 2001, the Company adopted a Stock Incentive Plan (the company
      adopted Amendment No. 3 to this plan on December 20, 2004). 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
      70,000,000 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, 2007, the Company had issued 70,000,000 shares
      of
      common stock under this plan. On February 1, 2007, the Company adopted the
      2007
      Stock Incentive Plan, authorizing an additional 35,000,000 shares of common
      stock for the same purposes as the Stock Incentive Plan. During the year ended
      June 30, 2007, the Company issued 6,760,184 shares of common stock under this
      plan and reserved an additional 3,029,271 shares for the exercise of options.
      At
      June 30, 2007, there is an aggregate of 25,210,545 shares of common stock
      available for issuance under both the Stock Incentive Plan and the 2007 Stock
      Incentive Plan.




F-18
 Table
          of Contents




13.
      STOCK
      OPTIONS AND WARRANTS





Non-Employee
      Stock Options





The
      following table summarizes the changes in options outstanding and the related
      prices for the shares of the Company’s common stock issued to the Company
      consultants. These options were granted in lieu of cash compensation for
      services performed (amounts have been adjusted to reflect the reverse stock
      split and other adjustments):





**Weighted**
            
            
            
            
            
            **Weighted****Weighted**
            
            
            **Average**
            
            
            
            
            
            **Average****Average**
            
            
            **Exercise
                Price**
            
            
            
            
            
            **Exercise
                Price****Range
                of**
            
            
            
            
            
            **Remaining**
            
            
            **of**
            
            
            
            
            
            **of****Exercise**
            
            
            **Number**
            
            
            **Contractual**
            
            
            **Outstanding**
            
            
            **Number**
            
            
            **Exercisable****Prices**
            
            
            **Outstanding**
            
            
            **Life
                (Years)**
            
            
            **Options**
            
            
            **Exercisable**
            
            
            **Options**$
            0.15
            
            
            
            166,666
            
            
            
            8.2
            
            
            $
            0.15
            
            
            
            166,666
            
            
            $
            0.15$
            0.20
            
            
            
            1,350,000
            
            
            
            9.3
            
            
            $
            0.20
            
            
            
            1,350,000
            
            
            $
            0.20$
            0.49
            
            
            
            756,303
            
            
            
            5.7
            
            
            $
            0.49
            
            
            
            756,303
            
            
            $
            0.49$
            0.70
            
            
            
            756,302
            
            
            
            5.7
            
            
            $
            0.70
            
            
            
            756,302
            
            
            $
            0.703,029,271
            
            
            
            7.5
            
            
            $
            0.39
            
            
            
            3,029,271
            
            
            $
            0.39




Transactions
      involving stock options issued to consultants are summarized as
      follows:





**Weighted**
              **Average****Number
                of**
              **Shares**
            
            
            **Exercise**
              **Price**Options
                exercisable at June 30, 2005
            
            
            2,941,176
            
            
            $
            0.34Granted
            
            
            8,749,996
            
            
            $
            0.14Exercised
            
            
            (10,011,901
            )
            
            $
            0.14Cancelled
                / Expired
            
            
            --
            
            
            
            --Options  at
                June 30, 2006
            
            
            1,679,271
            
            
            $
            0.55Granted
            
            
            15,016,666
            
            
            $
            0.14Exercised
            
            
            (13,666,666
            )
            
            $
            0.14Cancelled
                / Expired
            
            
            --
            
            
            
            --Options  at
                June 30, 2007
            
            
            3,029,271
            
            
            $
            0.39




F-19
 Table
          of Contents




The
      estimated value of the non-employee stock options vested during the years ended
      June 30, 2007 and 2006 were determined using the Black-Scholes option pricing
      model and the following assumptions: expected option life of .01 to 1 year,
      a
      risk free interest rate of 3.75 to 4.50%, a dividend yield of 0% and expected
      volatility of 97% to 167%. The amount of the expense charged to operations
      in
      connection with granting the options was $3,502,407 and $876,636 during the
      year
      ended June 30, 2007 and 2006, respectively.





During
      the twelve months ended June 30, 2006, the company extended the life of an
      option to purchase 1,428,571 shares of common stock granted to a consultant
      from
      2 years to 10 years. The Company valued the increase in the term of this option
      at $64,616 and charged this amount to operations during the year ended June
      30,
      2006.





Employee
      Stock Options





The
      following table summarizes the changes to employee stock options outstanding
      and
      the related prices of the Company’s common stock options issued to employees
      under its non-qualified employee stock option plans (amounts have been adjusted
      to reflect the reverse stock split and other adjustments):








**Range
                of**
              **Exercise**
              **Prices**
            
            
            **Number
                of**
              **Shares**
              **Outstanding**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                of**
              **Outstanding**
              **Options**
            
            
            **Number
                of**
              **shares**
              **exercisable**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                of**
              **Exercisable**
              **Options**$
            0.14
            
            
            
            500,000
            
            
            
            10.2
            
            
            $
            0.14
            
            
            
            270,833
            
            
            $
            0.14$
            0.15
            
            
            
            200,000
            
            
            
            8.9
            
            
            $
            0.15
            
            
            
            200,000
            
            
            $
            0.15$
            0.47
            
            
            
            375,000
            
            
            
            8.8
            
            
            $
            0.47
            
            
            
            375,000
            
            
            $
            0.471,075,000
            
            
            
            9.5
            
            
            $
            0.29
            
            
            
            845,833
            
            
            $
            0.
                29





Transactions
                involving stock options issued to employees are summarized as
                follows:





**Weighted**
              **Average****Number
                of**
              **Shares**
            
            
            **Exercise
                Price**Options
                exercisable at June 30, 2005
            
            
            500,000
            
            
            $
            0.15Granted
            
            
            775,000
            
            
            $
            0.28Exercised
            
            
            (650,000
            )
            
            $
            0.12Cancelled
                / Expired
            
            
            --
            
            
            
            --Options
                exercisable at June 30, 2006
            
            
            625,000
            
            
            $
            0.34Granted
            
            
            500,000
            
            
            $
            0.14Exercised
            
            
            (50,000
            )
            
            $
            0.15Cancelled
                / Expired
            
            
            --
            
            
            
            --Options
                exercisable at June 30, 2007
            
            
            1,075,000
            
            
            $
            0.26Non-vested
                at June 30, 2007
            
            
            229,167
            
            
            $
            0.14Vested
                at June 30, 2007
            
            
            845,833
            
            
            $
            0.29








F-20
 Table
          of Contents




The
      weighted-average fair value of stock options granted to employees during the
      years ended June 30, 2007 and 2006 and the weighted-average significant
      assumptions used to determine those fair values, using a Black-Scholes option
      pricing model are as follows:




Significant
                assumptions (weighted-average):
            
            **2007**
            
            
            **2006**Risk-free
                interest rate at grant date
            
            
            4.5
            %
            
            
            3.8
            %Expected
                stock price volatility
            
            
            105-115
            %
            
            
            176
            %Expected
                dividend payout
            
            
            0
            
            
            
            0Expected
                option life (in years)
            
            
            10.0
            
            
            
            3.6




Warrants





The
      following table summarizes the changes in warrants outstanding and the related
      prices of the Company’s common stock issued to non-employees of the Company.
      These warrants were granted instead of cash compensation for services performed
      and settlement of legal dispute (amounts have been adjusted to reflect the
      reverse stock split and other adjustments):





**Range
                of**
              **Exercise**
              **Prices**
            
            
            **Number
                of**
              **Shares**
              **Outstanding**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life
                (Years)**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                of**
              **Outstanding**
              **Warrants**
            
            
            **Number
                of**
              **Shares**
              **Exercisable**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                of**
              **Exercisable**
              **Warrants**$
            0.2143
            
            
            
            1,204,786
            
            
            
            0.39
            
            
            $
            0.2143
            
            
            
            1,204,786
            
            
            $
            0.2143$
            0.75
            
            
            
            750,000
            
            
            
            0.87
            
            
            $
            0.75
            
            
            
            750,000
            
            
            $
            0.75$
            0.98-1.00
            
            
            
            13,392,857
            
            
            
            2.36
            
            
            $
            0.99
            
            
            
            13,392,857
            
            
            $
            0.99$
            1.50
            
            
            
            7,954,348
            
            
            
            0.50
            
            
            $
            1.50
            
            
            
            7,954,348
            
            
            $
            1.50$
            2.50
            
            
            
            5,464,130
            
            
            
            0.80
            
            
            $
            2.50
            
            
            
            5,464,130
            
            
            $
            2.50$
            4.50
            
            
            
            3,477,174
            
            
            
            0.75
            
            
            $
            4.50
            
            
            
            3,477,174
            
            
            $
            4.50$
            5.50
            
            
            
            3,477,174
            
            
            
            0.75
            
            
            $
            5.50
            
            
            
            3,477,174
            
            
            $
            5.50$
            6.50
            
            
            
            3,477,174
            
            
            
            0.75
            
            
            $
            6.50
            
            
            
            3,477,174
            
            
            $
            6.50$
            8.50
            
            
            
            1,986,957
            
            
            
            0.75
            
            
            $
            8.50
            
            
            
            1,986,957
            
            
            $
            8.5041,184,600
            
            
            
            1.25
            
            
            $
            2.77
            
            
            
            41,184,600
            
            
            $
            2.77






F-21
 Table
          of Contents




Transactions
      involving warrants are summarized as follows:




**Weighted**
              **Average****Number
                of**
              **Shares**
            
            
            **Exercise**
              **Price**Warrants  at
                June 30, 2005
            
            
            3,571,428
            
            
            $
            0.63Granted
            
            
            37,836,957
            
            
            
            2.96Exercised
            
            
            (223,785
            )
            
            
            0.21Cancelled
                / Expired
            
            
            --
            
            
            
            --Warrants  at
                June 30, 2006
            
            
            41,184,600
            
            
            $
            2.77Granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Cancelled
                / Expired
            
            
            --
            
            
            
            --Warrants
                at June 30, 2007
            
            
            41,184,600
            
            
            $
            2.77




(1)
                Certain warrants were granted at an exercise price based on the market
                price at the exercise date; therefore, weighted-average exercise
                prices
                cannot be determined for those
                warrants.





During
      the twelve months ended June 30, 2006, the Company extended the life of a
      warrant to purchase 1,428,571 shares of common stock granted to a consultant
      from 2 years to 10 years. The Company valued the increase in the term of this
      option at $194,688 and charged this amount to operations during the year ended
      June 30, 2006.





14.
      CAPITAL STOCK





The
      Company has authorized 5,000,000 shares of preferred stock, with a par value
      of
      $0.001 per share. The Company has designated 1,000,000 shares of its preferred
      stock as Series A convertible preferred stock (“Series A Preferred”) and
      4,000,000 shares as Series B convertible preferred stock (“Series B Preferred”).
      As of June 30, 2007 the Company had 1,000,000 shares of Series A Preferred
      and
      2,000,000 shares of Series B Preferred issued and outstanding.





The
      Company has authorized 500,000,000 shares of common stock, with a par value
      of
      $0.001 per share. On November 8, 2004, the Company effected a one (1) for seven
      (7) reverse stock split of its authorized and outstanding shares of common
      stock; total authorized shares and par value remained unchanged. All references
      in the financial statements and notes to financial statements, numbers of shares
      and share amounts have been retroactively restated to reflect the reverse split.
      The Company had 233,783,452 shares of common stock issued and outstanding as
      of
      June 30, 2007.





Series
      A Preferred Stock





The
      terms
      of the Series A Preferred Stock are as follows:





The
      Series A Preferred shares rank senior to the common stock and each share of
      the
      Series A preferred is convertible, under certain conditions, at the option
      of
      the holders, into 1.71 shares (post reverse-split) of the Company’s common
      stock. The 1,000,000 shares of the Series A preferred stock outstanding at
      June
      30, 2007 are thus convertible into 1,710,000 shares (post reverse-split) of
      the
      Company’s common stock. The holders of Series A Preferred shares may elect to
      convert there shares to the Company’s common stock 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 Series A Preferred shares have been
      converted. For the years ended June 30, 2007 and 2006, the Company has not
      met
      the requisite before tax profits of $1,000,000 and accordingly, no Series A
      Preferred shares have been eligible for conversion to the Company’s common
      shares.





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 proxy. Each share of Series A
      Preferred stock receives 1.71 votes on any issue brought before the
      shareholders. The Company did not issue any Series A Preferred shares during
      the
      years ended June 30, 2007 and 2006.





F-22
 Table
          of Contents





Series
      B Preferred Stock





The
      terms
      of the Series B Preferred Stock are as follows:





The
      Series B Preferred shares rank senior to the common stock and each share of
      the
      Series B Preferred stock was originally convertible, at the option of the
      holders, into 12 shares of the Company’s common stock. There were 2,500,000
      shares of Series B Preferred stock outstanding at the time of the a 1-for-7
      reverse split of the Company’s common stock in November, 2004; the conversion
      ratio of these 2,500,000 shares of Series B Preferred stock was adjusted for
      the
      reverse split, and these shares of Series B Preferred stock became convertible
      into 1.71 shares of the Company’s common stock. During the year ended June 30,
      2007, the Company’s President and Chief Executive Officer converted 1,000,000 of
      these Series B preferred shares into 1,714,286 shares of common stock. 1,700,000
      of these shares were issued at June 30, 2007, and 14,286 are carried as common
      stock subscribed on the Company’s balance sheet at June 30, 2007.





There
      were an additional 1,500,000 shares of Series B preferred stock issuance
      subsequent to the Company’s 1-for-7 reverse split of common stock in November,
      2004; these shares of Series B preferred stock are convertible into common
      stock
      at the rate of 12 to 1. During the year ended June 30, 2007, the Company’s
      President and Chief Executive Officer converted 1,000,000 of these Series B
      preferred shares into 12,000,000 shares of common stock.





There
      were a total of 2,000,000 shares of Series B Preferred stock converted by the
      Company’s President and Chief Executive Officer during the year ended June 30,
      2007 into a total of 13,714,286 shares of common stock. 13,700,000 of these
      shares have been issued at June 30, 2007, and 14,286 are carried as common
      stock
      subscribed on the Company’s balance sheet at June 30, 2007.





At
      June
      30, 2007, there remain outstanding 1,500,000 shares of Series B preferred stock
      convertible at a rate 1-to-1.71 of common stock, or 2,571,429 shares of common
      stock issuable; and 500,000 shares of Series B preferred stock convertible
      at a
      rate of 12-to-1 of commons tock, or 6,000,000 shares of common stock issuable.
      At June 30, 2007, there are a total of 2,000,000 shares of Series B preferred
      stock outstanding, convertible into a total of 8,571,429 shares of common
      stock.




Common
      Stock




Year
      Ended June 30, 2006:





The
      Company issued 14,480,534 restricted shares of common stock to consultants
      and
      legal advisors for professional fees. The Company recorded the amount of
      $2,742,108 as non-cash compensation and increased deferred compensation in
      the
      amount of $1,531,037.





The
      Company issued 7,121,379 restricted shares of common stock to consultants upon
      the exercise of stock options for $1,204,800 cash.





The
      Company cancelled 142,857 restricted shares of common stock that were previously
      issued to a consultant in error. Upon cancellation, the amount of $150,000
      was
      removed from shares cancellation receivable.





The
      Company converted a note payable in the amount of $750,000 into 5,000,000
      restricted shares of common stock.





The
      Company granted 20,000,000 restricted shares of common stock to officers for
      services to be performed. The amount of $4,600,000 was charged to non-cash
      compensation.





The
      Company issued 5,000,000 restricted shares of common stock to officers for
      the
      exercise of stock options. The total exercise price was $50,000. The Company
      initially charged this exercise to options receivable; this receivable was
      later
      written-off to non-cash compensation.





The
      Company cancelled 714,285 restricted shares of common stock due to a legal
      settlement, and recorded a gain in the amount of $350,000.




F-23
 Table
          of Contents




Year
      Ended June 30, 2007:





The
      Company issued 750,000 shares of common stock with a fair value of $352,500
      to
      an employee for services. The amount of $352,500 was charged to operations
      during the prior year ended June 30, 2006.





The
      Company issued 10,199,997 shares of common stock with a fair value of $2,999,899
      to consultants for services to be performed through June, 2008. The amount
      of
      $786,230 was charged to operations during the twelve months ended June 30,
      2007,
      and $2,213,579 were charged to deferred compensation and will be amortized
      to
      expense during the year ending June 30, 2008.





The
      Company issued 610,000 shares of restricted common stock with a fair value
      of
      $158,600 to employees for services rendered. These shares vest in one year
      from
      the date of issuance. During the year ended June 30, 2007, the Company chanrged
      the amount of $36,899 to operations, and carried the balance of $121,701 as
      Unearned Common Restricted Stock on its balance sheet.





The
      Company issued 180,000 shares of common stock with a fair value of $75,600
      as
      prepaid rent.





The
      Company issued 13,716,666 shares of common stock pursuant to the exercise of
      stock options for cash proceeds of $4,766,547.





The
      Company issued 2,180,000 shares of common stock with a fair value of $444,600
      to
      employees as compensation.





The
      Company cancelled 142,858 shares of common stock previously issued to a
      consultant for services. The amount of the originally issued value of $158,000
      was credited to operations during the year ended June 30, 2007.





The
      Company issued 2,222,220 shares of common stock for the acquisition of 50%
      of
      PLC Partners, Ltd. The fair value of $800,000 was allocated to the assets
      acquired.





The
      Company issued 4,000,000 shares of common stock for subscriptions receivable
      of
      $600,000. At June 30, 2007, payment for these shares has not yet been
      received.





The
      Company issued 3,000,000 shares of common stock for cash proceeds of $600,000
      which had been received during the year ended June 30, 2007. These proceeds
      had
      been carried as common stock subscribed on the Company’s statement of equity as
      of June 30, 2007.





The
      Company issued 13,700,000 shares of common stock pursuant to the conversion
      of
      2,000,000 shares of Series B preferred stock by the Company’s President and
      Chief Executive Officer.




March
      2006 Financing





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





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





Pursuant
      to the March Financing, the Company agreed to issue 46 million shares of
      restricted common stock under Regulation S at $0.20 per share, plus warrants
      to
      purchase 50 million shares of common stock with two-year exercise periods and
      strike prices ranging from $1.50 to $8.50, as set forth below. The shares which
      will be held in escrow by Carl Hessel ("Escrow Holder"), a director and major
      stockholder of the Company based in Geneva, Switzerland, along with the
      warrants. Pursuant to the terms of the March Financing, the first payment of
      $4.6 million is due immediately, with a second payment of $4.6 million due
      within three months thereafter. As of June 30, 2007, the Company had received
      cash in the net amount $7,169,924 pursuant to the March Financing, and had
      issued 22,850,000 shares of common stock and warrants to purchase an additional
      24,836,957 shares. TheCompany has not yet
      released from escrow the shares or warrants related to $2,600,000, and this
      amount is carried as common stock subscribed on the Company's balance sheet
      at
      June 30, 2007.  In accordance with the escrow agreement, Mr. Hessel
      had_23,000,000 shares held in escrow (excluded from issued and outstanding)
      at
      June 30, 2007.





The
      Company also issued to consultants 4,600,000 shares of unregistered common
      stock
      and warrants to purchase an additional 13,000,000 shares of common stock at
      a
      price of $0.20 per share as a commission for work performed on the March
      Financing.




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The
      warrants to be issued pursuant to the investors in the March Financing are
      as
      follows:





**Number
                of shares of Company**
              **Common
                Stock underlying Warrants****Exercise
                Price**
              **Per
                Share**
            
            
            **When
                fully subscribed**
            
            
            **At
                June 30, 2006**$
            1.50
            
            
            
            14,000,000
            
            
            
            7,221,857$
            2.50
            
            
            
            11,000,000
            
            
            
            5,674,316$
            4.50
            
            
            
            7,000,000
            
            
            
            3,610,928$
            5.50
            
            
            
            7,000,000
            
            
            
            3,610,928$
            6.50
            
            
            
            7,000,000
            
            
            
            3,610,928$
            8.50
            
            
            
            4,000,000
            
            
            
            2,063,38850,000,000
            
            
            
            25,792,345





All
      warrants have a two-year exercise period from the date of issuance of the
      warrants. No registration rights were granted to the Investors in connection
      with the March Financing and the shares and warrants issued in the March
      Financing will be restricted securities, subject to the applicable restrictions
      set forth in Regulation S promulgated under the Securities Act of 1933, as
      amended.





April
      2006 Financing





In
      April
      2006, the Company signed subscriptions agreements with a group of offshore
      investors led by K2 Svensk Kredit Finans, AB, dba Svensk, Kredit and Finans for
      the sale of an aggregate of 25,000,000 shares of the Company's common stock
      plus
      warrants to purchase an additional 25,000,000 shares of common stock for the
      aggregate price of $10,000,000 (the “April Financing”). The Company has
      terminated the April Financing due to non-payment and has initiated litigation
      against the investors, as set forth below and in Part II, Item 1, “Legal
      Proceedings”. These shares and warrants are not deemed to be issued and
      outstanding as of the date of the financial statements.





These
      25,000,000 shares have come into the possession of certain individuals outside
      the Company’s control, and on March 14, 2007, the Company, through its counsel
      Corrigan & Morris LLP, initiated legal action in the Federal District Court
      in Nevada. Named as defendants are K2 Svensk Kredit Finans, AB, dba Svensk,
      Kredit and Finans, Soren Moberg, Moberge Group, Magnus Erneving, and First
      American Stock Transfer, Inc. FreeStar is asserting claims against those
      individuals and entities, except First American Stock Transfer, for fraud,
      conversion, unjust enrichment and negligent misrepresentation. The Company
      is
      seeking unspecified damages and $5 million in punitive damages.





On
      April
      2, 2007, the Court ruled that these shares cannot be sold, assigned, transferred
      or otherwise disposed of in any way pending the outcome of the case. The shares
      are represented by 50 stock certificates for 500,000 shares each, numbered
      2840
      through 2889 in the name of Svensk Kredit & Finans AB issued on May 5, 2006.
      This ruling follows a similar order brought down by the court on March 20,
      2007
      also preventing the defendants from disposing of those same shares.





On
      August
      14, 2007, the Court issued a final judgment in favor of FreeStar and against
      K2,
      ordering that the entire 25 million shares, represented by certificates numbered
      2840 through 2889, issued to K2 be cancelled. The Court also held that K2 was
      never a shareholder of FreeStar and that the entire 25 million shares should
      not
      be counted as ever having been issued and outstanding.





FreeStar
      has remaining claims against Soren Moberg, Moberge Group and Magnus Erneving,
      asserting claims for fraud, conversion, unjust enrichment and negligent
      misrepresentation seeking unspecified damages and $5 million in punitive
      damages.








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15.
      DEFERRED COMPENSATION





The
      Company enters into various consulting and service agreements for terms
      from 60 days to one year. The Company pays a combination of cash and the
      Company’s common stock for these consulting and professional services.
      Compensation for future services is classified as deferred compensation. As
      of
      June 30, 2007, deferred compensation related to the fair market value of stock
      issued for future services totaled  $599,770.





16.
      RESTRICTED STOCK





On
      April
      17, 2007, the Company into Restricted Stock Agreements with fourteen employees
      for a total of 610,000 shares of S-8 registered common stock with a fair value
      of $0.26 per share for a total aggregate value of $158,600. These shares become
      fully vested one year from the date of issuance, or April 17, 2008.  As of
      June 30, 2007 and 2006, unearned compensation related to restricted stock
      agreements totaled $121,701 and $265,582, respectively.





17.
      EMPLOYMENT AGREEMENTS





Chief
      Executive Officer





In
      August
      2001, the Company entered into an employment agreement with Paul Egan, its
      President and Chief Executive Officer. Under the terms of the agreement, the
      Company is liable to Mr. Egan 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 Paul Egan’s remuneration take place on or before
      December 31, 2004. Effective January 1, 2006, Paul Egan’s salary was increased
      to $264,000 per year. Effective March 1, 2006, Paul Egan began to draw a salary
      of $25,000 per year for his position as Chief Executive Officer of the Company’s
      newly established subsidiary, Freestar Dominicana.





On
      May
      29, 2007, the Company entered into new employment agreement with Paul Egan
      which
      replaces his prior employment agreement with the Company. Paul Egan’s employment
      agreement has a five year term. Under the agreement, Paul Egan will continue
      to
      serve in his current role of President and Chief Executive Officer of the
      Company, reporting to the Board of Directors. The Company will pay Paul Egan
      €300,000 (approximately US$403,000, based on current exchange rates) per year
      in
      base salary, plus an automobile allowance of €1,500 (approximately US$2,000
      based on current exchange rates) per month and other benefits. The Board of
      Directors will review the annual base salary each year, but may not reduce
      it
      below the initial base salary level. Paul Egan will be eligible for bonuses
      to
      be paid in stock or stock options, with such bonuses to be determined by the
      Board of Directors. If Mr. Egan’s employment is terminated by the Company
      Without Cause (as defined in the employment agreement) or by Mr. Egan for Good
      Reason (as defined in the employment agreement), then Mr. Egan shall be entitled
      to a lump sum payment equal to one year’s annual salary, plus any applicable
      bonuses.





At
      June
      30, 2007, the Company owed Paul Egan the amount of $49,901 in accrued salary,
      and an additional $2,022 in accrued car allowance. Also at June 30, 2007, the
      Company owed Mr. Egan $56,126 for cash advances he had made to the Company,
      plus
      an additional $264 for interest due o on these advances.





Chief
      Financial Officer





In
      August
      2001, the Company entered into an employment agreement with Ciaran Egan, its
      President and Chief Executive Officer. Under the terms of the agreement, the
      Company is liable to Mr. Egan 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 Ciaran Egan’s remuneration take place on or before
      December 31, 2004. Effective January 1, 2006, Ciaran Egan’s salary was increased
      to $240,000 per year. Effective March 1, 2006, Ciaran Egan began to draw a
      salary of $25,000 per year for his position as Chief Financial Officer of the
      Company’s newly established subsidiary, Freestar Dominicana.





On
      May
      29, 2007, the Company entered into new employment agreement with Ciaran Egan
      which replaces his prior employment agreement with the Company. Ciaran Egan’s
      employment agreement has a five year term. Under the agreement, Ciaran Egan
      will
      continue to serve in his current role as Chief Executive Officer of the Company,
      reporting to the President. The Company will pay Ciaran Egan €300,000
      (approximately US $403,000, based on current exchange rates) per year in base
      salary, plus an automobile allowance of €1,500 (approximately US $2,000 based on
      current exchange rates) per month and other benefits. The Board of Directors
      will review the annual base salary each year, but may not reduce it below the
      initial base salary level. Ciaran Egan will be eligible for bonuses to be paid
      in stock or stock options, with such bonuses to be determined by the Board
      of
      Directors. If Mr. Egan’s employment is terminated by the Company Without Cause
      (as defined in the employment agreement) or by Mr. Egan for Good Reason (as
      defined in the employment agreement), then Mr. Egan shall be entitled to a
      lump
      sum payment equal to one year’s annual salary, plus any applicable
      bonuses.





At
      June
      30, 2006, the Company owed Ciaran Egan the amount of $81,649 in accrued salary,
      and an additional $2,022 in accrued car allowance.




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Chief
      Technical Officer





Effective
      September 15, 2006, the Company entered into a three-year employment agreement
      with its Chief Technical Officer. Under the terms of this agreement, the Company
      is liable for an annual salary of $180,000. In addition, the Company issued
      options to purchase 500,000 shares of common stock at a price of $0.14 per
      share; these options were valued at their intrinsic value of $135,568. $119,226
      of this amount was charged to operations during the year ended June 30, 2006,
      and $16,342 is carried as deferred compensation at June 30, 2007. The Company
      also issued 250,000 shares of the Company’s common stock valued at $97,500.
      $85,747 of this amount was charged to operations during the year ended June
      30,
      2007, and $11,753 is carried as deferred compensation at June 30,
      2007.





Financial
      Controller





Effective
      April 1, 2006, the Company entered into a three-year employment agreement with
      its Financial Controller. Under the terms of this agreement, the Company is
      liable for an annual salary of $150,000. In addition, the Company issued options
      to purchase 375,000 shares of common stock at a price of $0.47 per share. The
      Company valued these options utilizing the Black-Scholes valuation model, and
      charged the amount of $166,074 to operations during the year ended June 30,
      2007. The Company also issued to 750,000 shares of the Company’s common stock
      valued at $352,500 and charged this amount to deferred compensation. During
      the
      year ended June 30, 2007 and 2006, $265,582 and $86,918 of this amount,
      respectively, was charged to operations, and at June 30, 2007 the amount of
      $0
      is carried in deferred compensation.





18.
      COMMITMENTS AND CONTINGENCIES





Operating
      Leases





The
      Company leased the following facilities under non-cancelable lease agreements
      at
      June 30, 2007:





Santo
      Domingo, Dominican Republic: 6,081 square feet of office space under a five-year
      operating lease at the rate of $10,600 per months which expires in September
      2011.





Helsinki,
      Finland: 5,527 square feet of office space under a lease at the rate of $9,838
      per month which expires in February 2012. The lease contains provisions to
      increase the monthly lease amount to $11,456 effective March 1, 2009; $11,725
      on
      March 1, 2010; and $11,995 on March 1, 20011.





Dublin,
      Ireland: 1,664 square feet of office space under a least at the rate of $7,842
      per month through January 2011.





Stockholm,
      Sweden: 1,700 square feet of office space under a lease at the rate of $4,000
      per month through March 2009.





The
      Company’s total commitments under non-cancelable operating leases at June 30,
      2007 are as follows:




Years
                ending June 30,2008
            
            $
            387,3622009
            
            
            381,8312010
            
            
            359,8472011
            
            
            323,8722012
            
            
            122,457Total
            
            $
            1,575,369







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Rental
      expenses for office space charged to operations for the year ended June 30,
      2007
      and 2006 are $342,592 and $98,462, respectively.





Sales
      and Marketing Agreements





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.





19.
      SUBSEQUENT EVENT





In
      July
      2007, the Company issued 7,000,000 shares of S-8 registered common stock to
      a
      related party, the wife of a board member, for the exercise of options at $0.10
      per share. The Company received cash proceeds of $700,000.







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