[ Back ]

EDGAR FILINGS

Year 2001 / August 09

FREESTAR TECHNOLOGIES (FSTI.OB)

Item 2 - Management's Discussion & Analysis or Plan of Operation

History of the Company

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

Previously, on April 5, 1999, Interstate Capital Corporation had completed a public offering that was exempt from Federal registration under Regulation D, Rule 504 of the Securities & Exchange Act of 1933, as amended. The Company sold 5,000,000 shares of common stock at a price of $.001 per share raising a total of $5,000.00.

The SOCAL Transaction

Effective January 4, 2000, the Company, then known as Freedom Surf, acquired all of the issued and outstanding shares of stock in Southern California Logo, Inc. ["SOCAL"]. The contract was executed on May 12, 2000 but was deemed effective for purposes of reporting income and expense as of January 4, 2000.

SOCAL was acquired through a structured acquisition under the terms of which the former owners of SOCAL, Rick & Judy Songer, received a total of 900,000 shares of stock. They, in turn, transferred a total of 13,150 shares to some long time employees. Judy Songer retained a total of 236,850 shares of common stock in Freestar and Rick Songer owns a total of 650,000 shares. Additionally, the Company then known as Freedom Surf was to pay a total of $800,000 in cash to the Songers. $500,000 of that amount was paid in August, 2000 and the balance is still owed.

Effective April 30, 2001, the Board of Directors entered into an agreement with the Songers whereby the assets of SOCAL were returned to them and they were allowed to retain the stock that had been issued in Freestar and were also allowed to keep the $500,000 which Freestar had invested in SOCAL.

As a result of the write-off of the payment to SOCAL of $500,000 during the period ended June 30, 2001, the Company was required to take a one time reduction in retained earnings of that amount leaving a deficit of ($457,633) rather than retained earnings of $42,467 but for the write-off.

The Costa Rican Equipment Transaction

On December 10, 1999, Freedom Surf reported that it had purchased equipment (the "Equipment") to manufacture neoprene wet suits which was stored in Costa Rica. Freedom Surf valued the Equipment at $5,180,000. Freedom Surf did not obtain a report from a licensed independent appraiser. However, Raece Richardson, then President of Freedom Surf, arranged for an appraisal of this Equipment by a local appraiser of boats who valued the Equipment at $5,180,000.00. Freedom Surf then issued 969,000 shares of its common stock to the seller of the Equipment, STS de Costa Rica, S.A. ["STS"], and also issued a promissory note in the amount of $335,000 to the same company.

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

Based on advice from outside consultants, the equipment transaction was structured so that Pacific Standard Financial Group, Inc. ["Pacific"] acquired the Equipment from STS and resold it to the Freedom Surf.

Pacific is believed to have purchased the Equipment from STS for the same consideration that the Company agreed to pay Pacific except that the promissory note issued by Pacific to the STS was in the original principal amount of $300,000. Pacific transferred the 969,000 shares to STS and also executed a promissory note to STS for $300,000, as noted.

After this transaction, Freedom Surf never took possession of the Equipment and it remained in storage under the control of STS. As a part of the agreement, Freedom Surf was required to pay storage fees but never paid them. Also, Freedom Surf never paid Pacific the $335,000 which was owed and Pacific, in turn, never paid STS the $300,000 which was owed to them. On November 16, 2000, Freedom Surf received a notice ("Notice") from STS declaring a default. The Notice stated that STS was terminating the agreement. STS returned the 969,000 shares of common stock and has not given any indication that it would bring suit for the monies owed to it. They have accepted the Equipment in lieu of payment.

Finally, Freedom Surf informed Ronbridge that it was not in a position to refund Ronbridge the $750,000 which it received as a down payment on the sale of the Equipment.

Changes in the Board of Directors

On December 8, 2000, Freedom Surf reported on Form 8-K to the Securities & Exchange Commission that the above described situation had occurred.

On January 23, 2001, a group of shareholders who had formed a committee known as the Committee for Corporate Governance, Larinda Nilsen, Chairman, filed a Preliminary Proxy Statement [PRE 14a] with the Securities & Exchange Commission stating that they intended to call a special meeting of the shareholders for the purpose of removing the remaining members of the Board and electing new Board members.

Prior to the filing of this Preliminary Proxy Statement, certain members of the Board of Directors had already resigned. On December 1, 2000, John W. Cruickshank resigned as a member of the Board of Directors of the Company. Shortly thereafter, Holly Richardson, another member of the Board resigned leaving two members of the Board, Rick Songer and David McKenzie.

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

Article II, Section 2 of the By Laws of the corporation provides as follows:

"SECTION 2. When any vacancy occurs among the Directors by death, resignation, disqualification or other cause, the stockholders, at any regular or special meeting, or at any adjourned meeting thereof, or the remaining Directors, by the affirmative vote of a majority thereof, shall elect a successor to hold office for the unexpired portion of the term of the Director whose place shall have become vacant and until his successor shall have been elected and shall qualify."

The new members of the Board of Directors who were elected to serve until the next Annual Meeting of the Shareholders were: Charles Cortland Hooper, Arthur F. Wigand and James L. Flippen.

Then on June 28, 2001, Mr. Hooper, Mr. Wigand and Mr. Flippen all resigned and Dennis Johnston was appointed sole director.

Mr. Johnston then acted to appoint two other new directors, Paul Egan and his brother, Ciaran Egan as members of the Board and they, in turn elected officers for the Company.

The following is the name, ages and biographical information on the newly appointed Directors and officers of the corporation:

Dennis H. Johnston, Age 48, Interim Chief Executive Officer, Secretary & Director

Mr. Johnston is an attorney licensed to practice in the State of California and has been acting for the last 20 years as an attorney specializing in the representation of corporations and financial institutions. He has assisted in organizing and financing numerous private and publicly traded companies and has handled mergers and acquisitions with a total value of in excess of $3 billion. Mr. Johnston received degrees in business and economics from the University of California at Los Angeles and a law degree from Loyola University in Los Angeles where he was the editor of the law review. He is a former partner of the law firm of Manatt, Phelps, Rothenberg & Tunney and was also with Wyman, Bautzer, Kuchel and Silbert at one time.

Paul Egan,
Age 38, Chief Executive Officer, Director and Chairman of The Board of Directors

Mr. Egan is currently the President and Chief Executive Officer of ePayLatina S.A., a company which has developed it own secure electronic payment device. Mr. Egan was born in Dublin, Ireland in 1963, is a graduate from Terenure College Dublin in 1981, studied Construction Management in Birmingham, England, worked for Trafalgar House Construction Division, on Major Projects in London EC2 Banking Districts. In 1992, he was recruited by the South African Firm ENGEN to oversee the New Project Division after their acquisition of Mobil Oil South Africa and to implement the new company's construction projects and corporate identity. In 1997, Mr. Egan moved to Santo Domingo in the Dominican Republic where he became Vice-President of Inter-Leisure, S. A. In 2000 he founded ePayLatina.

Ciaran Egan,
Age 37, Chief Financial Officer and Director

Mr. Egan is Chief Financial Officer of ePayLatina S.A., is the brother of Paul Egan, also born in Dublin, Ireland in 1964. He graduated from Terenure College Dublin in 1982 from the College of Commerce Rathmines Dublin from 1982 to 1986, took up a position as sales manager of Sellrange Ltd (Ireland) in 1986, was promoted to National Sales Director in 1988 increasing sales from $8 million to $15 million pounds sterling and became managing director in 1990. He was recruited by Medipro International Recruitment based in Johannesburg, South Africa in 1994 as Managing Director, with the central focus on establishing new markets in the Middle East, United Kingdom and Ireland. He was successful in obtaining and completing contracts with the Ministry of Defense and Aviation in Saudi Arabia and the United Arab Emirates. He was also responsible for successfully implementing contracts with the National Health Services in the United Kingdom and several private institutions in Ireland. He relocated to the Dominican Republic in 2000 to become Senior Vice President of ePayLatina S.A.

Results of Operations

The results of operations of the Company for the period ended June 30, 2001 compared to the period ended June 30, 2000 are discussed below.

Revenues

Presently, Freestar receives no income from any source. Prior to the divestiture of SOCAL, it had received income from its SOCAL operations totaling $747,427 for the six month period ended June 30, 2001. For the same period ended June 30, 2000, the Company had income totaling $ 1,445,559.

Operating Expenses

Sales, General and Administrative:

Selling, general and administrative costs for the period ended June 30, 2001 totaled ($199,261)whereas for the same period ended June 30, 2000, those expenses totaled ($207,106).

Interest Expense

Interest expense for the period ended June 30, 2001 was a credit of ($18,546) after credit for interest earned on deposits of $300,000 which Freestar maintained as additional collateral for its credit line prior to the divestiture of SOCAL. Interest expense for the same period ended June 30, 2000 was $25,680.

Net Profit

Our net operating income before taxes for the period ended June 30, 2001 was $462,885 as compared to a net operating loss of (89,793) for the same period ended June 30, 2000. This translates to a net operating income per share of $0.045 per share, basic and diluted, for the period ended June 30, 2001 and a net loss of (0.015) per share, basic and diluted for the period ended March 31, 2000.

Liquidity and Capital Resources

The Company presently has no cash and no capital resources. Unless the Company merges a new business into it, the Company will not be able to continue in business.

Our Capital Requirements

During the next two years, the Company plans to merge assets into the Company in the form of a going business concern which, it is intended, will generate income to meet necessary capital requirements. It may also be necessary to borrow money either from lending institutions or seek equity financing in the market.