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.

---

Table 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

Transaction processing 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 services revenue

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.

---

Table of Contents

Cost of Revenue

Cost of transaction processing 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 consulting services

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.

---

Table of Contents

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,		$ 1,175,904
2008		$ 387,362
2009		$ 381,831
2010		$ 359,847
2011		$ 323,872
2012		$ 122,457
Total		$ 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.

---

Table of Contents

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		1,986,957
			50,000,000		24,836,957

---

Table of Contents

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.

---

Table of Contents

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.