**U.S.
          SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
 
 
 
 **FORM
          10-Q**
  
 
 (MARK
                    ONE)**x**
                **QUARTERLY
                    REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934****For
                    the quarterly period ended September 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**
 (Exact
          Name of Company as Specified in Its Charter)
  **Nevada**
                
                **88-0446457**(State
                    or Other Jurisdiction of Incorporation or Organization)
                
                (I.R.S.
                    Employer Identification No.)
   **31
          Mespil Road, Ballsbridge, Dublin 4, Ireland**
 (Address
          of Principal Executive Offices)
 
 **353
          1 6185060**
 (Company's
          Telephone Number)
  ______________________________________________________________________
 (Former
          Name, Former Address, and Former Fiscal Year, if Changed Since Last
          Report)
 
 **Securities
          registered under Section 12 (b) of the Exchange Act: None**
  **Securities
          registered under Section 12(g) of the Exchange Act:**
  **Common
          Stock - $0.001 par value**
 
  Check
          whether the issuer has (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 the Company was required to file such reports), and (2) has been
          subject
          to such filing requirements for the past 90 days. Yes x Noo
  Indicate
          by check mark whether the registrant is a large accelerated filer, an
          accelerated filer, or a non-accelerated filer. See definitions of "accelerated
          filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
          one):
 
 Large
          accelerated filer o, Accelerated
          filer
o, Non-accelerated
          filer x
  Indicate
          by check mark whether the registrant is a shell company (as defined by
          Rule
          12b-2of the Exchange Act. Yes o  No x
  **APPLICABLE
          ONLY TO CORPORATE ISSUERS**
  As
          of
          November 19,  2007, there were 289,377,102 shares of Common Stock
          issued and outstanding.
  Transitional
          Small Business Disclosure Format: Yes o     No
x
 
  i
 Table
              of Contents
 
  **TABLE
          OF CONTENTS**
 
   **PAGE****PART
                    I**
                **FINANCIAL
                    INFORMATION**ITEM
                    1.
                FINANCIAL
                    STATEMENTS (UNAUDITED)CONDENSED
                    CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30,
                    AND JUNE 30,  2007
                F-1CONDENSED
                    CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
                    THREE  MONTHS ENDED SEPTEMBER 30, 2007 AND
                    2006
                F-2CONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
                    THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
                F-3NOTES
                    TO CONDENSED CONSOLIDATED FINANCIAL
                    STATEMENTS
                F-4 to
                    F-15ITEM
                    2.
                MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS
                1ITEM
                    3
                QUANTITATIVE  AND
                    QUALITATIVE DISCLOSURES ABOUT
                    MARKET RISK
                12ITEM
                    4.
                CONTROLS
                    AND PROCEDURES
                12**PART
                    II**
                **OTHER
                    INFORMATION**ITEM
                    1.
                LEGAL
                    PROCEEDINGS
                13ITEM
                    2.
                UNREGISTERED
                    SALES OF EQUITY SECURITIES AND USE OF
                    PROCEEDS
                13ITEM
                    3.
                DEFAULTS
                    UPON SENIOR SECURITIES
                13ITEM
                    4.
                SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY
                    HOLDERS
                13ITEM
                    5.
                OTHER
                    INFORMATION
                13ITEM
                    6.
                EXHIBITS
                13SIGNATURES
                14
   ii
 Table
            of Contents
  **FREESTARTECHNOLOGY
        CORPORATION**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Unaudited)**
 
 **ASSETS**
 **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Current
                  assets:Cash
                  and cash equivalents
              
              $
              478,012
              
              
              $
              466,408Accounts
                  receivable, net of allowance for doubtful accounts of $55,970 and
                  $54,903at
                  September 30 and June 30, 2007,  respectively (note
                  3)
              
              
              771,259
              
              
              
              977,502Other
                  current assets (note 4)
              
              
              125,243
              
              
              
              103,988Inventory
                  (note 5)
              
              
              860,594
              
              
              
              918,947Total
                  current assets
              
              
              2,235,108
              
              
              
              2,466,845Property,
                  plant and equipment, net of accumulated depreciation andamortization
                  of  $199,821 and $170,804, respectively  (note
                  6)
              
              
              200,962
              
              
              
              187,323Software
                  license, net of accumulated amortization of  $1,083,112 and
                  $1,027,457, respectively (note 7)
              
              
              1,178,044
              
              
              
              1,233,699Customer
                  relationships and contracts, net of accumulated amortization of
                  $925,973
                  and $848,493, respectively  (note 7)
              
              
              2,023,276
              
              
              
              2,100,756Software,
                  net of accumulated amortization of  $1,293,490 and $1,175,908,
                  respectively (note 7)
              
              
              2,777,380
              
              
              
              2,608,446Other
                  long-term assets (note 8)
              
              
              -
              
              
              
              19,966Total
                  assets
              
              $
              8,414,770
              
              
              $
              8,617,035**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses (note 9)
              
              $
              2,924,527
              
              
              $
              2,485,629Due
                  to related parties (note 10)
              
              
              332,523
              
              
              
              191,984Deferred
                  revenue
              
              
              104,722
              
              
              
              87,897Total
                  current liabilities
              
              
              3,361,772
              
              
              
              2,765,510Commitments
                  and contingenciesMinority
                  interest
              
              
              361,921
              
              
              
              184,008Stockholders'
                  Equity: (note 11)Convertible
                  preferred stock, series A, $0.001 par value,1,000,000
                  shares  authorized; 1,000,000 shares issued and
                  outstanding
              
              
              1,000
              
              
              
              1,000Convertible
                  preferred stock, series B, $0.001 par value,4,000,000
                  shares  authorized,  1,500,000 and 2,000,000 shares
                  issued and outstanding atSeptember
                  30 and June 30, 2007, respectively
              
              
              1,500
              
              
              
              2,000Additional
                  paid-in capital - preferred stock
              
              
              2,530,558
              
              
              
              2,890,058Common
                  stock, $0.001 par value, 500,000,000 shares authorized; 276,615,595
                  and
                  233,783,452shares
                  issued and outstanding at September 30 and June 30,
                  2007,  respectively  (note 11)
              
              
              276,615
              
              
              
              233,783Additional
                  paid-in capital - common stock
              
              
              84,324,882
              
              
              
              75,589,649Common
                  stock subscrptions receivable
              
              
              (2,100,000
              )
              
              
              (600,000
              )Common
                  stock subscribed
              
              
              -
              
              
              
              2,600,014Deferred
                  compensation (note 11)
              
              
              (428,708
              )
              
              
              (599,770
              )Unearned
                  compensation on restricted stock
              
              
              (84,802
              )
              
              
              (121,701
              )Accumulated
                  deficit
              
              
              (80,058,189
              )
              
              
              (74,418,911
              )Accumulated
                  other comprehensive gain
              
              
              228,221
              
              
              
              91,395Total
                  stockholders' equity
              
              
              4,691,077
              
              
              
              5,667,517Total
                  liabilities and stockholders' equity
              
              $
              8,414,770
              
              
              $
              8,617,035
 
 The
        accompany notes form an integral part of these unaudited consolidated condensed
        financial statements.
  
 F-1
 Table
            of Contents
 
 **FREESTAR
        TECHNOLOGYCORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 **Three**
              
              
              **Three****Months
                  Ended**
              
              
              **Months
                  Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**RevenueTransaction
                  processing
              
              $
              487,723
              
              
              $
              461,860Consulting
                  services
              
              
              605,977
              
              
              
              -Hardware
                  and related
              
              
              260,795
              
              
              
              -Total
                  revenue
              
              
              1,354,495
              
              
              
              461,860Cost
                  of revenueTransaction
                  processing
              
              
              634,267
              
              
              
              533,978Consulting
                  services
              
              
              389,260
              
              
              
              -Hardware
                  and related
              
              
              257,343
              
              
              
              -Total
                  cost of sals
              
              
              1,280,870
              
              
              
              533,978Gross
                  profit (loss)
              
              
              73,625
              
              
              
              (72,118
              )Selling,
                  general and administrative expenses
              
              
              5,431,549
              
              
              
              2,398,115Loss
                  from operations
              
              
              (5,357,924
              )
              
              
              (2,470,233
              )Other
                  income (expenses):Additional
                  cost of acquisition (note 7)
              
              
              (192,555
              )
              
              
              -Legal
                  settlement cost
              
              
              -
              
              
              
              -Gain
                  on disposal of assets
              
              
              -
              
              
              
              -Interest
                  income/(expense)
              
              
              (19,213
              )
              
              
              12Loss
                  before income taxes and minority interest in subsidiaries
              
              
              (5,569,692
              )
              
              
              (2,470,221
              )Income
                  taxes
              
              
              -
              
              
              
              -Minority
                  interest in net income of subsidiaries
              
              
              69,586
              
              
              
              -Net
                  Loss
              
              
              (5,639,278
              )
              
              
              (2,470,221
              )Other
                  - Comprehensive income (loss):  Gain (Loss) on foreign
                  exchange
              
              
              136,826
              
              
              
              11,480Comprehensive
                  loss
              
              $
              (5,502,452
              )
              
              $
              (2,458,741
              )Loss
                  per share - basic and diluted
              
              
              (0.02
              )
              
              
              (0.01
              )Weighted
                  average shares outstanding - basic
              
              
              245,442,924
              
              
              
              184,296,884Weighted
                  average shares outstanding - diluted
              
              
              253,175,265
              
              
              
              208,797,616
 
 The
        accompany notes form an integral part of these unaudited consolidated condensed
        financial statements.
   F-2
 Table
            of Contents
 
 **FREESTAR
        TECHNOLOGYCORPORATION**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
  **Three**
              
              
              **Three****Months
                  Ended**
              
              
              **Months
                  Ended****September
                  30,**
              
              
              **September
                  30,****2007**
              
              
              **2006**Cash
                  flows used for operating activities:Net
                  loss
              
              $
              (5,639,278
              )
              
              $
              (2,470,221
              )Minority
                  interest in income loss of subsidiary
              
              
              69,586
              
              
              
              -Adjustments
                  to reconcile net loss to net cashprovided
                  by (used for) operating activities:Depreciation
                  and amortization
              
              
              228,368
              
              
              
              192,812Common
                  stock issued in legal settlement
              
              
              
              
              
              
              -Non-cash
                  compensation
              
              
              3,326,012
              
              
              
              1,081,476Changes
                  in assets and liabilities:(Increase)
                  decrease in assetsAccounts
                  receivable
              
              
              155,152
              
              
              
              126,482Inventory
              
              
              58,353
              
              
              
              (18,021
              )Other
                  current assets
              
              
              (3,651
              )
              
              
              (273,405
              )Increase
                  (decrease) in liabilitiesAccounts
                  payable and accrued expenses
              
              
              438,895
              
              
              
              (157,571
              )Deferred
                  revenue
              
              
              16,825
              
              
              
              -Due
                  to shareholders
              
              
              
              
              
              
              19,070Accrual
                  of salary to officers
              
              
              140,539
              
              
              
              78,150Total
                  adjustments
              
              
              4,430,079
              
              
              
              1,048,993Net
                  cash used by operating activities
              
              
              (1,209,199
              )
              
              
              (1,421,228
              )Cash
                  flows provided by (used for) investing activities:Purchase
                  of fixed assets
              
              
              (27,409
              )
              
              
              (50,305
              )Purchase
                  of software and capitalized software cost
              
              
              (88,141
              )
              
              
              (129,887
              )Net
                  cash used by investing activities
              
              
              (115,550
              )
              
              
              (180,192
              )Cash
                  flows provided by (used for) financing activities:Proceeds
                  from sale of common stock
              
              
              500,000
              
              
              
              1,600,000Proceeds
                  from exercise of stock options/warrants
              
              
              700,000
              
              
              
              52,500Cash
                  contributed by officer of subsidiary
              
              
              108,327
              
              
              
              -Net
                  cash provided by financing activities
              
              
              1,308,327
              
              
              
              1,652,500Net
                  increase (decrease) in cash and cash equivalents
              
              
              (16,422
              )
              
              
              51,080Foreign
                  currency translation adjustments
              
              
              28,026
              
              
              
              17,554Cash
                  and cash equivalents, beginning of period
              
              
              466,408
              
              
              
              2,972,135Cash
                  and cash equivalents, end of period
              
              $
              478,012
              
              
              $
              3,040,769Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              -
              
              
              $
              -Income
                  tax paid
              
              $
              -
              
              
              $
              -Shares
                  of restricted common stock issued for services
              
              $
              2,103,375
              
              
              $
              209,000Shares
                  of common stock issued to employees for services
              
              $
              163,750
              
              
              $
              -Adjustment
                  of unearned restricted common stock for the period
              
              $
              36,899
              
              
              $
              -Adjustment
                  of deferred compensation for the period
              
              $
              171,062
              
              
              $
              744,787Shares
                  of common stock issued for subscriptions receivable
              
              $
              1,500,000
              
              
              $
              -Fair
                  value of options issued to consultants and employees
              
              $
              850,926
              
              
              $
              127,689Shares
                  of common stock issued for prepaid rent
              
              $
              -
              
              
              $
              75,600Shares
                  of common stock issued for subscriptions payable
              
              $
              -
              
              
              $
              352,500Stock
                  options exercised, cash not received
              
              $
              -
              
              
              $
              75,000Conversion
                  of preferred stock to common stock
              
              $
              360,000
              
              
              $
              -
 
 The
        accompany notes form an integral part of these unaudited consolidated condensed
        financial statements.
 
 F-3
 Table
            of Contents




**FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
        BASIS
        OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
 
 Basis
        Of Presentation
 
 The
        accompanying unaudited condensed consolidated financial statements of FreeStar
        Technology Corporation, a Nevada corporation ("Company"), have been prepared
        in
        accordance with the instructions to Form 10-Q and do not include all of the
        information and footnotes required by accounting principles generally accepted
        in the United States of America for complete consolidated financial statements.
        These condensed consolidated financial statements and related notes should
        be
        read in conjunction with the Company's Form 10-KSB for the fiscal year ended
        June 30, 2007. In the opinion of management, these unaudited condensed
        consolidated financial statements reflect all adjustments that are of a normal
        recurring nature and which are necessary to present fairly the financial
        position of the Company as of September 30, 2007, and the results of operations
        and cash flows for the three months ended September 30, 2007 and 2006. The
        results of operations for the three months ended September 30, 2007 are not
        necessarily indicative of the results that may be expected for the entire
        fiscal
        year.
 
 Nature
        Of Business Operations
 
 The
        Company (formerly Freestar Technologies) was formed on November 17, 1999
        as a
        Nevada corporation. The Company is a provider of payment services and
        processing. Its principal offices are in Dublin, Ireland; the Company also
        has
        offices in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and
        Santo
        Domingo, the Dominican Republic.
 
 The  Company  derives  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 unaudited condensed 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 $5,639,278
        for
        the three months ended September 30, 2007 and $16,305,197 for the year ended
        June 30, 2007, and had an accumulated deficit of $80,058,189 as of September
        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.
   F-4
 Table
            of Contents
 **FREESTARTECHNOLOGY
          CORPORATON**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 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.
 
 The
        Company’s subsidiary Rahaxi charges certain customers for one-time initiation
        fees and annual maintenance fees.    These fees are charged
        to deferred revenue when billed, and  revenue from these fees is
        recognized straight-line over the billing coverage period, typically twelve
        months.
  Stock
        Based Compensation
 
 Effective
        January 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based
        Payment” (SFAS 123R) utilizing the modified prospective approach. Prior to the
        adoption of SFAS 123R we accounted for stock option grants in accordance
        with
        APB Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic
        value method), and accordingly, recognized compensation expense for stock
        option
        grants.
 
 Aggregate
        intrinsic value of options outstanding and options exercisable at September
        30,
        2007 was $5,000 and $2,708, respectively. 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 September 30, 2007, and the exercise
        price multiplied by the number of options outstanding.  As of September 30,
        2007, total unrecognized stock-based compensation expense related to non-vested
        stock options was $28,229. The total fair value of options vested was $33,875
        and $0 for the three-month periods ended September 30, 2007 and 2006,
        respectively.
   F-5
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Capitalized
        Software Development Costs
 
 In
        accordance with Statement of Financial Accounting Standards ("SFAS") No.
        86,
        "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
        Marketed," the Company capitalizes certain costs related to the development
        of
        new software products or the enhancement of existing software products for
        use
        in our transaction processing software. These costs are capitalized from
        the
        point in time that technological feasibility has been established, as evidenced
        by a working model or detailed working program design to the point in time
        that
        the product is available for general release to customers. Capitalized
        development costs are amortized on a straight-line basis over the estimated
        economic lives of the products, beginning when the product is placed into
        service. Research and development costs incurred prior to establishing
        technological feasibility and costs incurred subsequent to general product
        release to customers are charged to expense as incurred. The Company
        periodically evaluates whether events or circumstances have occurred that
        indicate that the remaining useful lives of the capitalized software development
        costs should be revised or that the remaining balance of such assets may
        not be
        recoverable.
 
 The
        Company often has under development several discreet design features or
        enhancements, each of which may be completed and released to customers at
        different times. During the three months ended September 30, 2007, the Company
        placed into service and began amortizing $0 of software. The total net book
        value of software in service at September 30, 2007 is approximately $830,539.
        During the three months ended September 30, 2007, the Company has capitalized
        software totaling $88,141. The total net book value of software under
        development at September 30, 2007 is approximately $1,946,841.  At
        September 30, 2007, total software capitalized at under SFAS No. 86 is
        approximately $4,070,870 net of accumulated amortization of
        $1,293,490.
  Inventories
 
 Inventory
        is stated at the lower of cost or market determined by the first-in, first-out
        method. Inventories consist primarily of equipment held for resale.
 
 2.
        ACQUISITION OF PROJECT LIFE CYCLE PARTNERS, LTD.
 
 Effective
        November 21, 2006, the Company has acquired 50% of the outstanding capital
        stock
        of Project Life Cycle Partners, Ltd. (“PLC Partners”), a technology consulting
        firm located in Dublin, Ireland.  PLC Partners is a niche project
        consulting firm specializing in the management and implementation of information
        systems projects.  PLC Partners has international experience within the
        financial services sector.
  The
        50%
        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
        50%
        acquisition of  PLC Partners 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-6
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  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
        financial information in the unaudited table set forth below summarizes the
        combined results of operations of PLC and Freestar, on a pro forma basis,
        as
        though the companies had been combined at the beginning of fiscal year 2007
        or
        July 1, 2006.
 
 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.
 
 The
        table
        below summarized the pro form financial information for the three months
        ended
        September 30, 2006 and the actual results for the three months ended September
        30, 2007:
  **Three
                  months Ended**
                **September
                  30,****Actual**
                **2007**
              
              
              **Proforma**
                **2006**Revenue:Freestar
              
              $
              748,518
              
              
              $
              461,860PLC
              
              
              605,977
              
              
              
              370,922Combined
              
              
              1,354,495
              
              
              
              832,782Net
                    (loss)
              
              $
              (5,377,137
              )
              
              $
              (2,359,981
              )Basic
                    and diluted (loss) per share
              
              $
              (0.02
              )
              
              $
              (0.01
              )
  Pursuant
        to the terms of the 50% acquisition of  PLC, the Company is obligated to
        issue to the PLC shareholders  additional shares of Freestar common stock
        representing the difference between $800,000 and the value of the FreeStar
        Shares, calculated based on the one-year closing price. The number of shares
        issuable pursuant to this calculation is capped at
        1,111,111.   The one year closing price will be calculated as of
        November 21, 2007.  As of November 12, 2007, the Company would owe to
        the PLC shareholders an additional 1,111,111 shares of common stock with
        a fair
        value of  $192,555.  The Company has accrued this amount to
        operations during the three months ended September 30, 2007.
  F-7
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  3.
        ACCOUNTS RECEIVABLE
 
 Accounts
        receivable consists of the following:
 
 **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Amounts
                  receivable from customers
              
              $
              827,229
              
              
              $
              1,032,405Less:
                  Reserve for doubtful accounts
              
              
              55,970
              
              
              
              54,903Accounts
                  receivable, net
              
              $
              771,259
              
              
              $
              977,502
  4.  OTHER
        CURRENT ASSETS
 
 Other
        current assets consists of the following:
  **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Prepaid
                  expenses
              
              $
              44,051
              
              
              $
              79,433Advances
                  to employees
              
              
              20,760
              
              
              
              12,830Deposits
              
              
              60,432
              
              
              
              11,725$
              125,243
              
              
              $
              103,988
 
 5.
        INVENTORY
 
 Inventory
        consists of the Company's Point of Sale Terminals which have been purchased
        from
        third party manufacturers. Components of inventories are as
        follows:
 
 **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Finished
                  goods
              
              $
              860,594
              
              
              $
              918,947Total
              
              $
              860,594
              
              
              $
              918,947
  6.
        PROPERTY AND EQUIPMENT
 
 A
        summary
        of property and equipment is as follows:
 
 **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Computer
                  equipment
              
              $
              190,506
              
              
              $
              171,372Furniture
                  and office equipment
              
              
              210,277
              
              
              
              186,755400,783
              
              
              
              358,127Less:
                  accumulated depreciation
              
              
              (199,821
              )
              
              
              (170,804
              )Property
                  and equipment, net
              
              $
              200,962
              
              
              $
              187,323
  F-8
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  Total
        depreciation and amortization expense for property and equipment amounted
        to
        $23,464 and $12,229 for the three months ended September 30, 2007 and 2006,
        respectively.
 
 7.
        ACQUISITION OF INTANGIBLE ASSETS
 
 The
        costs
        to acquire intangible assets have been allocated to the assets acquired
        according to the estimated fair values. The Company has adopted SFAS No.
        142,
        Goodwill and Other Intangible Assets, whereby the Company periodically tests
        its
        intangible assets for impairment. On an annual basis, and when there is reason
        to suspect that their values have been diminished or impaired, these assets
        are
        tested for impairment, and write-downs will be included in results from
        operations.
 
 The
        identifiable intangible assets acquired and their carrying values at September
        30, 2007 are:
 
 **Gross
                  Carrying Amount**
              
              
              **Accumulated
                  Amortization**
              
              
              **Net**
              
              
              **Residual
                  Value**
              
              
              **Average
                  Amortization Years**Amortizable
                    Intangible Assets:Software
                    and related development costs
              
              $
              4,070,870
              
              
              $
              1,293,490
              
              
              $
              2,777,380
              
              
              $
              -
              
              
              
              4.4Customer
                    Relationships and Contracts
              
              $
              2,949,249
              
              
              $
              925,973
              
              
              $
              2,023,276
              
              
              $
              -
              
              
              
              9.8Software
                    Licenses
              
              $
              2,261,156
              
              
              $
              1,083,112
              
              
              $
              1,178,044
              
              
              $
              -
              
              
              
              9.8
  The
        identifiable intangible assets acquired and their carrying values at June
        30,
        2007 are:
 
 **Gross
                  Carrying Amount**
              
              
              **Accumulated
                  Amortization**
              
              
              **Net**
              
              
              **Residual
                  Value**
              
              
              **Average
                  Amortization Years**Amortizable
                    Intangible 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 three months ended September
          30, 2007 and 2006 was $204,904 and $180,583, respectively.
 
 8.  OTHER
          LONG TERM ASSETS
 
 Other
          long-term assets at June 30, 2007 consists of prepaid rent of
          $19,966.
 
 F-9
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  9.
        ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 Accounts
        payable and accrued liabilities at September 30 and June 30, 2007 are as
        follows:
 
 **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Accounts
                  payable and accrued expenses
              
              $
              2,539,370
              
              
              $
              2,312,644Accrued
                  payroll and related expenses
              
              
              192,602
              
              
              
              172,985Accrued
                  acquisition costs
              
              
              192,555
              
              
              
              -$
              2,924,527
              
              
              $
              2,485,629
  10.  DUE
        TO RELATED PARTIES
 
 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.  The CEO and CFO also each
        receive a car allowance in the amount of $2,140 per month.  These car
        allowances have not yet been paid.
 
 The
        Company owed the following to these executives  for accrued salaries,
        advances,  accrued interest, and car allowance:
  **September
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2007**Accrued
                  salaries
              
              $
              225,904
              
              
              $
              131,550Advances
              
              
              87,346
              
              
              
              56,126Accrued
                  Interest
              
              
              2,155
              
              
              
              264Accrued
                  car allowance
              
              
              17,118
              
              
              
              4,044$
              332,523
              
              
              $
              191,984
  11.
        EQUITY
 
 Minority
        Interest
 
 Minority
        interest consists of the minority owned portion of the Company’s 50% owned
        subsidiary PLC Partners.
 
 Private
        Placement of Common Stock
 
 On
        January 27, 2006, the Company signed subscription agreements with a group
        of
        offshore investors for the sale of an aggregate of $9.2 million in Company
        common stock, plus warrants (the "January Financing"). Due to the failure
        of the
        investment group to timely fund in full the first payment required for the
        purchase of shares and warrants, the Company terminated the January Financing;
        all shares and warrants issued thereunder were returned by the escrow holder
        to
        the Company for cancellation, and any funds received pursuant to the January
        Financing were returned by the escrow holder to the investors.
  F-10
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  In
        March
        2006, a group of European investors , lead by Olympia Holding AS, informed
        the
        Company that they were willing to invest on the same terms and conditions
        that
        were negotiated for the now-terminated January Financing, and the Company
        agreed
        to this financing transaction with these investors (the "March
        Financing").
  Pursuant
        to the March Financing, the Company agreed to issue 46 million shares of
        restricted common stock under Regulation S at $0.20 per share, plus warrants
        to
        purchase 50 million shares of common stock with two-year exercise periods
        and
        strike prices ranging from $1.50 to $8.50, as set forth below. The shares
        were  held in escrow by Carl Hessel, a director and major stockholder
        of the Company based in Geneva, Switzerland, along with the warrants. Pursuant
        to the terms of the March Financing, the first payment of $4.6 million was
        due
        immediately, with a second payment of $4.6 million due within three months
        thereafter.
 
 As
        of
        June  30, 2007, the Company had received cash in the 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.  The
        Company also issued to consultants 7,600,000 shares of unregistered common
        stock
        with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
        common stock at a price of $1.00 per share with a fair value of $2,212,684;
        and
        warrants to purchase an additional 1,000,000 shares of common stock at a
        price
        of $1.50 with a fair value of $148,086 as commission to consultants related
        to
        the March Financing. The Company charged the aggregate amount of $5,272,770
        to
        operations during the twelve months ended June 30, 2006 with regard to the
        issuance of these shares and warrants.
 
 During
        three months ended September 30, 2007, the Company received an additional
        $500,000 pursuant to the March Financing, and the Company issued a total
        of
        23,000,000 shares of common stock and warrants to purchase an additional
        25,000,000 shares.  At September 30, 2007, there remains a total of
        $1,500,000 due on the 23,000,000 shares which were issued during the quarter.
        This amount is recorded as Subscriptions Receivable on the Company’s balance
        sheet at September 30, 2007.
 
 The
        warrants 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
                  September 30, 2007**$
              1.50
              
              
              
              14,000,000
              
              
              
              13,954,348$
              2.50
              
              
              
              11,000,000
              
              
              
              10,964,130$
              4.50
              
              
              
              7,000,000
              
              
              
              6,977,174$
              5.50
              
              
              
              7,000,000
              
              
              
              6,977,174$
              6.50
              
              
              
              7,000,000
              
              
              
              6,977,174$
              8.50
              
              
              
              4,000,000
              
              
              
              3,986,95750,000,000
              
              
              
              49,836,957
 
 All
        warrants have a two-year exercise period from the date of issuance of the
        warrants. No registration rights were granted to the Investors in connection
        with the March Financing and the shares and warrants issued in the March
        Financing will be restricted securities, subject to the applicable restrictions
        set forth in Regulation S promulgated under the Securities Act of 1933, as
        amended.
  Sales
        Of Securities
  During
        the three months ended September 30, 2007, the Company issued the following
        shares of common stock:
 
 The
        Company issued 11,225,000 shares of common stock with a fair value of $2,103,375
        to consultants for services.
 
 The
        Company issued 750,000 shares of common stock with a fair value of $163,750
        to
        employees for services.
 
 F-11
 Table
            of Contents
 **FREESTARTECHNOLOGY
        CORPORATON**
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  The
        Company issued 7,000,000 shares of common stock pursuant to the exercise
        of an
        option by a consultant for $700,000 cash.
 
 The
        Company issued 857,143 shares of common stock pursuant to the conversion
        of
        500,000 shares of Series B preferred stock by a director.
 
 The
        Company issued 13,000,000 shares of common stock in a financing transaction
        for
        cash of $2,600,000 which was received in prior periods.
 
 The
        Company issued 2,500,000 shares of common stock in a financing transaction
        for
        cash of $500,000 received during the three months ended September 30,
        2007.
 
 The
        Company issued 7,500,000 shares of common stock in a financing transaction
        for
        subscriptions receivable in the amount of $1,500,000.
 
 The
        Company adjusted the number of shares issuable to an officer for preferred
        stock
        converted to common stock in a prior period.  The number of shares
        issuable was reduced from 14,286 to 0, and this transaction was deemed
        complete.
 
 12.  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):
  **Range
                  of exercise prices**
              
              
              **Number
                  of shares outstanding**
              
              
              **Weighted
                  average remaining contractual life (years)**
              
              
              **Weighted
                  average exercise price of outstanding options**
              
              
              **Number
                  of shares exercisable**
              
              
              **Weighted
                  average exercise price of options**$
              0.15
              
              
              
              166,666
              
              
              
              8.0
              
              
              $
              0.15
              
              
              
              166,666
              
              
              $
              0.150.20
              
              
              
              1,350,000
              
              
              
              9.1
              
              
              
              0.20
              
              
              
              1,350,000
              
              
              
              0.200.49
              
              
              
              756,303
              
              
              
              5.4
              
              
              
              0.49
              
              
              
              756,303
              
              
              
              0.490.70
              
              
              
              756,303
              
              
              
              5.4
              
              
              
              0.70
              
              
              
              756,303
              
              
              
              0.703,029,272
              
              
              
              7.2
              
              
              $
              0.39
              
              
              
              3,029,272
              
              
              $
              0.39
  F-12
 Table
            of Contents
 **FREESTARTECHNOLOGY
          CORPORATON**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Transactions
        involving stock options issued to non-employees are summarized as
        follows:
 
 **Number
                  of Shares**
              
              
              **Weighted
                  AverageExercise Price**Options
                    exercisable at June 30, 2007
              
              
              3,029,272
              
              
              $
              0.39Granted
              
              
              7,000,000
              
              
              
              0.10Exercised
              
              
              (7,000,000
              )
              
              
              (0.10Cancelled
                    / Expired
              
              
              -
              
              
              
              -Options
                    exercisable at September 30, 2007
              
              
              3,029,272
              
              
              $
              0.39
 
 The
        non-employee stock-based compensation expense recognized in the unaudited
        condensed consolidated statements of operations for the three months ended
        September 30, 2007 and 2006 was $817,034 and $0, respectively.
 
 The
        weighted-average fair value of stock options granted to non-employees during
        the
        three months ended September 30, 2007 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**Risk-free
                  interest rate at grant date
              
              
              4.75
              %Expected
                    stock price volatility
              
              
              111
              %Expected
                    dividend payout
              
              
              0Expected
                    option life (in years)
              
              
              0.5
  Employee
        Stock Options
  The
        following table summarizes the changes to employee stock options outstanding
        and
        the related prices of the Company's common stock options issued to employees
        under a non-qualified stock option plan (amounts have been adjusted to reflect
        the reverse stock split and other adjustments):
 
 **Range
                  of exercise prices**
              
              
              **Number
                  of shares outstanding**
              
              
              **Weighted
                  average remaining contractual life (years)**
              
              
              **Weighted
                  average exercise price of outstanding options**
              
              
              **Number
                  of shares exercisable**
              
              
              **Weighted
                  average exercise price of exercisable options**$
              0.14
              
              
              
              500,000
              
              
              
              10.0
              
              
              $
              0.14
              
              
              
              395,833
              
              
              $
              0.140.15
              
              
              
              200,000
              
              
              
              8.6
              
              
              
              0.15
              
              
              
              200,000
              
              
              
              0.150.47
              
              
              
              375,000
              
              
              
              8.5
              
              
              
              0.47
              
              
              
              375,000
              
              
              
              0.471,075,000
              
              
              
              9.2
              
              
              $
              0.26
              
              
              
              970,833
              
              
              $
              0.27
  F-13
 Table
            of Contents
 Transactions
        involving stock options issued to employees are summarized as
        follows:
  **Number
                  of Shares**
              
              
              **Weighted
                  AverageExercise Price**Options
                    outstanding at June 30, 2007
              
              
              1,075,000
              
              
              $
              0.26Granted
              
              
              --
              
              
              
              --Exercised
              
              
              
              
              
              
              --Cancelled
                    / Expired
              
              
              --
              
              
              
              --Options
                    outstanding at September 30, 2007
              
              
              1,075,000
              
              
              $
              0.26Non-vested
                    at September 30, 2007
              
              
              104,167
              
              
              $
              0.14Exercisable
                    at September 30, 2007
              
              
              970,833
              
              
              $
              0.27
  The
          employee stock based compensation expense recognized in the unaudited condensed consolidated statements of operations
          for the nine
          months ended September 30, 2007 and 2006 was $33,892 and $-0-,
          respectively.
 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
                  options**$
              0.20
                  - 0.2143
              
              
              
              1,204,786
              
              
              
              0.1
              
              
              $
              0.2143
              
              
              
              1,204,786
              
              
              $
              0.20-.21430.75
              
              
              
              750,000
              
              
              
              0.6
              
              
              
              0.75
              
              
              
              750,000
              
              
              
              0.750.98-1.00
              
              
              
              13,392,857
              
              
              
              2.1
              
              
              
              0.98-1.00
              
              
              
              13,392,857
              
              
              
              0.98-1.001.50
              
              
              
              14,954,348
              
              
              
              1.0
              
              
              
              1.50
              
              
              
              14,954,348
              
              
              
              1.502.50
              
              
              
              10,964,130
              
              
              
              1.2
              
              
              
              2.50
              
              
              
              10,964,130
              
              
              
              2.504.50
              
              
              
              6,977,174
              
              
              
              1.2
              
              
              
              4.50
              
              
              
              6,977,174
              
              
              
              4.505.50
              
              
              
              6,977,174
              
              
              
              1.2
              
              
              
              5.50
              
              
              
              6,977,174
              
              
              
              5.506.50
              
              
              
              6,977,174
              
              
              
              1.2
              
              
              
              6.50
              
              
              
              6,977,174
              
              
              
              6.508.50
              
              
              
              3,986,957
              
              
              
              1.2
              
              
              
              8.50
              
              
              
              3,986,957
              
              
              
              8.50$
              3.22
              
              
              
              66,184,600
              
              
              
              1.1
              
              
              $
              3.22
              
              
              
              66,184,600
              
              
              $
              3.22
  Transactions
          involving warrants are summarized as follows:
  **Number
                    of Shares**
                
                **Weighted
                    Average**
                  **Exercise
                    Price**Warrants
                      exercisable at June 30, 2007
                
                41,184,600
                
                $
                2.77Granted
                
                25,000,000
                
                
                3.96Exercised
                
                -
                
                
                -Cancelled
                      / Expired
                
                -
                
                
                -Warrants
                      exercisable at September 30, 2007
                
                66,184,600
                
                $
                3.22
 F-14
 Table
            of Contents
 **FREESTARTECHNOLOGY
          CORPORATON**
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 13.
        SEGMENT INFORMATION
 
 The
        Company currently operates three business segments: (1) the sale of its hardware
        terminals and in the Dominican Republic (Dominicana); (2) transaction processing
        fees and hardware sales generated through its wholly owned subsidiary, Rahaxi
        Processing Oy; and (3) consulting services offered through its 50% owned
        subsidiary PLC Partners, LTD.  All intercompany transactions,
        including receivables and payables,  are eliminated in consolidation
        and from the segment amounts presented below.
  **Three
                  months ended September 30,****2007**
              
              
              **2006**Sales
                  to external customers:Corporate
              
              $
              -
              
              
              $
              -Dominicana
              
              
              67,844
              
              
              
              -Rahaxi
              
              
              680,674
              
              
              
              461,860PLC
              
              
              605,977
              
              
              
              -Total
                  sales to external customers:
              
              $
              1,354,495
              
              
              $
              461,860Depreciation
                  and amortization:Corporate
              
              $
              80,593
              
              
              $
              1,230Dominicana
              
              
              5,376
              
              
              
              4,607Rahaxi
              
              
              142,316
              
              
              
              186,975PLC
              
              
              83
              
              
              
              -Total
                  depreciation and amortization:
              
              $
              228,368
              
              
              $
              192,812General
                  and administrative expense:(not
                  including depreciation and amortization of $100,997 and
                  $65,876)Corporate
              
              $
              4,403,876
              
              
              $
              1,907,445Dominicana
              
              
              148,196
              
              
              
              81,925Rahaxi
              
              
              701,017
              
              
              
              342,869PLC
              
              
              77,463
              
              
              
              -Total
                  general and administrative expense
                (not
                  including depreciation and amortization)
              
              $
              5,330,552
              
              
              $
              2,332,239Capital
                  expenditures:Corporate
              
              $
              -
              
              
              $
              -Dominicana
              
              
              -
              
              
              
              -Rahaxi
              
              
              115,500
              
              
              
              182,530PLC
              
              
              -
              
              
              
              -Total
                  capital expenditures
              
              $
              115,500
              
              
              $
              182,530Operating
                  income (loss):Corporate
              
              $
              (4,484,522
              )
              
              $
              (1,908,675
              )Dominicana
              
              
              (133,215
              )
              
              
              (86,532
              )Rahaxi
              
              
              (879,359
              )
              
              
              (475,026
              )PLC
              
              
              139,172
              
              
              
              -Total
                  operating income (loss)
              
              $
              (5,357,924
              )
              
              $
              (2,470,233
              )Interest
                  Expense, Net:Corporate
              
              $
              658
              
              
              $
              -Dominicana
              
              
              507
              
              
              
              -Rahaxi
              
              
              18,048
              
              
              
              12PLC
              
              
              -Total
                  Interest Expense
              
              $
              19,213
              
              
              $
              12Segment
                  assets:Corporate
              
              $
              3,388,530
              
              
              $
              3,799,317Dominicana
              
              
              94,462
              
              
              
              185,039Rahaxi
              
              
              4,228,647
              
              
              
              4,701,004PLC
              
              
              703,131
              
              
              
              -Total
                  segment assets
              
              $
              8,414,770
              
              
              $
              8,685,360
 
 F-15
 Table
            of Contents
 14.
        RELATED PARTY TRANSACTIONS
 
 During
        the three months ended September 30, 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 non-employee stock options at $0.10 per
        share.  The Company received cash proceeds of $700,000 and recognized
        a non-employee stock-based compensation expense of $817,034 during the three
        months ended September 30, 2007.
 15.  SUBSEQUENT
          EVENTS
 
 Subsequent
          to September 30, 2007, the Company issued a total of 12,761,507 shares
          of common
          stock:
 
 A
          total
          of 6,600,000  shares of common stock were issued to consultants for
          services;
 A
          total
          of 6,161,507 shares of common stock were issued for the exercise of stock
          options by consultants.


ITEM2.
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS.
 
 The
        following discussion and analysis of the Company's financial condition and
        results of operations is based upon, and should be read in conjunction with,
        its
        unaudited condensed consolidated financial statements and related notes included
        elsewhere in this Form 10-Q.
 
 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.
 
 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.
 
 Management
        believes that our primary short-term growth opportunities will be derived
        from
        the European marketplace and a significant portion of our resources, both
        financial and personnel, will be directed towards developing those
        opportunities. We believe that our anticipated growth and ultimate profitability
        will depend in large part on the ability to promote our services, gain clients
        and expand our relationship with current clients. Accordingly, we intend
        to
        invest in marketing, strategic relationships, and development of our client
        base.
 
 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 fiscal year 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 50%
        stake
        in PLC, Project Life Cycle Partners Limited.
  1
 Table
            of Contents
  The
        Company's principal offices are in Dublin, Ireland. The Company also has
        offices
        in Helsinki, Finland; Stockholm, Sweden; Geneva, Switzerland; and Santo Domingo,
        the Dominican Republic. While the Company's offices in Finland, Sweden, and
        Switzerland will primarily focus on the European market, the Company's office
        in
        the Dominican Republic will continue to pursue opportunities in the Caribbean
        and Latin America. Management believes that these emerging markets could
        offer
        favorable opportunities in the longer term. The Company has achieved
        certification to become a third party services provider for China Union
        Pay.
 
 Results
        of Operations
 
 THREE
        MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER
        30,
        2006
 
 **Revenue**
 
 Transaction
        processing and related revenue
 
 Transaction
        processing and related revenue was $487,723 for the three months ended September
        30, 2007, compared to $461,860 during the prior year,  a decrease of
        $25,863 or approximately 5.3%. The Company process a total of 5,125,674
        transactions during the three months ended September 30, 2007, an increase
        of
        $207,721 or approximately 4.2% compared to  4,917,953 transactions
        processed during the prior year.  We expect this trend to continue
        throughout fiscal 2008 as we continue to expand our customer
        base.  The Company invoices its customers in Euro. The average
        exchange rate of the Euro to the U.S. Dollar for the three months ended
        September 30, 2007 has declined by approximately 7.6% compared to the three
        months ended September 30, 2006, and most of the decline in U.S. dollar sales
        can be attributed to this exchange rate difference.
 
 Consulting
        services revenue
 
 Consulting
        services revenue was $605,977 for the three months ended September 30, 2007,
        compared to $0 during the prior year. Consulting services revenue is primarily
        generated by the Company’s 50%
        stake
        inPLC.   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 $260,795 during the three months ended September
        30,
        2007, compared to $0 during the prior year. The Company began selling 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 were not recognized during the comparable
        period.
 
 For
        the
        reasons above, total revenue for the  three months ended September 30,
        2007 was $1,354,495 compared to $461,860 for the three months ended September
        30, 2006, an increase of $892,635 or approximately 193%.
 
 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 our sales efforts will
        be
        successful.
 
 All
        of
        our revenue for the three months ended September 30, 2007 has been derived
        from
        a limited number of its customers, primarily Finnish customers for its
        transaction processing products. Approximately 65% 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 September 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.
   2
 Table
            of Contents
  **Cost
        of Revenue**
 
 Cost
        of transaction processing and related revenue
 
 Cost
        of
        transaction processing and related revenue was $634,267 for the three months
        ended September 30, 2007, compared to $533,978 for the prior three months
        ended
        September 30, 2006, an increase of $100,289 or 19%. 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. Included in cost of transaction processing and related
        revenue is depreciation and amortization of $127,371 and $126,936 for the
        three
        months ended September 30, 2007 and 2006, respectively.
  Cost
        of consulting services
 
 Cost
        of
        consulting services revenue was $389,260 for the three months ended September
        30, 2007, compared to $0 for the  three months ended September 30,
        2006.  Consulting services revenue is primarily generated by our 50%
        owned 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 $257,343 during the three months ended
        September 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 $1,280,870 for the three months
        ended
        September 30, 2007, compared to $533,978 for the three months ended September
        30, 2006, an increase of $746,892 or approximately 140%.
 
 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 $5,431,549 for the three months
        ended
        September 30, 2007 compared to $2,398,115 for the three months ended September
        30, 2006, an increase of $3,033,434 or approximately 126%. The primary
        components of selling, general, and administrative expenses for the three
        months
        ended September 30, 2007 were: consulting fees of $3,556,694 to service
        providers for financial consulting and other professional services;
        $3,326,012 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 $1,162,377;  facilities expense (rent, telephone, utilities, and
        maintenance) of $222,145; legal and accounting fees of $212,562; travel and
        entertainment costs of $103,208; depreciation and amortization of $100,997;
        other professional services of $66,704; and $18,000 for investor
        relations.
  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.
  3
 Table
            of Contents
  **Cost
        of Acquisition**
 
 Pursuant
        to the acquisition agreement for the Company’s 50% owned subsidiary PLC
        Partners, the Company is obligated to issue additional shares of the Company’s
        common stock should the average closing price be under $0.36 for the thirty
        day
        period preceding the one-year anniversary of the transaction, or November
        21,
        2007.  The number of shares issuable pursuant to this clause is capped
        at 1,111,111. The Company calculated this additional payment amount effective
        November 12, 2007, and determined that at that date the maximum number of
        additional shares, or 1,111,111, would be issuable. The Company accrued the
        value of these shares, or $192,555, to operations during the three months
        ended
        September 30, 2007.  There was no comparable expense during the prior
        year.
 
 **Interest Expense**
 
 Interest
        income (expense) net was ($19,213) for the three months ended September 30,
        2007, compared to $12  for the three months ended September 30, 2006, a
        decrease of ($19,225) or approximately 160,208%. 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.
 
 **Net
        Loss**
 
 For
        the
        reasons stated above, we recorded a net loss of $5,639,278 for the three
        months
        ended September 30, 2007 compared to $2,470,221 for the three months ended
        September 30, 2006, an  increase of $3,169,057 or
        approximately 128%.
 
 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.
 
 Operating
        Activities
 
 The
        net
        cash used in operating activities was $1,209,199 for the three months ended
        September 30, 2007 compared to $1,421,228 for the three months ended September
        30, 2006, a decrease of $212,029 or approximately 15%.  The primary
        components of cash used in operating activities during the current period
        are
        the net loss of ($5,639,278), partially offset by the non-cash charges of
        non-cash compensation of $3,326,012; and depreciation and amortization of
        $228,368.
 
 Investing
        Activities
 
 Net
        cash
        used in investing activities was $115,550 during the three months ended
        September 30, 2007 compared to $180,192 for the three months ended September
        30,
        2006, a decrease of $64,642 or approximately 36%. This change was primarily
        due
        to our decreased investing in software enhancement to our transaction processing
        system, and the acquisition of 50% of  PLC Partners, LLC.
 
 Financing
        Activities
 
 Net
        cash
        provided by financing activities was $1,308,327 for the three months ended
        September 30, 2007, compared to $1,652,500 for the three months ended September
        30, 2006, a decrease of $344,173 or approximately 21%.  The reason for
        the decrease was a decrease in cash sales of common stock from $1,600,000
        in the
        prior year to $500,000 during the current year.
   4
 Table
            of Contents
  Liquidity
        and Capital Resources
  As
        of
        September 30, 2007, we had total current assets of $2,235,108 and total current
        liabilities of $3,361,772, resulting in a working capital deficiency of
        ($1,126,664). We had cash and cash equivalents of $478,012 at September 30,
        2007, and an accumulated deficit of $80,058,189.
 
 On
        January 27, 2006, the Company signed subscription agreements with a group
        of
        offshore investors for the sale of an aggregate of $9.2 million in Company
        common stock, plus warrants (the "January Financing"). Due to the failure
        of the
        investment group to timely fund in full the first payment required for the
        purchase of shares and warrants, the Company terminated the January Financing;
        all shares and warrants issued thereunder were returned by the escrow holder
        to
        the Company for cancellation, and any funds received pursuant to the January
        Financing were returned by the escrow holder to the investors.
 
 In
        March
        2006, a group of European investors, lead by Olympia Holding AS, informed
        the
        Company that they were willing to invest on the same terms and conditions
        that
        were negotiated for the now-terminated January Financing, and the Company
        agreed
        to this financing transaction with these investors (the "March
        Financing").
  Pursuant
        to the March Financing, the Company agreed to issue 46 million shares of
        restricted common stock under Regulation S at $0.20 per share, plus warrants
        to
        purchase 50 million shares of common stock with two-year exercise periods
        and
        strike prices ranging from $1.50 to $8.50, as set forth below. The shares
        were  held in escrow by Carl Hessel, a director and major stockholder
        of the Company based in Geneva, Switzerland, along with the warrants. Pursuant
        to the terms of the March Financing, the first payment of $4.6 million was
        due
        immediately, with a second payment of $4.6 million due within three months
        thereafter.
 
 As
        of
        June  30, 2007, the Company had received cash in the 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.  The
        Company also issued to consultants 7,600,000 shares of unregistered common
        stock
        with a fair value of $2,912,000; warrants to purchase 12,000,000 shares of
        common stock at a price of $1.00 per share with a fair value of $2,212,684;
        and
        warrants to purchase an additional 1,000,000 shares of common stock at a
        price
        of $1.50 with a fair value of $148,086 as commission to consultants related
        to
        the March Financing. The Company charged the aggregate amount of $5,272,770
        to
        operations during the twelve months ended June 30, 2006 with regard to the
        issuance of these shares and warrants.
 
 During
        three months ended September 30, 2007, the Company received an additional
        $500,000 pursuant to the March Financing, and the Company issued a total
        of
        23,000,000 shares of common stock and warrants to purchase an additional
        25,000,000 shares.  At September 30, 2007, there remains a total of
        $1,500,000 due on the 23,000,000 shares which were issued during the quarter.
        This amount is recorded as Subscriptions Receivable on the Company’s balance
        sheet at September 30, 2007.
 
 The
        independent auditor's report on the Company's June 30, 2007 financial statements
        included in our Annual Report states that the Company's recurring losses
        raise
        substantial doubts about the Company's ability to continue as a going
        concern. The accompanying financial statements have been prepared assuming
        that the Company continues as a going concern that contemplates the realization
        of assets and the satisfaction of liabilities in the normal course of business.
        However, the ability of the Company to continue as a going concern on a
        longer-term basis will be dependent upon its ability to generate sufficient
        cash
        flow from operations to meet its obligations on a timely basis, to obtain
        additional financing, and ultimately, attain profitability.
 
 Management
        plans to continue raising additional capital through a variety of fund raising
        methods during fiscal 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 the Company
        has been successful in the past in raising capital, no assurance can be given
        that these sources of financing will continue to be available to us and/or
        that
        demand for our equity/debt instruments will be sufficient to meet our capital
        needs, or that financing will be available on terms favorable to the Company.
        The financial statements do not include any adjustments relating to the
        recoverability and classification of liabilities that might be necessary
        should
        the Company be unable to continue as a going concern. If funding is insufficient
        at any time in the future, the Company may not be able to take advantage
        of
        business opportunities or respond to competitive pressures, or may be required
        to reduce the scope of its planned product development and marketing efforts,
        any of which could have a negative impact on its business and operating results.
        In addition, insufficient funding may have a material adverse effect on the
        Company's financial condition, which could require the Company to:
 
 ·     curtail
        operations significantly;
 ·     sell
        significant assets;
 ·seek
          arrangements with strategic partners or other parties that may require
          us to
          relinquish significant rights to products, technologies or markets;
          or
 · explore
            other
            strategic alternatives including a merger or
            sale;
  5
 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 September 30, 2007, $125,579 and $100,325 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 September 30, 2007, the Company owned
        the amount of $68,078 to Paul  Egan for advances, plus $1,085 of
        accrued interest.
 
 Ciaran
        Egan has also advanced the funds to the Company. These advances accrue interest
        at the rate of 7% per annum.  At September 30, 2007, the Company owned
        the amount of $19,268 to Ciaran  Egan for advances, plus $1,070 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 three
        months ended September 30, 2007. At September 30, 2007, the Company has accrued
        the amount of $8,559 to Paul Egan and $8,559 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 $136,826
        for
        the three months ended September 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.
  6
 Table
            of Contents
  Contractual
        Obligations and Commercial Commitments
 
 The
        following table of contractual obligations sets forth the contractual
        obligations of the Company as of September 30, 2007:
  **Less
                    than**
                
                
                ******1
                    - 3**
                
                
                ******3-
                    5**
                
                
                **More
                    than****Contractual
                    obligation**
                
                **Total**
                
                
                **1
                    year**
                
                
                **years**
                
                
                **years**
                
                
                **5
                    years**Operating
                    lease obligations
                
                $
                1,175,904
                
                
                $
                315,362
                
                
                $
                811,351
                
                
                $
                49,191
                
                
                
                -
 
 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.
 
 
 (a)
        USE
        OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
 The
        preparation of these financial statements requires the Company to make estimates
        and judgments that affect the reported amounts of assets, liabilities, revenues
        and expenses, and related disclosure of contingent assets and liabilities.
        On an
        on-going basis, the Company evaluates these estimates, including those related
        to revenue recognition and concentration of credit risk. The Company bases
        its
        estimates on historical experience and on various other assumptions that
        is
        believed to be reasonable under the circumstances, the results of which form
        the
        basis for making judgments about the carrying values of assets and liabilities
        that are not readily apparent from other sources. Actual results may differ
        from
        these estimates under different assumptions or conditions.
  (b)
        STOCK-BASED COMPENSATION ARRANGEMENTS
 
 The
        Company intends to issue shares of common stock to various individuals and
        entities for management, legal, consulting and marketing services. These
        issuances will be valued at the fair market value of the service provided
        and
        the number of shares issued is determined, based upon the open market closing
        price of common stock as of the date of each respective transaction. These
        transactions will be reflected as a component of selling, general and
        administrative expenses in the accompanying statement of
        operations.
 
 (c)
        REVENUE RECOGNITION
 
 The
        Company recognizes revenues from contracts in which the Company provides
        only
        consulting services as the services are performed. The contractual terms
        of the
        agreements dictate the recognition of revenue by the Company. 
 Payments received in advance are deferred until the service is
        provided.
 
 Contract
        costs include all direct equipment, material, and labor costs and those indirect
        costs related to contract performance, such as indirect labor. Selling, general
        and administrative costs are charged to expense as incurred. Provisions for
        estimated losses on uncompleted contracts are made in the period in which
        such
        losses are determined. Changes in contract performance, contract conditions,
        and
        estimated profitability that may result in revisions to costs and income
        are
        recognized in the period in which the revisions are determined.
   7
 Table
            of Contents
  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.
  (d)
        LONG-LIVED ASSETS
 
 Long-lived
        assets to be held and used are analyzed for impairment whenever events or
        changes in circumstances indicate that the carrying amount of an asset may
        not
        be recoverable. The Company evaluates at each balance sheet date whether
        events
        and circumstances have occurred that indicate possible impairment. If there
        are
        indications of impairment, the Company uses future undiscounted cash flows
        of
        the related asset or asset grouping over the remaining life in measuring
        whether
        the assets are recoverable. In the event such cash flows are not expected
        to be
        sufficient to recover the recorded asset values, the assets are written down
        to
        their estimated fair value. Long-lived assets to be disposed of are reported
        at
        the lower of carrying amount or fair value of asset less the cost to
        sell.
 
 FORWARD
        LOOKING STATEMENTS
 
 This
        Form
        10-Q contains "forward looking statements" within the meaning of Rule 175
        of the
        Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Exchange
        Act
        of 1934, as amended. When used in this Form 10-Q, the words "expects,"
        "anticipates," "believes," "plans," "will" and similar expressions are intended
        to identify forward-looking statements. These are statements that relate
        to
        future periods and include, but are not limited to, statements regarding
        our
        adequacy of capital resources, need and ability to obtain additional financing,
        the features and benefits of our services, our operating losses and negative
        cash flow, and our critical accounting policies.
 
 Forward-looking
        statements are subject to certain risks and uncertainties that could cause
        actual results to differ materially from those projected. These risks and
        uncertainties include, but are not limited to, those discussed above, as
        well as
        the risks set forth under "Factors That May Affect Operating Results." These
        forward-looking statements speak only as of the date hereof. The Company
        expressly disclaims any obligation or undertaking to release publicly any
        updates or revisions to any forward-looking statements contained herein to
        reflect any change in its expectations with regard thereto or any change
        in
        events, conditions or circumstances on which any such statement is
        based.
   8
 Table
            of Contents
  FACTORS
        THAT MAY AFFECT OPERATING RESULTS
 
 The
        operating results of the Company can vary significantly depending upon a
        number
        of factors, many of which are outside the Company's control. General factors
        that may affect the Company's operating results include:
  ·
              market
                  acceptance of and changes in demand for products and
                  services;
 
 ·
              a
                  small number of customers account for, and may in future periods
                  account
                  for, substantial portions of the Company's revenue, and revenue
                  could
                  decline because of delays of customer orders or the failure to
                  retain
                  customers;
 
 ·
              gain
                  or loss of clients or strategic
                  relationships;
 
 ·
              announcement
                  or introduction of new services and products by the Company or
                  by its
                  competitors;
 
 ·
              price
                  competition;
 
 ·
              the
                  ability to upgrade and develop systems and infrastructure to accommodate
                  growth;
 
 ·
              the
                  ability to introduce and market products and services in accordance
                  with
                  market demand;
 
 ·
              changes
                  in governmental regulation;
                  and
 
 ·
              reduction
                  in or delay of capital spending by clients due to the effects of
                  terrorism, war and political
                  instability.
  The
        Company believes that any future growth and profitability will depend in
        large
        part on the ability to promote its services, gain clients and expand its
        relationship with current clients. Accordingly, the Company intends to invest
        in
        marketing, strategic partnerships, and development of its client base. If
        the
        Company is not successful in promoting its services and expanding its client
        base, this may have a material adverse effect on its financial condition
        and the
        ability to continue to operate the business.
 
 The
        Company is also subject to the following specific factors that may affect
        the
        Company's operating results:
 
 (a)
        COMPETITION
 
 The
        market for electronic payment systems and electronic POS systems is intensely
        competitive and we expect competition to continue to increase. The Company's
        competitors for POS systems include VeriFone and Ingenico, amongst others,
        and
        companies such as Global Payments, First Data and Euroconnex for the Company's
        electronic payment software. In Finland the company faces competition from
        companies such as Point, which is the largest terminal vendor in the Finnish
        market, as well as companies such as Screenway and Altdata, which are Point
        of
        Sale software vendors. In addition, the companies with whom we have strategic
        relationships could develop products or services that compete with the Company's
        products or services. In addition, some competitors in the Company's market
        have
        longer operating histories, significantly greater financial, technical,
        marketing and other resources, and greater brand recognition than the Company
        does. The Company also expects to face additional competition as other
        established and emerging companies enter the market for electronic payment
        solutions. To be competitive, the Company believes that it must, among other
        things, invest significant resources in developing new products, improve
        its
        current products and maintain customer satisfaction. Such investment will
        increase the Company's expenses and affect its profitability. In addition,
        if it
        fails to make this investment, the Company may not be able to compete
        successfully with its competitors, which could have a material adverse effect
        on
        its revenue and future profitability.
   9
 Table
            of Contents
  (b)
        TECHNOLOGICAL AND MARKET CHANGES
 
 The
        markets in which the Company competes are characterized by rapid technological
        change, frequent new product introductions, evolving industry standards and
        changing needs of customers. There can be no assurance that the Company's
        existing products will continue to be properly positioned in the market or
        that
        the Company will be able to introduce new or enhanced products into the market
        on a timely basis, or at all. Currently, the Company is focusing on upgrading
        and introducing new products. There can be no assurance that enhancements
        to
        existing products or new products will receive customer acceptance. As
        competition in the electronic payments industry increases, it may become
        increasingly difficult for the Company to be competitive.
 
 Risks
        associated with the development and introduction of new products include
        delays
        in development and changes in payment processing, and operating system
        technologies that could require the Company to modify existing products.
        There
        is also the risk to the Company that there may be delays in initial shipments
        of
        new products. Further risks inherent in new product introductions include
        the
        uncertainty of price-performance relative to products of competitors,
        competitors' responses to the introductions and the desire by customers to
        evaluate new products for longer periods of time. Further, the Company expects
        that its revenue during fiscal 2007 will be significantly affected by the
        timing
        and success of the introduction of new products and services during the fiscal
        year.
 
 (c)
        NEW
        VERSIONS OF COMPANY'S PRODUCTS MAY CONTAIN ERRORS OR DEFECTS
 
 The
        Company's electronic payment software products and point of sale devices
        are
        complex and, accordingly, may contain undetected errors or failures when
        first
        introduced or as new versions are released. This may result in the loss of,
        or
        delay in, market acceptance of the Company's products. The Company has in
        the
        past discovered software errors in its new releases and new products after
        their
        introduction. The Company has experienced delays in release, lost revenues
        and
        customer frustration during the period required to correct these errors.
        The
        Company may in the future discover errors and additional scalability limitations
        in new releases or new products after the commencement of commercial shipments
        or be required to compensate customers for such limitations or errors, as
        a
        result of which the Company's business, cash flow, financial condition and
        results of operations could be materially adversely affected.
  (d)
        NO
        ASSURANCE OF SUCCESSFUL AND TIMELY PRODUCT DEVELOPMENT
 
 The
        Company's products and proposed enhancements are at various stages of
        development and additional development and testing will be required in order
        to
        determine the technical feasibility and commercial viability of the products.
        There can be no assurance that the Company's product development efforts
        will be
        successfully completed. The Company's proposed development schedule may be
        affected by a variety of factors, many of which will not be within the control
        of the Company, including technological difficulties, access to proprietary
        technology of others, delays in regulatory approvals, international operating
        licenses, and the availability of necessary funding. In light of the foregoing
        factors, there can be no assurance that the Company will be able to complete
        or
        successfully commercialize new products. The inability of the Company to
        successfully complete the development of new products or to do so in a timely
        manner, could force the Company to scale back operations, or cease operations
        entirely.
 
 (e)
        MARKET ACCEPTANCE
 
 The
        Company's success is dependent on the market acceptance of its products.
        Market
        acceptance of the Company's products will be dependent, among other things,
        upon
        quality, ease of use, speed, reliability, and cost effectiveness. Even if
        the
        advantages of the Company's products are established, the Company is unable
        to
        predict how quickly, if at all, the products will be accepted by the
        marketplace.
 
 (f)
        PROTECTION OF PROPRIETARY RIGHTS
 
 The
        Company's success and ability to compete will be dependent in part on the
        protection of its potential patents, trademarks, trade names, service marks
        and
        other proprietary rights. The Company intends to rely on trade secret and
        copyright laws to protect the intellectual property that it plans to develop,
        but there can be no assurance that such laws will provide sufficient protection
        to the Company, that others will not develop services that are similar or
        superior to the Company's, or that third parties will not copy or otherwise
        obtain and use the Company's proprietary information without authorization.
        In
        addition, certain of the Company's know-how and proprietary technology may
        not
        be patentable.
   10
 Table
            of Contents
  The
        Company may rely on certain intellectual property licensed from third parties,
        and may be required to license additional products or services in the future.
        There can be no assurance that these third party licenses will be available
        or
        will continue to be available to the Companion acceptable terms or at all.
        The
        inability to enter into and maintain any of these licenses could have a material
        adverse effect on the Company's business, financial condition or operating
        results.
  There
        is
        a risk that some of the Company's products may infringe the proprietary rights
        of third parties. In addition, whether or not the Company's products infringe
        on
        proprietary rights of third parties, infringement or invalidity claims may
        be
        asserted or prosecuted against it and it could incur significant expense
        in
        defending them. If any claims or actions are asserted against the Company,
        it
        may be required to modify its products or seek licenses for these intellectual
        property rights. The Company may not be able to modify its products or obtain
        licenses on commercially reasonable terms, in a timely manner or at all.
        The
        Company's failure to do so could have a negative affect on its business and
        revenues.
  (g)
        DEPENDENCE ON SUPPLIERS
 
 The
        Company depends upon a number of suppliers for components of its products.
        There
        is an inherent risk that certain components of the Company's products will
        be
        unavailable for prompt delivery or, in some cases, discontinued. The Company
        only has limited control over any third-party manufacturer as to quality
        controls, timeliness of production, deliveries and various other factors.
        Should
        the availability of certain components be compromised, it could force the
        Company to develop alternative designs using other components, which could
        add
        to the cost of goods sold and compromise delivery commitments. If the Company
        is
        unable to obtain components in a timely manner, at an acceptable cost, or
        at
        all, the Company may need to select new suppliers or redesign or reconstruct
        processes used to build its products. In such an instance, the Company would
        not
        be able to manufacture any security devices for a period of time, which could
        materially adversely affect its business, results from operations, and financial
        condition.
  (h)
        KEY
        PERSONNEL
 
 The
        Company's success is largely dependent on the personal efforts and abilities
        of
        its senior management. The loss of certain members of the Company's senior
        management, including the Company's chief executive officer, chief financial
        officer and chief technical officer, could have a material adverse effect
        on the
        Company's business and prospects.
 
 As
        needed
        from time to time, the Company may continue to recruit in fiscal year 2008
        employees who are skilled in e-commerce, payment, funds management, payment
        reconciliation, Internet and other technologies. The failure to recruit these
        key personnel could have a material adverse effect on the Company's business.
        As
        a result, the Company may experience increased compensation costs that may
        not
        be offset through either improved productivity or higher revenue. There can
        be
        no assurances that we will be successful in retaining existing personnel
        or in
        attracting and recruiting experienced qualified personnel.
 
 (i)
        LIMITATIONS ON LIABILITY AND INDEMNIFICATION
 
 The
        Company's articles of incorporation and bylaws include provisions to the
        effect
        that we may indemnify any director, officer, or employee, as well as limit
        the
        liability of such persons. In addition, provisions of Nevada law provide
        for
        such indemnification, as well as for a limitation of liability of our directors
        and officers for monetary damages arising from a breach of their fiduciary
        duties. Any limitation on the liability of any director or officer, or
        indemnification of any director, officer, or employee, could result in
        substantial expenditures being made by the Company in covering any liability
        of
        such persons or in indemnifying them.
 
 (j)
        LITIGATION
 
 As
        described under Legal Proceedings in our Form 10-KSB for the fiscal year
        ended
        June 30, 2007,  the Company is subject to one lawsuit. From time to
        time, the Company is involved in a variety of claims, suits, investigations
        and
        proceedings arising from the operation of the Company's business. It is possible
        that such a matter could arise in the future and be resolved in a manner
        that
        ultimately would have a material adverse impact on the Company's business,
        and
        could negatively impact its revenues, operating margins, and net
        income.
 
 (k)
        OPERATING LOSSES
 
 We
        have a
        history of operating losses and we may not be able to meet our obligations
        or
        continue operating as a going concern without attracting additional
        capital. In light of the net losses experienced by us, there can be no
        assurance that we will be profitable. If we are not profitable, we may not
        be
        able to meet our obligations or continue operating as a going concern without
        attracting additional capital. It is also possible that additional capital
        may
        not be available to us. If additional capital is required and is not available,
        we may not be able to continue operating as a going concern.
  11
 Table
            of Contents
  (l)
        IMPLEMENTATION OF SECTION 404 OF THE SARBANS-OXLEY ACT
 
 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-K 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-K 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.
  ITEM3.  QUALITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK.
  In
          the
          normal course of business, operations of the Company are exposed to risks
          associated with fluctuations in foreign currency exchange rates.
  To
          ensure
          the adequacy and effectiveness of the Company's foreign exchange positions,
          the
          Company continually monitors its foreign currency exposures from an accounting
          and economic perspective. However, given the inherent limitations of forecasting
          and the anticipatory nature of the exposures, there can be no assurance
          that our
          continual monitoring will offset more than a portion of the adverse financial
          impact resulting from unfavorable movements in foreign exchange
          rates.
  **Foreign
          Currency Risk**
  Overall,
          the Company is a net recipient of currencies other than the U.S. dollar
          and, as
          such, benefits from a weaker dollar and is adversely affected by a stronger
          dollar relative to major currencies worldwide. Accordingly, changes in
          exchange
          rates, and in particular a strengthening of the U.S. dollar, may negatively
          affect the Company's consolidated sales and gross margins as expressed
          in U.S.
          dollars.
 ITEM4.
        CONTROLS AND PROCEDURES
  Evaluation
        of Disclosure Controls and Procedures
  As
        of
        September 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  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
        accumulated and communicated to our management, including our chief executive
        officer and chief financial officer, as appropriate, to allow timely decisions
        regarding required disclosure.
 Changes
        in internal controls
  We
        determined that 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. During the quarter ended September 30, 2007, the Company
        completed its review of the relevant controls and procedures.
  The
        Company concluded that escrowing shares should generally be avoided in any
        future financings.  In addition, the Company determined that if any
        escrows of shares are utilized in subsequent financings, the Company enlist
        the
        services of a professional outside escrow company, or utilize legal
        counsel.  In addition, the Company shall require periodic reports or
        statements confirming the escrowed status of such shares.  As
        described under Legal Proceedings in our Form 10-KSB for the fiscal year
        ended
        June 30, 2007, a Federal Court in Nevada ordered that the shares that were
        inadvertently released from the previous financing escrow have been ordered
        by
        to be cancelled and not considered issued or outstanding.
  12
 Table
            of Contents
  **PART
        II - OTHER INFORMATION**
  ITEM
        1.
LEGALPROCEEDINGS
 
 The
        Company is
        subject to certain legal proceedings asreported in Part II, Item 1 -
        "Legal Proceedings" in the Company's Form 10-KSB filed with the SEC on September
        28, 2007.  During the three months ended September 30, 2007, there
        were no material changes to the legal proceeding or investigations reported
        in
        such 10-KSB.
 
 ITEM
2.
        UNREGISTERED SALES OF EQUITY SECURITIES.
 
 The
        Company made the following sales of unregistered (restricted) securities
        during
        the quarter ended on September 30, 2007 (not previously reported in a Form
        8-K):
 
 In
        August
        2007, the Company issued 250,000 shares of common stock with a fair value
        of
        $58,750 to an employee.
 
 In
        August
        2007, the Company issued 1,000,000 shares of common stock with a fair value
        of
        $170,000 to a consultant for services.
 
 In
        August
        2007, the Company issued 1,000,000 shares of common stock with a fair value
        of
        $170,000 to a consultant for services.
 
 In
        September 2007, the Company issued 857,143 shares of common stock pursuant
        to
        the conversion of 500,000 of Series B Preferred Stock by a
        director.
 
 In
        September  2007, the Company issued 13,000,000 shares of common stock
        pursuant to the terms of a financing agreement for cash of $2,600,000 which
        was
        received in a prior period
 
 In
        September 2007, the Company issued 2,500,000 shares of common stock pursuant
        to
        the terms of a financing agreement for cash of $500,000.
 
 In
        September 2007, the Company issued 7,500,000 shares of common stock pursuant
        to
        the terms of a financing agreement.  The Company has not yet received
        the cash for these shares, and has recorded the amount of $1,500,000 as
        subscriptions receivable on the Company’s balance sheet at September 30,
        2007.
 
 No
        commissions were paid in connection with any of these sales. We did not
        employ any form of general solicitation or advertising in connection with
        the
        offer and sale of the securities described below. Except as otherwise noted
        above, the offer and sale of the securities listed below were made in reliance
        on the exemption from registration provided by Section 4(2) of the Securities
        Act or Regulation D or Regulation S promulgated by the Securities and Exchange
        Commission as transactions by an issuer not involving any public
        offering.
 
 ITEM3.
        DEFAULTS UPON SENIOR SECURITIES.
  Not
        applicable.
  ITEM4.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY
        HOLDERS.
 
 None.
  ITEM5.
        OTHER INFORMATION.
  On
        July
        9, 2007, we entered into a Consulting Services Agreement with Donna Hessel,
        the
        spouse of Carl Hessel, who is a member of our Board of
        Directors.  Mrs. Hessel’s strategic consulting services are designed
        to assist the Company with expanding its merchant bank and acquiring bank
        relationships.  In order to conserve cash, the Consulting Services
        Agreement provided solely equity compensation to Mrs. Hessel for her services
        in
        the form of options to purchase 7 million shares of our common stock at an
        exercise price of $0.10 per share.  A copy of the Consulting Services
        Agreement is filed as Exhibit 10.1 to this Quarterly Report.
  Mrs.
        Hessel’s experience includes 20 years at Merrill Lynch, where she has served in
        various roles, including as a First Vice President in the Global Private
        Client
        Group and Head of International Marketing for Asia, Europe and Latin America.
        As
        a senior person for the firm, Mrs. Hessel has also served as board member
        for a
        number of strategic boards within the company. They include board positions
        on
        Merrill Lynch Bank USA; Merrill Lynch Bank and Trust; and Merrill Lynch Fund
        of
        Funds. She also served as a board member to Transcentive Corporation, which
        is a
        processing company that provides processing support to Merrill Lynch's stock
        option business.
  SUBSEQUENT
        EVENTS
  ITEM6.
        EXHIBITS.
 
 **Number**
              
              **Description**10.1
              
              Consulting
                Services Agreement between the Company and Donna Hessel dated as
                of July
                9th, 2007.31.1
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Paul Egan (filed
                  herewith).31.2
              
              Rule
                  13a-14(a)/15d-14(a) Certification of Ciaran Egan (filed
                  herewith).32
              
              Section
                  1350 Certification of Paul Egan and Ciaran Egan (furnished
                  herewith).
  
  13
 Table
            of Contents
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Company has duly caused this report to be signed on its behalf
        by the
        undersigned, thereunto duly authorized.
  ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****   ****
              
              **FREESTAR
                  TECHNOLOGY CORPORATION**Date: November
                  19, 2007
              By:
              /s/ Paul
                  EganChief
                  Executive Officer
   Date: November
                  19, 2007
              By:
              /s/ Ciaran
                  EganSecretary/Treasurer/
                Chief
                  Financial Officer
   
 14
 Table
            of Contents
  **EXHIBIT
        INDEX**
 **Number**
                
                **Description**10.1
                
                Consulting
                  Services Agreement between the Company and Donna Hessel dated as
                  of July
                  9th, 2007.31.1
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Paul Egan (filed
                    herewith).31.2
                
                Rule
                    13a-14(a)/15d-14(a) Certification of Ciaran Egan (filed
                    herewith).32
                
                Section
                    1350 Certification of Paul Egan and Ciaran Egan (furnished
                    herewith).
 
   15
 Table
            of Contents