UNITED
STATES


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
      1934For
      the quarterly period ended September 30, 2008ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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, a non-accelerated filer or a smaller reporting company. See
definitions of "accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):





Large
accelerated filero, Accelerated filero, Non-accelerated
filero, Smaller
reporting companyx




Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2of the Exchange Act. Yeso  Nox




APPLICABLE
ONLY TO CORPORATE ISSUERS




As of
November 18, 2008, there were 428,671,694 shares of Common Stock
issued and outstanding.




i
 Table of Contents





TABLE OFCONTENTS









PAGEPART
      I FINANCIAL
      INFORMATIONITEM
      1.
                      FINANCIAL STATEMENTS (UNAUDITED)CONDENSED CONSOLIDATED BALANCE
      SHEETS AS OFSEPTEMBER30,
      2008AND JUNE
      30,  2008
                      F-1CONDENSED CONSOLIDATED
      STATEMENTS OF OPERATIONS FOR THE THREEMONTHS ENDED SEPTEMBER 30, 2008AND
      2007
                      F-2CONDENSED CONSOLIDATED STATEMENTS
      OF CASH FLOWS FOR THETHREEMONTHS ENDEDSEPTEMBER 30,
      2008AND
    2007
                      F-3NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL STATEMENTS
                      F-4 to
      F-22ITEM
      2.
                      MANAGEMENT'S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITIONAND
      RESULTS OF OPERATIONS
                      1ITEM
      3
                      QUANTITATIVE  AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                      12ITEM
      4.
                      CONTROLS AND
      PROCEDURES
                      13PART
      II OTHER
      INFORMATIONITEM
      1.
                      LEGAL
      PROCEEDINGS
                      144ITEM
      1A
                      RISK
      FACTORS
                      14ITEM
      2.
                      UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS
                      19ITEM
      3.
                      DEFAULTS UPON SENIOR
      SECURITIES
                      20ITEM
      4.
                      SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERS
                      20ITEM
      5.
                      OTHER
      INFORMATION
                      20ITEM
      6.
                      EXHIBITS
                      20SIGNATURES
                      21





ii
 Table of Contents


FREESTAR TECHNOLOGY CORPORATION


CONDENSED
CONSOLIDATED BALANCE SHEETS








September
      30,
                
                
                June
      30,ASSETS
                
                2008
                
                
                2008(Unaudited)Current
      assets:Cash
      and cash equivalents
                
                $
                506,915
                
                
                $
                692,802Accounts
      receivable, net of allowance for doubtful accounts of
    $31,709and
      $91,483 at September 30, 2008 and June 30, 2008,  respectively
      (note 2)
                
                
                395,144
                
                
                
                724,944Other
      current assets (note 3)
                
                
                151,330
                
                
                
                143,482Inventory
      (note 4)
                
                
                562,428
                
                
                
                579,030Total
      current assets
                
                
                1,615,817
                
                
                
                2,140,258Property,
      plant and equipment, net of accumulated depreciation andamortization
      of  $284,244 and $286,240 at September 30, 2008 and June 30,
      2008
                
                
                136,977
                
                
                
                165,990and
      June 30, 2008, respectively (note 5)Customer
      relationships and contracts, net of accumulated amortization of
      $1,235,893and
      $1,158,413 at September 30, 2008 and June 30, 2008, respectively (note
      6)
                
                
                1,713,356
                
                
                
                1,790,836Total
      assets
                
                $
                3,466,150
                
                
                $
                4,097,084LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCurrent
      liabilities:Notes
      payable, current portion
                
                $
                311,000
                
                
                $
                -Notes
      payable - related parties, current portion (note 8)
                
                
                300,000
                
                
                
                -Accounts
      payable and accrued expenses (note 7)
                
                
                3,354,106
                
                
                
                3,648,224Due
      to related parties (note 9)
                
                
                840,891
                
                
                
                774,209Deferred
      revenue
                
                
                266,244
                
                
                
                243,063Total
      current liabilities
                
                
                5,072,241
                
                
                
                4,665,496Commitments
      and contingenciesMinority
      interest
                
                
                576,005
                
                
                
                476,528Stockholders'
      (Deficiency): (notes 10, 11)Convertible
      preferred stock, series A, $0.001 par value,1,000,000
      shares  authorized; 1,000,000 shares issued and outstanding
      at
                  September
      30, 2008 and June 30, 2008
                
                
                1,000
                
                
                
                1,000Convertible
      preferred stock, series B, $0.001 par value, 4,000,000
    sharesauthorized;
      no shares issued and outstanding at September 30, 2008
                
                
                -
                
                
                
                -and
      June 30, 2008Additional
      paid-in capital - preferred stock
                
                
                432,058
                
                
                
                432,058Common
      stock, $0.001 par value, 500,000,000 shares
      authorized;  426,671,694and
      377,416 shares issued and outstanding at September 30,
2008
                
                
                426,672
                
                
                
                377,417and
      June 30, 2008, respectivelyAdditional
      paid-in capital - common stock
                
                
                98,193,069
                
                
                
                95,450,783Common
      stock subscriptions receivable
                
                
                (1,131,590
                )
                
                
                (1,131,590
                )Common
      stock subscribed
                
                
                445,457
                
                
                
                1,195,457Accumulated
      deficit
                
                
                (100,921,784
                )
                
                
                (97,569,812
                )Accumulated
      other comprehensive income
                
                
                373,022
                
                
                
                199,747Total
      deficiency in stockholders' equity
                
                
                (2,182,096
                )
                
                
                (1,044,940
                )Total
      liabilities and stockholders' equity
                
                $
                3,466,150
                
                
                $
                4,097,084





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 AND COMPREHENSIVE LOSS


(Unaudited)





Three
                
                
                ThreeMonths
      Ended
                
                
                Months
      EndedSeptember
      30,
                
                
                September
      30,2008
                
                
                2007RevenueTransaction
      processing
                
                $
                564,413
                
                
                $
                487,723Consulting
      services
                
                
                518,349
                
                
                
                605,977Hardware
      and related
                
                
                163,723
                
                
                
                260,795Total
      revenue
                
                
                1,246,485
                
                
                
                1,354,495Cost
      of revenueTransaction
      processing
                
                
                353,014
                
                
                
                634,267Consulting
      services
                
                
                240,890
                
                
                
                389,260Hardware
      and related
                
                
                136,453
                
                
                
                257,343Total
      cost of sales
                
                
                730,357
                
                
                
                1,280,870Gross
      profit (loss)
                
                
                516,128
                
                
                
                73,625Selling,
      general and administrative expenses
                
                
                3,791,896
                
                
                
                5,431,549Loss
      from operations
                
                
                (3,275,768
                )
                
                
                (5,357,924
                )Other
      income (expenses):Additional
      cost of acquisition (note 7)
                
                
                -
                
                
                
                (192,555
                )Interest
      income (expense)
                
                
                (12,584
                )
                
                
                (19,213
                )Loss
      before income taxes and minority interest in subsidiaries
                
                
                (3,288,352
                )
                
                
                (5,569,692
                )Income
      taxes
                
                
                -
                
                
                
                -Minority
      interest in net income (loss) of subsidiaries
                
                
                63,620
                
                
                
                69,586Net
      Loss
                
                
                (3,351,972
                )
                
                
                (5,639,278
                )Other
      - Comprehensive income :  Gain  on foreign
      exchange
                
                
                173,275
                
                
                
                136,826Comprehensive
      loss
                
                $
                (3,178,697
                )
                
                $
                (5,502,452
                )Loss
      per share - basic and diluted
                
                $
                (0.01
                )
                
                $
                (0.02
                )Weighted
      average shares outstanding - basic
                
                
                416,660,635
                
                
                
                245,442,924Weighted
      average shares outstanding - diluted
                
                
                416,660,635
                
                
                
                253,175,265





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





F-2
 Table of Contents





FREESTAR TECHNOLOGY CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)







Three
                      
                      
                      ThreeMonths
      Ended
                      
                      
                      Months
      EndedSeptember
      30,
                      
                      
                      September
      30,2008
                      
                      
                      2007Cash
      flows used for operating activities:Net
      loss
                      
                      $
                      (3,351,972
                      )
                      
                      $
                      (5,639,278
                      )Minority
      interest in income loss of subsidiary
                      
                      
                      63,620
                      
                      
                      
                      69,586Adjustments
      to reconcile net loss to net cashprovided
      by (used for) operating activities:Bad
      debt expense
                      
                      
                      (31,886
                      )
                      
                      
                      -Depreciation
      and amortization
                      
                      
                      94,337
                      
                      
                      
                      228,368Non-cash
      compensation
                      
                      
                      1,942,541
                      
                      
                      
                      3,326,012Changes
      in assets and liabilities:(Increase)
      decrease in assetsAccounts
      receivable
                      
                      
                      413,242
                      
                      
                      
                      155,152Inventory
                      
                      
                      59,879
                      
                      
                      
                      58,353Other
      current assets
                      
                      
                      (1,947
                      )
                      
                      
                      (3,651
                      )Increase
      (decrease) in liabilitiesAccounts
      payable and accrued expenses
                      
                      
                      (537,512
                      )
                      
                      
                      438,895Deferred
      revenue
                      
                      
                      23,181
                      
                      
                      
                      16,825Accrual
      of salary to officers
                      
                      
                      66,682
                      
                      
                      
                      140,539Total
      adjustments
                      
                      
                      2,092,137
                      
                      
                      
                      4,430,079Net
      cash used by operating activities
                      
                      
                      (1,259,835
                      )
                      
                      
                      (1,209,199
                      )Cash
      flows provided by (used for) investing activities:Purchase
      of fixed assets
                      
                      
                      -
                      
                      
                      
                      (27,409
                      )Purchase
      of software and capitalized software cost
                      
                      
                      -
                      
                      
                      
                      (88,141
                      )Investment
      in PLC, net of cash acquired
                      
                      
                      -
                      
                      
                      
                      -Net
      cash used by investing activities
                      
                      
                      -
                      
                      
                      
                      (115,550
                      )Cash
      flows provided by (used for) financing activities:Proceeds
      from sale of common stock
                      
                      
                      -
                      
                      
                      
                      500,000Proceeds
      from issuance of notes payable
                      
                      
                      311,000
                      
                      
                      
                      -Proceeds
      from issuance of notes payable - related party
                      
                      
                      300,000
                      
                      
                      
                      -Proceeds
      from exercise of stock options/warrants
                      
                      
                      99,000
                      
                      
                      
                      700,000Cash
      contributed by officer of subsidiary
                      
                      
                      35,857
                      
                      
                      
                      108,327Net
      cash provided by financing activities
                      
                      
                      745,857
                      
                      
                      
                      1,308,327Net
      decrease in cash and cash equivalents
                      
                      
                      (513,978
                      )
                      
                      
                      (16,422
                      )Foreign
      currency translation adjustments
                      
                      
                      328,091
                      
                      
                      
                      28,026Cash
      and cash equivalents, beginning of period
                      
                      
                      692,802
                      
                      
                      
                      466,408Cash
      and cash equivalents, end of period
                      
                      $
                      506,915
                      
                      
                      $
                      478,012Supplemental
      disclosure of cash flow information:Interest
      paid
                      
                      $
                      -
                      
                      
                      $
                      -Income
      tax paid
                      
                      $
                      -
                      
                      
                      $
                      -Shares
      of  common stock issued to consultants for
    services
                      
                      $
                      -
                      
                      
                      $
                      2,103,375Shares
      of common stock issued to employees as compensation
                      
                      $
                      168,000
                      
                      
                      $
                      163,750Adjustment
      of unearned common stock for the period
                      
                      $
                      -
                      
                      
                      $
                      36,899Adjustment
      of deferred compensation for the period
                      
                      $
                      -
                      
                      
                      $
                      171,062Shares
      of common stock issued for subscriptions receivable
                      
                      $
                      -
                      
                      
                      $
                      1,500,000Shares
      of common stock issued to consultants for services
                      
                      $
                      1,572,449
                      
                      
                      $
                      -Common
      stock issued to director
                      
                      $
                      125,000
                      
                      
                      $
                      -Fair
      value of options issued to consultants and employees
                      
                      $
                      77,092
                      
                      
                      $
                      850,926Conversion
      of preferred stock to common stock
                      
                      $
                      -
                      
                      
                      $
                      360,000





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





F-3
 Table of Contents





FREESTARTECHNOLOGY CORPORATON


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(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-K for the fiscal year ended June
30, 2008. 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, 2008, and the results of operations and cash flows
for the three months ended September 30, 2008 and 2007. The results of
operations for the three months ended September 30, 2008 are not necessarily
indicative of the results that may be expected for the entire fiscal
year.





Nature Of Business
Operations





The
Company 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.




F-4
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


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 $3,351,972 for
the three months ended September 30, 2008 and $23,150,901 for the year ended
June 30, 2008, and had an accumulated deficit of $100,921,784 as of September
30, 2008.




The
Company believes that anticipated revenues from operations will be insufficient
to satisfy its ongoing capital requirements for 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, and may also seek to raise funds through debt and
other financings.





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.




F-5
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
  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.




F-6
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




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,
2008 was $0. Aggregate intrinsic value represents the difference between the
Company's closing stock price on the last trading day of the fiscal period,
which was $0.026 as of September 30, 2008, and the exercise price multiplied by
the number of options outstanding.  As of September 30, 2008, total
unrecognized stock-based compensation expense related to non-vested stock
options was $0. The total fair value of options vested was $0 and $33,875 for
the three month periods ended September 30, 2008 and 2007,
respectively.




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 year ended June 30, 2008, the Company recognized an
impairment of its software and software licenses in the amount of
$4,086,502.  At September 30, 2008, total software capitalized under
SFAS No. 86 is $0. Total
amortization expense related to software and software licenses charged to
operations for the three months ended September 30, 2008 and 2007 was $0 and
$127,474, respectively.




F-7
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


Impairment of Long-Lived
Assets





The
Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
144).  The Statement   requires that long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Events relating
to recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted undercounted cash
flows. Should impairment in value be indicated, the carrying value of intangible
assets will be adjusted, based on estimates of future discounted cash flows
resulting from the use and ultimate disposition of the asset.  SFAS
No. 144 also requires assets to be disposed of be reported at the lower of the
carrying amount or the fair value less costs to sell.





During
the year ended June 30, 2008, the Company management preformed an evaluation of
its intangible assets (capitalized software) for purposes of determining the
implied fair value of the assets at June 30, 2008. The test indicated that the
recorded remaining book value of its intellectual property exceeded its fair
value, as determined by discounted cash flows.  As a result, upon
completion of the assessment, management recorded a non-cash impairment charge
of $4,086,502, net of tax, or $0.014 per share during the year ended June 30,
2008 to reduce the carrying value of the capitalized software to $0.
Considerable management judgment is necessary to estimate the fair
value.  Accordingly, actual results could vary significantly from
management’s estimates (note ).




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.




New Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”. This statement
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest (minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. Upon its adoption, effective for us in the
fiscal year beginning July 1, 2009, noncontrolling interests will be classified
as equity in the Company’s balance sheet and income and comprehensive income
attributed to the noncontrolling interest will be included in the Company’s
income and comprehensive income, respectively. The provisions of this standard
must be applied prospectively upon adoption except for the presentation and
disclosure requirements. The Company is currently evaluating the impact that
SFAS No. 160 will have on its consolidated financial statements.




F-8
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of SFAS No. 133”. SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133 for derivative instruments
and hedging activities. SFAS No. 161 requires qualitative disclosure about
objectives and strategies for using derivative and hedging instruments,
quantitative disclosures about fair value amounts of the instruments and gains
and losses on such instruments, as well as disclosures about credit-risk
features in derivative agreements. We do not expect the adoption of SFAS No. 161
to have a significant impact on our consolidated financial
statements.




In April
2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under FASB Statement No. 142,
“Goodwill and Other Intangible Assets”. This new guidance applies prospectively
to intangible assets that are acquired individually or with a group of other
assets in business combinations and asset acquisitions. FSP 142-3 is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The Company is currently
evaluating the impact, if any, that FSP 142-3 will have on its consolidated
financial statements.




In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS 162 will become effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The Company does not currently expect the adoption of SFAS 162 to
have a material effect on its consolidated results of operations and financial
condition.




In May
2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “Accounting
for Convertible Debt instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company does not believe the adoption of FSP APB 14-1 will have
significant effect on its consolidated results of operations and financial
condition.





F-9
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




2.
ACCOUNTS RECEIVABLE





Accounts
receivable consists of the following:





September
      30,
                
                June
      30,2008
                
                2008Amounts
      receivable from customers
                
                $
                426,853
                
                
                $
                816,427Less:
      Reserve for doubtful accounts
                
                
                (31,709
                )
                
                
                (91,483
                )Accounts
      receivable, net
                
                $
                395,144
                
                
                $
                724,944




3.  OTHER
CURRENT ASSETS





Other
current assets consists of the following:




September
      30,
                
                
                June
      30,2008
                
                
                2008Prepaid
      expenses
                
                $
                83,795
                
                
                $
                70,840Advances
      to employees
                
                
                11,053
                
                
                
                11,049Deposits
                
                
                56,482
                
                
                
                61,593$
                151,330
                
                
                $
                143,482




F-10
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




4.
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
      30,2008
                
                
                2008Finished
      goods
                
                $
                562,428
                
                
                $
                579,030Total
                
                $
                562,428
                
                
                $
                579,030




5.
PROPERTY AND EQUIPMENT





A summary
of property and equipment is as follows:





September
      30,
              
              
              June
      30,2008
              
              
              2008Computer
      equipment
              
              $
              205,138
              
              
              $
              210,791Furniture
      and office equipment
              
              
              216,083
              
              
              
              241,439421,221
              
              
              
              452,230Less:
      accumulated depreciation
              
              
              (284,244
              )
              
              
              (286,240
              )Property
      and equipment, net
              
              $
              136,977
              
              
              $
              165,990





Total
depreciation and amortization expense for property and equipment amounted to
$16,857 and $23,464 for the three months ended September 30, 2008
and 2007, respectively.




F-11
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


6.
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, 2008 are:





Gross
      Carrying Amount
                  
                  
                  Accumulated
      Amortization
                  
                  
                  Net
                  
                  
                  Residual
      Value
                  
                  Average
                    Amortization
      YearsAmortizable
      Intangible Assets:Customer
      Relationships and Contracts
                  
                  $
                  2,949,249
                  
                  
                  $
                  1,235,893
                  
                  
                  $
                  1,713,356
                  
                  
                  $
                  -
                  
                  9.2




The
identifiable intangible assets acquired and their carrying values at June 30,
2008 are:





Gross
      Carrying Amount
                  
                  
                  Accumulated
      Amortization
                  
                  
                  Net
                  
                  
                  Residual
      Value
                  
                  Average
                    Amortization
      YearsAmortizable
      Intangible Assets:Customer
      Relationships and Contracts
                  
                  $
                  2,949,249
                  
                  
                  $
                  1,158,413
                  
                  
                  $
                  1,790,836
                  
                  
                  $
                  -
                  
                  10.0




Customer
relationships and contracts amortization expense charged to operations for the
three months ended September 30, 2008 and 2007 was $77,480 and
$77,480,  respectively.  Total amortization expense charged
to operations for the three months ended September 30, 2008 and 2007 was $77,480
and $204,904,  respectively.





F-12
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




7.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities at September 30, 2008 and June 30, 2008 are as
follows:





September
      30,
                
                June
      30,2008
                
                2008Accounts
      payable and accrued expenses
                
                $
                3,117,808
                
                
                $
                3,330,480Accrued
      payroll and related expenses
                
                
                235,298
                
                
                
                317,744$
                3,354,106
                
                
                $
                3,648,224







8.    NOTES
PAYABLE





In July
and August  2008, the Company signed four notes payable (the “6% Short
Term Notes”) in the aggregate principal amount of $611,000. The 6% Short Term
Notes are due six months from the date of the notes, and bear interest at the
rate of 6% per annum.  The Company has the option to
either  repay the principal and accrued interest due under the 6%
Short Term Notes in cash or  in  common stock.  If
paid in the form of common stock, the price will be 80% of the closing price of
the Company’s common stock on the date of the notes.  During the three
months ended September 30, 2008, the Company accrued interest in the amount of
$5,234 on the 6% Short Term Notes.  At September 30, 2008, the
principal and accrued interest of the 6% Short Term Notes are convertible into a
total of 14,554,200 shares of the Company’s common stock.





One of
the 6% Short Term Notes in the principal amount of $300,000 is payable to a
board member of the Company (note 9).




F-13
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)





9.  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:





At
September 30, 2008:





CEO
                
                
                CFO
                
                
                TotalAccrued
      Salary
                
                $
                365,909
                
                
                $
                153,521
                
                
                $
                519,430Advances
                
                
                216,549
                
                
                
                18,536
                
                
                
                235,085Accrued
      Interest
                
                
                12,660
                
                
                
                4,382
                
                
                
                17,042Accrued
      car allowance
                
                
                34,667
                
                
                
                34,667
                
                
                
                69,334Total
                
                $
                629,785
                
                
                $
                211,106
                
                
                $
                840,891





At June
30, 2008:





CEO
                
                
                CFO
                
                
                TotalAccrued
      Salary
                
                $
                317,385
                
                
                $
                147,123
                
                
                $
                464,508Advances
                
                
                217,613
                
                
                
                19,268
                
                
                
                236,881Accrued
      Interest
                
                
                9,179
                
                
                
                2,069
                
                
                
                11,248Accrued
      car allowance
                
                
                30,786
                
                
                
                30,786
                
                
                
                61,572Total
                
                $
                574,963
                
                
                $
                199,246
                
                
                $
                774,209





During
the three months ended September 30, 2008, the Company received a loan in the
amount of $300,000 from a director (see note 8).  At September 30,
2008, the accrued interest on this loan is $1,402. The combined principal
and interest at September 30, 2008 of $301,402 is convertible at the
Company’s discretion into shares of the Company’s common stock at the rate of
$0.04 per share, which would result in the issuance of 7,535,050
shares. This note along with interest accrued at the rate of 6% is due
on August 10, 2008.




F-14
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


10.
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.





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





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




F-15
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


As of
September 30, 2008, the Company had received cash in the net amount $8,134,924
pursuant to the March Financing, and had issued 45,850,000 shares of common
stock and warrants to purchase an additional 49,836,957
shares.  Warrants to purchase 24,836,957 shares expired on March 31,
2008, and warrants to purchase 25,000,000 shares remain outstanding at September
30, 2008, as detailed in the table below.





The
Company also issued to consultants 4,600,000 shares of unregistered common stock
and warrants to purchase an additional 13,000,000 shares of common stock at a
price of $0.20 per share as a commission for work performed on the March
Financing.  These warrants to purchase 13,000,000 shares expired on
March 31, 2008.




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





OutstandingTotal
              
              
              
              
              
              atExercise
      Price
              
              
              Number
              
              
              
              
              
              September
      30,Per
      Share
              
              
              Issued
              
              
              Expired
              
              
              2008$
              1.50
              
              
              
              13,954,348
              
              
              
              (6,954,348
              )
              
              
              7,000,000$
              2.50
              
              
              
              10,964,130
              
              
              
              (5,464,130
              )
              
              
              5,500,000$
              4.50
              
              
              
              6,977,174
              
              
              
              (3,477,174
              )
              
              
              3,500,000$
              5.50
              
              
              
              6,977,174
              
              
              
              (3,477,174
              )
              
              
              3,500,000$
              6.50
              
              
              
              6,977,174
              
              
              
              (3,477,174
              )
              
              
              3,500,000$
              8.50
              
              
              
              3,986,957
              
              
              
              (1,986,957
              )
              
              
              2,000,00049,836,957
              
              
              
              (24,836,957
              )
              
              
              25,000,000





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.





F-16
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)





Sales Of
Securities




During
the three months ended September 30, 2008, the Company issued the following
shares of common stock:





The
Company issued 29,455,362 shares of common stock with a fair value of $1,572,449
to consultants for services.





The
Company issued 3,000,000 shares of common stock with a fair value of $168,000 to
employees for services.





The
Company issued 3,300,000 shares of common stock pursuant to the exercise of a
options by consultants for $81,000 cash and subscriptions receivable of
$18,000.





The
Company issued 2,500,000 shares of common stock with a fair value of $125,000 to
a director for services.





The
Company issued 15,000,000 shares of common stock with a fair value of $750,000
to an officer pursuant to an executive compensation plan. The amount of $750,000
was accrued to common stock subscribed in a prior period.





Also
during the three months ended September 30, 2008, the Company cancelled
4,000,000 shares of common stock previously subscribed.  The
subscription receivable in the amount of $600,000 was written-off during the
twelve months ended June 30, 2008.





F-17
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)





11.  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
              
              
              
              7.0
              
              
              $
              0.15
              
              
              
              166,666
              
              
              $
              0.150.20
              
              
              
              1,350,000
              
              
              
              8.1
              
              
              
              0.20
              
              
              
              1,350,000
              
              
              
              0.200.49
              
              
              
              756,303
              
              
              
              4.4
              
              
              
              0.49
              
              
              
              756,303
              
              
              
              0.490.70
              
              
              
              756,303
              
              
              
              4.4
              
              
              
              0.70
              
              
              
              756,303
              
              
              
              0.703,029,272
              
              
              
              6.2
              
              
              $
              0.39
              
              
              
              3,029,272
              
              
              $
              0.39




F-18
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




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





Number
      of Shares
                    
                    
                    Weighted
      Average
                      Exercise
      PriceOptions
      exercisable at June 30, 2008
                    
                    
                    3,029,272
                    
                    
                    $
                    0.39Granted
                    
                    
                    3,300,000
                    
                    
                    
                    0.03Exercised
                    
                    
                    (3,300,000
                    )
                    
                    
                    (0.03
                    )Cancelled
      / Expired
                    
                    
                    -
                    
                    
                    
                    -Options
      exercisable at September 30, 2008
                    
                    
                    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, 2008 and 2007 was $77,092 and $817,034 respectively.





The
weighted-average fair value of stock options granted to non-employees during the
three months ended September 30, 2008 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):
              
              2008
              
              
              2007Risk-free
      interest rate at grant date
              
              
              3.00
              %
              
              
              4.75
              %Expected
      stock price volatility
              
              
              121-123
              %
              
              
              111
              %Expected
      dividend payout
              
              
              0
              
              
              
              0Expected
      option life (in years)
              
              
              1.0
              
              
              
              0.5




F-19
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


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
              
              
              
              9.5
              
              
              $
              0.14
              
              
              
              500,00
              
              
              $
              0.140.15
              
              
              
              200,000
              
              
              
              8.1
              
              
              
              0.15
              
              
              
              200,000
              
              
              
              0.150.47
              
              
              
              375,000
              
              
              
              8.0
              
              
              
              0.47
              
              
              
              375,000
              
              
              
              0.471,075,000
              
              
              
              8.7
              
              
              $
              0.26
              
              
              
              1,075,000
              
              
              $
              0.26




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




Number
      of Shares
                
                
                Weighted
      Average Exercise PriceOptions
      outstanding at June 30, 2008
                
                
                1,075,000
                
                
                $
                0.26Granted
                
                
                --
                
                
                
                --Exercised
                
                
                --
                
                
                
                --Cancelled
      / Expired
                
                
                --
                
                
                
                --Options
      outstanding at September 30, 2008
                
                
                1,075,000
                
                
                $
                0.26Non-vested
      at September 30, 2008
                
                
                -
                
                
                
                -Exercisable
      at September 30, 2008
                
                
                1,075,000
                
                
                $
                0.26




The
employee stock based compensation expense recognized in the unaudited condensed
consolidated statements of operations for the three months ended September 30,
2008 and 2007 was $0 and $33,875, respectively.




F-20
 Table of Contents


FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)




Warrants





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





Range
      of
                Exercise
                Prices
              
              
              Number
      of
                Shares
                Outstanding
              
              
              Weighted
                Average
                Remaining
                Contractual
                Life
      (Years)
              
              
              Weighted
                Average
                Exercise
                Price
      of
                Outstanding
                Warrants
              
              
              Number
      of
                Shares
                Exercisable
              
              
              Weighted
                Average
                Exercise
                Price
      of
                Exercisable
                Warrants$
              0.98
              
              
              
              642,857
              
              
              
              4.20
              
              
              $
              0.98
              
              
              
              642,857
              
              
              $
              0.98$
              1.50
              
              
              
              7,000,000
              
              
              
              1.00
              
              
              $
              1.50
              
              
              
              7,000,000
              
              
              $
              1.50$
              2.50
              
              
              
              5,500,000
              
              
              
              1.00
              
              
              $
              2.50
              
              
              
              5,500,000
              
              
              $
              2.50$
              4.50
              
              
              
              3,500,000
              
              
              
              1.00
              
              
              $
              4.50
              
              
              
              3,500,000
              
              
              $
              4.50$
              5.50
              
              
              
              3,500,000
              
              
              
              1.00
              
              
              $
              5.50
              
              
              
              3,500,000
              
              
              $
              5.50$
              6.50
              
              
              
              3,500,000
              
              
              
              1.00
              
              
              $
              6.50
              
              
              
              3,500,000
              
              
              $
              6.50$
              8.50
              
              
              
              2,000,000
              
              
              
              1.00
              
              
              $
              8.50
              
              
              
              2.000.000
              
              
              $
              8.5025,642,857
              
              
              
              1.08
              
              
              $
              3.89
              
              
              
              25,642,857
              
              
              $
              3.89






Number
      of Shares
                  
                  
                  Weighted
      Average
                    Exercise
      PriceWarrants
      exercisable at June 30, 2008
                  
                  
                  25,642,857
                  
                  
                  $
                  3.89Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Cancelled
      / Expired
                  
                  
                  -
                  
                  
                  
                  -Warrants
      exercisable at September 30, 2008
                  
                  
                  25,642,857
                  
                  
                  $
                  3.89




F-21
 Table of Contents




FREESTAR
TECHNOLOGY CORPORATON
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2008
 (UNAUDITED)


12.
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 Sept 30,2008
                                            
                                            
                                            2007Sales
      to external customers:Corporate
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Dominicana
                                            
                                            
                                            156
                                            
                                            
                                            
                                            67,844Rahaxi
                                            
                                            
                                            769,372
                                            
                                            
                                            
                                            680,674PLC
                                            
                                            
                                            476,957
                                            
                                            
                                            
                                            605,977Total
      sales to external customers:
                                            
                                            $
                                            1,246,485
                                            
                                            
                                            $
                                            1,354,495Depreciation
      and amortization:Corporate
                                            
                                            $
                                            80,520
                                            
                                            
                                            $
                                            80,593Dominicana
                                            
                                            
                                            3,353
                                            
                                            
                                            
                                            5,376Rahaxi
                                            
                                            
                                            10,261
                                            
                                            
                                            
                                            142,316PLC
                                            
                                            
                                            203
                                            
                                            
                                            
                                            83Total
      depreciation and amortization:
                                            
                                            $
                                            94,337
                                            
                                            
                                            $
                                            228,368General
      and administrative expense:(not
      including depreciation and amortization)Corporate
                                            
                                            $
                                            2,626,910
                                            
                                            
                                            $
                                            4,403,876Dominicana
                                            
                                            
                                            143,222
                                            
                                            
                                            
                                            148,196Rahaxi
                                            
                                            
                                            814,192
                                            
                                            
                                            
                                            701,017PLC
                                            
                                            
                                            113,235
                                            
                                            
                                            
                                            77,463Total
      general and administrative expense
                                            
                                            $
                                            3,697,559
                                            
                                            
                                            $
                                            5,330,552Capital
      expenditures:Corporate
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Dominicana
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Rahaxi
                                            
                                            
                                            -
                                            
                                            
                                            
                                            115,500PLC
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
      capital expenditures
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            115,500Operating
      income (loss):Corporate
                                            
                                            $
                                            (2,707,430
                                            )
                                            
                                            $
                                            (4,484,522
                                            )Dominicana
                                            
                                            
                                            (146,575
                                            )
                                            
                                            
                                            (133,215
                                            )Rahaxi
                                            
                                            
                                            (544,392
                                            )
                                            
                                            
                                            (879,359
                                            )PLC
                                            
                                            
                                            122,629
                                            
                                            
                                            
                                            139,172Total
      operating income (loss)
                                            
                                            $
                                            (3,275,768
                                            )
                                            
                                            $
                                            (5,357,924
                                            )Interest
      Expense, Net:Corporate
                                            
                                            $
                                            7,264
                                            
                                            
                                            $
                                            658Dominicana
                                            
                                            
                                            2,464
                                            
                                            
                                            
                                            507Rahaxi
                                            
                                            
                                            2,856
                                            
                                            
                                            
                                            18,048PLC
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Total
      Interest Expense
                                            
                                            $
                                            12,584
                                            
                                            
                                            $
                                            19,213Segment
      assets:Corporate
                                            
                                            $
                                            784,288
                                            
                                            
                                            $
                                            3,388,530Dominicana
                                            
                                            
                                            301,334
                                            
                                            
                                            
                                            94,462Rahaxi
                                            
                                            
                                            806,395
                                            
                                            
                                            
                                            4,228,647PLC
                                            
                                            
                                            1,574,133
                                            
                                            
                                            
                                            703,131Total
      segment assets
                                            
                                            $
                                            3,466,150
                                            
                                            
                                            $
                                            8,414,770




13.
SUBSEQUENT EVENTS





In
November 2008, the Company issued 2,000,000 shares of common stock to a
consultant for services.




F-22
 Table of Contents




ITEM 2. MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.





Special
Note About 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.





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
1,580,000 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.




1
 Table of Contents




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 1,600  merchants each day and
processing on average approximately 1,580,000 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.




The
Company's principal offices are in Dublin, Ireland. The Company also has offices
in Helsinki, Finland; Geneva, Switzerland; and Santo Domingo, the Dominican
Republic. While the Company's offices in Finland and Ireland 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 UnionPay. Through our
agreement with the French bank Natixis Paiements, we processed our first live
transaction for China UnionPay in June, 2008 in Paris, France.  We
expect to continue to pursue additional banking relationships to allow us to
expand our market for China UnionPay transactions in Europe.




2
 Table of Contents




Results of
Operations





THREE
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
2007





Revenue





For the
reasons below, total revenue for the  three months ended September 30,
2008 was $1,246,485 compared to $1,354,495 for the three months ended
September 30, 2007, a decrease of $108,010 or approximately 8%.





Transaction processing and
related revenue





Transaction
processing and related revenue was $564,413 for the three months ended September
30, 2008, compared to $487,723 during the prior year, an increase of
$76,690 or approximately 16%. The Company processed a total of
5,248,917 transactions during the three months ended September 30, 2008, an
increase of 123,243 or approximately 2.4 % compared to
5,125,674 transactions processed during the prior
year.  The increase in the number of transactions processed was
primarily related to the increase in the number of clients compared to the same
period of the prior year. The Company invoices its customers in Euro. The
average exchange rate of the U.S. Dollar compared to the Euro for the three
months ended September 30, 2008 has declined by approximately 7% compared to the
three months ended September 30, 2007, and this exchange rate difference should
be taken into consideration when analyzing our transaction processing
sales.





Consulting
services revenue





Consulting
services revenue was $518,349 for the three months ended September 30, 2008,
compared to $605,977 during the prior year, a decrease of $87,628 or
approximately 14%. Consulting services revenue is primarily generated by
the Company’s 50% stake in PLC. The primary reasons for the decline in
consulting services revenue can be attributed to the completion of projects
under management during the period and the decline in the Euro compared to the
U.S dollar.




Hardware and
related  revenue





Hardware
and related revenue was $163,723 during the three months ended September 30,
2008, compared to $260,795 during the prior year.  The primary reason
for the decline in hardware related revenue is that the Company did not have
sufficient levels of inventory to meet the demand from its
customers.




3
 Table of Contents




We expect
revenue levels to increase throughout the next twelve months as we continue to
increase our client base and service offerings, such as China UnionPay
transactions in France, 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, 2008 has been derived from
a limited number of customers, primarily Finnish customers for its transaction
processing products. Approximately  57% 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 the fiscal year ending June 30, 2009. We believe that this customer
concentration will be gradually diluted in the latter half of the fiscal year
ending June 30, 2009 as we continue to pursue operations outside of Finland. All
of our revenues for the three months ended September 30, 2008 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 to continue through the fiscal year ending June 30,
2009.




Cost
of Revenue





Cost of transaction
processing and related revenue





Cost of
transaction processing and related revenue was $353,014 for the three months
ended September 30, 2008, compared to $634,267 for the prior three months
ended September 30, 2007, a decrease of $281,253 or approximately 44%. The
primary reason for the decrease is related to the elimination of the
amortization of capitalized software from cost of good sold as a result of the
software impairment charge recorded during the fourth quarter of fiscal
2008.  Amortization of capitalized software costs  was
$127,424 during the three months ended September 30, 2007.  The
Company also experienced a reduction in development expenses as projects were
completed and new products were brought to market.  It is important to
note that many of our costs associated with maintaining and improving our
processing and customer support capabilities are charged to cost of revenue, but
these costs do not always change in direct relation to sales.




Cost of consulting
services





Cost of
consulting services revenue was $240,890 for the three months ended September
30, 2008, compared to $389,260 for the  three months ended September
30, 2007, a decrease of $148,370 or approximately 38%.  The primary
reason for the decrease was that as various stages of projects came to
completion less contractors were needed and therefore there was a reduction in
contractor fees.




4
 Table of Contents




Cost of hardware and
related  revenue





Cost of
hardware and related revenue was $136,453  during the three months
ended September 30, 2008, compared to $257,343 during the prior year, a decrease
of $120,890  or approximately 47%. The
primary reason for the decrease wasthe
reduction in actual hardware and related revenue caused by insufficient
inventory levels.





For the
reasons above, total cost of revenue was $730,357 for the three months ended
September  30, 2008, compared to $1,280,870 for the three months ended
September 30, 2007, a decrease of $550,513 or approximately 43%.





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 $3,791,896  for the three
months ended September 30, 2008 compared to $5,431,549 for the three months
ended September 30, 2007, a decrease of $1,639,653  or approximately
30%. The primary components of selling, general, and administrative expenses for
the three months ended September 30, 2008 were: consulting fees of $1,754,027 to
service providers for financial consulting and other professional services;
$1,649,591 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 were payroll and related costs of
$1,387,521, including $168,000 of non-cash compensation in the form of stock
grants; facility costs  (rent, telephone, utilities, and maintenance)
of $257,616; non-cash compensation paid to a director in the amount of $125,000,
consisting of a stock grant; depreciation and amortization of $94,337; travel
and entertainment costs of $73,975; and legal and accounting fees
of  $70,575.




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 continue 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. 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.




5
 Table of Contents




Interest Expense





Interest
income (expense) net was ($12,584) for the three months ended September 30,
2008, compared to ($19,213)  for the three months ended September 30, 2007,
a decrease of ($6,929) or approximately  35%. The decrease is due
primarily to a decrease in vendor financing charges.




Historically,
we have primarily utilized 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 recent price and
performance of our common stock could make equity financings more difficult, and
require 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 $3,351,972 for the three months
ended September 30, 2008 compared to $5,639,278 for the three months ended
September 30, 2007, a decrease of $2,287,306 or
approximately 41%.





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 $1,259,835 for the three  months
ended September 30, 2008 compared to $1,209,199 for the three months ended
September 30, 2007, an increase of $50,636 or approximately 4%.  The
primary components of cash used in operating activities during the current
period are the net loss of ($3,351,972), partially offset by the non-cash
charges of non-cash compensation of $1,942,541 and depreciation and amortization
of $94,337.  The total amount of cash used in operating activities was
also reduced by changes in the following components of working
capital:  accounts receivable of $413,242; inventory of $59,879;
accounts payable and accrued expenses of ($537,512); accrued salary due to
officers of $66,682; deferred revenue of  $23,181; and other current
assets of ($1,947).




Investing
Activities





Net cash
used in investing activities was $0 during the three months ended September 30,
2008 compared to $115,550 for the three months ended September 30, 2007, a
decrease of $115,550 or approximately 100%.  During the current
quarter, the Company curtailed its development activities as many
of  its current projects have been completed.




6
 Table of Contents




Financing
Activities





Net cash
provided by financing activities was $745,857 for the three months ended
September 30, 2008, compared to $1,308,327 for the three months ended September
30, 2007, a  decrease of $562,470  or approximately
43%.  The reason for the decrease was a decrease in cash provided from
the sales of common stock of $500,000, a decrease in cash received from the
exercise of stock options and warrants of $601,000, and a decrease in cash
contributed by the officer of a subsidiary of $72,470. The Company raised
$611,000 during the three months ended September 30, 2008 via a short-term loan
from a director in the amount of $300,000 and other short-term loans in the
aggregate amount of $311,000.




Liquidity and Capital
Resources




As of
September 30, 2008, we had total current assets of $1,615,817 and total current
liabilities of $5,072,241, resulting in a working capital deficiency of
($3,456,424). We had cash and cash equivalents of $506,915 at September 30,
2008, and an accumulated deficit of $100,921,784.





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





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





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





As of
September 30, 2008, the Company had received cash in the net amount $8,134,924
pursuant to the March Financing, and had issued 45,850,000 shares of common
stock and warrants to purchase an additional 49,836,957
shares.  Warrants to purchase 24,836,957 shares expired on March 31,
2008, and warrants to purchase 25,000,000 shares remain outstanding at September
30, 2008.




7
 Table of Contents




In July
and August  2008, the Company signed four notes payable (the “6% Short
Term Notes”) in the aggregate principal amount of $611,000. The 6% Short Term
Notes are due six months from the date of the notes, and bear interest at the
rate of 6% per annum.  The Company has the option to either repay the
principal and accrued interest due under the 6% Short Term Notes in cash or in
common stock. If paid in the form of common stock, the price will be 80% of the
closing price of the Company’s common stock on the date of the
notes.   During the three months ended September 30, 2008, the
Company accrued interest in the amount of $5,234 on the 6% Short Term
Notes.   At September 30, 2008, the principal and accrued
interest of the 6% Short Term Notes are convertible into a total of 14,554,200
shares of the Company’s common stock.





The
independent auditor's report on the Company's June 30, 2008 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 the fiscal year ending June 30, 2009 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 recent price and performance of our common
stock could have a material adverse effect on our ability to obtain equity
financing. 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.

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.




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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, 2008, $365,909 and $153,521 of accrued
salaries were owed to Paul Egan and Ciaran Egan,
respectively.





Paul Egan
and Ciaran have also advanced the funds to the Company. These advances accrue
interest at the rate of 7% per annum.  At September 30, 2008, the
Company owned the amount of $216,549 and $18,536 to Paul Egan and Ciaran
Egan, respectively, for advances;  plus $11,258 and $4,382 to Paul
Egan and Ciaran Egan, respectively, for 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, 2008, and the amounts of  $34,667 to Paul
Egan and $34,667 to Ciaran Egan have been accrued at September 30,
2008.





During
the three months ended September 30, 2008, the Company received a loan in the
amount of $300,000 from a director (see note 8 of the accompanying financial
statements).  At September 30, 2008, the accrued interest on this loan
is $1,402.  The combined principal and interest at September 30, 2008,
of $301,402 is convertible at the Company’s discretion into shares of the
Company’s common stock at the rate of $0.04 per share, which would result in the
issuance of 7,535,050 shares.   This note, along with interest
accrued at the rate of 6% is due on August 10, 2009.





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. Exchange rates had a material, beneficial impact on
our revenue for the three months ended September 30, 2008. 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 $173,275 for the three months ended September 30,
2008.





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.




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Inflation





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




Off-Balance
Sheet Arrangements





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





Other





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





Critical Accounting
Policies





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





(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.




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(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 eferred 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.




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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.





ITEM 3.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.




12
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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.




ITEM 4. CONTROLSAND PROCEDURES




Evaluation of Disclosure
Controls and Procedures




As of
September 30, 2008 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 upon that evaluation and due
to the material weakness existing in our internal controls as of June 30,
2008 (described below) which has not been fully remediated as of September 30,
2008, we have concluded that as of September 30, 2008, our disclosure controls
and procedures were ineffective.





Changes in internal
controls




There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Significant Deficiencies In
Disclosure Controls And Procedures Or Internal Controls




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




The
Company completed its review in order to design enhanced controls and procedures
to remedy this deficiency, and determined that such escrows should be avoided in
the future where possible, or an outside third-party escrow should be utilized.
The Company is not aware of any other deficiencies in its system of disclosure
controls and procedures.














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PART
II - OTHER INFORMATION




ITEM 1. LEGALPROCEEDINGS




The
Company is subject to certain legal proceedings as reported in Part II, Item 1 -
"Legal Proceedings" in the Company's Form 10-K filed with the SEC on October 14,
2008.  During the three months ended September 30, 2008, there were no
material changes to the legal proceeding or investigations reported in such
10-K; however, one new legal proceeding was initiated against the Company,
described below.




ITEM 1A. RISKFACTORS





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.




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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:





OPERATING
LOSSES; REQUIREMENT FOR ADDITIONAL FUNDING





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. The recent price of our common stock could have a
material adverse impact on our ability to obtain equity financing.  If
additional capital is required and is not available, we may not be able to
continue operating as a going concern.





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.




15
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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 future revenue will be significantly affected by the timing and success
of the introduction and roll-out of new products and services.





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.





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.




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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.





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.





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.




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.




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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 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.





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.





LITIGATION





As
described under Legal Proceedings in our Form 10-K for the fiscal year
ended June 30, 2008, 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.





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 first applied 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.




18
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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.




ITEM 2. UNREGISTEREDSALES OF EQUITY SECURITIES.





The
Company made the following sales of unregistered (restricted) securities during
the quarter ended on September 30, 2008 (not previously reported in a Form
8-K):





As
reported in our Annual Report on Form 10-K filed October 14, 2008, in June 2008,
we approved the issuance of 15,000,000 shares of common stock with a fair value
of $750,000 to our Chief Financial Officer for services, which were issued in
July 2008.  These shares were accrued during the twelve months ended
June 30, 2008.





The
Company issued 1,000,000 shares of common stock each to three employees (a total
of 3,000,000 shares) as a bonus, valued at $168,000.
 
 The
Company issued 2,500,000 shares of common stock to Carl Hessel, a member of our
Board of Directors, pursuant to his consulting agreement with the Company,
valued at $125,000,.


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.




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ITEM 3. DEFAULTSUPON SENIOR SECURITIES.




Not
applicable.




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





None.




ITEM 5. OTHERINFORMATION.





None.




SUBSEQUENT
EVENTS.


In
November 2008, the Company issued 2,000,000 shares of common stock to a
consultant for services.





ITEM 6. EXHIBITS.





Number
            
            Description31.1
            
            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).






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  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 CORPORATIONDate: November
      19, 2008
              By:
              /s/ Paul
      EganPaul
      EganChief
      Executive Officer






Date: November
      19, 2008
              By:
              /s/ Ciaran
      EganCiaran
      EganSecretary/Treasurer/
                Chief
      Financial Officer






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